Registration No. 33-6343
_______________________________________________________________________
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 (X)
Pre-Effective Amendment No. __ ( )
Post-Effective Amendment No. 19 (x)
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 (X)
Amendment No. 21 (x)
(Check appropriate box or boxes.)
_________________________________
THE PRIMARY TREND FUND, INC.
(Exact name of Registrant as Specified in Charter)
First Financial Centre
700 North Water Street
Milwaukee, Wisconsin 53202
(Address of Principal Executive Offices) (Zip Code)
(414) 271-7870
(Registrant's Telephone Number, including Area Code)
Lilli Gust Copy to:
Arnold Investment Counsel Incorporated Richard L. Teigen
First Financial Centre Foley & Lardner
700 North Water Street 777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202 Milwaukee, Wisconsin 53202
(Name and Address of Agent for Service)
Registrant has registered an indefinite number or amount of securities
under the Securities Act of 1933 pursuant to Rule 24f-2 of the Investment
Company Act of 1940, and filed its required Rule 24f-2 Notice for the
Registrant's fiscal year ended June 30, 1997 on August 28, 1997.
Approximate Date of Proposed Public Offering: As soon as practicable
after the Registration Statement becomes effective.
It is proposed that this filing become effective (check appropriate box):
[X] immediately upon filing pursuant to paragraph (b)
[_] on (date) pursuant to paragraph (b)
[_] 60 days after filing pursuant to paragraph (a)(1)
[_] on (date) pursuant to paragraph (a)(1)
[_] 75 days after filing pursuant to paragraph (a)(2)
[_] on (date) pursuant to paragraph (a)(2) of Rule 485
_____________________________________________________________________
<PAGE>
THE PRIMARY TREND FUND, INC.
CROSS REFERENCE SHEET
(Pursuant to Rule 481 showing the location in the Prospectus and
the Statement of Additional Information of the responses to the Items of
Parts A and B of Form N-1A.)
Caption or Subheading in Prospectus
Item No. on Form N-1A or Statement of Additional Information
Part A - INFORMATION REQUIRED IN PROSPECTUS
1. Cover Page Cover Page
2. Synopsis EXPENSE INFORMATION
3. Condensed Financial FINANCIAL HIGHLIGHTS; GENERAL
Information INFORMATION ABOUT THE COMPANIES AND THE
FUNDS
4. General Description WHAT ARE THE PRIMARY TREND FUNDS?; WHAT
of Registrant ARE THE FUNDS' INVESTMENT OBJECTIVES?;
WHAT ARE THE FUNDS' INVESTMENT
POLICIES?; DO THE FUNDS HAVE ANY
INVESTMENT LIMITATIONS DESIGNED TO
REDUCE RISK?
5. Management of the WHO MANAGES THE FUNDS?; WHAT ABOUT
Fund BROKERAGE TRANSACTIONS?; GENERAL
INFORMATION ABOUT THE COMPANIES AND THE
FUNDS; WHO ARE THE DIRECTORS AND
OFFICERS OF THE COMPANIES?
5A. Management's Discussion INCLUDED IN ANNUAL REPORT TO
of Fund Performance SHAREHOLDERS
6. Capital Stock and WHAT REPORTS WILL I RECEIVE?; WHAT
Other Securities ABOUT DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAXES?; GENERAL
INFORMATION ABOUT THE
COMPANIES AND THE FUNDS?
7. Purchase of Securities HOW IS EACH FUND'S SHARE PRICE
Being Offered DETERMINED?; HOW DO I OPEN AN ACCOUNT
AND PURCHASE SHARES?; MAY SHAREHOLDERS
MAKE EXCHANGES BETWEEN FUNDS?; MAY
SHAREHOLDERS REINVEST DIVIDENDS?; WHAT
RETIREMENT PLANS DO THE FUNDS OFFER?
8. Redemption or Repurchase HOW DO I SELL MY SHARES?; MAY
SHAREHOLDERS MAKE EXCHANGES BETWEEN
FUNDS?; MAY SHAREHOLDERS SYSTEMATICALLY
WITHDRAW INVESTMENTS IN FUND SHARES?
9. Legal Proceedings *
PART B - INFORMATION REQUIRED IN STATEMENT OF ADDITIONAL INFORMATION
10. Cover Page Cover Page
11. Table of Contents Table of Contents
12. General Information and *
History
13. Investment Objectives Included in Prospectus under "WHAT ARE
and Policies THE FUNDS' INVESTMENT POLICIES?";
INVESTMENT RESTRICTIONS
14. Management of the Included in Prospectus under "WHO ARE
Registrant THE DIRECTORS AND OFFICERS OF THE
COMPANIES?"; DIRECTORS AND OFFICERS OF
THE COMPANIES
15. Control Persons and OWNERSHIP OF MANAGEMENT AND PRINCIPAL
Principal Holders SHAREHOLDERS
of Securities
16. Investment Advisory INVESTMENT ADVISER AND ADMINISTRATOR;
and Other Services CUSTODIAN; INDEPENDENT AUDITORS
17. Brokerage Allocation ALLOCATION OF PORTFOLIO BROKERAGE
18. Capital Stock and Included in Prospectus under "GENERAL
Other Securities INFORMATION ABOUT THE COMPANIES AND THE
FUNDS"
19. Purchase, Redemption Included in Prospectus under "HOW IS
and Pricing of EACH FUND'S SHARE PRICE DETERMINED?;
Securities Being Offered HOW DO I OPEN AN ACCOUNT AND PURCHASE
SHARES?; MAY SHAREHOLDERS MAKE
EXCHANGES BETWEEN FUNDS?; MAY
SHAREHOLDERS REINVEST DIVIDENDS?; WHAT
RETIREMENT PLANS DO THE FUNDS OFFER?;
HOW DO I SELL MY SHARES?; MAY
SHAREHOLDERS SYSTEMATICALLY WITHDRAW
INVESTMENTS IN FUND SHARES?";
DETERMINATION OF NET ASSET VALUE;
PURCHASE OF SHARES
20. Tax Status TAXES
21. Underwriters *
22. Calculation of PERFORMANCE INFORMATION
Performance Data
23. Financial Statements FINANCIAL STATEMENTS
_________________
* Answer negative or inapplicable
<PAGE>
(THE PRIMARY TREND FUNDS LOGO)
PROSPECTUS
THE PRIMARY
TREND FUND
THE PRIMARY
INCOME FUND
THE PRIMARY U.S.
GOVERNMENT FUND
MILWAUKEE, WISCONSIN
AUGUST 29, 1997
(THE PRIMARY TREND FUNDS LOGO)
PROSPECTUS August 29, 1997
FIRST FINANCIAL CENTRE
700 NORTH WATER STREET
MILWAUKEE, WISCONSIN 53202
1-800-443-6544 (FUND INFORMATION)
1-800-968-2122 (ACCOUNT INFORMATION)
The Primary Trend Funds (the "Funds") consist of three no-load funds offering
a variety of investment choices. The first of such Funds was The Primary Trend
Fund, Inc., a total return fund launched September 15, 1986. The Primary Trend
Fund, Inc. was followed on September 1, 1989 by The Primary Income Funds, Inc.
which is a separate investment company consisting of two separate portfolios --
The Primary Income Fund and The Primary U.S. Government Fund -- dedicated
primarily to the generation of income.
The investment objectives of the Funds are set forth below.
THE PRIMARY TREND FUND...
seeks to maximize total return (a combination of capital growth and
current income) without exposing capital to undue risk.
THE PRIMARY INCOME FUND...
seeks a high level of current income, with a reasonable opportunity for
capital appreciation, from investments in a diversified portfolio of fixed-
income securities and/or dividend-paying common and preferred stocks.
THE PRIMARY U.S. GOVERNMENT FUND...
seeks a high level of current income from investments in a diversified
portfolio of securities issued or guaranteed as to principal and interest
by the U.S. government and its agencies or instrumentalities.
No assurances can be given that the respective investment objectives of the
Funds will be realized.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
This Prospectus sets forth concisely the information about the Funds that you
should know before investing. Please read this Prospectus and retain it for
future reference. Additional information about the Funds has been filed with
the Securities and Exchange Commission in the form of a Statement of Additional
Information, dated August 29, 1997 which is incorporated by reference in this
Prospectus. Copies of the Statement of Additional Information will be provided
without charge upon request to the Funds at the above address or telephone
number. The Commission maintains a Web site (http://www.sec.gov) that contains
------------------
the Statement of Additional Information, material incorporated by reference, and
other information regarding registrants that file electronically with the
Commission.
TABLE OF CONTENTS
PAGE NO.
--------
EXPENSE INFORMATION 2
FINANCIAL HIGHLIGHTS 3
WHAT ARE THE PRIMARY TREND FUNDS? 4
WHAT ARE THE FUNDS' INVESTMENT
OBJECTIVES? 5
WHAT ARE THE FUNDS' INVESTMENT
POLICIES? 6
DO THE FUNDS HAVE ANY INVESTMENT
LIMITATIONS DESIGNED TO REDUCE RISK? 10
WHAT REPORTS WILL I RECEIVE? 10
WHO MANAGES THE FUNDS? 11
HOW IS EACH FUND'S SHARE PRICE
DETERMINED? 11
HOW DO I OPEN AN ACCOUNT AND
PURCHASE SHARES? 12
HOW DO I SELL MY SHARES? 13
MAY SHAREHOLDERS MAKE EXCHANGES
BETWEEN FUNDS? 14
WHAT ABOUT DIVIDENDS, CAPITAL GAINS
DISTRIBUTIONS AND TAXES? 16
MAY SHAREHOLDERS REINVEST DIVIDENDS? 16
MAY SHAREHOLDERS SYSTEMATICALLY
WITHDRAW INVESTMENTS IN FUND SHARES? 16
WHAT RETIREMENT PLANS DO THE FUNDS
OFFER? 17
WHAT ABOUT BROKERAGE TRANSACTIONS? 18
GENERAL INFORMATION ABOUT THE COMPANIES
AND THE FUNDS 18
WHO ARE THE DIRECTORS AND OFFICERS OF THE
COMPANIES? 20
EXPENSE INFORMATION
THE PRIMARY
THE PRIMARY THE PRIMARY U.S. GOVERN-
TREND FUND INCOME FUND MENT FUND
----------- ----------- ------------
SHAREHOLDER TRANSACTION EXPENSES
Maximum Sales Load on Purchases
or Reinvested Dividends None None None
Deferred Sales Load None None None
Redemption Fee 1<F1> None None None
Exchange Fee 2<F2> None None None
ANNUAL FUND OPERATING EXPENSES
(AS A PERCENTAGE OF AVERAGE NET ASSETS)
Management Fees 0.74% 0.74% 0.65%
12b-1 Fees None None None
Other Expenses (after fee waivers
and expense reimbursements) 3<F3> 0.49% 0.26% 0.35%
------ ------ ------
TOTAL FUND OPERATING EXPENSES 1.23% 1.00% 1.00%
====== ====== ======
<F1>
1 A fee of $12 is charged by Firstar Trust Company for each wire redemption.
<F2>
2 A fee of $5 is charged by Firstar Trust Company for each telephone exchange.
<F3>
3 Other Expenses for The Primary Trend Fund have been restated to reflect
anticipated expenses for the fiscal year ending June 30, 1998. Other Expenses
(after fee waivers and expense reimbursements) for The Primary Income Fund and
The Primary U.S. Government Fund have been restated to reflect revised fee
waivers and expense reimbursements taking effect in the fiscal year ending June
30, 1998. Without fee waivers and expense reimbursements, other expenses for The
Primary Income Fund and The Primary U.S. Government Fund for the fiscal year
ended June 30, 1997 would have been 0.96% and 3.94%, respectively.
EXAMPLE: An investor would pay the following expenses on a $1,000 investment,
assuming (1) 5% annual return and (2) redemption at the end of each time period:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
The Primary Trend Fund $13 $39 $68 $149
The Primary Income Fund $10 $32 $55 $122
The Primary U.S. Government Fund $10 $32 $55 $122
The purpose of the preceding table is to assist investors in understanding
the various costs that an investor in a particular Fund will bear, directly or
indirectly. They should not be considered to be a representation of past or
future expenses. Actual expenses may be more or less than those shown. The
respective annual fund operating expenses for the Funds are based on amounts
expected to be incurred for the fiscal year ending June 30, 1998. The example
assumes a 5% annual rate of return pursuant to requirements of the Securities
and Exchange Commission. This hypothetical rate of return is not intended to be
representative of past or future performance of any of the Funds.
FINANCIAL HIGHLIGHTS
Per share operating data, total investment return, ratios and supplemental data
for each of the periods ended June 30
The following financial highlights of each Fund are derived from the Funds'
financial statements and should be read together with each Fund's financial
statements and related notes. The information for the last five years is covered
by the Report of the Funds' Independent Auditors, which is incorporated into
this Prospectus by reference. The Funds' financial statements, including the
Report of Independent Auditors, and additional performance information are
contained in the Funds' Annual Report to Shareholders, copies of which may be
obtained, without charge, upon request.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
THE PRIMARY TREND FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year $12.59 $12.10 $10.98 $11.22 $11.50 $11.41 $11.60 $12.36 $11.82 $11.62
------- ------ ------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income 0.12 0.21 0.23 0.25 0.22 0.29 0.45 0.52 0.21 0.64
Net Realized and Unrealized Gain
(Loss) on Investments 2.98 1.30 1.55 (0.28) 0.64 0.51 0.60 (0.67) 0.99 (0.02)
------- ------ ------- ------- ------- ------- ------- ------- ------- -------
Total from Investment Operations 3.10 1.51 1.78 (0.03) 0.86 0.80 1.05 (0.15) 1.20 0.62
------- ------ ------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income (0.14) (0.23) (0.26) (0.08) (0.28) (0.36) (0.68) (0.31) (0.56) (0.35)
From Net Realized Gains (0.73) (0.79) (0.40) (0.13) (0.86) (0.35) (0.56) (0.30) (0.10) (0.07)
------- ------ ------- ------- ------- ------- ------- ------- ------- -------
Total Distributions (0.87) (1.02) (0.66) (0.21) (1.14) (0.71) (1.24) (0.61) (0.66) (0.42)
------- ------ ------- ------- ------- ------- ------- ------- ------- -------
Net Increase (Decrease) 2.23 0.49 1.12 (0.24) (0.28) 0.09 (0.19) (0.76) 0.54 0.20
------- ------ ------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Year $14.82 $12.59 $12.10 $10.98 $11.22 $11.50 $11.41 $11.60 $12.36 $11.82
======= ======= ======= ======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN +26.2% +11.7% +17.0% -0.3% +8.2% +7.3% +10.7% -1.4% +10.8% +5.6%
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year
(in thousands) $23,206 $21,123 $21,343 $20,873 $24,966 $31,680 $33,083 $38,492 $55,580 $44,748
Ratio of Expenses to Average
Net Assets 1.18% 1.19% 1.24% 1.27% 1.20% 1.10% 1.20% 1.10% 1.10% 1.20%
Ratio of Net Investment Income
to Average Net Assets 0.82% 1.68% 1.88% 1.91% 1.90% 2.50% 4.70% 3.80% 2.00% 6.40%
Portfolio Turnover 63.5% 46.5% 37.1% 77.2% 40.0% 65.5% 77.4% 32.4% 29.8% 17.1%
Average Commission Rate Paid
per Share $0.0587 N/A N/A N/A N/A N/A N/A N/A N/A N/A
</TABLE>
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990
------ ------- ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE PRIMARY INCOME FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year $12.77 $12.07 $11.04 $11.68 $11.02 $10.00 $9.82 $10.00
------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income 0.42 0.43 0.50 0.49 0.51 0.61 0.69 0.59
Net Realized and Unrealized Gain (Loss) on Investments 2.44 1.28 1.10 (0.54) 0.84 1.02 0.18 (0.18)
------- ------- ------- ------- ------- ------- ------- -------
Total from Investment Operations 2.86 1.71 1.60 (0.05) 1.35 1.63 0.87 0.41
------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income (0.42) (0.43) (0.50) (0.49) (0.51) (0.61) (0.69) (0.59)
From Net Realized Gains (0.76) (0.58) (0.07) (0.10) (0.18) -- -- --
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions (1.18) (1.01) (0.57) (0.59) (0.69) (0.61) (0.69) (0.59)
------- ------- ------- ------- ------- ------- ------- -------
Net Increase (Decrease) 1.68 0.70 1.03 (0.64) 0.66 1.02 0.18 (0.18)
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Year $14.45 $12.77 $12.07 $11.04 $11.68 $11.02 $10.00 $9.82
======= ======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN +24.1% +14.8% +14.8% -0.6% +12.7% +16.6% +9.2% +4.2% 1
<F4>
RATIOS AND SUPPLEMENTAL DATA
Net Assets, End of Year (in thousands) $4,307 $4,510 $4,221 $3,677 $2,800 $2,447 $1,203 $814
Ratio of Expenses to Average Net Assets 0.84% 0.84% 0.84% 0.84% 0.84% 0.84% 0.84% 0.84% 2
<F5>
Ratio of Net Investment Income to Average Net Assets 3.19% 3.43% 4.35% 4.20% 4.50% 5.53% 6.84% 7.38% 2
<F5>
Ratio of Expenses Reimbursed to Average Net Assets 0.86% 0.73% 0.76% 1.19% 1.55% 1.68% 3.35% 3.88% 2
<F5>
Portfolio Turnover 48.4% 41.5% 40.9% 39.7% 43.8% 24.2% 32.5% None
Average Commission Rate Paid
per Share $0.0898 N/A N/A N/A N/A N/A N/A N/A
<F4>1 Not Annualized
<F5>2 Annualized
</TABLE>
Per share operating data, total investment return, ratios and supplemental data
for each of the periods ended June 30
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993 1992 1991 1990
----- ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
THE PRIMARY U.S. GOVERNMENT FUND
PER SHARE OPERATING PERFORMANCE
Net Asset Value, Beginning of Year $9.87 $10.09 $9.74 $10.60 $10.43 $10.07 $9.99 $10.00
------- ------- ------- ------- ------- ------- ------- -------
Net Investment Income 0.63 0.63 0.57 0.51 0.56 0.69 0.74 0.62
Net Realized and Unrealized Gain (Loss) on Investments 0.01 (0.22) 0.38 (0.67) 0.35 0.49 0.08 (0.01)
------- ------- ------- ------- ------- ------- ------- -------
Total from Investment Operations 0.64 0.41 0.95 (0.16) 0.91 1.18 0.82 0.61
------- ------- ------- ------- ------- ------- ------- -------
Less Distributions:
From Net Investment Income (0.63) (0.63) (0.57) (0.51) (0.56) (0.69) (0.74) (0.62)
From Net Realized Gains -- -- (0.03) (0.19) (0.18) (0.13) -- --
------- ------- ------- ------- ------- ------- ------- -------
Total Distributions (0.63) (0.63) (0.60) (0.70) (0.74) (0.82) (0.74) (0.62)
------- ------- ------- ------- ------- ------- ------- -------
Net Increase (Decrease) 0.01 (0.22) 0.35 (0.86) 0.17 0.36 0.08 (0.01)
------- ------- ------- ------- ------- ------- ------- -------
Net Asset Value, End of Year $9.88 $9.87 $10.09 $9.74 $10.60 $10.43 $10.07 $9.99
======= ======= ======= ======= ======= ======= ======= =======
TOTAL INVESTMENT RETURN +6.7% +4.1% +10.2% -1.7% +9.1% +12.0% +8.5% +6.3% 1
<F6>
RATIOS AND SUPPLEMENTAL DATA
Ratio of Expenses to Average Net Assets 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 0.75% 2
<F7>
Ratio of Net Investment Income to Average Net Assets 6.41% 6.24% 5.85% 4.91% 5.29% 6.43% 7.24% 7.57% 2
<F7>
Ratio of Expenses Reimbursed to Average Net Assets 3.84% 2.20% 1.92% 2.44% 2.75% 2.87% 4.29% 5.44% 2
<F7>
Portfolio Turnover 29.3% 46.6% 63.0% 94.4% 64.5% 108.5% 66.4% 92.8%
<F6>1 Not Annualized
<F7>2 Annualized
</TABLE>
WHAT ARE THE PRIMARY TREND FUNDS?
The Primary Trend Fund, Inc. and The Primary Income Funds, Inc.(collectively,
the "Companies") are no-load, open-end diversified investment companies --
better known as mutual funds -- registered under the Investment Company Act of
1940 (the "Act"). The Primary Income Funds, Inc. consists of a series of two
funds: The Primary Income Fund and The Primary U.S. Government Fund. The
Companies are Wisconsin corporations.
Each of The Primary Trend Fund, The Primary Income Fund and The Primary U.S.
Government Fund (the "Funds") obtains its assets by continuously selling its
shares to the public. Proceeds from such sales are invested by the particular
Fund in securities of other issuers. In this way, each Fund:
- Combines the resources of many investors, with each
individual investor having an interest in every one of the
securities owned by the Fund;
- Provides each individual investor with diversification by
investing in the securities of many different issuers; and
- Furnishes experienced portfolio management to select and
watch over investments.
Each Fund will redeem any of its outstanding shares on demand of the owner at
its next determined net asset value. The Funds are 100% no-load funds there are
no sales commissions, redemption fees, or 12b-1 charges of any kind.
WHAT ARE THE FUNDS' INVESTMENT OBJECTIVES?
The descriptions that follow are designed to help you choose the Fund that
best fits your investment objectives. You may want to pursue more than one
objective by investing in more than one of The Primary Trend Funds. No
assurances can be given that the respective investment objectives of the Funds
will be realized.
THE PRIMARY TREND FUND
The Primary Trend Fund seeks to maximize total return (a combination of
capital growth and current income) without exposing capital to undue risk. The
term "undue risk" refers to the judgement of Arnold Investment Counsel
Incorporated (the "Adviser") that the risk would present a greater than normal
risk of loss in light of current and reasonably anticipated future general
market and economic conditions, trends in yields and interest rates, and fiscal
and monetary policies. In maximizing total return without exposing capital to
undue risk, the Adviser will endeavor over the long-term and in rising and
falling markets to:
- Provide returns in excess of the inflation rate as measured
by the Consumer Price Index;
- Provide returns in excess of the rates of return available on
90-day U.S. Treasury bills; and
- Provide returns in excess of the total returns produced by
the popular stock market averages such as the Dow Jones
Industrial Average and the Standard & Poor's 500 Stock Index.
The foregoing are goals of the Adviser and may be referred to by shareholders
of The Primary Trend Fund in measuring the success of the Adviser in achieving
this Fund's objective. This Fund is designed for long-term investors who desire
capital growth, together with a reasonable level of current income.
THE PRIMARY INCOME FUND
The Primary Income Fund seeks a high level of current income, with a
reasonable opportunity for capital appreciation, by actively managing a
portfolio of income-producing securities. This Fund is designed for long-term
investors who desire high current income coupled with reasonable capital
appreciation potential.
THE PRIMARY U.S. GOVERNMENT FUND
The Primary U.S. Government Fund seeks a high level of current income from
investments in a diversified portfolio of securities issued or guaranteed as to
principal by the U.S. government and its agencies or instrumentalities. This
Fund is designed for long-term investors desiring a combination of high income,
safety and quality.
WHAT ARE THE FUNDS' INVESTMENT POLICIES?
THE PRIMARY TREND FUND
To meet The Primary Trend Fund's investment objective of maximizing total
return, the Adviser has flexibility to allocate the Fund's assets among common
stocks, convertible securities, fixed-income securities and short-term cash
investments (money market instruments maturing in one year or less). No minimum
or maximum percentage of the Fund's assets is required to be invested in any of
these types of securities.
The Adviser will not use short-term market timing techniques in altering
portfolio composition and asset allocation. Instead, the Adviser attempts to
invest The Primary Trend Fund's assets in phase with what the Adviser refers to
as the "primary trends" of the markets so as to achieve the Fund's investment
objective of maximizing total return. The Adviser defines the primary trend as
a market trend that is in effect for several quarters to several years. By way
of contrast the Adviser defines a secular trend as a very long-term trend that
may last for many years, even decades, and an intermediate trend as a trend that
may last for several months to several quarters. In seeking to invest the
Fund's assets in phase with the primary trends of markets, the Adviser will
typically not alter the Fund's portfolio composition in response to short-term
market conditions. Because of the current volatility of markets, this investment
strategy may result in frequent fluctuations of The Primary Trend Fund's net
asset value. Additionally, because of the generally long-term, patient
investment orientation of the Adviser, an investment in the Fund may not be
suitable for investors intending to make only a short-term investment.
In determining the primary trend of the stock market, the Adviser will
consider a number of factors such as historic dividend yields as compared to
current dividend yields, historic book-value relationships, historic price-
earnings ratios as compared to current price-earnings ratios, market and
economic cycles, momentum models, supply-demand techniques, psychological
indicators, volume and breadth data and general economic factors. In
determining the primary trend of the bond market, the Adviser will consider a
number of factors such as inflationary expectations, interest rate trends and
general economic factors. When the primary trend of the stock market is deemed
by the Adviser to be positive (i.e., a bull market is in force) and the primary
trend of the bond market is negative (i.e., a bear market is in force), this
Fund can be expected to have substantially all of its assets invested in common
stocks. When the primary trend of the stock market is deemed by the Adviser to
be negative, this Fund can be expected to have minimal assets invested in
common stocks.
The Adviser will purchase common stocks which it believes to be undervalued,
rather than common stocks whose prices reflect a premium because of their
popularity. The Adviser will consider various financial characteristics of
issuers such as earnings growth, book value, dividends, net current asset value
per share and replacement cost, and will study the financial statements of the
issuer and other issuers in the same industry. The Adviser believes that
successful investing is more an art than it is a science, and that there is no
single magic formula for success. Typically The Primary Trend Fund's
investments in common stocks will be in well-established, large-capitalization
companies. The Adviser defines well-established, large-capitalization companies
as companies with an operating history of ten or more years and market
capitalization of $1 billion or more. Securities of such companies more often
than not trade on the New York Stock Exchange, but the Adviser will not
arbitrarily exclude any securities market. The Primary Trend Fund may also
invest in convertible securities (debt securities or preferred stocks of
corporations which are convertible into, or exchangeable for, common stocks).
The Adviser will select only those convertible securities for which it believes
(a) the underlying common stock is a suitable investment for the Fund using the
criteria described above and (b) the potential for greater total return exists
by purchasing the convertible security because of its higher yield.
When the primary trend of the bond market is deemed by the Adviser to be
positive, The Primary Trend Fund may invest in fixed-income securities such as
U.S. Treasury bonds and investment grade, nonconvertible corporate bonds and
debentures. Except as set forth below, the Fund will limit its investments in
nonconvertible corporate bonds and debentures to those which have been assigned
one of the highest four ratings ("investment grade") of either Standard & Poor's
Corporation ("S&P") or Moody's Investors Service, Inc. ("Moody's"), or unrated
bonds which the Adviser believes to be of comparable quality. If the rating of
a nonconvertible corporate bond or debenture held by the Fund is reduced such
that neither S&P nor Moody's rates the security as investment grade, or if the
quality of an unrated bond declines such that it can no longer be deemed of
investment grade, the Adviser will review such investment on an independent
basis to determine whether the security should be retained or sold. A
description of the foregoing ratings is set forth in the Statement of Additional
Information under the caption "Description of Bond Ratings." In addition, the
Fund may invest up to 5% of its net assets at the time of investment in
corporate obligations rated less than investment grade (including investment
grade securities which have been downgraded since the time of investment).
However, no investments in corporate obligations rated less than investment
grade will be made unless, in the opinion of the Adviser, such lesser rating is
due to a special situation or other extenuating circumstances. See "WHAT ARE
THE FUNDS' INVESTMENT POLICIES -- General Considerations."
If the primary trends of the stock market and bond market are both positive,
The Primary Trend Fund can be expected to have the majority of its assets
invested in that market (either stock or bond) which in the opinion of the
Adviser offers the greater total return potential. During periods of declining
interest rates when fixed-income securities may appreciate in value, the bond
market may offer a greater total return potential than the stock market. If the
primary trend of the stock market is negative and the primary trend of the bond
market is positive, the Fund may be expected to have a substantial amount of its
assets invested in fixed-income securities. If the primary trend of the bond
market is negative, little or no assets will be invested in fixed-income
securities.
If the primary trends of the stock market and bond market are both negative,
the Fund can be expected to have substantially all of its assets invested in
short-term cash investments such as U.S. Treasury bills; certificates of deposit
of U.S. banks, provided that the bank has capital, surplus, and undivided
profits (as of the date of its most recently published annual financial
statements) with a total value in excess of $100,000,000 at the date of
investment; commercial paper and commercial paper master notes (demand
instruments without a fixed maturity bearing interest at rates which are fixed
to known lending rates and automatically adjusted when such lending rates
change) rated A-2 or better by S&P; or unrated commercial paper or commercial
paper master notes which the Adviser believes to be of comparable quality. The
Fund will also invest in short-term cash investments amounts the Adviser
believes are reasonable to satisfy anticipated redemption requests or other cash
needs.
THE PRIMARY INCOME FUND
The primary investment objective of The Primary Income Fund is a high level
of current income. Its secondary objective is capital appreciation. To meet
these objectives, The Primary Income Fund has the flexibility to invest in a
diversified portfolio of fixed-income securities of any maturity, including
corporate, U.S. government and convertible securities, as well as dividend-
paying common and preferred stocks. Typically the Fund's investments in the
foregoing securities (other than government securities) will be in well-
established, large-capitalization companies.
As with The Primary Trend Fund, this Fund generally will invest in investment
grade obligations. The Fund may also purchase unrated securities which the
Adviser believes to be of comparable quality. In addition, the Fund may invest
up to 5% of its net assets at the time of investment in corporate obligations
rated less than investment grade (including investment grade securities which
have been downgraded since the time of investment). However, no investments in
corporate obligations rated less than investment grade will be made unless, in
the opinion of the Adviser, such lesser rating is due to a special situation or
other extenuating circumstances. See "WHAT ARE THE FUNDS' INVESTMENT POLICIES -
- - General Considerations."
The Primary Income Fund's principal objective is to obtain a high level of
current income. However, unlike funds investing solely for income, this Fund
intends also to take advantage of opportunities for modest capital appreciation
and growth of investment income. The Primary Income Fund may purchase securities
which are convertible into, or exchangeable for, common stock when the Adviser
believes they offer the potential for higher total return than nonconvertible
securities. It may also purchase income securities that carry warrants or
common stock purchase rights attached as an added inducement to participate in
the potential growth of an issuer.
The Primary Income Fund will concentrate its investments in the utility
industry. It may invest up to 100% of the value of its assets in that industry.
However, in some future period or periods, due to adverse economic conditions,
this Fund may temporarily have less than 25% of its assets invested in the
utility industry. To avoid being subject to the Public Utility Holding Company
Act of 1935, The Primary Income Fund will not purchase or hold 5% or more of the
outstanding voting securities of any public utility company.
The electric utilities industry has been experiencing, and will continue to
experience, increased competitive pressures. Federal legislation in the past
several years will open transmission access to any electricity supplier,
although it is not presently known to what extent competition will evolve.
Moreover, public utilities, whether state, municipal or investor-owned, often
experience certain general problems associated with this industry, including the
difficulty in obtaining an adequate return on invested capital in spite of
frequent increases in rates which have been granted by the Public Service
Commissioners having jurisdiction, the difficulty in financing large
construction programs during an inflationary period, the restrictions on
operations and increased costs and delays attributable to environmental
considerations, the difficulty of the capital markets in absorbing utility debt
and equity securities, the difficulty in obtaining fuel for electric generation
at reasonable prices and the effects of energy conservation. In addition,
certain utilities may operate nuclear electric generation facilities which are
subject to extensive governmental regulation. Such facilities and the
applicable regulations are subject to continual review by various governmental
bodies. It is difficult to predict whether such regulations may be
significantly modified in the future and, if so, what effect such modifications
would have on utilities operating nuclear electric generation facilities. For a
further discussion of the risks associated with concentration in utility
securities, see "INVESTMENT CONSIDERATIONS" in the Statement of Additional
Information.
THE PRIMARY U.S. GOVERNMENT FUND
The Primary U.S. Government Fund will invest in a diversified portfolio of
securities issued or guaranteed as to principal by the U.S. government and its
agencies or instrumentalities. U.S. government securities include bills, notes
and bonds differing as to maturity and rates of interest, which are either
issued or guaranteed by the U.S. Treasury or some other U.S. government agency
or instrumentality. The Fund's average portfolio maturity may range from two to
30 years, depending on the Adviser's expectations regarding interest rates. See
"WHAT ARE THE FUNDS' INVESTMENT POLICIES -- General Considerations."
U.S. government agency securities include securities issued by (a) the
Federal Housing Administration, Farmers Home Administration, Export-Import Bank
of the United States, Small Business Administration and the Government National
Mortgage Association, whose securities are backed by the full faith and credit
of the United States; (b) the Federal Home Loan Banks, Federal Intermediate
Credit Banks and the Tennessee Valley Authority, whose securities are supported
by the right of the agency to borrow from the U.S. Treasury; (c) the Federal
National Mortgage Association, whose securities are supported by the
discretionary authority of the U.S. government to purchase certain obligations
of the agency or instrumentality; and (d) the Student Loan Marketing
Association, whose securities are supported only by the credit of such agency.
The U.S. government, its agencies and instrumentalities do not guarantee the
market value of their securities, and consequently the value of such securities
can be expected to fluctuate.
This Fund will invest at least 80% of its assets in securities issued or
guaranteed as to principal by the U.S. government and its agencies or
instrumentalities. The balance of the Fund's assets may be invested in non-
governmental securities, such as investment grade corporate debt obligations,
commercial paper and commercial paper master notes, at such times and in such
amounts as in the opinion of the Adviser seem appropriate to achieve this Fund's
investment objective.
GENERAL CONSIDERATIONS. Options, futures and other derivative instruments
will not be used by any of the Funds to enhance yield or to hedge the investment
portfolio. The Adviser believes such instruments are highly speculative and not
in the best interest of the conservative investor for whom the Funds are
designed.
The values of the fixed-income securities held by The Primary Trend Fund and
The Primary Income Fund are subject to price fluctuations resulting from various
factors, including rising or declining interest rates ("market risks") and the
ability of the issuers of such investments to make scheduled interest and
principal payments ("financial risks"). The Adviser attempts to minimize these
risks when selecting investments by taking into account interest rates, terms
and marketability of obligations, as well as the capitalization, earnings,
liquidity and other indicators of the issuer's financial condition. Obligations
rated BBB by S&P or Baa by Moody's, although investment grade, do exhibit
speculative characteristics and changes in economic conditions or other
circumstances are more likely to lead to a weakened capacity of issuers to make
principal and interest payments than is the case for higher-rated obligations.
Unrated securities, while not necessarily of lower quality than rated
securities, may not have as broad a market as rated securities. Investment in
lower-grade obligations (i.e., less than investment grade), while providing
greater income and opportunity for gain than investment in higher-rated
securities, entails relatively greater risk of loss of income or principal.
Lower-grade obligations are commonly referred to as "junk bonds." Market prices
of high-yield, lower-grade obligations may fluctuate more than market prices of
higher-rated securities. Lower-grade, fixed-income securities tend to reflect
short-term corporate and market developments to a greater extent than higher-
rated obligations which, assuming no change in their fundamental quality, react
primarily to fluctuations in the general level of interest rates. Changes in
the market value of fixed-income securities after their acquisition will not
affect interest income or purchased yield to maturity, but will be reflected in
such Funds' net asset values.
The values of The Primary U.S. Government Fund's portfolio securities are
subject to price fluctuations resulting from market risks, and the Adviser
attempts to minimize such risks when selecting investments by adjusting bond
maturities as described below.
When the Adviser believes bond values will rise (an expectation of declining
interest rates), the Funds will emphasize longer-term maturities. Conversely,
when bond values are expected to fall (an expectation of rising interest rates),
the Funds will shorten maturities and/or maintain a larger than normal position
in money market instruments.
Consistent with the investment objectives of the Funds, the Adviser will not
engage in short-term trading. However, when circumstances dictate, securities
may be sold without regard to the length of time held. The Adviser intends to
limit portfolio turnover to the extent practicable. Each of the Funds expects
to have a portfolio turnover rate of less than 100%, although the annual
portfolio turnover rate may vary widely from year to year, depending upon market
conditions.
The Funds' investment objectives, investment policies and techniques are not
fundamental and may be changed by the appropriate Company's Board of Directors
without shareholder approval. A change in any Fund's investment objective may
result in such Fund having an investment objective different from the objective
which the shareholder considered appropriate at the time of investment in such
Fund. At least 30 days prior to any change in the Fund's investment objective,
such Fund will provide written notice to all of its shareholders regarding such
proposed change.
DO THE FUNDS HAVE ANY INVESTMENT LIMITATIONS DESIGNED TO REDUCE RISK?
The Funds have adopted certain limitations designed to reduce their exposure
to risk of loss of capital. None of the Funds will purchase securities on
margin; participate in a joint-trading account; sell securities short; buy, sell
or write put or call options; or engage in futures trading. In addition, none
of the Funds will do the following:
- Purchase more than 10% of the voting securities of any
issuer;
- Invest more than 5% of its assets in securities of companies
that have a continuous operating history of less than three
years;
- With respect to The Primary Income Fund and The Primary U.S.
Government Fund, invest in warrants which are unattached to
fixed-income securities, and with respect to The Primary Trend
Fund, invest more than 5% of its net assets in warrants;
- Invest more than 25% of its assets, exclusive of U.S.
government securities, in any one industry. This restriction
does not apply to investments by The Primary Income Fund in
companies engaged primarily in the utility industry (See
"INVESTMENT CONSIDERATIONS" in the Statement of Additional
Information for a discussion of the industry risks associated
with such concentration.);
- Lend money (except by purchasing publicly distributed debt
securities) or lend their portfolio securities;
- Borrow money or issue senior securities, except for
temporary bank borrowings or for emergency or extraordinary
purposes (but not for the purpose of investments) and then only
in an amount not in excess of 5% of the value of its total
assets; and
- Pledge any of its assets except to secure borrowings and
then only to an extent not greater than 10% of the value of
such Fund's net assets.
The investment limitations described here and in the Statement of Additional
Information are fundamental policies and may be changed only with the approval
of the shareholders of the Funds as described in the Statement of Additional
Information.
WHAT REPORTS WILL I RECEIVE?
As a shareholder of the Funds, you will receive The Primary Trend investment
letter each month. This letter, published by the Adviser since 1979, is
designed to be educational and informative, to communicate the Adviser's
investment strategy, and to provide insights into the analytical and decision-
making techniques of the Adviser.
Shareholders of each Fund will be provided at least semi-annually with a
report showing such Fund's portfolio and other information. After the close of
the Funds' June 30 fiscal year, you will be provided an annual report containing
audited financial statements.
An individual account statement will be sent to you by Firstar Trust Company
after each purchase, redemption or exchange of shares. Shareholders of The
Primary Trend Fund will also receive account statements after each dividend
payment. Shareholders of The Primary Income Fund and The Primary U.S.
Government Fund will not receive account statements for monthly dividends, but
instead will receive a statement after the end of each calendar quarter listing
all transactions (including dividend payments) during such quarter. You will
also receive an annual statement after the end of the calendar year listing all
transactions in Fund shares during the year. Shareholders may request a
statement of account activity at any time.
Questions about your account may be directed to Firstar Trust Company at
1-800-968-2122. If you have general questions about any of the Funds or want
more information, you may call our Shareholder Services Department at
1-800-443-6544 (toll free) or 1-414-271-7870, or write us at The Primary Trend
Funds, First Financial Centre, 700 North Water Street, Milwaukee,
Wisconsin 53202.
WHO MANAGES THE FUNDS?
As Wisconsin corporations, the business and affairs of the Companies are
managed by their respective Boards of Directors. Each of the Funds has entered
into an investment advisory agreement (collectively the "Agreements") with
Arnold Investment Counsel Incorporated, First Financial Centre, 700 North Water
Street, Milwaukee, Wisconsin 53202. Under such Agreements the Adviser furnishes
continuous investment advisory services and management to each of the Funds.
The Adviser is the investment adviser to individuals and institutional clients
with investment portfolios aggregating approximately $80 million in assets.
The Adviser has managed funds for individuals and institutions since it was
organized in 1978 and has managed the assets of each of The Primary Trend Funds
since inception. The Adviser is controlled by Lilli Gust.
The Adviser supervises and manages the investment portfolio of each of the
Funds and, subject to such policies as the Boards of Directors of the respective
Companies may determine, directs the purchase or sale of investment securities
in the day-to-day management of the Funds. All investment decisions for the
Funds are made by an investment team and no one person is primarily
responsible for making investment recommendations to that team. The
Adviser, at its own expense and without separate reimbursement from any of the
Funds, provides the Funds with copies of The Primary Trend investment letter for
distribution to shareholders; furnishes office space and all necessary office
facilities, equipment, and executive personnel for managing each Fund and
maintaining its organization; bears all sales and promotional expenses of the
Funds, other than expenses incurred in complying with laws regulating the
issuance or sale of securities; and pays the salaries and fees of all officers
and directors of the Companies (except the fees paid to disinterested directors
as such term is defined under the Investment Company Act of 1940). For the
foregoing, the Adviser receives from each of The Primary Trend Fund and The
Primary Income Fund a monthly fee at the annual rate of .74% of such Fund's
average daily net assets and from The Primary U.S. Government Fund a monthly fee
at the annual rate of .65% of such Fund's average daily net assets.
HOW IS EACH FUND'S SHARE PRICE DETERMINED?
The net asset value (or "price") per share of each Fund is determined by
dividing the total value of that Fund's investments and other assets less any
liabilities, by its number of outstanding shares. Except as otherwise noted
below, each Fund's net asset value per share is determined once daily on each
day that the New York Stock Exchange is open, as of the close of regular trading
on the Exchange (3 p.m. Central Time). Purchase orders accepted and shares
tendered for redemption prior to the close of regular trading on a day the New
York Stock Exchange is open for trading will be valued as of the close of
trading, and purchase orders accepted and shares tendered for redemption after
that time will be valued as of the close of trading on the next trading day.
Notwithstanding the foregoing, the net asset value per share for The Primary
U.S. Government Fund also will not be determined on days when the Federal
Reserve is closed.
In calculating the net asset value of the Funds, portfolio securities listed
on a national securities exchange or quoted on the Nasdaq National Market System
are valued at the last sale price on the day the valuation is made. If no sale
is reported, the average of the latest bid and asked prices is used. Other
securities for which market quotations are readily available are valued at the
average of the latest bid and asked prices. Debt securities (other than short-
term instruments) are valued at prices furnished by a national pricing service,
subject to review by the Adviser and determination of the appropriate price
whenever a furnished price is significantly different from the previous day's
furnished price. Other assets and securities for which no quotations are
readily available are valued at fair value as determined in good faith by the
appropriate Company's Board of Directors. Securities with maturities of 60 days
or less are valued at amortized cost.
HOW DO I OPEN AN ACCOUNT AND PURCHASE SHARES?
BY MAIL. You may purchase shares of the Funds by completing an account
application (which can be obtained by calling the Funds at 1-800-443-6544 and
mailing it along with a check or money order payable to The Primary Trend Funds,
to: The Primary Trend Funds, c/o Firstar Trust Company, P.O. Box 701, Milwaukee,
Wisconsin 53201-0701. The minimum initial investment is $500 for each Fund.
No cash or third party checks are accepted. Checks are subject to collection
at full face value in U.S. funds. If a shareholder's check is returned for
insufficient funds, the shareholder's account will be charged $20, in addition
to any loss sustained by the applicable Fund, or by Firstar Trust Company
("Firstar").
To purchase shares by overnight or express mail, please use the following
street address: The Primary Trend Funds, c/o Firstar Trust Company, Mutual Fund
Services, 615 East Michigan Street, Milwaukee, Wisconsin 53202. Please do not
send correspondence by overnight courier to the Post Office Box address.
The U.S. Postal Service and other independent delivery services are not
agents of the Funds. Therefore, deposit in the mail or with such services of
purchase applications does not constitute receipt by Firstar Trust Company or
the Funds.
BY WIRE. To establish a new account by wire transfer from your bank, please
first call Firstar at 1-800-968-2122 to advise it of the investment and to
receive an account number and other information necessary for setting up the
account. (Please note that your bank may impose a charge for providing wire
transfer services.) This will ensure prompt and accurate handling of your
investment. A completed account application must also be sent to Firstar at the
address above immediately after the investment is made so that the necessary
remaining information can be recorded to your account.
ADDITIONAL INVESTMENTS. You may add to your account at any time by
purchasing shares of the applicable Fund at the then current net asset value,
either by mail (minimum investment $100) or by wire (minimum investment $500).
It is very important that your account number be specified in the letter or wire
to insure proper crediting to your account.
AUTOMATIC INVESTMENT PLAN. Shareholders wishing to invest fixed dollar
amounts in a particular Fund every month can make automatic purchases of $50 or
more on any date of the month by using our Automatic Investment Plan. If that
day is a weekend or holiday, the purchase will be made the following business
day. There is no service fee for participating in this Plan. To use this
service, you must authorize Firstar to transfer funds from your bank checking or
savings account by completing an Automatic Investment Plan application. A
separate application is needed for each Fund, which may be obtained by calling
the Funds at 1-800-443-6544.
As no-load mutual funds, the Funds impose no sales charges or commissions, so
all of your investment is used to purchase shares. All shares purchased will be
credited to your account and confirmed by a statement mailed to your address.
The Funds do not issue stock certificates for shares purchased unless
specifically requested by you in writing. When certificates are not issued, the
shareholder is relieved of the responsibility for safekeeping of certificates
and the need to deliver them upon redemption. You may also invest in the Funds
by purchasing shares through a registered broker-dealer, who may charge you a
fee, either at the time of purchase or redemption. This fee, if charged, is
retained by the broker-dealer and not remitted to the Funds or the Adviser.
ALL APPLICATIONS ARE SUBJECT TO ACCEPTANCE BY THE APPLICABLE FUND AND ARE NOT
BINDING UNTIL SO ACCEPTED. THE FUNDS DO NOT ACCEPT TELEPHONE ORDERS FOR
PURCHASE OF SHARES AND RESERVE THE RIGHT TO REJECT APPLICATIONS. The minimum
purchase amounts for the Funds are subject to change at any time; shareholders
will be advised at least 30 days in advance of any increases in such minimum
amounts. Each Fund may waive the applicable minimum purchase amounts in its
sole discretion.
HOW DO I SELL MY SHARES?
REDEMPTION REQUESTS. Redemption requests for the Funds must be made in
writing. All redemption requests should be directed to The Primary Trend Funds,
c/o Firstar Trust Company, P.O. Box 701, Milwaukee, Wisconsin 53201-0701. If a
redemption request is inadvertently sent to the Funds at their corporate
address, the request will be forwarded to Firstar, but the effective date of
redemption will be delayed until the request is received by Firstar. Requests
for redemption by telephone, telegram or facsimile transmission (fax), and
requests which are subject to any special conditions or which specify an
effective date other than as provided herein, cannot be honored.
The U.S. Postal Service and other independent delivery services are not
agents of the Funds. Therefore, deposit in the mail or with such services of
redemption requests does not constitute receipt by Firstar Trust Company or the
Funds. Please do not send correspondence by overnight courier to the Post Office
Box address. Correspondence mailed by overnight courier should be sent to
Firstar Trust Company, Third Floor, 615 East Michigan Street, Milwaukee,
Wisconsin 53202.
A redemption request must be received in "Good Order" by Firstar for the
request to be processed. "Good Order" means the request for redemption must
include:
- Your share certificate, if issued, properly endorsed or
accompanied by a properly executed stock power.
- Your letter of instruction specifying the name of the Fund,
your account number, and either the number of shares or the
dollar amount of shares to be redeemed. The letter of
instruction must be manually signed by all owners exactly as
the shares to be redeemed are registered.
- Signature guarantees for redemption requests over $10,000.
Signature guarantees are also required for any redemption made
within 15 days of a change of address by telephone, or if the
proceeds of redemption (regardless of amount) are to be sent to
a person other than the registered holder and/or to an address
other than the address of record. Transfers of shares also
require signature guarantees. Signature guarantees may be
obtained from any commercial bank or trust company in the
United States, a member of the New York Stock Exchange and some
savings and loan associations. A notary public is not
acceptable.
- Additional documentation, if required, for redemptions by
estates, trusts, guardianships, custodianships, corporations,
partnerships and other organizations.
Redemption request forms are available from the Funds.
OTHER INFORMATION ABOUT REDEMPTIONS. Shareholders who have an Individual
Retirement Account (IRA) must indicate on their redemption request whether or
not to withhold federal income tax. Unless otherwise indicated, these
redemptions, as well as redemptions of other retirement plans not involving a
direct rollover to an eligible plan, will be subject to federal income tax
withholding.
The redemption price per share for each Fund is the next determined net asset
value per share for such Fund after Firstar receives a redemption request in
"Good Order." The amount paid will depend on the market value of the investments
in the appropriate Fund's portfolio at the time of determination of its net
asset value per share, and may be more or less than the cost of the shares
redeemed. Payment for shares redeemed will be mailed to you typically within
one or two days, but no later than the seventh day after receipt by Firstar of a
redemption request in "Good Order."
When purchases have been made by check, the Funds reserve the right to delay
payment until satisfied that the purchase check has cleared. It may take up to
three days to clear local personal or corporate checks and up to seven days to
clear other personal or corporate checks.
Requests for wire transfers from any Fund must be in writing and must be made
before 3 p.m. (Central Time) on a business day in order for the wire transfer to
take place the next day. Firstar charges $12 for each wire transfer. If you
are uncertain about other redemption requirements, please contact Firstar in
advance.
The Funds reserve the right to redeem the shares held in any account if at
the time of any exchange or redemption of shares in the account, the value of
the remaining shares in the account falls below $500. You will be notified that
the value of your account is less than the minimum and allowed at least 60 days
to make an additional investment. The receipt of proceeds of the redemption of
shares held in an IRA will constitute a taxable distribution of benefits from
the IRA unless a qualifying rollover contribution is made.
Your right to redeem shares of any Fund will be suspended and your right to
payment postponed for more than seven days for any period during which the New
York Stock Exchange is closed because of financial conditions or any other
extraordinary reason and may be suspended for any period during which (a)
trading on the New York Stock Exchange is restricted pursuant to rules and
regulations of the Securities and Exchange Commission, (b) the Securities and
Exchange Commission has by order permitted such suspension or (c) such
emergency, as defined by rules and regulations of the Securities and Exchange
Commission, exists as a result of which it is not reasonably practicable for the
applicable Fund to dispose of such Fund's securities or to determine fairly the
value of its net assets.
MAY SHAREHOLDERS MAKE EXCHANGES BETWEEN FUNDS?
The Primary Trend Funds offer the flexibility of exchanging between any of
the Funds managed by the Adviser, as well as the Portico Money Market Fund, a
money market mutual fund not affiliated with the Funds or the Adviser. The
Portico Money Market Fund is described in a separate prospectus. You may obtain
a copy of the prospectus for the Portico Money Market Fund from the Funds and
are advised to read it carefully before investing.
The exchange privilege is only available in states where the exchange may be
legally made. Furthermore, this exchange privilege is not available with
respect to shares of any Fund purchased by check until such time as the
applicable Fund is satisfied that the purchase check has cleared. It may take
up to three days to clear local personal or corporate checks and up to seven
days to clear other personal or corporate checks.
An exchange may be made in writing or by telephone (see below for more
details). Exchanges may only be made between identically registered accounts.
If certificates are held, they must first be properly delivered with your
exchange request. Exchanges with the Portico Money Market Fund are subject to
its minimum purchase and redemption amounts. Once an exchange request is made,
it may not be modified or cancelled. The shares will be exchanged at the net
asset value next determined after your exchange request is received by Firstar.
An exchange transaction is a sale of shares for federal income tax purposes and
may result in a capital gain or loss.
THE EXCHANGE PRIVILEGE IS NOT DESIGNED TO AFFORD SHAREHOLDERS A WAY TO PLAY
SHORT-TERM SWINGS IN THE MARKET. THE PRIMARY TREND FUNDS ARE NOT SUITABLE FOR
THAT PURPOSE. THE FUNDS RESERVE THE RIGHT, AT ANY TIME WITHOUT PRIOR NOTICE, TO
SUSPEND, LIMIT, MODIFY OR TERMINATE THE EXCHANGE PRIVILEGE OR ITS USE IN ANY
MANNER BY ANY PERSON OR CLASS. IN PARTICULAR, SINCE AN EXCESSIVE NUMBER OF
EXCHANGES MAY BE DISADVANTAGEOUS TO OTHER SHAREHOLDERS, THE FUNDS RESERVE THE
RIGHT TO TERMINATE THE EXCHANGE PRIVILEGE OF ANY SHAREHOLDER WHO MAKES MORE THAN
FIVE EXCHANGES OF SHARES OF ANY ONE FUND DURING ANY TWELVE-MONTH PERIOD OR THREE
EXCHANGES DURING ANY THREE-MONTH PERIOD.
Exchange requests may be made in writing or by telephone as follows:
BY MAIL. A written request to exchange shares of one Fund for shares of
another (or shares of the Portico Money Market Fund) may be made at no cost to
you. There is no minimum for written exchanges. Signatures required are the
same as previously explained under "HOW DO I SELL MY SHARES?"
