As filed with the Securities and Exchange Commission on April 29, 1996
Registration No. 33-10543
811-4925
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. 13 X
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
Amendment No. 13 X
(Check appropriate box or boxes.)
LEXINGTON CONVERTIBLE SECURITIES FUND
-------------------------------------
(Exact name of Registrant as specified in Charter)
Park 80 West Plaza Two
Saddle Brook, New Jersey 07663
-------------------------------------
(Address of principal executive offices)
Registrant's Telephone Number: (201) 845-7300
Lisa Curcio, Secretary
Lexington Convertible Securities Fund
Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
-------------------------------------
(Name and address of agent for service)
With a copy to:
Carl Frischling, Esq.
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
919 Third Avenue, New York, New York 10022
------------------------------------------------------
It is proposed that this filing will become effective April 29, 1996
pursuant to Paragraph (b) of Rule 485.
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The Registrant has registered an indefinite number of shares under the
Securities Act of 1933, pursuant to Section 24(f) of the Investment
Company Act of 1940. A Rule 24f-2 Notice for the Registrant's fiscal
year ended December 31, 1995 was filed on February 26, 1996.
<PAGE>
LEXINGTON CONVERTIBLE SECURITIES FUND
REGISTRATION STATEMENT ON FORM N-1A
CROSS REFERENCE SHEET
PART A
Items in Part A Prospectus
of Form N-1A Prospectus Caption Page Number
- ------------ ------------------ -----------
1. Cover Page Cover Page
2. Synopsis *
3. Condensed Financial Information 2
4. General Description of Registrant 3
5. Management of the Fund 7
6. Capital Stock and Other Securities 14
7. Purchase of Securities Being Offered 8
8. Redemption or Repurchase 9
9. Legal Proceedings *
Note * Omitted since answer is negative or inapplicable
<PAGE>
LEXINGTON CONVERTIBLE SECURITIES FUND
STATEMENT OF ADDITIONAL STATEMENT OF ADDITIONAL
PART B INFORMATION CAPTION INFORMATION PAGE NUMBER
- ------ ------------------- -----------------------
10. Cover Page Cover Page
11. Table of Contents Cover Page
12. General Information and History 14 (Part A)
13. Investment Objectives and Policies 3
14. Management of the Registrant 17
15. Control Persons and Principal Holders 3
of Securities
16. Investment Advisory and Other Services 3
17. Brokerage Allocation and Other Practices 7
18. Capital Stock and Other Securities 14 (Part A)
19. Purchase, Redemption and Pricing of 8, 9 (Part A)
securities being offered
20. Tax Status 8
21. Underwriters 7 (Part A)
22. Calculation of Yield Quotations on Money *
Market Funds
23. Financial Statements 21
PART C
- ------
Information required to be included in Part C is set forth
under the appropriate item, so numbered, in Part C to this
Registration Statement.
* Not Applicable
<PAGE>
PROSPECTUS
April 29, 1996
Lexington Convertible Securities Fund
P.O. Box 1515/Park 80 West Plaza Two, Saddle Brook, New Jersey 07663
Toll Free: Shareholder Services - 1-800-526-0056
Institutional/Financial Adviser Services - 1-800-367-9160
24 Hour Account Information: - 1-800-526-0052
A NO-LOAD FUND WHOSE PRINCIPAL INVESTMENT OBJECTIVE IS TOTAL RETURN WHICH IT
SEEKS TO ACHIEVE BY PROVIDING CAPITAL APPRECIATION, CURRENT INCOME AND
CONSERVATION OF CAPITAL.
- --------------------------------------------------------------------------------
Lexington Convertible Securities Fund (the "Fund") is an open-end
diversified management investment company. Shareholders may invest,
reinvest and redeem shares at any time without charge or penalty.
The Fund invests primarily in a diversified portfolio of
securities convertible into shares of common stock. The Fund may
invest without limitation in securities rated Ba and B by Moody's
Investors Service, Inc. Such lower rated securities are commonly
referred to as "junk bonds." Investments of this type are subject to
greater risk of loss of principal and interest. Purchasers should
carefully assess the risks associated with an investment in the Fund.
A more detailed discussion of securities rated Ba and B can be found
in the section "High Yield Debt Securities" in the Prospectus and
Statement of Additional Information.
This Prospectus concisely sets forth information about the Fund
that you should know before investing. It should be read and retained
for future reference.
A Statement of Additional Information dated April 29, 1996, which
provides a further discussion of certain areas in this Prospectus and
other matters that may be of interest to some investors, has been
filed with the Securities and Exchange Commission and is incorporated
herein by reference. For a free copy, call the appropriate telephone
number above or write to the address listed above.
The Distributor of Shares of the Fund is Lexington Funds
Distributor, Inc.
Mutual fund shares are not deposits or obligations of (or endorsed
or guaranteed by) any bank, nor are they federally insured or
otherwise protected by the Federal Deposit Insurance Corporation
("FDIC"), the Federal Reserve Board or any other agency. Investing in
mutual funds involves investment risks, including the possible loss of
principal, and their value and return will fluctuate.
- --------------------------------------------------------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
Investors Should Read and Retain this Prospectus for Future Reference
<PAGE>
FEE TABLE
Annual Fund Operating Expenses:
(as a percentage of average net assets)
Management fees ..................................................... 1.00%
12b-1 fees .......................................................... 0.25%
Other fees .......................................................... 1.27%
-----
Total Fund Operating Expenses ................................... 2.52%
=====
Example: 1 year 3 years 5 years 10 years
------ ------- ------- --------
You would pay the following expenses on
a $1,000 investment, assuming (1) 5%
annual return and (2) redemption at the
end of each period ...................... $25.51 $78.45 $134.05 $285.56
The purpose of the foregoing table is to assist an investor in understanding
the various costs and expenses that an investor in the Fund will bear
indirectly. (For more complete descriptions of the various costs and expenses,
see "How to Purchase Shares" and "Investment Adviser and Distributor" below).
The Expenses and Example (except the 12b-1 fees) appearing in the table above
are based on the Fund's expenses for the period from January 1, 1995 to December
31, 1995. The 12b-1 fees shown in the table reflect the maximum amount which may
be paid under the Distribution Plan. See "Distribution Plan." The Example shown
in the table above should not be considered a representation of past or future
expenses and actual expenses may be greater or less than those shown.
FINANCIAL HIGHLIGHTS
The following Financial Highlights Information for the years ended December
31, 1995, 1994, 1993 and 1992 have been audited by KPMG Peat Marwick LLP,
Independent Auditors, whose report thereon appears in the Statement of
Additional Information. Financial Highlights information for the years ended
December 31, 1991 and 1990 were audited by other auditors whose report thereon
expressed an unqualified opinion. This information should be read in conjunction
with the financial statements and related notes thereto included in the
Statement of Additional Information. The Fund's annual report, which contains
additional performance information, is available upon request and without
charge.
- --------------------------------------------------------------------------------
Selected Per Share Data for a share outstanding throughout the period
<TABLE>
<CAPTION>
Period from
January 20, 1988
(commencement of
Year Ended December 31, operations)
------------------------------------------------------------------ to December 31,
1995 1994 1993 1992 1991 1990 1989 1988
---- ---- ---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net asset value, beginning of period ........ $11.84 $14.10 $13.80 $12.41 $ 8.74 $ 9.55 $ 9.51 $ 9.35
------ ------ ------ ------ ------ ------ ------ ------
Income from investment operations:
Net investment income ..................... 0.15 0.08 - 0.18 0.22 0.50 0.64 0.42
Net realized and unrealized gain (loss)
on investments .......................... 2.04 0.10 0.89 1.39 3.68 (0.81) 0.04 0.19
------ ------ ------ ------ ------ ------ ------ ------
Total income (loss) from operations ......... 2.19 0.18 0.89 1.57 3.90 (0.31) 0.68 0.61
------ ------ ------ ------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income ........ (0.15) (0.07) - (0.18) (0.23) (0.50) (0.64) (0.42)
Dividends from net realized capital gains . (0.22) (2.32) (0.59) - - - - (0.03)
Distributions in excess of capital
gains (temporary book-tax difference) ... - (0.05) - - - - - -
------ ------ ------ ------ ------ ------ ------ ------
Total distributions ....................... (0.37) (2.44) (0.59) (0.18) (0.23) (0.50) (0.64) (0.45)
------ ------ ------ ------ ------ ------ ------ ------
Net asset value, end of period .............. $13.66 $11.84 $14.10 $13.80 $12.41 $ 8.74 $ 9.55 $ 9.51
====== ====== ====== ====== ====== ====== ====== ======
Total return ................................ 18.63% 1.30% 6.53% 12.82% 45.06% (3.39%) 7.16% 6.96%*
Ratio to average net assets:
Expenses, before reimbursement or waiver .. 2.52% 2.81% 2.76% 3.02% 3.42% 4.51% 2.64% 4.12%*
Expenses, net of reimbursement or waiver .. 2.52% 2.75% 2.76% 2.32% 2.50% 2.68% 2.13% 2.00%*
Net investment income (loss), before
reimbursement or waiver ................. 1.24% 0.50% (0.04%) 0.70% 1.14% 3.09% 5.74% 3.43%*
Net investment income ..................... 1.24% 0.56% (0.04%) 1.40% 2.06% 4.92% 6.25% 5.55%*
Portfolio turnover .......................... 11.23% 38.14% 6.53% 12.58% 29.46% 25.58% 34.23% 39.70%*
Net assets, end of period (000's omitted) ... $11,641 $8,117 $8,319 $7,180 $6,599 $4,744 $5,986 $6,930
*Annualized
</TABLE>
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DESCRIPTION OF THE FUND
The Fund is an open-end diversified management investment company commonly
known as a mutual fund. It was organized as a business trust under the laws of
the Commonwealth of Massachusetts on August 19, 1986. It adopted its present
name on November 10, 1992. Fund shares are continually sold to the public. The
Fund then uses the proceeds to buy securities as described under "Investment
Objectives and Policies." The Fund's Board of Trustees provides broad
supervision over the affairs of the Fund. Lexington Management Corporation
("LMC") is the Investment Advisor and Ariston Capital Management Corporation
("Ariston") is the sub-adviser to the Fund. LMC and Ariston are responsible for
the management of the Fund's assets and the officers of the Fund are responsible
for its operations. LMC and Ariston manage the Fund from day-to-day in
accordance with the Fund's investment objectives and policies.
INVESTMENT OBJECTIVE AND POLICIES
The Fund's investment objective is total return which it seeks to achieve by
providing capital appreciation, current income and conservation of the
shareholders capital. The Fund's investment objective, which is described below,
cannot be changed without the affirmative vote of a majority (as defined in the
Investment Company Act of 1940) of the outstanding voting shares of the Fund.
It is intended that the Fund will invest at least 65% of its total assets
(except when maintaining a temporary defensive position) in a diversified
portfolio of convertible securities as described below. Common stock received
upon conversion or exchange of such securities will either be sold in an orderly
manner or held by the Fund as described below.
It is intended that not more than 35% of the Fund's total assets be invested
in other securities which, in the aggregate, are considered by LMC and Ariston
to be consistent with the Fund's investment objectives. Such other investments
may consist of dividend and non-dividend paying nonconvertible common stocks,
corporate bonds rated B or higher as described below, covered call options and
put options, stock index options, securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities, repurchase agreements and money
market securities. In addition, the Fund may invest up to 10% of its total
assets in securities which may be restricted as to resale.
The convertible securities acquired by the Fund may include, as rated by
Moody's Investors Service, Inc., Aaa, Aa, A, Baa, Ba, B and non-rated debt
securities. The Fund will not invest in any security which has lower than a B
rating (see Appendix for "Summary of Ratings"). However, the Fund may invest in
non-rated convertible securities if based upon the opinion of the adviser and
sub-adviser it is believed that such securities are of comparable quality to the
securities described above. Securities which are rated Ba (BB) or B are
considered speculative and thus pose a greater risk of default than investment
grade securities. See "High Yield Debt Securities" on page 5 for a more detailed
discussion of securities rated Ba and B. Such lower rated securities are
commonly referred to as "junk bonds." Investments of this type are subject to
greater risk of loss of principal and interest.
If in the opinion of LMC and Ariston, and market conditions indicate, the
Fund may, for temporary defensive purposes, invest without limit, in U.S.
Government securities, commercial paper (short-term debt securities of large
corporations), certificates of deposit, bankers acceptances and repurchase
agreements.
Consistent with the Rules of Fair Practice of the National Association of
Securities Dealers, Inc., and subject to seeking best price and execution, the
adviser may consider sales of shares of the Fund as a factor in the selection of
dealers to enter into portfolio transactions with the Fund.
There can be no assurance that the Fund will achieve its investment
objective. The net asset value of the Fund will fluctuate as the value of its
securities fluctuates.
3
<PAGE>
DESCRIPTION AND RISKS OF CONVERTIBLE SECURITIES
Convertible securities are securities that may be exchanged or converted
into a predetermined number of the issuer's underlying common shares, the common
shares of another company or that are indexed to an unmanaged market index at
the option of the holder during a specified time period. Convertible securities
may take the form of convertible preferred stock, convertible bonds or
debentures, stock purchase warrants, zero-coupon bonds or liquid-yield option
notes, Eurodollar convertible securities, convertible securities of foreign
issuers, stock index notes, or a combination of the features of these
securities. Convertible securities are considered by the Adviser and Sub-Adviser
to be an attractive investment vehicle for the Fund because they combine the
benefits of higher and more stable income than the common stock generally
provides with the potential of profiting from an appreciation in the value of
the underlying security. Prior to conversion, convertible securities have the
same general characteristics as non-convertible debt securities and provide a
stable stream of income with generally higher yields than those of equity
securities of the same or similar issuers. As with all debt securities, the
market value of convertible securities tends to decline as interest rates
increase and conversely, increase as interest rates decline. While convertible
securities generally offer lower interest or dividend yields than
non-convertible debt securities of similar quality, they do enable the investor
to benefit from the increase in the market price of the underlying common stock.
When the market price of a common stock underlying a convertible security
increases, the price of the convertible security increasingly reflects the value
of the underlying common stock and may rise accordingly. As the market price of
the underlying common stock declines, convertible securities tend to trade
increasingly on a yield basis and thus may not depreciate to the same extent as
the underlying common stock. Convertible securities are ranked senior to common
stock on an issuer's capital structure and they are consequently of higher
quality and entail less risk than the issuer's common stock, although the extent
to which risk is reduced depends in large measure to the degree to which
convertible securities sell above their value as fixed income securities.
Warrants
The Portfolio may invest up to 5% of its total assets at the time of
purchase in warrants (not including those acquired in units or attached to other
securities). A warrant is a right to purchase common stock at a specific price
during a specified period of time. The value of a warrant does not necessarily
change with the value of the underlying security. Warrants do not represent any
rights to the assets of the issuing company. A warrant becomes worthless unless
it is exercised or sold before expiration. Warrants have no voting rights and
pay no dividends.
Options
The Fund may sell (write) listed covered call options on stock and stock
indices in order to earn additional income and to hedge the Fund's portfolio and
reduce investment risk. By writing a covered call option, the Fund generates
additional income from securities in its portfolio, and may also give up some
control over when the securities subject to the call may be sold. The payment
received by the Fund for writing the call option (known as the option premium)
may provide partial protection from a decline in the value of the underlying
securities. Hedging strategies are defensive in nature and some capital gain
potential is forsaken in advancing markets in order to reduce risk in declining
markets. The Fund may also purchase put or call options provided that the value
of put or call options purchased will not exceed 5% of the Fund's total assets.
Purchased put or call options become worthless unless they are exercised or sold
before expiration. The Fund is restricted in using only options that are traded
on national securities exchanges.
Collateralized Short Sales
The Fund may make short sales of common stocks, provided they are "against
the box," i.e., the Fund owns an equal amount of such securities or owns
securities that are convertible or exchangeable without payment of further
consideration into an equal or greater amount of such a common stock. The Fund
may make a short sale when the Fund manager believes the price of the stock may
decline and for tax or other reasons, the Fund manager does not want to sell
4
<PAGE>
currently the stock or convertible security it owns. In such case, any decline
in the value of the Portfolio would be reduced by a gain in the short sale
transaction. Conversely, any increase in the value of the portfolio would be
reduced by a loss in the short sale transaction. The Fund may not make short
sales or maintain a short position unless at all times when a short position is
open, not more than 10% of its total assets (taken at current value) is held as
collateral for such sales at any one time. Short sales against the box are used
to defer recognition of capital gains and losses, although the short-term or
long-term nature of such gains or losses could be altered by certain provisions
of the Internal Revenue Code.
High Yield Debt Securities
High yield debt securities in which the Fund may invest (rated Ba or B) are
commonly referred to as "junk bonds." See Appendix. The economy and interest
rates affect high yield securities differently from other securities. The prices
of high yield securities have been found to be less sensitive to interest rate
changes than higher-rated investments, but more sensitive to adverse economic
changes or individual corporate developments. Also, during an economic downturn
or substantial period of rising interest rates, highly leveraged issuers may
experience financial stress which would adversely affect their ability to
service their principal and interest payment obligations to meet projected
business goals, and to obtain additional financing. If the issuer of a security
defaulted, the Fund may incur additional expenses to seek recovery. In addition,
periods of economic uncertainty and changes can be expected to result in
increased volatility of market prices of high yield securities and the Fund's
net asset value. To the extent that there is no established retail secondary
market, there may be thin trading of high yield securities, and this may have an
impact on the adviser and sub-adviser's ability to accurately value high yield
securities and on the Fund's ability to dispose of the securities. 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.
There are risks involved in applying credit ratings as a method for
evaluating high yield securities. For example, credit ratings evaluate the
safety of principal and interest payments, not market value of high yield
securities. Also, since credit rating agencies may fail to timely change the
credit ratings to reflect subsequent events, the Fund (in conjunction with its
investment adviser and sub-adviser) will continuously monitor the issuer of high
yield securities in the Fund to determine if the issuer will have sufficient
cash flow and profits to meet required principal and interest payments, and to
assure the securities' liquidity.
U.S. Government Securities
The Fund may invest in securities issued or guaranteed by the U.S.
Government, its agencies and instrumentalities. United States Government agency
and instrumentality obligations are debt securities issued by United States
Government-sponsored enterprises and Federal agencies. Some obligations of
agencies and instrumentalities of the United States Government are supported by
the full faith and credit of the United States or United States Treasury
guarantees, such as securities of the Government National Mortgage Association
and the Federal Housing Authority; others, by the right of the issuer to borrow
from the United States Treasury, such as securities of the Federal Home Loan
Mortgage Corporation and others, only by the credit of the agency or
instrumentality issuing the obligation, such as securities of the Federal
National Mortgage Association and the Federal Home Loan Banks.
Repurchase Agreements
The Fund may enter into repurchase agreements with commercial banks and
dealers in U.S. Government securities. A repurchase agreement involves the
acquisition by a Fund of an investment contract from a bank or a dealer in U.S.
Government securities which contract is secured by U.S. Government obligations
whose value at all times is equal to or greater than the value of the repurchase
agreement including the agreed upon interest. The agreement provides that the
institution will repurchase the underlying securities at an agreed upon time and
price. The total amount received on repurchase would exceed the price paid by
the Fund, reflecting an agreed upon rate of interest for the period from the
date of the repurchase agreement to the settlement date, and would not be
related to the interest rate on the
5
<PAGE>
underlying securities. The difference between the total amount to be received
upon the repurchase of the securities and the price paid by the Fund upon their
acquisition is accrued daily as interest. If the institution defaults on the
repurchase agreement, the Fund will retain possession of the underlying
securities. In addition, if bankruptcy proceedings are commenced with respect to
the seller, realization on the collateral by the Fund may be delayed or limited
and the Fund may incur additional costs. In such case, the Fund will be subject
to risks associated with changes in the market value of the collateral
securities. The Fund intends to limit repurchase agreements to transactions
believed by LMC and Ariston to present minimal credit risk. LMC and Ariston will
monitor the collateral on an ongoing basis to ensure that the value of the
collateral will at all times equal or exceed the repurchase price and will also
monitor the credit worthiness of banks and dealers that the Fund enters into
repurchase agreements with. The above criteria may be altered by the Board of
Trustees of the Fund. Repurchase agreements are considered collateralized loans
by the Fund under the Investment Company Act of 1940.
PORTFOLIO TURNOVER
Portfolio changes will be made without regard to the length of time
particular investments may have been held. The Fund is expected to incur
brokerage costs. The Fund anticipates that its annual turnover rate will
generally not exceed 100%.
For the years ended December 31, 1995, 1994, and 1993, the portfolio
turnover rate for the Fund was 11.23%, 38.14% and 6.53%, respectively.
INVESTMENT RESTRICTIONS
The Fund has adopted a number of investment restrictions which may not be
changed without shareholder approval. These are set forth under "Investment
Restrictions" in the Statement of Additional Information. Some of these
restrictions provide that the Fund shall not:
* concentrate its investments in a particular industry to an extent greater
than 25% of the value of its total assets at the time of purchase provided that
such limitations shall not apply to securities issued or guaranteed by the U.S.
Government, or its agencies and instrumentalities;
* invest more than 5% of its total assets in the securities of any one
issuer (except securities issued or guaranteed by the U.S. Government, or its
agencies and instrumentalities) except that such restriction will not apply with
respect to 25% of the Fund's assets;
* purchase any securities if such purchase would cause the Fund to own at
the time of purchase more than 10% of the outstanding voting securities of one
issuer;
* borrow money; except that the Fund may borrow from a bank as a temporary
measure for extraordinary purposes or to meet redemptions in amounts not
exceeding 10% (taken at market value) of its total assets and pledge its assets
to secure such borrowings. The Fund may not purchase additional securities when
money borrowed exceeds 5% of the Fund's total assets;
* purchase any security restricted as to disposition under Federal
securities laws or securities that are not readily marketable or purchase any
securities if such purchase would cause the Fund to own at the time such
purchase, illiquid securities, including repurchase agreements with an agreed
upon repurchase date in excess of seven days from the date of acquisition by the
Fund, having an aggregate market value in excess of 10% of the value of the
Fund's total assets.
YIELD AND TOTAL RETURN
From time to time the Fund advertises its yield and total return. Both yield
and total return are based on historical earning and are not intended to
indicate future performance. The "total return" of the Fund refers to the
average annual
6
<PAGE>
compounded rates of return over one, five and ten year periods or over the life
of the Fund (which periods will be stated in the advertisement) that would
equate an initial amount invested at the beginning of a stated period to the
ending redeemable value of the investment. The calculation assumes the
reinvestment of all dividend and distributions, including all recurring fees
that are charged to all shareholder accounts and a deduction of all nonrecurring
charges deducted at the end of each period. The "yield" of the Fund is computed
by dividing the net investment income per share earned during the period stated
in the advertisement by the maximum offering price per share on the last day of
the period (using the average number of shares entitled to receive dividends).
The calculation includes among expenses of the Fund, for the purpose of
determining net investment income, all recurring fees that are charged to all
shareholder accounts and any nonrecurring charges for the period stated. The
yield formula provides for semi-annual compounding which assumes that net
investment income is earned and reinvested at a constant rate and annualized at
the end of the six month period. The Fund may cite a 30-day yield (annualized)
as well as a 90-day yield (annualized) in advertisements and sales materials.
Advertisements and communications may compare the Fund's performance with
that of other mutual funds, as reported by Lipper Analytical Services, Inc. or
similar independent services or financial publications. From time to time, the
performance of the Fund may be compared to various investment indices.
Quotations of historical total returns and yields are not indicative of future
dividend income or total return, but are an indication of the return to
shareholders only for the limited historical period used. The Fund's yield and
total return will depend on the particular investments in its portfolio, its
total operating expenses and other conditions. For further information,
including the formula and examples of the yield and total return calculations,
see the Statement of Additional Information.
MANAGEMENT OF THE FUND
The Trustees of the Fund are responsible under the terms of its Declaration
of Trust, which is governed by Massachusetts law for overseeing the conduct of
the Fund's business. There are currently five trustees (of whom three are
non-interested persons under the Investment Company Act of 1940) who meet four
times each year. The Statement of Additional Information contains more data
regarding the trustees and officers of the Fund.
PORTFOLIO MANAGER
Richard B. Russell is President of Ariston Capital Management Corporation,
the Fund's sub-adviser, located in Bellevue, Washington. He is a graduate of the
School of Business at the University of Washington and has completed additional
training at the New York Institute of Finance. He is a recognized authority on
portfolio management, particularly through the use of convertible securities and
market forecasting. He has spent his entire professional career as an
independent money manager, dating from 1972. Before founding Ariston in 1977, he
was a full-time manager of private family assets. Mr. Russell has conducted
extensive research on investment topics.
INVESTMENT ADVISER, SUB-ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation ("LMC"), Park 80 West, Plaza Two, Saddle
Brook, New Jersey 07663 is the investment adviser to the Fund and provides
investment advice and in general conducts the management and investment program
of the Fund under the supervision and control of the trustees of the Fund. LMC
has entered into a sub-advisory contract with Ariston Capital Management
Corporation ("Ariston"), 40 Lake Bellevue Drive, Suite 220, Bellevue, Washington
98005 under which Ariston will provide the Fund with certain investment
management and administrative services. Ariston also serves as investment
adviser to private and institutional investment accounts. Such accounts own a
significant number of shares of the Fund as part of their investment program.
Lexington Funds Distributor, Inc. is the Fund's distributor.
LMC, established in 1938, currently manages over $3.0 billion in assets. LMC
serves as investment adviser to other investment companies and private and
institutional investment accounts. Included among these clients are persons and
organizations which own significant amounts of capital stock of LMC's parent.
The clients pay fees which LMC considers comparable to the fees paid by
similarly served clients.
7
<PAGE>
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
LMC and LFD are wholly-owned subsidiaries of Lexington Global Asset Managers
Inc., a Delaware corporation with offices at Park 80 West Plaza Two, Saddle
Brook, New Jersey 07663. Descendants of Lunsford Richardson, Sr., their spouses,
trusts and other related entities have a majority voting control of outstanding
shares of Lexington Global Asset Managers Inc. See "Investment Adviser and
Distributor" in the Statement of Additional Information.
Ariston was founded in 1977 and provides investment management to client
portfolios that include individuals, corporations, pension and profit sharing
plans and other qualified retirement plan accounts. Ariston is recognized for
its expertise in portfolio management, specializing in convertible securities
and market forecasting.
LMC as owner of the registered service mark "Lexington" will sublicense the
Fund to include the word "Lexington" as part of its name subject to revocation
by LMC in the event that the Fund ceases to engage LMC or its affiliate as
investment advisor or distributor. In that event the Fund will be required upon
demand of LMC to change its name to delete the word "Lexington" therefrom.
As compensation for its services, the Fund pays LMC a monthly management fee
at the annual rate of 1.00% of the average daily net assets which is higher than
that paid by most other investment companies. In connection with providing
investment management services, LMC has entered into a sub-advisory agreement
with Ariston under which Ariston will provide the Fund with certain investment
management and administrative services. Pursuant to the terms of the
sub-advisory agreement between LMC and Ariston, LMC will pay Ariston a monthly
sub-advisory fee at the annual rate of 0.75% of the average daily net assets of
Fund up to $7 million and 0.50% of such assets in excess of $7 million. For the
year ending December 31, 1995, the Fund paid net advisory fees to LMC of $98,554
of which LMC paid $66,777 to Ariston pursuant to the sub-advisory agreement.
HOW TO PURCHASE SHARES
Initial investment-Minimum $1,000. By Mail: Send a check payable to Lexington
Convertible Securities Fund, along with a completed New Account Application to
State Street Bank and Trust Company (the "Agent"). See the back cover of this
prospectus for the agent's address.
Subsequent Investments-Minimum $50. By Mail: Send a check payable to the Agent,
accompanied by either the detachable form which is part of the confirmation of a
prior transaction or a letter indicating the dollar amount of the investment and
identifying the Fund, account number and registration.
Broker-dealers: You may invest in shares of the Fund through broker-dealers who
are members of the National Association of Securities Dealers, Inc., and other
financial institutions and who have selling agreements with LFD. Broker-dealers
and financial institutions who process such purchase and sale transactions for
their customers may charge a transaction fee for these services. The fee may be
avoided by purchasing shares directly from the Fund.
The Open Account: By investing in the Fund, a shareholder appoints the Agent, as
his agent, to establish an open account to which all shares purchased will be
credited, together with any dividends and capital gain distributions which are
paid in additional shares (see "Dividend, Distribution and Reinvestment
Policy"). Stock certificates will be issued for full shares only when requested
in writing. Unless payment for shares is made by certified or cashier's check or
federal funds wire, certificates will not be issued for 30 days. In order to
facilitate redemptions and transfers, most shareholders elect not to receive
certificates.
After an Open Account is established, payments can be provided for by
"Lex-O-Matic" or other authorized automatic bank check program accounts (checks
drawn on the investor's bank periodically for investment in the Fund).
8
<PAGE>
Automatic Investing Plan with "Lex-O-Matic". A shareholder may arrange to make
additional purchases of shares automatically on a monthly or quarterly basis.
The investments of $50 or more are automatically deducted from a checking
account on or about the 15th day of each month. The institution must be an
Automated Clearing House (ACH) member. Should an order to purchase shares of a
fund be cancelled because your automated transfer does not clear, you will be
responsible for any resulting loss incurred by that fund. The shareholder
reserves the right to discontinue the Lex-O-Matic program provided written
notice is given ten days prior to the scheduled investment date. Further
information regarding this service can be obtained from Lexington by calling
1-800-526-0056.
On payroll deduction accounts administered by an employer and on payments
into qualified pension or profit sharing plans and other continuing purchase
programs, there are no minimum purchase requirements.
Determination of Net Asset Value: The net asset value of the Fund for the
purposes of pricing orders is determined daily at the close of regular trading
on the New York Stock Exchange on each Fund "business day" (which is any day on
which the New York Stock Exchange is open for business). It is expected that the
Exchange will be closed on Saturdays, Sundays, New Year's day, President's Day,
Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and
Christmas Day.
The net asset value of the Fund is determined by dividing the total value of
the investments and other assets of the Fund, less any liabilities, by the total
outstanding shares of the Fund.
Debt securities are normally valued at the mean between the current bid and
asked price for those securities. As authorized by the Trustees, securities are
valued on the basis of valuations furnished by a pricing service which
determines valuations based upon market transactions for normal
institutional-size trading units of such securities. In determining net asset
value, equity portfolio securities listed on a national securities exchange are
valued at the last reported sales price; if no sales price is reported for that
day the mean between the current bid and asked price is used. However, when LMC
deems it appropriate, prices obtained for the day of valuation from a third
party pricing service will be used. For over-the-counter securities the mean of
the latest bid and asked prices is used. Short term securities having a maturity
of 60 days or less are valued at cost, which approximates market value.
Securities for which market quotations are not readily available and other
securities shall be valued by management in good faith under the direction of
the Fund's Board of Trustees.
Terms of Offering: If an order to purchase shares is cancelled because the
investor's check does not clear, the purchaser will be responsible for any loss
incurred by the Fund. To recover any such loss the Fund reserves the right to
redeem shares owned by the purchaser, seek reimbursement directly from the
purchaser and may prohibit or restrict the purchaser in placing future orders in
any of the Lexington Funds.
The Fund reserves the right to reject any order, and to waive or lower the
investment minimums with respect to any person or class of persons, including
shareholders of the Fund's special investment programs. An order to purchase
shares is not binding on the Fund until it has been confirmed by the Agent.
Account Statements: The Agent will send shareholders either purchasing or
redeeming shares of the Fund, a confirmation of the transaction indicating the
date the purchase or redemption was accepted, the number of shares purchased or
redeemed, the purchase or redemption price per share, and the amount purchased
or redemption proceeds. A statement is also sent to shareholders whenever a
distribution is paid, or when a change in the registration, address, or dividend
option occurs. Shareholders are urged to retain their account statements for tax
purposes.
HOW TO REDEEM SHARES
By Mail: Send to the Agent (see the back cover of this prospectus for the
Agent's address): (1) a written request for redemption, signed by each
registered owner exactly as the shares are registered including the name of the
Fund, account number and exact registration; (2) stock certificates for any
shares to be redeemed which are held by the shareholder; (3) signature
guarantees, when required, and (4) the additional documents required for
redemptions by corporations, executors, administrators, trustees, and guardians.
Redemptions by mail will not become effective until all documents in proper form
have been received by the Agent. If a shareholder has any questions regarding
the requirements for redeeming shares, he should call the Fund at the toll free
number on the back cover prior to
9
<PAGE>
submitting a redemption request. If a redemption request is sent to the Fund in
New Jersey, it will be forwarded to the Agent and the effective date of
redemption will be the date when received by the Agent.
Checks for redemption proceeds will normally be mailed within three business
days, but will not be mailed until all checks in payment for the shares to be
redeemed have been cleared.
Signature Guarantee: Signature guarantees are required in connection with (a)
redemptions by mail involving $25,000 or more; (b) all redemptions by mail,
regardless of the amount involved, when the proceeds are to be paid to someone
other than the registered owners; (c) changes in instructions as to where the
proceeds of redemptions are to be sent, and (d) share transfer requests.
The Agent requires that the guarantor be either a commercial bank which is a
member of the Federal Deposit Insurance Corporation, a trust company, a savings
and loan association, a savings bank, a credit union, a member firm of a
domestic stock exchange, or a foreign branch of any of the foregoing. Notary
publics are not acceptable guarantors.
With respect to redemption requests submitted by mail, the signature
guarantees must appear either: (a) on the written request for redemption, (b) on
a separate instrument of assignment ("stock power") specifying the total number
of shares to be redeemed, or (c) on all stock certificates tendered for
redemption and, if shares held by the Agent are also being redeemed, on the
letter or stock power.
Redemption Price: The redemption price will be the net asset value per share of
the Fund next determined after receipt by the Agent of a redemption request in
proper form (see "Determination of Net Asset Value" in the Statement of
Additional Information).
The right of redemption may be suspended (a) for any period during which the
New York Stock Exchange is closed or the Securities and Exchange Commission
("SEC") determines that trading on the Exchange is restricted, (b) when there is
an emergency as determined by the SEC as a result of which it is not reasonably
practicable for the Fund to dispose of securities owned by it or to determine
fairly the value of its net assets, or (c) for such other periods as the SEC may
by order permit for the protection of shareholders of the Fund. Due to the
proportionately high cost of maintaining smaller accounts, the Fund reserves the
right to redeem all shares in an account with a value of less than $500 (except
retirement plan accounts) and mail the proceeds to the shareholder. Shareholders
will be notified before these redemptions are to be made and will have 30 days
to make an additional investment to bring their account up to the required
minimum.
SHAREHOLDER SERVICES
Transfer: Shares of the Fund may be transferred to another owner. A signature
guarantee of the registered owner is required on the letter of instruction or
accompanying stock power.
Systematic Withdrawal Plan: Shareholders may elect cash in fixed amounts from
their accounts at regular intervals. The minimum investment to establish a
Systematic Withdrawal Plan is $10,000. If the proceeds are to be mailed to
someone other than the registered owner, a signature guarantee is required.
Group Sub-Accounting: To minimize recordkeeping by fiduciaries, corporations,
and certain other investors, the minimum initial investment may be waived.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the following Lexington
Funds on the basis of relative net asset value per share, without sales charge,
at the time of the exchange. In the event shares of one or more of these funds
being exchanged by a single investor have a value in excess of $500,000, the
shares of the Fund will not be purchased until the third business day following
the redemption of the shares being exchanged in order to enable the redeeming
fund to utilize normal securities settlement procedures in transferring the
proceeds of the redemption to the Fund. Exchanges may not be made until all
checks in payment for the shares to be exchanged have been cleared.
The Lexington Funds currently available for exchange are:
LEXINGTON WORLDWIDE EMERGING MARKETS FUND, INC. (NASDAQ Symbol: LEXGX)
10
<PAGE>
LEXINGTON GLOBAL FUND, INC. (NASDAQ Symbol: LXGLX)
LEXINGTON INTERNATIONAL FUND, INC. (NASDAQ Symbol: LEXIX)
LEXINGTON CROSBY SMALL CAP ASIA GROWTH FUND, INC.
LEXINGTON TROIKA DIALOG RUSSIA FUND, INC.
LEXINGTON RAMIREZ GLOBAL INCOME FUND (NASDAQ Symbol: LEBDX)
LEXINGTON GOLDFUND, INC. (NASDAQ Symbol: LEXMX)
LEXINGTON SMALLCAP VALUE FUND, INC.
LEXINGTON CORPORATE LEADERS TRUST FUND (NASDAQ Symbol: LEXCX)
LEXINGTON GROWTH AND INCOME FUND, INC. (NASDAQ Symbol: LEXRX)
LEXINGTON GNMA INCOME FUND, INC. (NASDAQ Symbol: LEXNX)
LEXINGTON MONEY MARKET TRUST (NASDAQ Symbol: LMMXX)
LEXINGTON TAX FREE MONEY FUND, INC. (NASDAQ Symbol: LTFXX)
Shareholders in any of these funds may exchange all or part of their shares
for shares of one or more of the other funds, subject to the conditions
described herein. The Exchange Privilege enables a shareholder in any of these
funds to acquire shares in a fund with a different investment objective when the
shareholder believes that a shift between funds is an appropriate investment
decision. Shareholders contemplating an exchange should obtain and review the
prospectus of the fund to be acquired.
If an exchange involves investing in a Lexington Fund not already owned and
a new account has to be established, the dollar amount exchanged must meet the
minimum initial investment of the fund being purchased. If, however, an account
already exists in the fund being bought, there is a $500 minimum exchange
required. Shareholders must provide the account number of the existing account.
Any exchange between funds is, in effect, a redemption of shares in one fund and
a purchase in the other fund. Shareholders should consider the possible tax
effects of an exchange.
TELEPHONE EXCHANGE PROVISIONS-Exchange instructions may be given in writing or
by telephone. Telephone exchanges may only be made if a Telephone Authorization
form has been previously executed and filed with LFD. Telephone exchanges are
permitted only after a minimum of 7 days have elapsed from the date of a
previous exchange. Exchanges may not be made until all checks in payment for the
shares to be exchanged have been cleared.
Telephonic exchanges can only involve shares held on deposit at the Agent;
shares held in certificate form by the shareholder cannot be included. However,
outstanding certificates can be returned to the Agent and qualify for these
services. Any new account established with the same registration will also have
the privilege of exchange by telephone in the Lexington Funds. All accounts
involved in a telephonic exchange must have the same registration and dividend
option as the account from which the shares were transferred and will also have
the privilege of exchange by telephone in the Lexington Funds in which these
services are available.
By checking the box on the New Account Application authorizing telephone
exchange services, a shareholder constitutes and appoints LFD, distributor of
the Lexington Group of Mutual Funds, as the true and lawful attorney to
surrender for redemption or exchange any and all non-certificate shares held by
the Agent in account(s) designated, or in any other account with the Lexington
Funds, present or future which has the identical registration, authorizes and
directs LFD to act upon and instruction from any person by telephone for
exchange of shares held in any of these accounts, to purchase shares of any
other Lexington Fund that is available, provided the registration and mailing
address of the shares to be purchased are identical to the registration of the
shares being redeemed, and agrees that neither LFD, the Agent, or the Fund(s)
will be liable for any loss, expense or cost arising out of any requests
effected in accordance with this authorization which would include requests
effected by impostors or persons otherwise unauthorized to act on behalf of the
account. LFD, the Agent and the Fund, will employ reasonable procedures to
confirm that instructions communicated by telephone are genuine and if they do
not employ reasonable procedures they may be liable for any losses due to
unauthorized or fraudulent instructions. The following identification procedures
may include, but are not limited to, the following: account number, registration
and address, taxpayer identification number and other information particular to
the account. In addition, all exchange transactions will take place on recorded
telephone lines
11
<PAGE>
and each transaction will be confirmed in writing by the Fund. LFD reserves the
right to cease to act as agent subject to the above appointment upon thirty (30)
days written notice to the address of record. If the shareholder is an entity
other than an individual, such entity may be required to certify that certain
persons have been duly elected and are now legally holding the titles given and
that the said corporation, trust, unincorporated association, etc. is duly
organized and existing and has the power to take action called for by this
continuing authorization.
Exchange Authorization forms, Telephone Authorization forms and prospectus
of the other funds may be obtained from LFD.
The Distributor has made arrangements with certain dealers to accept
instructions by telephone to exchange shares of the Fund or shares of one of the
other Lexington Funds at net asset value as described above. Under this
procedure, the dealer must agree to indemnify LFD and the funds from any loss or
liability that any of them might incur as a result of the acceptance of such
telephone exchange orders. A properly signed Exchange Authorization must be
received by LFD within 5 days of the exchange request. LFD reserves the right to
reject any telephone exchange request. Any telephone exchange orders so rejected
may be processed by mail.
This exchange offer is available only in states where shares of the Fund
being acquired may legally be sold and may be modified or terminated at any time
by the Fund. Broker-dealers who process exchange orders on behalf of their
customers may charge a fee for their services. Such fee may be avoided by making
requests for exchange directly to the Fund or Agent.
TAX-SHELTERED RETIREMENT PLANS
The Fund offers a Prototype Pension and Profit Sharing Plan, including a
Keogh Plan, IRA's, SEP-IRA's and IRA Rollover Accounts, 401(k) Salary Reduction
Plans, Section 457 Deferred Compensation Plans and 403(b)(7) Plans. Plan support
services are available through the Shareholder Services Department of LMC. For
further information call 1-800-526-0056.
DIVIDEND, DISTRIBUTION AND REINVESTMENT POLICY
The Fund intends to pay quarterly dividends from investment income after the
close of each quarter, if earned and as declared by its Board of Trustees.
Distributions of net capital gains, if any, realized on sales of investments
will be paid annually.
Any dividends and distribution payments will be reinvested at net asset
value, without sales charge, in additional full and fractional shares of the
Fund unless and until the shareholder notifies the Agent in writing requesting
payments in cash. This request must be received by the Agent at least seven days
before the dividend record date. Upon receipt by the Agent of such written
notice, all further payments will be made in cash until written notice to the
contrary is received.
An account of such shares owned by each shareholder will be maintained by the
agent. Shareholders whose accounts are maintained by the Agent will have the
same rights as other shareholders with respect to shares so registered (see "How
to Purchase Shares-The Open Account").
DISTRIBUTION PLAN
The Board of Trustees of the Fund has adopted a Distribution Plan (the
"Plan") in accordance with Rule 12b-1 under the Investment Company Act of 1940,
after having concluded that there is a reasonable likelihood that the Plan will
benefit the Fund and its shareholders. The Plan provides that the Fund may pay
distribution fees, including payments to the Distributor, at an annual rate not
to exceed 0.25% of its average daily net assets for distribution services.
Distribution payments will be made as follows: The Fund either directly or
through the adviser, may make payments periodically (i) to the Distributor or to
any broker-dealer (a "Broker") who is registered under the Securities Exchange
Act of 1934 and a member in good standing of the National Association of
Securities Dealers, Inc. and who has entered into a Selected Dealer Agreement
with the Distributor, (ii) to other persons or organizations ("Servicing
Agents") who have entered into shareholder processing and service agreements
with the Adviser or with the Distributor, with respect to Fund shares owned by
shareholders for which such Broker is the dealer or holder of record or such
servicing agent
12
<PAGE>
has a servicing relationship, or (iii) for expenses associated with distribution
of Fund shares, including the compensation of the sales personnel of the
Distributor; payments of no more than an effective annual rate of 0.25%, or such
lesser amounts as the Distributor determines appropriate. Payments may also be
made for any advertising and promotional expenses relating to selling efforts,
including but not limited to the incremental costs of printing, prospectuses,
statements of additional information, annual reports and other periodic reports
for distribution to persons who are not shareholders of the Fund; the costs of
preparing and distributing any other supplemental sales literature; costs of
radio, television, newspaper and other advertising; telecommunications expenses,
including the cost of telephones, telephone lines and other communications
equipment, incurred by or for the Distributor in carrying out its obligations
under the Distribution Agreement. LMC, at no additional cost to the Fund, may
pay to Shareholder Servicing Agents, additional amounts from past profits for
administrative services.