BY TELEPHONE. You may exchange shares between Funds (or the Portico Money
Market Fund) by telephone if you have completed the telephone exchange
authorization section of your account application. If you add the telephone
exchange option to your account after it is opened, you must have each owner's
signature guaranteed.
Only exchanges of $1,000 or more may be executed by telephone. Telephone
exchanges can only be made by calling Firstar at 1-800-968-2122. Firstar will
charge you a $5 fee for each telephone exchange.
In an effort to avoid the risks often associated with market timers and
short-term trading strategies, the Funds have set the maximum telephone exchange
per account per day at $100,000, with a maximum of $1,000,000 per day per
related accounts. Only two (2) telephone exchanges per account are allowed
during any twelve-month period. An exchange consists of a move from one Fund to
another.
Each Fund reserves the right to refuse a telephone exchange if it believes it
to be in the best interest of all shareholders to do so. Procedures for
exchanging shares by telephone may be modified or terminated at any time by the
Funds or Firstar. Neither the Funds, Firstar, nor their agents will be liable
for following instructions received by telephone that they reasonably believe to
be genuine, provided reasonable procedures are used to confirm the genuineness
of the telephone instructions, but may be liable for unauthorized transactions
if they fail to follow such procedures. These procedures include requiring some
form of personal identification prior to acting upon the telephone instructions
and recording all telephone calls.
AUTOMATIC EXCHANGE PLAN. You may exchange fixed dollar amounts between Funds
(including the Portico Money Market Fund) and/or Fund accounts automatically
every month, every quarter or annually by using our Automatic Exchange Plan.
The automatic exchange transaction can be made on any day you choose. If that
day is a weekend or holiday, the exchange will be made the following business
day. The minimum exchange per transaction is $50. You may also automatically
exchange dividend and capital gain distributions between Funds on the dividend
payment date. The Automatic Exchange Plan is not available for exchanges from
regular accounts into IRA or other qualified plan accounts. No fee is currently
charged for this service. To establish the Automatic Exchange Plan, please call
the Funds at 1-800-443-6544 for the necessary forms.
WHAT ABOUT DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES?
Each Fund intends normally to distribute its net investment income and net
realized capital gains to its shareholders so as to avoid paying income tax or a
federal excise tax on undistributed net investment income or net realized
capital gains. The Primary Trend Fund will pay dividends of net investment
income and capital gains (after using any available capital loss carryovers) at
least annually. The Primary Income Fund and The Primary U.S. Government Fund
each will pay dividends of net investment income monthly and capital gains
(after using any available capital loss carryovers) at least annually. For the
purpose of calculating dividends, net investment income consists of income
accrued on portfolio assets, less accrued expenses.
For federal income tax purposes, distributions paid by the Funds will be
taxable as ordinary income or capital gains. The distributions are taxable
whether you receive them in cash or in additional shares. You will be advised
of the source or sources and tax status of all distributions.
Each Fund may be required to withhold federal income tax (backup withholding)
at a rate of 31% from dividend payments, distributions and redemption proceeds
if a shareholder fails to furnish such Fund his or her Social Security or other
tax identification number. The shareholder also must certify that the number is
correct and that he or she is not subject to backup withholding. The
certification is included as part of the account application.
In addition to federal taxes, you may also be subject to state and local
taxes, depending on the laws of your home state and locality.
MAY SHAREHOLDERS REINVEST DIVIDENDS?
You may elect to have all income dividends and capital gains distributions
reinvested or paid in cash. Please refer to the account application for further
information. If you do not specify an election, all income dividends and
capital gains distributions will automatically be reinvested in full and
fractional shares on the dividend payment date. Cash dividends also are paid on
such date. As in the case of normal purchases, stock certificates are not
issued unless requested.
You may also automatically exchange income dividends and capital gain
distributions from one Fund into any of the other Primary Trend Funds and/or the
Portico Money Market Fund by using our Automatic Exchange Plan, previously
explained under "MAY SHAREHOLDERS MAKE EXCHANGES BETWEEN FUNDS?"
An election to reinvest, exchange or receive dividends and distributions in
cash will apply to all shares of a Fund registered in your name, including those
previously purchased. You may change an election at any time by notifying the
Fund in writing or, under certain circumstances, by telephone. If such a change
request is received between dividend payment dates, it will become effective the
next dividend payment date. The Funds may modify or terminate the dividend
reinvestment program at any time on 30 days notice to participants.
MAY SHAREHOLDERS SYSTEMATICALLY WITHDRAW INVESTMENTS IN FUND SHARES?
If you own Fund shares worth at least $25,000 as of the date the election is
made, the Systematic Withdrawal Plan will enable you to withdraw a fixed amount
at regular monthly or quarterly intervals. To utilize the Systematic Withdrawal
Plan, your shares cannot be held in certificate form. The Plan is not available
for IRA accounts or other retirement plans. To establish the Systematic
Withdrawal Plan, please call the Funds at 1-800-443-6544 for the necessary
forms.
The minimum amount of a withdrawal payment is $100. These payments will be
made from the proceeds of planned periodic redemption of shares in your account.
Redemptions can be made monthly or quarterly on any day you choose. If that day
is a weekend or holiday, the redemption will be made the following business day.
Participation in the Systematic Withdrawal Plan requires that all income and
capital gains distributions payable on shares held in your account be reinvested
in additional shares. You may deposit additional Fund shares in your account at
any time.
Withdrawal payments cannot be considered as yield or income on your
investment, since portions of each payment may consist of a return of capital.
Depending on the size or frequency of the withdrawals requested, and the
fluctuation in the value of the Fund's portfolio, redemptions for the purpose of
making such withdrawals may reduce or even exhaust your account.
You may vary the amount or frequency of withdrawal payments, temporarily
discontinue them, or change the designated payee or payee's address, by giving
two weeks advance notice to Firstar. Certain changes may be made by telephone.
WHAT RETIREMENT PLANS DO THE FUNDS OFFER?
Each of the Funds offers the following retirement plans that may fit your
needs and allow you to shelter some of your income from taxes:
- INDIVIDUAL RETIREMENT ACCOUNT (IRA). Individual shareholders
may establish their own tax-sheltered IRA. Earnings on amounts
held in the IRA are not taxed until withdrawn.
- SIMPLIFIED EMPLOYEE PENSION PLAN (SEP-IRA). The SEP-IRA is a
pension plan in which your employer may contribute to your IRA.
The SEP-IRA is also available to self-employed individuals.
- SIMPLE IRA. A "Savings and Incentive Match Plan for
Employees of Small Employers" (or SIMPLE IRA) allows employers,
including self-employed individuals, with less than 100
employees to make salary reduction contributions to employee
SIMPLE IRAs.
- RETIREMENT PLANS. The plans, including both a profit-sharing
plan and a money purchase pension plan, are available for use
by sole proprietors, partnerships and corporations.
- 401(k) PLAN. The 401(k) plan is a salary reduction profit-
sharing plan available to employers of all sizes to benefit
their employees.
- 403(b) PLAN. The 403(b) plan is available for use by
employees of certain educational, non-profit hospital and
charitable organizations.
Contact the Funds for complete information kits, including forms, concerning
the above plans, their benefits, provisions and fees. Consultation with a
competent financial and tax adviser regarding these plans is recommended.
WHAT ABOUT BROKERAGE TRANSACTIONS?
The Agreements authorize the Adviser to select the brokers or dealers that
will execute the purchases and sales of the Funds' portfolio securities. In
placing purchase and sale orders for the Funds, it is the policy of the Adviser
to seek the best execution of orders at the most favorable price in light of the
overall quality of brokerage and research services provided.
The Agreements permit the Adviser to cause each Fund to pay a broker which
provides brokerage and research services to the Adviser a commission for
effecting securities transactions in excess of the amount another broker would
have charged for executing the transaction, provided the Adviser believes this
to be in the best interests of the applicable Fund. Although the Funds do not
intend to market their shares through intermediary broker-dealers, they may
place portfolio orders with broker-dealers who recommend the purchase of, or
sell, their shares to clients and may allocate portfolio brokerage on that
basis, if the Adviser believes the commissions and transaction quality are
comparable to that available from other brokers.
GENERAL INFORMATION ABOUT THE COMPANIES AND THE FUNDS
Description of Shares and Voting Rights. THE PRIMARY TREND FUND, INC. was
incorporated in Wisconsin on June 3, 1986. Its authorized capital consists of
30,000,000 shares of common stock. Each share has one vote, and all shares
participate equally in dividends and other distributions by such Fund and in the
residual assets of the Fund in the event of liquidation. Shares of The Primary
Trend Fund, Inc. have no preemptive, conversion, subscription, or cumulative
voting rights. Consequently, the holders of more than 50% of the shares voting
for the election of directors can elect the entire Board of Directors, and in
such event, the holders of the remaining shares voting will not be able to elect
any person or persons to the Board of Directors. The Wisconsin Business
Corporation Law permits registered investment companies, such as The Primary
Trend Fund, Inc., to operate without an annual meeting of shareholders under
specified circumstances if an annual meeting is not required by the Act. The
Primary Trend Fund, Inc. has adopted the appropriate provisions in its Bylaws
and does not anticipate holding an annual meeting of shareholders to elect
directors unless otherwise required by the Act. The Primary Trend Fund, Inc.
has also adopted provisions in its Bylaws for the removal of directors by its
shareholders.
THE PRIMARY INCOME FUNDS, INC. was incorporated in Wisconsin on April 5,
1989. Its authorized capital includes 30,000,000 Primary Income Fund shares and
30,000,000 Primary U.S. Government Fund shares. Each share has one vote.
Generally, Primary Income Fund shares and Primary U.S. Government Fund shares
are voted in the aggregate and not by each Fund, except where class voting by
each Fund is required by Wisconsin law or the Investment Company Act of 1940
(e.g., change in investment policy or approval of an investment advisory
agreement). The shares of The Primary Income Fund and The Primary U.S.
Government Fund have the same preferences, limitations and rights, except that
all consideration received from the sale of shares of each Fund, together with
all income, earnings, profits and proceeds thereof, belong to that Fund and are
charged with the liabilities in respect of that Fund and of that Fund's share of
the general liabilities of The Primary Income Funds, Inc. in the proportion that
the total net assets of the Fund bears to the total net assets of both Funds.
The net asset value per share of each of The Primary Income Fund and The Primary
U.S. Government Fund is based on the assets belonging to that Fund less the
liabilities charged to that Fund, and dividends are paid on shares of each Fund
only out of lawfully available assets belonging to that Fund. Shares of each
Fund participate equally in the residual assets of the respective Fund in the
event of liquidation. Shares of the Funds have no preemptive, conversion,
subscription, or cumulative voting rights. Consequently, the holders of more
than 50% of the shares of The Primary Income Funds, Inc. voting for the election
of directors can elect the entire Board of Directors, and in such event, the
holders of the remaining shares voting will not be able to elect any person or
persons to the Board of Directors. As with The Primary Trend Fund, Inc., The
Primary Income Funds, Inc. has adopted the appropriate provisions in its Bylaws
such that it does not anticipate holding an annual meeting of shareholders to
elect directors unless otherwise required by the Act, and has adopted provisions
in its Bylaws for the removal of directors by its shareholders.
The shares of each Fund are redeemable and transferable. All shares issued
and sold by The Primary Trend Funds will be fully paid and nonassessable, except
as provided in Section 180.0622(2)(b) of the Wisconsin Business Corporation Law.
Fractional shares have the same rights proportionately as do full shares.
The Primary Trend Fund, Inc. and The Primary Income Funds, Inc. are
separately incorporated investment companies. Each of the Funds is described in
this Prospectus in order to help investors understand the similarities and
differences among the Funds. Because the Funds share this Prospectus there is a
possibility that one Fund might become liable for a misstatement, inaccuracy or
disclosure in this Prospectus concerning another Fund.
Administrator and Fund Accountant. Pursuant to an Administration and Fund
Accounting Agreement, Sunstone Financial Group, Inc. (the "Administrator"), 207
East Buffalo Street, Suite 400, Milwaukee, Wisconsin 53202, calculates the daily
net asset value of each Fund and provides administrative services (which include
clerical, compliance and regulatory services such as filing all federal income
and excise tax returns and state income tax returns, assisting with regulatory
filings, preparing financial statements and monitoring expense accruals). For
these services, the Administrator receives from each of the Funds a monthly fee
at the annual rate of .15% on the first $50,000,000 of each Fund's average net
assets, .12% on the next $50,000,000, and .07% on average net assets in excess
of $100,000,000, subject to an annual minimum of $35,000, $25,000 and $15,000
for The Primary Trend Fund, The Primary Income Fund and The Primary U.S.
Government Fund, respectively, plus out-of-pocket expenses.
Custodian and Transfer and Dividend Disbursing Agent. Firstar Trust Company,
615 East Michigan Street, Milwaukee, Wisconsin 53202, is the custodian for all
securities and cash of the Funds and serves as each Fund's transfer and dividend
disbursing agent.
Performance Information. From time to time the Funds may provide performance
information in advertisements, sales literature or information to shareholders.
Fund performance may be quoted numerically or may be represented in a table,
graph or other illustration by presenting one or more performance measurements,
including total return, average annual total return and yield.
The Funds may compare their performance to other mutual funds with similar
investment objectives and to the industry as a whole, as quoted by ranking
services and publications of general interest. For example, this may include
Morningstar, Inc. and Lipper Analytical Services, Inc. (independent fund ranking
services) and magazines, such as Money, Forbes, and Business Week. In addition,
the Funds may compare their performance to that of other selected mutual funds
or recognized market indicators, including the Standard & Poor's 500 Stock Index
and the Dow Jones Industrial Average. Such performance rankings or comparisons
may be made with mutual funds that may have different investment restrictions,
objectives, policies or techniques than the Funds, and such other funds or
market indicators may be comprised of securities that differ from those the
Funds hold or may purchase.
The total return of any Fund is calculated for any specified period of time
by assuming the purchase of shares of the Fund at the net asset value at the
beginning of the period. Each dividend or other distribution paid by the Fund
is assumed to have been reinvested in additional shares of the Fund at the net
asset value on the reinvestment date. The total number of shares then owned as
a result of this process is valued at the net asset value at the end of the
period. The percentage increase is determined by subtracting the initial value
of the investment from the ending value and dividing the difference by the
initial value.
The average annual total return of any Fund refers to the rate of return
which, if applied to an initial investment at the beginning of a stated period
and compounded over the period, would result in the value of the investment at
the end of the stated period assuming reinvestment of all dividends and
distributions.
A quotation of yield reflects a Fund's income over a stated period expressed
as a percentage of the Fund's share price. The yield of The Primary Income Fund
and The Primary U.S. Government Fund is determined by dividing the applicable
Fund's net investment income for a 30-day (or one month) period by the average
number of such Fund's shares outstanding during the period, and expressing the
result as a percentage of the Fund's share price on the last day of the 30-day
(or one month) period. This percentage is then annualized. Capital gains and
losses are not included in the yield calculation.
The Funds impose no sales or other charges which would impact their
performance computations. Investors should remember that all performance
figures are based on historical results and are not intended to indicate future
performance. The value of shares when redeemed may be more or less than their
original cost.
WHO ARE THE DIRECTORS AND OFFICERS OF THE COMPANIES?
The officers of The Primary Trend Fund, Inc. direct The Primary Trend Fund's
day-to-day operations and are directly responsible to that Company's Board of
Directors. Such Board of Directors is responsible for the overall management of
the business and affairs of The Primary Trend Fund. Similarly, the officers of
The Primary Income Funds, Inc. direct the day-to-day operations of The Primary
Income Fund and The Primary U.S. Government Fund and are directly responsible to
that Company's Board of Directors. The Board of Directors of The Primary Income
Funds, Inc. is responsible for the overall management of the business and
affairs of The Primary Income Fund and The Primary U.S. Government Fund. The
following are the directors and officers of both The Primary Trend Fund, Inc.
and The Primary Income Funds, Inc.:
Directors: Barry S. Arnold Vice President, Arnold Investment
Counsel Incorporated,
Milwaukee, Wisconsin
Joseph L. Cook Attorney, Waukesha, Wisconsin
Lilli Gust Executive Vice President,
Secretary-Treasurer,
Arnold Investment Counsel Incorporated
Officers: Lilli Gust President
Barry S. Arnold Vice President and Assistant Secretary
James R. Arnold, Jr. Secretary and Treasurer
(THE PRIMARY TREND FUNDS LOGO)
INVESTMENT ADVISER
Arnold Investment Counsel
Incorporated
First Financial Centre
700 North Water Street
Milwaukee, Wisconsin 53202
1-800-443-6544
OFFICERS
Lilli Gust, President
Barry S. Arnold, Vice President and Assistant Secretary
James R. Arnold, Jr., Secretary and Treasurer
DIRECTORS
Barry S. Arnold
Joseph L. Cook
Lilli Gust
ADMINISTRATOR
Sunstone Financial Group, Inc.
207 East Buffalo Street, Suite 400
Milwaukee, Wisconsin 53202
CUSTODIAN, TRANSFER AGENT AND
DIVIDEND DISBURSING AGENT
Firstar Trust Company
615 East Michigan Street
Milwaukee, Wisconsin 53202
1-800-968-2122
INDEPENDENT AUDITORS
Ernst &Young LLP
111 East Kilbourn Avenue
Milwaukee, Wisconsin 53202
LEGAL COUNSEL
Foley &Lardner
777 East Wisconsin Avenue
Milwaukee, Wisconsin 53202
Founding member of
TM
100% NO-LOAD MUTUAL FUND COUNCIL
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION August 29, 1997
THE PRIMARY TREND FUNDS
This Statement of Additional Information is not a prospectus and
should be read in conjunction with the prospectus of The Primary Trend
Funds dated August 29, 1997. Requests for copies of the prospectus should
be made in writing to The Primary Trend Funds, First Financial Centre, 700
North Water Street, Milwaukee, Wisconsin 53202, or by calling (800)
443-6544.
THE PRIMARY TREND FUND, INC.
THE PRIMARY INCOME FUNDS, INC.
First Financial Centre
700 North Water Street
Milwaukee, Wisconsin 53202
THE PRIMARY TREND FUNDS
Table of Contents
Page No.
Investment Restrictions......................... 1
Investment Considerations....................... 3
Directors and Officers of the Companies......... 7
Ownership of Management and Principal
Shareholders.................................... 10
Investment Adviser and Administrator............ 12
Determination of Net Asset Value................ 14
Performance and Yield Information............... 15
Purchase of Shares.............................. 18
Allocation of Portfolio Brokerage............... 18
Custodian....................................... 19
Taxes........................................... 20
Independent Auditors............................ 20
Financial Statements............................ 21
Description of Securities Ratings............... 22
No person has been authorized to give any information or to make
any representations other than those contained in this Statement of
Additional Information and the Prospectus dated August 29, 1997 and,
if given or made, such information or representations may not be relied
upon as having been authorized by The Primary Trend Funds.
This Statement of Additional Information does not constitute an
offer to sell securities.
INVESTMENT RESTRICTIONS
As set forth in the joint prospectus dated August 29, 1997 of
The Primary Trend Fund, Inc. and The Primary Income Funds, Inc.
(collectively, the "Companies") under the caption "WHAT ARE THE FUNDS'
INVESTMENT OBJECTIVES?", the investment objective of The Primary Trend
Fund is to maximize total return (a combination of capital growth and
current income) without exposing capital to undue risk; the investment
objective of The Primary Income Fund is to obtain a high level of current
income, with a reasonable opportunity for capital appreciation, from
investments in a diversified portfolio of fixed income securities and/or
dividend-paying common and preferred stocks; and the investment objective
of The Primary U.S. Government Fund is to obtain a high level of current
income from investments in a diversified portfolio of securities issued or
guaranteed as to principal by the U.S. Government and its agencies or
instrumentalities. (The Primary Trend Fund, The Primary Income Fund and
The Primary U.S. Government Fund are hereinafter referred to collectively
as the "Funds".) Consistent with these investment objectives, each of the
Funds has adopted the following investment restrictions which are matters
of fundamental policy. Each Fund's fundamental investment policies cannot
be changed without approval of the holders of the lesser of: (i) 67% of
that Fund's shares present or represented at a shareholders' meeting at
which the holders of more than 50% of such shares are present or
represented; or (ii) more than 50% of the outstanding shares of that Fund.
1. None of the Funds will purchase securities on margin,
participate in a joint-trading account, sell securities short, or write or
invest in put or call options. The Primary Income Fund and The Primary
U.S. Government Fund will not invest in warrants which are unattached to
fixed income securities. The Primary Trend Fund's investments in
warrants, valued at the lower of cost or market, will not exceed 5% of the
value of such Fund's net assets and of such 5% not more than 2% of the
Fund's net assets at the time of purchase may be invested in warrants that
are not listed on the New York or American Stock Exchanges. Warrants are
options to purchase securities at a specified price, valid for a specified
period of time. Warrants are pure speculation in that they have no voting
rights, pay no dividends and have no rights with respect to the assets of
the corporation issuing them. If a Fund does not exercise a warrant, its
loss will be the purchase price of the warrant.
2. None of the Funds will borrow money or issue senior
securities, except for temporary bank borrowings or for emergency or
extraordinary purposes (but not for the purpose of purchase of
investments) and then only in an amount not in excess of 5% of the value
of its total assets, and none of the Funds will pledge any of its assets
except to secure borrowings and then only to an extent not greater than
10% of the value of such Fund's net assets.
3. None of the Funds will lend money (except by purchasing
publicly distributed debt securities) or lend its portfolio securities.
4. None of the Funds will purchase securities of other
investment companies except (a) as part of a plan of merger, consolidation
or reorganization approved by the shareholders of such Fund or (b)
securities of registered closed-end investment companies on the open
market where no commission or profit results, other than the usual and
customary broker's commission, and where as a result of such purchase such
Fund would hold less than 3% of any class of securities, including voting
securities, of any registered closed-end investment company and less than
5% of such Fund's net assets, taken at current value, would be invested in
securities of registered closed-end investment companies. The Funds have
no current intention of investing in securities of closed-end investment
companies.
5. None of the Funds will make investments for the purpose of
exercising control or management of any company.
6. Each of the Funds will limit its purchases of securities of
any one issuer (other than the United States or an agency or
instrumentality of the United States Government) in such a manner that it
will satisfy the requirements of Section 5(b)(1) of the Investment Company
Act of 1940. Pursuant to Section 5(b)(1) of the Investment Company Act of
1940 at least 75% of the value of a Fund's total assets must be
represented by cash and cash items (including receivables), U.S.
Government securities, securities of other investment companies, and other
securities for the purpose of the foregoing limited in respect of any one
issuer to an amount not greater than 5% of the value of the total assets
of such Fund and to not more than 10% of the outstanding voting securities
of such issuer.
7. None of the Funds will concentrate 25% or more of the value
of its assets, determined at the time an investment is made, exclusive of
U.S. Government securities, in securities issued by companies primarily
engaged in the same industry, except that The Primary Income Fund will
concentrate more than 25% of the value of its assets in companies
primarily engaged in the utility industry.
8. None of the Funds will acquire or retain any security
issued by a company, an officer or director of which is an officer or
director of either Company or an officer, director or other affiliated
person of such Fund's investment adviser.
9. None of the Funds will acquire or retain any security
issued by a company if any of the directors or officers of either Company,
or directors, officers or other affiliated persons of such Fund's
investment adviser, beneficially own more than 1/2% of such company's
securities and all of the above persons owning more than 1/2% own together
more than 5% of its securities.
10. None of the Funds will act as an underwriter or distributor
of securities other than shares of the applicable Company and will not
purchase any securities which are restricted from sale to the public
without registration under the Securities Act of 1933, as amended.
11. None of the Funds will purchase any interest in any oil,
gas or any other mineral exploration or development program.
12. None of the Funds will purchase or sell real estate or real
estate mortgage loans, but each of the Funds may purchase securities of
issuers whose assets consist primarily of real estate or real estate
mortgage loans.
13. None of the Funds will purchase or sell commodities or
commodities contracts.
14. None of the Funds will invest more than 5% of such Fund's
total assets in securities of issuers which have a record of less than
three years of continuous operation, including the operation of any
predecessor business of a company which came into existence as a result of
any merger, consolidation, reorganization or purchase of substantially all
of the assets of such predecessor business.
15. No Fund's investments in illiquid and/or not readily
marketable securities will exceed 10% of such Fund's total assets. The
Funds have no current intention of investing in illiquid and/or not
readily marketable securities.
INVESTMENT CONSIDERATIONS
As set forth above under the caption "INVESTMENT RESTRICTIONS,"
The Primary Income Fund will concentrate more than 25% of the value of its
assets in securities issued by companies primarily engaged in the utility
industry. Public utilities, whether state, municipal or investor-owned,
often experience certain problems associated with this industry, including
the difficulty in obtaining an adequate return on invested capital in
spite of frequent increases in rates which have been granted by the Public
Service Commissioners having jurisdiction, the difficulty in financing
large construction programs during an inflationary period, the
restrictions on operations and increased cost and delays attributable to
environmental considerations, the difficulty of the capital markets in
absorbing utility debt and equity securities, the difficulty in obtaining
fuel for electric generation at reasonable prices and the effects of
energy conservation. Certain utilities in which The Primary Income Fund
may invest may operate nuclear electric generation facilities. Various
governmental bodies are conducting, and may be expected to conduct in the
future, reviews relating to nuclear electric generation. It is difficult
to predict with any degree of certainty the findings, recommendations and
other results of these or any future studies and hearings, whether any
recommended legislation will be adopted, or whether governmental
regulations affecting nuclear generation will be significantly modified.
While it is difficult to predict the effect of any of the foregoing on
such utilities or any of their products, facilities under construction may
be subjected to changes in regulatory requirements and to closer
regulatory scrutiny, which in turn may increase exposure to licensing
related impacts on schedules, design and operating requirements.
In seeking to achieve their respective investment objectives,
each of The Primary Trend Fund and The Primary Income Fund may invest up
to 5% of its total assets in corporate obligations rated less than
investment grade if, in the opinion of the Adviser, such lesser rating is
due to a special situation or other extenuating circumstances. See "WHAT
ARE THE FUNDS' INVESTMENT POLICIES -- The Primary Trend Fund" and " -- The
Primary Income Fund" in the Prospectus. Corporate obligations rated less
than investment grade (hereinafter referred to as "low-rated securities")
are commonly referred to as "junk bonds", and while generally offering
higher yields than investment grade securities with similar maturities,
involve greater risks, including the possibility of default or bankruptcy.
They are regarded as predominantly speculative with respect to the
issuer's capacity to pay interest and repay principal. The special risk
considerations in connection with investments in low-rated securities are
discussed below. See "DESCRIPTION OF SECURITIES RATINGS."
Effect of Interest Rates and Economic Changes
Even though the exposure of The Primary Trend Fund and The
Primary Income Fund to the low-rated security market is limited to a
maximum of 5% of their respective total assets, the Funds are required to
provide the following discussion of such market.
The low-rated security market is relatively new and its growth
paralleled a long economic expansion. As a result, it is not clear how
this market may withstand a prolonged recession or economic downturn.
Such a prolonged economic downturn could severely disrupt the market for
and adversely affect the value of high-yield securities.
Interest-bearing securities typically experience appreciation
when interest rates decline and depreciation when interest rates rise.
The market values of low-rated securities tend to reflect individual
corporate developments to a greater extent than do higher rated
securities, which react primarily to fluctuations in the general level of
interest rates. Low-rated securities also tend to be more sensitive to
economic conditions than are higher-rated securities. As a result, they
generally involve more credit risks than securities in the higher-rated
categories. During an economic downturn or a sustained period of rising
interest rates, highly leveraged issuers of low-rated securities may
experience financial stress and may not have sufficient revenues to meet
their payment obligations. The issuer's ability to service its debt
obligations may also be adversely affected by specific corporate
developments, or the issuer's inability to meet specific projected
business forecasts or the unavailability of additional financing. The
risk of loss due to default by an issuer of low-rated securities is
significantly greater than issuers of higher-rated securities because such
securities are generally unsecured and are often subordinated to other
creditors. Further, if the issuer of a low-rated security defaulted, The
Primary Trend Fund and/or The Primary Income Fund might incur additional
expenses in seeking recovery. Periods of economic uncertainty and changes
would also generally result in increased volatility in the market prices
of low-rated securities and thus in either Fund's net asset value.
As previously stated, the value of a low-rated security
generally will decrease in a rising interest rate market, and accordingly,
so normally will the respective net asset values of The Primary Trend Fund
and The Primary Income Fund. If either of such Funds experiences
unexpected net redemptions in such a market, it may be forced to liquidate
a portion of its portfolio securities without regard to their investment
merits. Due to the limited liquidity of low-rated securities (discussed
below), either The Primary Trend Fund or The Primary Income Fund may be
forced to liquidate these securities at a substantial discount. Any such
liquidation would reduce such Fund's asset base over which expenses could
be allocated and could result in a reduced rate of return for such Fund.
Payment Expectations
Low-rated securities typically contain redemption, call or
prepayment provisions which permit the issuer of such securities
containing such provisions to, at their discretion, redeem the securities.
During periods of falling interest rates, issuers of low-rated securities
are likely to redeem or prepay the securities and refinance them with debt
securities with a lower interest rate. To the extent an issuer is able to
refinance the securities or otherwise redeem them, The Primary Trend Fund
and/or The Primary Income Fund may have to replace the securities with a
lower yielding security which would result in lower returns for such
Funds.
Credit Ratings
Credit ratings issued by credit rating agencies evaluate the
safety of principal and interest payments of rated securities. They do
not, however, evaluate the market value risk of low-rated securities and
therefore may not fully reflect the true risks of an investment. In
addition, credit rating agencies may or may not make timely changes in a
rating to reflect changes in the economy or in the condition of the issuer
that affect the market value of the security. Consequently, credit
ratings are used only as a preliminary indicator of investment quality.
Investments in low-rated securities will be more dependent on the
Adviser's credit analysis than would be the case with investments in
investment grade debt securities. The Adviser employs its own credit
research and analysis which includes a study of existing debt, capital
structure, ability to service debt and to pay dividends, the issuer's
sensitivity to economic conditions, its operating history and the current
trend of earnings. The Adviser continually monitors the investments in
The Primary Trend Fund's and The Primary Income Fund's portfolios and
carefully evaluates whether to dispose of or to retain low-rated
securities whose credit ratings or credit quality may have changed.
Liquidity and Valuation
The Primary Trend Fund and The Primary Income Fund may have
difficulty disposing of certain low-rated securities because there may be
a thin trading market for such securities. Because not all dealers
maintain markets in all low-rated securities there is no established
retail secondary market for many of these securities. Such Funds
anticipate that such securities could be sold only to a limited number of
dealers or institutional investors. To the extent a secondary trading
market does exist, it is generally not as liquid as the secondary market
for higher rated securities. The lack of a liquid secondary market may
have an adverse impact on the market price of the security, and
accordingly, the respective asset values of The Primary Trend Fund and The
Primary Income Fund, and such Funds' ability to dispose of particular
securities when necessary to meet their liquidity needs or in response to
a specific economic event, or an event such as a deterioration in the
creditworthiness of the issuer. The lack of a liquid secondary market for
certain securities may also make it more difficult for The Primary Trend
Fund and The Primary Income Fund to obtain accurate market quotations for
purposes of valuing their respective portfolios. Market quotations are
generally available on many low-rated issues only from a limited number of
dealers and may not necessarily represent firm bids of such dealers or
prices for actual sales. During periods of thin trading, the spread
between bid and asked prices is likely to increase significantly. In
addition, adverse publicity and investor perceptions, whether or not based
on fundamental analysis, may decrease the values and liquidity of
high-yield securities, especially in a thinly-traded market.
Zero Coupon and Pay-In-Kind and Step Coupon Securities
The Primary Income Fund may invest in zero coupon, pay-in-kind
and step coupon securities. Zero coupon and step coupon bonds are issued
and traded at a discount from their face amounts. They do not entitle the
holder to any periodic payment of interest prior to maturity or prior to a
specified date when the securities begin paying current interest. The
discount from the face amount or par value depends on the time remaining
until cash payments begin, prevailing interest rates, liquidity of the
security and the perceived credit quality of the issuer.
Current federal income tax law requires holders of zero coupon
securities and step coupon securities to report as interest income each
year the portion of the original issue discount on such securities that
accrues that year, even though the holders receive no cash payments of
interest during the year. In order to qualify as a "regulated investment
company" under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), the Company must distribute each Fund's investment
company taxable income, including the original issue discount accrued on
zero coupon or step coupon bonds. Because The Primary Income Fund will
not receive on a current basis cash payments in respect of accrued
original issue discount on zero coupon bonds or step coupon bonds during
the period before interest payments commence, in some years The Primary
Income Fund may have to distribute cash obtained from other sources in
order to satisfy the distribution requirement under the Code. Such cash
might be obtained from selling other portfolio holdings of the Fund.
These actions are likely to reduce the assets to which Fund expenses could
be allocated and to reduce the rate of return for the Fund. In some
circumstances, such sales might be necessary in order to satisfy cash
distribution requirements even though investment considerations might
otherwise make it undesirable for the Fund to sell the securities at the
time.
The market prices of zero coupon, step coupon and pay-in-kind
securities generally are more volatile than the prices of securities that
pay interest periodically and in cash and are likely to respond to changes
in interest rates to a greater degree than do other types of debt
securities having similar maturities and credit quality.
DIRECTORS AND OFFICERS OF THE COMPANIES
The same persons currently serve as directors and officers of
both The Primary Trend Fund, Inc. and The Primary Income Funds, Inc. The
name, address, principal occupations during the past five years and other
information with respect to each of the directors of the Companies are as
follows:
JOSEPH L. COOK
1220 South Grand Avenue
Waukesha, Wisconsin
(A DIRECTOR OF EACH COMPANY)
Mr. Cook has been a practicing attorney since 1975. He has
served as a director of The Primary Trend Fund, Inc. since it was founded
in 1986 and as a director of The Primary Income Funds, Inc. since it was
founded in 1989.
LILLI GUST*
700 North Water Street
Milwaukee, Wisconsin
(PRESIDENT AND A DIRECTOR OF EACH COMPANY)
Ms. Gust is Executive Vice President, Secretary-Treasurer and a
director of the Adviser and has been an officer of the Adviser since
February, 1978. She is President and a director of The Primary Trend
Fund, Inc. and has been an officer and a director thereof since its
inception in 1986. She is also President and a director of The Primary
Income Funds, Inc. and has been an officer and a director thereof since
its inception in 1989.
BARRY S. ARNOLD*
700 North Water Street
Milwaukee, Wisconsin
(VICE PRESIDENT, ASSISTANT SECRETARY AND DIRECTOR OF EACH COMPANY)
Mr. Arnold has served as the Vice President, Assistant Secretary
and a director of both The Primary Trend Fund, Inc. and The Primary Income
Funds, Inc. since January, 1997. Prior to that time, he served as
Assistant Secretary of each of the Companies. Mr. Arnold is also Vice
President of the Adviser. He joined the Adviser in September, 1987.
The name, address, principal occupations during the past five
years and other information with respect to each of the officers of the
Companies who are not directors are as follows:
JAMES R. ARNOLD, JR.
700 North Water Street
Milwaukee, Wisconsin
(SECRETARY-TREASURER OF EACH COMPANY)
Mr. Arnold is the Secretary-Treasurer of both The Primary Trend
Fund, Inc. and The Primary Income Funds, Inc. He joined the Adviser in
October, 1985. Since January, 1997, Mr. Arnold has also served as Client
Services & Accounting Manager of Sunstone Financial Group, Inc., the
administrator of the Funds.
* Ms. Gust and Mr. Barry S. Arnold are directors who are "interested
persons" of the Companies as that term is defined in the Investment
Company Act of 1940.
Barry S. Arnold and James R. Arnold, Jr. are brothers.
During the fiscal year ended June 30, 1997, each Company paid
$500 in aggregate remuneration to its disinterested director. Each
Company's standard method of compensating directors is to pay each
disinterested director a fee of $250 for each meeting of the Board of
Directors of such Company attended. The table below sets forth the
compensation paid by each Company to each of the current directors of the
Companies during the fiscal year ended June 30, 1997:
<TABLE>
<CAPTION>
COMPENSATION TABLE
Total
Aggregate Pension or Retirement Estimated Annual Compensation
Name of Compensation Benefits Accrued As Benefits Upon from Company
Person from Company Part of Company Expenses Retirement Paid to Directors
The Primary Trend Fund, Inc.
<S> <C> <C> <C> <C>
Barry S. Arnold $0 $0 $0 $0
Joseph L. Cook $500 $0 $0 $500
Lilli Gust $0 $0 $0 $0
The Primary Income Funds, Inc.
Barry S. Arnold $0 $0 $0 $0
Joseph L. Cook $500 $0 $0 $500
Lilli Gust $0 $0 $0 $0
</TABLE>
OWNERSHIP OF MANAGEMENT
AND PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the
ownership of outstanding shares of each of The Primary Trend Fund, The
Primary Income Fund and The Primary U.S. Government Fund, as of July 31,
1997, by (i) each person known by the Companies to own more than 5% of a
Fund's outstanding shares, and (ii) all directors and officers of the
Companies as a group. Unless otherwise indicated, each shareholder
possesses both record and beneficial ownership of the shares listed
opposite his or her name.
The Primary Trend Fund
Amount of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
Ruth L. Leef 143,944 9.2%
Elm Grove, Wisconsin 53122
Directors and Officers as 101,501(1)(2) 6.5%
a Group (4 persons)
The Primary Income Fund
Amount of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
Estate of Carolyn V. Arnold IRA 52,348 17.5%
James R. Arnold, Jr.,
Personal Representative
Big Bend, Wisconsin 53103
Steven Mayer 19,418 6.5%
Crystal Lake, Illinois 60039
Directors and Officers as 91,289(1)(3) 30.6%
a Group (4 persons)
The Primary U.S. Government Fund
Amount of
Name and Address Beneficial Percent
of Beneficial Owner Ownership of Class
Arnold Investment Counsel 17,126 22.9%
Incorporated
Milwaukee, Wisconsin 53202
Estate of Carolyn V. Arnold IRA 14,623 19.6%
James R. Arnold, Jr.,
Personal Representative
Big Bend, Wisconsin 53103
Lilli Gust(4) 8,156 10.9%
Milwaukee, Wisconsin 53208
Theodore H. & Mildred V. Braam 5,915 7.9%
Glendale, Wisconsin 53209
Sydney W. Frey, Jr. IRA 5,450 7.3%
Rollover
Brookfield, Wisconsin 53005
Directors and Officers as a 39,943(1)(3) 53.5%
Group (4 persons)
_____________________
(1) The amount shown includes the shares of such Fund held of record
by Arnold Investment Counsel Incorporated. See note (2) below.
(2) The amount shown includes 8,857 shares of such Fund held by a
trust for which James R. Arnold, Jr. serves as trustee.
(3) The amount shown includes the shares of such Fund held by the
Estate of Carolyn V. Arnold IRA.
(4) Arnold Investment Counsel Incorporated is controlled by Lilli
Gust. See "INVESTMENT ADVISER."
By virtue of her stock ownership (including shares held by Arnold
Investment Counsel Incorporated, which she controls), Lilli Gust is deemed
to control The Primary U. S. Government Fund. In combination with the
holders of more than 16.2% of The Primary U.S. Government Fund's
outstanding stock, she owns sufficient shares to approve or disapprove all
matters (other than the election of directors of the Company or the
approval of auditors) brought before such Fund's shareholders. Ms. Gust
does not control The Primary Income Fund, The Primary Trend Fund or either
of the Companies.
INVESTMENT ADVISER AND ADMINISTRATOR
As set forth in the Prospectus under the caption "WHO MANAGES
THE FUNDS?" the investment adviser to the Funds is Arnold Investment
Counsel Incorporated (the "Adviser"). The Adviser is controlled by Lilli
Gust, by virtue of her having voting control of a majority of the
Adviser's outstanding shares. Pursuant to investment advisory agreements
between the respective Funds and the Adviser (the "Advisory Agreements"),
the Adviser furnishes continuous investment advisory and management
services to the Funds. For the fiscal years ended June 30, 1997, 1996 and
1995, The Primary Trend Fund paid the Adviser fees of $166,935, $156,295,
and $153,886, respectively, pursuant to its Advisory Agreement. For the
fiscal years ended June 30, 1997 and 1995, the Adviser effectively waived
100% of its advisory fee for The Primary Income Fund as a result of the
expense reimbursements discussed below. For the fiscal year ended June
30, 1996, the Adviser waived all but $556 of its advisory fees for The
Primary Income Fund as a result of such reimbursements. For the fiscal
years ended June 30, 1997, 1996 and 1995, the Adviser effectively waived
100% of its advisory fee for The Primary U.S. Government Fund as a result
of the expense reimbursements discussed below.
The Funds will pay all of their expenses not assumed by the
Adviser pursuant to the Advisory Agreements, including, but not limited
to: the costs of preparing and printing their registration statements
required under the Securities Act of 1933 and the Act and any amendments
thereto; the expense of registering their shares with the Securities and
Exchange Commission and the various states; the printing and distribution
cost of prospectuses mailed to existing shareholders; interest charges;
brokerage commissions; and expenses incurred in connection with portfolio
transactions. The Funds will also pay: the fees of directors who are not
interested persons of the Adviser; director and officer liability
insurance, if any; salaries of administrative and clerical personnel;
association membership dues; auditing and accounting services; legal fees
and expenses; fees and expenses of any custodian or trustee having custody
of the Funds' assets; expenses of calculating the Funds' net asset values
and repurchasing and redeeming shares; and charges and expenses of
dividend disbursing agents, registrars and stock transfer agents,
including the cost of keeping all necessary shareholder records and
accounts and handling any related problems.
The Adviser has agreed to reimburse each of The Primary Income
Fund and The Primary U.S. Government Fund for all expenses exceeding an
annual rate of 1.00% of its average daily net assets (for this purpose
"all expenses" include the investment advisory fee, but exclude interest,
taxes, brokerage commissions and extraordinary items). It is each of such
Funds' practice, if any expense reimbursement is necessary, to reduce the
investment advisory fee and any other amounts owed the Adviser, by the
amount of such excess. These voluntary reimbursements to The Primary
Income Fund and The Primary U.S. Government Fund may be modified or
discontinued at any time by the Adviser. During the fiscal years ended
June 30, 1997, 1996 and 1995 the Adviser agreed to reimburse The Primary
Income Fund for all expenses exceeding an annual rate of .84% of its
average daily net assets and The Primary U.S. Government Fund for all
expenses exceeding an annual rate of .75% of its average daily net assets.
During such fiscal years, each of such Funds' expenses exceeded their
respective limits. Accordingly, the amounts owed the Adviser by The
Primary Income Fund and The Primary U.S. Government Fund were reduced by
$38,053 (including $32,899 of advisory fees) and ($29,412 including $4,977
of advisory fees), respectively for the fiscal year ended June 30, 1997;
$30,087 (including $30,087 of advisory fees) and $24,644 (including $7,285
of advisory fees), respectively, for the fiscal year ended June 30, 1996;
and $29,838 (including $28,945 of advisory fees) and $25,240 (including
$8,535 of advisory fees), respectively, for the fiscal year ended June 30,
1995.
Under the Advisory Agreements, regardless of the voluntary
expense reimbursements discussed above, the Adviser must reimburse each
Fund (including The Primary Trend Fund) to the extent that its annual
operating expenses, including investment advisory fees (net of any
reimbursements made by the Adviser), but excluding interest, taxes,
brokerage commissions and extraordinary items, exceed that percentage of
the average net assets of such Fund for such year, as determined by
valuations made as of the close of each business day of the year, which is
the most restrictive percentage provided by the state laws of the various
states in which the shares of such Fund are qualified for sale or, if the
states in which the shares of such Fund are qualified for sale impose no
such restrictions, 2%. As of the date of this Statement of Additional
Information, no such state law provision was applicable to the Funds.
Each Fund monitors its expense ratio on a monthly basis. If the accrued
amount of the expenses of a Fund exceeds the expense limitation, the Fund
records an account receivable from the Adviser for the amount of such
excess. In such a situation, the monthly payment of the Adviser's fee
will be reduced by the amount of such excess, subject to adjustment month
by month during the balance of the Funds' fiscal year if accrued expenses
thereafter fall below this limit. The adjustment will be reconciled at
the end of the Fund's fiscal year and not carried forward. Except as set
forth in the preceding paragraph, no reimbursement was required for the
Funds during the fiscal years ended June 30, 1997, 1996 and 1995.
Each of the Advisory Agreements will remain in effect as long as
its continuance is specifically approved at least annually by (i) the
Board of Directors of the applicable Company, or by the vote of a majority
(as defined in the Investment Company Act of 1940) of the outstanding
shares of the applicable Fund, and (ii) by the vote of a majority of the
directors of the applicable Company who are not parties to the Advisory
Agreements or interested persons of the Adviser, cast in person at a
meeting called for the purpose of voting on such approval. Each of the
Advisory Agreements provides that it may be terminated at any time without
the payment of any penalty, by the Board of Directors of the applicable
Company or by vote of a majority of the shares of the applicable Fund, on
sixty (60) days' written notice to the Adviser, and by the Adviser on the
same notice to the applicable Fund, and that it shall be automatically
terminated if it is assigned.
As set forth in the Prospectus under the caption "WHO MANAGES
THE FUNDS?" the administrator to the Funds is Sunstone Financial Group,
Inc. (the "Administrator"). An administration and fund accounting
agreement was entered into between each of the Companies and the
Administrator (the "Administration Agreements") on January 27, 1997 and
will remain in effect until January 27, 1998 and thereafter, if not
otherwise terminated as provided below, automatically, for successive
manual periods. For the period from January 27, 1997 through June 30,
1997, The Primary Trend Fund, The Primary Income Fund and The Primary U.S.
Government Fund paid the Administrator $21,461, 13,323 and $7,363,
respectively, pursuant to the Administration Agreements. Each of the
Administration Agreements may be terminated on not less than 90 days'
notice, without the payment of any penalty, by the Board of Directors of
the applicable Company or by the Administrator. Pursuant to the
Administration Agreements, the Administrator also provides fund accounting
services to each of the Funds.
The Advisory Agreements and the Administration Agreements
provide that the Adviser and the Administrator, as the case may be, shall
not be liable to any of the Funds or their shareholders for anything other
than willful misfeasance, bad faith, negligence (gross negligence in the
case of the Advisory Agreements) or reckless disregard of its obligations
or duties. The Advisory Agreements and the Administration Agreements also
provide that the Adviser and the Administrator, as the case may be, and
their officers, directors and employees may engage in other businesses,
devote time and attention to any other business, whether of a similar or
dissimilar nature, and render investment advisory services to others.
DETERMINATION OF NET ASSET VALUE
As set forth in the Prospectus under the caption "HOW IS EACH
FUND'S SHARE PRICE DETERMINED?" the net asset value of each Fund will be
determined (except as otherwise noted in the succeeding paragraph) as of
the close of regular trading (currently 3:00 P.M. Central Time) on each
day the New York Stock Exchange is open for trading. The New York Stock
Exchange is open for trading Monday through Friday except New Year's Day,
Washington's Birthday, Good Friday, Memorial Day, Independence Day, Labor
Day, Thanksgiving Day and Christmas Day. Additionally, if any of the
aforementioned holidays falls on a Saturday, the New York Stock Exchange
will not be open for trading on the preceding Friday, and when any such
holiday falls on a Sunday, the New York Stock Exchange will not be open
for trading on the succeeding Monday, unless unusual business conditions
exist, such as the ending of a monthly or the yearly accounting period.
Notwithstanding the preceding paragraph, the net asset value for
The Primary U.S. Government Fund also will not be determined on days when
the Federal Reserve is closed. In addition to the days on which the New
York Stock Exchange is not open for trading, the Federal Reserve is closed
on Martin Luther King, Jr. Day, Columbus Day and Veterans Day.
PERFORMANCE AND YIELD INFORMATION
Any total return quotation for The Primary Trend Fund, The
Primary Income Fund or The Primary U.S. Government Fund will assume the
reinvestment of all dividends and capital gains distributions which were
made by the applicable Fund during that period. Any period total return
quotation of a Fund will be calculated by dividing the net change in value
of a hypothetical shareholder account established by an initial payment of
$1,000 at the beginning of the period by $1,000. The net change in the
value of a shareholder account is determined by subtracting $1,000 from
the product obtained by multiplying the net asset value per share at the
end of the period by the sum obtained by adding (A) the number of shares
purchased at the beginning of the period plus (B) the number of shares
purchased during the period with reinvested dividends and distributions.
Any average annual total return quotation of a Fund will be calculated by
dividing the value at the end of the period (i.e., the product referred to
in the preceding sentence) by $1,000. A root equal to the period,
measured in years, in question is then determined and 1 is subtracted from
such root to determine the average annual total return.
The foregoing computation may also be expressed by the following
formula:
n
P(1+T) = ERV
P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending value of a hypothetical $1,000 payment
made at the beginning of the stated periods at
the end of the stated periods.
The Primary Trend Fund's annual compounded rate of return for
the one, five and ten year periods ended June 30, 1997 were +26.24%,
+12.57% and +9.49%, respectively, and for the period from September 15,
1986 (beginning of operations) through June 30, 1997 was +10.29%. The
Primary Income Fund's annual compounded rate of return for the one and
five year periods ended June 30, 1997 were +24.10% and +12.89%,
respectively, and for the period from September 1, 1989 (beginning of
operations) through June 30, 1997 was +12.02%. The Primary U.S.
Government Fund's annual compounded rate of return for the one and five
year periods ended June 30, 1997 were +6.71% and +5.59%, respectively, and
for the period from September 1, 1989 (beginning of operations) through
June 30, 1997, was +6.97%. An average annual compounded rate of return
refers to the rate of return which, if applied to an initial investment at
the beginning of a stated period and compounded over the period, would
result in the redeemable value of the investment at the end of the stated
period. The calculation assumes reinvestment of all dividends and
distributions and reflects the effect of all recurring fees.
The results below show the value of an assumed initial
investment in The Primary Trend Fund of $10,000 made on September 15, 1986
through June 30, 1997, assuming reinvestment of all dividends and
distributions.
Value of
$10,000 Cumulative
June 30 Investment % Change
1987 $11,620 +16.20%
1988 12,276 +22.76
1989 13,606 +36.06
1990 13,415 +34.15
1991 14,850 +48.50
1992 15,927 +59.27
1993 17,225 +72.25
1994 17,178 +71.78
1995 20,102 +101.02
1996 22,817 +128.17
1997 28,803 +188.03
The foregoing performance results are based on historical
earnings and should not be considered as representative of the performance
of The Primary Trend Fund, The Primary Income Fund or The Primary U.S.
Government Fund in the future. Such performance results also reflect
reimbursements made by the Adviser during the fiscal years ended June 30,
1997, 1996, 1995, 1994, 1993, 1992 and 1991 and the ten-month period ended
June 30, 1990 to keep The Primary Income Fund's and The Primary U.S.
Government Fund's total annual fund operating expenses at or below .84%
and .75%, respectively, of average daily net assets. An investment in any
of the Funds will fluctuate in value and at redemption its value may be
more or less than the initial investment.
The Primary Income Fund and The Primary U.S. Government Fund may
cite yields in advertisements, sales literature or information to
shareholders. Each Fund's yield is based on a 30-day period and is
computed by dividing the net investment income per share earned during the
period by the net asset value per share on the last day of the period,
according to the following formula:
a-b 6
YIELD = 2[(--- + 1) -1]
cd
Where: a = dividends and interest earned during the period.
b = expenses accrued for the period (net of
reimbursements).
c = the average daily number of shares outstanding
during the period that were entitled to receive
dividends.
d = the net asset value per share on the last day of
the period.
The yield for the thirty days ended June 30, 1997 was 2.96% for
The Primary Income Fund and 5.85% for The Primary U.S. Government Fund.
Yield fluctuations may reflect changes in the applicable Fund's net
income, and portfolio changes resulting from net purchases or net
redemptions of the Fund's shares may affect the yield. Accordingly, such
Fund's yield may vary from day to day, and the yield stated for a
particular past period is not necessarily representative of its future
yield. Neither Fund's yield is guaranteed, nor is its principal insured.
Yield information may be useful in reviewing the performance of
each of The Primary Income Fund and The Primary U.S. Government Fund and
for providing a basis for comparison with other investment alternatives.
However, since net investment income of each Fund changes in response to
fluctuations in interest rates and such Fund's expenses, any given yield
quotation should not be considered representative of its yield for any
future period. An investor should also be aware that there are
differences in investments other than yield.
Furthermore, a particular Fund's yield will be affected if it
experiences a net inflow of new money which is invested at interest rates
different from those being earned on its then-current investments. An
investor's principal in a particular Fund and such Fund's return are not
guaranteed.
PURCHASE OF SHARES
The Articles of Incorporation of The Primary Trend Fund, Inc.
permit the issuance of shares of The Primary Trend Fund in exchange for
securities of a character which are permitted investments of such Fund.
The Articles of Incorporation of The Primary Income Funds, Inc. permit the
issuance of shares of either The Primary Income Fund or The Primary U.S.
Government Fund in exchange for securities of a character which are
permitted investments of the applicable Fund. However, neither Company
anticipates issuing Fund shares for investment securities in the
foreseeable future. Any such issuances will be limited to a bona fide
reorganization, statutory merger, or other acquisitions of portfolio
securities which: (a) meet the investment objectives and policies of the
applicable Fund; (b) are acquired for investment and not for resale; (c)
are liquid securities which are not restricted as to transfer either by
law or liquidity of market; and (d) have a value which is readily
ascertainable (and not established only by evaluation procedures) as
evidenced by a listing on the American Stock Exchange, the New York Stock
Exchange, or NASDAQ. For purposes of determining the number of shares to
be issued, the securities to be exchanged will be valued in the same
manner as the applicable Fund's portfolio securities.