TAX MATTERS
The Fund intends to qualify as a regulated investment company by satisfying
the requirements under Subchapter M of the Internal Revenue Code of 1986, as
amended (the "Code"), including requirements with respect to diversification of
assets, distribution of income and sources of income. It is the Fund's policy to
distribute to shareholders all of its investment income (net of expenses) and
any capital gains (net of capital losses) so that, in addition to satisfying the
distribution requirement of Subchapter M, the Fund will not be subject to
federal income tax or the 4% excise tax.
Distributions by the Fund of its net investment income and the excess, if
any, of its net short-term capital gain over its net long-term capital loss are
taxable to shareholders as ordinary income. These distributions are treated as
dividends for federal income tax purposes, but in any year only a portion
thereof (which cannot exceed the aggregate amount of qualifying dividends from
domestic corporations received by the Fund during the year) should qualify for
the 70% dividends-received deduction for corporate shareholders. Because the
Fund's investment income may include interest and dividends from foreign
corporations and the Fund may have short-term capital gains, less than 100% of
the ordinary income dividends paid by the Fund may qualify for the
dividends-received deduction. Distributions by the Fund of the excess, if any,
of its net long-term capital gain over its net short-term capital loss are
designated as capital gain dividends and are taxable to shareholders as
long-term capital gains, regardless of the length of time the shareholder held
his shares.
Distributions to shareholders will be treated in the same manner for federal
income tax purposes whether received in cash or reinvested in additional shares
of the Fund. In general, distributions by the Fund are taken into account by the
shareholders in the year in which they are made. However, certain distributions
made during January will be treated as having been paid by the Fund and received
by the shareholders on December 31 of the preceding year. A statement setting
forth the federal income tax status of all distributions made (or deemed made)
during the fiscal year will be sent to shareholders promptly after the end of
each year.
Shareholders purchasing shares of the Fund just prior to the ex-dividend
date will be taxed on the entire amount of the dividend received, even though
the net asset value per share on the date of such purchase reflected the amount
of such dividend.
Any loss realized upon a taxable disposition of shares within six months
from the date of their purchase will be treated as a long-term capital loss to
the extent of any capital gain dividends received on such shares. All or a
portion of any loss realized upon a taxable disposition of shares of the Fund
may be disallowed if other shares of the Fund are purchased within 30 days
before or after such disposition.
Under the back-up withholding rules of the Code, certain shareholders may be
subject to 31% withholding of federal income tax on distributions and redemption
payments made by the Fund. In order to avoid this back-up withholding, a
shareholder must provide the Fund with a correct taxpayer identification number
(which for most individuals is their Social Security number) and certify that it
is a corporation or otherwise exempt from or not subject to back-up withholding.
The new account application included with this Prospectus provides for
shareholder compliance with these certification requirements.
13
<PAGE>
The foregoing discussion of federal income tax consequences is based on tax
laws and regulations in effect on the date of this Prospectus, and is subject to
change by legislative or administrative action. As the foregoing discussion is
for general information only, a prospective shareholder should also review the
more detailed discussion of federal income tax considerations relevant to the
Fund that is contained in the Statement of Additional Information. In addition,
each prospective shareholder should consult with his own tax adviser as to the
tax consequences of investments in the Fund, including the application of state
and local taxes which may differ from the federal income tax consequences
described above.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York
10036, has been retained to act as the Custodian for the Funds' portfolio
securities including those to be held by foreign banks and foreign securities
depositories which qualify as eligible foreign custodians under the rules
adopted by the SEC and for the Fund's domestic securities and other assets.
State Street Bank and Trust Company, 225 Franklin Street, Boston, Massachusetts
02110, is the transfer agent and dividend disbursing agent for the Fund. Neither
Chase Manhattan Bank, N.A. nor State Street Bank and Trust Company have any part
in determining the investment policies of the Fund or in determining which
portfolio securities are to be purchased or sold by the Fund or in the
declaration of dividends and distributions.
COUNSEL AND INDEPENDENT AUDITORS
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel, 919 Third Avenue, New
York, New York 10022 will pass upon legal matters for the Fund in connection
with the shares offered by this Prospectus.
KPMG Peat Marwick LLP, 345 Park Avenue, New York, New York 10154, has been
selected as independent auditors for the Fund for the fiscal year ending
December 31, 1996.
OTHER INFORMATION
The Fund was organized as a business trust under the laws of the
Commonwealth of Massachusetts on August 19, 1986 under the name Concord Income
Trust. It adopted its present name on November 11, 1992.
The Fund has an unlimited number of authorized shares, entitled Shares of
Beneficial Interest (.10 par value). The Fund presently has one series of shares
and has reserved the right to create and issue additional series of shares, in
which case the shares of each series would participate equally in the earnings,
dividends and assets of the particular series. Shareholders are entitled to one
vote for each share held to approve investment advisory agreements or changes in
investment policy, in the election or selection of Trustees, principal
underwriters and accountants and on any material amendment to the Trust's
Declaration of Trust. The Fund does not intend to hold annual shareholder
meetings. Instead, meetings of shareholders will be held only: (1) for the
election of trustees; (2) for the approval of any new or amended advisory
agreements; (3) ratification of the selection of independent public accountants
or (4) approval of the distribution agreement. Meetings of the shareholders may
be called at any time by any Trustee upon the written request of shareholders
holding in the aggregate not less than 10% of the outstanding shares, such
request specifying the purposes for which such meeting is to be called, which
may include a proposal to remove some or all of the trustees. The Fund will
assist shareholders in any such communication between shareholders and Trustees.
each share of the Fund represents an equal proportionate interest in the
Portfolio with each other share. Shares have no preemptive or conversion rights.
Shares are fully paid and non-assessable, except as set forth below. Upon
liquidation of the Fund, its shareholders are entitled to share pro rata in its
net assets available for distribution to shareholders. Shares will remain on
deposit with the Agent and certificates will not be issued unless requested.
Certificates for fractional shares are not issued in any case.
The Code of Ethics adopted by each of the Adviser, Sub-Adviser and the Fund
prohibits all affiliated personnel from engaging in personal investment
activities which compete with or attempt to take advantage of the Fund's planned
portfolio transactions. The objective of each Code of Ethics is that the
operations of the Adviser, Sub-Adviser and Fund be carried out for the exclusive
benefit of the Fund's shareholders. All organizations maintain careful
monitoring of compliance with the Code of Ethics.
14
<PAGE>
The Trust is an entity of the type commonly known as a "Massachusetts
Business Trust". Under Massachusetts law, shareholders of such a trust may,
under certain circumstances be held personally liable for its obligations.
However, the risk of a shareholder incurring financial loss on account of
shareholder liability is limited to circumstances in which the Trust itself is
unable to meet its obligations.
A Registration Statement (herein called the "Registration Statement"), of
which this Prospectus is a part, has been filed with the Securities and Exchange
Commission (herein called the "Commission"), Washington, D.C. under the
Securities Act of 1933, as amended. A "Statement of Additional Information," to
which reference is made in this Prospectus, provides a further discussion of
certain matters in the Prospectus and other matters which may be of interest to
some investors and is available by request without cost as indicated herein. The
Prospectus and Statement of Additional Information omit certain information
contained in the Registration Statement which has been filed with the
Commission. Items which are thus omitted, including contracts and other
documents referred to or summarized herein and therein, may be obtained from the
Commission upon payment of the prescribed fees.
No person has been authorized to give any information or to make any
representations other than those contained in this Prospectus and in the Fund's
official sales literature in connection with the offer of the Fund's shares,
and, if given or made, such other information or representations must not be
relied upon as having been authorized by the Fund. This Prospectus does not
constitute an offer in any State in which, or to any person to whom, such
offering may not lawfully be made.
APPENDIX
SUMMARY OF RATINGS
Corporate and Municipal Debt Securities Ratings
Moody's Standard & Poor's
Investor Service Corporation
- ---------------- -----------------
Aaa AAA Highest quality
Aa AA High quality
A A Upper medium grade
Baa BBB Medium grade
Ba BB Speculative
B B More speculative
- CCC, CC, C Highly speculative
- CI Income bond,
no interest paid currently
Caa, Ca, C - Probably in default
- D In default
Not rated Not rated
15
<PAGE>
(left column)
Investment Adviser
- -----------------------------------------------------------
LEXINGTON MANAGEMENT CORPORATION
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 07663
Sub-Adviser
- -----------------------------------------------------------
ARISTON CAPITAL MANAGEMENT CORPORATION
40 Lake Bellevue Drive, Suite 220
Bellevue, Washington 98005
Distributor
- -----------------------------------------------------------
LEXINGTON FUNDS DISTRIBUTOR, INC.
P.O. Box 1515/Park 80 West Plaza Two
Saddle Brook, N.J. 07663
All shareholder requests for services of any kind
should be sent to:
Transfer Agent
- -----------------------------------------------------------
STATE STREET BANK AND TRUST COMPANY
c/o National Financial Data Services
Lexington Funds
1004 Baltimore
Kansas City, Missouri 64105
Or call toll free:
Shareholder Services: 1-800-526-0056
Institutional/Financial Adviser Services- 1-800-367-9160
24 Hour Account Information- 1-800-526-0056
Table of Contents Page
- -----------------------------------------------------------
Fee Table ............................................. 2
Financial Highlights .................................. 2
Description of the Fund ............................... 3
Investment Objective and Policies ..................... 3
Description and Risks of Convertible Securities ....... 4
Portfolio Turnover .................................... 6
Investment Restrictions ............................... 6
Yield and Total Return ................................ 6
Management of the Fund ................................ 7
Portfolio Manager ..................................... 7
Investment Adviser, Sub-Adviser
Distributor and Administrator ....................... 7
How to Purchase Shares ................................ 8
How to Redeem Shares .................................. 9
Shareholder Services .................................. 10
Exchange Privilege .................................... 10
Tax-Sheltered Retirement Plans ........................ 13
Dividend, Distribution and Reinvestment Policy ........ 13
Distribution Plan ..................................... 13
Tax Matters ........................................... 13
Custodian, Transfer Agent and Dividend Disbursing Agent 14
Counsel and Independent Auditors ...................... 15
Other Information ..................................... 15
Appendix .............................................. 16
(right column)
L E X I N G T O N
LEXINGTON
CONVERTIBLE
SECURITIES
FUND
(filled box)
(filled box) No Sales Charge
(filled box) No Redemption Fee
(filled box) Free Telephone
Exchange Privilege
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The Lexington Group
of No Load
Investment Companies
P R O S P E C T U S
APRIL 29, 1996
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LEXINGTON CONVERTIBLE SECURITIES FUND
STATEMENT OF ADDITIONAL INFORMATION
APRIL 29, 1996
This statement of additional information which is not a prospectus, should
be read in conjunction with the current prospectus of Lexington Convertible
Securities Fund (the "Fund") dated April 29, 1996, as it may be revised from
time to time. To obtain a copy of the Fund's prospectus at no charge, please
write to the Fund at P.O. Box 1515/Park 80 West - Plaza Two, Saddle Brook, New
Jersey 07663 or call the following toll-free numbers:
Shareholder Services: - 1-800-526-0056
Institutional/Financial Adviser Services - 1-800-367-9160
24 Hour Account Information: - 1-800-526-0052
Lexington Management Corporation ("LMC") serves as the Fund's investment
adviser and Ariston Capital Management Corporation ("ACMC") act as sub-adviser.
Lexington Funds Distributor, Inc. ("LFD") is the Fund's distributor.
TABLE OF CONTENTS
Page
Investment Restrictions ..................................................... 2
Investment Adviser, Sub-Adviser, Distributor and Administrator .............. 2
Tax-Sheltered Retirement Plans .............................................. 4
Portfolio Transactions and Brokerage Commissions ............................ 5
Distribution Plan ........................................................... 5
Tax Matters ................................................................. 6
Performance Calculation ..................................................... 10
Custodian, Transfer Agent and Dividend Disbursing Agent ..................... 10
Management of the Fund ...................................................... 11
High Yield Debt Securities .................................................. 12
Shareholder Reports ......................................................... 13
Other Information ........................................................... 13
Financial Statements ........................................................ 15
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INVESTMENT RESTRICTIONS
The Fund's investment objectives, and the investment restrictions set forth
below, may not be changed without the affirmative vote (defined as the lesser
of: 67% of the shares represented at a meeting at which 50% of the outstanding
shares are present or 50% of the outstanding shares) of the Fund's shareholders.
These restrictions may be summarized as follows:
The Fund may not: (i) issue senior securities; (ii) borrow money, except
that the Fund may borrow from a bank as a temporary measure for extraordinary or
emergency purposes or to meet redemptions in amounts not exceeding 10% (taken at
market value) of its total assets and pledge its assets to secure such
borrowings; the Fund may not purchase additional securities when money borrowed
exceeds 5% of the Fund's assets; (iii) underwrite securities of other issuers;
(iv) concentrate its investments in a particular industry to an extent greater
than 25% of the value of its total assets, provided that such limitation shall
not apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities; (v) purchase or sell real estate, real estate
limited partnerships, commodity contracts or commodities (however, the Fund may
purchase municipal bonds secured by real estate or interest therein and may
purchase interests in mortgage-backed securities); (vi) make loans to other
persons except (a) through the purchase of a portion or portions of an issue or
issues of securities issued or guaranteed by the U.S. Government or its agencies
or (b) through investments in illiquid securities including "repurchase
agreements" (which are arrangements under which the Fund acquires a debt
security subject to an obligation of the seller to repurchase it at a fixed
price within a short period) provided that no more than 10% of the Fund's assets
may be invested in such securities which mature in more than seven days; (vii)
purchase the securities of another investment company or investment trust except
in the open market where no profit results to a sponsor or dealer, other than
the customary broker's commission or by merger or other reorganization; (viii)
purchase any security on margin (except that the Fund may obtain such short-term
credit as may be necessary for the clearance of purchase and sales of portfolio
securities) or effect a non-collateralized short sale of a security; (ix) buy
securities from or sell securities (other than securities issued by the Fund) to
any of its officers, Trustees or LMC, or ACMC as principal; (x) contract to sell
any security or evidence of interest therein, except to the extent that the same
shall be owned by the Fund; (xi) purchase or retain securities of an issuer when
one or more of the officers and Trustees of the Fund or of the officers and
Directors of the LMC or ACMC or a person owning more than 10% of the stock of
either, owning more than 1/2 of 1% of such securities together own beneficially
more than 5% of the securities of such issuer; (xii) invest more than 5% of its
total assets in the securities of any one issuer (except securities issued or
guaranteed by the U.S. Government or its agencies or instrumentalities), except
that such restriction shall not apply to 25% of the Fund's assets; (xiii)
purchase any securities if such purchase would cause the Fund to own at the time
of purchase more than 10% of the outstanding voting securities of any one
issuer; (xiv) purchase any security restricted as to disposition under Federal
securities laws; or securities that are not readily marketable; or purchase any
securities if such purchase would cause the Fund to own at the time of purchase,
illiquid securities, including repurchase agreements with an agreed upon
repurchase date in excess of seven days from the date of acquisition by the
Fund, having an aggregate market value in excess of 10% of the value of the
Fund's total assets; (xv) invest in interests in oil, gas, mineral leases or
other mineral exploration or development programs and (xvi) invest more than 5%
of the value of its total assets in warrants. Warrants which are not listed on
the New York Stock Exchange or on the American Stock Exchange shall not exceed
2% of the Fund's total assets. This restriction on the purchase of warrants does
not apply to warrants attached to or otherwise included in a unit with other
securities. Although the Fund has the right to pledge, mortgage or hypothecate
its assets, the Fund will not, as a matter of operating policy, pledge, mortgage
or hypothecate its portfolio securities to the extent that at any time the
percentage of pledged securities will exceed 10% of the Fund's net assets.
Other Restrictions
The Fund may not invest in securities of an issuer which, together with any
predecessor, has been in operation for less than three years if, as a result,
more than 5% of the value of the total assets of the Fund then would be invested
in such securities.
INVESTMENT ADVISER, SUB-ADVISER, DISTRIBUTOR AND ADMINISTRATOR
Lexington Management Corporation, P.O. Box 1515/Park 80 West Plaza Two,
Saddle Brook, N.J. 07663, is the investment adviser to the Fund and provides
investment advise and in general conducts the management and investment program
of the Fund under the general supervision and control of the Trustees of the
Fund. LMC has entered into a sub-advisory contract with Ariston Capital
Management Corporation, a registered investment adviser under which Ariston will
provide the Fund with certain investment management and administrative services.
Lexington Funds Distributor, Inc. is the Fund's distributor.
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Lexington Global Asset Managers, Inc. is a publicly traded financial
services company. LMC and LFD are wholly-owned subsidiaries of Lexington Global
Asset Managers, Inc. Descendants of Lunsford Richardson, Sr., their spouses,
trusts and related entities have a majority voting control of outstanding shares
of Lexington Global Asset Managers, Inc.
As compensation for its services, the Fund pays LMC a monthly management fee
at the annual rate of 1.00% of the average daily net assets. In connection with
providing investment advisory services, LMC has entered into a sub-advisory
agreement between LMC and ACMC. LMC will pay ACMC a monthly sub-advisory fee at
the annual rate of 0.75% of the average daily net assets of the Fund up to $7
million or 0.50% above $7 million.
LMC serves as investment adviser to other investment companies and private
and institutional investment accounts. LMC from time to time may voluntarily
waive the management fee to which it would otherwise be entitled and may
voluntarily assume certain expenses while retaining the ability to be reimbursed
by the Fund for such amounts prior to the end of the fiscal year.
Ariston was founded in 1977 and provides investment management to client
portfolios that include individuals, corporations, pension and profit sharing
plans and other qualified retirement plan accounts. Ariston is recognized for
its expertise in portfolio management, specializing in convertible securities
and market forecasting.
LMC, as owner of the registered service mark "Lexington", will sublicense
the Fund to include the word "Lexington" as part of its corporate name, subject
to revocation by LMC in the event that the Fund ceases to engage LMC or its
affiliates as investment adviser, sub-adviser or distributor. In that event, the
Fund will be required upon demand of LMC to change its corporate name to delete
the word "Lexington" therefrom.
LMC's investment advisory fee will be reduced for any fiscal year by any
amount necessary to prevent Fund expenses from exceeding the most restrictive
expense limitation imposed by the securities laws or regulations of those states
or jurisdictions in which the Fund's shares are registered or qualified for
sale. Currently, the most restrictive of such expense limitation would require
LMC to reduce its fee so that ordinary expenses (excluding interest, taxes,
brokerage commissions and extraordinary expenses) for any fiscal year do not
exceed 2.5% of the first $30 million of the Fund's average daily net assets,
plus 2.0% of the next $70 million, plus 1.5% of the Fund's average daily net
assets in excess of $100 million. Any expense reduction will be estimated and
accrued daily and will be subject to readjustment during the year. The amount of
any such reduction shall be deducted from the monthly advisory fee, or if such
amount exceeds the monthly fee otherwise payable, LMC will repay such excess
promptly.
Under the terms of the Investment Advisory Agreement, LMC pays the Fund's
expenses for office rent, utilities, telephone, furniture and supplies utilized
for the Fund's principal office and the salaries and payroll expense of officers
and Trustees of the Fund who are employees of LMC or its affiliates in carrying
out its duties under the investment advisory agreement. The Fund pays all its
other expenses including custodian and transfer agent fees, legal fees and other
expenses for registration of the Fund's shares in accordance with Federal or
state securities laws, audit fees, printing of prospectuses, shareholder reports
and communications required for regulatory purposes or for distribution to
existing shareholders, computation of net asset value, mailing of shareholder
reports and communications, portfolio brokerage, taxes and non-interested
Trustees' fees and expenses.
LMC serves as investment adviser to other investment companies and private
and institutional investment accounts. Included among these clients are persons
and organizations which own significant amounts of capital stock of LMC's
parent. LMC's accounts are managed independently with reference to the
applicable investment objectives and current security holdings, but on occasion
more than one fund or counsel account may seek to engage in transactions in the
same security at the same time. To the extent practicable, such transactions
will be effected on a pro-rata basis in proportion to the respective amounts of
securities to be bought and sold for each portfolio, and the allocated
transactions will be averaged as to price. While this procedure may adversely
affect the price or volume of a given Fund transaction, LMC believes that the
ability of the Fund to participate in combined transactions may generally
produce better executions overall.
LMC also acts as administrator to the Fund and performs certain
administrative and internal accounting services, including but not limited to,
maintaining general ledger accounts, regulatory compliance, preparation of
financial information for semiannual and annual reports, preparing registration
statements, calculating net asset values, shareholder communications and
supervision of the custodian, transfer agent and provides facilities for such
services. The Fund shall reimburse LMC for its actual cost in providing such
services, facilities and expenses.
LFD serves as distributor for Fund shares under a Distribution Agreement
between the Fund and LFD pursuant to which LFD acts as the principal selling
representative for the Fund. LFD pays the advertising and sales expenses of the
continuous offering of Fund shares, including the cost of printing prospectuses,
proxies and shareholder reports for persons other than existing shareholders.
The Fund furnishes LFD, at printer's overrun cost paid by LFD, such copies of
its prospectus and annual, semi-annual and other reports and shareholder
communications as may reasonably be required for sales purposes.
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The Advisory Agreement, Sub-Advisory Agreement, the Distribution Agreement
and the Administrative Services Agreement are subject to annual approval by the
Fund's Board of Trustees and by the affirmative vote, cast in person at a
meeting called for such purpose, of a majority of the Trustees who are not
parties either to the Advisory Agreement, Sub-Advisory Agreement or the
Distribution Agreement, as the case may be, or "interested persons" of any such
party. Either the Fund, LMC, ACMC, or LFD may terminate either the Advisory
agreement, Sub-Advisory Agreement or the Distribution Agreement on 60 days'
written notice without penalty. The Advisory Agreement terminates automatically
in the event of assignment, as defined in the Investment Company Act of 1940.
Of the Trustees, executive officers and employees ("affiliated persons") of
the Trust, Messrs. Corniotes, DeMichele, Faust, Hisey, Kantor, Lavery, Luehs and
Petruski and Mmes. Carnicelli, Carr, Curcio, Gilfillan and Mosca (see
"Management of the Fund") may also be deemed affiliates of LMC by virtue of
being officers, Trustees or employees thereof. As of April 1, 1996, all officers
and Trustees of the Fund as a group, were beneficial owners of less than 1% of
the shares of the Fund.
Neither LMC, ACMC, nor LFD shall not be liable to the Fund or its
shareholders for any act or omission by LMC, ACMC, nor LFD its officers,
shareholders except in the case of willful misfeasance, bad faith, gross
negligence or reckless disregard of duty.
Fund Advisory Fee Paid to LMC and the amount paid by LMC to ACMC pursuant to
the Sub-Advisory Agreement:
Fiscal Year
Ended ARISTON LMC
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1993 $54,744 $19,744
1994 53,143 24,819
1995 66,777 31,777
TAX SHELTERED RETIREMENT PLANS
The Fund makes available a variety of Prototype Pension and Profit Sharing
Plans including a 401(k) Salary Reduction Plan and a 403(b)(7) Plan. Plan
services are available by contacting the Shareholder Services Department of the
Distributor at 1-800-526-0056.
INDIVIDUAL RETIREMENT ACCOUNT (IRA): Individuals may make tax deductible
contributions to their own Individual Retirement Accounts established under
Section 408 of the Internal Revenue Code (the "Code"). Married investors filing
a joint return neither of whom is an active participant in an employer sponsored
retirement plan, or who have an adjusted gross income of $40,000 or less
($25,000 or less for single taxpayers) may continue to make a $2,000 ($2,250 for
spousal IRA's) annual deductible IRA contribution. For adjusted gross incomes
over $40,000 ($25,000 for single taxpayers), the IRA deduction limit is
generally phased out ratably over the next $10,000 of adjusted gross income,
subject to a minimum $200 deductible contribution. Investors who are not able to
deduct a full $2,000 ($2,250 spousal) IRA contribution because of the
limitations may make a non-deductible contribution to their IRA to the extent a
deductible contribution is not allowed. Federal income tax on accumulations
earned on non-deductible contributions is deferred until such time as these
amounts are deemed distributed to an investor. Rollovers are also permitted
under the Plan. The Disclosure statement required by the Internal Revenue
Service ("IRS") is provided by the Fund.
The minimum initial investment to establish a tax-sheltered plan through the
Fund is $250 for both Keogh Plans and IRA Plans. Subsequent investments are
subject to a minimum of $50 for each account.
SELF-EMPLOYED RETIREMENT PLAN (HR-10): Self-employed individuals may make
tax deductible contributions to a prototype defined contribution pension plan or
profit sharing plan. There are, however, a number of special rules which apply
when self-employed individuals participate in such plans. Currently purchase
payments under a self-employed plan are deductible only to the extent of the
lesser of (i) $30,000 or (ii) 25% of the individuals earned annual income (as
defined in the Code) and in applying these limitations not more than $200,000 of
"earned income" may be taken into account.
CORPORATE PENSION AND PROFIT SHARING PLANS: The Fund makes available a
Prototype Defined Contribution Pension Plan and a Prototype Profit Sharing Plan.
All purchases and redemptions of Fund shares pursuant to any one of the
Fund's tax sheltered plans must be carried out in accordance with the provisions
of the Plan. Accordingly, all plan documents should be reviewed carefully before
adopting or enrolling in the plan. Investors should especially note that a
penalty tax of 10% may be imposed by the IRS on early withdrawals under
corporate, Keogh or IRA Plans. It is recommended by the IRS that an investor
consult a tax adviser before investing in the Fund through any of these plans.
An investor participating in any of the Fund's special plans has no
obligation to continue to invest in the Fund and may terminate the Plan with the
Fund at any time. Except for expenses of sales and promotion, executive and
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administrative personnel, and certain services which are furnished by LMC, the
cost of the plans generally is borne by the Fund; however, each IRA Plan is
subject to an annual maintenance fee of $12.00 charged by the Agent.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Fund's transactions in convertible securities and most other types of
securities in which it may invest occur primarily with issuers, underwriters or
major dealers acting as principals. Such transactions are normally on a net
basis which do not involve payment of brokerage commissions. Premiums are paid
with respect to options purchased by the Fund. The cost of securities purchased
from an underwriter usually includes a commission paid by the issuer to the
underwriters; transactions with dealers normally reflect the spread between bid
and asked prices. The Fund may also execute transactions through broker-dealers
on a commission basis.
The Fund's primary policy is to execute all purchases and sales of portfolio
instruments at the most favorable prices consistent with best execution,
considering all of the costs of the transaction including brokerage commissions.
This policy governs the selection of brokers and dealers and the market in which
a transaction is executed. Consistent with this policy, the Rules of Fair
Practice of the National Association of Securities Dealers, Inc., and such other
policies as the Trustees may determine, LMC or ACMC may consider sales of shares
of the Fund and of the other Lexington Funds as a factor in the selection of
broker-dealers to execute the Fund's portfolio transactions. However, pursuant
to the Fund's investment management agreement, management consideration may be
given in the selection of broker-dealers to research provided and payment may be
made of a commission higher than that charged by another broker-dealer which
does not furnish research services or which furnishes research services deemed
to be of a lesser value, so long as the criteria of Section 28(e) of the
Securities Exchange Act of 1934 are met. Section 28(e) of the Securities
Exchange Act of 1934 was adopted in 1975 and specifies that a person with
investment discretion shall not be "deemed to have acted unlawfully or to have
breached a fiduciary duty" solely because such person has caused the account to
pay a higher commission than the lowest available under certain circumstances,
provided that the person so exercising investment discretion makes a good faith
determination that the commissions paid are "reasonable in the relation to the
value of the brokerage and research services provided ... viewed in terms of
either that particular transaction or his overall responsibilities with respect
to the accounts as to which he exercises investment discretion."
Currently, it is not possible to determine the extent to which commissions
that reflect an element of value for research services might exceed commissions
that would be payable for execution services alone. Nor generally can the value
of research services to the Fund be measured. Research services furnished might
be useful and of value to LMC or ACMC and its affiliates in serving other
clients as well as the Fund. On the other hand, any research services obtained
by LMC or ACMC or its affiliates from the placement of portfolio brokerage of
other clients might be useful and of value to LMC or ACMC in carrying out its
obligations to the Fund.
For fiscal year ended December 31, 1993, 1994 and 1995, the Fund paid
brokerage commissions of $1,518, $1,496 and $-0-, respectively. The Fund's
portfolio turnover rate for the fiscal years ending December 31, 1993, 1994 and
1995 were respectively, 6.53%, 38.14% and 11.23%.
DISTRIBUTION PLAN
The Fund has adopted a Distribution Plan (the "Plan") in accordance with
Rule 12b-1 under the Investment Company Act of 1940, which provides that the
Fund may pay distribution fees including payments to the Distributor, at an
annual rate not to exceed 0.25% of its average daily net assets for distribution
services.
Distribution payments will be made as follows: The Fund either directly or
through the LMC may make payments periodically (i) to LFD or to any
broker-dealer (a "Broker") who is registered under the Securities Exchange Act
of 1934 and a member in good standing of the National Association of Securities
Dealers, Inc. and who has entered into a Selected Dealer Agreement with the
Distributor, (ii) to other persons or organizations ("Servicing Agents") who
have entered into shareholder processing and service agreements with LMC or with
LFD with respect to Fund shares owned by shareholders for which such Broker is
the dealer or holder of record or such servicing agent has a servicing
relationship, or (iii) for expenses associated with distribution of Fund shares,
including the compensation of the sales personnel of the LFD; payments of no
more than an effective annual rate of 0.25%, or such lesser amounts as LFD
determines appropriate. Payments may also be made for any advertising and
promotional expenses relating to selling efforts, including but not limited to
the incremental costs of printing prospectuses, statements of additional
information, annual reports and other periodic reports for distribution to
persons who are not shareholders of the Fund; the costs of preparing and
distributing any other supplemental sales literature; costs of radio,
television, newspaper and other advertising; telecommunications expenses,
including the cost of telephones, telephone lines and other communications
equipment, incurred by or for LFD in carrying out its obligations under the
Distribution Agreement.
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Quarterly, in each year that this Plan remains in effect, the Fund's
Treasurer shall prepare and furnish to the Trustees of the Fund a written
report, complying with the requirements of Rule 12b-1, setting forth the amounts
expended by the Fund under the Plan and purposes for which such expenditures
were made.
The Plan shall remain in effect for one year from its adoption date and may
be continued thereafter if this Plan and all related agreements are approved at
least annually a majority vote of the Trustees of the Fund, including a majority
of the Qualified Trustees cast in person at a meeting called for the purpose of
voting on such Plan and agreements. This Plan may not be amended in order to
increase materially the amount to be spent for distribution assistance without
shareholder approval. All material amendments to this Plan must be approved by a
vote of the Trustees of the Fund, and of the Qualified Trustees (as hereinafter
defined), cast in person at a meeting called for the purpose of voting thereon.
The Plan may be terminated at any time by a majority vote of the Trustees
who are not interested persons (as defined in Section 2(a)(19) of the 1940 Act)
of the Fund and have no direct or indirect financial interest in the operation
of the Plan or in any agreements related to the Plan (the "Qualified Trustees")
or by vote of a majority of the outstanding voting securities of the Fund, as
defined in Section 2(a)(42) of the 1940 Act.
While this Plan shall be in effect, the selection and nomination of the
"non-interested" Trustees of the Fund shall be committed to the discretion of
the Qualified Trustees then in office.
TAX MATTERS
The following is only a summary of certain additional tax considerations
generally affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussions here and in the
Prospectus are not intended as substitutes for careful tax planning.
Qualification as a Regulated Investment Company
The Fund has elected to be taxed as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). As a
regulated investment company, the Fund is not subject to federal income tax on
the portion of its net investment income (i.e., taxable interest, dividends and
other taxable ordinary income, net of expenses) and capital gain net income
(i.e., the excess of capital gains over capital losses) that it distributes to
shareholders, provided that it distributes at least 90% of its investment
company taxable income (i.e., net investment income and the excess of net
short-term capital gain over net long-term capital loss) for the taxable year
(the "Distribution Requirement"), and satisfies certain other requirements of
the Code that are described below. Distributions by the Fund made during the
taxable year or, under specified circumstances, within twelve months after the
close of the taxable year, will be considered distributions of income and gains
of the taxable year and can therefore satisfy the Distribution Requirement.
In addition to satisfying the Distribution Requirement, a regulated
investment company must: (1) derive at least 90% of its gross income from
dividends, interest, certain payments with respect to securities loans, gains
from the sale or other disposition of stock or securities or foreign currencies
(to the extent such currency gains are directly related to the regulated
investment company's principal business of investing in stock or securities) and
other income (including but not limited to gains from options, futures or
forward contracts) derived with respect to its business of investing in such
stock, securities or currencies (the "Income Requirement"); and (2) derive less
than 30% of its gross income (exclusive of certain gains on designated hedging
transactions that are offset by realized or unrealized losses on offsetting
positions) from the sale or other disposition of stock, securities or foreign
currencies (or options, futures or forward contracts thereon) held for less than
three months (the "Short-Short Gain Test"). However, foreign currency gains,
including those derived from options, futures and forwards, will not in any
event be characterized as Short-Short Gain if they are directly related to the
regulated investment company's investments in stock or securities (or options or
futures thereon). Because of the Short-Short Gain Test, the Fund may have to
limit the sale of appreciated securities that it has held for less than three
months. However, the Short-Short Gain Test will not prevent the Fund from
disposing of investments at a loss, since the recognition of a loss before the
expiration of the three-month holding period is disregarded for this purpose.
Interest (including original issue discount) received by the Fund at maturity or
upon the disposition of a security held for less than three months will not be
treated as gross income derived from the sale or other disposition of such
security within the meaning of the Short-Short Gain Test. However, income that
is attributable to realized market appreciation will be treated as gross income
from the sale or other disposition of securities for this purpose.
In general, gain or loss recognized by the Fund on the disposition of an
asset will be a capital gain or loss. However, gain recognized on the
disposition of a debt obligation purchased by the Fund at a market discount
(generally, at a price
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less than its principal amount) will be treated as ordinary income to the extent
of the portion of the market discount which accrued during the period of time
the Fund held the debt obligation. In addition, under the rules of Code Section
988, gain or loss recognized on the disposition of a debt obligation denominated
in a foreign currency or an option with respect thereto (but only to the extent
attributable to changes in foreign currency exchange rates), and gain or loss
recognized on the disposition of a foreign currency forward contract, futures
contract, option or similar financial instrument, or of foreign currency itself,
except for regulated futures contracts or non-equity options subject to Code
Section 1256 (unless the Fund elects otherwise), will generally be treated as
ordinary income or loss.
In general, for purposes of determining whether capital gain or loss
recognized by the Fund on the disposition of an asset is long-term or
short-term, the holding period of the asset may be affected if (1) the asset is
used to close a "short sale" (which includes for certain purposes the
acquisition of a put option) or is substantially identical to another asset so
used, (2) the asset is otherwise held by the Fund as part of a "straddle" (which
term generally excludes a situation where the asset is stock and the Fund grants
a qualified covered call option (which, among other things, must not be
deep-in-the-money) with respect thereto) or (3) the asset is stock and the Fund
grants an in-the-money qualified covered call option with respect thereto.
However, for purposes of the Short-Short Gain Test, the holding period of the
asset disposed of may be reduced only in the case of clause (1) above. In
addition, the Fund may be required to defer the recognition of a loss on the
disposition of an asset held as part of a straddle to the extent of any
unrecognized gain on the offsetting position.
Any gain recognized by the Fund on the lapse of, or any gain or loss
recognized by the Fund from a closing transaction with respect to, an option
written by the Fund will be treated as a short-term capital gain or loss. For
purposes of the Short-Short Gain Test, the holding period of an option written
by the Fund will commence on the date it is written and end on the date it
lapses or the date a closing transaction is entered into. Accordingly, the Fund
may be limited in its ability to write options which expire within three months
and to enter into closing transactions at a gain within three months of the
writing of options.
Transactions that may be engaged in by the Fund (such as regulated futures
contracts, certain foreign currency contracts, and options on stock indexes and
futures contracts) will be subject to special tax treatment as "Section 1256
contracts." Section 1256 contracts are treated as if they are sold for their
fair market value on the last business day of the taxable year, even though a
taxpayer's obligations (or rights) under such contracts have not terminated (by
delivery, exercise, entering into a closing transaction or otherwise) as of such
date. Any gain or loss recognized as a consequence of the year-end deemed
disposition of Section 1256 contracts is taken into account for that year
together with any other gain or loss that was previously recognized upon the
termination of Section 1256 contracts during the year. Any capital gain or loss
for the taxable year with respect to Section 1256 contracts (including any
capital gain or loss arising as a consequence of the year-end deemed sale of
such contracts) is generally treated as 60% long-term capital gain or loss and
40% short-term capital gain or loss. The Fund, however, may elect not to have
this special tax treatment apply to Section 1256 contracts that are part of a
"mixed straddle" with other investments of the Fund that are not Section 1256
contracts. The IRS has held in several private rulings (and Treasury Regulations
now provide) that gains arising from Section 1256 contracts as a result of a
constructive sale under Code Section 1256 will be treated for purposes of the
Short-Short Gain Test as being derived from securities held for not less than
three months.
Treasury Regulations permit a regulated investment company, in determining
its investment company taxable income and net capital gain (i.e., the excess of
net long-term capital gain over net short-term capital loss) for any taxable
year, to elect (unless it has made a taxable year election for excise tax
purposes as discussed below) to treat all or any part of any net capital loss,
any net long-term capital loss or any net foreign currency loss incurred after
October 31 as if it had been incurred in the succeeding year.
In addition to satisfying the requirements described above, the Fund must
satisfy an asset diversification test in order to qualify as a regulated
investment company. Under this test, at the close of each quarter of the Fund's
taxable year, at least 50% of the value of the Fund's assets must consist of
cash and cash items, U.S. Government securities, securities of other regulated
investment companies, and securities of other issuers (as to which the Fund has
not invested more than 5% of the value of its total assets in securities of such
issuer and as to which the Fund does not hold more than 10% of the outstanding
voting securities of such issuer), and no more than 25% of the value of its
total assets may be invested in the securities of any one issuer (other than
U.S. Government securities and securities of other regulated investment
companies), or in two or more issuers which the Fund controls and which are
engaged in the same or similar trades or businesses. Generally, an option (a
call or a put) with respect to a security is treated as issued by the issuer of
the security not the issuer of the option.
If for any taxable year the Fund does not qualify as a regulated investment
company, all of its taxable income (including its net capital gain) will be
subject to tax at regular corporate rates without any deduction for
distributions to shareholders, and such distributions will be taxable to the
shareholders as ordinary dividends to the extent of the Fund's
7
<PAGE>
current and accumulated earnings and profits. Such distributions generally will
be eligible for the dividends-received deduction in the case of corporate
shareholders.
Excise Tax on Regulated Investment Companies
A 4% non-deductible excise tax is imposed on a regulated investment company
that fails to distribute in each calendar year an amount equal to 98% of
ordinary taxable income for the calendar year and 98% of capital gain net income
for the one-year period ended on October 31 of such calendar year (or, at the
election of a regulated investment company having a taxable year ending November
30 or December 31, for its taxable year (a "taxable year election")). The
balance of such income must be distributed during the next calendar year. For
the foregoing purposes, a regulated investment company is treated as having
distributed any amount on which it is subject to income tax for any taxable year
ending in such calendar year.
For purposes of the excise tax, a regulated investment company shall: (1)
reduce its capital gain net income (but not below its net capital gain) by the
amount of any net ordinary loss for the calendar year; and (2) exclude foreign
currency gains and losses incurred after October 31 of any year (or after the
end of its taxable year if it has made a taxable year election) in determining
the amount of ordinary taxable income for the current calendar year (and,
instead, include such gains and losses in determining ordinary taxable income
for the succeeding calendar year).
The Fund intends to make sufficient distributions or deemed distributions of
its ordinary taxable income and capital gain net income prior to the end of each
calendar year to avoid liability for the excise tax. However, investors should
note that the Fund may in certain circumstances be required to liquidate
portfolio investments to make sufficient distributions to avoid excise tax
liability.
Fund Distributions
The Fund anticipates distributing substantially all of its investment
company taxable income for each taxable year. Such distributions will be taxable
to shareholders as ordinary income and treated as dividends for federal income
tax purposes, but they will qualify for the 70% dividends-received deduction for
corporate shareholders only to the extent discussed below.
The Fund may either retain or distribute to shareholders its net capital
gain for each taxable year. The Fund currently intends to distribute any such
amounts. If net capital gain is distributed and designated as a capital gain
dividend, it will be taxable to shareholders as long-term capital gain,
regardless of the length of time the shareholder has held his shares or whether
such gain was recognized by the Fund prior to the date on which the shareholder
acquired his shares.
Conversely, if the Fund elects to retain its net capital gain, the Fund will
be taxed thereon (except to the extent of any available capital loss carryovers)
at the 35% corporate tax rate. If the Fund elects to retain its net capital
gain, it is expected that the Fund also will elect to have shareholders of
record on the last day of its taxable year treated as if each received a
distribution of his pro rata share of such gain, with the result that each
shareholder will be required to report his pro rata share of such gain on his
tax return as long-term capital gain, will receive a refundable tax credit for
his pro rata share of tax paid by the Fund on the gain, and will increase the
tax basis for his shares by an amount equal to the deemed distribution less the
tax credit.
Ordinary income dividends paid by the Fund with respect to a taxable year
will qualify for the 70% dividends-received deduction generally available to
corporations (other than corporations, such as S corporations, which are not
eligible for the deduction) to the extent of the amount of qualifying dividends
received by the Fund from domestic corporations for the taxable year. The
dividends-received deduction for a corporate shareholder may be disallowed or
reduced pursuant to the limitations of section 246 of the Code.
Investment income that may be received by the Fund from sources within
foreign countries may be subject to foreign taxes withheld at the source. The
United States has entered into tax treaties with many foreign countries which
entitle the Fund to a reduced rate of, or exemption from, taxes on such income.
It is impossible to determine the effective rate of foreign tax in advance since
the amount of the Fund's assets to be invested in various countries is not
known.
Distributions by the Fund that do not constitute ordinary income dividends
or capital gain dividends will be treated as a return of capital to the extent
of (and in reduction of) the shareholder's tax basis in his shares; any excess
will be treated as gain realized from a sale of the shares, as discussed below.
Distributions by the Fund will be treated in the manner described above
regardless of whether such distributions are paid in cash or reinvested in
additional shares of the Fund (or of another fund). Shareholders receiving a
distribution in the form of additional shares will be treated as receiving a
distribution in an amount equal to the fair market value of the shares received,
determined as of the reinvestment date. In addition, if the net asset value at
the time a shareholder
8
<PAGE>
purchases shares of the Fund reflects realized but undistributed income or gain,
or unrealized appreciation in the value of assets held be the Fund,
distributions of such amounts to the shareholder will be taxable in the manner
described above, although economically they constitute a return of capital to
the shareholder.
Ordinarily, shareholders are required to take distributions by the Fund into
account in the year in which they are made. However, dividends declared in
October, November or December of any year and payable to shareholders of record
on a specified date in such a month will be deemed to have been received by the
shareholders (and made by the Fund) on December 31 of such calendar year
provided such dividends are actually paid in January of the following year.
Shareholders will be advised annually as to the U.S. federal income tax
consequences of distributions made (or deemed made) during the year.
The Fund will be required in certain cases to withhold and remit to the U.S.
Treasury 31% of distributions and the proceeds of redemption of shares, paid to
any shareholder (1) who has provided either an incorrect tax identification
number or no number at all, (2) who is subject to backup withholding by the IRS
for failure to report the receipt of interest or dividend income properly, or
(3) who has failed to certify to the Fund that it is not subject to backup
withholding or that it is a corporation or other "exempt recipient."