ALLOCATION OF PORTFOLIO BROKERAGE
Decisions to buy and sell securities for the Funds are made by
the Adviser subject to review by the appropriate Company's Board of
Directors. In placing purchase and sale orders for portfolio securities
for each Fund, it is the policy of the Adviser to seek the best execution
of orders at the most favorable price in light of the overall quality of
brokerage and research services provided. In selecting brokers to effect
portfolio transactions, the determination of what is expected to result in
best execution at the most favorable price involves a number of largely
judgmental considerations. Among these are the Adviser's evaluation of
the broker's efficiency in executing and clearing transactions and the
broker's financial strength and stability. The Funds may also allocate
portfolio brokerage on the basis of recommendations to purchase shares of
the applicable Fund made by brokers if the Adviser reasonably believes the
commissions and transaction quality are comparable to that available from
other brokers.
In allocating brokerage business for the Funds, the Adviser also
takes into consideration the research, analytical, statistical and other
information and services provided by the broker, such as general economic
reports and information, reports or analyses of particular companies or
industry groups, market timing and technical information, and the
availability of the brokerage firm's analysts for consultation. While the
Adviser believes these services have substantial value, they are
considered supplemental to the Adviser's own efforts in the performance of
its duties under the Agreements. Other clients of the Adviser may
indirectly benefit from the availability of these services to the Adviser,
and the Funds may indirectly benefit from services available to the
Adviser as a result of transactions for other clients. The Adviser may
cause the Funds to pay a broker which provides brokerage and research
services to the Adviser a commission for effecting a securities
transaction in excess of the amount another broker would have charged for
effecting the same transaction, if the Adviser determines that such
commission is reasonable in relation to the value of the services
provided.
Brokerage commissions paid by The Primary Trend Fund during its
fiscal years ended June 30, 1997, 1996 and 1995 totaled $52,134 on
transactions of $27,964,127; $41,306 on transactions of $17,322,639; and
$37,252 on transactions of $10,445,384, respectively. During the fiscal
year ended June 30, 1997, The Primary Trend Fund paid commissions of
$50,134 on transactions of $26,758,080 to brokers who provided research
services to the Adviser. Brokerage commissions paid by The Primary Income
Fund during its fiscal years ended June 30, 1997, 1996 and 1995 totaled
$11,316 on transactions of $4,314,992; $9,477 on transactions of
$2,958,557; and $9,816 on transactions of $2,625,331, respectively.
During the fiscal year ended June 30, 1997, The Primary Income Fund paid
commissions of $10,580 on transactions of $4,020,357 to brokers who
provided research services to the Adviser. The Primary U.S. Government
Fund paid no brokerage commissions during its fiscal years ended June 30,
1997, 1996 and 1995.
CUSTODIAN
Firstar Trust Company, 615 East Michigan Street, Milwaukee,
Wisconsin 53202, acts as custodian for the Funds. As such, Firstar Trust
Company holds all securities and cash of the Funds, delivers and receives
payment for securities sold, receives and pays for securities purchased,
collects income from investments and performs other duties, all as
directed by officers of the respective Companies. Firstar Trust Company
does not exercise any supervisory function over the management of the
Funds, the purchase and sale of securities or the payment of distributions
to shareholders. Firstar Trust Company also acts as the Funds' transfer
agent and dividend disbursing agent.
TAXES
As set forth in the Prospectus under the caption "WHAT ABOUT
DIVIDENDS, CAPITAL GAINS DISTRIBUTIONS AND TAXES?" each of the Companies
intends to qualify annually for and elect tax treatment applicable to a
regulated investment company under Subchapter M of the Code.
Dividends from each Fund's net investment income and
distributions from each Fund's net realized short-term capital gains are
taxable to shareholders as ordinary income, whether received in cash or in
additional shares. The 70% dividends-received deduction for corporations
may apply to such dividends and distributions, subject to proportionate
reductions if the aggregate dividends received by a Fund from domestic
corporations in any year are less than 100% of such Fund's net investment
company income taxable distributions.
Any dividend or capital gains distribution paid shortly after a
purchase of shares will have the effect of reducing the per share net
asset value of such shares by the amount of the dividend or distribution.
Furthermore, if the net asset value of the shares immediately after a
dividend or distribution is less than the cost of such shares to the
shareholder, the dividend or distribution will be taxable to the
shareholder even though it results in a return of capital.
Shareholders may realize a capital gain or capital loss in any
year in which they redeem shares. The gain or loss is the difference
between the shareholder's basis (cost) and the redemption price of the
shares redeemed.
Each Fund may be required to withhold federal income tax at a
rate of 31% ("backup withholding") from dividend payments and redemption
proceeds if a shareholder fails to furnish such Fund with his Social
Security or other tax identification number and certify under penalty of
perjury that such number is correct and that he is not subject to backup
withholding due to the underreporting of income. The certification form
is included as part of the account application and should be completed
when the account is opened.
INDEPENDENT AUDITORS
The Funds' independent auditors, Ernst & Young LLP, 111 East
Kilbourn Avenue, Milwaukee, Wisconsin, audit and report on the Funds'
annual financial statements, review certain regulatory reports and the
Funds' federal income tax returns, and perform other professional
accounting, auditing, tax and advisory services when engaged to do so by
the Funds. Shareholders will receive annual audited financial statements
and semiannual unaudited financial statements.
FINANCIAL STATEMENTS
The following financial statements are incorporated by reference to
the Annual Report, dated June 30, 1997, of The Primary Trend Funds (File
Nos. 811-04704 and 811-05831), as filed with the Securities and Exchange
Commission on August 20, 1997:
The Primary Trend Fund, Inc.
Portfolio of Investments
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Auditors
The Primary Income Funds, Inc.
Portfolio of Investments
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Auditors
DESCRIPTION OF SECURITIES RATINGS
As set forth in the Prospectus under the caption "WHAT ARE THE
FUNDS' INVESTMENT POLICIES?" the Funds may invest in "investment grade"
corporate obligations (securities rated "BBB" or better by Standard &
Poor's Corporation or "Baa" or better by Moody's Investors Service, Inc.).
However, The Primary Trend Fund and The Primary Income Fund also may, from
time to time, purchase corporate obligations rated less than investment
grade if, in the opinion of the Adviser, such lesser rating is due to a
special situation or other extenuating circumstance. A brief description
of the ratings symbols and their meanings follows.
Standard & Poor's Corporation ("Standard & Poor's") Debt
Ratings. A Standard & Poor's corporate debt rating is a current
assessment of the creditworthiness of an obligor with respect to a
specific obligation. This assessment may take into consideration obligors
such as guarantors, insurers or lessees.
The debt rating is not a recommendation to purchase, sell or
hold a security, inasmuch as it does not comment as to market price or
suitability for a particular investor.
The ratings are based on current information furnished by the
issuer or obtained by Standard & Poor's from other sources it considers
reliable. Standard & Poor's does not perform any audit in connection with
any rating and may, on occasion, rely on unaudited financial information.
The ratings may be changed, suspended or withdrawn as a result of changes
in, or unavailability of, such information, or for other circumstances.
The ratings are based, in varying degrees, on the following
considerations:
I. Likelihood of default - capacity and
willingness of the obligor as to the timely
payment of interest and repayment of
principal in accordance with the terms of the
obligation;
II. Nature of and provisions of the obligation;
III. Protection afforded by, and relative position
of the obligation in the event of bankruptcy,
reorganization or other arrangement under the
laws of bankruptcy and other laws affecting
creditors' rights;
AAA - Debt rated AAA has the highest rating assigned by Standard
& Poor's. Capacity to pay interest and repay principal is extremely
strong.
AA - Debt rated AA has a very strong capacity to pay interest
and repay principal and differs from the higher rated issues only in small
degree.
A - Debt rated A has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in the
higher rated categories.
BBB - Debt rated BBB has an adequate capacity to pay interest
and repay principal. Whereas such debt normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher
rated categories.
BB, B, CCC, CC - Debt rated BB, B, CCC or CC is regarded, on
balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. BB indicates the lowest degree of speculation and CC the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
Moody's Investors Service, Inc. ("Moody's") Bond Ratings.
Aaa - Bonds which are rated Aaa are judged to be the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edged." Interest payments are protected by
a large, or by an exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such changes
as can be visualized are most unlikely to impair the fundamentally strong
position of such issues.
Aa - Bonds which are Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds
because margins of protection may not be as large as in Aaa securities or
fluctuation of protective elements may be of greater amplitude, or there
may be other elements present which make the long-term risks appear
somewhat larger than in Aaa securities.
A - Bonds which are rate A possess many favorable investment
attributes and are to be considered as upper-medium grade obligations.
Factors giving security to principal and interest are considered adequate,
but elements may be present which suggest a susceptibility to impairment
sometime in the future.
Baa - Bonds which are rated Baa are considered as medium-grade
obligations (i.e., they are neither highly protected nor poorly secured).
Interest payments and principal security appear adequate for the present
but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such bonds
lack outstanding investment characteristics and in fact have speculative
characteristics as well.
Ba - Bonds which are rated Ba are judged to have speculative
elements; their future cannot be considered as well-assured. Often the
protection of interest and principal payments may be very moderate, and
thereby not well safeguarded during both good and bad times over the
future. Uncertainty of position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of
the desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of time
may be small.
Caa - Bonds which are rated Caa are of poor standing. Such
issues may be in default or there may be present elements of danger with
respect to principal or interest.
Ca - Bonds which are rated Ca represent obligations which are
speculative in a high degree. Such issues are often in default or have
other marked shortcomings.
Moody's applies numerical modifiers 1, 2 and 3 in each of the
foregoing generic rating classifications. The modifier 1 indicates that
the company ranks in the higher end of its generic rating category; the
modifier 2 indicates a mid-range ranking; and the modifier 3 indicates
that the company ranks in the lower end of its generic rating category.
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a.) Financial Statements (Financial Highlights included in Part A
and all incorporated by reference to the Annual Report, dated
June 30, 1997 (File No. 811-04704), of The Primary Trend Fund,
Inc. (as filed with the Securities and Exchange Commission on
August 20, 1997))
The Primary Trend Fund, Inc.
Portfolio of Investments
Statements of Assets and Liabilities
Statements of Operations
Statements of Changes in Net Assets
Financial Highlights
Notes to Financial Statements
Report of Independent Auditors
(b.) Exhibits
(1) Registrant's Articles of Incorporation.
(2) Registrant's By-Laws, as amended.
(3) None
(4) None
(5) Investment Advisory Agreement with Arnold Investment
Counsel Incorporated.
(6) None
(7) None
(8) Custodian Agreement with Firstar Trust Company (formerly
First Wisconsin Trust Company).
(9) Administration and Fund Accounting Agreement with
Sunstone Financial Group, Inc.
(10) Opinion of Foley & Lardner, counsel for Registrant.
(11) Consent of Independent Auditors.
(12) None
(13) Investment Agreement.
(14.1) Individual Retirement Custodial Account.
(14.2) Defined Contribution Retirement Plan.
(14.3) Prototype 403(b) plan.
(15) None
(16) Computation of Performance Quotations; Exhibit 16 to
Post-Effective Amendment No. 16 to Registrant's
Registration Statement on Form N-1A is incorporated by
reference pursuant to Rule 411 under the Securities Act
of 1933.
(17) Financial Data Schedule.
(18) None
Item 25. Persons Controlled by or under Common Control with Registrant
Registrant is not controlled by any person. Registrant
neither controls any person nor is under common control with any person.
Item 26. Number of Holders of Securities
Number of Record Holders
Title of Class as of July 31, 1997
Common Stock, $.01 par value, 1,002
Item 27. Indemnification
The Wisconsin Business Corporation Law and Registrant's By-Laws
provide for the indemnification of Registrant's directors and officers in
a variety of circumstances, which may include liability under the
Securities Act of 1933.
The By-Laws provide that any director, officer, agent or
employee of Registrant and any person similarly serving another enterprise
at the request of Registrant is entitled to indemnification against
expenses, judgments, fines and amounts paid in settlement reasonably
incurred in any threatened, pending or completed proceeding if such person
acted in good faith and in a manner he reasonably believed to be in or not
opposed to the best interests of Registrant, and with respect to any
criminal proceeding, he had no reasonable cause to believe his conduct was
unlawful; provided that Registrant may not indemnify any such person in
relation to matters to which such person shall be adjudged in such action,
suit or proceeding to be liable for gross negligence, willful misfeasance,
bad faith or reckless disregard of the duties and obligations involved in
the conduct of his office. Unless ordered by a court, the determination
that indemnification of an individual is proper is to be made by (i) the
board of directors, by a majority vote of a quorum which consists of
directors who were not parties to the action, suit or proceeding nor
interested persons of Registrant as defined in Section 2(a)(19) of the
Investment Company Act of 1940; or (ii) if the required quorum is not
obtainable or if a quorum of disinterested directors so direct, by
independent legal counsel in a written opinion.
Expenses, including attorneys' fees, incurred in the preparation
of and/or presentation of the defense of a civil or criminal action, suit
or proceeding may be paid by Registrant in advance of the final
disposition of such action, suit or proceeding in accordance with the
requirements of the Wisconsin Business Corporation Law and the Securities
and Exchange Commission. The current requirements are: (i) the
indemnitee must undertake to repay such amount unless it shall ultimately
be determined that the indemnitee is entitled to indemnification; and (ii)
any of the following is made a condition of the advance: (A) the
indemnitee shall provide a security for his undertaking; (B) Registrant
shall be insured against losses arising by reason of any lawful advances;
or (C) a majority of a quorum of the disinterested non-party directors of
Registrant, or an independent legal counsel in a written opinion, shall
determine, bases on a review of readily available facts (as opposed to a
full trial-type inquiry), that there is reason to believe that the
indemnitee will be found entitled to indemnification.
Notwithstanding the foregoing, Section 180.0851 of the Wisconsin
Business Corporation Law provides for mandatory indemnification (a) if a
director, officer, employee or agent was successful on the merits or
otherwise in the defense of a proceeding, and (b) if the director,
officer, employee or agent was not successful on the merits or otherwise
but the liability incurred was not the result of a breach or failure to
perform a duty which constituted any of the following: (1) a willful
failure to deal fairly with the corporation or its shareholders in
connection with a matter in which the director, officer, employee or agent
has a material conflict of interest; (2) a violation of criminal law,
unless the director, officer, employee or agent had reasonable cause to
believe his or her conduct was unlawful; (3) a transaction from which the
director, officer, employee or agent derived an improper personal benefit;
or (4) willful misconduct.
Insofar as indemnification for and with respect to liabilities
arising under the Securities Act of 1933 may be permitted to directors,
officers and controlling persons of Registrant pursuant to the foregoing
provisions or otherwise, 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 Registrant of expenses incurred or paid by a
director, officer or controlling person or Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, 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 of whether such indemnification 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
Information with respect to Ms. Gust and Messrs. James R.
Arnold, Jr. and Barry S. Arnold is incorporated by reference to pages 8
through 10 of the Statement of Additional Information pursuant to Rule 411
under the Securities Act of 1933.
Item 29. Principal Underwriters
Registrant has no principal underwriters.
Item 30. Location of Accounts and Records
All accounts, books, or other documents required to be
maintained by Section 31(a) of the Investment Company Act of 1940 and the
rules promulgated thereunder are in the physical possession of
Registrant's Treasurer, James R. Arnold, Jr., at the corporate offices of
Sunstone Financial Group, Inc., 207 East Buffalo Street, Suite 400,
Milwaukee, Wisconsin 53202.
Item 31. Management Services
All management-related service contracts entered into by
Registrant are discussed in Parts A and B of this Registration Statement.
Item 32. Undertakings
Registrant undertakes to furnish each person to whom a
prospectus is delivered with a copy of the Registrant's latest 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 Amended Registration
Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has
duly caused this Amended Registration Statement to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Milwaukee
and State of Wisconsin on the 28th day of August, 1997.
THE PRIMARY TREND FUND, INC.
(Registrant)
By: /s/ Lilli Gust
Lilli Gust
President
Pursuant to the requirements of the Securities Act of 1933, this
Amended Registration Statement has been signed below by the following
persons in the capacities and on the date(s) indicated.
Name Title Date
/s/ Lilli Gust Principal Executive August 28, 1997
Lilli Gust Officer and Director
/s/ James R. Arnold, Jr. Principal Financial and August 28, 1997
James R. Arnold, Jr. Accounting Officer
/s/ Joseph L. Cook Director August 28, 1997
Joseph L. Cook
/s/ Barry S. Arnold Director August 28, 1997
Barry S. Arnold
<PAGE>
EXHIBIT INDEX
Exhibit No. Exhibit Page No.
(1) Registrant's Articles of
Incorporation
(2) Registrant's By-Laws, as amended
(3) None
(4) None
(5) Investment Advisory Agreement with Arnold
Investment Counsel Incorporated
(6) None
(7) None
(8) Custodian Agreement with Firstar Trust
Company (formerly First Wisconsin
Trust Company)
(9) Administration and Fund Accounting Agreement
with Sunstone Financial Group, Inc.
(10) Opinion of Foley & Lardner,
Counsel for Registrant
(11) Consent of Independent Auditors
(12) None
(13) Investment Agreement
(14.1) Individual Retirement
Custodial Account
(14.2) Defined Contribution
Retirement Plan
(14.3) Prototype 403(b) plan
(15) None
(16) Computation of Performance Quotations*
(17) Financial Data Schedule
(18) None
* Incorporated by reference
EXHIBIT 1
ARTICLES OF INCORPORATION
OF
THE PRIMARY TREND FUND, INC.
The undersigned, a natural person of the age of eighteen years
or more, acting as incorporator of a corporation under the Wisconsin
Business Corporation Law, Chapter 180 of the Wisconsin Statutes, adopts
the following Articles of Incorporation for such corporation:
ARTICLE I
The name of the corporation (which is hereinafter called the
"Corporation") is THE PRIMARY TREND FUND, INC.
ARTICLE II
The period of existence is perpetual.
ARTICLE III
The purpose or purposes for which the Corporation is organized
are:
A. To engage in the business of a diversified open-end
management investment company.
B. To purchase or otherwise acquire, hold for investment or
otherwise, and to sell, exchange or otherwise dispose of the following
types of securities: common stocks, debt securities and preferred stocks
(including those convertible into common stock), warrants, United States
treasury bills and notes, certificates of deposit, prime-rated commercial
paper, repurchase agreements and commercial paper master notes.
C. To deposit its funds from time to time in such checking
account or accounts as may be reasonably required, and to deposit its
funds at interest in a bank, savings bank or trust company in good
standing organized under the laws of the United States of America or any
state thereof, or of the District of Columbia.
D. To conduct research and investigations with respect to
securities, organizations and business conditions in the United States and
elsewhere; to secure information and advice pertaining to the investment
and employment of the assets and funds of the Corporation and to pay
compensation to others for the furnishing of any or all of the foregoing.
E. Subject to any restrictions contained in the Investment
Company Act of 1940, the applicable state securities or "Blue Sky" laws,
or any rules or regulations issued pursuant to any of the foregoing, to
exercise in respect of all securities, property and assets owned by it,
all rights, powers and privileges which could be exercised by any natural
person owning the same securities, property or assets.
F. To acquire all or any part of the good will, property or
business of any firm, person, association or corporation heretofore or
hereafter engaged in any business similar to any business which this
Corporation has the power to conduct, and to hold, utilize, enjoy, and in
any manner dispose of the whole or part of the rights, property and
business so acquired and to assume in connection therewith any liabilities
of any such person, firm, association, or corporation.
G. Without the vote or consent of the shareholders of the
corporation, to purchase, acquire, hold, dispose of, transfer and reissue
or cancel shares of its own capital stock in any manner or to any extent
now or hereafter permitted by the laws of Wisconsin and by these Articles
of Incorporation.
H. To carry out all or any part of the aforesaid objects and
purposes and to conduct its business in all or any of its branches in any
or all states, territories, districts and possessions of the United States
of America and in foreign countries; to maintain offices and agencies in
any and all states, territories, districts and possessions of the United
States of America and in foreign countries.
The foregoing objects and purposes shall, except when otherwise
expressed, be in no way limited or restricted by reference to or inference
from the terms of any clause of this or any other Article of these
Articles of Incorporation, or any amendment thereto, and shall each be
regarded as independent and construed as powers as well as objects and
purposes.
The Corporation shall be authorized to exercise and enjoy all
the powers, rights, and privileges granted to or conferred upon
corporations of a similar character by the laws of the State of Wisconsin
now or hereafter enacted, and the enumeration of the foregoing powers
shall not be deemed to exclude any powers, rights or privileges so granted
or conferred.
ARTICLE IV
The aggregate number of shares which the Corporation shall have
authority to issue is thirty million (30,000,000), consisting of one class
only, designated as "Common Stock", of the par value of $.01 per share and
of the aggregate par value of three hundred thousand dollars ($300,000).
ARTICLE V
Holders of shares of Common Stock shall not be entitled to any
preemptive right to acquire unissued shares or securities convertible into
such shares or carrying a right to subscribe to or acquire shares.
ARTICLE VI
The number of directors constituting the Board of Directors
shall initially be five (5), and the names of the initial directors are:
James R. Arnold, Sr.
Joseph L. Cook
Lilli Gust
J. Kenneth Hiller
Irving Lowe
Thereafter, the number of directors shall be such number (not less than
three) as is fixed from time to time by the By-Laws.
ARTICLE VII
The address of the initial registered office of the Corporation
is First Financial Centre, 700 North Water Street, Milwaukee,
Wisconsin 53202 and the name of its initial registered agent at such
address is James R. Arnold, Sr. The initial registered office is located
in Milwaukee County.
ARTICLE VIII
The name and address of the sole incorporator is:
Name Address
James R. Arnold, Sr. First Financial Centre
700 North Water Street
Milwaukee, Wisconsin 53202
ARTICLE IX
The following provisions define, limit and regulate the powers
of the Corporation, the Board of Directors and the Shareholders:
A. The Board of Directors of the Corporation shall authorize
an initial issuance of shares of Common Stock for such consideration not
less than the aggregate par value of the shares included in the issuance
as the Board of Directors shall determine. After such initial issuance,
the Board of Directors may authorize the issuance from time to time of
shares of Common Stock and the reissuance from time to time of retired
shares of Common Stock, whether now or hereafter authorized, for such
consideration, not less than the aggregate par value of the shares so
issued, as said Board of Directors may deem advisable, provided that,
except with respect to shares issued as a share dividend or distribution,
such consideration shall be in the form of cash or its equivalent or
securities of a character which are permitted investments under the
Corporation's then current Registration Statement filed with the
Securities and Exchange Commission and shall not be less than the net
asset value of such shares computed in accordance with this Article IX.
That portion of the consideration received by the Corporation for shares
issued (or reissued) which is equal to the aggregate par value of such
shares shall be capital and any consideration received in excess of said
aggregate par value shall be capital surplus. The Board of Directors may,
in its sole and absolute discretion, reject in whole or in part orders for
the purchase of shares of Common Stock, and may, in addition, require such
orders to be in such minimum amounts as it shall determine.
B. The holders of any fractional shares of Common Stock shall
be entitled to the payment of dividends on such fractional shares, to
receive the net asset value thereof upon redemption, to share in the
assets of the Corporation upon liquidation and to exercise voting rights
with respect thereto.
C. The Board of Directors shall have full power in accordance
with good accounting practice: (a) to determine what receipts of the
Corporation shall constitute income available for payment of dividends and
what receipts shall constitute principal and to make such allocation of
any particular receipt between principal and income as it may deem proper;
and (b) from time to time, in its discretion (i) to determine whether any
and all expenses and other outlays paid or incurred (including any and all
taxes, assessments or governmental charges which the Corporation may be
required to pay or hold under any present or future law of the United
States of America or of any other taxing authority therein) shall be
charged to or paid from principal or income or both, and (ii) to apportion
any and all of said expenses and outlays, including taxes, between
principal and income.
D. Each holder of record of stock of this Corporation shall be
entitled to one (1) vote for each share thereof standing registered in his
name on the books of the Corporation. At all elections of directors of
the Corporation, each shareholder shall be entitled to vote the shares
owned of record by him for as many persons as there are directors to be
elected, but shall not be entitled to exercise any right of cumulative
voting.
E. The Board of Directors shall have power to determine from
time to time whether and to what extent and at what time and places and
under what conditions and regulations the books, accounts and documents of
the Corporation, or any of them, shall be open to the inspection of
shareholders, except as otherwise provided by statute or by law; and
except as so provided, no shareholder shall have any right to inspect any
book, account or document of the Corporation unless authorized to do so by
resolution of the Board of Directors.
F. When the net worth of the Corporation shall for the first
time have amounted to $100,000 or more, a fact which shall be conclusively
evidenced by a resolution of the Board of Directors of the Corporation
specifying the date and time when the Corporation's net worth first
amounted to $100,000, or more, each holder of shares of Common Stock shall
be entitled at any time thereafter to require the Corporation to redeem
all or any part of the shares standing in the name of such holder on the
books of the Corporation at the net asset value of such shares as
determined in accordance with the provisions of this Article IX, subject
to the provisions of Section K of this Article, or if different, in
accordance with the provisions of the Corporation's then current
Registration Statement filed with the Securities and Exchange Commission.
G. The net asset value to which a holder of shares of Common
Stock shall be entitled upon redemption of shares held by such holder is
the net asset value, as such value is determined under Sections I and J of
this Article IX, applicable at the time when any of the following events
effecting redemption occur:
(1) The Corporation receives, at such place as the Board
of Directors designates from time to time, irrevocable
instructions in writing in form acceptable to the Board of
Directors to redeem stock held by such holder and, if such stock
to be redeemed is represented by certificates, the certificates,
duly endorsed or accompanied by proper instructions of
assignment, with proper stock transfer stamps affixed, if
required;
(2) The Corporation receives documents, drafts, telegrams,
telephonic communications, in such manner, form and place and
under such circumstances as the Board of Directors may determine
from time to time in its discretion, transmitted or made by such
holder for the purpose of redeeming stock held by such holder.
H. The time for payment for shares redeemed shall be within
seven (7) days after receipt by the Corporation of documents properly
prepared, executed and submitted in accordance with the provisions of
Section G of this Article IX for the purpose of redeeming shares.
I. The net asset value of each share of Common Stock shall be
determined as of the close of trading on the New York Stock Exchange each
day that said Exchange is open for trading and any such net asset value
shall be applicable to all transactions in Common Stock occurring at or
before the close of business on that day and after the close of business
on the last preceding day on which said Exchange was open for trading,
subject to adjustment for declared dividends or distributions, or in
accordance with any controlling provisions of the Investment Company Act
of 1940 or any rules or regulations thereunder.
J. The net asset value of each share of Common Stock shall be
determined in accordance with generally accepted accounting principles by
dividing the total value of the Corporation's net assets (meaning its
assets less its liabilities excluding capital and surplus) by the total
number of its shares outstanding at that time. The net asset value is
determined as of the close of trading on the New York Stock Exchange on
each day the Exchange is open for trading. This determination is
applicable to all transactions in shares of the Corporation prior to that
time and after the previous time as of which net asset value was
determined. Accordingly, purchase orders accepted or shares tendered for
redemption prior to the close of trading on a day the Exchange is open for
trading will be valued as of the close of trading, and purchase orders
accepted or shares tendered for redemption after that time will be valued
as of the close of the next trading day.
(1) Securities traded on any national Stock exchange or
quoted on the NASDAQ National Market System will ordinarily be
valued on the basis of the last sale price on the date of
valuation, or, in the absence of any sale on that date, the most
recent bid price. Other securities will generally be valued at
the most recent bid price, if market quotations are readily
available. Any securities for which there are no readily
available market quotations and other assets will be valued at
their fair value as determined in good faith by the Board of
Directors. Odd lot differentials and brokerage commissions will
be excluded in calculating values.
(2) The liabilities of the Corporation shall be deemed to
include all bills and accounts payable; all administrative
expenses payable and/or accrued, including the estimated amount
of any fees payable under an investment advisory agreement, plan
of distribution or administration agreement, all contractual
obligations for the payment of money or property; all reserves
authorized or approved by the Board of Directors for taxes or
contingencies, including such reserves, if any, for taxes based
on any unrealized appreciation in the value of the assets of the
Corporation; and all other liabilities of the Corporation of
whatsoever kind and nature, except liabilities represented by
outstanding shares and surplus of the Corporation.
(3) Securities purchased shall be included among the
assets of the Corporation, and the cost thereof shall
simultaneously be regarded as a liability, not later than the
first business day following the date of purchase; and
securities sold shall be excluded from such assets, and the
amount receivable therefore shall simultaneously be included as
an asset, not late than the first business day following the
date of sale.
(4) Shares of Common Stock shall be considered as no
longer outstanding on the first business day subsequent to
receipt of the properly endorsed certificate representing such
shares or receipt of the properly prepared request for
redemption for those shares not represented by certificates, and
the amount payable on such redemption or repurchase shall
simultaneously become a liability of the Corporation. The
endorsed certificates or redemptions requests shall be in the
form established by the Board of Directors pursuant to Section G
hereof.
(5) Shares of Common Stock for which purchase orders have
been accepted shall be considered as issued and outstanding not
later than the first business day after the receipt of payment
therefore, and if payment is in the form of a check made payable
to The Primary Trend Fund, Inc., the amount receivable therefore
shall simultaneously become an asset of the Corporation.
(6) Notwithstanding the provisions of paragraphs (1) and
(3) of this Section J, interest declared or accrued and not yet
received, and accrued expenses, may be omitted from any
calculation of net asset value, in the discretion of the Board
of Directors, if the net amount of all such interest and
expenses is less than one percent of the net asset value per
share.
K. In the event that the New York Stock Exchange shall be
closed at any time because of then existing financial conditions or for
any other unusual or extraordinary reason, the right of a holder of shares
of Common Stock to have his shares redeemed by the Corporation shall be
suspended for a period from and including the day on which the action is
taken for the closing of said Exchange to and including the day on which
said Exchange is reopened. In accordance with the provisions of the
Investment Company Act of 1940 and the rules and regulations promulgated
thereunder by the Securities and Exchange Commission, the Corporation may
also suspend such right of redemption (a) for any period during which
trading on the New York Stock Exchange is restricted; (b) for any period
during when an emergency exists as a result of which (i) disposal by the
Corporation of securities owned by it is not reasonably practicable; or
(ii) it is not reasonably practicable for the Corporation to fairly
determine the value of its net assets; or (c) for such other periods as
the Securities and Exchange Commission may by order permit for the
protection of shareholders of the Corporation.
L. The Corporation may purchase in the open market or
otherwise acquire from any owner or holder thereof any shares of Common
Stock, in which case the consideration paid therefore (in cash or in
securities in which the funds of the Corporation shall then be invested)
shall not exceed the net asset value thereof determined or estimated in
accordance with any method deemed proper by the Board of Directors and
producing an amount approximately equal to the net asset value of said
shares (determined in accordance with the provisions of this Article IX)
at the time of the purchase or acquisition by the Corporation thereof.
M. If, at any time when a request for transfer or redemption
of shares of Common Stock is received by the Corporation, the aggregate
net asset values (computed as set forth herein) of the shares of Common
Stock is less than Four Thousand Dollars ($4,000), after giving effect to
such transfer or redemption, the Corporation may cause the remaining
shares of Common Stock in such shareholder's account to be redeemed in
accordance with such procedures as the Board of Directors shall adopt.
N. In respect of all powers, duties and authorities conferred
by the preceding Sections J, K, L and M, the Corporation may act by and
through agents from time to time designated and appointed by the Board of
Directors and the Board of Directors may delegate to any such agent any
and all powers, duties and authorities conferred upon the Corporation or
upon the Board of Directors by said Sections.
ARTICLE X
The Corporation reserves the right to enter into, from time to
time, investment advisory and administration agreements providing for the
management and supervision of the investments of the Corporation, the
furnishing of advice to the Corporation with respect to the desirability
of investing in, purchasing or selling securities or other property and
the furnishing of clerical and administrative services to the Corporation.
Such agreements shall contain such other terms, provisions and conditions
as the Board of Directors of the Corporation may deem advisable and as
are permitted by the Investment Company Act of 1940.
The Corporation may designate distributors, custodians, transfer
agents, registrars and/ or dividend disbursing agents for the stock and
assets of the Corporation and employ and fix the powers, rights, duties,
responsibilities and compensation of each such distributor, custodian,
transfer agent, registrar and/or dividend disbursing agent.
Executed in duplicate on the ____ day of June, 1986.
_______________________________________
James R. ARNOLD, SR.
Sole Incorporator
STATE OF WISCONSIN )
) SS.
COUNTY OF MILWAUKEE )
Personally came before me this ____ day of June, 1986, the
above-named James R. ARNOLD, SR., to me known to be the person who
executed the foregoing instrument, and acknowledged the same.
_______________________________________
[NOTARIAL SEAL] Notary Public
My commission: _____________________
This instrument was drafted by Richard L. Teigen of Foley & Lardner, 777
East Wisconsin Avenue, Milwaukee, Wisconsin 53202.
BYLAWS
OF
THE PRIMARY TREND FUND, INC.
(a Wisconsin corporation)
ARTICLE I. OFFICES
1.01. Principal and Business Offices. The corporation may
have such principal and other business offices, either within or without
the State of Wisconsin, as the Board of Directors may designate or as the
business of the corporation may require from time to time.
1.02. Registered Office. The registered office of the
corporation required by the Wisconsin Business Corporation Law to be
maintained in the State of Wisconsin may be, but need not be, identical
with the principal office in the State of Wisconsin, and the address of
the registered office may be changed from time to time by the Board of
Directors or by the registered agent. The business office of the
registered agent of the corporation shall be identical to such registered
office.
ARTICLE II. SHAREHOLDERS
2.01. Annual Meeting. The annual meeting of the
shareholders, if the annual meeting is held, shall be held in October or
November of each year, or at such other time and date as may be fixed by
or under the authority of the Board of Directors, for the purpose of
electing directors and for the transaction of such other business as may
come before the meeting. The corporation shall not be required to hold an
annual meeting in any year in which none of the following is required to
be acted on by shareholders under the Investment Company Act of 1940:
(i) Election of directors;
(ii) Approval of the corporation's investment advisory contract;
(iii) Ratification of the selection of the corporation's
independent public accountants; and
(iv) Approval of the corporation's distribution agreement, if
any.
2.02. Special Meetings. (a) Special meetings of the
shareholders, for any purpose or purposes, unless otherwise prescribed by
the Wisconsin Business Corporation Law, may be called by the Board of
Directors or the President. Notwithstanding any other provision of these
bylaws, the corporation shall call a special meeting of shareholders in
the event that the holders of at least 10% of all of the votes entitled to
be cast on any issue proposed to be considered at the proposed special
meeting sign, date and deliver to the corporation one or more written
demands for the meeting describing one or more purposes for which it is to
be held. The corporation shall give notice of such a special meeting
within thirty days after the date that the demand is delivered to the
corporation.
(b) Whenever ten or more shareholders of record who have been
such for at least six months preceding the date of application, and who
hold in the aggregate either shares having a net asset value of at least
$25,000 or at least one percent (1%) of the total outstanding shares,
whichever is less, shall apply to the corporation's Secretary in writing,
stating that they wish to communicate with other shareholders with a view
to obtaining signatures to a request for a meeting pursuant to subsection
(a) above and accompanied by a form of communication and request which
they wish to transmit, the Secretary shall within five business days after
receipt of such application either (1) afford to such applicants access to
a list of the names and addresses of all shareholders as recorded on the
books of the corporation; or (2) inform such applicants as to the
approximate number of shareholders of record and the approximate cost of
mailing to them the proposed communication and form of request.
(c) If the Secretary elects to follow the course specified in
clause (2) of subsection (b) above, the Secretary, upon the written
request of such applicants, accompanied by a tender of the material to be
mailed and of the reasonable expenses of mailing, shall, with reasonable
promptness, mail such material to all shareholders of record as of a date
selected by the corporation at their addresses as recorded on the books,
unless within five business days after such tender the Secretary shall
mail to such applicants and file with the Securities and Exchange
Commission, together with a copy of the material to be mailed, a written
statement signed by at least a majority of the Board of Directors to the
effect that in their opinion either such material contains untrue
statements of fact or omits to state facts necessary to make the
statements contained therein not misleading, or would be in violation of
applicable law, and specifying the basis of such opinion.
(d) After opportunity for hearing upon the objections specified
in the written statement so filed, the Securities and Exchange Commission
may, and if demanded by the Board of Directors or by such applicants
shall, enter an order either sustaining one or more of such objections or
refusing to sustain any of them. If the Securities and Exchange
Commission shall enter an order refusing to sustain any of such
objections, or if, after the entry of an order sustaining one or more of
such objections, the Securities and Exchange Commission shall find, after
notice and opportunity for hearing, that all objections so sustained have
been met, and shall enter an order so declaring, the Secretary shall mail
copies of such material to all shareholders with reasonable promptness
after the entry of such order and renewal of such tender.
2.03. Place of Meeting. The Board of Directors may
designate any place, either within or without the State of Wisconsin, as
the place of meeting for any annual or special meeting of shareholders.
If no designation is made, the place of meeting shall be the principal
office of the corporation. Any meeting may be adjourned to reconvene at
any place designated by vote of a majority of the shares represented
thereat.
2.04. Notice of Meeting. Written notice stating the date,
time and place of any meeting of shareholders and, in case of a special
meeting, the purpose or purposes for which the meeting is called, shall be
delivered not less than ten days nor more than sixty days before the date
of the meeting (unless a different time is provided by applicable law or
regulation or the articles of incorporation), either personally or by
mail, by or at the direction of the President or the Secretary, to each
shareholder of record entitled to vote at such meeting and to such other
persons as required by the Wisconsin Business Corporation Law. If mailed,
such notice shall be deemed to be effective when deposited in the United
States mail, addressed to the shareholder at his or her address as it
appears on the stock record books of the corporation, with postage thereon
prepaid. If an annual or special meeting of shareholders is adjourned to
a different date, time or place, the corporation shall not be required to
give notice of the new date, time or place if the new date, time or place
is announced at the meeting before adjournment; provided, however, that if
a new record date for an adjourned meeting is or must be fixed, the
corporation shall give notice of the adjourned meeting to persons who are
shareholders as of the new record date.
2.05. Waiver of Notice. A shareholder may waive any notice
required by the Wisconsin Business Corporation Law, the articles of
incorporation or these bylaws before or after the date and time stated in
the notice. The waiver shall be in writing and signed by the shareholder
entitled to the notice, contain the same information that would have been
required in the notice under applicable provisions of the Wisconsin
Business Corporation Law (except that the time and place of meeting need
not be stated) and be delivered to the corporation for inclusion in the
corporate records. A shareholder's attendance at a meeting, in person or
by proxy, waives objection to all of the following: (a) lack of notice or
defective notice of the meeting, unless the shareholder at the beginning
of the meeting or promptly upon arrival objects to holding the meeting or
transacting business at the meeting; and (b) consideration of a particular
matter at the meeting that is not within the purpose described in the
meeting notice, unless the shareholder objects to considering the matter
when it is presented.
2.06. Fixing of Record Date. The Board of Directors may fix
in advance a date as the record date for the purpose of determining
shareholders entitled to notice of and to vote at any meeting of
shareholders, shareholders entitled to demand a special meeting as
contemplated by Section 2.02 hereof, shareholders entitled to take any
other action, or shareholders for any other purpose. Such record date
shall not be more than seventy days prior to the date on which the
particular action requiring such determination of shareholders is to be
taken. If no record date is fixed by the Board of Directors or by the
Wisconsin Business Corporation Law for the determination of shareholders
entitled to notice of and to vote at a meeting of shareholders, the record
date shall be the close of business on the day before the first notice is
given to shareholders. If no record date is fixed by the Board of
Directors or by the Wisconsin Business Corporation Law for the
determination of shareholders entitled to demand a special meeting as
contemplated in Section 2.02 hereof, the record date shall be the date
that the first shareholder signs the demand. Except as provided by the
Wisconsin Business Corporation Law for a court-ordered adjournment, a
determination of shareholders entitled to notice of and to vote at a
meeting of shareholders is effective for any adjournment of such meeting
unless the Board of Directors fixes a new record date, which it shall do
if the meeting is adjourned to a date more than 120 days after the date
fixed for the original meeting. The record date for determining
shareholders entitled to a distribution (other than a distribution
involving a purchase, redemption or other acquisition of the corporation's
shares) or a share dividend is the date on which the Board of Directors
authorized the distribution or share dividend, as the case may be, unless
the Board of Directors fixes a different record date.
2.07. Shareholders' List for Meetings. After a record date
for a special or annual meeting of shareholders has been fixed, the
corporation shall prepare a list of the names of all of the shareholders
entitled to notice of the meeting. The list shall be arranged by class or
series of shares, if any, and show the address of and number of shares
held by each shareholder. Such list shall be available for inspection by
any shareholder, beginning two business days after notice of the meeting
is given for which the list was prepared and continuing to the date of the
meeting, at the corporation's principal office or at a place identified in
the meeting notice in the city where the meeting will be held. A
shareholder or his or her agent may, on written demand, inspect and,
subject to the limitations imposed by the Wisconsin Business Corporation
Law, copy the list, during regular business hours and at his or her
expense, during the period that it is available for inspection pursuant to
this Section 2.07. The corporation shall make the shareholders' list
available at the meeting and any shareholder or his or her agent or
attorney may inspect the list at any time during the meeting or any
adjournment thereof. Refusal or failure to prepare or make available the
shareholders' list shall not affect the validity of any action taken at a
meeting of shareholders.
2.08. Quorum and Voting Requirements. Shares entitled to
vote as a separate voting group may take action on a matter at a meeting
only if a quorum of those shares exists with respect to that matter. If
the corporation has only one class of common stock outstanding, such class
shall constitute a separate voting group for purposes of this Section
2.08. Except as otherwise provided in the articles of incorporation or
the Wisconsin Business Corporation Law, a majority of the votes entitled
to be cast on the matter shall constitute a quorum of the voting group for
action on that matter. Once a share is represented for any purpose at a
meeting, other than for the purpose of objecting to holding the meeting or
transacting business at the meeting, it is considered present for purposes
of determining whether a quorum exists for the remainder of the meeting
and for any adjournment of that meeting unless a new record date is or
must be set for the adjourned meeting. If a quorum exists, except in the
case of the election of directors, action on a matter shall be approved if
the votes cast within the voting group favoring the action exceed the
votes cast opposing the action, unless the articles of incorporation, the
Wisconsin Business Corporation Law, the Investment Company Act of 1940 or
any other applicable law or regulation requires a greater number of
affirmative votes. Unless otherwise provided in the articles of
incorporation, each director shall be elected by a plurality of the votes
cast by the shares entitled to vote in the election of directors at a
meeting at which a quorum is present. Though less than a quorum of the
outstanding votes of a voting group are represented at a meeting, a
majority of the votes so represented may adjourn the meeting from time to
time without further notice. At such adjourned meeting at which a quorum
shall be present or represented, any business may be transacted which
might have been transacted at the meeting as originally notified.
2.09. Conduct of Meeting. The President, and in his or her
absence, a Vice President in the order provided by Section 4.07 hereof,
and in their absence, any person chosen by the shareholders, shall call
the meeting of the shareholders to order and shall act as chairman of the
meeting, and the Secretary of the corporation or any other person
appointed by the chairman of the meeting, shall act as secretary of all
meetings of the shareholders.
2.10. Proxies. At all meetings of shareholders, a
shareholder may vote his or her shares in person or by proxy. A
shareholder may appoint a proxy to vote or otherwise act for the
shareholder by signing an appointment form, either personally or by his or
her attorney-in-fact. An appointment of a proxy is effective when
received by the Secretary or other officer or agent of the corporation
authorized to tabulate votes. An appointment is valid for eleven months
from the date of its signing unless a different period is expressly
provided in the appointment form.
2.11. Voting of Shares. Except as provided in the articles
of incorporation, the Wisconsin Business Corporation Law, the Investment
Company Act of 1940 or other applicable law or regulation, each
outstanding share, regardless of class, is entitled to one vote on each
matter voted on at a meeting of shareholders.
2.12. Action without Meeting. Any action required or
permitted by the articles of incorporation or these bylaws or any
provision of the Wisconsin Business Corporation Law to be taken at a
meeting of the shareholders may be taken without a meeting and without
action by the Board of Directors if a written consent or consents,
describing the action so taken, is signed by all of the shareholders
entitled to vote with respect to the subject matter thereof and delivered
to the corporation for inclusion in the corporate records.
2.13. Acceptance of Instruments Showing Shareholder Action.
If the name signed on a vote, consent, waiver or proxy appointment
corresponds to the name of a shareholder, the corporation, if acting in
good faith, may accept the vote, consent, waiver or proxy appointment and
give it effect as the act of a shareholder. If the name signed on a vote,
consent, waiver or proxy appointment does not correspond to the name of a
shareholder, the corporation, if acting in good faith, may accept the
vote, consent, waiver or proxy appointment and give it effect as the act
of the shareholder if any of the following apply:
(a) The shareholder is an entity and the name signed purports
to be that of an officer or agent of the entity.
(b) The name purports to be that of a personal representative,
administrator, executor, guardian or conservator representing the
shareholder and, if the corporation requests, evidence of fiduciary
status acceptable to the corporation is presented with respect to the
vote, consent, waiver or proxy appointment.
(c) The name signed purports to be that of a receiver or
trustee in bankruptcy of the shareholder and, if the corporation
requests, evidence of this status acceptable to the corporation is
presented with respect to the vote, consent, waiver or proxy
appointment.
(d) The name signed purports to be that of a pledgee,
beneficial owner, or attorney-in-fact of the shareholder and, if the
corporation requests, evidence acceptable to the corporation of the
signatory's authority to sign for the shareholder is presented with
respect to the vote, consent, waiver or proxy appointment.
(e) Two or more persons are the shareholders as co-tenants or
fiduciaries and the name signed purports to be the name of at least
one of the co-owners and the person signing appears to be acting on
behalf of all co-owners.
The corporation may reject a vote, consent, waiver or proxy appointment if
the Secretary or other officer or agent of the corporation who is
authorized to tabulate votes, acting in good faith, has reasonable basis
for doubt about the validity of the signature on it or about the
signatory's authority to sign for the shareholder.
ARTICLE III. BOARD OF DIRECTORS
3.01. General Powers and Number. All corporate powers shall
be exercised by or under the authority of, and the business and affairs of
the corporation managed under the direction of, the Board of Directors.
The number of directors of the corporation shall be three.
3.02. Tenure and Qualifications. Each director shall hold
office until the next annual meeting of shareholders and until his or her
successor shall have been elected and, if necessary, qualified, or until
there is a decrease in the number of directors which takes effect after
the expiration of his or her term, or until his or her prior death,
resignation or removal. A director may be removed by the shareholders
only at a meeting called for the purpose of removing the director, and the
meeting notice shall state that the purpose, or one of the purposes, of
the meeting is removal of the director. A director may be removed from
office with or without cause if the votes cast to remove the director
exceeds the number of votes cast not to remove such director. A director
may resign at any time by delivering written notice which complies with
the Wisconsin Business Corporation Law to the Board of Directors, to the
President (in his or her capacity as chairperson of the Board of
Directors) or to the corporation. A director's resignation is effective
when the notice is delivered unless the notice specifies a later effective
date. Directors need not be residents of the State of Wisconsin or
shareholders of the corporation but must be eligible to serve as a
director of a registered investment company under the Investment Company
Act of 1940.
3.03. Regular Meetings. A regular meeting of the Board of
Directors shall be held without other notice than this bylaw immediately
before or after the annual meeting of shareholders and each adjourned
session thereof. The place of such regular meeting shall be the same as
the place of the meeting of shareholders which precedes or follows it, as
the case may be, or such other suitable place as may be announced at such
meeting of shareholders. The Board of Directors shall provide, by
resolution, the date, time and place, either within or without the State
of Wisconsin, for the holding of additional regular meetings of the Board
of Directors without other notice than such resolution.
3.04. Special Meetings. Special meetings of the Board of
Directors may be called by or at the request of the President, Secretary
or any two directors. The President or Secretary may fix any place,
either within or without the State of Wisconsin, as the place for holding
any special meeting of the Board of Directors, and if no other place is
fixed the place of the meeting shall be the principal business office of
the corporation in the State of Wisconsin.
3.05. Notice; Waiver. Notice of each special meeting of the
Board of Directors shall be given orally in person or by telephone or by
written notice delivered in person, by telegraph, teletype, facsimile or
other form of wire or wireless communication, or by mail or private
carrier, to each director at his business address or at such other address
as such director shall have designated in writing filed with the
Secretary, in each case not less than forty-eight hours prior to the
meeting. The notice need not prescribe the purpose of the special meeting
of the Board of Directors or the business to be transacted at such
meeting. If mailed, such notice shall be deemed to be effective when
deposited in the United States mail so addressed, with postage thereon
prepaid. If notice is given by telegram, such notice shall be deemed to
be effective when the telegram is delivered to the telegraph company. If
notice is given by private carrier, such notice shall be deemed to be
effective when delivered to the private carrier. Whenever any notice
whatever is required to be given to any director of the corporation under
the articles of incorporation or these bylaws or any provision of the
Wisconsin Business Corporation Law or other applicable law or regulation,
a waiver thereof in writing, signed at any time, whether before or after
the date and time of meeting, by the director entitled to such notice
shall be deemed equivalent to the giving of such notice. The corporation
shall retain any such waiver as part of the permanent corporate records.
A director's attendance at or participation in a meeting waives any
required notice to him or her of the meeting unless the director at the
beginning of the meeting or promptly upon his or her arrival objects to
holding the meeting or transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
3.06. Quorum. Except as otherwise provided by the Wisconsin
Business Corporation Law or by the articles of incorporation or these
bylaws, a majority of the number of directors specified in Section 3.01 of
these bylaws shall constitute a quorum for the transaction of business at
any meeting of the Board of Directors. Except as otherwise provided by
the Wisconsin Business Corporation Law or by the articles of incorporation
or these bylaws, a quorum of any committee of the Board of Directors
created pursuant to Section 3.12 hereof shall consist of a majority of the
number of directors appointed to serve on the committee. A majority of
the directors present (though less than such quorum) may adjourn any
meeting of the Board of Directors or any committee thereof, as the case
may be, from time to time without further notice.
3.07. Manner of Acting. The affirmative vote of a majority
of the directors present at a meeting of the Board of Directors at which a
quorum is present shall be the act of the Board of Directors, unless the
Wisconsin Business Corporation Law, the Investment Company Act of 1940 or
other applicable law or regulation, the articles of incorporation or these
bylaws require the vote of a greater number of directors.
3.08. Conduct of Meetings. The President, and in his or her
absence, a Vice President in the order provided under Section 4.07, and in
their absence, any director chosen by the directors present, shall call
meetings of the Board of Directors to order and shall act as chairman of
the meeting. The Secretary of the corporation shall act as secretary of
all meetings of the Board of Directors unless the presiding officer
appoints another person present to act as secretary of the meeting.
Minutes of any regular or special meeting of the Board of Directors shall
be prepared and distributed to each director.
3.09. Vacancies. Except as provided below, any vacancy
occurring in the Board of Directors, including a vacancy resulting from an
increase in the number of directors, may be filled by any of the
following: (a) the shareholders; or (b) the Board of Directors, if
immediately after filling any such vacancy at least two-thirds of the
directors then holding office shall have been elected to such office at an
annual or special meeting of shareholders. A vacancy that will occur at a
specific later date, because of a resignation effective at a later date or
otherwise, may be filled before the vacancy occurs, but the new director
may not take office until the vacancy occurs. If by reason of the death,
disqualification or bona fide resignation of any director or directors,
there is no member of the Board of Directors who is not an interested
person of the investment adviser of the corporation, as defined in the
Investment Company Act of 1940, such vacancy shall be filled within thirty
days if it may be filled by the Board of Directors, or within sixty days
if a vote of shareholders is required to fill such a vacancy; provided
that such vacancy may be filled within such longer period as the
Securities and Exchange Commission may prescribe by rules and regulations,
upon its own motion or by order upon application. In the event that at
any time less than a majority of the directors were elected by the
shareholders, the Board of Directors or the President shall forthwith
cause to be held as promptly as possible, and in any event within sixty
days, a meeting of the shareholders 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.
3.10. Compensation. No director shall receive any stated
salary or fees from the corporation for his services as such if such
director is, otherwise than by reason of being such director, an
interested person (as such term is defined by the Investment Company Act
of 1940) of the corporation's investment adviser. Except as provided in
the preceding sentence, the Board of Directors, irrespective of any
personal interest of its members, may establish reasonable compensation of
all directors for service to the corporation as directors, officers or
otherwise, or may delegate such authority to an appropriate committee.
3.11. Presumption of Assent. A director who is present and
is announced as present at a meeting of the Board of Directors, when
corporate action is taken, assents to the action taken unless any of the
following occurs: (a) the director objects at the beginning of the
meeting or promptly upon his or her arrival to holding the meeting or
transacting business at the meeting; (b) the director's dissent or
abstention from the action taken is entered in the minutes of the meeting;
or (c) the director delivers written notice that complies with the
Wisconsin Business Corporation Law of his or her dissent or abstention to
the presiding officer of the meeting before its adjournment or to the
corporation immediately after adjournment of the meeting. Such right of
dissent or abstention shall not apply to a director who votes in favor of
the action taken.