Sale or Redemption of Shares
A shareholder will recognize gain or loss on a sale or redemption of shares
of the Fund in an amount equal to the difference between the proceeds of the
sale or redemption and the shareholder's adjusted tax basis in the shares. All
or a portion of any loss so recognized may be disallowed if the shareholder
purchases other shares of the Fund within 30 days before or after the sale or
redemption. In general, any gain or loss arising from (or treated as arising
from) the sale or redemption of shares of the Fund will be considered capital
gain or loss and will be long-term capital gain or loss if the shares were held
for longer than one year. However, any capital loss arising from the sale or
redemption of shares held for six months or less will be treated as a long-term
capital loss to the extent of the amount of capital gain dividends received on
such shares. For this purpose, the special holding period rules of Code Section
246(c)(3) and (4) generally will apply in determining the holding period of
shares. Long-term capital gains of noncorporate taxpayers are currently taxed at
a maximum rate 11.6% lower than the maximum rate applicable to ordinary income.
Capital losses in any year are deductible only to the extent of capital gains
plus, in the case of a noncorporate taxpayer, $3,000 of ordinary income.
Foreign Shareholders
Taxation of a shareholder who, as to the United States, is a nonresident
alien individual, foreign trust or estate, foreign corporation, or foreign
partnership ("foreign shareholder"), depends on whether the income from the Fund
is "effectively connected" with a U.S. trade or business carried on by such
shareholder.
If the income from the Fund is not effectively connected with a U.S. trade
or business carried on by a foreign shareholder, ordinary income dividends paid
to a foreign shareholder will be subject to U.S. withholding tax at the rate of
30% (or lower treaty rate) upon the gross amount of the dividend. A foreign
shareholder would generally be exempt from U.S. federal income tax on gains
realized on a sale of shares of the Fund, capital gain dividends and amounts
retained by the Fund that are designated as undistributed capital gains.
If the income from the Fund is effectively connected with a U.S. trade or
business carried on by a foreign shareholder, then ordinary income and capital
gain dividends, and any gains realized upon a sale of shares of the Fund will be
subject to U.S. federal income tax at the rates applicable to U.S. citizens or
domestic corporations.
In the case of foreign noncorporate shareholders, the Fund may be required
to withhold U.S. federal income tax at a rate of 31% on distributions that are
otherwise exempt from withholding tax (or taxable at a reduced treaty rate)
unless the shareholder furnishes the Fund with proper notification of its
foreign status.
The tax consequences to a foreign shareholder entitled to claim the benefits
of an applicable tax treaty may be different from those described herein.
Foreign shareholders are urged to consult their own tax advisers with respect to
the particular tax consequences to them of an investment in the Fund, including
the applicability of foreign taxes.
Effect of Future Legislation; Local Tax Considerations
The foregoing general discussion of U.S. federal income tax consequences is
based on the Code and the Treasury Regulations issued thereunder as in effect on
the date of this Statement of Additional Information. Future legislative or
administrative changes or court decisions may significantly change the
conclusions expressed herein, and any such changes or decisions may have a
retroactive effect with respect to the transactions contemplated herein.
9
<PAGE>
Rules of state and local taxation of ordinary income and capital gain
dividends from regulated investment companies often differ from the rules for
U.S. federal income taxation described above. Shareholders are urged to consult
their tax advisers as to the consequences of these and other state and local tax
rules affecting an investment in the Fund.
PERFORMANCE CALCULATION
For purposes of quoting and comparing the performance of the Fund to that of
other mutual funds and to other relevant market indices in advertisements or in
reports to shareholders, performance may be stated in terms of total return.
Under the rules of the Securities and Exchange Commission ("SEC rules"), funds
advertising performance must include total return quotes calculated according to
the following formula:
P(1 + T)n = ERV
Where: P = a hypothetical initial payment of $1000
T = average annual total return
n = number of years (1, 5 or 10)
ERV = ending redeemable value of a hypothetical $1,000 payment
made at the beginning of the 1, 5 or 10 year periods
at the end of the 1, 5 and 10 year periods
(or fractional portion thereof).
Under the foregoing formula, the time periods used in advertising will be
based on rolling calendar quarters, updated to the last day of the most recent
quarter prior to submission of the advertising for publication, and will cover
one, five, and ten year periods or a shorter period dating from the
effectiveness of the Fund's Registration Statement. In calculating the ending
redeemable value, all dividends and distributions by the Fund are assumed to
have been reinvested at the net asset value as described in the Prospectus on
the reinvestment dates during the period. The total return, or "T" in the
formula above, is computed by finding the average annual compounded rates of
return over the 1, 5 and 10 year periods (or fractional portion thereof) that
would equate the initial amount invested to the ending redeemable value. Any
recurring account charges that might in the future be imposed by the Fund would
be included at that time. Lexington Convertible Securities Fund's total return
for the one and five year and since inception (1/20/88) December 31, 1995 is a
follows:
Average Annual
Period Total Return
------ ------------
1 year ended December 31, 1995 ................... 18.63%
5 years ended December 31, 1995 .................. 15.94%
95 months ended December 31, 1995 ................ 11.11%
The Fund may also, from time to time, include in such advertising a total
return figure that is not calculated according to the formula set forth above in
order to compare more accurately the performance of the Fund with other measures
of investment return. For example, in comparing the Fund's total return with
data published by Lipper Analytical Services, Inc., or with the performance of
the Standard & Poor's 500 Composite Stock Price Index or the Dow Jones
Industrial Average, the Fund calculates its aggregate total return for the
specified periods of time by assuming the reinvestment of each dividend or other
distribution at net asset value on the reinvestment date. Percentage increases
are determined by subtracting the initial value of the investment from the
ending value and by dividing the remainder by the beginning value.
CUSTODIAN, TRANSFER AGENT AND DIVIDEND DISBURSING AGENT
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York, New York
10036 has been retained to act as the Custodian for the Fund's portfolio
securities. State Street Bank and Trust Company, 225 Franklin Street, Boston,
Massachusetts 02181 has been retained to act as the transfer agent and dividend
disbursing agent. Neither Chase Manhattan Bank, N.A. nor State Street Bank and
Trust Company have any part in determining the investment policies of the Fund
or in determining which portfolio securities are to be purchased or sold by the
Fund or in the declaration of dividends and distributions.
10
<PAGE>
MANAGEMENT OF THE FUND
The Fund's trustees and executive officers and their principal occupations
are:
*+ROBERT M. DEMICHELE, Chairman. P.O. Box 1515 Saddle Brook, N.J. 07663.
Chairman and Chief Executive Officer, Lexington Management Corporation;
Chairman and Chief Executive Officer, Lexington Funds Distributor, Inc.,
President and Director, Lexington Global Asset Managers, Inc.; Director,
Unione Italiana Reinsurance; Vice Chairman of the Board of Trustees, Union
College; Director, The Navigator's Group, Inc.; Lexington Capital
Management, Inc.; Chairman, LCM Financial Services, Inc.; Director, Vanguard
Cellular Systems, Inc.; Chairman of the Board, Market Systems Research, Inc.
and Market Systems Research Advisors, Inc. (registered investment advisers);
Trustee, Smith Richardson Foundation.
+BEVERLEY C. DUER, Trustee, 340 East 72nd Street, New York, N.Y. 10021. Private
Investor. Formerly, Manager of Operations Research Department, CPC
International, Inc.
JERARD F. MAHER, Trustee. 300 Raritan Center Parkway, Edison, New Jersey
08818. General Counsel, Federal Business Center.
+RICHARD B. RUSSELL, Trustee and President. 40 Lake Bellevue Drive, Suite 220,
Bellevue, Washington 98005. President, ACMC Capital Management Corporation
(investment adviser).
ALLAN H. STOWE, Trustee. 3674 Fifth and Ocean Avenues, Normandy Beach, New
Jersey 08739. President, Shelter Service Company, Inc.; President, Dartmouth
Co-operative Society Co., Inc.; Director, Manchester Trust Bank.
*+LAWRENCE KANTOR, Vice President. P.O. Box 1515, Saddle Brook, N.J. 07663.
Executive Vice President, Managing Director and Director, Lexington
Management Corporation; Executive Vice President and Director, Lexington
Funds Distributor, Inc.; Executive Vice President and General Manager-Mutual
Funds, Lexington Global Asset Managers, Inc.
*+LISA CURCIO, Vice President and Secretary. P.O. Box 1515, Saddle Brook, New
Jersey 07663. Senior Vice President and Secretary, Lexington Management
Corporation; Secretary, Lexington Group of Investment Companies; Vice
President and Secretary, Lexington Funds Distributor, Inc.; Secretary,
Lexington Global Asset Managers, Inc.
*+RICHARD M. HISEY, Vice President and Chief Financial Officer. P.O. Box 1515,
Saddle Brook, N.J. 07663. Chief Financial Officer, Managing Director and
Director, Lexington Management Corporation; Chief Financial Officer, Vice
President and Director, Lexington Funds Distributor, Inc.; Chief Financial
Officer, Market Systems Research Advisors, Inc.; Executive Vice President
and Chief Financial Officer, Lexington Global Asset Managers, Inc.
*+RICHARD J. LAVERY, CLU ChFC, Vice President, P.O. Box 1515, Saddle Brook, N.J.
07663. Senior Vice President, Lexington Management Corporation; Vice
President, Lexington Funds Distributor, Inc.
*+JANICE A. CARNICELLI, Vice President. P.O. Box 1515, Saddle Brook, N.J. 07663.
*+CHRISTIE CARR, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to October 1992, Senior Accountant, KPMG Peat Marwick LLP.
*+SIOBHAN GILFILLAN, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J.
07663.
*+THOMAS LUEHS, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to November, 1993, Supervisor Investment Accounting, Alliance Capital
Management, Inc.
*+SHERI MOSCA, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
*+ANDREW PETRUSKI, Assistant Treasurer. P.O. Box 1515, Saddle Brook, N.J. 07663.
Prior to May 1994, Supervising Senior Accountant, NY Life Securities. Prior
to December 1990, Senior Accountant, Dreyfus Corporation.
*+PETER CORNIOTES, Assistant Secretary, P.O. Box 1515, Saddle Brook, N.J. 07663.
Assistant Secretary, Lexington Management Corporation. Assistant Secretary,
Lexington Funds Distributor, Inc.
*+ENRIQUE J. FAUST, Assistant Secretary. P.O. Box 1515, Saddle Brook, N.J.
07663. Prior to March 1994, Blue Sky Compliance Coordinator, Lexington Group
of Investment Companies.
- -------------
*"Interested person" and/or "Affiliated person" of LMC or ACMC as defined in the
Investment Company Act of 1940, as amended.
+Messrs. Corniotes, DeMichele, Duer, Faust, Hisey, Kantor, Lavery, Luehs,
Petruski and Mmes. Carnicelli, Carr, Curcio, Gilfillan and Mosca hold similar
offices with some or all of the other registered investment companies advised
and/or distributed by LMC and LFD.
Trustees of the Fund not employed by the Fund or its affiliates receive an
annual fee of $600 and a fee of $150 for each meeting attended plus
reimbursement of expenses for attendance at regular meetings. During the fiscal
year ended December 31, 1995, the aggregate remuneration paid by the Fund to
three such Trustees not employed by the Fund's affiliates was $10,656.
11
<PAGE>
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
Aggregate Total Compensation From Number of
Name of Director Compensation from Fund and Fund Complex Directorships in Fund
Fund Complex
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert M. DeMichele $0 $0 15
- ----------------------------------------------------------------------------------------------
Beverley C. Duer 2,000 22,616 15
- ----------------------------------------------------------------------------------------------
Jerard Maher 2,000 2,000 1
- ----------------------------------------------------------------------------------------------
Richard Russell 0 0 1
- ----------------------------------------------------------------------------------------------
Allen Stowe 2,000 2,000 1
- ----------------------------------------------------------------------------------------------
</TABLE>
HIGH YIELD DEBT SECURITIES
Additional Risks
The widespread expansion of government, consumer and corporate debt within
our economy has made the corporate sector, especially cyclically sensitive
industries, more vulnerable to economic downturns or increased interest rates.
An economic downturn could severely disrupt the market for high yield securities
and adversely affect the value of outstanding securities and the ability of the
issuers to repay principal and interest.
The prices of high yield securities have been found to be less sensitive to
interest rate changes than higher-rated investments, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or substantial period of rising interest rates, highly
leveraged issuers may experience financial stress which would adversely affect
their ability to service their principal and interest payment obligations, to
meet projected business goals, and to obtain additional financing. If the issuer
of a security owned by the Fund defaulted, the Fund could incur additional
expenses to seek recovery. In addition, periods of economic uncertainty and
changes can be expected to result in increased volatility of market prices of
high yield securities and the Fund's net asset value. Furthermore, in the case
of high yield securities structured as zero coupon or pay-in-kind securities,
their market prices are affected to a greater extent by interest rate changes
and thereby tend to be more volatile than securities which pay interest
periodically and in cash. High yield securities also present risks based on
payment expectations. For example, high yield securities may contain redemption
of call provisions. If an issuer exercises these provisions in a declining
interest rate market, the Fund would have to replace the security with a lower
yielding security, resulting in a decreased return for investors. Conversely, a
high yield securities value will decrease in a rising interest rate market, as
will the value of the Fund's assets. If the Fund experiences unexpected net
redemption, this may force it to sell its high yield securities without regard
to their investment merits, thereby decreasing the asset based upon which the
Fund's expenses can be spread and possibly reducing the Fund's rate of return.
In addition, to the extent that there is no established retail secondary
market, there may be thin trading of high yield securities, and this may have an
impact on LMC's and ACMC's ability to accurately value high yield securities and
the Fund's assets and on the Fund's ability to dispose of the securities.
Adverse publicity and investor perception, whether or not based on fundamental
analysis, may decrease the values and liquidity of high yield securities
especially in a thinly traded market.
New laws and proposed new laws may have an impact on the market for high
yield securities. For example, new legislation requiring federally-insured
savings and loan associations to divest their investments in high yield
securities and pending proposals designed to limit the use, or tax and other
advantages of high yield securities which, if enacted, could have a material
effect on the Fund's net asset value and investment practices.
There are also special tax considerations associated with investing in high
yield securities structured as zero coupon or pay-in-kind securities. For
example, the Fund reports the interest on these securities as income even though
it receives no cash interest until the security's maturity or payment date.
Also, the shareholders are taxed on this interest event if the Fund does not
distribute cash to them. Therefore, in order to pay taxes on this interest,
shareholders may have to redeem some of their shares to pay the tax or the Fund
may sell some of its assets to distribute cash to shareholders. These actions
are likely to reduce the Fund's assets and may thereby increase its expense
ratio and decrease its rate of return.
Finally, there are risks involved in applying credit ratings as a method for
evaluating high yield securities. For example, credit ratings evaluate the
safety of principal and interest payments, not market value risk of high yield
securities. Also, since credit rating agencies may fail to timely change the
credit ratings to reflect subsequent events, the
12
<PAGE>
Fund (in conjunction with its investment adviser) will continuously monitor the
issuers of high yield securities to determine if the issuers will have
sufficient cash flow and profits to meet required principal and interest
payments, and to assure the securities liquidity so the Fund can meet redemption
requests.
SHAREHOLDER REPORTS
Shareholders will receive reports at least semi-annually showing the Fund's
holding and other information. In addition, shareholder reports received on an
annual basis will include financial statements audited by KPMG Peat Marwick LLP
Fund's independent auditors.
OTHER INFORMATION
As of March 8, 1996, the following persons were known by the Fund management
to have owned beneficially, directly or indirectly, five percent or more of the
outstanding shares of the Lexington Convertible Securities Fund: Louis Baroh,
2200 6th Avenue, Seattle, WA 98121, 12% and Joseph B. Mohr, 2157 La Paz Way,
Palm Springs, CA 92264, 8%.
13
<PAGE>
Independent Auditors' Report
The Board of Trustees and Shareholders
Lexington Convertible Securities Fund:
We have audited the accompanying statements of net assets (including the
portfolio of investments) and assets and liabilities of Lexington Convertible
Securities Fund as of December 31, 1995, the related statement of operations for
the year then ended, the statements of changes in net assets for each of the
years in the two-year period then ended, and the financial highlights for the
four-year period then ended. These financial statements and financial highlights
are the responsibility of the Fund's management. Our responsibility is to
express an opinion on these financial statements and financial highlights based
on our audits. The financial highlights for the year ended December 31, 1991
were audited by other auditors whose reports thereon, dated January 18, 1992,
expressed an unqualified opinion.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
December 31, 1995, by correspondence with the custodian and brokers. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Lexington Convertible Securities Fund as of December 31, 1995, the results of
its operations for the year then ended, the changes in its net assets for each
of the years in the two-year period then ended, and the financial highlights for
the four-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
New York, New York
January 29, 1996
14
<PAGE>
Lexington Convertible Securities Fund
Statement of Net Assets
(Including the Portfolio of Investments)
December 31, 1995
(Left Column)
Number of
Shares or
Principal Value
Amount Security Description (Note 1)
- --------------------------------------------------------------------------------
CONVERTIBLE BONDS: 41.5%
Computer Software & Services: 9.3%
$ 875,000 Automatic Data Processing Services, Inc.
0.00%1, due 02/20/2012 ............................ $ 427,656
300,000 Sterling Software, Inc.,
5.75%, due 02/01/2003 ............................. 660,045
----------
1,087,701
----------
Consumer Products: 3.2%
400,000 McKesson Corporation
(Armor All Products),
4.50%, due 03/01/2004 ............................. 375,000
----------
Diversified Companies: 5.0%
240,000 Thermo Electron Corporation,
4.625%, due 08/01/1997 ............................ 580,469
----------
Financial Services Industry: 4.5%
325,000 First Financial Management Corporation,
(First Data Corporation), 5.00%,
due 12/15/1999 .................................... 530,969
----------
Industrial Services: 3.6%
365,000 Olsten Corporation,
4.875%, due 05/15/03 .............................. 423,400
----------
Machinery: 4.2%
350,000 Raymond Corporation,
6.50%, due 12/15/03 ............................... 484,750
----------
Retail Stores (Specialty line): 4.1%
500,000 Pep Boys Corporation,
4.00%, due 09/01/1999 ............................. 480,000
----------
Telecommunications Service: 4.0%
1,300,000 United States Cellular Corporation,
0.00%1, due 06/15/15 .............................. 463,125
----------
Toys: 3.6%
1,205,000 Time Warner, Inc. (Hasbro),
0.00%1, due 12/17/2012 ............................ 415,725
----------
TOTAL CONVERTIBLE BONDS
(cost $3,917,712) ................................. 4,841,139
----------
(Right Column)
Number of
Shares or
Principal Value
Amount Security Description (Note 1)
- --------------------------------------------------------------------------------
COMMON STOCKS: 20.9%
Electronics: 3.3%
8,604 Avnet, Inc. ......................................... $ 385,029
----------
Medical Services: 2.7%
8,392 Salick Health Care, Inc. ............................ 312,602
----------
Mobile Homes: 14.9%
46,872 Clayton Homes, Inc. ................................. 1,001,900
18,997 Oakwood Homes Corporation ........................... 729,009
----------
1,730,909
----------
TOTAL COMMON STOCKS
(cost $773,401) .................................... 2,428,540
TOTAL LONG-TERM INVESTMENTS ......................... 7,269,679
SHORT-TERM INVESTMENTS: 37.6%
U.S. Government Obligations
$ 500,000 U.S. Treasury Bills
5.28%, due 01/04/96 ............................... 499,780
1,400,000 U.S. Treasury Bills
5.33% due 01/04/96 ................................ 1,399,378
100,000 U.S. Treasury Bills
5.29% due 02/08/96 ................................ 99,442
900,000 U.S. Treasury Bills
5.33% due 02/29/96 ................................ 892,138
700,000 U.S. Treasury Bills
4.29% due 03/14/96 ................................ 693,016
400,000 U.S. Treasury Bills
5.23% due 03/14/96 ................................ 395,836
400,000 U.S. Treasury Bills
5.295% due 05/09/96 ............................... 392,621
----------
TOTAL SHORT-TERM INVESTMENTS
(cost $4,371,923) ................................. 4,372,211
----------
TOTAL INVESTMENTS: 100.0%
(cost $9,063,036+) (Note 1) ......................... 11,641,890
Liabilities in excess of other assets ................ (1,329)
----------
TOTAL NET ASSETS: 100.0%
(equivalent to $13.66 per share
on 852,134 shares outstanding) .................. $11,640,561
===========
1Zero Coupon Bonds.
+Aggregate cost for Federal income tax purposes is identical.
The Notes to Financial Statements are an integral part of this statement.
15
<PAGE>
Lexington Convertible Securities Fund
Statement of Assets and Liabilities
December 31, 1995 (unaudited)
<TABLE>
<S> <C>
Assets
Investments, at value (cost $9,063,036) (Note 1) .............................................. $11,641,890
Cash .......................................................................................... 43,758
Receivable for shares sold .................................................................... 5,750
Dividends and interest receivable ............................................................. 30,960
-----------
Total Assets .......................................................................... 11,722,358
-----------
Liabilities
Due to Lexington Management Corporation (Note 2) .............................................. 9,240
Payable for shares redeemed ................................................................... 3,822
Accrued expenses .............................................................................. 41,518
Distribution payable .......................................................................... 27,217
-----------
Total Liabilities ..................................................................... 81,797
-----------
Net Assets (equivalent to $13.66 per share on 852,134 shares outstanding) (Note 5) ............ $11,640,561
===========
Net Assets consist of:
Capital stock-unlimited number of shares of beneficial interest; $.10 par value per share ..... $ 85,213
Additional paid-in capital (Note 1) ........................................................... 8,972,198
Undistributed net investment income ........................................................... 4,296
Net unrealized appreciation of investments .................................................... 2,578,854
-----------
NET ASSETS ............................................................................ $11,640,561
===========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
16
<PAGE>
Left Col.
Lexington Convertible Securities Fund
Statement of Operations
Year ended December 31, 1995
Investment Income
Income
Dividends ........................ $ 12,534
Interest ......................... 357,879
---------
Total investment income ........ $ 370,413
Expenses
Investment advisory fee
(Note 2) ....................... 98,554
Accounting and shareholder
expenses (Note 2) .............. 17,035
Custodian and transfer agent
expenses ....................... 18,003
Printing and mailing ............. 24,075
Directors' fees and expenses ..... 10,656
Audit and legal .................. 18,515
Registration fees ................ 18,450
Distribution fees (Note 3) ....... 24,638
Computer processing fees ......... 7,741
Other expenses ................... 10,554
---------
Total expenses ................. 248,221
----------
Net investment income ........ 122,192
Realized and Unrealized Gain
on Investments (Note 4)
Net realized gain on
investments .................... 214,468
Net change in unrealized
appreciation on
investments .................. 1,367,719
----------
Net realized and unrealized
gain on investments ........ 1,582,187
----------
Increase in Net Assets Resulting
from Operations .................. $1,704,379
==========
The Notes to Financial Statements are an integral part of these statements.
17
Right Col.
Lexington Convertible Securities Fund
Statements of Changes in Net Assets
Years ended December 31, 1995 and 1994
1995 1994
----------- ----------
Net investment income ....................... $ 122,192 $ 43,322
Net realized gain from investment
transactions .............................. 214,468 1,345,654
Increase (decrease) in unrealized
appreciation of investments ............... 1,367,719 (1,290,437)
----------- ----------
Net increase in net assets
resulting from operations ........... 1,704,379 98,539
Distributions to shareholders
from net investment income ................ (122,375) (38,843)
Distributions to shareholders
from net realized gains on
security transactions ..................... (187,645) (1,345,654)
Distributions to shareholders
in excess of net realized gains
on security transactions
(Note 1) .................................. - (30,554)
Increase in net assets from capital
share transactions (Note 5) ............... 2,128,812 1,115,202
----------- ----------
Net increase (decrease)
in net assets ......................... 3,523,171 (201,310)
Net Assets
Beginning of period ....................... 8,117,390 8,318,700
----------- ----------
End of period (including
undistributed net investment
income of $4,296 and
$4,479, respectively) .................. $11,640,561 $8,117,390
=========== ==========
<PAGE>
Lexington Convertible Securities Fund
Notes to Financial Statements
December 31, 1995 and 1994
1. Significant Accounting Policies
Lexington Convertible Securities Fund (the "Fund") is an open end diversified
management investment company registered under the Investment Company Act of
1940, as amended. The Fund's investment objective is total return which it seeks
to achieve by providing capital appreciation, current income and conservation of
the shareholders capital. The following is a summary of significant accounting
policies followed by the Fund in the preparation of its financial statements:
Investments As authorized by the Trustees, securities are valued on the
basis of valuations furnished by a pricing service which determines valuations
based upon market transactions for normal institutional-size trading units of
such securities. Debt securities are valued at the mean between the current bid
and asked price. Equity securities listed on a national securities exchange are
valued at the last reported sales price; if no sales price is reported for that
day the mean between the current bid and asked price is used. Over-the-counter
securities are valued at the mean of the latest bid and asked prices. Securities
for which market quotations are not readily available and other securities are
valued at fair value as determined by management and approved in good faith by
the Board of Trustees. Short-term securities having a maturity of 60 days or
less are valued at amortized cost, which approximates market value.
Security transactions are accounted for on the trade date. The Fund records
interest income on an accrual basis. In computing net investment income, the
Fund amortizes premiums and does not accrue discounts on convertible fixed
income securities in the portfolio. Dividend income and distributions to
shareholders are recorded on the ex-dividend date.
Federal Income Taxes It is the Fund's intention to qualify as a regulated
investment company and distribute all of its taxable income. Accordingly, no
provision for Federal income taxes has been made.
Distributions In accordance with Statement of Position 93-2: Determination,
Disclosure and Financial Statement Presentation of Income, Capital Gain and
Return of Capital Distributions by Investment Companies, as of December 31,
1995, book and tax basis differences amounting to $3,731 have been reclassified
from distributions in excess of net realized gains on investments to additional
paid-in capital. As of December 31, 1994, book and tax differences amounting to
$5,732 have been reclassified from distributions in excess of net realized gains
on investments and undistributed net investment income to additional paid-in
capital. Distributions in excess of net realized gains reflect temporary
book-tax differences arising from Internal Revenue Code Excise Tax distribution
requirements and associated post-October Loss deferral provisions, which
effectively allow the deferral of net realized capital losses to the next tax
year.
2. Investment Advisory Fee and Other Transactions with Affiliate
The Fund pays an investment advisory fee to Lexington Management Corporation
("LMC") at an annual rate of 1% of the Fund's average daily net assets. In
connection with providing investment advisory services, LMC has entered into a
sub-advisory contract with the Fund's former advisor, Ariston Capital Management
Corporation ("Ariston"), under which Ariston provides the Fund with investment
management services. Pursuant to the terms of the sub-advisory contract between
LMC and Ariston, LMC pays Ariston a monthly sub-advisory fee at the annual rate
of .75% of the Fund's average daily net assets up to $7 million and .50% of the
Fund's average daily net assets in excess of $7 million.
The investment advisory contract provides that the total annual expenses of the
Fund (including managment fees, but excluding interest, taxes, brokerage
commissions and extraordinary expenses) will not exceed the level of expenses
which the Fund is permitted to bear under the most restrictive expense
limitation imposed by any state in which shares of the Fund are offered for
sale. No reimbursement was required for the year ended December 31, 1995.
The Fund also reimburses LMC for certain expenses, including accounting and
shareholder servicing costs, which are incurred by the
Fund but paid by LMC.
18
<PAGE>
Lexington Convertible Securities Fund
Notes to Financial Statements
December 31, 1995 and 1994 (continued)
3. Distribution Plan
The Fund has a distribution plan (the "Plan") which allows payments to finance
activities associated with the distribution of the Fund's shares. The Plan
provides that the Fund may pay distribution fees on a reimbursement basis,
including payments to Lexington Fund Distributors, Inc. ("LFD"), the Fund's
distributor, in amounts not exceeding 0.25% per annum of the Fund's average
daily net assets. Total distribution expenses for the year ended December 31,
1995 were $24,638 which are set forth in the statement of operations.
4. Purchases and Sales of Investments
The cost of purchases and proceeds from sales of investments for the year ended
December 31, 1995, excluding short-term securities, were $1,856,988 and
$575,602, respectively.
At December 31, 1995, aggregate gross unrealized appreciation for all
investments in which there is an excess of value over tax cost amounted to
$2,613,684 and aggregate gross unrealized depreciation for all investments in
which there is an excess of tax cost over value amounted to $34,830.
5. Capital Stock
Transactions in capital stock were as follows:
<TABLE>
<CAPTION>
Year ended Year ended
December 31, 1995 December 31, 1994
------------------------- -----------------------
Shares Amount Shares Amount
------ ------ ------ ------
<S> <C> <C> <C> <C>
Shares sold ...................................... 343,017 $4,367,587 98,659 $1,371,098
Shares issued on reinvestment of dividends ....... 20,620 276,053 107,920 1,275,408
------- ---------- ------ ----------
363,637 4,643,640 206,579 2,646,506
Shares redeemed .................................. (197,366) (2,514,828) (110,489) (1,531,304)
------- ---------- ------ ----------
Net increase ..................................... 166,271 $2,128,812 96,090 $1,115,202
======= ========== ====== ==========
</TABLE>
19
<PAGE>
Lexington Convertible Securities Fund
Financial Highlights
Selected per share data for a share outstanding throughout the period:
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------
1995 1994 1993 1992 1991
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net asset value, beginning of period .............. $11.84 $14.10 $13.80 $12.41 $ 8.74
------ ------ ------ ------ ------
Income from investment operations:
Net investment income ........................... 0.15 0.08 - 0.18 0.22
Net realized and unrealized gain on
investment .................................... 2.04 0.10 0.89 1.39 3.68
------ ------ ------ ------ ------
Total income from investment operations ........... 2.19 0.18 0.89 1.57 3.90
------ ------ ------ ------ ------
Less distributions:
Dividends from net investment income ............ (0.15) (0.07) - (0.18) (0.23)
Distributions from capital gains ................ (0.22) (2.32) (0.59) - -
Distributions in excess of capital gains
(temporary book-tax difference) ............... - (.05) - - -
------ ------ ------ ------ ------
Total distributions ............................... (0.37) (2.44) (0.59) (0.18) (0.23)
------ ------ ------ ------ ------
Net asset value, end of period .................... $13.66 $11.84 $14.10 $13.80 $12.41
====== ====== ====== ====== ======
Total return ...................................... 18.63% 1.30% 6.53% 12.82% 45.06%
Ratio to average net assets:
Expenses, before reimbursement .................. 2.52% 2.81% 2.76% 3.02% 3.42%
Expenses, net of reimbursement .................. 2.52% 2.75% 2.76% 2.32% 2.50%
Net investment income (loss), before
reimbursement ................................. 1.24% 0.50% (0.04%) 0.70% 1.14%
Net investment income (loss) ...................... 1.24% 0.56% (0.04%) 1.40% 2.06%
Portfolio turnover ................................ 11.23% 38.14% 6.53% 12.58% 29.46%
Net assets at end of period (000's omitted) ...... $11,641 $8,117 $8,319 $7,180 $6,599
</TABLE>
20
<PAGE>
PART C. OTHER INFORMATION
-----------------
Item 24. Financial Statements and Exhibits - List
----------------------------------------
The Annual Report for the year ending December 31, 1995 was filed
electronically on February 21, 1996 (as form type N-30D). Financial
Statements from this 1995 Annual Report have been included in the
Statement of Additional Information.
Page in the Statement
(a) Financial statements: of Additional Information
--------------------- -------------------------
Report of Independent Auditors 14
dated January 29, 1996
Statement of Net Assets (Including 15
the Portfolio of Investments) at
December 31, 1995 (1)
Statement of Assets and Liabilities 16
at December 31, 1995
Statement of Operations for the year 17
ended December 31, 1995 (2)
Statements of Changes in Net Assets for 17
the years ended December 31, 1995
and 1994
Notes to Financial Statements 18
Schedules II-VII and other Financial Statements, for
which provisions are made in the applicable accounting
regulations of the Securities and Exchange Commission,
are omitted because they are not required under the
related instructions, they are inapplicable, or the
required information is presented in the financial
statements or notes thereto.
(1) Includes the information required by Schedule I.
(2) Includes the information required by the Statement of
Realized Gain or Loss on Investments
<PAGE>
ITEM 24. Financial Statements and Exhibits - List
----------------------------------------
(b) Exhibits:
1. Declaration of Trust -- Incorporated by reference -
Filed 11/29/86
2. By-Laws -- Incorporated by reference - Filed 11/29/86
3. Not Applicable
4. Stock Certificate Specimen -- Incorporated by reference -
Filed 3/17/93
5a. Investment Advisory Agreement between Registrant and
Lexington Management Corporation -- Filed electronically
5b. Sub-Advisory Investment Management Agreement between
Registrant and Ariston Capital Management, Inc. -- Filed electronically
6. Distribution Agreement between Registrant and Lexington
Funds Distributor, Inc. -- Incorporated by reference -
Filed 3/17/93
7. Not Applicable
8a. Form of Custodian Agreement between Registrant
and Chase Manhattan Bank, N.A.- Filed electronically
4/28/95 - Incorporated by reference
8b. Transfer Agency Agreements between Registrant
and State Street Bank and Trust Company -- Filed electronically
9. Form of Administrative Services Agreement between
Registrant and Lexington Management Corporation - Filed
electronically 4/28/95 - Incorporated by reference
10. Opinion of Counsel as to Legality of Securities being
registered -- Incorporated by reference - Filed 11/29/86
11. Consents
(a) Consent of Counsel Filed electronically
(b) Consent of Independent Auditors Filed electronically
12. Not Applicable
13. Not Applicable
14. Model Retirement Plan Filed electronically
15. Form of Distribution Plan under Rule 12b-1 and
related agreements -- Incorporated by reference -
Filed 3/17/93
16. Performance Calculation -- Incorporated by reference -
Filed 4/30/91
17. Financial Data Schedule Filed electronically
<PAGE>
Item 25. Persons Controlled by or under Common Control with Registrant
-------------------------------------------------------------
Furnish a list or diagram of all persons directly or indirectly
controlled by or under common control with the Registrant and as to each
such person indicate (1) if a company, the state or other sovereign
power under the laws of which it is organized, (2) the percentage of
voting securities owned or other basis of control by the person, if any,
immediately controlling it.
None.
Item 26. Number of Holders of Securities
-------------------------------
State in substantially the tabular form indicated, as of a
specified date within 90 days prior to the date of filing, the number of
record holders of each class of securities of the Registrant.
The following information is given as of March 1, 1996:
Title of Class Number of Record Holders
Shares of beneficial interest 292
($0.10 par value)
Item 27. Indemnification
---------------
State the general effect of any contract, arrangements or statute
under which any director, officer, underwriter or affiliated person of
the Registrant is insured or indemnified in any manner against any
liability which may be incurred in such capacity, other than insurance
provided by any director, officer, affiliated person or underwriter for
their own protection.
Under the terms of the General Laws of the State of Massachusetts
and the Trust's Restated Declaration of Trust, the Trust shall indemnify
each of its Trustees to receive such indemnification (including those
who serve at its request as directors, officers or trustees of another
organization in which it has any interest as a shareholder, creditor or
otherwise), against all liabilities and expenses, including amounts paid
in satisfaction of judgements, in compromise of fines and penalties, and
counsel fees, reasonably incurred by him in connection with the defense
or disposition of any action, suit or other proceeding by the Trust or
any other person, whether civil or criminal, in which he may be involved
or with which he may be threatened, while in office or thereafter, by
reason of this being or having been such a Trustee, officer, employee or
agent, except with respect to any matter as to which he shall have been
adjudicated to have acted in bad faith or with willful misfeasance or
reckless disregard of duties or gross negligence; provided, however,
that as to any matter disposed of by a compromise payment by such
Trustee, officer, employee or agent, pursuant to a consent, decree or
otherwise, no indemnification either for said payment or for any other
expenses shall be provided unless the Trust shall have received a
written opinion from independent counsel approved by the Trustee to the
effect that if the foregoing matter had been adjudicated they would
likely have been adjudicated in favor of such Trustee, officer, employee
or agent. The rights accruing to any Trustee, officer, employee or
agent under these provisions shall not exclude any other right to which
he may lawfully be titled; provided, however, that no Trustee, officer,
employee or agent may satisfy any right of indemnity or reimbursement
granted herein or to which he may otherwise be entitled except out of
Trust Property, and no Shareholder shall be personally liable to any
Person with respect to any claim for indemnity or reimbursement or
otherwise. The Trustees may make advance payments in connection with
indemnification under the Declaration of Trust, provided that the
indemnified Trustee, officer, employee or agent shall have given a
written undertaking to reimburse the Trust in the event it is
subsequently determined that he is entitled to such indemnification.
<PAGE>
Item 28. Business and Other Connections of Investment Adviser
----------------------------------------------------
Describe any other business, profession, vocation or employment of
a substantial nature in which the investment adviser of the Registrant,
and each director, officer or partner of any such investment adviser, is
or has been, at any time during the past two fiscal years, engaged for
his own account or in the capacity of director, officer, employee,
partner or trustee.
See Prospectus Part A and Statement of Additional Information Part
B ("Management of the Fund").
Item 29. Principal Underwriters
----------------------
(a) Lexington Money Market Trust
Lexington Tax Free Money Fund, Inc.
Lexington Growth and Income Fund, Inc.
Lexington GNMA Income Fund, Inc.
Lexington Ramirez Global Income Fund
Lexington Worldwide Emerging Markets Fund, Inc.
Lexington Goldfund, Inc.
Lexington Global Fund, Inc.
Lexington Natural Resources Trust
Lexington Corporate Leaders Trust Fund
Lexington Convertible Securities Fund
Lexington Strategic Investments Fund, Inc.
Lexington Strategic Silver Fund, Inc.
Lexington International Fund, Inc.
Lexington Emerging Markets Fund, Inc.
Lexington Crosby Small Cap Asia Growth Fund, Inc.
Lexington SmallCap Value Fund, Inc.
<PAGE>
29 (b)
Position and Offices Position and
Name and Principal with Principal Offices with
Business Address Underwriter Registrant
- ------------------ -------------------- ------------
Peter Corniotes* Assistant Secretary Asst. Secretary
Lisa Curcio* Vice President and Secretary
Secretary
Robert M. DeMichele* Chief Executive Officer Chairman of the
and Chairman Board and President
Richard M. Hisey* Chief Financial Officer Chief Financial
and Director Officer & Vice President
Lawrence Kantor* Executive Vice President Trustee & Vice President
and Director
Richard Lavery* Vice President Vice President
Janice Violette* Assistant Treasurer None
(c)
Not Applicable.
*P.O. Box 1515
Saddle Brook, New Jersey 07663
<PAGE>
Item 30. Location of Accounts and Records
--------------------------------
With respect to each account, book or other document
required to be maintained by Section 31(a) of the 1940 Act and the Rules
(17 CFR 270, 31a-1 to 31a-3) promulgated thereunder, furnish the name
and address of each person maintaining physical possession of each such
account, book or other document.
The Registrant, Lexington Convertible Securities Fund, Park
80 West - Plaza Two, Saddle Brook, New Jersey 07663 will maintain
physical possession of each such account, book or other document of the
Company, except for those maintained by the Registrant's Custodian,
Chase Manhattan Bank, N.A., 1211 Avenue of the Americas, New York New
York 10036, or Transfer Agent, State Street Bank and Trust Company, c/o
National Financial Data Services, 1004 Baltimore, Kansas City, Missouri
64105.
Item 31. Management Services
-------------------
Furnish a summary of the substantive provisions of any
management-related service contract not discussed in Part A or B of this
Form (because the contract was not believed to be material to a
purchaser of securities of the Registrant) under which services are
provided to the Registrant, indicating the parties to the contract, the
total dollars paid and by whom for the last three fiscal years.
None.
Item 32. Undertakings -
--------------
The Registrant, Lexington Convertible Securities Fund,
undertakes to furnish a copy of the Fund's latest annual
report, upon request and without charge, to every person to
whom a prospectus is delivered.
<PAGE>
Registration No. 33-10543
Securities and Exchange Commission
Washington, D.C. 20549
Exhibits
Filed With
Form N-1A
LEXINGTON CONVERTIBLE SECURITIES FUND
<PAGE>
EXHIBIT INDEX
The following documents are being filed electronically as exhibits to
this filing:
Form of Investment Advisory Agreement between Registrant and Lexington
Management Corporation
Form of Sub-Advisory Agreement between Lexington Management Corporation
and Ariston Capital Management Corporation
Form of Transfer Agency Agreement with State Street Bank and Trust Company
Consent of Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
Consent of independent auditors for the inclusion of their report herein
Model Retirement Plan
Article 6 Financial Data Schedule
Cover
<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 amendment to the
Registration Statement pursuant to Rule 485(b) under the Securities Act
of 1933 and has duly caused this amendment to be signed on its behalf by
the Undersigned, thereunto duly authorized, in the City of Saddle Brook
and State of New Jersey, on the 29th day of April, 1996.
LEXINGTON CONVERTIBLE SECURITIES FUND
/s/ Robert M. DeMichele
________________________________________
By Robert M. DeMichele
Chairman of the Board
Pursuant to the requirements of the Securities Act of 1933,
this amendment to the Registration Statement has been signed below by
the following persons in the capacities and on the dates indicated.
Signature Title Date
/s/ Robert M. DeMichele
__________________________ Chairman of the Board April 29, 1996
Robert M. DeMichele Principal Executive
Officer
/s/ Richard M. Hisey
__________________________ Principal Financial April 29, 1996
Richard M. Hisey and Accounting Officer
/s/ Lisa Curcio
__________________________ Principal Compliance April 29, 1996
Lisa Curcio Officer
*Beverley C. Duer, P.E. Trustee April 29, 1996
__________________________
Beverley C. Duer, P.E.
*Jerard Maher Trustee April 29, 1996
__________________________
Jerard Maher
<PAGE>
Signature Title Date
*Richard B. Russell Trustee April 29, 1996
__________________________
Richard B. Russell
*Allen Stowe Trustee April 29, 1996
__________________________
Allen Stowe
/s/ Lisa Curcio
*By: ______________________
Lisa Curcio
Attorney-in-Fact
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Lawrence Kantor, Lisa Curcio or Jay Baris, and each of them, his
or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his or her name, place and
stead, in any and all his or her capacities as a trustee of LEXINGTON
CONVERTIBLE SECURITIES FUND, a Massachusetts business trust, to sign on his
or her or its behalf any and all Registration Statements (including any
post-effective amendments to Registration Statements) under the Securities
Act of 1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and other documents in connection thereunder, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and this requisite and necessary to
be done in and about the premises, as fully as to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, and each of them, may lawfully do or
cause to be done by virtue hereof.
DATED this 19th day of April, 1996.
/s/ Beverley C. Duer
_____________________________
Beverley C. Duer
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Lawrence Kantor, Lisa Curcio or Jay Baris, and each of them, his
or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his or her name, place and
stead, in any and all his or her capacities as a trustee of LEXINGTON
CONVERTIBLE SECURITIES FUND, a Massachusetts business trust, to sign on his
or her or its behalf any and all Registration Statements (including any
post-effective amendments to Registration Statements) under the Securities
Act of 1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and other documents in connection thereunder, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and this requisite and necessary to
be done in and about the premises, as fully as to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, and each of them, may lawfully do or
cause to be done by virtue hereof.
DATED this 19th April, 1996.
/s/ Jerard Maher
_____________________________
Jerard Maher
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Lawrence Kantor, Lisa Curcio or Jay Baris, and each of them, his
or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his or her name, place and
stead, in any and all his or her capacities as a trustee of LEXINGTON
CONVERTIBLE SECURITIES FUND, a Massachusetts business trust, to sign on his
or her or its behalf any and all Registration Statements (including any
post-effective amendments to Registration Statements) under the Securities
Act of 1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and other documents in connection thereunder, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and this requisite and necessary to
be done in and about the premises, as fully as to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, and each of them, may lawfully do or
cause to be done by virtue hereof.