3.12. Committees. The Board of Directors by resolution
adopted by the affirmative vote of a majority of all of the directors then
in office may create one or more committees, appoint members of the Board
of Directors to serve on the committees and designate other members of the
Board of Directors to serve as alternates. Each committee shall have two
or more members who shall, unless otherwise provided by the Board of
Directors, serve at the pleasure of the Board of Directors. A committee
may be authorized to exercise the authority of the Board of Directors,
except that a committee may not do any of the following: (a) authorize
distributions; (b) approve or propose to shareholders action that the
Wisconsin Business Corporation Law requires to be approved by
shareholders; (c) fill vacancies on the Board of Directors or, unless the
Board of Directors provides by resolution that vacancies on a committee
shall be filled by the affirmative vote of the remaining committee
members, on any Board committee; (d) amend the corporation's articles of
incorporation; (e) adopt, amend or repeal bylaws; (f) approve a plan of
merger not requiring shareholder approval; (g) authorize or approve
reacquisition of shares, except according to a formula or method
prescribed by the Board of Directors; (h) authorize or approve the
issuance or sale or contract for sale of shares, or determine the
designation and relative rights, preferences and limitations of a class or
series of shares, except that the Board of Directors may authorize a
committee to do so within limits prescribed by the Board of Directors; or
(i) take any action required by the Investment Company Act of 1940 to be
taken by the independent directors of the corporation or by the full Board
of Directors. Unless otherwise provided by the Board of Directors in
creating the committee, a committee may employ counsel, accountants and
other consultants to assist it in the exercise of its authority.
3.13. Telephonic Meetings. Except as herein provided and
notwithstanding any place set forth in the notice of the meeting or these
bylaws, members of the Board of Directors may participate in regular or
special meetings by, or through the use of, any means of communication by
which all participants may simultaneously hear each other, such as by
conference telephone. If a meeting is conducted by such means, then at
the commencement of such meeting the presiding officer shall inform the
participating directors that a meeting is taking place at which official
business may be transacted. Any participant in a meeting by such means
shall be deemed present in person at such meeting. If action is to be
taken at any meeting held by such means on any of the following: (a) a
plan of merger or share exchange; (b) a sale, lease, exchange or other
disposition of substantial property or assets of the corporation; (c) a
voluntary dissolution or the revocation of voluntary dissolution
proceedings; or (d) a filing for bankruptcy, then the identity of each
director participating in such meeting must be verified by the disclosure
at such meeting by each such director of each such director's social
security number to the secretary of the meeting before a vote may be taken
on any of the foregoing matters. For purposes of the preceding clause
(b), the phrase "sale, lease, exchange or other disposition of substantial
property or assets" shall mean any sale, lease, exchange or other
disposition of property or assets of the corporation having a net book
value equal to 10% or more of the net book value of the total assets of
the corporation on and as of the close of the fiscal year last ended prior
to the date of such meeting and as to which financial statements of the
corporation have been prepared. Notwithstanding the foregoing, no action
may be taken at any meeting held by such means (i) on any particular
matter which the presiding officer determines, in his or her sole
discretion, to be inappropriate under the circumstances for action at a
meeting held by such means (such determination shall be made and announced
in advance of such meeting), or (ii) if the purpose of the meeting is to
approve the corporation's investment advisory agreement and/or to approve
the selection of the corporation's auditors, or if participation in such a
manner would otherwise violate or not be consistent with the requirements
of the Investment Company Act of 1940 or other applicable laws.
3.14. Action Without Meeting. Any action required or
permitted by the Wisconsin Business Corporation Law to be taken at a
meeting of the Board of Directors may be taken without a meeting if the
action is taken by all members of the Board. The action shall be
evidenced by one or more written consents describing the action taken,
signed by each director or committee member and retained by the
corporation. Such action shall be effective when the last director signs
the consent, unless the consent specifies a different effective date.
Notwithstanding this Section 3.14, no action may be taken by the Board of
Directors pursuant to a written consent with respect to the approval of
the corporation's investment advisory agreement, the approval of the
selection of the corporation's auditors, or any action required by the
Investment Company Act of 1940 or other applicable law to be taken at a
meeting of the Board of Directors to be held in person.
ARTICLE IV. OFFICERS
4.01. Number. The principal officers of the corporation
shall be a President, the number of Vice Presidents as authorized from
time to time by the Board of Directors, a Secretary, and a Treasurer, each
of whom shall be elected by the Board of Directors. Such other officers
and assistant officers as may be deemed necessary may be elected or
appointed by the Board of Directors. The Board of Directors may also
authorize any duly authorized officer to appoint one or more officers or
assistant officers. Any two or more offices may be held by the same
person.
4.02. Election and Term of Office. The officers of the
corporation to be elected by the Board of Directors shall be elected
annually by the Board of Directors at the first meeting of the Board of
Directors held after each annual meeting of the shareholders. If the
election of officers shall not be held at such meeting, such election
shall be held as soon thereafter as is practicable. Each officer shall
hold office until his or her successor shall have been duly elected or
until his or her prior death, resignation or removal.
4.03. Removal. The Board of Directors may remove any
officer and, unless restricted by the Board of Directors or these bylaws,
an officer may remove any officer or assistant officer appointed by that
officer, at any time, with or without cause and notwithstanding the
contract rights, if any, of the officer removed. The appointment of an
officer does not of itself create contract rights.
4.04. Resignation. An officer may resign at any time by
delivering notice to the corporation that complies with the Wisconsin
Business Corporation Law. The resignation shall be effective when the
notice is delivered, unless the notice specifies a later effective date
and the corporation accepts the later effective date.
4.05. Vacancies. A vacancy in any principal office because
of death, resignation, removal, disqualification or otherwise, shall be
filled by the Board of Directors for the unexpired portion of the term.
If a resignation of an officer is effective at a later date as
contemplated by Section 4.04 hereof, the Board of Directors may fill the
pending vacancy before the effective date if the Board provides that the
successor may not take office until the effective date.
4.06. President. The President shall be the principal
executive officer of the corporation and, subject to the direction of the
Board of Directors, shall in general supervise and control all of the
business and affairs of the corporation. The President shall, when
present, preside at all meetings of the shareholders and of the Board of
Directors. He or she shall have authority, subject to such rules as may
be prescribed by the Board of Directors, to appoint such agents and
employees of the corporation as he or she shall deem necessary, to
prescribe their powers, duties and compensation, and to delegate authority
to them. Such agents and employees shall hold office at the discretion of
the President. He or she shall have authority to sign, execute and
acknowledge, on behalf of the corporation, all deeds, mortgages, bonds,
stock certificates, contracts, leases, reports and all other documents or
instruments necessary or proper to be executed in the course of the
corporation's regular business, or which shall be authorized by resolution
of the Board of Directors; and, except as otherwise provided by law or the
Board of Directors, he or she may authorize any Vice President or other
officer or agent of the corporation to sign, execute and acknowledge such
documents or instruments in his or her place and stead. In general he or
she shall perform all duties incident to the office of President and such
other duties as may be prescribed by the Board of Directors from time to
time.
4.07. The Vice Presidents. In the absence of the President
or in the event of the President's death, inability or refusal to act, or
in the event for any reason it shall be impracticable for the President to
act personally, the Vice President (or in the event there be more than one
Vice President, the Vice Presidents in the order designated by the Board
of Directors, or in the absence of any designation, then in the order of
their election) shall perform the duties of the President, and when so
acting, shall have all the powers of and be subject to all the
restrictions upon the President. Any Vice President may sign, with the
Secretary or Assistant Secretary, certificates for shares of the
corporation; and shall perform such other duties and have such authority
as from time to time may be delegated or assigned to him or her by the
President or by the Board of Directors. The execution of any instrument
of the corporation by any Vice President shall be conclusive evidence, as
to third parties, of his or her authority to act in the stead of the
President.
4.08. The Secretary. The Secretary shall: (a) keep minutes
of the meetings of the shareholders and of the Board of Directors (and of
committees thereof) in one or more books provided for that purpose
(including records of actions taken by the shareholders or the Board of
Directors (or committees thereof) without a meeting); (b) see that all
notices are duly given in accordance with the provisions of these bylaws
or as required by the Wisconsin Business Corporation Law; (c) be custodian
of the corporate records and of the seal of the corporation and see that
the seal of the corporation is affixed to all documents the execution of
which on behalf of the corporation under its seal is duly authorized; (d)
maintain a record of the shareholders of the corporation, in a form that
permits preparation of a list of the names and addresses of all
shareholders, by class or series of shares and showing the number and
class or series of shares held by each shareholder; (e) sign with the
President, or a Vice President, certificates for shares of the
corporation, the issuance of which shall have been authorized by
resolution of the Board of Directors; (f) have general charge of the stock
transfer books of the corporation; and (g) in general perform all duties
incident to the office of Secretary and have such other duties and
exercise such authority as from time to time may be delegated or assigned
by the President or by the Board of Directors.
4.09. The Treasurer. The Treasurer shall: (a) have charge
and custody of and be responsible for all funds and securities of the
corporation; (b) maintain appropriate accounting records; (c) receive and
give receipts for moneys due and payable to the corporation from any
source whatsoever, and deposit all such moneys in the name of the
corporation in such banks, trust companies or other depositaries as shall
be selected in accordance with the provisions of Sections 9.08 and 9.09;
and (d) in general perform all of the duties incident to the office of
Treasurer and have such other duties and exercise such other authority as
from time to time may be delegated or assigned by the President or by the
Board of Directors. If required by the Board of Directors, the Treasurer
shall give a bond for the faithful discharge of his or her duties in such
sum and with such surety or sureties as the Board of Directors shall
determine.
4.10. Assistant Secretaries and Assistant Treasurers. There
shall be such number of Assistant Secretaries and Assistant Treasurers as
the Board of Directors may from time to time authorize. The Assistant
Secretaries may sign with the President or a Vice President certificates
for shares of the corporation the issuance of which shall have been
authorized by a resolution of the Board of Directors. The Assistant
Treasurers shall respectively, if required by the Board of Directors, give
bonds for the faithful discharge of their duties in such sums and with
such sureties as the Board of Directors shall determine. The Assistant
Secretaries and Assistant Treasurers, in general, shall perform such
duties and have such authority as shall from time to time be delegated or
assigned to them by the Secretary or the Treasurer, respectively, or by
the President or the Board of Directors.
4.11. Other Assistants and Acting Officers. The Board of
Directors shall have the power to appoint, or to authorize any duly
appointed officer of the corporation to appoint, any person to act as
assistant to any officer, or as agent for the corporation in his or her
stead, or to perform the duties of such officer whenever for any reason it
is impracticable for such officer to act personally, and such assistant or
acting officer or other agent so appointed by the Board of Directors or an
authorized officer shall have the power to perform all the duties of the
office to which he or she is so appointed to be an assistant, or as to
which he or she is so appointed to act, except as such power may be
otherwise defined or restricted by the Board of Directors or the
appointing officer.
ARTICLE V. CERTIFICATES FOR SHARES; TRANSFER OF SHARES
5.01. Certificates for Shares. Unless and to the extent
that the Board of Directors requires the issuance of shares without
certificates, each shareholder shall be entitled upon request to have a
certificate or certificates which shall represent and certify the number
and kind of shares owned by him or her in the corporation. Certificates
representing shares of the corporation shall be in such form, consistent
with the Wisconsin Business Corporation Law, as shall be determined by the
Board of Directors. Such certificates shall be signed by the President or
a Vice President and by the Secretary or an Assistant Secretary. All
certificates for shares shall be consecutively numbered or otherwise
identified. The name and address of the person to whom the shares
represented thereby are issued, with the number of shares and date of
issue, shall be entered on the stock transfer books of the corporation.
All certificates surrendered to the corporation for transfer shall be
cancelled and no new certificate shall be issued until the former
certificate for a like number of shares shall have been surrendered and
cancelled, except as provided in Section 5.05. The corporation shall
deliver to shareholders not requesting certificates statements containing
the information required by Section 408.408 of the Wisconsin Statutes.
Such statements confer no rights on shareholders and are neither
negotiable instruments nor securities.
5.02. Facsimile Signatures and Seal. The seal of the
corporation, if any, on any certificates for shares may be a facsimile.
The signature of the President or Vice President and the Secretary or
Assistant Secretary upon a certificate may be facsimiles if the
certificate is manually signed on behalf of a transfer agent, or a
registrar, other than the corporation itself.
5.03. Signature by Former Officers. The validity of a share
certificate is not affected if a person who signed the certificate (either
manually or in facsimile) no longer holds office when the certificate is
issued.
5.04. Transfer of Shares. Prior to due presentment of a
certificate for shares for redemption or registration of transfer the
corporation may treat the registered owner of such shares as the person
exclusively entitled to vote, to receive notifications and otherwise to
have and exercise all the rights and power of an owner. Except as
provided in Section 408.207(3)(4) and (6) of the Wisconsin Statutes
relating to registered pledges, the corporation may treat the registered
owner of uncertificated shares as the person exclusively entitled to vote,
to receive notifications, and otherwise to exercise all the rights and
powers of an owner. Where a certificate for shares is presented to the
corporation with a request for redemption or to register for transfer, the
corporation shall not be liable to the owner or any other person suffering
loss as a result of such registration of transfer or redemption if (a)
there were on or with the certificate the necessary endorsements, and (b)
the corporation had no duty to inquire into adverse claims or has
discharged any such duty. The corporation may require reasonable
assurance that such endorsements are genuine and effective and compliance
with such other regulations as may be prescribed by or under the authority
of the Board of Directors. The corporation shall not be liable to the
owner, pledgee or any other person suffering loss as a result of the
registration of a transfer, pledge or release of uncertificated shares if
the corporation had no duty to inquire into adverse claims or has
discharged any such duty. Transfer or redemption of shares of stock of
the corporation shall be made only on the stock transfer books of the
corporation by the holder of record thereof or by his legal
representative, who shall furnish proper evidence of authority to
transfer, or by his attorney thereunto duly authorized by power of
attorney duly executed and filed with the transfer agent or the Secretary
of the corporation, and on surrender for cancellation of the certificate
for such shares, if any.
5.05. Lost, Destroyed or Stolen Certificates. Where the
owner claims that certificates for shares have been lost, destroyed or
wrongfully taken, a new certificate shall be issued in place thereof if
the owner (a) so requests before the corporation has notice that such
shares have been acquired by a bona fide purchaser, (b) files with the
corporation a sufficient indemnity bond if required by the Board of
Directors or any principal officer, and (c) satisfies such other
reasonable requirements as may be prescribed by or under the authority of
the Board of Directors.
5.06. Stock Regulations. The Board of Directors shall have
the power and authority to make all such further rules and regulations not
inconsistent with law as it may deem expedient concerning the issue,
transfer and registration of shares of the corporation.
ARTICLE VI. SEAL
6.01. The Board of Directors may provide for a corporate
seal for the corporation.
ARTICLE VII. INDEMNIFICATION
7.01. Provision of Indemnification. The corporation shall
indemnify all of its corporate representatives against expenses, including
attorneys' fees, judgments, fines and amounts paid in settlement actually
and reasonably incurred by them in connection with the defense of any
action, suit or proceeding, or threat or claim of such action, suit or
proceeding, whether civil, criminal, administrative, or legislative, no
matter by whom brought, or in any appeal in which they or any of them are
made parties or a party by reason of being or having been a corporate
representative, if the corporate representative acted in good faith and in
a manner reasonably believed to be in or not opposed to the best interests
of the corporation and with respect to any criminal proceeding, he had no
reasonable cause to believe his conduct was unlawful provided that the
corporation shall not indemnify corporate representatives in relation to
matters as to which any such corporate representative shall be adjudged in
such action, suit or proceeding to be liable for gross negligence, willful
misfeasance, bad faith, reckless disregard of the duties and obligations
involved in the conduct of his office, or when indemnification is
otherwise not permitted by the Wisconsin Business Corporation Law.
7.02. Determination of Right to Indemnification. In the
absence of an adjudication which expressly absolves the corporate
representative, or in the event of a settlement, each corporate
representative shall be indemnified hereunder only if a determination that
indemnification of the corporate representative is proper because he has
met the applicable standard of conduct set forth in Section 7.01. Such
determination shall be made: (i) by the Board of Directors, by a majority
vote of a quorum which consists of directors who were not parties to the
action, suit or proceeding nor interested persons of the corporation as
defined in Section 2(a)(19) of the Investment Company Act of 1940; (ii) if
the required quorum is not obtainable or if a quorum of disinterested
directors so direct, by independent legal counsel in a written opinion; or
(iii) by the shareholders. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction, or upon a plea of
nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person was guilty of willful misfeasance, bad faith,
gross negligence or reckless disregard to the duties and obligations
involved in the conduct of his or her office, and, with respect to any
criminal action or proceeding, had reasonable cause to believe that his or
her conduct was unlawful.
7.03. Allowance of Expenses. Expenses, including attorneys'
fees, incurred in the preparation of and/or presentation of the defense of
a civil or criminal action, suit or proceeding may be paid by the
corporation in advance of the final disposition of such action, suit or
proceeding as authorized in the manner provided in Sections 180.0853 or
180.0856 of the Wisconsin Business Corporation Law upon receipt of an
undertaking by or on behalf of the corporate representative, secured by a
surety bond or other similar insurance paid for by such corporate
representative, to repay such amount unless it shall ultimately be
determined that he or she is entitled to be indemnified by the corporation
as authorized in this bylaw.
7.04. Additional Rights to Indemnification. The
indemnification provided by this bylaw shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under these
bylaws, any agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in his or her official capacity and as to
action in another capacity while holding such office, and shall continue
as to a person who has ceased to be a director, officer, employee or agent
and shall inure to the benefit of the heirs, executors and administrators
of such a person subject to the limitations imposed from time to time by
the Investment Company Act of 1940, as amended.
7.05. Insurance. This corporation shall have power to
purchase and maintain insurance on behalf of any corporate representative
against any liability asserted against him or her and incurred by him or
her in 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 under this bylaw provided that no insurance may be
purchased or maintained to protect any corporate representative against
liability for gross negligence, willful misfeasance, bad faith or reckless
disregard of the duties and obligations involved in the conduct of his or
her office.
7.06. Definitions. "Corporate Representative" means an
individual who is or was a director, officer, agent or employee of the
corporation or who serves or served another corporation, partnership,
joint venture, trust or other enterprise in one of these capacities at the
request of the corporation and who, by reason of his or her position, is,
was or is threatened to be made a party to a proceeding described herein.
ARTICLE VIII. AMENDMENTS
8.01. Amendments by Shareholders and Directors. The Board
of Directors shall have the power to alter or repeal any bylaws of the
corporation and to make new bylaws, except that the Board of Directors
shall not alter or repeal any bylaw made by the shareholders and, after
capital stock of the corporation is issued, shall not alter or repeal
Sections 7.01 through 7.06 of Article VII, Section 8.01 of Article VIII
and Sections 9.01 through 9.12 of Article IX. The shareholders shall have
the power at any meeting, if notice thereof be included in the notice of
such meeting, to alter or repeal any bylaws of the corporation and to make
new bylaws by vote of a majority of the shares entitled to vote at such
meeting, as the term "majority" is defined in the Investment Company Act
of 1940, as amended from time to time.
8.02. Implied Amendments. Any action taken or authorized by
the shareholders or by the Board of Directors which would be inconsistent
with the bylaws then in effect but which is taken or authorized by
affirmative vote of not less than the number of shares or the number of
directors required to amend the bylaws so that the bylaws would be
consistent with such action shall be given the same effect as though the
bylaws had been temporarily amended or suspended so far, but only so far,
as is necessary to permit the specific action so taken or authorized.
ARTICLE IX. MISCELLANEOUS
9.01. Bonding. Each officer and employee of the corporation
who singly or jointly with others has access to securities or funds of the
corporation, either directly or through authority to draw upon such funds
or to direct generally the disposition of such securities shall be bonded
against larceny and embezzlement by a reputable fidelity insurance company
authorized to do business in Wisconsin. Each such bond, which may be in
the form of an individual bond, a schedule or blanket bond covering the
corporation's officers and employees and the officers and employees of the
investment adviser to the corporation and other corporations to which said
investment adviser also acts as investment adviser, shall be in such form
and for such amount (determined at least annually) as the Board of
Directors shall determine in compliance with the requirements of Section
17(g) of the Investment Company Act of 1940, as amended from time to time,
and the rules, regulations or orders of the Securities and Exchange
Commission thereunder.
9.02. Compensation and Profit from Purchase and Sales. No
affiliated person of the corporation, as defined in the Investment Company
Act of 1940, or affiliated person of such person, shall, except as
permitted by Section 17(e) of the Investment Company Act of 1940, or the
rules, regulations or orders of the Securities and Exchange Commission
thereunder, (i) acting as agent, accept from any source any compensation
for the purchase or sale of any property or securities to or for the
corporation or any controlled company of the corporation, as defined in
the Investment Company Act of 1940, or (ii) acting as a broker, in
connection with the sale of securities to or by the corporation or any
controlled company of the corporation, receive from any source a
commission, fee or other remuneration for effecting such transaction. The
investment adviser to the corporation shall not profit directly or
indirectly from sales of securities to or from the corporation.
9.03. Transactions with Affiliated Person. No affiliated
person of the corporation, as defined in the Investment Company Act of
1940, or affiliated person of such person shall knowingly (i) sell any
security or other property to the corporation or to any company controlled
by the corporation, as defined in the Investment Company Act of 1940,
except shares of stock of the corporation or securities of which such
person is the issuer and which are part of a general offering to the
holders of a class of its securities, (ii) purchase from the corporation
or any such controlled company any security or property except shares of
stock of the corporation or securities of which such person is the issuer,
(iii) borrow money or other property from the corporation or any such
controlled company, or (iv) acting as a principal effect any transaction
in which the corporation or controlled company is a joint or joint and
several participant with such person; provided, however, that this section
shall not apply to any transaction permitted by Sections 17(a), (b), (c),
(d) or 21(b) of the Investment Company Act of 1940 or the rules,
regulations or orders of the Securities and Exchange Commission
thereunder.
9.04. Portfolio Transactions. The corporation shall not
purchase, acquire or retain:
(a) any security of an issuer, any of whose officers or
directors is an officer, director, or investment adviser of the
corporation or an affiliated person, as defined in the
Investment Company Act of 1940, of such investment adviser;
(b) any security issued by or any interest in the business
of an investment company, insurance company, broker, dealer,
underwriter or investment adviser, except as permitted under
Sections 12(d), (e) and (g) of the Investment Company Act of
1940, as amended from time to time, or the rules, regulations or
orders of the Securities and Exchange Commission thereunder;
(c) voting securities of another issuer, the acquisition
or retention of which would result in circular or cross
ownership, as defined in Section 20(c) of the Investment Company
Act of 1940; or
(d) during the existence of any underwriting or selling
syndicate, any security, except stock of the corporation, a
principal underwriter of which is an officer, director,
investment adviser or employee of the corporation, or is a
person (other than a company of the character described in
Section 12(d)(3) (A) and (B) of the Investment Company Act of
1940, as amended from time to time) of which any such officer,
director, investment adviser or employee is an affiliated
person, as defined in the Investment Company Act of 1940, unless
in acquiring such security the corporation is itself acting as a
principal underwriter for the issue, except as the Securities
and Exchange Commission, by rules, regulations, or order shall
permit.
9.05. General Business and Investment Activities. The
corporation shall not:
(a) purchase any security on margin, except such
short-term credits as are necessary for the clearance of
transactions;
(b) participate on a joint or joint and several basis in
any trading account in securities;
(c) effect a short sale of any security;
(d) act as an underwriter in the distribution of any
security other than stock of the corporation;
(e) make loans to other persons except through the
purchase of debt obligations permissible under Article III of
the articles of incorporation of this corporation and through
repurchase agreements provided that repurchase agreements
maturing in more than seven days will not exceed 10% of the
total net assets of this corporation;
(f) borrow money or issue senior securities except to the
extent permitted under Sections 18(f), (g) and (h) of the
Investment Company Act of 1940, as amended from time to time,
provided that the amount of money that may be borrowed shall not
exceed that which would be permitted under the margin
requirements of the Board of Governors of the Federal Reserve
System, in force at the time of borrowing, as specified in
Regulation T, or any amendment thereto;
(g) purchase or sell real estate or interests in real
estate or commodities;
(h) issue any warrant or right to subscribe to or purchase
stock of the corporation, except in the form of warrants or
rights to subscribe expiring not later than one hundred twenty
days after their issuance and issued exclusively and ratably to
its shareholders, or any voting trust certificate relating to
stock of the corporation;
(i) deviate from its policy in respect to concentration of
investments in any particular industry or group of industries as
reported in its registration statement under the Investment
Company Act of 1940, or deviate from any fundamental policy
recited in such registration statement pursuant to Section
8(b)(2) of the Investment Company Act of 1940;
(j) change the nature of its business so as to cease to be
an investment company;
(k) charge any sales load or commission in connection with
the sale or redemption of any stock of the corporation; provided
that the Board of Directors may impose a redemption charge of
not more than 2%, with such limitations and at such times as the
Board of Directors in its discretion shall determine.
9.06. Preparation and Maintenance of Accounts, Records and
Statements. The President, a Vice President or the Treasurer shall
prepare or cause to be prepared annually, a full and correct statement of
the affairs of the corporation, including a balance sheet or statement of
financial condition and a financial statement of operations for the
preceding fiscal year, which shall be submitted at the annual meeting of
the shareholders and filed within twenty days thereafter at the principal
office of the corporation in the State of Wisconsin. The proper officers
of the corporation shall also prepare, maintain and preserve or cause to
be prepared, maintained and preserved the accounts, books and other
documents required by Section 31 of the Investment Company Act of 1940 and
shall prepare and file or cause to be prepared and filed the reports
required by Section 30 of such Act. No financial statement shall be filed
with the Securities and Exchange Commission unless the officers or
employees who prepared or participated in the preparation of such
financial statement have been specifically designated for such purpose by
the Board of Directors.
9.07. Auditors. No independent public accountant shall be
retained or employed by the corporation to examine, certify or report on
its financial statements for any fiscal year unless such selection: (i)
shall have been approved by a majority of the entire Board of Directors
within thirty days before or after the beginning of such fiscal year or
before the annual meeting of shareholders for such fiscal year; (ii) shall
have been ratified at the next succeeding annual meeting of shareholders,
provided that any vacancy occurring between annual meetings due to the
death or resignation of such accountant may be filled by the Board of
Directors; and (iii) shall otherwise meet the requirements of Section 32
of the Investment Company Act of 1940.
9.08. Custodian. All securities, evidences of indebtedness
and funds of the corporation shall be entrusted to the custody of one or
more custodians or depositaries, each of which shall be either an eligible
foreign custodian as defined in Rule 17f-5 under the Investment Company
Act of 1940 or a bank or trust company which is a member of the Federal
Reserve System having capital, surplus and undivided profits of not less
than Two Million Dollars ($2,000,000), as set forth in its most recently
published report of condition, and the qualifications prescribed by and
pursuant to Section 17(f) and 26 of the Investment Company Act of 1940 and
which shall be employed as agent or agents of the corporation by the Board
of Directors.
9.09. Agreement with Custodian. Each such custodian shall
be employed pursuant to a written agreement which shall conform to the
requirements prescribed by any applicable rules and regulations of the
Securities and Exchange Commission under the Investment Company Act of
1940, and, except as otherwise provided by such rules and regulations,
shall provide substantially as follows:
(a) The custodian shall keep (i) all cash on deposit with
such other banks in the name of the custodian as the corporation
shall direct, and (ii) all securities in a separate account, not
commingled with other assets, in the name of the custodian, its
nominee or the corporation in care of the custodian, or in the
custody of the custodian or agents in street certificate or
bearer form. The custodian may utilize a central securities
clearing agency or securities depository in accordance with the
provisions of the Investment Company Act of 1940 and the rules
and regulations of the Securities and Exchange Commission
promulgated thereunder. The custodian shall receive and collect
the income or funds due with respect to such securities.
(b) Securities and cash held by the custodian may be
withdrawn only upon written order signed on behalf of the
corporation by two employees at least one of whom shall be an
officer included within a list of five officers and employees
certified for such purpose by resolution of the Board of
Directors.
(c) Securities held by the custodian may be withdrawn only
for the following purposes:
(i) The sale of such securities for the account
of the corporation with delivery and payment therefore
in accord with procedures and customs used by the
custodian in the sale of securities for the trust
estates for which it is trustee;
(ii) The delivery of securities in exchange for
or conversion into other securities alone, cash or
cash and other securities pursuant to the provisions
of such securities or a plan of merger, consolidation,
reorganization, recapitalization or readjustment of
the securities of the issuer thereof;
(iii) The surrender of warrants, rights or
similar securities in the exercise of such warrants,
rights or similar securities or the surrender of
interim receipts or temporary securities for
definitive securities;
(iv) The delivery of securities to a lender as
collateral on borrowing effected by the corporation or
to a broker selling any such securities in accordance
with "street delivery" customs;
(v) The delivery of securities as a redemption
in kind of or distribution of stock of the corporation
or in connection with a retirement of such securities;
(vi) The delivery of securities for other proper
corporate purposes;
provided that in each case specified in clauses (i), (iii) and (iv) the
payment, collateral or securities to be received are delivered to the
custodian simultaneously or as promptly thereafter as possible.
(d) Cash held by the custodian may be withdrawn only for the
following purposes:
(i) The purchase of securities to be retained by
the custodian with delivery and payment therefor in
accord with procedures and customs used by the
custodian in the purchase of securities for the trust
estates for which it is trustee;
(ii) The redemption or purchase of stock in the
corporation;
(iii) The payment of interest, dividends or
other distributions on stock of the corporation;
(iv) The payment of taxes, interest, the
investment adviser's fees incurred in connection with
the operation of the corporation and operating
expenses (including, without limitation thereto, fees
for legal, accounting and auditing services);
(v) The payment in connection with the
conversion, exchange or surrender of securities owned
by the corporation;
(vi) The deposit of funds in the name of the
custodian in or with any other bank or trust company
designated by the corporation;
(vii) Other proper corporate purposes as
certified by resolution of the Board of Directors.
9.10. Termination of Custodian Agreement. Any employment
agreement with a custodian shall be terminable on not more than sixty
days' notice in writing by the Board of Directors or the custodian and
upon any such termination the custodian shall turn over only to the
succeeding custodian designated by the Board of Directors all funds,
securities and property and documents of the corporation in its
possession.
9.11. Checks and Requisitions. Except as otherwise
authorized by the Board of Directors, all checks and drafts for the
payment of money shall be signed in the name of the corporation by a
custodian, and all requisitions or orders for the payment of money by a
custodian or for the issue of checks and drafts therefor, all promissory
notes, all assignments of stock or securities standing in the name of the
corporation, and all requisitions or orders for the assignment of stock or
securities standing in the name of a custodian or its nominee, or for the
execution of powers to transfer the same, shall be signed in the name of
the corporation by not less than two persons (who shall be among those
persons, not in excess of five, designated for this purpose by the Board
of Directors) at least one of which shall be an officer. Promissory
notes, checks or drafts payable to the corporation may be endorsed only to
the order of a custodian or its nominee by the Treasurer or President or
by such other person or persons as shall be thereto authorized by the
Board of Directors.
9.12. Dividends. Dividends upon the stock of the
corporation, subject to the provisions of the charter, if any, may be
declared by the Board of Directors at any regular or special meeting,
pursuant to law. The source of each dividend payment shall be disclosed
to the shareholders receiving such dividend, to the extent required by the
laws of the State of Wisconsin and by Section 19 of the Investment Company
Act of 1940 and the rules and regulations of the Securities and Exchange
Commission thereunder. The total of each dividend payment made to
shareholders in respect of any one fiscal year shall be approximately
equal to the sum of (a) the net income for such fiscal year exclusive of
profits or losses realized upon the sale of securities or other property,
and (b) the excess of profits over losses on sales of securities or other
property for such fiscal year; provided the above provision shall be
interpreted to give the Board of Directors the power in its discretion to
distribute for any fiscal year as ordinary dividends and as capital gains
distributions, respectively, amounts sufficient to enable the corporation
to avoid or reduce its tax liability.
EXHIBIT 5.1
INVESTMENT ADVISORY AGREEMENT
Agreement made this 21st day of February, 1990, between The
Primary Trend Fund, Inc., a Wisconsin corporation (the "Fund"), and Arnold
Investment Counsel Incorporated, a Wisconsin corporation (the "Adviser").
W I T N E S S E T H:
WHEREAS, the Fund is in the process of registering with the
Securities and Exchange Commission as as open-end management investment
company under the Investment Company Act of 1940 (the "Act");
WHEREAS, upon so registering with the Securities and Exchange
Commission, the Fund will be a registered investment company; and
WHEREAS, the Fund desires to retain the Adviser, which is an
investment adviser registered under the Investment Advisers Act of 1940
and which is engaged principally in the business of rendering investment
supervisory services within the meaning of Section 202(a)(13) of the
Investment Advisers Act of 1940, as its investment adviser.
NOW, THEREFORE, the Fund and the Adviser do mutually promise and
agree as follows:
1. Employment. The Fund hereby employs the Adviser to manage
the investment and reinvestment of the assets of the Fund for the period
and on the terms set forth in this Agreement. The Adviser hereby accepts
such employment for the compensation herein provided and agrees during
such period to render the services and to assume the obligations herein
set forth.
2. Authority of the Adviser. The Adviser shall supervise and
manage the investment portfolio of the Fund, and, subject to such policies
as the board of directors of the Fund may determine, direct the purchase
and sale of investment securities in the day to day management of the
Fund. The Adviser 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. However, one or more
shareholders, officers, directors or employees of the Adviser may serve as
directors and/or officers of the Fund, but without compensation or
reimbursement of expenses for such services from the Fund. Nothing herein
contained shall be deemed to require the Fund to take any action contrary
to its Articles of Incorporation or any applicable statute or regulation,
or to relieve or deprive the board of directors of the Fund of its
responsibility for and control of the affairs of the Fund.
3. Expenses. The Adviser, at its own expense and without
reimbursement from the Fund, shall furnish office space, and all necessary
office facilities, equipment and executive personnel for managing the
investments of the Fund and maintaining its organization. The Adviser, at
its own expense and without reimbursement from the Fund, shall twice
monthly provide each shareholder of the Fund a copy of The Primary Trend,
an investment letter published by the Adviser. The Adviser shall pay the
salaries and fees of all officers and directors of the Fund (except the
fees paid to those directors who are not interested persons of the
Adviser, as defined in the Act, and who are not officers or employees of
the Fund). The Adviser shall also bear all sales and promotional expenses
of the Fund, except for expenses incurred in complying with laws
regulating the issue or sale of securities. The Adviser shall not be
required to pay any other expenses of the Fund except as provided herein
if the total expenses borne by the Fund, including the Adviser's fee, but
excluding all federal, state and local taxes, interest, brokerage
commissions and extraordinary items, in any year exceed that percentage of
the average net asset value of the Fund for such year, as determined by
valuations made as of the close of each business day, which is the most
restrictive percentage provided by the state laws of the various states in
which the Fund's common stock is qualified for sale or, if the states in
which the Fund's common stock is qualified for sale impose no such
restrictions, 2%. The expenses of the Fund's operations borne by the Fund
include by way of illustration and not limitation, directors fees paid to
those directors who are not interested persons of the Fund, as defined in
the Act, the costs of preparing and printing its registration statements
required under the Securities Act of 1933 and the Act (and amendments
thereto), the expense of registering its shares with the Securities and
Exchange Commission and in the various states, the printing and
distribution cost of prospectuses mailed to existing shareholders, the
cost of stock certificates, director and officer liability insurance,
reports to shareholders, reports to government authorities and proxy
statements, interest charges, taxes, legal expenses, salaries of
administrative and clerical personnel, association membership dues,
auditing and accounting services, insurance premiums, brokerage and other
expenses connected with the execution of portfolio securities
transactions, fees and expenses of the custodian of the Fund's assets,
expenses of calculating the net asset value and repurchasing and redeeming
shares, printing and mailing expenses, charges and expenses of dividend
disbursing agents, registrars and stock transfer agents and the cost of
keeping all necessary shareholder records and accounts.
The Fund shall monitor its expense ratio on a monthly basis. If
the accrued amount of the expenses of the Fund exceeds the expense
limitation established herein, the Fund shall create an account receivable
from the Adviser in the amount of such excess. In such a situation the
monthly payment of the Adviser's fee will be reduced by the amount of such
excess, subject to adjustment month by month during the balance of the
Fund's fiscal year if accrued expenses thereafter fall below the expense
limitation.
4. Compensation of the Adviser. For the services to be
rendered by the Adviser hereunder, the Fund shall pay to the Adviser an
advisory fee, paid monthly, based on the average net asset value of the
Fund, as determined by valuations made as of the close of each business
day of the month. The annual advisory fee shall be 0.74 of 1% of such net
asset value. For any month in which this Agreement is not in effect for
the entire month, such fee shall be reduced proportionately on the basis
of the number of calendar days during which it is in effect and the fee
computed upon the average net asset value of the business days during
which it is so in effect.
5. Ownership of Shares of the Fund. The Adviser shall not
take an ownership position in the Fund, and shall not permit any of its
shareholders, officers, directors or employees to take a long or short
position in the shares of the Fund, except for the purchase of shares of
the Fund for investment purposes at the same price as that available to
the public at the time of purchase or in connection with the initial
capitalization of the Fund.
6. Exclusivity. The services of the Adviser to the Fund
hereunder are not to be deemed exclusive and the Adviser shall be free to
furnish similar services to others as long as the services hereunder are
not impaired thereby. Although the Adviser has permitted and is permitting
the Fund to use the name "The Primary Trend," it is understood and agreed
that the Adviser reserves the right to use and to permit other persons,
firms or corporations, including investment companies, to use such name,
and that the Fund will not use such name if the Adviser ceases to be the
Fund's sole investment adviser. During the period that this Agreement is
in effect, the Adviser shall be the Fund's sole investment adviser.
7. Liability. In the absence of willful misfeasance, bad
faith, gross negligence or reckless disregard of obligations or duties
hereunder on the part of the Adviser, the Adviser shall not be subject to
liability to the Fund or to any shareholder of the Fund for any act or
omission in the course of, or connected with, rendering services
hereunder, or for any losses that may be sustained in the purchase,
holding or sale of any security.
8. Brokerage Commissions. The Adviser may cause the Fund to
pay a broker-dealer which provides brokerage and research services, as
such services are defined in Section 28(e) of the Securities Exchange Act
of 1934 (the "Exchange Act"), to the Adviser a commission for effecting a
security transaction in excess of the amount another broker-dealer would
have charged for effecting such transaction, if the Adviser determines in
good faith that such amount of commission is reasonable in relation to the
value of brokerage and research services provided by the executing
broker-dealer viewed in terms of either that particular transaction or his
overall responsibilities with respect to the accounts as to which he
exercises investment discretion (as defined in Section 3(a)(35) of the
Exchange Act).
9. Amendments. This Agreement may be amended by the mutual
consent of the parties; provided, however, that in no event may it be
amended without the approval of the board of directors of the Fund in the
manner required by the Act, and by the vote of the majority of the
outstanding voting securities of the Fund, as defined in the Act.
10. Termination. This Agreement may be terminated at any time,
without the payment of any penalty, by the board of directors of the Fund
or by a vote of the majority of the outstanding voting securities of the
Fund, as defined in the Act, upon giving sixty (60) days' written notice
to the Adviser. This Agreement may be terminated by the Adviser at any
time upon the giving of sixty (60) days' written notice to the Fund. This
Agreement shall terminate automatically in the event of its assignment (as
defined in Section 2(a)(4) of the Act). Subject to prior termination as
hereinbefore provided, this Agreement shall continue in effect for two (2)
years from the date hereof and indefinitely thereafter, but only so long
as the continuance after such two (2) year period is specifically approved
annually by (i) the board of directors of the Fund or by the vote of the
majority of the outstanding voting securities of the Fund, as defined in
the Act, and (ii) the board of directors of the Fund in the manner
required by the Act, provided that any such approval may be made effective
not more than sixty (60) days thereafter.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed on the day first above written.
ARNOLD INVESTMENT COUNSEL INCORPORATED
By: By:
Secretary President
THE PRIMARY TREND FUND, INC.
By: By:
Secretary President
EXHIBIT 8
CUSTODIAN AGREEMENT
THIS AGREEMENT made on August 26, 1986, between THE PRIMARY
TREND FUND, INC., a Wisconsin corporation (hereinafter called the
"Corporation"), and FIRST WISCONSIN TRUST COMPANY, a corporation organized
under the laws of the State of Wisconsin (hereinafter called "Custodian"),
W I T N E S S E T H :
WHEREAS, the Corporation desires that its securities and cash
shall be hereafter held and administered by Custodian pursuant to the
terms of this Agreement.
NOW, THEREFORE, in consideration of the mutual agreements herein
made, the Corporation and Custodian agree as follows:
1. Definitions
The word "securities" as used herein include stocks, shares,
bonds, debentures, notes, mortgages or other obligations and any
certificates, receipts, warrants or other instruments representing rights
to receive, purchase or subscribe for the same, or evidencing or
representing any other rights or interests therein, or in any property or
assets.
The words "officers' certificate" shall mean a request or
direction or certification in writing signed in the name of the
Corporation by any two of the President, a Vice President, the Secretary
and the Treasurer of the Corporation, or any other persons duly authorized
to sign by the Board of Directors of the Corporation.
2. Names, Titles and Signatures of Corporation's Officers
An officer of the Corporation will certify to Custodian the
names and signatures of those persons authorized to sign the officers'
certificates described in Section 1 hereof, and the names of the members
of the Board of Directors, together with any changes which may occur from
time to time.
3. Receipt and Disbursement of Money
A. Custodian shall open and maintain a separate account or
accounts in the name of the Corporation, subject only to draft or order by
Custodian acting pursuant to the terms of this Agreement. Custodian shall
hold in such account or accounts, subject to the provisions hereof, all
cash received by it from or for the account of the Corporation. Custodian
shall make payments of cash to, or for the account of, the Corporation
from such cash only (a) for the purchase of securities for the portfolio
of the Corporation upon the delivery of such securities to Custodian,
registered in the name of the Corporation or of the nominee of Custodian
referred to in Section 7 or in proper form for transfer, (b) for the
purchase or redemption of shares of the common stock of the Corporation
upon delivery thereof to Custodian, (c) for the payment of interest,
dividends, taxes, investment adviser's fees or operating expenses
(including, without limitation thereto, fees for legal, accounting,
auditing and custodian services and expenses for printing and postage),
(d) for payments in connection with the conversion, exchange or surrender
of securities owned or subscribed to by the Corporation held by or to be
delivered to Custodian, or (e) for other proper corporate purposes
certified by resolution of the Board of Directors of the Corporation.
Before making any such payment Custodian shall receive (and may rely upon)
an officers' certificate requesting such payment and stating that it is
for a purpose permitted under the terms of items (a), (b), (c) or (d) of
this Subsection A, and also, in respect of item (e), upon receipt of an
officers' certificate specifying the amount of such payment, setting forth
the purpose for which such payment is to be made, declaring such purpose
to be a proper corporate purpose, and naming the person or persons to whom
such payment is to be made; provided, however, that an officers'
certificate need not precede the disbursement of cash for the purpose of
purchasing a money market instrument if the President, a Vice President,
the Secretary or the Treasurer of the Corporation issues appropriate oral
instructions to Custodian and an appropriate officers' certificate is
received by Custodian within two business days thereafter.
B. Custodian is hereby authorized to endorse and collect all
checks, drafts or other orders for the payment of money received by
Custodian for the account of the Corporation.
4. Receipt of Securities
Custodian shall hold in a separate account, and physically
segregated at all times from those of any other persons, firms or
corporations, pursuant to the provisions hereof, all securities received
by it from or for the account of the Corporation. All such securities are
to be held or disposed of by Custodian for, and subject at all times to
the instructions of, the Corporation pursuant to the terms of this
Agreement. The Custodian shall have no power or authority to assign,
hypothecate, pledge or otherwise dispose of any such securities and
investments, except pursuant to the direction of the Corporation and only
for the account of the Corporation as set forth in Section 5 of this
Agreement.
5. Transfer, Exchange, Redelivery, etc. of Securities
Custodian shall have sole power to release or deliver any
securities of the Corporation held by it pursuant to this Agreement.
Custodian agrees to transfer, exchange or deliver securities held by it
hereunder only (a) for sales of such securities for the account of the
Corporation upon receipt by Custodian of payment therefor, (b) when such
securities are called, redeemed or retired or otherwise become payable,
(c) for examination by any broker selling any such securities in
accordance with "street delivery" custom, (d) in exchange for, or upon
conversion into, other securities alone or other securities and cash
whether pursuant to any plan of merger, consolidation, reorganization,
recapitalization or readjustment, or otherwise, (e) upon conversion of
such securities pursuant to their terms into other securities, (f) upon
exercise of subscription, purchase or other similar rights represented by
such securities, (g) for the purpose of exchanging interim receipts or
temporary securities for definitive securities, (h) for the purpose of
redeeming in kind shares of the Corporation Fund upon delivery thereof to
Custodian, or (i) for other proper corporate purposes. As to any
deliveries made by Custodian pursuant to items (a), (b), (d), (e), (f) and
(g), securities or cash receivable in exchange therefor shall be
deliverable to Custodian. Before making any such transfer, exchange or
delivery, Custodian shall receive (and may rely upon) an officers'
certificate requesting such transfer, exchange or delivery, and stating
that it is for a purpose permitted under the terms of items (a), (b), (c),
(d), (e), (f), (g) or (h) of this Section 5 and also, in respect of item
(i), upon receipt of an officers' certificate specifying the securities to
be delivered, setting forth the purpose for which such delivery is to be
made, declaring such purpose to be a proper corporate purpose, and naming
the person or persons to whom delivery of such securities shall be made;
provided, however, that an officers' certificate need not precede any such
transfer, exchange or delivery of a money market instrument if the
President, a Vice President, the Secretary or the Treasurer of the
Corporation issues appropriate oral instructions to Custodian and an
appropriate officers' certificate is received by Custodian within two
business days thereafter.
6. Custodian's Acts Without Instructions
Unless and until Custodian receives an officers' certificate to
the contrary, Custodian shall: (a) present for payment all coupons and
other income items held by it for the account of the Corporation which
call for payment upon presentation and hold the cash received by it upon
such payment for the account of the Corporation; (b) collect interest and
cash dividends received, with notice to the Corporation, for the account
of the Corporation; (c) hold for the account of the Corporation hereunder
all stock dividends, rights and similar securities issued with respect to
any securities held by it hereunder; and (d) execute as agent on behalf of
the Corporation all necessary ownership certificates required by the
Internal Revenue Code or the Income Tax Regulations of the United States
Treasury Department or under the laws of any state now or hereafter in
effect, inserting the Corporation's name on such certificates as the owner
of the securities covered thereby, to the extent it may lawfully do so.
7. Registration of Securities
Except as otherwise directed by an officers' certificate,
Custodian shall register all securities, except such as are in bearer
form, in the name of a registered nominee of Custodian as defined in the
Internal Revenue Code and any Regulations of the Treasury Department
issued hereunder or in any provision of any subsequent Federal tax law
exempting such transaction from liability for stock transfer taxes, and
shall execute and deliver all such certificates in connection therewith as
may be required by such laws or regulations or under the laws of any
state. Custodian shall use its best efforts to the end that the specific
securities held by it hereunder shall be at all times identifiable in its
records.
The Corporation shall from time to time furnish to Custodian
appropriate instruments to enable Custodian to hold or deliver in proper
form for transfer, or to register in the name of its registered nominee,
any securities which it may hold for the account of the Corporation and
which may from time to time be registered in the name of the Corporation.
8. Voting and Other Action
Neither Custodian nor any nominee of Custodian shall vote any of
the securities held hereunder by or for the account of the Corporation,
except in accordance with the instructions contained in an officers'
certificate. Custodian shall deliver, or cause to be executed and
delivered, to the Corporation all notices, proxies and proxy soliciting
materials with relation to such securities, such proxies to be executed by
the registered holder of such securities (if registered otherwise than in
the name of the Corporation), but without indicating the manner in which
such proxies are to be voted.
9. Transfer Tax and Other Disbursements
The Corporation shall pay or reimburse Custodian from time to
time for any transfer taxes payable upon transfers of securities made
hereunder, and for all other necessary and proper disbursements and
expenses made or incurred by Custodian in the performance of this
Agreement.
Custodian shall execute and deliver such certificates in
connection with securities delivered to it or by it under this Agreement
as may be required under the provisions of the Internal Revenue Code and
any Regulations of the Treasury Department issued thereunder, or under the
laws of any state, to exempt from taxation any exemptible transfers and/or
deliveries of any such securities.
10. Concerning Custodian
Custodian shall be paid as compensation for its services
pursuant to this Agreement such compensation as may from time to time be
agreed upon in writing between the two parties. Until modified in writing
such compensation shall be as set forth in Exhibit A attached hereto.
Custodian shall not be liable for any action taken in good faith
upon any certificate herein described or certified copy of any resolution
of the Board of Directors, and may rely on the genuineness of any such
document which it may in good faith believe to have been validly executed.
The Corporation agrees to indemnify and hold harmless Custodian
and its nominee from all taxes, charges, expenses, assessments, claims and
liabilities (including counsel fees) incurred or assessed against it or by
its nominee in connection with the performance of this Agreement, except
such as may arise from its or its nominee's own negligent action,
negligent failure to act or willful misconduct. Custodian is authorized to
charge the account of the Corporation for such items. In the event of any
advance of cash for any purpose made by Custodian resulting from orders or
instructions of the Corporation, or in the event that Custodian or its
nominee shall incur or be assessed any taxes, charges, expenses,
assessments, claims or liabilities in connection with the performance of
this Agreement, except such as may arise from its or its nominee's own
negligent action, negligent failure to act or willful misconduct, any
property at any time held for the account of the Corporation shall be
security therefor.
11. Reports by Custodian
Custodian shall furnish the Corporation weekly with a statement
summarizing all transactions and entries for the account of the
Corporation. Custodian shall furnish the Corporation at the end of every
month with a list of the portfolio securities showing the aggregate cost
of each issue. Custodian shall furnish the Corporation, at the close of
each quarter of the Corporation's fiscal year, with a list showing the
cost of the securities held by it for the Corporation hereunder, adjusted
for all commitments confirmed by the Corporation as of such close,
certified by a duly authorized officer of Custodian. The books and
records of Custodian pertaining to its actions under this Agreement shall
be open to inspection and audit at reasonable times by officers of, and of
auditors employed by, the Corporation.
12. Termination or Assignment
This Agreement may be terminated by the Corporation, or by
Custodian, on sixty days' notice, given in writing and sent by registered
mail to Custodian at P. O. Box 2054, Milwaukee, Wisconsin 53201, or to the
Corporation at 700 North Water Street, Milwaukee, Wisconsin 53202, as the
case may be. Upon any termination of this Agreement, pending appointment
of a successor to Custodian or a vote of the shareholders of any Fund to
dissolve or to function without a custodian of its cash, securities and
other property, Custodian shall not deliver cash, securities or other
property of such Fund to the Corporation, but may deliver them to a bank
or trust company in the City of Milwaukee of its own selection, having an
aggregate capital, surplus and undivided profits, as shown by its last
published report, of not less than Two Million Dollars ($2,000,000) as a
custodian for the Corporation to be held under terms similar to those of
this Agreement; provided, however, that Custodian shall not be required to
make any such delivery or payment until full payment shall have been made
by the Corporation of all liabilities constituting a charge on or against
the properties then held by Custodian or on or against Custodian, and
until full payment shall have been made to Custodian of all its fees,
compensation, costs and expenses, subject to the provisions of Section 10
of this Agreement.
This Agreement may not be assigned by Custodian without the
consent of the Corporation, authorized or approved by a resolution of its
Board of Directors.
13. Deposits of Securities in Securities Depositories
No provision of this Agreement shall be deemed to prevent the
use by Custodian of a central securities clearing agency or securities
depository; provided, however, that Custodian and the central securities
clearing agency or securities depository meet all applicable federal and
state laws and regulations and the Board of Directors of the Corporation
approves by resolution the use of such central securities clearing agency
or securities depository.
14. Records
To the extent that Custodian in any capacity prepares or
maintains any records required to be maintained and preserved by the
Corporation pursuant to the provisions of the Investment Company Act of
1940, as amended, or the rules and regulations promulgated thereunder,
Custodian agrees to make any such records available to the Corporation
upon
request and to preserve such records for the periods prescribed in Rule
3la-2 under the Investment Company Act of 1940, as amended.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed and their respective corporate seals to be
affixed hereto as of the date first above written by their respective
officers thereunto duly authorized.
Executed in several counterparts, each of which is an original.
Attest: FIRST WISCONSIN TRUST COMPANY
___________________________ By ____________________________
Attest: THE PRIMARY TREND FUND, INC.
___________________________ By ____________________________
ADMINISTRATION AND FUND ACCOUNTING AGREEMENT
THIS AGREEMENT is made as of this 27th day of January, 1997, by and
between The Primary Trend Fund, Inc., a Wisconsin corporation (the
"Corporation"), and Sunstone Financial Group, Inc., a Wisconsin
corporation (the "Administrator").
WHEREAS, the Corporation is an open-end investment company registered
under the Investment Company Act of 1940, as amended (the "1940 Act") and
is authorized to issue shares of common stock (the "Shares") in separate
series with each such series representing interests in a separate
portfolio of securities and other assets; and
WHEREAS, the Corporation and the Administrator desire to enter into an
agreement pursuant to which the Administrator shall provide administration
and fund accounting services to such investment portfolios of the
Corporation as are listed on Schedule A hereto and any additional
investment portfolios the Corporation and Administrator may agree upon and
include on Schedule A as such Schedule may be amended from time to time
(such investment portfolios and any additional investment portfolios are
individually referred to as a "Fund" and collectively the "Funds").
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein contained and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto, intending to be legally
bound, do hereby agree as follows:
1. Appointment
The Corporation hereby appoints the Administrator as administrator and
fund accountant of the Funds for the period and on the terms set forth in
this Agreement. The Administrator accepts such appointment and agrees to
render the services herein set forth, for the compensation herein
provided.
2. Services as Administrator
(a) Subject to the direction and control of the Corporation's Board
of Directors and utilizing information provided by the Corporation and its
agents, the Administrator will: (1) provide office space, facilities,
equipment and personnel to carry out its services hereunder; (2) compile
data for and prepare with respect to the Funds timely Notices to the
Securities and Exchange Commission (the "Commission") required pursuant to
Rule 24f-2 under the 1940 Act and Semi-Annual Reports on Form N-SAR; (3)
assist in the preparation for execution by the Corporation and file all
federal income and excise tax returns and state income tax returns (and
such other required tax filings as may be agreed to by the parties) other
than those required to be made by the Corporation's custodian or transfer
agent, subject to review and approval of the Corporation and the
Corporation's independent accountants; (4) prepare the financial
statements for the Annual and Semi-Annual Reports required pursuant to
Section 30(d) under the 1940 Act; (5) assist the Corporation's legal
counsel in the preparation of the Registration Statement for the
Corporation (on Form N-1A or any replacement therefor) and any amendments
thereto; (6) determine and periodically monitor each Fund's income and
expense accruals and cause all appropriate expenses to be paid from
Corporation assets on proper authorization from the Corporation; (7)
calculate daily net asset values and income factors of each Fund; (8)
maintain all general ledger accounts and related subledgers; (9) perform
security valuations; (10) assist in the acquisition of the Corporation's
fidelity bond required by the Act, monitor the amount of the bond and make
the necessary Commission filings related thereto; (11) from time to time
as the Administrator deems appropriate, check each Fund's compliance with
the policies and limitations of each Fund relating to the portfolio
investments as set forth in the Prospectus and Statement of Additional
Information and monitor each Fund's status as a regulated investment
company under Subchapter M of the Internal Revenue Code of 1986, as
amended (but these functions shall not relieve the Corporation's
investment adviser and sub-advisers, if any, of their primary day-to-day
responsibility for assuring such compliance); (12) maintain, and/or
coordinate with the other service providers the maintenance of, the
accounts, books and other documents required pursuant to Rule 31a-1(a) and
(b) under the 1940 Act; (13) prepare and/or file securities registration
compliance filings with the states identified by the Corporation to
maintain the Funds' securities registrations, with the advice of the
Corporation's legal counsel; (14) develop with legal counsel and secretary
of the Corporation an agenda for each board meeting and, if requested by
the Directors, attend board meetings and prepare minutes; (15) prepare
Form 1099s for directors and other fund vendors; (16) calculate dividend
and capital gains distributions subject to review and approval by the
Corporation and its independent accountants; and (17) generally assist in
the Corporation's administrative operations as mutually agreed to by the
parties. The duties of the Administrator shall be confined to those
expressly set forth herein, and no implied duties are assumed by or may be
asserted against the Administrator hereunder.
(b) The Directors of the Corporation shall cause the officers,
investment adviser, legal counsel, independent accountants, transfer agent
and custodian for the Funds to cooperate with the Administrator and to
provide the Administrator, upon request, with such information, documents
and advice relating to the Funds and the Corporation as is within the
possession or knowledge of such persons, in order to enable the
Administrator to perform its duties hereunder. In connection with its
duties hereunder, the Administrator shall be entitled to rely, and shall
be held harmless by the Corporation when acting in reliance, upon the
instruction, advice, information or any documents relating to the Funds
provided to the Administrator by an officer or representative of the Funds
or by any of the aforementioned persons. The Administrator shall be
entitled to rely on any document which it reasonably believes to be
genuine and to have been signed or presented by the proper party. Fees
charged by such persons shall be an expense of the Corporation. The
Administrator shall be entitled to rely on any document which it
reasonably believes to be genuine and to have been signed or presented by
the proper party. The Administrator shall not be held to have notice of
any change of authority of any officer, agent, representative or employee
of the Corporation until receipt of written notice thereof from the
Corporation.
(c) In compliance with the requirements of Rule 31a-3 under the 1940
Act, the Administrator hereby agrees that all records which it maintains
for the Corporation are the property of the Corporation and further agrees
to surrender promptly to the Corporation any of such records upon the
Corporation's request. Subject to the terms of Section 6, the
Administrator further agrees to preserve for the periods prescribed by
Rule 31a-2 under the 1940 Act the records described in (a) above which are
maintained by the Administrator for the Corporation.
(d) It is understood that in determining security valuations, the
Administrator employs one or more pricing services to determine valuations
of portfolio securities for purposes of calculating net asset values of
the Funds. The Administrator shall identify to the Corporation and the
Board of Directors any such pricing service utilized on behalf of the
Corporation. The Administrator is authorized to rely on the prices
provided by such service(s) or by the Funds' investment adviser or other
authorized representative of the Funds, and shall not be liable for losses
to the Corporation or its securityholders as a result of its reliance on
the valuations provided by the approved pricing service(s) or the
representative.
(e) The Corporation's Board of Directors and the Funds' investment
adviser have and retain primary responsibility for all compliance matters
relating to the Funds including but not limited to compliance with the
Investment Company Act of 1940, as amended, the Internal Revenue Code of
1986, as amended, and the policies and limitations of each Fund relating
to the portfolio investments as set forth in the Prospectus and Statement
of Additional Information.
3. Fees; Delegation; Expenses
(a) In consideration of the services rendered pursuant to this
Agreement, the Corporation will pay the Administrator a fee, computed
daily and payable monthly, as provided in Schedule B hereto, plus out-of-
pocket expenses. The Corporation shall also pay the Administrator for
organizational start-up services provided on behalf of the Funds as
specified in Schedule B. Out-of-pocket expenses include, but are not
limited to, travel, lodging and meals in connection with travel on behalf
of the Corporation, programming and related expenses (previously incurred
or to be incurred by Administrator) in connection with providing
electronic transmission of data between the Administrator and the Funds'
other service providers, brokers, dealers and depositories, fees and
expenses of pricing services, and photocopying, postage and overnight
delivery expenses. Fees shall be paid by each Fund at a rate that would
aggregate at least the applicable minimum fee for each Fund.
(b) For the purpose of determining fees payable to the
Administrator, net asset value shall be computed in accordance with the
Corporation's Prospectuses and resolutions of the Corporation's Board of
Directors. The fee for the period from the day of the month this Agreement
is entered into until the end of that month shall be pro-rated according
to the proportion which such period bears to the full monthly period.
Upon any termination of this Agreement before the end of any month, the
fee for such part of a month shall be pro-rated according to the
proportion which such period bears to the full monthly period and shall be
payable upon the date of termination of this Agreement. Should the
Corporation be liquidated, merged with or acquired by another fund or
investment company, any accrued fees shall be immediately payable. Such
fee as is attributable to each Fund shall be a separate charge to each
Fund and shall be the several (and not joint or joint and several)
obligation of each such Fund.
(c) The Administrator will bear all expenses in connection with the
performance of its services under this Agreement except as otherwise
provided herein. Other costs and expenses to be incurred in the operation
of the Funds, including, but not limited to: taxes; interest; brokerage
fees and commissions, if any; salaries, fees and expenses of officers and
Directors; Commission fees and state Blue Sky fees; advisory fees; charges
of custodians, transfer agents, dividend disbursing and accounting
services agents; security pricing services; insurance premiums; outside
auditing and legal expenses; costs of organization and maintenance of
corporate existence; typesetting, printing, proofing and mailing of
prospectuses, statements of additional information, supplements, notices
and proxy materials for regulatory purposes and for distribution to
current shareholders; typesetting, printing, proofing and mailing and
other costs of shareholder reports; expenses in connection with the
electronic transmission of documents and information including electronic
filings with the Commission and the states: expenses incidental to holding
meetings of the Fund's shareholders and Directors; and any extraordinary
expenses; will be borne by the Funds or their investment adviser.
Expenses incurred for distribution of shares, including the typesetting,
printing, proofing and mailing of prospectuses for persons who are not
shareholders of the Corporation, will be borne by the investment adviser,
except for such expenses permitted to be paid by the Corporation under a
distribution plan adopted in accordance with applicable laws.
4. Proprietary and Confidential Information
The Administrator agrees on behalf of itself and its employees to
treat confidentially and as proprietary information of the Corporation all
records relative to the Funds and prior, present or potential shareholders
of the Corporation (and clients of said shareholders), and not to use such
records and information for any purpose other than performance of its
responsibilities and duties hereunder, except after prior notification to
and approval in writing by the Corporation, which approval shall not be
unreasonably withheld and may not be withheld where the Administrator may
be exposed to civil or criminal proceedings for failure to comply, when
requested to divulge such information by duly constituted authorities,
when subject to governmental or regulatory audit or investigation, or when
so requested by the Corporation. Records and information which have become
known to the public through no wrongful act of the Administrator or any of
its employees, agents or representatives shall not be subject to this
paragraph.
5. Limitation of Liability
(a) The Administrator shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Funds in
connection with the matters to which this Agreement relates, except for a
loss resulting from the Administrator's willful misfeasance, bad faith or
negligence in the performance of its duties or from reckless disregard by
it of its obligations and duties under this Agreement. Furthermore, the
Administrator shall not be liable for any action taken or omitted to be
taken in accordance with instructions received by the Administrator from
an officer or representative of the Corporation.
(b) The Administrator assumes no responsibility hereunder,
and shall not be liable, for any damage, loss of data, errors, delay or
any other loss whatsoever caused by events beyond its reasonable control.
The Administrator will, however, take all reasonable steps to minimize
service interruptions for any period that such interruption continues
beyond its control.
6. Term
(a) This Agreement shall become effective with respect to each Fund
listed on Schedule A hereof as of the date hereof and, with respect to
each Fund not in existence on that date, on the date an amendment to
Schedule A to this Agreement relating to that Fund is executed. Unless
terminated as provided herein, this Agreement shall continue in effect
with respect to each Fund until January 27, 1998. Thereafter, if not
terminated as provided herein, this Agreement shall continue automatically
in effect as to each Fund for successive annual periods.
(b) This Agreement may be terminated with respect to any one or more
particular Funds without penalty (i) upon mutual consent of the parties,
or (ii) by either party upon not less than ninety (90) days' written
notice to the other party (which notice may be waived by the party
entitled to the notice). The terms of this Agreement shall not be waived,
altered, modified, amended or supplemented in any manner whatsoever except
by a written instrument signed by the Administrator and the Corporation.
(c) Notwithstanding anything herein to the contrary, upon the
termination of this Agreement or the liquidation of a Fund or the
Corporation, the Administrator shall deliver the records of the Fund(s)
and/or Corporation as the case may be to the Corporation or person(s)
designated by the Corporation and thereafter the Corporation or its
designee shall be solely responsible for preserving the records for the
periods required by all applicable laws, rules and regulations. In
addition, in the event of termination of this Agreement, or the proposed
liquidation or merger of the Corporation or a Fund(s), and the Corporation
requests the Administrator to provide services in connection therewith,
the Administrator shall provide such services and be entitled to such
compensation as the parties may mutually agree.
7. Non-Exclusivity
The services of the Administrator rendered to the Corporation are not
deemed to be exclusive. The Administrator may render such services and
any other services to others, including other investment companies. The
Corporation recognizes that from time to time directors, officers and
employees of the Administrator may serve as trustees, directors, officers
and employees of other entities (including other investment companies),
that such other entities may include the name of the Administrator as part
of their name and that the Administrator or its affiliates may enter into
investment advisory or other agreements with such other entities.
8. Governing Law; Invalidity
This Agreement shall be governed by and construed in accordance with
the laws of the State of Wisconsin. To the extent that the applicable
laws of the State of Wisconsin, or any of the provisions herein, conflict
with the applicable provisions of the 1940 Act, the latter shall control,
and nothing herein shall be construed in a manner inconsistent with the
1940 Act or any rule or order of the Commission thereunder. Any provision
of this Agreement which may be determined by competent authority to be
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
9. Notices
Any notice required or to be permitted to be given by either party to
the other shall be in writing and shall be deemed to have been given when
sent by registered or certified mail, postage prepaid, return receipt
requested, as follows: Notice to the Administrator shall be sent to
Sunstone Financial Group, Inc., 207 East Buffalo Street, Suite 400,
Milwaukee, WI, 53202, Attention: Miriam M. Allison, and notice to the
Corporation shall be sent to The Primary Trend Fund, Inc., 700 North Water
Street, Milwaukee, Wisconsin 53202, Attention: President.
10. Entire Agreement
This Agreement constitutes the entire Agreement of the parties hereto.
11. Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be deemed to be an original agreement but such counterparts
shall together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by a duly authorized officer as of the day and year first
above written.
THE PRIMARY TREND FUND, INC.
(the "Corporation")
By: /s/
President
SUNSTONE FINANCIAL GROUP, INC.
("Administrator")
By: /s/
President
<PAGE>
Schedule A
to the
Administration and Fund Accounting Agreement
by and between
The Primary Trend Fund, Inc.
and
Sunstone Financial Group, Inc.
Name of Funds
The Primary Trend Fund
<PAGE>
Schedule B
to the
Administration and Fund Accounting Agreement
by and between
The Primary Trend Fund, Inc.
and
Sunstone Financial Group, Inc.
FEES
Minimum
Name of Fund Annual Fees Annual Fee
Primary Trend Fund Up to $50 Million 15.0 basis points $35,000
$50 Million to $100
Million 12.0 basis points
Over $100 Million 7.0 basis points
The minimum annual fee is subject to an automatic annual escalation of 5%.
The Trust shall also pay/reimburse the Administrator's out-of-pocket
expenses as described in the Agreement. The foregoing fee schedule assumes
a single Fund and a single class of shares.
Exhibit 10
F O L E Y & L A R D N E R
A T T O R N E Y S A T L A W
CHICAGO FIRSTAR CENTER SAN DIEGO
JACKSONVILLE 777 EAST WISCONSIN AVENUE SAN FRANCISCO
LOS ANGELES MILWAUKEE, WISCONSIN 53202-5367 TALLAHASSEE
MADISON TELEPHONE (414) 271-2400 TAMPA
ORLANDO FACSIMILE (414) 297-4900 WASHINGTON, D.C.
SACRAMENTO WEST PALM BEACH
WRITER'S DIRECT LINE
August 21, 1997
The Primary Trend Fund, Inc.
700 North Water Street
Milwaukee, WI 53202
Gentlemen:
We have acted as counsel for you in connection with the
preparation of an Amended Registration Statement on Form N-1A relating to
the sale by you of an indefinite amount of shares of The Primary Trend
Fund, Inc. Common Stock, $.01 par value (such Common Stock being
hereinafter referred to as the "Stock") in the manner set forth in the
Amended Registration Statement (and the Prospectus included therein) to
which reference is made. In this connection we have examined: (a) the
Amended Registration Statement on Form N-1A; (b) your Articles of
Incorporation and By-Laws, as amended to date; (c) corporate proceedings
relevant to the authorization for issuance of the Stock; and (d) such
other proceedings, documents and records as we have deemed necessary to
enable us to render this opinion.
Based upon the foregoing, we are of the opinion that the shares
of Stock when sold as contemplated in the Amended Registration Statement
will be legally issued, fully paid and nonassessable except insofar as
statutory liability may be imposed under Section 180.0622(2)(b) of the
Wisconsin Statutes.
We hereby consent to the use of this opinion as an exhibit to
the Form N-1A Registration Statement. In giving this consent, we do not
admit that we are experts within the meaning of Section 11 of the
Securities Act of 1933, as amended, or within the category of persons
whose consent is required by Section 7 of said Act.
Very truly yours,
FOLEY & LARDNER
Exhibit 11
Consent of Independent Auditors
We consent to the reference to our firm under the captions "Financial
Highlights" and "Independent Auditors" and to the use of our report dated
July 25, 1997, in the Registration Statement (Form N-1A) and its
incorporation by reference in the related Prospectus of The Primary Trend
Fund, Inc. filed with the Securities and Exchange Commission in this Post-
Effective Amendment No. 19 to the Registration Statement under the
Securities Act of 1933 (Registration No. 33-6343) and in this Amendment
No. 21 to the Registration Statement under the Investment Company Act of
1940.
ERNST & YOUNG LLP
Milwaukee, Wisconsin
August 28, 1997
Exhibit 13
INVESTMENT AGREEMENT
The Primary Trend Fund, Inc.
First Financial Centre
700 North Water Street
Milwaukee, WI 53202
Gentlemen:
The undersigned hereby subscribes to 10,000 shares of the Common
Stock, $.01 par value of The Primary Trend Fund, Inc., and agrees to pay
to said corporation the sum of $100,000 in cash.
It is understood that upon acceptance hereof by said corporation
a certificate or certificates representing the shares subscribed for shall
be issued to the undersigned and that said shares shall be deemed to be
fully paid and nonassessable except for the statutory liability imposed by
Section 180.40(6) of the Wisconsin Statutes.
The undersigned agrees that the shares are being purchased for
investment with no present intention of reselling or redeeming said
shares.
Dated and effective as of this 26th day of August, 1986.
ARNOLD INVESTMENT COUNSEL INCORPORATED
By: /s/ James R. Arnold
James R. Arnold, President
Attest: /s/ Lilli Gust
Lilli Gust, Secretary
The foregoing subscription is hereby accepted. Dated and
effective as of this 26th day of August, 1986.
THE PRIMARY TREND FUND, INC.
By: /s/ James R. Arnold, Sr.
James R. Arnold, Sr.,
[CORPORATE SEAL] President
Attest: /s/ Roger D. Stafford
Exhibit 14.1
THE PRIMARY TREND FUNDS
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
The following constitutes an agreement establishing an
Individual Retirement Account (under Section 408(a) of the Internal
Revenue Code) between the Depositor and the Custodian.
ARTICLE I
The Custodian may accept additional cash contributions on behalf
of the Depositor for a tax year of the Depositor. The total cash
contributions are limited to $2,000 for the tax year unless the
contribution is a rollover contribution described in Section 402(c) (but
only after December 31, 1992), 403(a)(4), 403(b)(8), 408(d)(3), or an
employer contribution to a simplified employee pension plan as described
in Section 408(k). Rollover contributions before January 1, 1993, include
rollovers described in Section 402(a)(5), 402(a)(6), 402(a)(7), 403(a)(4),
403(b)(8), 408(d)(3), or an employer contribution to a simplified employee
pension plan as described in Section 408(k).
ARTICLE II
The Depositor's interest in the balance in the custodial account
is nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life
insurance contracts, nor may the assets of the custodial account be
commingled with other property except in a common trust fund or common
investment fund (within the meaning of Section 408(a)(5)).
2. No part of the custodial funds may be invested in
collectibles (within the meaning of Section 408(m)) except as otherwise
permitted by Section 408(m)(3) which provides an exception for certain
gold and silver coins and coins issued under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the
contrary, the distribution of the Depositor's interest in the custodial
account shall be made in accordance with the following requirements and
shall otherwise comply with Section 408(a)(6) and Proposed Regulations
Section 1.408-8, including the incidental death benefit provisions of
Proposed Regulations Section 1.401(a)(9)-2, the provisions of which are
incorporated by reference.
2. Unless otherwise elected by the time distributions are
required to begin to the Depositor under Paragraph 3, or to the surviving
spouse under Paragraph 4, other than in the case of a life annuity, life
expectancies shall be recalculated annually. Such election shall be
irrevocable as to the Depositor and the surviving spouse and shall apply
to all subsequent years. The life expectancy of a nonspouse beneficiary
may not be recalculated.
3. The Depositor's entire interest in the custodial account
must be, or begin to be, distributed by the Depositor's required beginning
date, (April 1 following the calendar year end in which the Depositor
reaches age 70 1/2). By 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 a distribution over life expectancy in equal
or substantially equal annual payments, to determine the minimum annual
payment for each year, divide the Depositor's entire interest in the
custodial account as of the close of business on December 31 of the
preceding year by the life expectancy of the Depositor (or the joint life
and last survivor expectancy of the Depositor and the Depositor's
designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under
Paragraph 3, determine the initial life expectancy (or joint life and last
survivor expectancy) using the attained ages of the Depositor and designed
beneficiary as of their birthdays in the year the Depositor reaches age 70
1/2. In the case of a distribution in accordance with Paragraph 4(b)(ii),
determine life expectancy using the attained age of the designated
beneficiary as of the beneficiary's birthday in the year distributions are
required to commence.
6. The owner of two or more individual retirement accounts may
use the "alternative method" described in 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 Section 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal
Revenue Service and the Depositor prescribed by the Internal Revenue
Service.
ARTICLE VI
Notwithstanding any other articles which may be added or
incorporated, the provisions of Articles I through III and this sentence
will be controlling. Any additional articles that are not consistent with
Section 408(a) and related regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with
the provisions of the Code and related regulations. Other amendments may
be made with the consent of the persons whose signatures appear below.
ARTICLE VIII
1. Investment of Account Assets. (a) All contributions to the
custodial account shall be invested in the shares of any regulated
investment company ("Investment Company") for which Arnold Investment
Counsel, Inc. serves as investment advisor, or any other regulated
investment company designated by the investment advisor. Shares of stock
of an Investment Company shall be referred to as Investment Company
Shares."
(b) Each contribution to the custodial account shall identify
the Depositor's account number and be accompanied by a signed statement
directing the investment of that contribution. The Custodian may return
to the Depositor, without liability for interest thereon, any contribution
which is not accompanied by adequate account identification or an
appropriate signed statement directing investment of that contribution.
(c) Contributions shall be invested in whole and fractional
Investment Company Shares at the price and in the manner such shares are
offered to the public. All distributions received on Investment Company
Shares held in the custodial account shall be reinvested in like shares.
If any distribution of Investment Company Shares may be received in
additional like shares or in cash or other property, the Custodian shall
elect to receive such distribution in additional like Investment Company
Shares.
(d) All Investment Company Shares acquired by the Custodian
shall be registered in the name of the Custodian or its nominee. The
Depositor shall be the beneficial owner of all Investment Company Shares
held in the custodial account and the Custodian shall not vote any such
shares, except upon written direction of the Depositor. The Custodian
agrees to forward to the Depositor each prospectus, report, notice, proxy
and related proxy soliciting materials applicable to Investment Company
Shares held in the custodial account received by the Custodian.
(e) The Depositor may, at any time, by written notice to the
Custodian, redeem any number of shares held in the custodial account and
reinvest the proceeds in the shares of any other Investment Company. Such
redemptions and reinvestments shall be done at the price and in the manner
such shares are then being redeemed or offered by the respective
Investment Companies.
2. Amendment and Termination. (a) The Custodian may amend
the Custodial Account (including retroactive amendments) by delivering to
the Depositor written notice of such amendment setting forth the substance
and effective date of the amendment. The Depositor shall be deemed to
have consented to any such amendment not objected to in writing by the
Depositor within thirty (30) days of receipt of the notice, provided that
no amendment shall cause or permit any part of the assets of the custodial
account to be diverted to purposes other than for the exclusive benefit of
the Depositor or his or her beneficiaries.
(b) The Depositor may terminate the custodial account at any
time by delivering to the Custodian a written notice of such termination.
(c) The custodial account shall automatically terminate upon
distribution to the Depositor or his or her beneficiaries of its entire
balance.
3. Taxes and Custodial Fees. Any income taxes or other taxes
levied or assessed upon or in respect of the assets or income of the
custodial account and any transfer taxes incurred shall be paid from the
custodial account. All administrative expenses incurred by the Custodian
in the performance of its duties, including fees for legal services
rendered to the Custodian, and the Custodian's compensation shall be paid
from the custodial account, unless otherwise paid by the Depositor or his
or her beneficiaries.
The Custodian's fees are set forth in a schedule provided to the
Depositor. Extraordinary charges resulting from unusual administrative
responsibilities not contemplated by the schedule will be subject to such
additional charges as will reasonably compensate the Custodian. Fees for
refund of excess contributions, transferring to a successor trustee or
custodian, or redemption/reinvestment of Investment Company Shares will be
deducted from the refund or redemption proceeds and the remaining balance
will be remitted to the Depositor, or reinvested or transferred in
accordance with the Depositor's instructions.
4. Reports and Notices. (a) The Custodian shall keep
adequate records of transactions it is required to perform hereunder.
After the close of each calendar year, the Custodian shall provide to the
Depositor or his or her legal representative a written report or reports
reflecting the transactions effected by it during such year and the assets
and liabilities of the Custodial Account at the close of the year.
(b) All communications or notices shall be deemed to be given
upon receipt by the Custodian at Post Office Box 701, Milwaukee, Wisconsin
53201-0701 or the Depositor at his most recent address shown in the
Custodian's records. The Depositor agrees to advise the Custodian
promptly, in writing, of any change of address.
5. Designation of Beneficiary. The Depositor may designate a
beneficiary or beneficiaries to receive benefits from the custodial
account in the event of the Depositor's death. In the event the Depositor
has not designated a beneficiary, or if all beneficiaries shall predecease
the Depositor, the following persons shall take in the order named:
(a) The spouse of the Depositor;
(b) If the spouse shall predecease the Depositor or if the
Depositor does not have a spouse, then to the personal representative of
the Depositor's estate.
6. Multiple Individual Retirement Accounts. In the event the
Depositor maintains more than one individual retirement account (as
defined in Section 408(a)) and elects to satisfy his or her minimum
distribution requirements described in Article IV above by making a
distribution for another individual retirement account in accordance with
Paragraph 6 thereof, the Depositor shall be deemed to have elected to
calculate the amount of his or her minimum distribution under this
custodial account in the same manner as under the individual retirement
account from which the distribution is made.
7. Inalienability of Benefits. The benefits provided under
this custodial account shall not be subject to alienation, assignment,
garnishment, attachment, execution or levy of any kind and any attempt to
cause such benefits to be so subjected shall not be recognized except to
the extent as may be required by law.
8. Rollover Contributions and Transfers. The Custodian shall
have the right to receive rollover contributions and to receive direct
transfers from other custodians or trustees. All contributions must be
made in cash or check.
9. Conflict in Provisions. To the extent that any provisions
of this Article VIII shall conflict with the provisions of Articles IV, V
and/or VII, the provisions of this Article VIII shall govern.
10. Applicable State Law. This custodial account shall be
construed, administered and enforced according to the laws of the State of
Wisconsin.
<PAGE>
THE PRIMARY TREND FUNDS
INDIVIDUAL RETIREMENT ACCOUNT
DISCLOSURE STATEMENT
Please read the following information together with the
Individual Retirement Account Custodial Agreement and the Prospectus(es)
for the fund(s) you select for investment of your IRA contributions.
You may revoke this account any time within seven calendar days
after it is established by mailing or delivering a written request for
revocation to: The Primary Trend Funds, c/o Firstar Trust Company, 615
East Michigan Avenue, 3rd Floor, Milwaukee, Wisconsin 53202, Attention:
Mutual Fund Department. If your revocation is mailed, the date of the
postmark (or the date of certification if sent by certified or registered
mail) will be considered your revocation date. Upon proper revocation,
you will receive a full refund of your initial contribution, without any
adjustments for items such as administrative fees or fluctuations in
market value.
1. General. Your IRA is a custodial account created for your
exclusive benefit, and Firstar Trust Company serves as custodian. Your
interest in the account is nonforfeitable.
2. Investments. Contributions made to your IRA will be
invested in one or more of the regulated investment companies for which
Arnold Investment Counsel, Inc. serves as investment advisor or any other
regulated investment company designated by Arnold Investment Counsel, Inc.
3. Eligibility. Employees and self-employed individuals are
eligible to contribute to an IRA. Employers may also contribute to
employer-sponsored IRAs established for the benefit of their employees.
You may also establish an IRA to receive rollover contributions and
transfers from another IRA custodian or trustee or from certain other
retirement plans.
4. Time of Contribution. You may make regular contributions
to your IRA any time up to and including the due date for filing your tax
return for the year, not including extensions. You may continue to make
regular contributions to your IRA up to (but not including) the calendar
year in which you reach 70-1/2. Employer contributions to a SEP - IRA
plan may be continued after you attain age 70-1/2. Rollover contributions
and transfers may be made at any time, including after you reach age 70-
1/2.
5. Amount of Contribution. You may make annual regular
contributions to an IRA in any amount up to 100% of your compensation for
the year or $2,000, whichever is less. Qualifying rollover contributions
and transfers are not subject to this limitation.
6. Spousal IRA. If you are married and your spouse is not
employed (or if your employed spouse elects to be treated as having no
compensation), you may make contributions to a spousal IRA in addition to
your own IRA. The maximum amount contributed to both your own and to your
spouse's IRA may not exceed 100% of your compensation or $2,250, whichever
is less. In no event, however, may the annual contribution to either your
account or your spouse's account exceed $2,000.
7. Rollovers and Transfers. You are allowed to "rollover" a
distribution or transfer your assets from one individual retirement
account to another without any tax liability. Rollovers between IRAs may
be made once per year and must be accomplished within 60 days after the
distribution. Also, under certain conditions, you may roll over (tax
free) all or a portion of a distribution received from a qualified plan or
tax-sheltered annuity. However, strict limitations apply to such
rollovers, and you should seek competent advice in order to comply with
all of the rules governing rollovers.
Effective January 1, 1993, most distributions from qualified
retirement plans will be subject to a 20% withholding requirement. The
20% withholding can be avoided by directly transferring the amount of the
distribution to an individual retirement account or to certain other types
of retirement plans. You should receive more information regarding these
new withholding rules and whether your distribution can be transferred to
an IRA from the plan administrator prior to receiving your distribution.
8. Excess Contributions. Contributions which exceed the
allowable maximum for federal income tax purposes are treated as excess
contributions. A nondeductible penalty tax of 6% of the excess amount
contributed will be added to your income tax for each year in which the
excess contribution remains in your account.
9. Correction of Excess Contribution. If you make a
contribution in excess of your allowable maximum, you may correct the
excess contribution and avoid the 6% penalty tax for that year by
withdrawing the excess contribution and its earnings on or before the
date, including extensions, for filing your tax return. Any earnings on
the withdrawn excess contribution will be taxable in the year the excess
contribution was made and may be subject to a 10% penalty tax. In
addition, in certain cases an excess contribution may be withdrawn after
the time for filing your tax return. Finally, excess contributions for
one year may be carried forward and applied against the contribution
limitation in succeeding years.
10. Tax Deductibility of Annual Contributions. Although you
may make an IRA contribution within the limitations described above, all
or a portion of your contribution may be nondeductible. No deduction is
allowed for a rollover contribution or transfer. If you are not married
and are not an "active participant" in an employer-sponsored retirement
plan, you may make a fully deductible IRA contribution in any amount up to
$2,000 or 100% of your compensation for the year, whichever is less. The
same limits apply if you are married and file a joint return with your
spouse and neither you nor your spouse is an "active participant" in an
employer-sponsored retirement plan.
An employer-sponsored retirement plan includes any of the
following types of retirement plans:
-- a qualified pension, profit-sharing, or
stock bonus plan established in accordance
with IRC 401(a) or 401(k),
-- a Simplified Employee Pension Plan (SEP)
(IRC 408(k)),
-- a deferred compensation plan maintained by a
governmental unit or agency,
-- tax-sheltered annuities and custodial
accounts (IRC 403(b) and 403(b)(7)),
-- a qualified annuity plan under IRC Section
403(a).
Distributions from the types of plans listed above are eligible to be
rolled over or transferred to your IRA.
Generally, you are considered an "active participant" in a
defined contribution plan if an employer contribution or forfeiture was
credited to your account during the year. You are considered an "active
participant" in a defined benefit plan if you are eligible to participate
in a plan, even though you elect not to participate. You are also treated
as an "active participant" if you make a voluntary or mandatory
contribution to any type of plan, even if your employer makes no
contribution to the plan.
If you (or your spouse, if filing a joint tax return) are
covered by an employer-sponsored retirement plan, your IRA contribution is
fully deductible if your adjusted gross income (or combined income if you
file a joint tax return) does not exceed certain limits. For this purpose
adjusted gross income is not modified to take into account any deduction
for IRA contributions, but does take into account the passive loss
limitations under Code Section 86 and any taxable benefits under the
Social Security Act and the Railroad Retirement Act.
If you (or your spouse, if filing a joint tax return) are
covered by an employer-sponsored retirement plan, the deduction for your
IRA contribution is reduced proportionately for adjusted gross income
which exceeds the applicable dollar amount. The applicable dollar amount
for an individual is $25,000 and $40,000 for married couples filing a
joint tax return. The applicable dollar limit for married individuals
filing separate returns if $0. If your adjusted gross income exceeds the
applicable dollar amount by $10,000 or less, you may make a deductible IRA
contribution. The deductible amount, however, will be less than $2000.
To determine the amount of your deductible contribution, use the
following calculations:
1) Subtract the applicable dollar amount from
your adjusted gross income. If the result
is $10,000 or more, you can only make a
nondeductible contribution to your IRA.
2) Divide the above figure by $10,000, and
multiply that percentage by $2,000.
3) Subtract the dollar amount (result from #2
above) from $2,000 to determine the amount
which is deductible.
If the deduction limit is not a multiple of $10 then it should
be rounded up to the next $10. There is a $200 minimum floor on the
deduction limit if your adjusted gross income does not exceed $35,000 (for
a single taxpayer), $50,000 (for married taxpayers filing jointly) or
$10,000 (for a married taxpayer filing separately).
Even if your income exceeds the limits described above, you may
make a contribution to your IRA up to the contribution limitations
described in Section 5 above. To the extent that your contribution
exceeds the deductible limits, it will be nondeductible. However,
earnings on all IRA contributions are tax deferred until distribution.
11. Simplified Employee Pension Plan. Your IRA may be used as
part of a Simplified Employee Pension Plan established by your employer.
Your employer may contribute to your IRA/SEP up to a maximum of 15% of
your compensation or $30,000, whichever is less. If your SEP Plan
permits, you may also elect to have your employer make salary reduction
contributions of up to $8,994 for 1993 (adjusted annually for cost of
living increases) per year to your IRA. However, the combination of the
employer's contributions and your salary reduction contributions may not
exceed the lesser of 15% of your compensation or $30,000. It is your
responsibility and that of your employer to see that contributions in
excess of normal IRA limits are made under a valid Simplified Employee
Pension Plan and are, therefore, proper.
12. Form of Distributions. Distributions may be made in any
one of three methods:
(a) a lump-sum distribution,
(b) installments over a period not extending beyond your life
expectancy (as determined by actuarial tables), or
(c) installments over a period not extending beyond the joint
life expectancy of you and your designated beneficiary (as determined
by actuarial tables).
13. Latest Time to Withdraw. You must begin receiving the
assets in your account no later than April 1 following the calendar year
in which you reach age 70-1/2 (your "required beginning date"). In
general, the minimum amount that must be distributed each year is equal to
the amount obtained by dividing the balance in your IRA on the last day of
the prior year (or the last day of the year prior to the year in which you
attain age 70-1/2) by your life expectancy, the joint life expectancy of
you and your beneficiary, or the specified payment term, whichever is
applicable. A federal tax penalty may be imposed against you if the
required minimum distribution is not made for the year you reach age 70-
1/2 and for each year thereafter. The penalty is equal to 50% of the
amount by which the actual distribution is less than the required minimum.
Unless you or your spouse elects otherwise, your life expectancy
and/or the life expectancy of your spouse will be recalculated annually.
An election not to recalculate life expectancy(ies) is irrevocable and
will apply to all subsequent years. The life expectancy of a nonspouse
beneficiary may not be recalculated.
If you have two or more IRAs, you may satisfy the minimum
distribution requirements by receiving a distribution from one of your
IRAs in an amount sufficient to satisfy the minimum distribution
requirements for your other IRAs. You must still calculate the required
minimum distribution separately for each IRA, but then such amounts may be
totalled and the total distribution taken from one or more of your
individual IRAs.
Distribution from your IRA must satisfy the special "incidental
death benefit" rules of the Internal Revenue Code. These provisions set
forth certain limitations on the joint life expectancy of you and your
beneficiary. If your beneficiary is not your spouse, your beneficiary
will be generally considered to be no more than 10 years younger than you
for the purpose of calculating the minimum amount that must be
distributed.
14. Distribution of Account Assets After Death. If you die
before receiving the balance of your account, distribution of your
remaining account balance is subject to several special rules. If you die
on or after your required beginning date, distribution must continue in a
method at least as rapid as under the method of distribution in effect at
your death. If you die before your required beginning date, your
remaining interest will, at the election of your beneficiary or
beneficiaries, (i) be distributed by December 31 of the year in which
occurs the fifth anniversary of your death, or (ii) commence to be
distributed by December 31 of the year following your death over a period
not exceeding the life or life expectancy of your designated beneficiary
or beneficiaries.
Two additional distribution options are available if your spouse
is the beneficiary: (i) payments to your spouse may commence as late as
December 31 of the year you would have attained age 70-1/2 and be
distributed over a period not exceeding the life or life expectancy of
your spouse, or (ii) your spouse can simply elect to treat your IRA as his
or her own, in which case distributions will be required to commence by
April 1 following the calendar year in which your spouse attains age 70-
1/2.
15. Tax Treatment of Distributions. Amounts distributed to you
are generally includable in your gross income in the taxable year you
receive them and are taxable as ordinary income. To the extent, however,
that any part of a distribution constitutes a return of your nondeductible
contributions, it will not be included in your income. The amount of any
distribution excludable from income is the portion that bears the same
ratio as your aggregate nondeductible contributions bear to the balance of
your IRA at the end of the year (calculated after adding back
distributions during the year). For this purpose, all of your IRAs are
treated as single IRA. Furthermore, all distributions from an IRA during
a taxable year are to be treated as one distribution. The aggregate
amount of distributions excludable from income for all years cannot exceed
the aggregate nondeductible contributions for all calendar years.
No distribution to you or anyone else from your account can
qualify for capital gains treatment under the federal income tax laws.
Similarly, you are not entitled to the special five- or ten-year averaging
rule for lump-sum distributions available to persons receiving
distributions from certain other types of retirement plans. All
distributions are taxed to the recipient as ordinary income except the
portion of a distribution which represents a return of nondeductible
contributions.
16. Early Distributions. Distributions from your IRA made
before age 59-1/2 will be subject to a 10% nondeductible penalty tax
unless the distribution is a return of nondeductible contributions or is
made because of your death, disability, as part of a series of
substantially equal periodic payments over your life expectancy or the
joint life expectancy of you and your beneficiary, or the distribution is
an exempt withdrawal of an excess contribution. The penalty tax may also
be avoided if the distribution is rolled over to another individual
retirement account.
17. Qualification of Plan. Your Individual Retirement Account
Plan has been approved as to form by the Internal Revenue Service. The
Internal Revenue Service approval is a determination only as to the form
of the Plan and does not represent a determination of the merits of the
Plan as adopted by you. You may obtain further information with respect
to your Individual Retirement Account from any district office of the
Internal Revenue Service.
18. Prohibited Transactions. If any of the following events
occur during the existence of your IRA, your account will be disqualified,
and the entire balance in your account will be treated as if distributed
to you and will be taxable to you as ordinary income during the year in
which such event occurs:
(a) the sale, exchange, or leasing of any property between
you and your account,
(b) the lending of money or other extensions of credit
between you and your account,
(c) the furnishing of goods, services, or facilities
between you and your account, and/or
If you are under age 59-1/2, you may also be subject to the 10% tax on
early distributions.
19. Penalty for Pledging Account. If you use (pledge) all or
part of your IRA as security for a loan, then the portion so pledged will
be treated as if distributed to you and will be taxable to you as ordinary
income during the year in which you make such pledge. The 10% additional
tax on early distributions may also apply.
20. Reporting for Tax Purposes. Deductible contributions to
your IRA may be claimed as a deduction on your tax form 1040 for the
taxable year contributed. If any nondeductible contributions are made by
you during a tax year, such amounts must be reported on Form 8606 and
attached to your Federal Income Tax Return for the year contributed. If
you report a nondeductible contribution to your IRA and do not make the
contribution, you will be subject to a $100 penalty for each overstatement
unless a reasonable cause is shown for not contributing. Other reporting
will be required by you in the event that special taxes or penalties
described herein are due. You must also file Treasury Form 5329 with the
IRS for each taxable year in which the contribution limits are exceeded, a
premature distribution takes place, or less than the required minimum
amount is distributed from your IRA.
21. Allocation of Earnings. The method of computing and
allocating annual earnings is set forth in Article VIII, Section 1 of the
Individual Retirement Account Custodial Agreement. The growth in value of
your IRA is neither guaranteed or projected.
22. Income Tax Withholding. You must indicate on distribution
requests whether or not federal income taxes should be withheld.
Redemption request not indicating an election not to have federal income
tax withheld will be subject to withholding.
23. Other Information. Information about the shares of each
mutual fund available for investment by your IRA must be furnished to you
in the form of a prospectus governed by rules of the Securities and
Exchange Commission. Please refer to the prospectus for detailed
information concerning your mutual fund. You may obtain further
information concerning IRAs from any District Office of the Internal
Revenue Service.
Fees and other expenses of maintaining your account may be
charged to you or your account. The Custodian's fee schedule is included
as part of these materials.
Exhibit 14.2
THE PRIMARY TREND FUNDS
PROTOTYPE DEFINED CONTRIBUTION RETIREMENT PLAN
Profit Sharing Plan AA - Plan No. 01-001
Pension Plan AA - Plan No. 01-002
<PAGE>
THE PRIMARY TREND FUNDS
PROTOTYPE DEFINED CONTRIBUTION RETIREMENT PLAN
Profit Sharing Plan AA - Plan No. 01-001
Pension Plan AA - Plan No. 01-002
<PAGE>
THE PRIMARY TREND FUNDS
PROTOTYPE DEFINED CONTRIBUTION RETIREMENT PLAN
Table of Contents
ARTICLE I. INTRODUCTION . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE III. PARTICIPATION . . . . . . . . . . . . . . . . . . . . 9
Section 3.1. Participation at Effective Date . . . . . . . . . 9
Section 3.2. Participation after Effective Date . . . . . . . 9
Section 3.3. Reentry . . . . . . . . . . . . . . . . . . . . . 9
Section 3.4. Participation by an Owner-Employee of More Than
One Trade or Business . . . . . . . . . . . . . . . . 9
ARTICLE IV. CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . 11
Section 4.1. Employer Profit Sharing Contributions . . . . . . 11
Section 4.2. Employer Pension Contributions . . . . . . . . . . 13
Section 4.3. Participant Voluntary Contributions . . . . . . . 13
Section 4.4. Time for Making Contributions . . . . . . . . . . 14
Section 4.5. Leased Employees . . . . . . . . . . . . . . . . 14
Section 4.6. Rollovers and Transfers . . . . . . . . . . . . . 14
ARTICLE V. CASH OR DEFERRED ARRANGEMENT (CODE SECTION 401(k)) . . 15
Section 5.1. Cash or Deferred Arrangement (Code Section
401(k)) . . . . . . . . . . . . . . . . . . . . . . . 15
Section 5.2. Elective Deferrals . . . . . . . . . . . . . . . 15
Section 5.3. Matching Contributions . . . . . . . . . . . . . 20
Section 5.4. Qualified Matching Contributions and Qualified
Non-Elective Contributions . . . . . . . . . . . . . . 23
Section 5.5. Special Distribution Rules . . . . . . . . . . . 24
Section 5.6. Definitions . . . . . . . . . . . . . . . . . . . 25
ARTICLE VI. SECTION 415 LIMITATIONS . . . . . . . . . . . . . . . 30
Section 6.1. Employers Maintaining Only this Plan . . . . . . 30
Section 6.2. Employers Maintaining Other Master or Prototype
Defined Contribution Plans . . . . . . . . . . . . . . 31
Section 6.3. Employers Maintaining Other Defined Contribution
Plans . . . . . . . . . . . . . . . . . . . . . . . . 32
Section 6.4. Employers Maintaining Defined Benefit Plans . . . 32
Section 6.5. Definitions . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII. PARTICIPANTS' ACCOUNTS . . . . . . . . . . . . . . . . 36
Section 7.1. Separate Accounts . . . . . . . . . . . . . . . . 36
Section 7.2. Vesting . . . . . . . . . . . . . . . . . . . . . 36
Section 7.3. Computation of Vesting Service . . . . . . . . . 36
Section 7.4. Allocation of Forfeitures . . . . . . . . . . . . 37
ARTICLE VIII. PAYMENT OF BENEFITS . . . . . . . . . . . . . . . . . 38
Section 8.1. Benefits Payable Under the Plan . . . . . . . . . 38
Section 8.2. Manner of Distributions . . . . . . . . . . . . . 39
Section 8.3. Commencement of Payments . . . . . . . . . . . . 43
Section 8.4. Payment of Small Amounts . . . . . . . . . . . . 47
Section 8.5. Persons Under Legal or Other Disability . . . . . 47
Section 8.6. Withdrawals from Profit Sharing Plan . . . . . . 48
Section 8.7. Transfer of Benefits to Eligible Retirement Plan 48
ARTICLE IX. ESTABLISHMENT OF CUSTODIAL ACCOUNT; INVESTMENTS . . . 50
Section 9.1. Custodial Account . . . . . . . . . . . . . . . . 50
Section 9.2. Receipt of Contributions . . . . . . . . . . . . 50
Section 9.3. Investment of Account Assets . . . . . . . . . . 50
Section 9.4. Exclusive Benefit . . . . . . . . . . . . . . . . 51
Section 9.5. Expenses . . . . . . . . . . . . . . . . . . . . 51
Section 9.6. Voting . . . . . . . . . . . . . . . . . . . . . 51
Section 9.7. Reports of the Custodian and Administrator . . . 51
Section 9.8. Limitation of Custodian's Duties and Liability . 52
ARTICLE X. AMENDMENT AND TERMINATION . . . . . . . . . . . . . . 54
Section 10.1. Amendment . . . . . . . . . . . . . . . . . . . . 54
Section 10.2. Termination . . . . . . . . . . . . . . . . . . . 55
ARTICLE XI. FIDUCIARY RESPONSIBILITIES . . . . . . . . . . . . . . 56
Section 11.1. Administrator . . . . . . . . . . . . . . . . . . 56
Section 11.2. Powers of Administrator . . . . . . . . . . . . . 56
Section 11.3. Records and Reports . . . . . . . . . . . . . . . 56
Section 11.4. Other Administrative Provisions . . . . . . . . . 56
Section 11.5. Claims Procedure . . . . . . . . . . . . . . . . 57
Section 11.6. Claims Review Procedure . . . . . . . . . . . . . 57
ARTICLE XII. AMENDMENT AND CONTINUATION OF ORIGINAL PLAN . . . . . 59
ARTICLE XIII. TOP-HEAVY PROVISIONS . . . . . . . . . . . . . . . . . 61
Section 13.1. Effect of Top-Heavy Status . . . . . . . . . . . 61
Section 13.2. Additional Definitions . . . . . . . . . . . . . 61
Section 13.3. Minimum Allocations . . . . . . . . . . . . . . . 63
Section 13.4. Benefit Limit Change . . . . . . . . . . . . . . 64
ARTICLE XIV. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . 65
Section 14.1. Rights of Employees and Participants . . . . . . 65
Section 14.2. Merger With Other Plans . . . . . . . . . . . . . 65
Section 14.3. Non-Alienation of Benefits . . . . . . . . . . . 65
Section 14.4. Failure to Qualify . . . . . . . . . . . . . . . 65
Section 14.5. Mistake of Fact; Disallowance of Deduction . . . 66
Section 14.6. Participation under Prototype Plan . . . . . . . 66
Section 14.7. Gender . . . . . . . . . . . . . . . . . . . . . 66
Section 14.8. Headings . . . . . . . . . . . . . . . . . . . . 66
Section 14.9. Governing Law . . . . . . . . . . . . . . . . . . 66
THE PRIMARY TREND FUNDS
PROTOTYPE DEFINED CONTRIBUTION
RETIREMENT PLAN
ARTICLE I.
INTRODUCTION
This Plan, which is made available by Arnold Investment Counsel
Incorporated (the "Investment Advisor"), has been adopted by the Employer
named in the Adoption Agreement(s) as a qualified money purchase pension
and/or profit sharing plan for its eligible employees which is intended to
qualify under Code Section 401(a). The Employer's Plan shall consist of
the following provisions, together with the Adoption Agreement(s).
ARTICLE II.
DEFINITIONS
Section 2.1. "Account" means the account or accounts
maintained by the Custodian for a Participant, as described in Article
VII.
Section 2.2. "Administrator" means the plan administrator and
fiduciary of the Plan with authority and responsibility to control and
manage the operation and administration of the Plan in accordance with its
terms and to comply with the reporting, disclosure and other requirements
of ERISA. Unless a different Administrator is appointed by the Employer,
the Administrator shall be the Employer.
Section 2.3. "Beneficiary" means the person or persons
designated by a Participant or otherwise entitled to receive benefits in
the event of the Participant's death as provided herein. Such designation
shall be made in writing and in such form as may be required by the
Administrator, and shall be filed with the Administrator. Any designation
may include contingent or successive Beneficiaries. Where such
designation has been properly made, distribution of benefits shall be made
directly to such Beneficiary or Beneficiaries. The Beneficiary or
Beneficiaries designated by a Participant may be changed or withdrawn at
any time from time to time, by the Participant, but only by filing with
the Administrator a new designation, and revoking all prior designations.
The most recent valid designation on file with the Administrator at the
time of the Participant's death shall be the Beneficiary. Notwithstanding
the foregoing, in the event the Participant is married at the time of his
death, the Beneficiary shall be the Participant's surviving spouse unless
such spouse consented in writing to the designation of an alternative
Beneficiary after notice of the spouse's rights and such consent was
witnessed by a Plan representative appointed by the Administrator or a
notary public as provided in Section 8.2(a) hereof. In the event no valid
designation of Beneficiary is on file with the Administrator at the date
of death or no designated Beneficiary survives him, the Participant's
spouse shall be deemed the Beneficiary; in the further event the
Participant is unmarried or his spouse does not survive him, the
Participant's estate shall be deemed to be his Beneficiary.
Section 2.4. "Break in Service" means a Plan Year in which a
Participant fails to complete at least five hundred one (501) Hours of
Service. Breaks in Service and Years of Service will be measured on the
same vesting computation period.
Section 2.5. "Code" means the Internal Revenue Code of 1986,
as interpreted by applicable regulations and rulings issued pursuant
thereto, all as amended and in effect from time to time. Reference to a
Code Section shall include that Section, and any comparable section or
sections of any future legislation that amends, supplements or supersedes
that Section.
Section 2.6. "Compensation" is defined as wages within the
meaning of Section 3401(a) of the Code and all other payments of
compensation to the Employee by the Employer (in the course of the
Employer's trade or business) for which the Employer is required to
furnish the Employee a written statement under Sections 6041(d),
6051(a)(3) and 6052 of the Code, determined without regard to any rules
under Section 3401(a) that limit the remuneration included in wages based
on the nature or locations of the employment or the services performed.
For any Self-Employed Individual covered under the Plan, Compensation
shall mean such individual's Earned Income.
For Plan Years beginning after December 31, 1988, the maximum
amount of Compensation taken into account under the Plan for a Participant
in any Plan Year shall not exceed two hundred thousand dollars ($200,000)
or such greater amount as permitted by the Secretary of the Treasury,
except that the dollar increase in effect on January 1 of any calendar
year is effective for years beginning in such calendar year and the first
adjustment to the $200,000 limitation is effective on January 1, 1990. If
the Plan determines Compensation on a period of time that contains fewer
than 12 calendar months, then the annual compensation limit is an amount
equal to the annual compensation limit for the calendar year in which the
compensation period begins multiplied by the ratio obtained by dividing
the number of full months in the period by 12.
For purposes of this limitation, the family aggregation rules of
Code Section 414(q)(6) shall apply, except that the term "family" shall
include only the spouse of the Participant and any lineal descendants of
the Participant who have not attained age nineteen (19) before the close
of such year. If, as a result of the application of such rules the
adjusted two hundred thousand dollars ($200,000) limitation is exceeded,
then (except for purposes of determining the portion of Compensation up to
the integration level if the Plan provides for permitted disparity), the
limitation shall be prorated among the affected individuals in proportion
to each such individual's Compensation as determined under this Section
prior to the application of this limitation. If Compensation for any prior
Plan Year is taken into account in determining an Employee's contributions
or benefits for the current year, the Compensation for such prior year is
subject to the applicable annual compensation limit in effect for that
prior year. For this purpose, for years beginning before January 1, 1990,
the applicable annual compensation limit is $200,000.