DATED this 19th day of April, 1996.
/s/ Richard B. Russell
_____________________________
Richard B. Russell
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and
appoints Lawrence Kantor, Lisa Curcio or Jay Baris, and each of them, his
or her true and lawful attorneys-in-fact and agents, with full power of
substitution and resubstitution, for him and in his or her name, place and
stead, in any and all his or her capacities as a trustee of LEXINGTON
CONVERTIBLE SECURITIES FUND, a Massachusetts business trust, to sign on his
or her or its behalf any and all Registration Statements (including any
post-effective amendments to Registration Statements) under the Securities
Act of 1933, the Investment Company Act of 1940 and any amendments and
supplements thereto, and other documents in connection thereunder, and to
file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority
to do and perform each and every act and this requisite and necessary to
be done in and about the premises, as fully as to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents, and each of them, may lawfully do or
cause to be done by virtue hereof.
DATED this 19th day of April, 1996.
/s/ Allan Stowe
_____________________________
Allan Stowe
INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 17th day of May, 1992 by and between
LEXINGTON CONVERTIBLE SECURITIES FUND a Massachusetts business trust
having its principal place of business at Park 80 West, Plaza Two,
Saddle Brook, New Jersey (the "Fund") and LEXINGTON MANAGEMENT
CORPORATION, a Delaware corporation having its principal place of
business at Park 80 West, Plaza Two, Saddle Brook, New Jersey (the
"Manager"), with respect to the following recital of fact:
R E C I T A L
The Fund and the Manager desire to enter into an agreement to
provide for the management of the Fund's assets on the terms and
conditions hereinafter set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Management. The Manager shall act as investment manager
for the Fund and shall, in such capacity, supervise the investment
and reinvestment of the cash, securities or other properties
comprising the Fund's assets subject at all times to the policies and
control of the Fund's Board of Trustees. The Manager shall give the
Fund the benefit of its best judgment, efforts and facilities in
rendering its services as investment manager.
2. Investment Analysis and Implementation. In carrying out
its obligation under paragraph 1 hereof, the Manager shall:
(a) obtain and evaluate pertinent information about
significant developments and economic, statistical and financial
data, domestic, foreign or otherwise, whether affecting the economy
generally or the portfolio of the Fund, the individual companies
whose securities are included in the Fund's portfolio or the
industries in which they engage, or with respect to securities which
the Manager considers desirable for inclusion in the Fund's
portfolio; and
(b) determine what industries and companies shall be
represented in the Fund's portfolio and regularly report them to the
Fund's Board of Trustees; and
(c) formulate and implement programs for the purchases and
sales of the securities of such companies and regularly report
thereon to the Fund's Board of Trustees; and
(d) provide the services of its personnel to the Fund; and
(e) take, on behalf of the Fund, all actions which appear to
the Fund necessary to carry into effect such purchase and sale
programs and supervisory functions as aforesaid, including the
placing of orders for the purchase and sale of portfolio securities.
3. Sub-Advisory Investment Management Agreement.
Notwithstanding anything herein to the contrary, this Agreement shall
not be effective until the Adviser and the Sub-Adviser deliver to the
Fund a duly executed copy of the Sub-Advisory Investment Management
Agreement in the substantially the form attached as Exhibit A
pursuant to which the Sub-Adviser will provide to the Trust certain
investment advisory and related services.
4. Broker-Dealer Relationships. The Manager is responsible
for decisions to buy and sell securities for the Fund, security
broker-dealer selection, and negotiation of its brokerage commission
rates. The Manager is further authorized to allocate the orders
placed by it on behalf of the Fund to such brokers and dealers who
also provide research or statistical material, or other services to
the Fund or the Manager. Such allocation shall be in such amounts
and proportions as the Manager shall determine and the Manager will
report on said allocations regularly to the Board of Trustees of the
Fund indicating the brokers to whom such allocations have been made
and the basis therefor.
5. Control by Board of Trustees. Any investment program
undertaken by the Manager pursuant to this Agreement, as well as any
other activities undertaken by the Manager on behalf of the Fund
pursuant thereto, shall at all times be subject to any directives of
the Board of Trustees of the Fund.
6. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Manager shall at all times
conform to:
(a) all applicable provisions of the Investment Company Act of
1940 (the "Act") and any rules and regulations adopted thereunder as
amended; and
(b) the provisions of the Registration Statement of the Fund
under the Securities Act of 1933 and the Investment Company Act of
1940, as amended; and
(c) the provisions of the Declaration of Trust of the Fund; and
(d) the provisions of the By-Laws of the Fund; and
(e) any other applicable provisions of state and federal law.
7. Expenses. The expenses connected with the Fund shall be
allocable between the Fund and the Manager as follows:
(a) The Manager shall maintain, at its expense and without cost
to the Fund, a trading function in order to carry out its obligations
under subparagraph (d) of paragraph 2 hereof to place orders for the
purchase and sale of portfolio securities for the Fund.
(b) The Manager shall pay the Fund's expenses for office rent,
utilities, telephone, furniture and supplies utilized at the Fund's
principal office.
(c) The Manager shall pay salaries and payroll expenses of
persons serving as officers or Trustees of the Fund who are also
employees of the Manager or any of its affiliates.
(d) Nothing in subparagraph (a) through (e) hereof shall be
construed to require the Manager to bear other expenses.
(e) Any of the other expenses incurred in the operation of the
Fund shall be borne by the Fund, including, among other things, fees
of its custodian, transfer and shareholder servicing agent; cost of
pricing and calculating its daily net asset value and of maintaining
its books and accounts required by the Investment Company Act of
1940; expenditures in connection with meetings of the Fund's Trustees
and shareholders, except those called to accommodate the Manager;
fees and expenses of Trustees who are not affiliated with or
interested persons of the Manager; in maintaining registration of its
shares under state securities laws or in providing shareholder and
dealer services; insurance premiums on property or personnel of the
Fund which inure to its benefit; costs of preparing and printing
reports, proxy statements and prospectuses of the Fund for
distribution to its shareholders; legal, auditing and accounting
fees; fees and expenses of registering and maintaining registration
of its shares for sale under Federal and applicable state securities
laws; and all other expenses in connection with issuance,
registration and transfer of its shares.
8. Compensation. The Fund shall pay the Manager in full
compensation for services rendered hereunder an annual investment
advisory fee, payable monthly equal to 1% of the Fund's average daily
net assets.
9. Expense Limitation. If, for any fiscal year, the total of
all ordinary business expenses of the Fund, including all investment
advisory fees but excluding brokerage commissions and fees, taxes,
interest and extraordinary expenses such as litigation, would exceed
the most restrictive expense limits imposed by any statute or
regulatory authority of any jurisdiction in which the Fund's
securities are offered as determined in the manner described above as
of the close of business on each business day during such fiscal
year, the aggregate of all such investment management fees shall be
reduced by the amount of such excess. The amount of any such
reduction to be borne by the Manager shall be deducted from the
monthly investment advisory fee otherwise payable to the Manager
during such fiscal year; and if such amount should exceed such
monthly fee, the Manager agrees to repay to the Fund such amount of
its investment management fee previously received with respect to
such fiscal year as may be required to make up the deficiency no
later than the last day of the first month of the next succeeding
fiscal year. For purposes of this paragraph, the term "fiscal year"
shall exclude the portion of the current fiscal year which shall have
elapsed prior to the date hereof and shall include the portion of the
then current fiscal year which shall have elapsed at the date of
termination of this Agreement.
10. Term and Approval. This Agreement shall become effective
at the close of business on the date hereof and shall remain in force
and effect for two years and shall thereafter continue in force and
effect from year to year provided that such continuance is
specifically approved at least annually:
(a) (i) by the Fund's Board of Trustees or (ii) by the vote of
a majority of the Fund's outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the Trustees who
are not parties of this Agreement or interested persons of a party to
the Agreement (other than as Fund Trustees), by votes cast in person
at a meeting specifically called for such purposes.
11. Termination. This Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Fund's Board
of Trustees or by vote of a majority of the Fund's outstanding voting
securities or by the Manager, on sixty (60) days' written notice to
the other party. This Agreement shall automatically terminate in the
event of its assignment, the term "assignment" for the purposes
having the meaning defined in Section 2(a)(42) of the Investment
Company Act of 1940.
12. Non-Exclusivity. The services of the Manager to the Fund
are not to be deemed to be exclusive, and the Manager shall be free
to render investment management and corporate administrative or other
services to others (including other investment companies) and to
engage in other activities, so long as its services under this
Agreement are not impaired thereby. It is understood and agreed that
officers and directors of the Manager may serve as officers or
trustees of the Fund, and that officers or Trustees of the Fund may
serve as officers or Directors of the Manager to extent permitted by
law; and that the officers and directors of the Manager are not
prohibited from engaging in any other business activity or from
rendering services to any other person, or from serving as partners,
officers, directors or trustees of any other firm or corporation,
including other investment companies.
13. Liability of Manager and Indemnification. In the absence
of willful misfeasance, bad faith, gross negligence or reckless
disregard of obligations or duties hereunder on the part of the
Manager or any of its officers, directors or employees, it 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.
14. Filing in Massachusetts. A copy of the Agreement and
Declaration of the Trust of the Fund is on file with the Secretary of
the Commonwealth of Massachusetts, and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Fund as
trustees and not individually and that the obligations of this
instrument are not binding upon any of the Trustees or shareholders
individually but are binding only upon the assets and property of the
Fund.
15. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other
party at such address as such other party may designate for the
receipt of such notice. Until further notice to the other party, it
is agreed that the address of the Manager shall be Park 80 West,
Plaza Two, Saddle Brook, New Jersey 07662, and that of the Fund for
this purpose shall be Park 80 West, Plaza Two, Saddle Brook, New
Jersey 07662.
16. Questions of Interpretation. Any question of
interpretation of any term or provision of this Agreement having a
counterpart in or otherwise derived from a term or provision of the
Investment Company Act of 1940, as amended, shall be resolved by
reference to such term or provision of the Act and to interpretations
thereof, if any, by the United States Courts or in the absence of any
controlling decision of any such court, by rules, regulations or
orders of the Securities and Exchange Commission issued pursuant to
said Act. In addition, where the effect of a requirement of the
Investment Company Act of 1940, as amended, reflected in any
provision of this Agreement is released by rules, regulations or
order of the Securities and Exchange Commission, such provisions
shall be deemed to incorporate the effect of such rule, regulation or
order.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on
the day and year first above written.
LEXINGTON CONVERTIBLE SECURITIES FUND
__________________________ By___________________________________
Attest:
LEXINGTON MANAGEMENT CORPORATION
__________________________ ______________________________________
Attest: By
SUB-ADVISORY INVESTMENT MANAGEMENT AGREEMENT
THIS AGREEMENT is made this 17th day of May, 1992 by and between
LEXINGTON MANAGEMENT CORPORATION, a Delaware corporation (the
"Adviser"), and ARISTON CAPITAL MANAGEMENT CORPORATION, INC., a
Washington corporation (the "Sub-Adviser"), with respect to the
following recital of fact:
R E C I T A L
WHEREAS, Lexington Convertible Securities Fund (the "Fund") is
registered as an open-end, diversified management investment company
under the Investment Company Act of 1940, as amended (the "1940
Act"), and the rules and regulations promulgated thereunder; and
WHEREAS, the Adviser is registered as an investment advisor
under the Investment Advisers Act of 1940, as amended, and engages in
the business of acting as an investment advisor; and
WHEREAS, the Sub-Adviser is registered as an investment adviser
under the Investment Advisers Act of 1940, as amended, and engages in
the business of acting as an investment advisor; and
WHEREAS, the Fund is authorized to issue shares of beneficial
interest; and
WHEREAS, the Fund and the Adviser have entered into an agreement
of even date herewith to provide for management services for the Fund
on the terms and conditions set forth therein (the "Investment
Management Agreement"); and
WHEREAS, the Sub-Adviser proposes to render investment
management services to the Adviser in connection with the Adviser's
responsibilities to the Fund on the terms and conditions hereinafter
set forth.
NOW THEREFORE, in consideration of the mutual covenants herein
contained and other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto agree as follows:
1. Brokerage. The Adviser and Sub-Adviser shall take, on
behalf of the Fund, all actions which appear necessary to carry into
effect purchase and sale programs, including the placing or orders
for the purchase and sale of securities for the Fund.
2. Broker-Dealer Relationships. The Adviser and Sub-Adviser
are responsible for decisions to buy and sell securities for the
Fund. The Adviser and Sub-Adviser are responsible for broker-dealer
selection, and negotiation of brokerage commission rates. The
Adviser and Sub-Adviser's primary consideration in effecting a
security transaction will be execution at the most favorable price.
In selecting a broker-dealer to execute each particular transaction,
the Adviser and Sub-Adviser will take the following into
consideration: the best net price available, the reliability,
integrity and financial condition of the broker-dealer; the size of
and difficulty in executing the order; and the value of the expected
contribution of the broker-dealer to the investment performance of
the Fund on a continuing basis. Accordingly, the price to the Fund
in any transaction may be less favorable than that available from
another broker-dealer if the difference is reasonably justified by
other aspects of the portfolio execution services offered. Subject
to such policies as the Board of Trustees may determine, the Adviser
and Sub-Adviser shall not be deemed to have acted unlawfully or to
have breached any duty created by this Agreement or otherwise solely
by reason of its having caused the Fund to pay a broker for effecting
a portfolio investment transaction in excess of the amount of
commission another broker or dealer would have charged for effecting
that transaction, if the Adviser and Sub-Adviser determines in good
faith that such amount of commission was reasonable in relation to
the value of the brokerage and research services provided by such
broker or dealer, viewed in terms of either that particular
transaction or the Adviser and Sub-Adviser's overall responsibilities
with respect to the Fund and to its other clients as to which it
exercises investment discretion. The Sub-Adviser is further
authorized to place and/or to effect orders on behalf of the Fund or
to place and/or to effect orders with such brokers and dealers who
may provide research or statistical material, or other services to
the Fund or to the Sub-Adviser. Such allocation shall be in such
amounts and proportions as the Sub-Adviser shall determine and the
Sub-Adviser will report on said allocations regularly to the Board of
Trustees of the Fund indicating the brokers to whom such allocations
have been made and the basic therefor.
3. Control by Board of Trustees. Any investment program
undertaken by the Sub-Adviser pursuant to this Agreement, as well as
any other activities undertaken by the Sub-Adviser on behalf of the
Fund pursuant thereto, shall at all times be subject to any
directives of the Board of Trustees of the Fund.
4. Compliance with Applicable Requirements. In carrying out
its obligations under this Agreement, the Sub-Adviser shall at all
times conform to:
(a) all applicable provisions of the 1940 Act; and
(b) the provisions of the Registration Statement of the Fund
under the Securities Act of 1933 and the 1940 Act; and
(c) the provisions of the Fund's Agreement and Declaration of
Trust and
(d) the provisions of the By-Laws of the Fund; and
(e) any other applicable provisions of state and federal law.
5. Expenses. The expenses connected with the Fund shall be
borne by the Sub-Adviser as follows:
(a) The Sub-Adviser shall maintain, at its expense and without
cost to the Adviser or the Fund, a trading function in order to carry
out its obligations under paragraph 1 hereof to place order for the
purchase and sale of portfolio securities for the Fund.
(b) The Sub-Adviser shall pay the salaries and payroll
expenses of persons serving as officers or Trustees of the Fund who
are also employees of the Sub-Adviser or any of its affiliates.
6. Delegation of Responsibilities. Upon request of the
Adviser and with the approval of the Fund's Board of Trustees the
Sub-Adviser may perform services on behalf of the Fund which are not
required by this Agreement. Such services will be performed on
behalf of the Fund and the Sub-Adviser's cost in rendering such
services may be billed monthly to the Adviser, subject to examination
by the Adviser's independent accountants. Payment or assumption by
the Sub-Adviser of any Fund expense that the Sub-Adviser is not
required to pay or assume under this Agreement shall not relieve the
Adviser or the Sub-Adviser of any of their obligations to the Fund or
obligate the Sub-Adviser to pay or assume any similar Fund expense on
any subsequent occasions.
7. Compensation. For the services to be rendered and the
facilities furnished hereunder, the Adviser shall pay the Sub-Adviser
monthly compensation of the sum of the amount determined by applying
the following annual rate to the Fund's average daily net assets net
of reimbursement: .75% of the Fund's average daily net assets up to
$7 million and 0.50% of the Fund's average daily net assets in excess
of $7 million. Compensation under this Agreement shall be calculated
and accrued daily and the amounts of the daily accruals shall be paid
monthly. If this Agreement becomes effective subsequent to the first
day of the month or shall terminate before the last day of the month,
compensation for that part of the month this Agreement is in effect
shall be prorated in a manner consistent with the calculation for the
preceding month shall be made as promptly as possible after the end
of each month.
8. Expense Limitation. If, for any fiscal year, the total of
all ordinary business expenses of the Fund, including all investment
advisory fees but excluding brokerage commissions and fees, taxes,
interest and extraordinary expenses such as litigation, would exceed
the most restrictive expense limits imposed by any statute or
regulatory authority of any jurisdiction in which the Fund's
securities are offered as determined in the manner described above as
of the close of business on each business day during such fiscal
year, the aggregate of all such investment management fees shall be
reduced by the amount of such excess. The amount of any such
reduction to be borne by the Sub-Adviser shall be deducted from the
monthly investment advisory fee otherwise payable to the Sub-Adviser
during such fiscal year; and if such amount should exceed such
monthly fee, the Sub-Adviser agrees to repay to the Adviser such
amount of its investment management fee previously received with
respect to such fiscal year as may be required to make up the
deficiency no later than the last day of the first month of the next
succeeding fiscal year. For purposes of this paragraph, the term
"fiscal year" shall exclude the portion of the current fiscal year
which shall have elapsed prior to the date hereof and shall include
the portion of the then current fiscal year which shall have elapsed
at the date of termination of this Agreement.
9. Non-Exclusivity. The services of the Sub-Adviser to the
Adviser are not to be deemed to be exclusive, and the Sub-Adviser
shall be free to render investment advisory or other services to
others (including other investment companies) and to engage in other
activities, so long as its services under this Agreement are not
impaired thereby.
10. Term. This Agreement shall become effective at the close
of business on the date hereof and shall remain in force and effect,
subject to Section 11 hereof for two years from the date hereof.
11. Renewal. Following the expiration of its initial two year
term, this Agreement shall continue in force and effect from year to
year, provided that such continuance is specifically approved at
least annually.
(a) (i) by the Fund's Board of Trustees or (ii) by the vote of
a majority of the Fund's outstanding voting securities (as defined in
Section 2(a)(42) of the 1940 Act), and
(b) by the affirmative vote of a majority of the trustees who
are not parties of this Agreement or interested persons of a party to
the Agreement (other than as a Trustee of the Fund), by votes cast in
person at a meeting specifically called for such purposes.
12. Termination. This Agreement may be terminated at any
time, without the payment of any penalty, by vote of the Fund's Board
of Trustees or by vote of a majority of the Fund's outstanding voting
securities or by the Sub-Adviser on sixty (60) days' written notice
to the other party. This Agreement shall automatically terminate in
the event of its assignment, the term "assignment" for the purposes
having the meaning defined in Section 2(a)(42) of the Investment
Company Act of 1940.
13. Liability of the Sub-Adviser. In the absence of willful
misfeasance, bad faith, gross negligence on the part of the Sub-
Adviser or its officers, directors or employees, or reckless
disregard by the Sub-Adviser of its duties under this Agreement, the
Sub-Adviser shall not be liable to the Adviser, 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,
provided the Sub-Adviser has acted in good faith.
14. Liabilities of the Trustees and Shareholders. A copy of
the Fund's Agreement and Declaration of Trust is on file with the
Secretary of State of Massachusetts and notice is hereby given that
this instrument is executed on behalf of the Trustees of the Fund as
Trustees and not individually and that the obligations of this
Agreement are not binding upon any of the Trustees or shareholders
individually but are binding only upon the Fund. It is further
understood and agreed that the Sub-Adviser shall look soley to the
Fund's assets and property with respect to the enforcement of any
claim; provided, however, that with respect to claims for payment of
compensation as set forth in Section 8 hereof, the Sub-Adviser shall
look solely to the Adviser.
15. Notices. Any notices under this Agreement shall be in
writing, addressed and delivered or mailed postage paid to the other
party at such address as such other party may designate for the
receipt of such notice. Until further notice to the other party, it
is agreed that the address of the Adviser shall be Park 80 West,
Plaza Two, Saddle Brook, New Jersey 07662, and that of the Sub-
Adviser for this purpose shall be 40 Lake Bellevue Drive, Suite 220,
Bellevue, Washington 98005.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed in duplicate by their respective officers on
the day and year first above written.
LEXINGTON MANAGEMENT CORPORATION
Attest: By
-------------------------------
Executive Vice President
- ------------------------
ARISTON CAPITAL MANAGEMENT CORPORATION
Attest: By
--------------------------------
President
- -----------------------
TRANSFER AGENCY AND SERVICE AGREEMENT
between
LEXINGTON CONVERTIBLE SECURITIES FUND
and
STATE STREET BANK AND TRUST COMPANY
TABLE OF CONTENTS
Article 1 Terms of Appointment; Duties of the Bank
Article 2 Fees and Expenses
Article 3 Representations and Warranties of the Bank
Article 4 Representations and Warranties of the Fund
Article 5 Data Access and Proprietary Information
Article 6 Indemnification
Article 7 Standard of Care
Article 8 Covenants of the Fund and the Bank
Article 9 Termination of Agreement
Article 10 Assignment
Article 11 Amendment
Article 12 Massachusetts Law to Apply
Article 13 Force Majeure
Article 14 Consequential Damages
Article 15 Merger of Agreement
Article 16 Counterparts
TRANSFER AGENCY AND SERVICE AGREEMENT
AGREEMENT made as of the ___ day of ___________, 19__, by and between
Lexington Convertible Securities Fund, a business trust, having its principal
office and place of business at Park 80 West Plaza Two, Saddle Brook, New
Jersey 07663, (the "Fund"), and STATE STREET BANK AND TRUST COMPANY, a
Massachusetts trust company having its principal office and place of
business at 225 Franklin Street, Boston, Massachusetts 02110 (the "Bank").