Section 2.7. "Custodial Account" means the account established
by the Custodian, in accordance with Article IX, in the name of the
Employer or for each Participant as elected in the Adoption Agreement.
Section 2.8. "Custodian" means Firstar Trust Company, or any
successor thereto.
Section 2.9. "Disability" means a mental or physical condition
of injury or sickness, as determined by the Administrator based upon the
report of a medical examiner satisfactory to the Employer, which prevents
a Participant from carrying out the duties of his position and which is
likely to be permanent. Any such determination by the Administrator shall
be made in a uniform and nondiscriminatory manner.
Section 2.10. "Earned Income" means net earnings from
self-employment in the trade or business with respect to which the Plan is
established for which the personal services of the individual are a
material income-producing factor. Net earnings shall be determined
without regard to items not included in gross income and the deductions
allocable to such items. Net earnings shall be reduced by contributions
by the Employer to a qualified plan to the extent deductible under Code
Section 404. Net earnings shall be determined with regard to the
deduction allowed to the Employer under Code Section 164(f) for taxable
years beginning after December 31, 1989.
Section 2.11. "Effective Date" means the date as of which this
Plan is initially effective as indicated in item 3 of the Adoption
Agreement.
Section 2.12. "Elective Deferrals" means any Employer
contributions made to the Plan at the election of a participating
Employee, in lieu of payment of an equal amount to the participating
Employee in cash as Compensation pursuant to Section 5.2 hereof, and shall
include contributions made pursuant to a salary reduction agreement or
other deferral method. With respect to any taxable year, a participating
Employee's Elective Deferrals are the sum of all employer contributions
made on behalf of such Employee pursuant to an election to defer under any
qualified CODA as described in Code Section 401(k), any simplified
employee pension cash or deferred arrangement as described in Code Section
402(h)(1)(B), any eligible deferred compensation plan under Code Section
457, any plan as described under Code Section 501(c)(18), and any employer
contributions made on the behalf of a participating Employee for the
purchase of an annuity contract under Code Section 403(b) pursuant to a
salary reduction agreement.
Section 2.13. "Employee" means an individual employed by the
Employer (including any eligible Self-Employed Individual) or any Related
Employer adopting this Plan except as excluded pursuant to item 4 of the
Adoption Agreement. The term Employee shall also include any individual
who is a Leased Employee, unless excluded pursuant to item 4 of the
Adoption Agreement.
Section 2.14. "Employer" means any entity adopting the Plan.
Section 2.15. "Employer Pension Contributions" means the
contributions made by the Employer pursuant to Section 4.2 hereof if
elected in item 6 of the Adoption Agreement (Pension Plan).
Section 2.16. "Employer Profit Sharing Contributions" means the
contributions made by the Employer pursuant to Section 4.1 hereof if
elected in item 6 of the Adoption Agreement (Profit Sharing Plan).
Section 2.17. "ERISA" means the Employee Retirement Income
Security Act of 1974, as interpreted and applied under regulations and
rulings issued pursuant thereto, all as amended and in effect from time to
time.
Section 2.18. "Hour of Service" means:
(a) Each hour for which an Employee is paid, or entitled to
payment for the performance of duties for the Employer. These hours shall
be credited to the Employee for the 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 five hundred one (501) Hours of service shall be credited under
this paragraph for any single continuous period (whether or not such
period occurs in a single computation period). Hours of Service under
this paragraph shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations which are incorporated
herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The same Hours
of Service shall not be credited both under subsection (a) or subsection
(b), as the case may be, and under this subsection (c). These hours shall
be credited to the Employee for the computation period or periods to which
the award or agreement pertains rather than the computation period in
which the award, agreement or payment is made.
(d) Solely for purposes of determining whether a Break in
Service, as defined in Section 2.4, for participation and vesting purposes
has occurred in a computation period, an individual who is absent from
work for maternity or paternity reasons shall receive credit for the Hours
of Service which would otherwise have been credited to such individual but
for such absence, or in any case in which such hours cannot be determined,
eight (8) hours of service per normal workday of such absence. For
purposes of this paragraph, an absence from work for maternity or
paternity reasons means an absence:
(i) by reason of the pregnancy of the
individual;
(ii) by reason of a birth of a child of the
individual;
(iii) by reason of the placement of a child with
the individual in connection with the
adoption of such child by such individual;
or
(iv) for purposes of caring for such child for a
period beginning immediately following such
birth or placement.
The Hours of Service credited under this Section 2.18 shall be credited
(i) in the computation period in which the absence begins if the crediting
is necessary to prevent a Break in Service in that period, or (ii) in all
other cases the following computation period.
(e) Hours of Service shall be determined on the basis of actual
hours for which an Employee is paid or entitled to payment unless a
different method of determining Hours of Service is selected in item 4(A)
of the Adoption Agreement.
(f) In the event the Employer maintains the plan of a
predecessor employer, service for such predecessor employer shall be
treated as service for the Employer. Hours of Service will be credited
for employment with members of an affiliated service group under Code
Section 414(m), a controlled group of corporations under Code Section
414(b), or a group of trades or businesses under common control under Code
Section 414(c) of which the Employer is a member and any other entity
required to be aggregated with the Employer pursuant to Code Section
414(o) and the Regulations thereunder. Hours of Service will also be
credited for any Leased Employee for purposes of this Plan under Code
Sections 414(n) or (o) and the Regulations thereunder, unless excluded
under item 4 of the Adoption Agreement.
Section 2.19. "Investment Advisor" means Arnold Investment
Counsel Incorporated.
Section 2.20. "Investment Company" means any regulated
investment company(ies) designated by the Investment Advisor.
Section 2.21. "Investment Company Shares" means the shares of
each Investment Company.
Section 2.22. "Leased Employee" means any individual who is
considered a leased employee within the meaning of Code Sections 414(n) or
(o). For purposes of this Section, a Leased Employee means any person
who, pursuant to an agreement between the Employer and any other person
(which may include the Leased Employee), has performed services for the
Employer (or for the Employer and any Related Employer) in a capacity
other than as a common law employee on a substantially full-time basis for
a period of at least one year, and such services are of a type
historically performed by employees in the business field of the Employer.
Notwithstanding the foregoing, no individual shall be considered to be a
Leased Employee if (a) such individual is covered by a money purchase
pension plan providing: (i) a non-integrated employer contribution rate
of at least ten percent (10%) of compensation, as defined in Code Section
415(c)(3), but including amounts contributed pursuant to a salary
reduction agreement which are excludable from the individual's gross
income under Code Sections 125, 402(a)(8), 402(h) or 403(b), (ii)
immediate participation, and (iii) full and immediate vesting and (b)
Leased Employees do not constitute more than twenty percent (20%) of the
Employer's nonhighly compensated work force. Contributions or benefits
provided to a Leased Employee by the leasing organization which are
attributable to services performed for the Employer shall be treated as
provided by the Employer.
Section 2.23. "Matching Contribution" means an Employer
contribution made to the Plan or any other defined contribution plan on
behalf of a participating Employee on account of a participating
Employee's Elective Deferrals pursuant to Section 5.3 hereof or on account
of any employee contributions or elective deferrals made to any other
plan.
Section 2.24. "Net Profits" means the current or accumulated
earnings of the Employer before federal and state taxes and contributions
to this or any other qualified plan.
Section 2.25. "Normal Retirement Age" means age 65 or such
other age as selected in item 11 of the Adoption Agreement (Profit Sharing
Plan) and item 9 of the Adoption Agreement (Pension Plan). If the
Employer enforces a mandatory retirement age, the Normal Retirement Age
shall be the lesser of such mandatory retirement age or the age specified
in the Adoption Agreement.
Section 2.26. "Original Plan" means any defined contribution
plan which meets the requirements of Code Section 401 and referred to in
Article XII of the Plan.
Section 2.27. "Owner-Employee" means an individual who is a
sole proprietor, or who is a partner owning more than ten percent (10%) of
either the capital or profits interest of the partnership.
Section 2.28. "Participant" means each Employee (including any
eligible Self-Employed Individual) who has completed the requirements for
eligibility specified in Section 3.1 hereof. Each such Employee shall
become a Participant as of the earlier of: (i) the first day of the Plan
Year or (ii) the first day of the seventh month of the Plan Year beginning
after he completes such requirements.
Section 2.29. "Participant Voluntary Contributions" means
contributions by a Participant under the Plan pursuant to Section 4.3, if
elected in item 9 of the Adoption Agreement (Profit Sharing Plan) and item
8 of the Adoption Agreement (Pension Plan).
Section 2.30. "Pension Plan" means the feature of the Plan
pursuant to which the Employer makes Employer Pension Contributions. Such
feature applies only to the extent elected in item 6 of the Adoption
Agreement (Pension Plan).
Section 2.31. "Plan" means this prototype profit sharing plan
and/or money purchase pension plan, together with the appropriate Adoption
Agreement(s), as set forth herein and as may be amended from time to time.
As used herein, the term Plan shall mean either or both the money purchase
pension plan and the profit-sharing plan depending on whether the Employer
has adopted one or both plans.
Section 2.32. "Plan Year" means the twelve (12) consecutive
month period designated in item 2 of the Adoption Agreement. The first
Plan Year shall commence on the Effective Date.
Section 2.33. "Profit Sharing Plan" means the features of the
Plan pursuant to which all contributions, other than Employer Pension
Contributions, are made to the Plan, including any contributions pursuant
to the cash or deferred arrangement (Section 401(k)) described in Article
V hereof. Such features apply only to the extent elected in items 6
and/or 8 of the Adoption Agreement (Profit Sharing Plan).
Section 2.34. "Related Employer" means an organization which,
together with the Employer, constitutes (i) a controlled group of
corporations as defined in Code Section 414(b); (ii) trades or businesses
under common control as defined in Code Section 414(c); (iii) an
affiliated service group as defined in Code Section 414(m); or (iv) a
group of employers required to be aggregated under Code Section 414(o).
Section 2.35. "Self-Employed Individual" means an individual
who has Earned Income for the taxable year from the trade or business for
which.the Plan was established or who would have had Earned Income but for
the fact that the trade or business had no Net Profits for the taxable
year.
Section 2.36. "Valuation Date" means the last day of each Plan
Year and such other times as shall be determined by the Administrator.
Section 2.37. "Year of Employment" means the twelve (12)
consecutive month period, beginning on the date the Employee first
performs an Hour of Service or any anniversary thereof, in which the
Employee completes at least one thousand (1,000) Hours of Service or such
lesser number of Hours of Service as selected in item 4 of the Adoption
Agreement.
Section 2.38. "Year of Service" means a Plan Year in which the
Employee completes at least one thousand (1,000) Hours of Service or such
lesser number of Hours of Service as selected in item 7 of the Adoption
Agreement.
ARTICLE III.
PARTICIPATION
Section 3.1. Participation at Effective Date. Each Employee
shall become a Participant on the Effective Date, if on the Effective Date
such Employee has completed the number of Years of Employment and has
attained age 21 or such lesser age as elected in item 4 of the Adoption
Agreement.
Section 3.2. Participation after Effective Date. Each Employee
who did not become a Participant as of the Effective Date, including
future Employees, shall be entitled to become a Participant in accordance
with Section 2.28 after such Employee has completed the number of Years of
Employment and has attained age 21 or such lesser age as elected in item 4
of the Adoption Agreement.
Section 3.3. Reentry. A former Participant shall become a
Participant immediately upon his return to employment with the Employer or
his return to an eligible class of Employees, whichever is applicable. In
the event an Employee who is not a member of the eligible class of
Employees becomes a member of the eligible class, such Employee will
become a Participant in accordance with Section 3.2 above; provided that
if the Employee has previously satisfied the eligibility requirements of
Section 3.2, the Employee shall become a Participant immediately upon
becoming a member of the eligible class of Employees.
Section 3.4. Participation by an Owner-Employee of More Than
One Trade or Business.
(a) If this Plan provides contributions or benefits for one or
more Owner-Employees who control both the business with respect to which
this Plan is established, and one or more other trades or businesses, this
Plan and the plan established with respect to such other trades or
businesses must, when looked at as a single plan, satisfy Code Sections
401(a) and (d) with respect to the employees of this and all such other
trades or businesses.
(b) If this Plan provides contributions or benefits for one or
more Owner-Employees who control one or more other trades or businesses,
the employees of each such other trade or business must be included in a
plan which satisfies Code Section 401(a) and (d) and which provides
contributions and benefits not less favorable than provided for such
Owner-Employees under this Plan.
(c) If an individual is covered as an Owner-Employee under the
plans of two or more trades or businesses which he does not control, and
such individual controls a trade or business, then the contributions or
benefits of the employees under the plan of the trade or business which he
or she does control must be as favorable as those provided for him or her
under the most favorable plan of the trade or business which he or she
does not control.
(d) For purposes of the preceding subparagraphs, an
Owner-Employee, or two or more Owner-Employees, shall be considered to
control a trade or business if such Owner-Employee, or such two or more
Owner-Employees together, own the entire interest in an unincorporated
trade or business, or, in the case of a partnership, own more than fifty
percent (50%) of either the capital interest or the profits interest in
such partnership. For purposes of the preceding sentence, an
Owner-Employee, or two or more Owner-Employees, shall be treated as owning
any interest in a partnership which is owned, directly or indirectly, by a
partnership which such Owner-Employee, or such two or more
Owner-Employees, are considered to control within the meaning of the
preceding sentence.
(e) Employees and Owner-Employees of trades or businesses which
are under common control (within the meaning of Code Section 414(c)) and
Employees and Owner-Employees of the members of an affiliated service
group (within the meaning of Code Section 414(m)) or of a group of
aggregated employers (under Code Section 414(o)) will be treated as
employed by a single Employer for purposes of employee benefit
requirements of Code Section 414(m)(4).
ARTICLE IV.
CONTRIBUTIONS
Section 4.1. Employer Profit Sharing Contributions.
(a) If elected in item 6 of the Adoption Agreement (Profit
Sharing Plan), the Employer shall make an Employer Profit Sharing
Contribution for each Plan Year ending on or after the Effective Date in
the amount determined under such Adoption Agreement.
(b) The total amount of such Employer Profit Sharing
Contribution for a Plan Year shall be allocated to the Account of each
eligible Participant as follows:
(i) Unless otherwise elected in item 6(C) of the Adoption
Agreement, the total amount of such Employer Profit Sharing Contribution
shall be allocated based on the ratio that such eligible Participant's
Compensation and/or Earned Income for the Plan Year bears to the total
Compensation and Earned Income of all eligible Participants for the Plan
Year.
(ii) If the Integration Formula is selected in item 6(C) of the
Adoption Agreement, the total amount of such Employer Profit Sharing
Contribution shall be allocated based on the ratio that such eligible
Participant's Compensation and/or Earned Income for the Plan Year in
excess of the integration level for the Plan Year bears to the total
Compensation and Earned Income for all eligible Participants in excess of
the integration level for the Plan Year; provided, however, that
contributions allocated to a Participant with respect to Compensation
and/or Earned Income in excess of the integration level shall not
represent a greater percentage of such excess Compensation and/or Earned
Income than the lesser of
(A) 200% of the base contribution
percentage, or
(B) the base contribution percentage
plus the greater of
(I) 5.7%, or
(II) the rate of tax under Code Section
3111(a) which is attributable to
old-age insurance in effect at the
beginning of the Plan Year.
Any Employer Profit Sharing Contribution remaining after the allocation in
this subsection (ii) shall be allocated in accordance with subsection (i)
above. The "integration level" shall be the taxable wage base or such
lesser level of Compensation and/or Earned Income selected in item 6(C) of
the Adoption Agreement. The "base contribution percentage" shall mean the
percentage of Compensation and/or Earned Income which is contributed under
the Plan with respect to each Participant's Compensation and/or Earned
Income not in excess of the integration level.
If the integration level exceeds the greater of ten thousand
dollars ($10,000) or one-fifth (1/5) of the taxable wage base but is not
more than eighty percent (80%) of the taxable wage base, the percentage
referred to in (I) above shall be reduced to 4.3% and a proportionate
reduction shall be made to the rate described in (II) above. If the
integration level is more than eighty percent (80%) but less than one
hundred percent (100%) of the taxable wage base, the percentage referred
to in (I) above shall be reduced to 5.4% and a proportionate reduction
shall be made to the rate described in (II) above. The "taxable wage
base" shall be the maximum amount of earnings which may be considered
wages for a year under Code Section 3121(a)(1) in effect as of the
beginning of the applicable Plan Year.
Notwithstanding the above, for any Plan Year in which the Plan
is top-heavy (as defined in Section 13.1 hereof) the Employer Profit
Sharing Contribution shall be allocated
(A) first, to each eligible Participant
based on the ratio that such
Participant's Compensation and/or
Earned Income for the Plan Year bears
to the total Compensation and Earned
Income of all eligible Participants for
the Plan Year, but not more than three
percent (3%) of such Participant's
Compensation and/or Earned Income,
(B) second, to each eligible Participant
based on the ratio that such
Participant's Compensation and/or
Earned Income in excess of the
integration level for the Plan Year
bears to the total Compensation and
Earned Income of all eligible
Participants in excess of the
integration level for the Plan Year,
but not more than three percent (3%) of
such Participant's excess Compensation
and/or Earned Income, and
(C) any remaining Employer Profit Sharing
Contribution shall be allocated
pursuant to the provisions of this
subsection (ii) above.
(c) A Participant will be considered eligible for an allocation
of the Employer Profit Sharing Contribution if the Participant (i) is
employed by the Employer on the last day of the Plan Year or (ii) has
completed at least Five Hundred one (501) Hours of Service during the Plan
Year.
(d) If elected in item 6(B) of the Adoption Agreement, Employer
Profit Sharing Contributions for a Plan Year shall not exceed the Net
Profits of the Employer for such Plan Year.
Section 4.2. Employer Pension Contributions.
(a) If elected in item 6 of the Adoption Agreement (Pension
Plan), the Employer shall make an Employer Pension Contribution for each
eligible Participant for each Plan Year ending on or after the Effective
Date in an amount determined under such Adoption Agreement.
(b) The total amount of such Employer Pension Contribution for
a Plan Year shall be allocated to the Account of each eligible Participant
as follows:
(i) Unless otherwise elected in item 6(B) of the Adoption
Agreement, each eligible Participant shall be allocated an amount equal to
the percentage of such eligible Participant's Compensation and/or Earned
Income as specified in the Adoption Agreement.
(ii) If the Integration Formula is selected in item 6(B) of the
Adoption Agreement, the total amount of such Employer Pension Contribution
shall be allocated in accordance with the method described in Section
4.1(b)(ii) above. Notwithstanding the foregoing, if the Integration
Formula is selected under the Profit Sharing Plan, the Employer Pension
Contribution shall be allocated in accordance with subsection (b)(i)
above.
(c) A Participant will be considered eligible for an Employer
Pension Contribution if the Participant (i) is employed by the Employer on
the last day of the Plan Year or (ii) has completed at least Five Hundred
one (501) Hours of Service during the Plan Year.
Section 4.3. Participant Voluntary Contributions.
(a) If elected in item 9 of the Adoption Agreement (Profit
Sharing Plan) or item 8 of the Adoption Agreement (Pension Plan), a
Participant may voluntarily contribute to the Plan an amount up to ten
percent (10%) of his aggregate Compensation for all years since becoming a
Participant under this Plan and all other qualified plans of the Employer.
Any Participant Voluntary Contributions shall be limited in accordance
with the provisions of Section 5.3, even if the Employer does not elect
the Cash or Deferred Arrangement (Section 401(k)) under item 8 of the
Adoption Agreement (Profit Sharing Plan). If the Profit Sharing Plan is
elected, all Participant Voluntary Contributions shall be deemed made to
such plan. Participant Voluntary Contributions shall be limited to
Participants who are not highly compensated employees (within the meaning
of Code Section 414(q)) if elected in the Adoption Agreement.
(b) A Participant shall be entitled to withdraw from his
appropriate Account at any time upon thirty (30) days' notice from the
Administrator to the Custodian (which notice shall specify the amount of
the withdrawal), a sum not in excess of the capital amount contributed by
him as Participant Voluntary Contributions under the provisions of this
Section 4.3, or the value of such Account, whichever is less, provided
that no ordinary income or capital gains attributable to such
contributions shall be subject to withdrawal. Notwithstanding anything to
the contrary herein, (i) all withdrawals are subject to the provisions of
Article VIII, and (ii) no forfeiture shall occur solely as a result of a
Participant's withdrawal of all or any portion of his Participant
Voluntary Contributions.
(c) No deductible voluntary employee contributions may be made
for taxable years beginning after December 31, 1986. Such contributions
made prior to that date will be maintained in a separate Account which
will be nonforfeitable at all times. The Account will share in the gains
or losses in the same manner as described in Section 9.3 of the Plan.
Subject to Section 8.2, a Participant may withdraw any part of the
deductible voluntary contribution Account by making a written application
to the Administrator.
Section 4.4. Time for Making Contributions. Employer Pension
Contributions and Employer Profit Sharing Contributions must be made no
later than the due date, including extensions thereof, for filing the
Employer's Federal income tax return for the year coincident with or
within which the Plan Year ends (or such later time as authorized by
Treasury Regulations). Participant Voluntary Contributions for any Plan
Year shall be made no later than thirty (30) days after the end of such
Plan Year. The Employer may establish a payroll deduction system or other
procedure to assist the making of Participant Voluntary Contributions and
shall transfer such contributions to the Custodian as soon as practicable
after collected.
Section 4.5. Leased Employees. Contributions or benefits
provided to a Leased Employee by the leasing organization (within the
meaning of Code Section 414(n)) which are attributable to services
performed for the Employer shall be treated as provided by the Employer
for purposes of this Plan.
Section 4.6. Rollovers and Transfers. In the discretion of
the Administrator according to such uniform and nondiscriminatory rules
established by the Administrator, and in accordance with Sections 402 and
408 of the Code, a Participant may make a rollover to the Plan or the Plan
may accept a direct transfer (including voluntary after-tax contributions)
from another plan qualified under Section 401(a) of the Code or from an
individual retirement account. If the Employer has adopted the Profit
Sharing Plan, any rollover or transfer shall be made to such Plan.
ARTICLE V. CASH OR DEFERRED ARRANGEMENT
(CODE SECTION 401(k))
Section 5.1. Cash or Deferred Arrangement (Code Section
401(k)). The provisions of this Article shall be effective as of the
first day of the Plan Year in which this cash or deferred arrangement is
elected in item 8 of the Adoption Agreement (Profit Sharing Plan). Under
no circumstances shall the provisions of this Article apply prior to the
time specified in the preceding sentence.
Section 5.2. Elective Deferrals. (a) Election. (i) An
Employee who has satisfied the minimum age and service requirements set
forth in item 8(A) of the Adoption Agreement (Profit Sharing Plan) may
elect to have Elective Deferrals made to the Plan pursuant to a salary
reduction agreement to the extent permitted in item 8(A) of the Adoption
Agreement (Profit Sharing Plan). Such an election shall be effective as
of the time specified in item 8(A) of the Adoption Agreement (Profit
Sharing Plan) and may not be made effective retroactively.
(ii) An eligible Employee may also base Elective Deferrals, to
the extent provided in item 8(A) of the Adoption Agreement (Profit Sharing
Plan), on cash bonuses that, at the Employee's election, may be
contributed to the Plan or received by the Employee. Such an election
shall be effective as of the time specified in item 8(A) of the Adoption
Agreement (Profit Sharing Plan) and may not be made effective
retroactively.
(b) Change in Rate. The rate at which Elective Deferrals are
made shall remain in effect until modified in accordance with item 8(A) of
the Adoption Agreement (Profit Sharing Plan). Notwithstanding the
foregoing, Elective Deferrals may be suspended entirely by an Employee at
any time by written notice to the Administrator. Any such suspension
shall be effective as soon as administratively practicable following the
Administrator's receipt of such notice.
(c) Vesting. A Participant shall at all times have a fully
vested and nonforfeitable interest in his Elective Deferrals.
(d) Excess Elective Deferrals. (i) No Participating Employee
shall be permitted to have Elective Deferrals made under this Plan or any
other qualified plan maintained by the Employer during any taxable year
pursuant to Code Sections 401(k), 408(k) or 403(b) in excess of the dollar
limitation contained in Code Section 402(g) in effect at the beginning of
such taxable year.
(ii) A Participating Employee may assign to the Plan any Excess
Elective Deferrals made during a taxable year of such Employee by
notifying the Administrator on or before the date specified below of the
Excess Elective Deferrals to be assigned to the Plan. Notwithstanding any
other provision of the Plan, Excess Elective Deferrals, plus any income
and minus any loss allocable thereto, may be distributed no later than
April 15 to any Participating Employee to whose Accounts Excess Elective
Deferrals were assigned for the preceding year and who claims Excess
Elective Deferrals for such taxable year. A Participating Employee's
claim for Excess Elective Deferrals shall be made in writing and shall be
submitted to the Administrator not later than the March 1 immediately
preceding the relevant April 15. Such claim shall specify the amount of
the Participating Employee's Excess Elective Deferrals for the preceding
taxable year and shall be accompanied by the Participating Employee's
written statement that if such amounts are not distributed, such Excess
Elective Deferrals, when added to amounts deferred under other plans or
arrangements described in Code Sections 401(k), 408(k) or 403(b), exceed
the limit imposed on the Participating Employee by Code Section 402(g) for
the year of the deferral.
(iii) Excess Elective Deferrals shall be adjusted for any
income or loss up to the date of distribution. The income or loss
allocable to Excess Elective Deferrals is the sum of:
(A) income or loss allocable to the
participating Employee's Elective Deferrals
Account for the taxable year for which the
Excess Elective Deferrals occurred
multiplied by a fraction, the numerator of
which is such Participating Employee's
Excess Elective Deferrals for such taxable
year and the denominator of which is such
Participating Employee's Elective Deferrals
Account balance as of the end of the taxable
year without regard to any income or loss
occurring during such taxable year; and
(B) income or loss allocable to the
Participating Employee's Elective Deferrals
Account for the period between the end of
such taxable year and the date of
distribution under (A) above; or, at the
option of the Employer, ten percent (10%) of
the amount determined under (A) above
multiplied by the number of whole calendar
months between the end of such taxable year
and the date of distribution, counting the
month of distribution if distribution occurs
after the fifteenth (15th) of such month.
The amount of Excess Elective Deferrals that may be distributed with
respect to a Participating Employee shall be reduced by any Excess
Contributions previously distributed or recharacterized with respect to
such Participating Employee for the Plan Year beginning with or within
such taxable year. In no event may the amount distributed exceed the
Participating Employee's total Elective Deferrals for such taxable year.
(e) Actual Deferral Percentage. (i) The Actual Deferral
Percentage for Participating Employees who are Highly Compensated
Employees for each Plan Year and the Actual Deferral Percentage for
Participating Employees who are not Highly Compensated Employees for the
same Plan Year must satisfy one of the following tests:
(A) The Actual Deferral Percentage for
Participating Employees who are Highly
Compensated Employees for the Plan Year
shall not exceed the Actual Deferral
Percentage for Participating Employees who
are not Highly Compensated Employees for the
same Plan Year multiplied by 1.25; or
(B) The Actual Deferral Percentage for
Participating Employees who are Highly
Compensated Employees for the Plan Year
shall not exceed the Actual Deferral
Percentage for Participating Employees who
are not Highly Compensated Employees for the
same Plan Year multiplied by 2.0, provided
that the Actual Deferral Percentage for
Participating Employees who are Highly
Compensated Employees does not exceed the
Actual Deferral Percentage for Participating
Employees who are not Highly Compensated
Employees by more than two (2) percentage
points.
(ii) The Actual Deferral Percentage for any Participating
Employee who is a Highly Compensated Employee for the Plan Year and who is
eligible to have Elective Deferrals (and Qualified Non-Elective
Contributions or Qualified Matching Contributions, or both) allocated to
his Accounts under two or more arrangements described in Code Section
401(k), that are maintained by the Employer, shall be determined as if
such Elective Deferrals (and, if applicable, such Qualified Non-Elective
Contributions or Qualified Matching Contributions, or both) were made
under a single arrangement. If a Highly Compensated Employee participates
in two or more cash or deferred arrangements that have different Plan
Years, contributions for such employee shall be aggregated for purposes of
this subsection (e). Contributions which are required to be aggregated
are any contributions made under all cash or deferred arrangements ending
with or within the same calendar year.
(iii) In the event that the Plan satisfies the requirements
of Code Sections 401(k), 401(a)(4) or 410(b) only if aggregated with one
or more other plans, or if one or more other plans satisfy the
requirements of such Code Sections only if aggregated with this Plan, then
this subsection shall be applied by determining the Actual Deferral
Percentage of Participating Employees as if all such plans were a single
plan. For Plan Years beginning after December 31, 1989, plans may be
aggregated in order to satisfy Code Section 401(k) only if they have the
same Plan Year.
(iv) For purposes of determining the Actual Deferral Percentage
of a Participating Employee who is a five (5) percent owner or one of the
ten (10) most highly-paid Highly Compensated Employees, the Elective
Deferrals (and Qualified Non-Elective Contributions and Qualified Matching
Contributions, or both) and Compensation of such Participating Employee
shall include the Elective Deferrals (and, if applicable, Qualified
Non-Elective Contributions and Qualified Matching Contributions, or both)
and Compensation for the Plan Year of Family Members. Family Members,
with respect to such Highly Compensated Employees, shall be disregarded as
separate employees in determining the Actual Deferral Percentage both for
Participating Employees who are not Highly Compensated Employees and for
Participating Employees who are Highly Compensated Employees.
(v) For purposes of determining the Actual Deferral Percentage
test, Elective Deferrals, Qualified Non-Elective Contributions and
Qualified Matching Contributions must be made before the last day of the
twelve-month period immediately following the Plan Year to which such
contributions relate.
(vi) The Employer shall maintain records sufficient to
demonstrate satisfaction of the Actual Deferral Percentage test and the
amount of Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, used in such test.
(vii) The determination and treatment of the Actual Deferral
Percentage amounts of any Participating Employee shall satisfy such other
requirements as may be prescribed by the Secretary of the Treasury.
(f) Distribution of Excess Contributions. (i) Notwithstanding
any other provision of this Plan, Excess Contributions, plus any income
and minus any loss allocable thereto, shall be distributed no later than
the last day of each Plan Year to Participating Employees to whose
Accounts such Excess Contributions were allocated for the preceding Plan
Year. If such excess amounts are distributed more than two and one-half
(2-1/2) months after the last day of the Plan Year in which such excess
amounts arose, a ten percent (10%) excise tax will be imposed on the
Employer with respect to such amounts. Such distributions shall be made
to Highly Compensated Employees on the basis of the respective portions of
the Excess Contributions attributable to each of such Employees. Excess
Contributions shall be allocated to Participating Employees who are
subject to the family member aggregation rules of Code Section 414(q)(6)
in the manner prescribed by the regulations. Excess Contributions
(including any amounts recharacterized) shall be treated as Annual
Additions for purposes of Article VI of the Plan.
(ii) Excess Contributions shall be adjusted for any income or
loss up to the date of distribution. The income or loss allocable to
Excess Contributions is the sum of:
(A) income or loss allocable to the
Participating Employee's Elective Deferrals
Account (and, if applicable, the Qualified
Non-Elective Contributions Account or the
Qualified Matching Contributions Account, or
both) for the Plan Year for which the Excess
Contributions occurred multiplied by a
fraction, the numerator of which is such
Participating Employee's Excess
Contributions for such Plan Year and the
denominator of which is such Participating
Employee's Account balance(s) attributable
to Elective Deferrals (and Qualified
Non-Elective Contributions or Qualified
Matching Contributions, or both) as of the
end of the Plan Year without regard to any
income or loss occurring during such Plan
Year; and
(B) income or loss allocable to the
Participant's Elective Deferrals Account
(and, if applicable, the Qualified
Non-Elective Contribution Account or the
Qualified Matching Contribution Account, or
both) for the period between the end of such
Plan Year and the date of distribution
multiplied by the fraction determined under
(A) above; or, at the option of the
Employer, ten percent (10%) of the amount
determined under (A) above multiplied by the
number of whole calendar months between the
end of such Plan Year and the date of
distribution, counting the month of
distribution if distribution occurs after
the fifteenth (15th) of such month.
(iii) Excess Contributions shall be distributed from the
Participating Employee's Elective Deferrals Account and Qualified Matching
Contributions Account (if applicable) in proportion to the Participating
Employee's Elective Deferrals and Qualified Matching Contributions (to the
extent used in the Actual Deferral Percentage test) for the Plan Year.
Excess Contributions shall be distributed from the Participating
Employee's Qualified Non-Elective Contributions Account only to the extent
that such Excess Contributions exceed the balance in the Participating
Employee's Elective Deferrals Account and Matching Contributions Account.
(g) Recharacterization. (i) A Participating Employee may
treat his Excess Contributions as an amount distributed to the
Participating Employee and then contributed by the Participating Employee
to the Plan. Recharacterized amounts will remain nonforfeitable and
subject to the same distribution requirements as Elective Deferrals.
Amounts may not be recharacterized by a Highly Compensated Employee to the
extent that such amount in combination with other Participant Voluntary
Contributions would exceed any stated limit under the Plan on Participant
Voluntary Contributions. Recharacterizing Excess Contributions shall be
limited to Participants who are not Highly Compensated Employees if
elected in the Adoption Agreement.
(ii) Recharacterization must occur no later than two and
one-half (2-1/2) months after the end of the Plan Year in which such Excess
Contributions arose and is deemed to occur no earlier than the date the
last Highly Compensated Employee is informed in writing of the amount
recharacterized and the consequences thereof. Recharacterized amounts
will be taxable to the Participating Employee for such Participating
Employee's taxable year in which the Participating Employee would have
received them in cash.
Section 5.3. Matching Contributions. (a) The Employer shall
make Employer Matching Contributions to the Plan to the extent elected in
item 8(B) of the Adoption Agreement (Profit Sharing Plan).
(b) A Participant shall have a vested interest in his Matching
Contributions Account as determined under the vesting schedule elected in
item 8(B) of the Adoption Agreement (Profit Sharing Plan). Forfeitures
derived from Matching Contributions which become available because of the
vesting provisions above, shall be applied to reduce the Employer Matching
Contributions that would otherwise be due for the Plan Year, or subsequent
Plan Years.
(c) Actual Contribution Percentage. (i) The Actual
Contribution Percentage for Participating Employees who are Highly
Compensated Employees for each Plan Year and the Actual Contribution
Percentage for Participating Employees who are not Highly Compensated
Employees for the same Plan Year must satisfy one of the following tests:
(A) The Actual Contribution Percentage for
Participating Employees who are Highly
Compensated Employees for the Plan Year
shall not exceed the Actual Contribution
Percentage for Participating Employees who
are not Highly Compensated Employees for the
same Plan Year multiplied by 1.25; or
(B) The Actual Contribution Percentage for
Participating Employees who are Highly
Compensated Employees for the Plan Year
shall not exceed the Actual Contribution
Percentage for Participating Employees who
are not Highly Compensated Employees for the
same Plan Year multiplied by two (2),
provided that the Actual Contribution
Percentage for Participating Employees who
are Highly Compensated Employees does not
exceed the Actual Contribution Percentage
for Participating Employees who are not
Highly Compensated Employees by more than
two (2) percentage points.
(ii) If one or more Highly Compensated Employees participate in
both a cash or deferred arrangement and a plan subject to the Actual
Contribution Percentage test maintained by the Employer and the sum of the
Actual Deferral Percentage and the Actual Contribution Percentage of those
Highly Compensated Employees subject to either or both tests exceeds the
Aggregate Limit, then the Actual Contribution Percentage of those Highly
Compensated Employees who also participate in a cash or deferred
arrangement will be reduced (beginning with such Highly Compensated
Employee whose Actual Contribution Percentage is the highest) so that the
limit is not exceeded. The amount by which each Highly Compensated
Employee's Contribution Percentage Amount is reduced shall be treated as
an Excess Aggregate Contribution. The Actual Deferral Percentage and the
Actual Contribution Percentage of the Highly Compensated Employees are
determined after any corrections required to meet the Actual Deferral
Percentage and the Actual Contribution Percentage tests. Multiple use
does not occur if both the Actual Deferral Percentage and the Actual
Contribution Percentage of the Highly Compensated Employees does not
exceed 1.25 multiplied by the Actual Deferral Percentage and the Actual
Contribution Percentage of the Participating Employees who are not Highly
Compensated Employees.
(iii) For purposes of this subsection, the Contribution
Percentage for any Participating Employee who is a Highly Compensated
Employee and who is eligible to have Contribution Percentage Amounts
allocated to his account under two or more plans described in Code Section
401(a), or arrangements described in Code Section 401(k) that are
maintained by the Employer, shall be determined as if the total of such
Contribution Percentage Amounts was made under each plan. If a Highly
Compensated Employee participates in two or more cash or deferred
arrangements that have different plan years, all cash or deferred
arrangements ending with or within the same calendar year shall be treated
as a single arrangement.
(iv) In the event that this Plan satisfies the requirements of
Code Sections 401(m), 401(a)(4) or 410(b) only if aggregated with one or
more other plans, or if one or more other plans satisfy the requirements
of such Code Sections only if aggregated with this Plan, then this
subsection shall be applied by determining the Contribution Percentage of
employees as if all such plans were a single plan. For plan years
beginning after December 31, 1989, plans may be aggregated in order to
satisfy Code Section 401(m) only if they have the same plan year.
(v) For purposes of determining the Contribution Percentage of
a Participating Employee who is a five percent owner or one of the ten
(10) most highly-paid Highly Compensated Employees, the Contribution
Percentage Amounts and Compensation of such Participating Employee shall
include the Contribution Percentage Amounts and Compensation for the Plan
Year of Family Members. Family Members, with respect to Highly
Compensated Employees, shall be disregarded as separate employees in
determining the Contribution Percentage both for Participating Employees
who are not Highly Compensated Employees and for Participating Employees
who are Highly Compensated Employees.
(vi) For purposes of determining the Contribution Percentage
test, Employee Contributions are considered to have been made in the Plan
Year in which contributed to the Plan. Matching Contributions and
Qualified Non-Elective Contributions shall be considered made for a Plan
Year if made no later than the end of the twelve-month period beginning on
the day after the close of the Plan Year.
(vii) The Employer shall maintain records sufficient to
demonstrate satisfaction of the Actual Contribution Percentage test and
the amount of Qualified Non-Elective Contributions or Qualified Matching
Contributions, or both, used in such test.
(viii) The determination and treatment of the Contribution
Percentage of any Participating Employee shall satisfy such other
requirements as may be prescribed by the Secretary of the Treasury.
(d) Distribution of Excess Aggregate Contributions. (i)
Notwithstanding any other provision of this Plan, Excess Aggregate
Contributions, plus any income and minus any loss allocable thereto, shall
be forfeited, if forfeitable, or if not forfeitable, distributed no later
than the last day of each Plan Year to Participating Employees to whose
Accounts such Excess Aggregate Contributions were allocated for the
preceding Plan Year. Excess Aggregate Contributions shall be allocated to
Participating Employees who are subject to the family member aggregation
rules of Code Section 414(q)(6) in the manner prescribed by the
regulations. If such Excess Aggregate Contributions are distributed more
than two and one-half (2-1/2) months after the last day of the Plan Year in
which such excess amounts arose, a ten percent (10%) excise tax will be
imposed on the Employer with respect to those amounts. Excess Aggregate
Contributions shall be treated as Annual Additions for purposes of Article
VI of the Plan.
(ii) Excess Aggregate Contributions shall be adjusted for any
income or loss up to the date of distribution. The income or loss
allocable to Excess Aggregate Contributions is the sum of:
(A) income or loss allocable to the
Participating Employee's Participant
Voluntary Contributions Account, Matching
Contributions Account, Qualified Matching
Contribution Account (if any, and if all
amounts therein are not used in the Actual
Deferral Percentage test) and, if
applicable, Qualified Non-Elective
Contributions Account and Elective Deferrals
Account for the Plan Year for which the
Excess Aggregate Contributions occurred
multiplied by a fraction, the numerator of
which is such Participating Employee's
Excess Aggregate Contributions for such Plan
Year and the denominator of which is the
Participating Employee's Account balance(s)
attributable to Contribution Percentage
Amounts as of the end of the Plan Year
without regard to any income or loss
occurring during such Plan Year; and
(B) income or loss allocable to the
Participating Employee's Participant
Voluntary Contribution Account, Matching
Contributions Account, Qualified Matching
Contribution Account (if any, and if all
amounts therein are not used in the Actual
Deferral Percentage test) and, if
applicable, Qualified Non-Elective
Contributions Account and Elective Deferrals
Account for the period between the end of
such Plan Year and the date of distribution
multiplied by the fraction determined under
(A) above; or, at the election of the
Employer, ten percent (10%) of the amount
determined under (A) above multiplied by the
number of whole calendar months between the
end of such Plan Year and the date of
distribution, counting the month of
distribution if distribution occurs after
the fifteenth (15th) of such month.
(iii) Forfeitures of Excess Aggregate Contributions shall be
applied to reduce Employer contributions for subsequent Plan Years.
(iv) Excess Aggregate Contributions shall be forfeited, if
forfeitable, or distributed on a pro rata basis from the Participating
Employee's Participant Voluntary Contributions Account, Matching
Contributions Account and Qualified Matching Contribution Account (and, if
applicable, the Participating Employee's Qualified Non-Elective
Contributions Account or Elective Deferrals Account, or both).
Section 5.4. Qualified Matching Contributions and Qualified
Non-Elective Contributions.
(a) Qualified Matching Contributions. The Employer may elect
to make Qualified Matching Contributions under the Plan in item 8(C) of
the Adoption Agreement. Qualified Matching Contributions may be made in
lieu of distributing Excess Contributions as provided in Section 5.2(f)
hereof. Qualified Matching Contributions may be either (i) additional
amounts contributed to the Plan by the Employer and allocated to the
Accounts of Participating Employees who are not Highly Compensated
Employees based on such Employees' Elective Deferrals or (ii) Matching
Contributions otherwise made to the Plan pursuant to Section 5.3(a) hereof
which the Employer designates as Qualified Matching Contributions. The
amount of Qualified Matching Contributions (if any) shall be determined by
the Employer for each year. All Qualifying Matching Contributions shall
be used to satisfy the Actual Deferral Percentage test pursuant to
regulations under the Code.
(b) The Employer may elect to make Qualified NonElective
Contributions under the Plan in item 8(C) of the Adoption Agreement.
Qualified Non-Elective Contributions may be made in lieu of distributing
Excess Contributions as provided in Section 5.2(f) or Excess Aggregate
Contributions as provided in Section 5.3(d) hereof. Qualified
Non-Elective Contributions may be either (i) additional amounts
contributed to the Plan by the Employer and allocated to the Accounts of
Participating Employees who are not Highly Compensated Employees based on
such Employees' Compensation or (ii) Profit Sharing Contributions
otherwise made to the Plan pursuant to Section 4.1(a) hereof which the
Employer designates as Qualified Non-Elective Contributions. The amount
of Qualified Non-Elective Contributions (if any) shall be determined by
the Employer for each year. All Qualified Non-Elective Contributions
shall be used to satisfy either the Actual Deferral Percentage test or the
Average Contribution Percentage test, or both, pursuant to regulations
under the Code.
(c) Separate accounts for Qualified Non-Elective Contributions
and Qualified Matching Contributions will be maintained for each
Participant consistent with Section 7.1 hereof. Each account will be
credited with the applicable contributions and earnings thereon.
(d) For purposes of the special distribution rules in Section
5.5, Qualified Matching Contributions and Qualified Non-Elective
Contributions shall be treated as Elective Deferrals.
(e) Qualified Matching Contributions and Qualified Non-Elective
Contributions shall be appropriately designated when contributed.
Section 5.5. Special Distribution Rules. Except as provided
below, Elective Deferrals, Qualified Non-Elective Contributions and
Qualified Matching Contributions, and income allocable to each, are not
distributable to a Participant or a Beneficiary, in accordance with such
Participant's or Beneficiary's election, earlier than upon separation from
service, death, or disability.
(a) Financial Hardship. (i) If elected by the Employer in item
8(D) of the Adoption Agreement (Profit Sharing Plan), a Participant may
elect to withdraw all or any portion of his Elective Deferrals (excluding
net earnings credited thereto after December 31, 1988) on account of
financial hardship. For purposes of this Section 5.5, a financial
hardship shall mean an immediate and heavy financial need of the
Participant which cannot be satisfied from other resources reasonably
available to such Participant. Hardship withdrawals are subject to the
spousal consent requirements of Code Sections 401(a)(11) and 417.
(ii) A withdrawal is made on account of an immediate and heavy
financial need of a Participant only if it is made on account of: (A)
unreimbursed medical expenses described in Code Section 213(d) of the
Participant or the Participant's spouse or dependents (as defined in Code
Section 152); (B) the purchase (excluding mortgage payments) of a
principal residence for the Participant; (C) payment of tuition for the
next term of post-secondary education for the Participant or the
Participant's spouse, children or dependents; or (D) the need to prevent
the Participant's eviction from, or foreclosure on the mortgage of, the
Participant's principal residence or such other events as may be approved
by the Commissioner of Internal Revenue in rulings, notices or other
published documents.
(iii) A distribution will be considered as necessary to
satisfy an immediate and heavy financial need of the Participant only if:
(A) the Participant has obtained all distributions, other than hardship
distributions, and all nontaxable loans under all plans maintained by the
Employer; (B) all plans maintained by the Employer provide that the
Participant's Elective Deferrals and any other elective contributions or
employee contributions under this Plan and any other plan maintained by
the Employer (both qualified and nonqualified) will be automatically
suspended for twelve (12) months after the receipt of the hardship
distribution; (C) the distribution is not in excess of the amount of an
immediate and heavy financial need; and (D) all plans maintained by the
Employer provide that the Participant may not make Elective Deferrals for
the Participant's taxable year immediately following the taxable year of
the hardship distribution in excess of the applicable limit under Code
Section 402(g) for such taxable year less the amount of such Participant's
Elective Deferrals for the taxable year of the hardship distribution.
(iv) A request for a hardship distribution shall be made in
writing and in such form as may be prescribed by the Administrator.
Processing of applications and distributions of amounts under this
Section, on account of a bona fide financial hardship, shall be made as
soon as administratively feasible.
(b) Elective Deferrals at Age 59-1/2. Upon attaining age
fifty-nine and one-half (59-1/2), a Participant may elect to withdraw all or
any portion of his Elective Deferrals Account and/or Employer Matching
Contributions Account, as of the last day of any month, even if he is
still employed.
Section 5.6. Definitions. For purposes of this Article, the
following words and phrases shall have the following meanings:
(a) "Actual Deferral Percentage" means, for a specified group
of Participating Employees for a Plan Year, the average of the ratios
(calculated separately for each Participating Employee in such group) of
(i) the amount of Employer contributions actually paid over to the Plan on
behalf of such Participating Employee for the Plan Year to (ii) the
Participating Employee's Compensation for such Plan Year (whether or not
the Employee was a Participating Employee for the entire Plan Year).
Employer contributions on behalf of any Participating Employee shall
include: (i) any Elective Deferrals made pursuant to the Participating
Employee's deferral election, including Excess Elective Deferrals of
Highly Compensated Employees, but excluding Elective Deferrals that are
taken into account in the Contribution Percentage test (provided the
Actual Deferral Percentage test is satisfied both with and without
exclusion of these Elective Deferrals); and (ii) at the election of the
Employer, Qualified Non-Elective Contributions and Qualified Matching
Contributions. For purposes of computing Actual Deferral Percentages, an
Employee who would be a Participating Employee but for the failure to make
Elective Deferrals shall be treated as a Participating Employee on whose
behalf no Elective Deferrals are made.
(b) "Aggregate Limit" means the sum of (i) one hundred
twenty-five percent (125%) of the greater of the Actual Deferral
Percentage of the Participating Employees who are not Highly Compensated
Employees for the Plan Year or the Actual Contribution Percentage of
Participating Employees who are not Highly Compensated Employees under the
Plan subject to Code Section 401(m) for the Plan Year beginning with or
within the Plan Year of the cash or deferred arrangement and (ii) the
lesser of two hundred percent (200%) or two (2) plus the lesser of such
Actual Deferral Percentage or Actual Contribution Percentage. "Lesser" is
substituted for "greater" in (i) above and "greater" is substituted for
"lesser" after "two plus the" in (ii) above if it would result in a larger
Aggregate Limit.
(c) "Average Contribution Percentage" means the average of the
Contribution Percentages of the Employees in a group who are eligible to
make Participant Voluntary Contributions, or Elective Deferrals (if the
Employer takes such contributions into account in the calculation of the
Contribution Percentage), or to receive Matching Contributions (including
forfeitures) or Qualified Matching Contributions.
(d) "Contribution Percentage" means the ratio (expressed as a
percentage) of the Participating Employee's Contribution Percentage
Amounts to the Participating Employee's Compensation for the Plan Year
(whether or not the Employee was a Participating Employee for the entire
Plan Year).
(e) "Contribution Percentage Amounts" means the sum of the
Participant Voluntary Contributions, Matching Contributions, and Qualified
Matching Contributions (to the extent not taken into account for purposes
of the Actual Deferral Percentage test) made under the Plan on behalf of
the Participating Employee for the Plan Year. Such Contribution
Percentage Amounts shall include forfeitures of Excess Aggregate
Contributions or Matching Contributions allocated to the Participating
Employee's Accounts which shall be taken into account in the year in which
such forfeiture is allocated. The Employer may elect to include Qualified
Non-Elective Contributions in the Contribution Percentage Amounts. The
Employer also may elect to use all or part of the Elective Deferrals for
the Plan Year in the Contribution Percentage Amounts so long as the Actual
Deferral Percentage test is satisfied both including and excluding the
Elective Deferrals that are included in the Contribution Percentage
Amounts.
(f) "Excess Aggregate Contributions" means, with respect to any
Plan Year, the excess of:
(i) the aggregate Contribution Percentage Amounts taken into
account in computing the numerator of the Contribution Percentage actually
made on behalf of Highly Compensated Employees for such Plan Year, over
(ii) the maximum Contribution Percentage Amounts permitted by
the Actual Contribution Percentage test (determined by reducing
contributions made on behalf of Highly Compensated Employees in order of
their Contribution Percentages beginning with the highest of such
percentages).
Such determination shall be made after first determining Excess Elective
Deferrals pursuant to Section 5.2(d) hereof and then determining Excess
Contributions pursuant to Section 5.2(f) hereof.
(g) "Excess Contributions" means, with respect to any Plan
Year, the excess of:
(i) the aggregate amount of Employer contributions actually
taken into account in computing the Actual Deferral Percentage of Highly
Compensated Employees for such Plan Year, over
(ii) the maximum amount of such contributions permitted by the
Actual Deferral Percentage test (determined by reducing contributions made
on behalf of Highly Compensated Employees in order of the Actual Deferral
Percentages, beginning with the highest of such percentages).
(h) "Excess Elective Deferrals" means those Elective Deferrals
that are includible in a Participating Employee's gross income for a
taxable year under Code Section 402(g) because they exceed the limitation
specified in Section 5.2(d)(i) hereof. Excess Elective Deferrals shall be
treated as Annual Additions under the Plan.
(i) "Family Member" means the spouse, lineal ascendants and
descendants of the employee or former employee and the spouses of such
lineal ascendants and descendants, all within the meaning of Code Section
414(q)(6).
(j) "Highly Compensated Employee" means both highly compensated
active employees and highly compensated former employees.
(i) A highly compensated active employee includes any Employee
who performs service for the Employer during the determination year and
who, during the look-back year: (i) received compensation from the
Employer in excess of $75,000 (as adjusted pursuant to Code Section
415(d)); (ii) received compensation from the Employer in excess of $50,000
(as adjusted pursuant to Code Section 415(d)) and was a member of the
top-paid group for such year; or (iii) was an officer of the Employer and
received compensation during such year that is greater than 50 percent of
the dollar limitation in effect under Code Section 415(b)(1)(A). The term
Highly Compensated Employee also includes: (i) employees who are both
described in the preceding sentence if the term "determination year" is
substituted for the term "look-back year" and the employee is one of the
100 employees who received the most compensation from the Employer during
the determination year; and (ii) employees who are 5 percent owners at any
time during the look-back year or determination year. If no officer has
satisfied the compensation requirement of (iii) above during either a
determination year or look-back year, the highest paid officer for such
year shall be treated as a Highly Compensated Employee. For this purpose,
the determination year shall be the Plan Year. The look-back year shall
be the twelve-month period immediately preceding the determination year.
(ii) A highly compensated former employee includes any Employee
who separated from service (or was deemed to have separated) prior to the
determination year, performs no service for the Employer during the
determination year, and was a highly compensated active employee for
either the separation year or any determination year ending on or after
the employee's fifty-fifth (55th) birthday.
(iii) If an employee is, during a determination year or
look-back year, a Family Member of either a five percent owner who is an
active or former employee or a Highly Compensated Employee who is one of
the ten (10) most highly compensated employees ranked on the basis of
Compensation paid by the Employer during such year, then the Family Member
and the five percent owner or top-ten Highly Compensated Employee shall be
aggregated. In such case, the Family Member and five percent owner or
top-ten Highly Compensated Employee shall be treated as a single employee
receiving Compensation and Plan contributions or benefits equal to the sum
of such Compensation and contributions or benefits of the Family Member
and five percent owner or top-ten Highly Compensated Employee.
(iv) The determination of who is a Highly Compensated Employee,
including the determinations of the number and identity of employees in
the top-paid group, the top 100 employees, the number of employees treated
as officers and the Compensation that is considered, will be made in
accordance with Code Section 414(q).
(k) "Participating Employee" means an Employee who is eligible
to make Elective Deferrals or Participant Voluntary Contributions (if the
Employer takes such contributions into account in the calculation of the
Contribution Percentage), or to receive Matching Contributions (including
forfeitures) or Qualified Matching Contributions. If an Employee
contribution is required as a condition of participation in the Plan, any
Employee who would be a Participant in the Plan if such Employee made such
a contribution shall be treated as a Participating Employee on behalf of
whom no Employee contributions are made.
(l) "Qualified Matching Contributions" means Matching
Contributions which are one hundred percent (100%) vested and
nonforfeitable at all times and which are distributable only in accordance
with the distribution provisions applicable to Elective Deferrals.
(m) "Qualified Non-Elective Contributions" means contributions
(other than Matching Contributions or Qualified Matching Contributions)
made by the Employer and allocated to Participating Employees' Accounts
that the Participating Employees may not elect to receive in cash until
distributed from the Plan, are one hundred percent (100%) vested and
nonforfeitable when made, and are distributable only in accordance with
the distribution provisions applicable to Elective Deferrals.
ARTICLE VI.
SECTION 415 LIMITATIONS
Section 6.1. Employers Maintaining Only this Plan.
(a) If the Participant does not participate in, and has never
participated in another qualified plan, a welfare benefit fund (as defined
in Code Section 419(e)) or an individual medical account (as defined in
Code Section 415(1)(2)) maintained by the Employer, the amount of Annual
Additions which may be credited to a Participant's Account under this Plan
for a Limitation Year shall not exceed the lesser of the Maximum
Permissible Amount or any other limitation contained in this Plan. If the
Employer's contribution that would otherwise be contributed or allocated
to the Participant's Account would cause the Annual Additions for the
Limitation Year to exceed the Maximum Permissible Amount, the amount
contributed or allocated will be reduced so that the Annual Additions for
the Limitation Year will equal the Maximum Permissible Amount.
(b) Prior to the determination of the Participant's actual
compensation for a Limitation Year, the Maximum Permissible Amount may be
determined on the basis of the Participant's estimated annual compensation
for such Limitation Year. Such estimated annual compensation shall be
determined on a reasonable basis and shall be uniformly determined for all
Participants similarly situated. Any Employer contributions based on
estimated annual compensation shall be reduced by any Excess Amounts
carried over from prior years.
(c) As soon as it is administratively feasible after the end of
the Limitation Year, the Maximum Permissible Amount for such Limitation
Year shall be determined on the basis of the Participant's actual
Compensation for such Limitation Year.
(d) If, pursuant to Section 6.1(c) and notwithstanding the
provisions of Section 6.1(a) hereof which require a reduction of
contributions so as not to exceed the limitations of this Article VI,
there is an Excess Amount with respect to a Participant for a Limitation
Year, such Excess Amount shall be disposed of as follows:
(i) Any Participant Voluntary Contributions, to the extent that
the return would reduce the Excess Amount, shall be returned to the
Participant.
(ii) In the event that the Participant is covered by this Plan
at the end of the Limitation Year, remaining Excess Amounts after the
application of clause (i) shall be applied to reduce future Employer
contributions (including any allocation of forfeitures) for such
Participant under this Plan in the next Limitation Year (and each
succeeding year, as necessary).
(iii) In the event that the Participant is not covered by
this Plan at the end of the Limitation Year, remaining Excess Amounts
after the application of clause (i) shall not be distributed to the
Participant, but shall be held unallocated in a suspense account and shall
be applied to reduce future Employer contributions (including any
allocation of forfeitures) for all remaining Participants in the next
Limitation Year (and each succeeding year, as necessary).
(iv) If a suspense account is in existence at any time during
the Limitation Year pursuant to this Section, it will not participate in
the allocation of any investment gains and losses, and all amounts in the
suspense account must be allocated and reallocated to Participants'
Accounts before any Employer or Employee contributions may be made to the
Plan for such Limitation Year. Excess amounts may not be distributed to
Participants or former Participants.
Section 6.2. Employers Maintaining Other Master or Prototype
Defined Contribution Plans.
(a) If, in addition to this Plan, the Participant is covered
under another qualified defined contribution plan which qualifies as a
Master or Prototype Plan or a welfare benefit fund (as defined in Code
Section 419(e)) or an individual medical account (as defined in Code
Section 415(1)(2)) maintained by the Employer during any Limitation Year,
the amount of Annual Additions which may be allocated under this Plan on
the Participant's behalf for such Limitation Year, shall not exceed the
Maximum Permissible Amount reduced by the Annual Additions credited to a
Participant's account under such other plans, welfare benefit funds or
individual medical accounts for the same Limitation Year. If the Annual
Additions with respect to the Participant under other defined contribution
plans and welfare benefit funds maintained by the Employer are less than
the Maximum Permissible Amount and the Employer contribution that would
otherwise be contributed or allocated to the Participant's Account under
this Plan would cause the Annual Additions for the Limitation Year to
exceed this limitation, the amount contributed or allocated will be
reduced so that the Annual Additions under all such plans and funds for
the Limitation Year will equal the Maximum Permissible Amount. If the
Annual Additions with respect to the Participant under such other defined
contribution plans and welfare benefit funds in the aggregate are equal to
or greater than the Maximum Permissible Amount, no amount will be
contributed or allocated to the Participant's Account under this Plan for
the Limitation Year.
(b) Prior to the determination of the Participant's actual
Compensation for the Limitation Year, the amounts referred to in
subsection (a) above may be determined on the Participant's estimated
annual compensation for such Limitation Year. Such estimated annual
compensation shall be determined on a reasonable basis and shall be
uniformly determined for all Participants similarly situated. Any
Employer contribution based on estimated annual compensation shall be
reduced by any Excess Amounts carried over from prior years.
(c) As soon as it is administratively feasible after the end of
the Limitation Year, the amounts referred to in subsection (a) above shall
be determined on the basis of the Participant's actual Compensation for
such Limitation Year.
(d) If a Participant's Annual Additions under this Plan and all
such other plans result in an Excess Amount for a Limitation Year, such
Excess Amount shall be deemed to consist of the Annual Additions last
allocated, except that Annual Additions attributable to a welfare benefit
fund or individual medical account will be deemed to have been allocated
first regardless of the actual allocation date.
(e) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date of
another plan, the Excess Amount attributed to this Plan will be the
product of:
(i) the total Excess Amount allocated as of such date
(including any amount which would have been allocated but for the
limitations of Code Section 415), times
(ii) the ratio of (A) the amount allocated to the Participant as
of such date under this Plan, divided by (B) the total amount allocated as
of such date under all qualified master or prototype defined contribution
plans (determined without regard to the limitations of Code Section 415).
(f) Any Excess Amounts attributed to this Plan shall be
disposed of as provided in Section 6.1(d).
Section 6.3. Employers Maintaining Other Defined Contribution
Plans. If the Participant is covered under another plan which is a
qualified defined contribution plan which is not a Master or Prototype
Plan maintained by the Employer, Annual Additions allocated under this
Plan on behalf of any Participant shall be limited in accordance with the
provisions of Section 6.2, as though the other plan were a Master or
Prototype Plan, unless the Employer provides other limitations in the
Adoption Agreement.
Section 6.4. Employers Maintaining Defined Benefit Plans. If
the Participant is covered or was covered at any time under a qualified
defined benefit plan maintained by the Employer, the projected annual
benefit thereunder and the Annual Additions credited to any such
Participant's Account under this Plan and any other qualified defined
contribution plan in any Limitation Year will be limited so that the sum
of the Defined Contribution Fraction and the Defined Benefit Fraction with
respect to such Participant will not exceed 1.0 in any Limitation Year.
The Annual Additions which may be credited to the Participant's Account
under this Plan for any Limitation Year will be limited in accordance with
the Adoption Agreement.
Section 6.5. Definitions. For purposes of this Article VI,
the following terms shall be defined as follows:
(a) Annual Additions -- The sum of the following amounts
allocated to a Participant's Account for a Limitation Year: (i) all
Employer contributions; (ii) all Participant contributions (other than a
qualified rollover contribution as described in Code Section 402(a)(5));
(iii) all forfeitures; (iv) all amounts allocated, after March 31, 1984,
to an individual medical account (as defined in Code Section 415(1)(2))
which is part of a defined benefit or annuity plan maintained by the
Employer are treated as Annual Additions to a defined contribution plan;
and (v) amounts derived from contributions paid or accrued after December
31, 1985, in taxable years ending after such date, which are attributable
to post-retirement medical benefits allocated to the separate account of a
"key employee" (as defined in Code Section 419A(d)(3)) under a welfare
benefit fund (as defined in Code Section 419(e)) maintained by the
Employer, are treated as Annual Additions to a defined contribution plan.
For the purposes of this Article VI, amounts reapplied under Sections
6.1(d) and 6.2(f) of the Plan to reduce Employer contributions shall also
be included as Annual Additions.
(b) Compensation -- A Participant's wages as defined in Code
Section 3121(a), for purposes of calculating social security taxes, but
determined without regard to the wage base limitation in Code Section
3121(a)(1), the limitations on the exclusions from wages in Code Section
3121(a)(5)(C) and (D) for elective contributions and payments by reason of
salary reduction agreements, the special rules in Code Section 3121(v),
any rules that limit covered employment based on the type or location of
an employee's employer, and any rules that limit the remuneration included
in wages based on familial relationship or based on the nature or location
of the employment or the services performed (such as the exceptions to the
definition of employment in Code Section 3121(b)(1) through (20)). For
any Self-Employed Individual Compensation means Earned Income.
For Limitation Years beginning after December 31, 1991, for
purposes of applying the limitations of this Article, Compensation for a
Limitation Year is the Compensation actually paid or includible in gross
income during such Limitation Year. Notwithstanding the preceding
sentence, Compensation for a participant in a defined contribution plan
who is permanently and totally disabled (as defined in Code Section
22(e)(3)) is the Compensation such participant would have received for the
Limitation Year if the participant had been paid at the rate of
Compensation paid immediately before becoming permanently and totally
disabled. Such imputed Compensation for a disabled participant may be
taken into account only if the participant is not a highly compensated
employee (as defined in Code Section 414(q)) and contributions made on
behalf of such participant are nonforfeitable when made.
(c) Defined Benefit Fraction -- A fraction, the numerator of
which is the sum of a Participant's Projected Annual Benefits under all
the qualified defined benefit plans whether or not terminated) maintained
by the Employer determined at the end of the Limitation Year, and the
denominator of which is the lesser of (i) one hundred and twenty-five
percent (125%) of the dollar limitation for such Limitation Year under
Code Sections 415(b) and (d) (or such higher amount determined by the
Commissioner of Internal Revenue applicable to the calendar year with
which or within which the Limitation Year ends) or (ii) one hundred and
forty percent (140%) of the Participant's average Compensation (or Earned
Income) for the three highest consecutive calendar years of service during
which the Participant was in the Plan including any adjustments under Code
Section 415(b). Notwithstanding the above, if the Participant was a
Participant as of the first limitation year beginning after December 31,
1986 in one or more defined benefit plans maintained by the Employer which
were in existence on May 6, 1986, the denominator of this fraction will
not be less than the product of 1.25 times the sum of the annual benefits
under such plans which the Participant had accrued as of the close of the
last Limitation Year beginning after January 1, 1987, disregarding any
changes in the terms and conditions of the Plan after May 5, 1986. The
preceding sentence applies only if the defined benefit plans individually
and in the aggregate satisfied the requirements of Code Section 415 for
all Limitation Years beginning before January 1, 1987.
(d) Employer -- The Employer that adopts this Plan and in the
case of a group of employers which constitutes (i) a controlled group of
corporations (as defined in Code Section 414(b) as modified by Code
Section 415(h)); (ii) trades or businesses (whether or not incorporated)
which are under common control (as defined in Section 414(c) as modified
by Code Section 415(h)); (iii) an affiliated service group (as defined in
Code Section 414(m)); or (iv) a group of entities required to be
aggregated (pursuant to Code Section 414(o)) all such employers shall be
considered a single employer for purposes of applying the limitations of
this Article VI.
(e) Excess Amount -- The excess of the Participant's Annual
Additions for the Limitation Year over the Maximum Permissible Amount.
(f) Limitation Year -- A calendar year or any other twelve (12)
consecutive month period adopted by the Employer in item 12 of the
Adoption Agreement (Profit Sharing Plan) or item 10 of the Adoption
Agreement (Pension Plan). All qualified plans maintained by the Employer
shall use the same Limitation Year. If the Limitation Year is amended to
a different twelve (12) consecutive month period, the new Limitation Year
shall begin on the date within the Limitation Year in which the amendment
is made.
(g) Master or Prototype Plan -- A plan the form of which is the
subject of a favorable opinion letter from the Internal Revenue Service.
(h) Maximum Permissible Amount -- For a Limitation Year, the
Maximum Permissible Amount with respect to any Participant shall be the
lesser of (i) the Defined Contribution Dollar Limitation or (ii)
twenty-five percent (25%) of the Participant's Compensation for the
Limitation Year. The Compensation limitation described in (ii) shall not
apply to any contribution for medical benefits (within the meaning of Code
Sections 401(h) or 419A(f)(2)) which is otherwise treated as an Annual
Addition under Code Sections 415(1)(1) or 419A(d)(2). If a short
Limitation Year is created because of an amendment changing the Limitation
Year to a different twelve (12) consecutive month period, the Maximum
Permissible Amount shall not exceed the defined contribution dollar
limitation in Code Section 415(c)(1)(A) multiplied by a fraction, the
numerator of which is the number of months in the short Limitation Year
and the denominator of which is twelve (12).
(i) Projected Annual Benefit -- A Participant's annual
retirement benefit (adjusted to the actuarial equivalent of a straight
life annuity if expressed in a form other than a straight life or
qualified joint and survivor annuity) under the Plan, assuming that the
Participant will continue employment until the later of current age or
Normal Retirement Age, and that the Participant's Compensation for the
Limitation Year and all other relevant factors used to determine benefits
under the Plan will remain constant for all future Limitation Years.
(j) Defined Contribution Fraction -- A fraction, the numerator
of which is the sum of the Annual Additions credited to the Participant's
account under this and all other qualified defined contribution plans
(whether or not terminated) maintained by the Employer for the current and
all prior Limitation Years (including the Annual Additions attributable to
the Participant's non-deductible employee contributions to all qualified
defined benefit plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years and the Annual
Additions attributable to all welfare benefit funds (as defined in Code
Section 419(e)) and individual medical accounts (as defined in Code
Section 415(1)(2) maintained by the Employer), and the denominator of
which is the sum of the maximum aggregate amounts for the current and all
prior Limitation Years of service with the Employer (regardless of whether
a defined contribution plan was maintained by the Employer). The maximum
aggregate amount in any Limitation Year is the lesser of (i) one hundred
and twenty-five percent (125%) of the dollar limitation determined under
Code Sections 415(b) and (d) in effect under Code Section 415(c)(1)(A) or
(ii) thirty-five percent (35%) of the Participant's Compensation for such
Limitation Year.
If the Employee was a participant as of the end of the first day
of the first Limitation Year beginning after December 31, 1986, in one or
more defined contribution plans maintained by the Employer which were in
existence on May 5, 1986, the numerator of this fraction will be adjusted
if the sum of this fraction and the defined benefit fraction would
otherwise exceed 1.0 under the terms of this Plan. Under the adjustment,
an amount equal to the product of: (i) the excess of the sum of the
fractions over 1.0 times (ii) the denominator of this fraction, will be
permanently subtracted from the numerator of this fraction. The
adjustment is calculated using the fractions as they would be computed as
of the end of the last Limitation Year beginning before January 1, 1987,
and disregarding any changes in the terms and conditions of the Plan made
after May 5, 1986, but using the Code Section 415 limitation applicable to
the first Limitation Year beginning on or after January 1, 1987. The
annual addition for any Limitation Year beginning before January 1, 1987,
shall not be computed to treat all Employee contributions as Annual
Additions.
(k) Defined Contribution Dollar Limitation -- For a Limitation
Year, thirty thousand dollars ($30,000) or, if greater, one-fourth of the
defined benefit dollar limitation set forth in Code Section 415(b)(1) as
in effect for such Limitation Year.
(l) Highest Average Compensation -- The average Compensation
for the three consecutive Years of Service with the Employer which
produces the highest average.
ARTICLE VII.
PARTICIPANTS' ACCOUNTS
Section 7.1. Separate Accounts. Separate Accounts will be
maintained for each Participant for each of the following types of
contributions, and the income, expenses, gains and losses attributable
thereto:
(a) Employer Profit Sharing Contributions pursuant to Section
4.1 hereof;
(b) Employer Pension Contributions pursuant to Section 4.2
hereof;
(c) Participant Voluntary Contributions pursuant to Section 4.3
hereof;
(d) Elective Deferrals pursuant to Section 5.2 hereof;
(e) Matching Contributions pursuant to Section 5.3 hereof;
(f) Rollover Contributions pursuant to Section 4.6 hereof.
The Custodian shall establish such other separate Accounts as may be
necessary under the Plan. These Accounts shall be for accounting purposes
only and the Custodian shall not be required to establish separate
Custodial Accounts for these contributions.
Section 7.2. Vesting. (a) A Participant shall at all times
have a fully vested and nonforfeitable interest in all his Accounts except
his Employer Profit Sharing Contributions Account and/or his Employer
Pension Contributions Account.
(b) A Participant shall have a vested interest in his Employer
Profit Sharing Contributions Account and/or his Employer Pension
Contributions Account as determined under the vesting schedule elected in
item 7 of the Adoption Agreement.
Section 7.3. Computation of Vesting Service. All of a
Participant's Years of Service with the Employer shall be counted to
determine the nonforfeitable percentage of his Employer Profit Sharing
Contributions Account and/or his Employer Pension Contributions Account
except those Years of Service excluded under item 7 of the Adoption
Agreement. A former Participant who had a nonforfeitable right to all or
a portion of his Account balance derived from Employer contributions at
the time of his termination shall receive credit for Years of Service
prior to his Break in Service upon completing a Year of Service after his
return to the employ of the Employer. A former Participant who did not
have a nonforfeitable right to any portion of his Account balance derived
from Employer contributions at the time of termination from service will
be considered a new employee for vesting purposes, if the number of
consecutive one year Breaks in Service equals or exceeds the greater of
(i) five (5) years or (ii) the aggregate number of Years of Service before
such Breaks in Service. If such a former Participant's Years of Service
before termination from service may not be disregarded pursuant to the
preceding sentence, such former Participant's prior Years of Service shall
not be cancelled hereunder.
Section 7.4. Allocation of Forfeitures.
(a) As of the end of the Plan Year, forfeitures derived from
Employer Profit Sharing Contributions Accounts which become available for
reallocation during such Plan Year because of the operation of the vesting
provisions of Section 7.2(b), shall be allocated to the Employer Profit
Sharing Contribution Accounts of the Participants who are eligible to
share in an Employer Profit Sharing Contributions for the Plan Year. Such
amounts shall be allocated according to the ratio that each such
Participant's Compensation or Earned Income for the Plan Year bears to the
total Compensation and Earned Income of all such Participants for the Plan
Year. Forfeitures under this subsection (a) will be allocated only for
the benefit of Participants of the Employer adopting this Plan.
(b) Forfeitures derived from Employer Pension Contributions
which become available for reallocation during a Plan Year shall be
applied to reduce the Employer Pension Contributions that would otherwise
be due for such Plan Year under Section 4.2. Forfeitures under this
subsection (b) will only be used to reduce the Employer Pension
Contributions of the Employer adopting this Plan.
(c) If a benefit is forfeited because a Participant or
Beneficiary cannot be found, such benefit will be reinstated if a claim is
made by the Participant or Beneficiary.
(d) No forfeiture will occur solely as a result of a
Participant's withdrawal of any Employee contributions.
ARTICLE VIII.
PAYMENT OF BENEFITS
Section 8.1. Benefits Payable Under the Plan.
(a) Normal Retirement. A Participant's interest in all
Employer contributions allocated to his Accounts shall be fully vested and
nonforfeitable on and after his Normal Retirement Age. Such Participant
may retire at any time on or after that date and shall be entitled to
receive, in accordance with the provisions of Sections 8.2 and 8.3 hereof,
the total amount credited to his Accounts. Any Participant who is
employed beyond his Normal Retirement Age shall continue to share in
Employer contributions until his actual retirement.
(b) Death Benefits. Upon the death of a Participant while
employed by the Employer, the total amount credited to such Participant's
Accounts (plus such Participant's share of the Employer contributions for
the year of his death), shall be payable to such Participant's Beneficiary
in accordance with Sections 8.2 and 8.3 hereof. Upon the death of a
Participant following his termination of employment with the Employer, the
vested portion of his Accounts which has not been distributed shall be
payable to such Participant's Beneficiary in accordance with Sections 8.2
and 8.3 hereof.
(c) Other Termination of Employment. A Participant who
terminates employment with the Employer on account of Disability shall be
entitled to receive, in accordance with Sections 8.2 and 8.3 hereof, the
total amount credited to his Account. A Participant whose employment with
the Employer is terminated prior to his Normal Retirement Date for any
reason other than death or Disability shall be entitled to receive, in
accordance with the provisions of Sections 8.2 and 8.3 hereof, the
portions of his Accounts that have vested pursuant to Section 7.2 hereof.
(d) Forfeitures. Any amounts in a Participant's Accounts which
are not payable under subsection (c) above when his employment with the
Employer is terminated shall remain in such Accounts and shall continue to
share in profits or losses on investments under Section 9.3 hereof until
such former Participant incurs five (5) consecutive Breaks in Service,
whereupon they shall be forfeited and administered in accordance with
Section 7.4 hereof. In the event a former Participant is reemployed by
the Employer before incurring five (5) consecutive Breaks in Service his
Accounts shall continue to vest in accordance with the vesting schedule
specified in the applicable Adoption Agreement. Notwithstanding the
foregoing, if a terminated Participant receives a distribution on account
of termination of his participation in the Plan of his entire vested
interest in the Pension Plan or the Profit Sharing Plan, such
Participant's nonvested interest in the relevant plan shall be treated as
a forfeiture and administered in accordance with Section 7.4 hereof. If
the Participant elects to have distributed less than the entire vested
portion of his Account balance derived from Employer contributions, the
part of the nonvested portion that will be treated as a forfeiture is the
total nonvested portion multiplied by a fraction, the numerator of which
is the amount of the distribution attributable to Employer contributions
and the denominator of which is the total value of the vested Employer
derived Account balance. For purposes of this Section, if the value of an
employee's vested account balance is zero, the Employee shall be deemed to
have received a distribution of such vested account balance. A
Participant's vested account balance shall not include accumulated
deductible employee contributions within the meaning of Code Section
72(o)(5)(B) for plan years beginning prior to January 1, 1989. If a
Participant receives or is deemed to receive a distribution pursuant to
this subsection (d) and such Participant subsequently resumes employment
covered under the Plan, the forfeited amounts shall be restored from
current forfeitures, or if those are insufficient by a special Employer
contribution, provided that the Participant repays to the Plan the full
amount of the distribution attributable to Employer contributions prior to
the earlier of (i) five (5) years after the Participant is reemployed, or
(ii) the time the Participant incurs five (5) consecutive Breaks in
Service. In the event a former Participant is reemployed after incurring
five (5) consecutive Breaks in Service, separate Accounts will be
maintained for Employer contributions allocated before and after the Break
in Service, and Years of Service earned after his return to employment
shall be disregarded in determining the Participant's vested percentage in
his prebreak Employer contributions.
Section 8.2. Manner of Distributions.
(a) Distributions From Pension Plan. Distributions from the
Pension Plan shall be made as follows:
(i) A Participant's vested interest in the Plan shall be paid
by purchasing an annuity contract from a licensed insurance company,
unless the Participant elects to receive his interest in one of the
alternate forms of benefit described in subsection (c) below. If a
Participant is not married at his annuity starting date, the annuity
contract shall provide a monthly benefit for his life. If a Participant
is married at his annuity starting date, the annuity shall be in the form
of a qualified joint and survivor annuity. A "qualified joint and survivor
annuity" is an immediate annuity for the life of the Participant with a
survivor annuity for the life of the spouse which is equal to fifty
percent (50%) of the amount of the annuity which is payable during the
joint lives of the Participant and the spouse and which is the amount of
benefit which can be purchased with the Participant's vested Account
balance. The Participant may elect to have such annuity distributed upon
attainment of the earliest retirement age under the Plan. Any annuity
contract purchased hereunder and distributed in accordance with this
Section 8.2 shall be nontransferable and shall comply with the terms of
this Plan. For purposes of this Section, the earliest retirement age
shall be the Participant's age on the earliest date on which the
Participant could elect to receive retirement benefits.
(ii) Unless an optional form of benefit is selected in
accordance with subsection (c) below, if a Participant has a spouse and
dies prior to his annuity starting date (the date annuity payments
commence), the Participant's vested Account balance in the Plan shall be
applied toward the purchase of a life only annuity contract from a
licensed insurance company providing a benefit for the life of the
surviving spouse. The surviving spouse may elect to have such annuity
distributed within a reasonable period after the Participant's death.
(iii) For any distribution subject to the annuity
requirements in subsection (i) above, a Participant or Beneficiary may
elect in writing, within the ninety (90) day period ending on the annuity
starting date (the date annuity or any other form of benefit payments
commence), to receive his vested interest in the Plan in one of the
alternate forms of benefit set forth in subsection (c) below in lieu of
the form of benefit otherwise payable hereunder. Any waiver of the joint
and survivor annuity by a married Participant shall not be effective
unless: (A) the Participant's spouse consents in writing to the election;
(B) the election designates a specific Beneficiary, including any class of
beneficiaries or any contingent beneficiaries, which may not be changed
without spousal consent (or the spouse expressly permits designations by
the Participant without any further spousal consent); (C) the spouse's
consent acknowledges the effect of the election; and (D) the spouse's
consent is witnessed by a Plan representative or notary public.
Additionally, a Participant's waiver of the joint and survivor annuity
shall not be effective unless the election designates a form of benefit
payment which may not be changed without spousal consent (or the spouse
expressly permits designations by the Participant without any further
spousal consent). If it is established to the satisfaction of a Plan
representative that there is no spouse or that the spouse cannot be
located, a waiver will be deemed a qualified election. Any consent by a
spouse obtained under this provision (or establishment that the consent of
a spouse may not be obtained) shall be effective only with respect to such
spouse. A consent that permits designations by the Participant without
any requirement of further consent by such spouse must acknowledge that
the spouse has the right to limit consent to a specific Beneficiary, and a
specific form of benefit where applicable, and that the spouse voluntarily
elects to relinquish either or both of such rights. A revocation of a
prior election may be made by a Participant without the consent of the
spouse at any time before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under this
provision shall be valid unless the Participant and the spouse have
received notice as provided in subsection (v) below.
(iv) A Participant may elect in writing to waive the surviving
spouse benefit otherwise payable under subsection (ii) above. The benefit
may be waived at any time during the period which begins on the first day
of the Plan Year in which the Participant attains age 35 and ends on the
date of the Participant's death. A Participant and the spouse may waive
the pre-retirement survivor death benefit prior to age 35, provided that
such early waiver becomes invalid in the Plan Year the Participant attains
age 35 and a new waiver must be made pursuant to this subsection (iv). If
the Participant separates from service prior to the first day of the Plan
Year in which he attains age 35, the surviving spouse benefit may be
waived, with respect to the Participant's account balance as of the date
of separation, at any time during the period which begins on the date of
such separation and ends on the date of the Participant's death.
Notwithstanding the foregoing, any election by a Participant to waive the
surviving spouse benefit payable under subsection (ii) above shall not be
effective unless: (A) the Participant's spouse consents in writing to the
election; (B) the spouse's consent acknowledges the effect of the
election; and (C) the spouse's consent is witnessed by a Plan
representative or notary public. If it is established to the satisfaction
of a Plan representative that there is no spouse or that the spouse cannot
be located, a waiver will be deemed a qualified election. Any consent by
a spouse obtained under this provision (or establishment that the consent
of a spouse may not be obtained) shall be effective only with respect to
such spouse. A revocation of a prior election may be made by a
Participant without the consent of the spouse at any time before the
commencement of benefits. The number of revocations shall not be limited.
No consent obtained under this provision shall be valid unless the
Participant and the spouse have received notice as provided in subsection
(v) below.
(v) The Administrator shall provide the Participant and the
Spouse, as applicable, with a written explanation of: (A) the terms and
conditions of the annuity described in subsections (i) or (ii), as
applicable; (B) the Participant's or Spouse's, as applicable, right to
waive the payment of benefits in the form of an annuity; (C) the rights of
the Participant's spouse; and (D) the right to make, and the effect of,
the revocation of a previous election to waive the payment of benefits in
the form of an annuity described in subsections (i) or (ii) hereof. In
the case of the annuity described in subsection (i), such explanation
shall be provided no less than thirty (30) days and no more than ninety
(90) days prior to the annuity starting date. In the case of the annuity
described in subsection (ii), such explanation shall be provided within
the applicable period for such Participant. The applicable period for a
Participant is whichever of the following periods ends last: (A) the
period beginning with the first day of the Plan Year in which the
Participant attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age 35; (B) a
reasonable period ending after the individual becomes a Participant; (C) a
reasonable period ending after this Article first applies to the
Participant. Notwithstanding the foregoing, notice must be provided
within a reasonable period ending after separation from service in the
case of a Participant who separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable period
ending after the enumerated events described in (B) and (C) is the end of
the two-year period beginning one year prior to the date the applicable
event occurs, and ending one year after that date. In the case of a
Participant who separates from service before the Plan Year in which age
35 is attained, notice shall be provided within the two-year period
beginning one year prior to separation and ending one year after
separation. If such a Participant thereafter returns to employment with
the Employer, the applicable period for such Participant shall be
redetermined. A written explanation comparable to the notices described
above shall be provided to a Participant who is waiving the surviving
spouse benefit prior to attaining age 35.
(vi) The Administrator shall be responsible for the purchase of
any annuity contracts required to be purchased in accordance with the
terms of this Plan.
(b) Distributions from Profit Sharing Plan. Distributions from
the Profit Sharing Plan shall be made in the form elected by the
Participant (or Beneficiary) as described in subsection (c) below.
Notwithstanding the foregoing, if the Profit Sharing Plan is a direct or
indirect transferee of a defined benefit plan, a money purchase pension
plan (including a target benefit plan), or a stock bonus or profit sharing
plan or is an amendment of an original Plan which is (or was) subject to
the survivor annuity requirements of Code Sections 401(a)(11) or 417 then
distributions shall be made in accordance with the provisions of
subsection (a) above. This amendment is effective on the first day of the
first plan year beginning on or after December 12, 1994, or, if later, 90
days after December 12, 1994. Notwithstanding any provision of this plan
to the contrary, to the extent that any optional form of benefit under
this plan permits a distribution prior to the employee's retirement,
death, disability, or severance from employment, and prior to plan
termination, the optional form of benefit is not available with respect to
benefits attributable to assets (including the post-transfer earnings
thereon) and liabilities that are transferred, within the meaning of
section 414(l) of the Internal Revenue Code, to this plan from a money
purchase pension plan qualified under section 401(a) of the Internal
Revenue Code (other than any portion of those assets and liabilities
attributable to voluntary employee contributions).
(c) Optional Forms of Distribution. All distributions required
under this subsection shall be determined and made in accordance with the
Income Tax Regulations under Code Section 401(a)(9), including the minimum
distribution incidental benefit requirement of Section 1.401(a)(9)-2 of
such Regulations.
(i) Amounts payable to a Participant shall be distributed in
one of the following forms as elected by the Participant, with spousal
consent, as applicable:
(A) a lump sum; or
(B) installments over a period certain not to
exceed the life expectancy of the
Participant or the joint life expectancy of
the Participant and his Beneficiary.
Such election shall be made in writing and in such form as shall be
acceptable to the Administrator. If the Participant fails to elect any of
the methods of distribution described above within the time specified for
such election, the Administrator shall distribute the Participant's
Account in the form of a single sum cash payment by the April 1 following
the calendar year in which the Participant attains age seventy and
one-half (70-1/2).
(ii) If a Participant's benefit is to be distributed in
installment payments under (B) above, the amount distributed for each
calendar year, beginning with distributions for the first distribution
calendar year, must at least equal the quotient obtained by dividing the
Participant's benefit by the applicable life expectancy. The life
expectancy (or joint and last survivor expectancy) is calculated using the
attained age of the Participant (or Beneficiary) as of the Participant's
(or Beneficiary's) birthday in the applicable calendar year reduced by one
for each calendar year which has 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.
Unless otherwise elected by the Participant (or the
Participant's spouse) by the time distributions are required to begin,
life expectancies shall be recalculated annually. Such election shall be
irrevocable as to the Participant (or spouse) and shall apply to all
subsequent years. The life expectancy of a nonspouse Beneficiary may not
be recalculated. Life expectancy and joint life expectancy are computed
by use of the expected return multiples in Tables V and VI of Section
1.72-9 of the Income Tax Regulations.
Notwithstanding anything herein to the contrary, for calendar
years beginning before January 1, 1989, if the Participant's spouse is not
the designated Beneficiary, the method of distribution selected must
assure that at least fifty percent (50%) of the present value of the
amount available for distribution is paid within the life expectancy of
the Participant. For calendar years beginning after December 31, 1988,
the amount to be distributed each year shall not be less than the quotient
obtained by dividing the Participant's benefit by the lesser of (A) the
applicable life expectancy or (B) if the Participant's spouse is not the
designated Beneficiary, the applicable divisor determined from the table
set forth in Q&A-4 of Section 1.401(a)(9)-2 of the Income Tax Regulations.
Distributions after the death of the Participant shall be distributed
using the applicable return multiple specified in Section 1.72-9 of the
Income Tax Regulations as the relevant divisor without regard to Section
1.401(a)(9)-2 of the Income Tax Regulations.
(iii) The minimum distribution required for the
Participant's first distribution calendar year must be made on or before
the Participant's required beginning date as described in Section 8.3(c)
hereof. The minimum distribution for other calendar years, including the
minimum distribution for the distribution calendar year in which such
required beginning date occurs, must be made on or before December 31 of
that distribution calendar year.
(d) In any case where the Participant or Beneficiary has
determined payment to be on an installment basis, such Participant or
Beneficiary may by written request directed to the Administrator, at any
time following commencement of such installment payments, accelerate all
or any portion of the unpaid balance.
(e) For purposes of this Section a "spouse" shall include the
spouse or surviving spouse of a Participant, provided that a former spouse
shall be treated as the spouse or surviving spouse and a current spouse
will not be treated as a spouse or surviving spouse to the extent provided
under a qualified domestic relations order as described in Code Section
414(p).
(f) The payment of benefits in either a lump sum or in
installments under this Section 8.2 may be made in cash or in Investment
Company Shares.
Section 8.3. Commencement of Payments. (a) Subject to the
provisions of this Section 8.3, payment of benefits, under whichever
method is selected, shall be made or commence as soon as administratively
practicable after the Valuation Date immediately following the
Participant's retirement, death or other termination of employment.
(b) If the Participant's vested Account balance in the Pension
Plan or the Profit Sharing Plan exceeds (or at the time of any prior
distribution exceeded) three thousand five hundred dollars ($3,500), no
distribution of that interest shall be made prior to the Participant's
Normal Retirement Age without the written consent of the Participant and,
in the case of the Pension Plan, the Participant's spouse (or where either
the Participant or the spouse has died, the survivor). The consent of the
Participant and the Participant's spouse shall be obtained in writing
within the ninety (90) day period ending on the annuity starting date.
The annuity starting date is the first day of the first period for which
an amount is paid as an annuity or any other form. The Administrator shall
notify the Participant and the Participant's spouse of the right to defer
any distribution until the Participant's Account balance is no longer
immediately distributable. Such notification shall include a general
description of the material features, and an explanation of the relative
values of the optional forms of benefit available under the Plan in a
manner that would satisfy the notice requirements of Code Section
417(a)(3), and shall be provided no less than thirty (30) days and no more
than ninety (90) days prior to the annuity starting date.
Notwithstanding the foregoing, only the Participant need consent
to the commencement of a distribution in the form of a qualified joint and
survivor annuity while the Account balance is immediately distributable.
(Furthermore, if payment in the form of a qualified joint and survivor
annuity is not required with respect to the Participant pursuant to
Section 8.2(b) of the Plan, only the Participant need consent to the
distribution of an Account balance that is immediately distributable.)
Neither the consent of the Participant nor the Participant's spouse shall
be required to the extent that a distribution is required to satisfy Code
Sections 401(a)(9) or 415. In addition, upon termination of this Plan if
the Plan does not offer an annuity option (purchased from a commercial
insurance company), the Participant's Account balance may, without the
Participant's consent, be distributed to the Participant or transferred to
another defined contribution plan (other than an employee stock ownership
plan as defined in Code Section 4975(e)(7)) within the same controlled
group.
An Account balance is immediately distributable if any part of
the Account balance could be distributed to the Participant (or surviving
spouse) before the Participant attains (or would have attained if not
deceased) the later of his Normal Retirement Age or age sixty-two (62).
For purposes of determining the applicability of the foregoing
consent requirements to distributions made before the first day of the
first Plan Year beginning after December 31, 1988, a Participant's vested
Account balance shall not include amounts attributable to accumulated
deductible employee contributions within the meaning of Code Section
72(o)(5)(B).
(c) Unless the Participant (or the Participant's Beneficiary,
if the Participant is dead) elects to defer commencement under (b) above,
distribution of benefits shall begin no later than the sixtieth (60th) day
after the close of the Plan Year in which occurs the latest of (i) the
Participant's attainment of age 65 (or normal retirement age, if earlier);
(ii) the tenth (10th) anniversary of the year in which the Participant
commenced participation in the Plan; or (iii) the date the Participant
terminates service with the Employer. Notwithstanding the foregoing, the
failure of a Participant and the spouse to consent to a distribution while
a benefit is immediately distributable, within the meaning of Section 8.1
of the Plan, shall be deemed to be an election to defer commencement of
payment of any benefit sufficient to satisfy this Section.
(d) Notwithstanding anything herein to the contrary, payment of
benefits to a Participant shall commence by the Participant's required
beginning date, even if the Participant is still employed. A
Participant's required beginning date is the April 1 of the calendar year
following the calendar year in which the Participant attains age seventy
and one-half (70-1/2); provided that the required beginning date of a
Participant who attains age 70-1/2 before January 1, 1988, shall be
determined in accordance with (i) or (ii) below:
(i) The required beginning date of a Participant who is not a
5-percent owner is the first day of April of the calendar year following
the calendar year in which the later of retirement or attainment of age
seventy and one-half (70-1/2) occurs.
(ii) The required beginning date of a Participant who is a
5-percent owner during any year beginning after December 31, 1979, is the
first day of April following the later of the calendar year in which the
Participant attains age seventy and one-half (70-1/2), or the earlier of the
calendar year with or within which ends the Plan Year in which the
Participant becomes a 5-percent owner, or the calendar year in which the
Participant retires.
The required beginning date of a Participant who is not a 5-percent owner
who attains age seventy and one-half (70-1/2) during 1988 and who has not
retired as of January 1, 1989, is April 1, 1990.
A Participant is treated as a 5-percent owner for purposes of
this subsection (d) if such Participant is a 5-percent owner as defined in
Code Section 416(i) (determined in accordance with Code Section 416, but
without regard to whether the Plan is top-heavy) at any time during the
Plan Year ending with or within the calendar year in which such owner
attains age sixty-six and one-half (66-1/2) or any subsequent Plan Year.
Once distributions have begun to a 5-percent owner under this
subsection (d), they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent year.
Distributions may be delayed pursuant to an election made prior
to January 1, 1984, under Section 242 of the Tax Equity and Fiscal
Responsibility Act of 1982; provided that the method of distribution
selected must be in accordance with the requirements of Code Section
401(a)(9) as in effect prior to amendment by the Deficit Reduction Act of
1984. If such an election is revoked, any subsequent distribution must
satisfy the requirements of Code Section 401(a)(9). If a designation is
revoked subsequent to the date distributions are required to begin, the
Plan must distribute by the end of the calendar year following the
calendar year in which the revocation occurs the total amount not yet
distributed which would have been required to have been distributed to
satisfy Code Section 401(a)(9), but for such Section 242(b)(2) election.
For calendar years beginning after December 31, 1988, such distributions
must meet the minimum distribution incidental benefit requirements in
Section 1.401(a)(9)-2 of the Income Tax Regulations. Any changes in the
designation will be considered to be a revocation of the designation.
However, the mere substitution or addition of another Beneficiary (one not
named in the designation) under the designation will not be considered to
be a revocation of the designation, so long as such substitution or
addition does not alter the period over which distributions are to be made
under the designation, directly or indirectly (for example, by altering
the relevant measuring life).
(e)(i) If a Participant dies after benefit payments have
begun, the Participant's remaining interest in the Plan shall be
distributed to his designated Beneficiary at least as rapidly as under the
method of distribution being used prior to the Participant's death.
(ii) If the Participant dies before benefit payments have
commenced, distribution of the Participant's entire interest in the Plan
shall be completed by the December 31 of the calendar year containing the
fifth (5th) anniversary of the Participant's death, except to the extent
that an election is made to receive distributions in accordance with the
following: (A) if any portion of the Participant's interest is payable to
a designated Beneficiary, distributions may be made over the life or over
a period certain not greater than the life expectancy of the designated
Beneficiary commencing on or before December 31 of the calendar year
immediately following the calendar year in which the Participant died; (B)
if the designated Beneficiary is the Participant's surviving spouse, the
date distributions are required to begin in accordance with (A) above
shall not be earlier than the later of December 31 of the calendar year
immediately following the calendar year in which the Participant died and
December 31 of the calendar year in which the Participant would have
attained age seventy and one-half (70-1/2).
If the Participant has not made an election pursuant to this
subsection (ii) by the time of his death, the designated Beneficiary must
elect the method of distribution no later than the earlier of December 31
of the calendar year in which distributions would be required to begin
under this subsection (e) or December 31 of the calendar year which
contains the fifth anniversary of the date of death of the Participant.
If the Participant has no designated Beneficiary, or if the designated
Beneficiary does not elect a method of distribution, distribution of the
Participant's entire interest in the Plan must be completed by December 31
of the calendar year containing the fifth anniversary of the Participant's
death.
For purposes of this subsection (ii), if the surviving spouse
dies after the Participant, but before payments to such spouse begin, the
provisions of this subsection (ii), with the exception of paragraph (B)
above, shall be applied as if the surviving spouse were the Participant.
Any amount paid to a child of the Participant will be treated as if it had
been paid to the surviving spouse if the amount becomes payable to the
surviving spouse when the child reaches the age of majority.
For the purposes of this subsection (e), distribution of a
Participant's interest is considered to begin on the Participant's
required beginning date (or the date distribution is required to begin to
the surviving spouse). If a distribution in the form of an annuity
irrevocably commences to the Participant before the required beginning
date, the date the distribution is considered to begin is the date
distribution actually commences.
(iii) A Participant's interest in the Plan is his Account
balance as of the last valuation date in the calendar year immediately
preceding the distribution calendar year (the valuation calendar year)
increased by the amount of any contributions or forfeitures allocated to
the Account balance as of dates in the valuation calendar year after the
valuation date and decreased by distributions made in the valuation
calendar year after the valuation date. If any portion of the minimum
distribution for the first distribution calendar year is made in the
second distribution calendar year on or before the required beginning
date, the amount of the minimum distribution made in the second
distribution calendar year shall be treated as if it had been made in the
immediately preceding distribution calendar year.
The distribution calendar year is a calendar year for which a
minimum distribution is required. For distributions beginning before the
Participant's death, the first distribution calendar year is the calendar
year immediately preceding the calendar year which contains the
Participant's required beginning date. For distributions beginning after
the Participant's death, the first distribution calendar year is the
calendar year in which distributions are required to begin pursuant to
subsection (ii) above.
For purposes of this subsection (e), the designated Beneficiary
is the individual who is designated as the Beneficiary under the Plan in
accordance with Code Section 401(a)(9) and the proposed regulations
thereunder.
Section 8.4. Payment of Small Amounts. Notwithstanding
anything herein to the contrary, if the present value of the Participant's
vested interest in the Pension Plan does not exceed (nor at the time of
any prior distribution exceeded) three thousand five hundred dollars
($3,500) as of the date the Participant's employment with the Employer
terminates, the Administrator shall distribute the present value of such
interest to the Participant in a lump sum as soon as administratively
practicable after the end of the Plan Year in which termination occurs.
Likewise, if the total present value of the Participant's vested interest
in the Profit Sharing Plan and Cash or Deferred Arrangement does not
exceed (nor at any time of any prior distribution exceeded) three thousand
five hundred dollars ($3,500) as of the date the Participant's employment
with the Employer terminates, the Administrator shall distribute the
present value of this interest to the Participant in a lump sum as soon as
administratively practicable after the end of the Plan Year in which
termination occurs. A Participant whose entire vested interest in the
Pension Plan and/or the Profit Sharing Plan has been distributed or who
has no vested interest in the Pension Plan and/or the Profit Sharing Plan
shall be deemed cashed out from the Pension Plan and/or the Profit Sharing
Plan, as applicable.
Section 8.5. Persons Under Legal or Other Disability. In the
event a Participant or Beneficiary is declared incompetent and a guardian
or other person legally charged with the care of his person or of his
property is appointed, any benefits to which such Participant or
Beneficiary is entitled shall be paid to such guardian or other person
legally charged with the care of his person or of his property.
Section 8.6. Withdrawals from Profit Sharing Plan. (a) If
elected in item 10 of the Adoption Agreement (Profit Sharing Plan), a
Participant shall be permitted to withdraw the specified percentage of his
vested Employer Profit Sharing Account while he is still employed after
attainment of age fifty-nine and one-half (59-1/2) or prior to attainment of
such age on account of a financial hardship; provided, that such
Participant has been an active Participant in the Plan for at least five
(5) years. A Participant may not make another withdrawal on account of
financial hardship under this Section 8.6 until he has been an active
Participant for at least an additional five (5) years from the date of his
last hardship withdrawal. For purposes of this Section 8.6, a financial
hardship shall mean a financial need or emergency which requires the
distribution of a Participant's Plan account in order to meet such need or
emergency. The determination of the existence of a financial hardship and
the amount required to be distributed to meet the hardship shall be made
by the Administrator in accordance with such uniform and nondiscriminatory
rules as may be established by the Administrator. A request for a
withdrawal shall be made in writing in a form prescribed by the
Administrator and shall be made in accordance with procedures and
limitations established by the Administrator. Notwithstanding the above,
no withdrawal under this Section 8.6 shall be permitted if the Integration
Formula is selected in item 6 of the Adoption Agreement (Profit Sharing
Plan).
(b) If a distribution is made pursuant to this Section 8.6 at a
time when the Participant has a nonforfeitable right to less than one
hundred percent (100%) of his Account balance derived from Employer
contributions and the Participant may increase the nonforfeitable
percentage in the Account:
(i) A separate Account will be established for the
Participant's interest in the Plan as of the time of the distribution; and
(ii) At any relevant time the Participant's nonforfeitable
portion of the separate Account will be equal to an amount ("X")
determined by the formula:
X = P(AB + (R x D)) - (R x D)
For purposes of applying the formula above: P is the nonforfeitable
percentage at the relevant time, AB is the Account balance at the relevant
time, D is the amount of the distribution, and R is the ratio of the
Account balance at the relevant time to the Account balance after
distribution.
Section 8.7. Transfer of Benefits to Eligible Retirement Plan.
(a) 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 Article VIII, a
distributee may elect, at the time and in the manner prescribed by the
Administrator, to have any portion of an eligible rollover distribution
paid directly to an eligible retirement plan specified by the distributee
in a direct rollover.
(b) 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 (i) 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; (ii) any
distribution to the extent such distribution is required under Section
401(a)(9) of the Code; and (iii) the portion of any distribution that is
not includible in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
(c) 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, 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.
(d) 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.
(e) A direct rollover is a payment by the plan to the eligible
retirement plan specified by the distributee.
ARTICLE IX.
ESTABLISHMENT OF
CUSTODIAL ACCOUNT; INVESTMENTS
Section 9.1. Custodial Account. (a) Unless the Employer
elects otherwise in the Adoption Agreement, the Custodian shall open and
maintain separate Custodial Accounts for each individual that the Employer
shall from time to time certify to the Custodian as a Participant in the
Plan. Such Custodial Accounts shall reflect the various Participant
Accounts described at Section 7.1 hereof.
(b) If the Employer so elects in the Adoption Agreement the
Custodian shall open and maintain a single Custodial Account in the name
of the Employer. If only a single Custodial Account is established, the
Employer shall be responsible for maintaining the records for the
individual Participant accounts.
(c) In the event that separate balances are not maintained for
the portion of a Participant's Account balance derived from Employer
contributions and Participant Voluntary Contributions, the Account balance
derived from Participant Voluntary Contributions shall be the
Participant's total account balance multiplied by a fraction, the
numerator of which is the total amount of Participant Voluntary
Contributions (less any withdrawals) and the denominator of which is the
sum of the numerator and the total Employer contributions (including
Elective Deferrals) made on behalf of such Participant.
Section 9.2. Receipt of Contributions. The Custodian shall
accept such contributions of money on behalf of Participants as it may
receive from time to time from the Employer. The Custodian may, in its
sole discretion, also accept money or Investment Company Shares held under
a preceding plan of the Employer qualified under Code Section 401(a) or
which qualify as rollover contributions or transfers under Section 4.6 of
the Plan. All such contributions shall be accompanied by written
instructions, in a form acceptable to the Custodian, from the Employer
specifying the Participant Accounts to which they are to be credited.
Section 9.3. Investment of Account Assets. (a) Upon written
instructions given by the Employer on a uniform and nondiscriminatory
basis as between Participants, the Custodian shall invest and reinvest
contributions credited to a Participant Account(s) in Investment Company
Shares. All Participant Accounts shall share in the profits or losses of
the investments on a pro rata basis (i.e., in the ratio that the
Participant's Account balance bears to all Account balances, other than
Accounts which are self-directed under subsection (b) below), subject to
adjustment by the Administrator on a fair and equitable basis for
contributions, distributions and/or withdrawals during the year. The
amount of each contribution credited to a Participant Account to be
applied to the purchase of Investment Company Shares shall be invested by
the Custodian at the applicable offering price. These purchases shall be
credited to such Account with notation as to cost. The Custodian shall
have no discretionary investment responsibility and in no event be liable
to any person for following investment instructions given by the Employer
or the Participant in the manner provided herein.
(b) Each Participant, through his separate Participant
Account(s), shall be the beneficial owner of all investments held in such
Account(s). The Employer however shall direct the Custodian (in a
nondiscriminatory manner) regarding the selection of specific Investment
Company Shares to be purchased for the Accounts of the Participants. The
Employer may permit (in a nondiscriminatory manner) the individual
Participants to select and direct the purchase of specific Investment
Company Shares for their own Account(s). In such a situation, the
Employer shall transmit all such directions to the Custodian.
Notwithstanding the foregoing, unless otherwise elected in the Adoption
Agreement the individual Participant may direct the investment of his
Account(s) and select the specific Investment Company Shares for purchase
for his individual Account(s) by directly communicating with the
Custodian.
(c) All income, dividends and capital gain distributions
received on the Investment Company Shares held in each Participant Account
shall be reinvested in such shares which shall be credited to such
Account. If any distribution on Investment Company Shares may be received
at the election of the Participant in additional shares or in cash or
other property, the Custodian shall elect to receive it in additional
shares. All investments acquired by the Custodian shall be registered in
the name of the Custodian or its registered nominee.
Section 9.4. Exclusive Benefit. The Custodial Account or
Accounts established hereby shall not be used or diverted to purposes
other than the exclusive benefit of Participants or their Beneficiaries.
Section 9.5. Expenses. All expenses and charges in respect of
the Plan and the Custodial Account, including, without limitation, the
Custodian's fees and commissions and taxes of any kind upon or with
respect to the Plan, shall be paid by the Employer; provided, however,
that the Custodian shall be authorized to pay such charges and expenses
from the Plan if the Employer shall fail to make payment within thirty
(30) days after it has been billed therefor by the Custodian or such
charges have otherwise become due.
Section 9.6. Voting. The Custodian shall deliver, or cause to
be executed and delivered, to the Employer all notices, prospectuses,
financial statements, proxies and proxy soliciting materials received by
the Custodian relating to investments held in Participants' Accounts. The
Custodian shall vote all proxies only in accordance with instructions
received from the Employer.
Section 9.7. Reports of the Custodian and Administrator. (a)
The Custodian shall keep accurate and detailed records of all receipts,
investments, disbursements and other transactions required to be performed
hereunder. Not later than sixty (60) days after the close of each
calendar year (or after the Custodian's resignation or removal), the
Custodian shall file with the Employer a written report reflecting the
receipts, disbursements and other transactions effected by it during such
year (or period ending with such resignation or removal) and the assets of
this Plan at its close. Such report shall be open to inspection by any
Participant for a period of thirty (30) days immediately following the
date on which it is filed with the Employer. Upon the expiration of such
thirty (30) day period, the Custodian shall be forever released and
discharged from all liability and accountability to anyone with respect to
its acts, transactions, duties, obligations or responsibilities as shown
in or reflected by such report, except with respect to any such acts or
transactions as to which the Employer shall have filed written objections
with the Custodian within such thirty (30) day period.
(b) Annual reports provided to the Employer by the Custodian
shall be, in the Custodian's discretion, on a calendar year basis unless
otherwise required by law. The Employer shall compute the valuation of
all Plan assets at least annually at the fair market value as of the last
day of each calendar year.
(c) The Custodian shall keep such records, make such
identifications and file such returns and other information concerning the
Plan as may be required of the Custodian under the Code or forms adopted
thereunder.
(d) The Administrator shall be solely responsible for the
filing of any reports or information required under the Code or forms
adopted thereunder.
Section 9.8. Limitation of Custodian's Duties and Liability.
(a) The Custodian's duties are limited to those set forth in this Plan,
and the Custodian shall have no other responsibility in the administration
of the Plan or for compliance by the Employer with any provision thereof.
The Custodian shall not be responsible for the collection of contributions
provided for under the Plan; the purpose or propriety of any distribution;
or any action or nonaction taken by the Employer or pursuant to the
Employer's request. The Custodian shall have no responsibility to
determine if instructions received by it from the Employer, or the
Employer's designated agent, comply with the provisions of the Plan. The
Custodian shall not have any obligation either to give advice to any
Participant on the taxability of any contributions or payments made in
connection with the Plan or to determine the amount of excess contribution
and net income attributable thereto. The Custodian may employ suitable
agents and counsel and pay their reasonable expenses and compensation, and
such agents or counsel may or may not be agent or counsel for the
Employer, and may be the Investment Advisor or an Investment Company.
(b) The Employer shall at all times fully indemnify and hold
harmless the Custodian, its agents, counsel, successors and assigns, from
any liability arising from distributions made or actions taken, and from
any and all other liability whatsoever which may arise in connection with
this Plan, except liability arising from the negligence or willful
misconduct of the Custodian. The Custodian shall be under no duty to take
any action other than as herein specified with respect to this Plan unless
the Employer shall furnish the Custodian with instructions in a form
acceptable to the Custodian; or to defend or engage in any suit with
respect to this Plan unless the Custodian shall have first agreed in
writing to do so and shall have been fully indemnified to the satisfaction
of the Custodian. The Custodian (and its agents) may conclusively rely
upon and shall be protected in acting upon any written order from the
Employer or any other notice, request, consent, certificate or other
instrument or paper believed by it to be genuine and to have been properly
executed, and, so long as it acts in good faith, in taking or omitting to
take any other action. No amendment to the Plan shall place any greater
burden on the Custodian without its written consent. The Custodian shall
not be liable for interest on any cash balances maintained in the Plan.
(c) The Employer shall have the sole authority to enforce the
terms of the Plan on behalf of any and all persons having or claiming any
interest therein by virtue of the Plan.
(d) The Custodian, its agents, counsel, successors and assigns,
shall not be liable to the Employer, or to any Participants or Beneficiary
for any depreciation or loss of assets, or for the failure of this Plan to
produce any or larger net earnings. The Custodian further shall not be
liable for any act or failure to act of itself, its agents, employees, or
attorneys, so long as it exercises good faith, is not guilty of negligence
or willful misconduct, and has selected such agents, employees, and
attorneys with reasonable diligence. The Custodian shall have no
responsibility for the determination or verification of the offering or
redemption prices or net asset values of Investment Company Shares, and
shall be entitled to rely for such prices and net asset values upon
statements issued by or on behalf of the Investment Company issuing the
Investment Company Shares. The Custodian shall have no duty to inquire
into the investment practices of such Investment Company; such Investment
Company shall have the exclusive right to control the investment of its
funds in accordance with its stated policies, and the investments shall
not be restricted to securities of the character now or hereafter
authorized for trustees by law or rules of court. The Custodian shall not
be liable or responsible for any omissions, mistakes, acts or failures to
act of such Investment Company, or its successors, assigns or agents.
Notwithstanding the foregoing, nothing in this Plan shall relieve the
Custodian of any responsibility or liability under ERISA.
ARTICLE X.
AMENDMENT AND TERMINATION
Section 10.1. Amendment. (a) The Employer reserves the right
at any time and from time to time to amend or terminate the Plan. No part
of the Plan shall by reason of any amendment or termination be used for or
diverted to purposes other than the exclusive benefit of Participants and
their Beneficiaries, and further that no amendment or termination may
retroactively change or deprive any Participant or Beneficiary of rights
already accrued under the Plan except insofar as such amendment is
necessary to preserve the qualification and tax exemption of the Plan
pursuant to Code Section 401. No amendment shall increase the duties of
the Custodian or otherwise adversely affect the Custodian unless the
Custodian expressly agrees thereto. However, if the Employer amends any
provision of this Plan (including a waiver of the minimum funding
requirements under Code Section 412(d)) other than by changing any
election made in the Adoption Agreement, adopting an amendment stated in
the Adoption Agreement which allows the Plan to satisfy Code Section 415,
to avoid duplication of minimum benefits under Code Section 416 or to add
certain model amendments published by the Internal Revenue Service which
specifically provide that their adoption will not cause the Plan to be
treated as an individually designed plan, such Employer shall no longer
participate under this prototype plan and the Employer's Plan shall be
deemed to be an individually designed plan. The Employer hereby
irrevocably delegates (retaining, however, the right and power to change
any election made in the Adoption Agreement) to the Investment Advisor the
right and power to amend the Plan at any time, and from time to time, and
the Employer by adopting the Plan shall be deemed to have consented
thereto. The Investment Advisor shall notify the Employer of any
amendment to the Plan. For purposes of any Investment Advisor amendments,
the mass submitter shall be recognized as the agent of the Investment
Advisor. If the Investment Advisor does not adopt the amendments made by
the mass submitter, it will no longer be identical to or a minor modifier
of the mass submitter plan.
(b) No amendment to the Plan shall be effective to the extent
that it has the effect of decreasing a Participant's accrued benefit
except to the extent permitted by Code Sections 412(c)(8) and 411(d)(6).
For purposes of this subsection, a Plan amendment which has the effect of
decreasing a Participant's Account balance or eliminating an optional form
of benefit, with respect to benefits attributable to service before the
amendment shall be treated as reducing an accrued benefit. Furthermore,
if the vesting schedule of a Plan is amended, in the case of an Employee
who is a Participant as of the later of the date such amendment is adopted
or the date it becomes effective, the nonforfeitable percentage
(determined as of such date) of such Employee's right to his
Employer-derived accrued benefit will not be less than his percentage
computed under the Plan without regard to such amendment.
(c) Notwithstanding subsection (a) above, an Employer may amend
the Plan by adding overriding plan language to the Adoption Agreement
where such language is necessary to satisfy Code Sections 415 or 416
because of the required aggregation of multiple plans under such Code
Sections.
Section 10.2. Termination. Upon complete discontinuance of the
Employer's Profit Sharing Contributions (if the Employer has adopted a
Profit Sharing Plan by completing the appropriate Adoption Agreement) or
termination or partial termination of the Plan, each affected
Participant's Account shall become nonforfeitable. Upon termination or
partial termination of the Plan, the Employer shall instruct the Custodian
whether currently to distribute to each Participant the entire amount of
the Participant's Account, in such one or more of the methods described in
Article VIII, or whether to continue the Plan and to make distributions
therefrom as if the Plan had continued; provided that, in the event the
Plan is continued, the Plan must continue to satisfy the requirements of
Code Section 401(a). The Employer shall in all events exercise such
discretion in a nondiscriminatory manner. The Plan shall continue in
effect until the Custodian shall have completed the distribution of all of
the Plan asset and the accounts of the Custodian have been settled.
ARTICLE XI.
FIDUCIARY RESPONSIBILITIES
Section 11.1. Administrator. The Administrator shall have the
power to allocate fiduciary responsibilities and to designate other
persons to carry out such fiduciary responsibilities; provided such
allocation is in writing and filed with the Plan records. The
Administrator may employ one or more persons to render advice to the
Administrator with regard to its responsibilities under the Plan, and
consult with counsel, who may be counsel to the Employer.
Section 11.2. Powers of Administrator. The Administrator shall
administer the Plan in accordance with its terms and shall have all powers
necessary to carry out its terms. The Administrator shall have
discretionary authority to determine eligibility for benefits and to
interpret and construe the terms of the Plan, and any such determination,
interpretation or construction shall be final and binding on all parties
unless arbitrary and capricious. Any such discretionary authority shall be
carried out in a uniform and nondiscriminatory manner.
Section 11.3. Records and Reports. The Administrator, or those
to whom it has delegated fiduciary duties, shall keep a record of all
proceedings and actions, and shall maintain all such books of account,
records and other data as shall be necessary for the proper administration
of the Plan. The Administrator, or those to whom it has delegated
fiduciary duties, shall have responsibility for compliance with the
provisions of ERISA relating to such office, including filing with the
Secretary of Labor and Internal Revenue Service of all reports required by
the Code and/or ERISA and furnishing Participants and Beneficiaries with
descriptions of the Plan and reports required by ERISA.
Section 11.4. Other Administrative Provisions.
(a) No bond or other security shall be required of the
Administrator, and/or any officer or Employee of the Employer to whom
fiduciary responsibilities are allocated, except as may be required by
ERISA.
(b) The Administrator or the Employer may shorten, extend or
waive the time (but not beyond sixty days) required by the Plan for filing
any notice or other form with the Administrator or the Employer, or taking
any other action under the Plan, except a response to an appeal under
Section 11.6, from a decision of the Administrator.
(c) The Administrator or the Employer may direct that such
reasonable expenses as may be incurred in the administration of the Plan
shall be paid out of the funds of the Plan, unless the Employer shall pay
them.
(d) The Administrator, the Custodian, and any other persons
performing fiduciary duties under the Plan shall act with the care, skill,
prudence and diligence under the circumstances then prevailing that a
prudent man acting in a like capacity and familiar with such matters would
use in the conduct of an enterprise of like character and with like aims,
and no such person shall be liable, to the maximum extent permitted by
ERISA, for any act of commission or omission in accordance with the
foregoing standard.
Section 11.5. Claims Procedure. Any claim relating to benefits
under the Plan shall be filed with the Administrator on a form prescribed
by the Administrator. If a claim is denied in whole or in part, the
Administrator shall give the claimant written notice of such denial within
ninety (90) days after the filing of such claim, which notice shall
specifically set forth:
(a) The reasons for the denial;
(b) The pertinent Plan provisions on which the denial was
based;
(c) Any additional material or information necessary for the
claimant to perfect the claim and an explanation of why such material or
information is needed; and
(d) An explanation of the Plan's procedure for review of the
denial of the claim.
In the event that the claim is not granted and notice of denial of a claim
is not furnished by the ninetieth (90th) day after such claim was filed,
the claim shall be deemed to have been denied on that day for the purpose
of permitting the claimant to request review of the claim.
Section 11.6. Claims Review Procedure.
(a) Any person whose claim filed pursuant to Section 11.5 has
been denied in whole or in part by the Administrator may request review of
the claim by the Employer, by filing a written request with the
Administrator. The claimant shall file such request (including a
statement of his position) with the Employer no later than sixty (60) days
after the mailing or delivery of the written notice of denial provided for
in Section 11.5, or, if such notice is not provided, within sixty (60)
days after such claim is deemed denied pursuant to Section 10.5. The
claimant shall be permitted to review pertinent documents. A decisions
shall be rendered by the Employer and communicated to the claimant not
later than sixty (60) days after receipt of claimant's written request for
review. However, if the Employer finds it necessary, due to special
circumstances (for example, the need to hold a hearing), to extend this
period and so notifies the claimant in writing, the decision shall be
rendered as soon as practicable, but in no event later than one hundred
and twenty (120) days after the claiman'ts request for review. The
employer's decision shall be in writing and shall specifically set forth:
(i) The reasons for the decision; and
(ii) The pertinent Plan provisions on
which the decision is based.
Any such decision of the Employer shall bind the claimant and the
Employer, and the Administrator shall take appropriate action to carry out
such decision.
(b) Any person whose claim has been denied in whole or in part
must exhaust the administrative review procedures provided in subsection
(a) above prior to initiating any claim for judicial review.
ARTICLE XII.
AMENDMENT AND CONTINUATION OF ORIGINAL PLAN
Notwithstanding any of the foregoing provisions of the Plan to
the contrary, an employer that has previously established an Original Plan
may, in accordance with the provisions of the Original Plan, amend and
continue the Original Plan in the form of this Plan and become an Employer
hereunder, subject to the following:
(a) subject to the conditions and limitations of the Plan, each
person who is a Participant under the Original Plan immediately prior to
the effective date of the amendment and continuation thereof in the form
of this Plan will continue as a Participant in this Plan;
(b) no election may be made in the Adoption Agreement if such
election would reduce the benefits of a Participant under the Original
Plan to less than the benefits to which he would have been entitled if he
had resigned from the employ of the Employer on the date of the Amendment
and continuation of the Original Plan in the form of this Plan;
(c) the amounts, if any, of a Participant's or former
Participant's Accounts immediately prior to the effective date of the
amendment and continuation of the Original Plan in the form of this Plan
shall be reduced to cash, deposited with the Custodian and constitute the
opening balances in such Participant's Account under this Plan;
(d) amounts being paid to individuals in accordance with the
provisions of the Original Plan shall continue to be paid under this Plan,
but in the form that they were being paid under the Original Plan;
(e) any Beneficiary designation in effect under the Original
Plan immediately before its amendment and continuation in the form of this
Plan which effectively meets the requirements contained in Section 2.3
hereof shall be deemed to be a valid Beneficiary designation pursuant to
Section 2.3 of this Plan, unless and until the Participant or former
Participant revokes such Beneficiary designation or makes a new
Beneficiary designation under this Plan. If the Beneficiary designation
form does not meet the requirements of Section 2.3 hereunder, the
Participant's spouse shall be deemed to be his Beneficiary. If the
Participant is unmarried, or his spouse does not survive him, his estate
shall be deemed his Beneficiary.
(f) if the Original Plan's vesting schedule (or this Plan's
vesting schedule) or the Plan is amended or changed in any way that
directly or indirectly affects the computation of a Participant's
nonforfeitable interest in his Account derived from Employer
contributions, each such Participant with at least three (3) Years of
Service with the Employer may elect, within a reasonable period after the
adoption of the amendment or change, to have his nonforfeitable percentage
computed under the Plan without regard for the amendment or change. For
any Participant who does not have at least one (1) Hour of Service in any
Plan Year beginning after December 31, 1988, the preceding sentence shall
be applied by substituting "five (5) Years of Service" for "three (3)
Years of Service" where such language appears therein. Any such election
must be made during the period commencing on the date of the amendment or
change and ending on the latest of: (i) sixty (60) days after that date;
(ii) sixty (60) days after the effective date of the amendment or change;
or (iii) sixty (60) days after such Participant is issued written notice
of the amendment or change by the Plan Administrator or Employer.
ARTICLE XIII.
TOP-HEAVY PROVISIONS
Section 13.1. Effect of Top-Heavy Status. The Plan shall be a
"Top-Heavy Plan" for any Plan Year commencing after December 31, 1983, if
any of the following conditions exist:
(a) If the Top-Heavy Ratio for this Plan exceeds sixty percent
(60%) and this Plan is not part of any Required Aggregation Group or
Permissive Aggregation Group.
(b) If this Plan is a part of a Required Aggregation Group but
not part of a Permissive Aggregation Group and the Top-Heavy Ratio for the
group of plans exceeds sixty percent (60%).
(c) If this Plan is a part of a Required Aggregation Group and
part of a Permissive Aggregation Group and the Top-Heavy Ratio for the
Permissive Aggregation Group exceeds sixty percent (60%).
If the Plan is a Top-Heavy Plan in any Plan Year beginning after December
31, 1983, the provisions of Sections 13.3 through 13.6 shall supersede any
conflicting provisions of the Plan or the Adoption Agreement.
Section 13.2. Additional Definitions. Solely for purposes of
this Article, the following terms shall have the meanings set forth below:
(a) "Key Employee" means any Employee or former Employee (and
the Beneficiaries of such Employee) who at any time during the
Determination Period was an officer of the Employer if such individual's
annual compensation exceeds 50 percent of the dollar limitation under Code
Section 415(b)(1) (A), an owner (or considered an owner under Code Section
318) of one of the ten largest interests in the Employer if such
individual's compensation exceeds 100 percent (100%) of the dollar
limitation under Code Section 415(c)(1)(A), a five percent (5%) owner of
the Employer, or one percent (1%) owner of the Employer who has an annual
compensation of more than $150,000. Annual compensation means
compensation as defined in Code Section 415(c)(3), of the Code, but
including amounts contributed by the Employer pursuant to a salary
reduction agreement which are excludible from the Employee's gross income
under Code Sections 125, 402(a)(8), 402(h) or 403(b). The determination
period is the plan year containing the Determination Date and the four (4)
preceding Plan Years.
The determination of who is a Key Employee will be made in accordance with
Code Section 416(i)(1) and the Regulations thereunder.
(b) "Determination Date" means the last day of the preceding
Plan Year. For the first Plan Year of the Plan Determination Date shall
mean the last day of that year.
(c) "Top-Heavy Ratio" means:
(i) If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the Employer
has not maintained any defined benefit plan which during the five (5) year
period ending on the Determination Date(s) has or has had accrued
benefits, the Top-Heavy Ratio for this plan alone or for the Required or
Permissive Aggregation Group as appropriate is a fraction, the numerator
of which is the sum of the account balances of all Key Employees as of the
determination date(s) (including any part of any account balance
distributed in the five (5) year period ending on the Determination
Date(s)), and the denominator of which is the sum of all account balances
(including any part of any account balance distributed in the five (5)
year period ending on the Determination Date(s)), both computed in
accordance with Code Section 416 and the Regulations thereunder. Both the
numerator and denominator of the Top-Heavy Ratio are increased to reflect
any contribution not actually made as of the Determination Date, but which
is required to be taken into account on that date under Code Section 416
and the Regulations thereunder.
(ii) If the Employer maintains one or more defined contribution
plans (including any simplified employee pension plan) and the Employer
maintains or has maintained one or more defined benefit plans which during
the five (5) year period ending on the Determination Date(s) has or has
had any accrued benefits, the Top-Heavy Ratio for any Required or
Permissive Aggregation Group as appropriate is a fraction, the numerator
of which is the sum of account balances under the aggregated defined
contribution plan or plans for all Key Employees, determined in accordance
with (i) above, and the present value of accrued benefits under the
aggregated defined benefit plan or plans for all Key Employees as of the
Determination Date(s), and the denominator of which is the sum of the
account balances under the aggregated defined contribution plan or plans
for all participants, determined in accordance with (i) above, and the
present value of accrued benefits under the defined benefit plan or plans
for all participants as of the Determination Date(s), all determined in
accordance with Code Section 416 and the Regulations thereunder. The
accrued benefits under a defined benefit plan in both the numerator and
denominator of the Top-Heavy Ratio are increased for any distribution of
an accrued benefit made in the five (5) year period ending on the
Determination Date.
(iii) For purposes of (i) and (ii) above the value of
account balances and the present value of accrued Valuation Date that
falls within or ends with the twelve (12) month period ending on the
Determination Date, except as provided in Code Section 416 and the
Regulations thereunder for the first and second plan years of a defined
benefit plan. The account balances and accrued benefits of a participant
(A) who is not a Key Employee but who was a Key Employee in a prior year,
or (B) who has not been credited with at least one (1) hour of service
with any employer maintaining the plan at any time during the five (5)
year period ending on the Determination Date will be disregarded. The
calculation of the Top-Heavy Ratio, and the extent to which distributions,
rollovers, and transfers are taken into account will be made in accordance
with Code Section 416 and the Regulations thereunder. Deductible employee
contributions will not be taken into account for purposes of computing the
Top-Heavy Ratio. When aggregating plans the value of account balances and
accrued benefits will be calculated with reference to the determination
dates that fall within the same calendar year.
(iv) The accrued benefit of a participant other than a Key
Employee shall be determined under (i) the method, if any, that uniformly
applies for accrual purposes under all defined benefit plans maintained by
the employer, or (ii) if there is no such method, as if such benefit
accrued not more rapidly than the slowest accrual rate permitted under the
fractional rule of Code Section 411(b)(1)(C).
(d) "Permissive Aggregation Group" means the Required
Aggregation Group of plans plus any other plan or plans of the Employer
which, when considered as a group with the Required Aggregation Group,
would continue to satisfy the requirements of Code Sections 401(a)(4) and
410.
(e) "Required Aggregation Group" means (i) each qualified plan
of the Employer in which at least one Key Employee participates or
participated at any time during the five (5) year period ending on the
Determination Date (regardless of whether the plan has terminated), and
(ii) any other qualified plan of the Employer which enables a plan
described in (i) to meet the requirements of Code Sections 401(a)(4) or
410.
(f) "Valuation Date" means (i) in the case of a defined
contribution plan, the Determination Date, and (ii) in the case of a
defined benefit plan, the date as of which funding calculations are
generally made within the twelve (12) month period ending on the
Determination Date.
(g) "Employer" means the employer or employers whose employees
are covered by this Plan and any other employer which must be aggregated
with any such employer under Code Sections 414(b), (c), (m) and (o).
(h) "Present Value" means the value based on an interest rate
of five percent (5%) and mortality assumptions based on the 1971 GAM
Mortality Table or such other interest rate or mortality assumptions as
may be specified in the Adoption Agreement.
Section 13.3. Minimum Allocations. (a) For any year in which
the Plan is a Top-Heavy Plan, each Participant who is not a Key Employee
and who is not separated from service at the end of the Plan Year shall
receive allocations of Employer contributions and forfeitures under this
Plan at least equal to three percent (3%) of Compensation (as defined in
Section 2.6) for such year or, if less, the largest percentage of the
first two hundred thousand dollars ($200,000) of compensation allocated on
behalf of the Key Employee for the Plan Year where the Employer has no
defined benefit plan which designates this Plan to satisfy Code Section
401. This minimum allocation shall be determined without regard for any
Social Security contribution and shall be provided even though under other
provisions the Participant would not otherwise be entitled to receive an
allocation or would have received a lesser allocation because of (i) the
Participant's failure to complete One Thousand (1,000) Hours of Service
(or any equivalent provided in the Plan), or (ii) the Participant's
failure to make mandatory Employee contributions to the Plan, or (iii)
Compensation less than a stated amount.
(b) The provision in (a) above shall not apply to any
Participant to the extent the Participant is covered under any other plan
or plans of the employer and the employer has provided in the Adoption
Agreement that the minimum allocation or benefit requirement applicable to
top-heavy plans will be met in the other plan or plans.
(c) The minimum allocation required (to the extent required to
be nonforfeitable under Section 416(b)) may not be forfeited under Code
Sections 411(a)(3)(B) or 411(a)(3)(D).
(d) For purposes of subsection (a) above, neither Elective
Deferrals nor Employer Matching Contributions shall be taken into account
for the purposes of satisfying the minimum top-heavy benefits requirement.
Section 13.4. Benefit Limit Change. If the Employer maintains
both the Plan and a defined benefit plan which cover one or more of the
same Key Employees and the plans are Top-Heavy in a Plan Year, then
Section 6.5(c) and (j) hereof shall be amended to substitute "one hundred
percent (100%)" for the number "one hundred and twenty-five percent
(125%)" where the latter appears therein.
ARTICLE XIV.
MISCELLANEOUS
Section 14.1. Rights of Employees and Participants. No Employee
or Participant shall have any right or claim to any benefit under the Plan
except in accordance with the provisions of the Plan, and then only to the
extent that there are funds available therefor in the hands of the
Custodian. The establishment of the Plan shall not be construed as
creating any contract of employment between the Employer and any Employee
or otherwise conferring upon any Employee or other person any legal right
to continuation of employment, nor as limiting or qualifying the right of
the Employer to discharge any Employee without regard to the effect that
such discharge might have upon his rights under the Plan.
Section 14.2. Merger With Other Plans. The Plan shall not be
merged or consolidated with, nor transfer its assets or liabilities to,
any other plan unless each Participant, Beneficiary and other person
entitled to benefits, would (if the Plan then terminated) receive a
benefit immediately after the merger, consolidation or transfer which is
equal to or greater than the benefit he would have been entitled to
receive if the Plan had terminated immediately prior to the merger,
consolidation or transfer.
Section 14.3. Non-Alienation of Benefits. The right to receive
a benefit under the Plan shall not be subject in any manner to
anticipation, alienation, or assignment, nor shall such right be liable
for or subject to debts, contracts, liabilities or torts, either
voluntarily or involuntarily. Any attempt by the Participant, Beneficiary
or other person to anticipate, alienate or assign his interest in or right
to a benefit or any claim against him seeking to subject such interest or
right to legal or equitable process shall be null and void for all
purposes hereunder to the extent permitted by ERISA and the Code.
Notwithstanding the foregoing or any other provision of the Plan, the
Administrator shall recognize and give effect to a qualified domestic
relations order with respect to child support, alimony payments or marital
property rights if such order is determined by the Administrator to meet
the applicable requirements of Code Section 414(p). If any such order so
directs, distribution of benefits to the alternate payee may be made at
any time, even if the Participant is not then entitled to a distribution.
The Administrator shall establish reasonable procedures relating to notice
to the Participant and determinations respecting the qualified status of
any domestic relations order.
Section 14.4. Failure to Qualify. Notwithstanding anything in
this Plan to the contrary, all contributions under the Plan made prior to
the receipt by the Employer of a determination by the Internal Revenue
Service to the effect that the Plan is qualified under Code Section 401
shall be made on the express condition that such a determination will be
received, and in the event that the Internal Revenue Service determines
upon initial application for a determination that the Plan is not so
qualified or tax exempt, all contributions made by the Employer or
Participants prior to the date of determination must be returned within
one (1) year from the date of such determination, but only if the
application for qualification is made by the time prescribed by law for
filing the Employer's return for the taxable year in which the Plan is
adopted or such later date as the Secretary of the Treasury may prescribe.
Section 14.5. Mistake of Fact; Disallowance of Deduction.
Notwithstanding anything in this Plan to the contrary, any contributions
made by the Employer which are conditioned on the deductibility of such
amount under Code Section 404, to the extent of the amount disallowed, or
which are made because of a mistake of fact must be returned to the
Employer within one year after such disallowance or such mistaken
contribution.
Section 14.6. Participation under Prototype Plan. If the Plan
as adopted by the Employer either fails to attain or maintain
qualification under the Code, such Plan will no longer participate in this
prototype plan and will be considered an individually designed plan.
Section 14.7. Gender. Where the context admits, words used in
the singular include the plural, words used in the plural include the
singular, and the masculine gender shall include the feminine and neuter
genders.
Section 14.8. Headings. The headings of Sections are included
solely for convenience of reference, and if there is any conflict between
such headings and the text of the Plan, the text shall control.
Section 14.9. Governing Law. Except to the extent governed by
ERISA and any other applicable federal law, the Plan shall be construed,
administered and enforced according to the laws of the state in which the
Employer has its principal place of business.
Exhibit 14.3
THE PRIMARY TREND FUNDS
SECTION 403(b)(7) RETIREMENT PLAN
<PAGE>
THE PRIMARY TREND FUNDS
SECTION 403(b)(7) RETIREMENT PLAN
THE PRIMARY TREND FUNDS
TABLE OF CONTENTS
Page
ARTICLE I ELIGIBILITY . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II PARTICIPATION . . . . . . . . . . . . . . . . . . . . 3
ARTICLE III CONTRIBUTIONS . . . . . . . . . . . . . . . . . . . . 4
ARTICLE IV INVESTMENT OF CONTRIBUTIONS . . . . . . . . . . . . . 5
ARTICLE V DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . 6
ARTICLE VI ADMINISTRATION . . . . . . . . . . . . . . . . . . . . 11
ARTICLE VII THE INVESTMENT ADVISOR . . . . . . . . . . . . . . . . 13
ARTICLE VIII AMENDMENT AND TERMINATION . . . . . . . . . . . . . . 14
ARTICLE IX PROHIBITED TRANSACTIONS . . . . . . . . . . . . . . . 15
THE PRIMARY TREND FUNDS
SECTION 403(b)(7) RETIREMENT PLAN
The Primary Trend Funds Section 403(b)(7) Retirement Plan (the
"Plan") is designed to allow eligible tax-exempt employers described in
Article I to make employer contributions to the Plan and to allow eligible
employees of such employers to elect to have their employer make
contributions on their behalf pursuant to a salary reduction agreement.
Under the Plan, contributions are held by the authorized custodian and are
invested in the shares of The Primary Trend Fund, Inc., The Primary Trend
Income Funds, Inc. (which includes the Primary Money Market Fund, The
Primary Income Fund and The Primary U.S. Government Fund) and/or any other
regulated investment company managed by Arnold Investment Counsel
Incorporated (the "Investment Advisor"). The provisions of this Plan are
effective for plan years beginning on or after January 1, 1989. This Plan
is intended to comply with the provisions of the Employee Retirement
Income Security Act of 1974 (the "Act") and the Internal Revenue Code of
1986, as amended (the "Code").
ARTICLE I
ELIGIBILITY
A. Any person who performs services as an employee for an
employer which is an organization described in Section 501(c)(3) of the
Code and is exempt from tax under Section 501(a) of the Code, or who
performs services for an educational institution (as defined in Section
170(b)(1)(A)(ii) of the Code) or for an employer which is a State or a
political subdivision of a State or an agency or instrumentality of
either, and who obtains the consent of such employer to participate herein
is eligible to adopt this Plan.
B. Any employer which is an organization described in Section
501(c)(3) of the Code and is exempt from tax under Section 501(a) of the
Code, or is an educational institution (as defined in Section
170(b)(1)(A)(ii) of the Code) or a State or a political subdivision of a
State or an agency or instrumentality of either (the "Employer"), may, but
is not required to, adopt this Plan for some or all of its eligible
employees.
C. An eligible individual shall not be entitled to elect to
have his Employer make contributions to the Plan pursuant to a salary
reduction agreement unless the Employer has established a plan or program
which allows all employees of the Employer (except as otherwise permitted
by the Code) the opportunity to have contributions made pursuant to such
an agreement. An Employer may exclude from participation employees who
are participants in an eligible deferred compensation plan under Section
457 of the Code, a qualified cash or deferred arrangement under Section
401(k) of the Code or another Section 403(b) annuity contract, and
nonresident aliens and certain students.
D. In lieu of or in addition to a salary reduction
arrangement, an Employer may make contributions on behalf of its
employees, but an Employer is not obligated to do so. If an Employer makes
contributions (other than contributions made pursuant to a salary
reduction agreement), this Plan as adopted by such Employer must satisfy
the nondiscrimination and minimum participation requirements as set forth
in Section 403(b)(12) of the Code.
ARTICLE II
PARTICIPATION
An eligible employee who wishes to adopt this Plan (the
"Individual") may do so by (1) completing and signing the Account
Application and the Salary Reduction Agreement or Transfer Form (as
applicable), (2) obtaining the Employer's signature, and (3) returning all
necessary forms to the bank named in the Account Application as custodian
(the "Custodian"). An eligible Employer may adopt this Plan by either
having the Individual follow the procedure described in the preceding
sentence or by obtaining the Individual's signature on the Application and
following the procedure itself thereafter.
The Account Application and, if applicable, the Salary Reduction
Agreement are incorporated herein by reference as part of the Plan. The
Plan will be deemed to be adopted upon written acceptance by or on behalf
of the Custodian of the Application. If the Employer maintains a written
Section 403(b) plan for which this Plan serves as a funding vehicle, the
terms and conditions of such plan shall take precedence over the
provisions of this Plan to the extent such provisions are inconsistent.
ARTICLE III
CONTRIBUTIONS
A. An Employer may contribute cash to the Plan in any taxable
year in any amount which (1) is not an "excess contribution" as defined in
Section 4973(c) of the Code, and (2) if such contribution is made pursuant
to a Salary Reduction Agreement between the Employer and the Individual,
does not exceed the limitation on "elective deferrals" contained in
Section 402(g) of the Code. Neither the Investment Advisor nor the
Custodian shall be responsible for determining the amount an Employer may
contribute on behalf of the Individual, nor shall either be responsible to
recommend or compel Employer contributions under the Plan.
If during any taxable year the Employer contributes an amount
which is an "excess contribution", such excess contribution (plus any
income attributable thereto) shall, upon written request, be paid to the
Individual by the Custodian or applied towards a contribution for the next
subsequent year. In the event that an amount contributed during a
calendar year exceeds the limitation on "elective deferrals" contained in
Section 402(g) of the Code and the Individual notifies the Custodian, in
writing, of such excess amount no later than March 1 of the following
calendar year, the Custodian will distribute such excess amount (plus any
income attributable thereto) to the Individual not later than the
following April 15. Neither the Investment Advisor nor the Custodian
shall have any responsibility for determining that an excess contribution
or excess elective deferral has been made or for distributing such excess
amount except in accordance with the specific written instructions of the
Individual.
B. In addition, the Individual or the Employer may (1)
transfer or cause to be transferred to the Plan the cash surrender or
redemption value of a Section 403(b) annuity or variable annuity or the
assets of another Section 403(b)(7) custodial account for which
contributions were previously made on the Individual's behalf, or (2)
contribute to the Plan any amount distributed from a Section 403(b)
annuity or custodial account which qualifies as a "rollover contribution"
within the meaning of Section 403(b)(8) of the Code. Neither the
Investment Advisor nor the Custodian shall be responsible for the tax
treatment to the Individual of any transfer or rollover contribution or
for losses resulting from any acts, omissions or delays of any party
transferring or rolling over assets to the Individual's account.
C. The interest of the Individual in the Plan and the assets
in his custodial account shall be nonforfeitable at all times, may not be
assigned, and shall not be subject to alienation, assignment, trustee
process, garnishment, attachment, execution or levy of any kind, except
with regard to payment of the expenses of the Custodian as authorized by
the provisions of this Plan. Notwithstanding the foregoing or any other
provision herein to the contrary, the Custodian may recognize a qualified
domestic relations order with respect to child support, alimony payments
or marital property rights if such order contains sufficient information
for the Employer to determine that it meets the applicable requirements of
Section 414(p) of the Code. If any such order so directs, distribution of
benefits to the alternate payee may be made at any time, even if the
Individual is not then entitled to a distribution.
ARTICLE IV
INVESTMENT OF CONTRIBUTIONS
All contributions made to the Plan shall be used by the
Custodian to purchase shares of the common stock of The Primary Trend
Fund, The Primary Trend Income Funds (which includes the Primary Money
Market Fund, The Primary Income Fund and The Primary U.S. Government Fund)
and/or any other regulated investment company managed by the Investment
Advisor. Each such regulated investment company will be referred to as an
"Investment Company", and the shares of each Investment Company will be
referred to as "Investment Company Shares". Unless otherwise directed by
the Employer, contributions shall be allocated to a separate custodial
account ("Custodial Account") established for the Individual. All income,
dividends and, where applicable, capital gain distributions shall be
reinvested in additional Investment Company Shares.
ARTICLE V
DISTRIBUTIONS
A. The Individual, or his beneficiary or estate in the event
of his death, shall be entitled to distribution of the assets in his
Custodial Account upon the occurrence of the following events:
(1) The Individual's attainment of age
fifty-nine and one-half (59-1/2);
(2) The Individual terminates his employment;
(3) The Individual becomes disabled;
(4) The Individual's death.
For the purposes of this Plan, the Individual shall be
considered disabled if he is unable to engage in any substantial gainful
activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or to be of long,
continued and indefinite duration.
B. In addition to the distribution events set forth above, an
Individual may be eligible to receive a hardship distribution of the
assets in his Custodial Account (to the extent attributable to
contributions made pursuant to a Salary Reduction Agreement, not including
any earnings thereon) after the Custodian's receipt of written
notification from the Employer indicating:
(1) that the Individual has incurred a
substantial financial hardship; and
(2) the specific amount needed to meet the
substantial financial hardship.
A substantial financial hardship shall exist if the Individual incurs
immediate and heavy financial need and that need cannot be met by other
resources reasonably available to the Individual. The amount distributed
from the Custodial Account shall not exceed the amount specified in the
notification.
For purposes of this Plan, a substantial financial hardship
shall mean unreimbursed medical expenses described in Section 213(d) of
the Code incurred by the Individual, his spouse or a dependent, purchase
(excluding mortgage payments) of a principal residence for the Individual,
payment of tuition for the next semester or quarter of post-secondary
education for the Participant, his spouse, his children or a dependent,
the need to prevent the eviction of the Individual from his principal
residence or foreclosure on the mortgage of the Individual's principal
residence, or such other events as may be approved by the Commissioner of
Internal Revenue in rulings, notices or other published documents.
In determining whether the need cannot be met by other resources
reasonably available to the Individual, the Employer may rely on the
Individual's certification, executed in a form and manner specified by the
Employer, that the need cannot be relieved:
(1) through reimbursement or compensation by
insurance or otherwise;
(2) by reasonable liquidation of the
Individual's assets, to the extent such
liquidation would not itself cause an
immediate and heavy financial need;
(3) by cessation of elective deferrals under the
Plan; and
(4) by other distributions or nontaxable [at the
time of the loan] loans from plans
maintained by the Employer or by any other
employer, or by borrowing from commercial
sources on reasonable commercial terms.
In the event the Individual is unwilling or unable to provide
the certification described above, or in the event the Employer determines
that it cannot reasonably rely on the certification provided by an
Individual, then the requirements of this Paragraph B shall be deemed
satisfied only if all of the following conditions are satisfied:
(1) the distribution is not in excess of the
amount of the immediate and heavy financial
need of the Individual;
(2) the Individual has obtained all
distributions, other than hardship
distributions, and all nontaxable (at the
time of the loan) loans from all plans
maintained by the Employer;
(3) the Individual's elective deferrals under
this Plan and all other plans maintained by
the Employer shall be suspended for at least
12 months after receipt of the hardship
distribution; and
(4) under this Plan and all other plans
maintained by the Employer, the Individual
may not make elective deferrals for the
Individual's taxable year immediately
following the taxable year of the hardship
distribution in excess of the limitation on
elective deferrals in effect for such next
taxable year under Section 402(g) of the
Code less the amount of such Individual's
elective deferrals for the taxable year of
the hardship distribution.
The Employer and shall be responsible for:
(1) determining that a substantial financial
hardship exists;
(2) designating the amount necessary to meet
such a substantial financial hardship; and
(3) notifying the Custodian in writing of its
decision.
Neither the Custodian nor the Investment Manager shall be responsible for
determining that a substantial financial hardship exists or the amount
necessary to satisfy such hardship. Both may rely on any written
notification from the Employer certifying the existence and the amount of
a substantial financial hardship.
Any determination under this Paragraph B is to be made in
accordance with uniform and nondiscriminatory standards established by the
Employer. The Individual has the responsibility of providing the Employer
with any and all documents, financial data or other information which the
Employer deems necessary in order to make its determination. No
distribution based on financial hardship shall be made except following
written notification from the Employer. If the Employer does not process
hardship distributions in accordance with the standards set forth under
this Plan and applicable law, the hardship distribution provisions under
this Paragraph B shall be ineffective.
C. The Individual may elect a form of distribution from among
the following alternatives:
(1) A single sum payment in cash or Investment
Company Shares;
(2) Equal or substantially equal monthly,
quarterly, or annual payments over a period
certain not extending beyond the life
expectancy of the Individual; or
(3) Equal or substantially equal monthly,
quarterly or annual payments over a period
certain not extending beyond the joint and
last survivor life expectancy of the
Individual and his beneficiary.
Such election shall be made at least sixty (60) days prior to
the date on which distribution is expected to be made or to begin. Such
election shall be irrevocable and shall be made in writing in such form as
shall be acceptable to the Custodian. In no event shall the Custodian or
the Investment Advisor have any responsibility for determining, or giving
advice with respect to, life expectancies or minimum distribution
requirements.
If the Individual fails to elect any of the methods of
distribution described above within the time specified for such election,
the Custodian may distribute the Individual's Custodial Account in the
form of a single sum cash payment by the April 1 following the calendar
year in which the Individual attains age seventy and one-half (70-1/2). If
the Individual elects a mode of distribution under subparagraphs (2) or
(3) of this Paragraph C, except as otherwise required by Section
403(b)(10) of the Code, the amount of the monthly, quarterly or annual
payments shall be determined by dividing the entire interest of the
Individual in the Custodial Account at the close of the prior year by the
number of years remaining in the period specified by the Individual's
election. The minimum annual payment may be made in a series of
installments (e.g., monthly, quarterly, etc.) as long as the total
payments for the year made by the date required are not less than the
minimum amount required.
D. Unless the Individual (or his spouse) elects not to have
life expectancy recalculated, the Individual's life expectancy (and the
life expectancy of the Individual's spouse, if applicable) will be
recalculated annually using their attained ages as of their birthdays in
the year for which the minimum annual payment is being determined. The
life expectancy of the designated beneficiary (other than the spouse) will
not be recalculated.
E. The Individual must receive distributions from the Plan in
accordance with Regulations prescribed by the Secretary of the Treasury
pursuant to Section 403(b)(10) of the Code which are hereby incorporated
by reference, or in the absence of such regulations, in accordance with
Section 401(a)(9) of the Code.
F. If the Individual dies before his entire interest in the
Custodial Account is distributed to him, the remaining undistributed
balance of such interest shall be distributed to the beneficiary or
beneficiaries, if any, designated by the Individual. If no designation of
a beneficiary shall have been made, distribution shall be made to the
Individual's surviving spouse, or the Individual's estate in that order.
If the Individual dies after installment payments have
commenced, the beneficiary shall continue to receive distributions in
accordance with the payment method specified by the Individual or may
elect, in writing, to receive a lump sum distribution.
If the Individual dies prior to the commencement of benefits,
the beneficiary may elect, in writing, to receive the distribution in one
of the following forms:
(a) A single sum payment in cash made by the
December 31 of the year containing the fifth
anniversary of the Individual's death; or
(b) Equal or substantially equal monthly,
quarterly, or annual payments commencing not
later than the December 31 following the
year of the Individual's death over a period
not to exceed the life expectancy of the
beneficiary.
Notwithstanding the foregoing, if the beneficiary is the Individual's
spouse, distributions may be delayed until the December 31 of the year in
which the Individual would have attained age 70-1/2. A beneficiary must
receive distributions from the Plan in accordance with the Regulations
prescribed by the Secretary of the Treasury pursuant to Section 403(b)(10)
of the Code, including the incidental death benefit requirements, which
are hereby incorporated by reference, or in the absence of such
Regulations, in accordance with Section 401(a)(9) of the Code.
G. The Individual may designate a beneficiary or
beneficiaries, and may, in addition, name a contingent beneficiary. Such
designation shall be made in writing in a form acceptable to the
Custodian. The Individual may, at any time, revoke his or her designation
of a beneficiary or change the beneficiary by filing notice of such
revocation or change with the Custodian. Notwithstanding the foregoing,
in the event the Individual is married at the time of his death, the
beneficiary shall be the Individual's surviving spouse unless such spouse
has consented in writing to the designation of an alternative beneficiary
after notice of the spouse's rights and such consent was witnessed by a
notary public or representative of the Employer. In the event no valid
designation of beneficiary is on file with the Employer or the Custodian
at the date of death or no designated beneficiary survives him, the
Individual's spouse shall be deemed the beneficiary; in the further event
the Individual is unmarried or his spouse does not survive him, the
Individual's estate shall be deemed to be his beneficiary.
ARTICLE VI
ADMINISTRATION
Except as otherwise provided in this Plan, the Custodian shall
perform solely the duties assigned to the Custodian hereunder as agent on
behalf of the Individual and any beneficiary. The Custodian shall not be
deemed to be a fiduciary in carrying out the following duties:
(1) Receiving contributions pursuant to the
provisions of this Plan;
(2) Holding, investing and reinvesting the
contributions in Investment Company Shares;
(3) Registering any property held by the
Custodian in its own name, or in nominee or
bearer form that will pass delivery; and
(4) Making distributions from the Custodial
Account in cash.
The Custodian shall mail to the Individual all proxies, proxy
soliciting materials, and periodic reports or other communications that
may come into the Custodian's possession by reason of its custody of
Investment Company Shares. The Individual shall vote the proxy,
notwithstanding the fact that the Custodian may be the registered owner of
the Investment Company Shares, and the Custodian shall have no further
liability or responsibility with respect to the voting of such shares.
The Custodian shall keep accurate and detailed account of its
receipts, investments and disbursements. As soon as practicable after
December 3l each year, and whenever required by Regulations adopted by the
Internal Revenue Service under the Act or the Code, the Custodian shall
file with the Individual a written report of the Custodian's transactions
relating to the Custodial Account during the period from the last previous
accounting, and shall file such other reports with the Internal Revenue
Service as may be required by its Regulations.
Unless the Individual sends the Custodian written objection to a
report within sixty (60) days after its receipt, the Individual shall be
deemed to have approved such report, and, in such case the Custodian shall
be forever released and discharged with respect to all matters and things
included therein. The Custodian may seek a judicial settlement of its
accounts. In any such proceeding the only necessary party thereto in
addition to the Custodian shall be the Individual.
All written notices or communications to the Individual or the
Employer shall be effective when sent by first class mail to the last
known address of the Individual or the Employer on the Custodian's
records. All written notices or communications to the Custodian shall be
mailed or delivered to the Custodian at its designated mailing address,
and no such written notice of communications shall be effective until the
Custodian's actual receipt thereof. The Custodian shall be entitled to
rely conclusively upon, and shall be fully protected in any action taken
by it in good faith in reliance upon the authenticity of signatures
contained in all written notices or other communications which it receives
and which appear to have been sent by the Individual, the Employer, or any
other person.
The Custodian shall make payments from the Custodial Account in
accordance with written directions received from the Individual, and it
need not make inquiry as to the rightfulness of such distribution. If the
Custodian has reason to believe that a distribution may be due, it may,
but shall not be required to make the distribution at the request of any
beneficiary who appears to be entitled thereto. The Custodian shall
properly withhold from any payment to the Individual or beneficiary such
amounts as may be required to satisfy any income or other tax withholding
requirements.
The Custodian shall use ordinary care and reasonable diligence
in the performance of its duties as Custodian. The Custodian shall have no
responsibilities other than those provided for herein or in the Act or
Code and shall not be liable for a mistake in judgment, for any action
taken in good faith, or for any loss that is not a result of its gross
negligence, except as required by the Act or regulations promulgated
thereunder.
The Individual agrees to indemnify and hold the Custodian
harmless from and against any liability that the Custodian may incur in
the administration of the Custodial Account, unless arising from the
Custodian's own negligence or willful misconduct or from a violation of
the provisions of the Act or regulations promulgated thereunder.
The Custodian shall be under no duty to question any direction
of the Individual with respect to the investment of contributions, or to
make suggestions to the Individual with respect to the investment,
retention or disposition of any contributions or assets held in the
Custodial Account.
The Custodian shall pay out of the Custodial Account expenses of
administration, including the fees of counsel employed by the Custodian,
taxes, and its fees for maintaining the Custodial Account which are set
forth in the Application or in accordance with any schedule of fees
subsequently adopted by the Custodian. The Custodian may sell Investment
Company Shares and use the proceeds of sale to pay the foregoing expenses.
The Custodian may resign as Custodian of any Individual's
Custodial Account upon sixty (60) days' prior notice to the Investment
Advisor and thirty (30) days' prior notice to each Individual who will be
affected by such resignation.
ARTICLE VII
THE INVESTMENT ADVISOR
The Individual and the Employer delegate to the Investment
Advisor the following powers with respect to the Plan: (1) to remove the
Custodian and select a successor custodian; and (2) to amend this Plan as
provided in Article VIII hereof.
The powers herein delegated to the Investment Advisor shall be
exercised by such officer thereof as the Investment Advisor may designate
from time to time, and shall be exercised only when similarly exercised
with respect to all other Individuals adopting the Plan.
Neither an Investment Company, the Investment Advisor, nor any
officer, director, board, committee, employee or member of any Investment
Company or of the Investment Advisor shall have any responsibility with
regard to the administration of the Plan except as provided in this
Article VII of the Plan, and none of them shall incur any liability of any
nature to the Individual or beneficiary or other person in connection with
any act done or omitted to be done in good faith in the exercise of any
power or authority herein delegated to the Investment Advisor.
The Individual and the Employer agrees to indemnify and hold the
Investment Companies and the Investment Advisor harmless from and against
any and all liabilities and expenses, including attorney's and
accountant's fees, incurred in connection with the exercise of, or
omission to exercise, any of the powers delegated to it under this
Article, except such liabilities and expenses as may arise from the
Investment Advisor's and/or Investment Company's willful misconduct.
If the Investment Advisor shall hereafter determine that it is
no longer desirable for it to continue to exercise any of the powers
hereby delegated to it, it may relieve itself of any further
responsibilities hereunder by notice in writing to the Individual at least
sixty (60) days prior to the date on which it proposes to discontinue the
exercise of the powers delegated to it.
ARTICLE VIII
AMENDMENT AND TERMINATION
The Individual and the Employer delegate to the Investment
Advisor the power to amend this Plan (including retroactive amendment).
The Individual or the Employer may amend the Application
(including retroactive amendment) by submitting to the Custodian (1) a
copy of such amended Application and (2) evidence satisfactory to the
Custodian that the Plan, as amended by such amended Application, will
continue to qualify under the provisions of Section 403(b)(7) of the Code.
No amendment shall be effective if it would cause or permit:
(1) any part of Custodial Account to be diverted to any purpose that is
not for the exclusive benefit of the Individual and his beneficiaries; (2)
the Individual to be deprived of any portion of his interest in the
Custodial Account; or (3) the imposition of an additional duty on the
Custodian without its consent.
The Employer reserves the right to terminate further
contributions to this Plan. The Individual also reserves the right to
terminate his adoption of the Plan in the event that he shall be unable to
secure a favorable ruling from the Internal Revenue Service with respect
to this Plan. In the event of such termination, the Custodian shall
distribute the Custodial Account to the Individual. The Individual also
reserves the right to transfer the assets of his Custodial Account to such
other form of Section 403(b)(7) retirement plan as he may determine, upon
written instructions to the Custodian in such form as the Custodian may
reasonably require.
ARTICLE IX
PROHIBITED TRANSACTIONS
Except as provided in Section 408 of the Act or Section 4975 of
the Code, the Custodian:
A. Shall not cause the Plan to engage in a transaction if it
knows or should know that such transaction constitutes a direct or
indirect:
(1) sale or exchange, or leasing of any property
between the Plan and a party in interest;
(2) lending of money or other extension of
credit between the Plan and a party in
interest;
(3) furnishing of goods, services, or facilities
between the Plan and a party in interest;
(4) transfer to, or use by or for the benefit
of, a party in interest, of any assets of
the Plan; or
(5) acquisition, on behalf of the Plan, of any
employer security or employer real property
in violation of Section 407(a) of the Act;
B. Shall not permit the Plan to hold any employer security or
employer real property if it knows or should know that holding such
security or real property violates Section 407(a) of the Act,
C. Shall not deal with the assets of the Plan in its own
interest or for its own account,
D. Shall not in any capacity act in any transaction involving
the Plan on behalf of a party (or represent a party) whose interests are
adverse to the interests of the Plan or the interests of its participants
or beneficiaries, and
E. Shall not receive any consideration for its own account
from any party dealing with the Plan in connection with a transaction
involving the assets of the Plan; provided that nothing in this Article IX
shall be construed to prohibit the payment to the Custodian of any fees
otherwise authorized under the terms of this Plan.
<TABLE> <S> <C>
<ARTICLE> 6
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> JUN-30-1997
<PERIOD-END> JUN-30-1997
<INVESTMENTS-AT-COST> 18,910,582
<INVESTMENTS-AT-VALUE> 23,652,784
<RECEIVABLES> 98,252
<ASSETS-OTHER> 3,402
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 23,754,438
<PAYABLE-FOR-SECURITIES> 500,000
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 48,795
<TOTAL-LIABILITIES> 548,795
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 15,526,513
<SHARES-COMMON-STOCK> 1,566,337
<SHARES-COMMON-PRIOR> 1,677,314
<ACCUMULATED-NII-CURRENT> 0
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 2,936,928
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 4,742,202
<NET-ASSETS> 23,205,643
<DIVIDEND-INCOME> 355,140
<INTEREST-INCOME> 95,118
<OTHER-INCOME> 0
<EXPENSES-NET> (265,639)
<NET-INVESTMENT-INCOME> 184,619
<REALIZED-GAINS-CURRENT> 3,131,721
<APPREC-INCREASE-CURRENT> 1,891,832
<NET-CHANGE-FROM-OPS> 5,208,172
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> (233,063)
<DISTRIBUTIONS-OF-GAINS> (1,224,581)
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 73,343
<NUMBER-OF-SHARES-REDEEMED> (298,834)
<SHARES-REINVESTED> 114,514
<NET-CHANGE-IN-ASSETS> 2,082,568
<ACCUMULATED-NII-PRIOR> 361,557
<ACCUMULATED-GAINS-PRIOR> 716,675
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 166,935
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 265,639
<AVERAGE-NET-ASSETS> 22,448,667
<PER-SHARE-NAV-BEGIN> 12.59
<PER-SHARE-NII> 0.12
<PER-SHARE-GAIN-APPREC> 2.98
<PER-SHARE-DIVIDEND> (0.14)
<PER-SHARE-DISTRIBUTIONS> (0.73)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.82
<EXPENSE-RATIO> 1.18
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