WHEREAS, the Fund desires to appoint the Bank as its transfer agent,
dividend disbursing agent, custodian of certain retirement plans and agent in
connection with certain other activities, and the Bank desires to accept such
appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Article l Terms of Appointment; Duties of the Bank
1.01 Subject to the terms and conditions set forth in
this Agreement, the Fund hereby employs and appoints the Bank to act as, and
the Bank agrees to act as its transfer agent for the Fund's authorized and
issued shares of its common stock, $____ par value, ("Shares"), dividend
disbursing agent, custodian of certain retirement plans and agent in
connection with any accumulation, open-account or similar plans provided to
the shareholders of the Fund ("Shareholders") and set out in the currently
effective prospectus and statement of additional information ("prospectus")
of the Fund, including without limitation any periodic investment plan or
periodic withdrawal program.
1.02 The Bank agrees that it will perform the following services:
(a) In accordance with procedures established from time to time by
agreement between the Fund and the Bank, the Bank shall:
(i) Receive for acceptance, orders for the purchase of Shares,
and promptly deliver payment and appropriate documentation
thereof to the Custodian of the Fund authorized pursuant to
the Declaration of Trust of the Fund (the "Custodian");
(ii) Pursuant to purchase orders, issue the appropriate number of
Shares and hold such Shares in the appropriate Shareholder
account;
(iii) Receive for acceptance redemption requests and redemption
directions and deliver the appropriate documentation thereof
to the Custodian;
(iv) In respect to the transactions in items (i), (ii) and (iii)
above, the Bank shall execute transactions directly with
broker-dealers authorized by the Fund who shall thereby be
deemed to be acting on behalf of the Fund;
(v) At the appropriate time as and when it receives monies
paid to it by the Custodian with respect to any redemption, pay
over or cause to be paid over in the appropriate manner such
monies as instructed by the redeeming Shareholders;
(vi) Effect transfers of Shares by the registered owners thereof
upon receipt of appropriate instructions;
(vii) Prepare and transmit payments for dividends and distributions
declared by the Fund;
(viii)Issue replacement certificates for those certificates
alleged to have been lost, stolen or destroyed upon receipt
by the Bank of indemnification satisfactory to the Bank and
protecting the Bank and the Fund, and the Bank at its option,
may issue replacement certificates in place of mutilated
stock certificates upon presentation thereof and without such
indemnity;
(ix) Maintain records of account for and advise the Fund and its
Shareholders as to the foregoing; and
(x) Record the issuance of shares of the Fund and maintain
pursuant to SEC Rule 17Ad-10(e) a record of the total number
of shares of the Fund which are authorized, based upon data
provided to it by the Fund, and issued and outstanding. The
Bank shall also provide the Fund on a regular basis with the
total number of shares which are authorized and issued and
outstanding and shall have no obligation, when recording the
issuance of shares, to monitor the issuance of such shares or
to take cognizance of any laws relating to the issue or sale
of such shares, which functions shall be the sole
responsibility of the Fund.
(b) In addition to and neither in lieu nor in contravention of
the services set forth in the above paragraph (a), the Bank shall:
(i) perform the customary services of a transfer agent, dividend disbursing
agent, custodian of certain retirement plans and, as relevant, agent in
connection with accumulation, open-account or similar plans (including
without limitation any periodic investment plan or periodic withdrawal
program), including but not limited to: maintaining all Shareholder
accounts, preparing Shareholder meeting lists, mailing proxies, mailing
Shareholder reports and prospectuses to current Shareholders, withholding
taxes on U.S. resident and non-resident alien accounts, preparing and filing
U.S. Treasury Department Forms 1099 and other appropriate forms required with
respect to dividends and distributions by federal authorities for all
Shareholders, preparing and mailing confirmation forms and statements of
account to Shareholders for all purchases and redemptions of Shares and other
confirmable transactions in Shareholder accounts, preparing and mailing
activity statements for Shareholders, and providing Shareholder account
information and (ii) provide a system which will enable the Fund to monitor
the total number of Shares sold in each State.
(c) In addition, the Fund shall (i) identify to the Bank in
writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions
for each State on the system prior to activation and thereafter monitor the
daily activity for each State. The responsibility of the Bank for the Fund's
blue sky State registration status is solely limited to the initial
establishment of transactions subject to blue sky compliance by the Fund and
the reporting of such transactions to the Fund as provided above.
(d) Procedures as to who shall provide certain of these services
in Article 1 may be established from time to time by agreement between the
Fund and the Bank per the attached service responsibility schedule. The Bank
may at times perform only a portion of these services and the Fund or its
agent may perform these services on the Fund's behalf.
(e) The Bank shall provide additional services on behalf of the
Fund (i.e., escheatment services) which may be agreed upon in writing between
the Fund and the Bank.
Article 2 Fees and Expenses
2.01 For the performance by the Bank pursuant to this
Agreement, the Fund agrees to pay the Bank an annual maintenance fee for each
Shareholder account as set out in the initial fee schedule attached hereto.
Such fees and out-of-pocket expenses and advances identified under Section
2.02 below may be changed from time to time subject to mutual written
agreement between the Fund and the Bank.
2.02 In addition to the fee paid under Section 2.01 above, the
Fund agrees to reimburse the Bank for out-of-pocket expenses, including but
not limited to confirmation production, postage, forms, telephone, microfilm,
microfiche, tabulating proxies, records storage, or advances incurred by the
Bank for the items set out in the fee schedule attached hereto. In addition,
any other expenses incurred by the Bank at the request or with the consent of
the Fund, will be reimbursed by the Fund.
2.03 The Fund agrees to pay all fees and reimbursable expenses
within five days following the receipt of the respective billing notice.
Postage for mailing of dividends, proxies, Fund reports and other mailings to
all shareholder accounts shall be advanced to the Bank by the Fund at least
seven (7) days prior to the mailing date of such materials.
Article 3 Representations and Warranties of the Bank
The Bank represents and warrants to the Fund that:
3.01 It is a trust company duly organized and existing and in good
standing under the laws of the Commonwealth of Massachusetts.
3.02 It is duly qualified to carry on its business in the
Commonwealth of Massachusetts.
3.03 It is empowered under applicable laws and by its Charter and
By-Laws to enter into and perform this Agreement.
3.04 All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
3.05 It has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations
under this Agreement.
Article 4 Representations and Warranties of the Fund
The Fund represents and warrants to the Bank that:
4.01 It is a business trust duly organized and existing and in
good standing under the laws of Massachusetts.
4.02 It is empowered under applicable laws and by its Declaration
of Trust and By-Laws to enter into and perform this Agreement.
4.03 All corporate proceedings required by said Declaration of
Trust and By-Laws have been taken to authorize it to enter into and perform
this Agreement.
4.04 It is an open-end and diversified management investment
company registered under the Investment Company Act of 1940, as amended.
4.05 A registration statement under the Securities Act of 1933, as
amended is currently effective and will remain effective, and appropriate
state securities law filings have been made and will continue to be made,
with respect to all Shares of the Fund being offered for sale.
Article 5 Data Access and Proprietary Information
5.01 The Fund acknowledges that the data bases,
computer programs, screen formats, report formats, interactive design
techniques, and documentation manuals furnished to the Fund by the Bank as
part of the Fund's ability to access certain Fund-related data ("Customer
Data") maintained by the Bank on data bases under the control and ownership
of the Bank or other third party ("Data Access Services") constitute
copyrighted, trade secret, or other proprietary information (collectively,
"Proprietary Information") of substantial value to the Bank or other third
party. In no event shall Proprietary Information be deemed Customer Data.
The Fund agrees to treat all Proprietary Information as proprietary to the
Bank and further agrees that it shall not divulge any Proprietary Information
to any person or organization except as may be provided hereunder. Without
limiting the foregoing, the Fund agrees for itself and its employees and
agents:
(a) to access Customer Data solely from locations as may be
designated in writing by the Bank and solely in accordance
with the Bank's applicable user documentation;
(b) to refrain from copying or duplicating in any way the
Proprietary Information;
(c) to refrain from obtaining unauthorized access to any portion
of the Proprietary Information, and if such access is
inadvertently obtained, to inform in a timely manner of such
fact and dispose of such information in accordance with the
Bank's instructions;
(d) to refrain from causing or allowing third-party data acquired
hereunder from being retransmitted to any other computer
facility or other location, except with the prior written
consent of the Bank;
(e) that the Fund shall have access only to those authorized
transactions agreed upon by the parties;
(f) to honor all reasonable written requests made by the Bank to
protect at the Bank's expense the
rights of the Bank in Proprietary Information at common law,
under federal copyright law and under other federal or state
law.
Each party shall take reasonable efforts to advise its employees of their
obligations pursuant to this Article 5. The obligations of this Article
shall survive any earlier termination of this Agreement.
5.02 If the Fund notifies the Bank that any of the Data Access
Services do not operate in material compliance with the most recently issued
user documentation for such services, the Bank shall endeavor in a timely
manner to correct such failure. Organizations from which the Bank may obtain
certain data included in the Data Access Services are solely responsible for
the contents of such data and the Fund agrees to make no claim against the
Bank arising out of the contents of such third-party data, including, but not
limited to, the accuracy thereof. DATA ACCESS SERVICES AND ALL COMPUTER
PROGRAMS AND SOFTWARE SPECIFICATIONS USED IN CONNECTION THEREWITH ARE
PROVIDED ON AN AS IS, AS AVAILABLE BASIS. THE BANK EXPRESSLY DISCLAIMS ALL
WARRANTIES EXCEPT THOSE EXPRESSLY STATED HEREIN INCLUDING, BUT NOT LIMITED
TO, THE IMPLIED WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE.
5.03 If the transactions available to the Fund include
the ability to originate electronic instructions to the Bank in order to (i)
effect the transfer or movement of cash or Shares or (ii) transmit Shareholder
information or other information (such transactions constituting a "COEFI"),
then in such event the Bank shall be entitled to rely on the validity and
authenticity of such instruction without undertaking any further inquiry as
long as such instruction is undertaken in conformity with security procedures
established by the Bank from time to time.
Article 6 Indemnification
6.01 The Bank shall not be responsible for, and the
Fund shall indemnify and hold the Bank harmless from and against, any and all
losses, damages, costs, charges, counsel fees, payments, expenses and
liability arising out of or attributable to:
(a) All actions of the Bank or its agent or subcontractors
required to be taken pursuant to this Agreement, provided that such actions
are taken in good faith and without negligence or willful misconduct.
(b) The Fund's lack of good faith, negligence or willful
misconduct which arise out of the breach of any representation or warranty of
the Fund hereunder.
(c) The reliance on or use by the Bank or its agents or
subcontractors of information, records, documents or services which (i) are
received by the Bank or its agents or subcontractors, and (ii) have been
prepared, maintained or performed by the Fund or any other person or firm on
behalf of the Fund including but not limited to any previous transfer agent
or registrar.
(d) The reliance on, or the carrying out by the Bank or its agents
or subcontractors of any instructions or requests of the Fund.
(e) The offer or sale of Shares in violation of any requirement
under the federal securities laws or regulations or the securities laws or
regulations of any state that such Shares be registered in such state or in
violation of any stop order or other determination or ruling by any federal
agency or any state with respect to the offer or sale of such Shares in such
state.
6.02 At any time the Bank may apply to any officer of the Fund for
instructions, and may consult with legal counsel with respect to any matter
arising in connection with the services to be performed by the Bank under this
Agreement, and the Bank and its agents or subcontractors shall not be liable
and shall be indemnified by the Fund for any action taken or omitted by it in
reliance upon such instructions or upon the opinion of such counsel. The
Bank, its agents and subcontractors shall be protected and indemnified in
acting upon any paper or document furnished by or on behalf of the Fund,
reasonably believed to be genuine and to have been signed by the proper
person or persons, or upon any instruction, information, data, records or
documents provided the Bank or its agents or subcontractors by machine
readable input, telex, CRT data entry or other similar means authorized by
the Fund, and shall not be held to have notice of any change of authority of
any person, until receipt of written notice thereof from the Fund. The Bank,
its agents and subcontractors shall also be protected and indemnified in
recognizing stock certificates which are reasonably believed to bear the
proper manual or facsimile signatures of the officers of the Fund, and the
proper countersignature of any former transfer agent or former registrar, or
of a co-transfer agent or co-registrar.
6.03 In order that the indemnification provisions
contained in this Article 6 shall apply, upon the assertion of a claim for
which the Fund may be required to indemnify the Bank, the Bank shall promptly
notify the Fund of such assertion, and shall keep the Fund advised with
respect to all developments concerning such claim. The Fund shall have the
option to participate with the Bank in the defense of such claim or to defend
against said claim in its own name or in the name of the Bank. The Bank
shall in no case confess any claim or make any compromise in any case in
which the Fund may be required to indemnify the Bank except with the Fund's
prior written consent.
Article 7 Standard of Care
7.01 The Bank shall at all times act in good faith and
agrees to use its best efforts within reasonable limits to insure the
accuracy of all services performed under this Agreement, but assumes no
responsibility and shall not be liable for loss or damage due to errors
unless said errors are caused by its negligence, bad faith, or willful
misconduct of that of its employees.
Article 8 Covenants of the Fund and the Bank
8.01 The Fund shall promptly furnish to the Bank the following:
(a) A certified copy of the resolution of the Board of Directors
of the Fund authorizing the appointment of the Bank and the execution and
delivery of this Agreement.
(b) A copy of the Declaration of Trust and By-Laws of the Fund
and all amendments thereto.
8.02 The Bank hereby agrees to establish and maintain facilities
and procedures reasonably acceptable to the Fund for safekeeping of stock
certificates, check forms and facsimile signature imprinting devices, if any;
and for the preparation or use, and for keeping account of such certificates,
forms and devices.
8.03 The Bank shall keep records relating to the services to be
performed hereunder, in the form and manner as it may deem advisable. To the
extent required by Section 31 of the Investment Company Act of 1940, as
amended, and the Rules thereunder, the Bank agrees that all such records
prepared or maintained by the Bank relating to the services to be performed
by the Bank hereunder are the property of the Fund and will be preserved,
maintained and made available in accordance with such Section and Rules, and
will be surrendered promptly to the Fund on and in accordance with its
request.
8.04 The Bank and the Fund agree that all books, records,
information and data pertaining to the business of the other party which are
exchanged or received pursuant to the negotiation or the carrying out of this
Agreement shall remain confidential, and shall not be voluntarily disclosed
to any other person, except as may be required by law.
8.05 In case of any requests or demands for the inspection of the
Shareholder records of the Fund, the Bank will endeavor to notify the Fund
and to secure instructions from an authorized officer of the Fund as to such
inspection. The Bank reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be
held liable for the failure to exhibit the Shareholder records to such person.
Article 9 Termination of Agreement
9.01 This Agreement may be terminated by either party
upon one hundred twenty (120) days written notice to the other.
9.02 Should the Fund exercise its right to terminate,
all out-of-pocket expenses associated with the movement of records and
material will be borne by the Fund. Additionally, the Bank reserves the
right to charge for any other reasonable expenses associated with such
termination and/or a charge equivalent to the average of three (3) months'
fees.
Article 10 Assignment
10.01 Except as provided in Section 10.03 below, neither
this Agreement nor any rights or obligations hereunder may be assigned by
either party without the written consent of the other party.
10.02 This Agreement shall inure to the benefit of and be binding
upon the parties and their respective permitted successors and assigns.
10.03 The Bank may, without further consent on the part of the
Fund, subcontract for the performance hereof with (i) Boston Financial Data
Services, Inc., a Massachusetts corporation ("BFDS") which is duly registered
as a transfer agent pursuant to Section 17A(c)(1) of the Securities Exchange
Act of 1934, as amended ("Section 17A(c)(1)"), (ii) a BFDS subsidiary duly
registered as a transfer agent pursuant to Section 17A(c)(1) or (iii) a BFDS
affiliate; provided, however, that the Bank shall be as fully responsible to
the Fund for the acts and omissions of any subcontractor as it is for its own
acts and omissions.
Article 11 Amendment
11.01 This Agreement may be amended or modified by a
written agreement executed by both parties and authorized or approved by a
resolution of the Board of Directors of the Fund.
Article 12 Massachusetts Law to Apply
12.01 This Agreement shall be construed and the
provisions thereof interpreted under and in accordance with the laws of the
Commonwealth of Massachusetts.
Article 13 Force Majeure
13.01 In the event either party is unable to perform its
obligations under the terms of this Agreement because of acts of God,
strikes, equipment or transmission failure or damage reasonably beyond its
control, or other causes reasonably beyond its control, such party shall not
be liable for damages to the other for any damages resulting from such
failure to perform or otherwise from such causes.
Article 14 Consequential Damages
14.01 Neither party to this Agreement shall be liable to
the other party for consequential damages under any provision of this
Agreement or for any consequential damages arising out of any act or failure
to act hereunder.
Article 15 Merger of Agreement
15.01 This Agreement constitutes the entire agreement
between the parties hereto and supersedes any prior agreement with respect to
the subject matter hereof whether oral or written.
Article 16 Counterparts
16.01 This Agreement may be executed by the parties
hereto on any number of counterparts, and all of said counterparts taken
together shall be deemed to constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in their names and on their behalf by and through their duly
authorized officers, as of the day and year first above written.
LEXINGTON CONVERTIBLE SECURITIES FUND
BY:
___________________________________
Vice President
ATTEST:
_________________________________
STATE STREET BANK AND TRUST COMPANY
BY:
____________________________________
Senior Vice President
ATTEST:
___________________________________
STATE STREET BANK & TRUST COMPANY
FUND SERVICE RESPONSIBILITIES*
Service Performed Responsibility
----------------- --------------
Bank Fund
---- ----
1. Receives orders for the purchase
of Shares.
2. Issue Shares and hold Shares in
Shareholders accounts.
3. Receive redemption requests.
4. Effect transactions 1-3 above
directly with broker-dealers.
5. Pay over monies to redeeming
Shareholders.
6. Effect transfers of Shares.
7. Prepare and transmit dividends
and distributions.
8. Issue Replacement Certificates.
9. Reporting of abandoned property.
10. Maintain records of account.
11. Maintain and keep a current and
accurate control book for each
issue of securities.
12. Mail proxies.
13. Mail Shareholder reports.
14. Mail prospectuses to current
Shareholders.
15. Withhold taxes on U.S. resident
and non-resident alien accounts.
Service Performed Responsibility
----------------- --------------
Bank Fund
---- ----
16. Prepare and file U.S. Treasury
Department forms.
17. Prepare and mail account and
confirmation statements for
Shareholders.
18. Provide Shareholder account
information.
19. Blue sky reporting.
* Such services are more fully described in Article 1.02 (a), (b) and (c)
of the Agreement.
LEXINGTON CONVERTIBLE SECURITIES FUND
BY:
__________________________________
Vice President
ATTEST:
________________________________
STATE STREET BANK AND TRUST COMPANY
BY:
___________________________________
Vice President
ATTEST:
__________________________________
Kramer, Levin, Naftalis, Nessen, Kamin & Frankel
9 1 9 T H I R D A V E N U E
NEW YORK, N.Y. 10022 3852
(212) 715 9100
FAX
(212) 715-8000
______
WRITER'S DIRECT
NUMBER
(212) 715-9100
April 22, 1996
Lexington Convertible Securities Fund
Park 80 West
Plaza Two
Saddle Brook, New Jersey 07663
Gentlemen:
We hereby consent to the reference of this Firm as counsel in the
Registration Statement on Form N-1A of the Lexington Convertible Securities
Fund.
Very truly yours,
/s/ Kramer, Levin, Naftalis, Nessen,
Kamin & Frankel
KPMG Peat Marwick LLP
345 Park Avenue Telephone 212 758 9700 Telefax 212 758 9819
New York, NY 10154 Telex 428038
Independent Auditors' Consent
The Board of Trustees and Shareholders
Lexington Convertible Securities Fund:
We consent to the use of our report dated January 29, 1996, included in the
Registration Statement on form N-1A and to the references to our firm under
the headings Financial Highlights and Counsel and Independent Auditors
in the Prospectus and under the heading Shareholders Report in the
Statement of Additional Information.
/s/ KPMG Peat Marwick LLP
New York, New York
April 24, 1996
LEXINGTON MANAGEMENT CORPORATION
PROTOTYPE
MONEY PURCHASE PENSION AND
PROFIT SHARING PLAN
BASIC DOCUMENT #01
PROTOTYPE
MONEY PURCHASE PENSION AND
PROFIT SHARING PLAN
TABLE OF CONTENTS
Section Page
ARTICLE 1
GENERAL
1.1 Purpose......................................... 1
1.2 Trust........................................... 1
ARTICLE 2
DEFINITIONS
2.1 Account......................................... 1
2.2 Adoption Agreement.............................. 1
2.3 Affiliated Employers............................ 1
2.4 Beneficiary..................................... 2
2.5 Break in Service................................ 2
2.6 Code............................................ 2
2.7 Compensation.................................... 2
2.8 Custodian....................................... 3
2.9 Determination Date.............................. 3
2.10 Early Retirement Date........................... 3
2.11 Earned Income................................... 3
2.12 Effective Date.................................. 3
2.13 Eligibility Computation Period.................. 3
2.14 Employee........................................ 4
2.15 Employer........................................ 4
2.16 Employer Contributions.......................... 4
2.17 Entry Dates..................................... 4
2.18 ERISA........................................... 4
2.19 Hour of Service................................. 4
2.20 Integration Level............................... 7
2.21 Key Employee.................................... 7
2.22 Leased Employee................................. 7
2.23 Maximum Disparity Rate.......................... 8
2.24 Maximum Profit Sharing Disparity Rate........... 9
2.25 Non-Key Employee................................ 9
2.26 Normal Retirement Age........................... 9
2.27 Owner-Employee.................................. 9
2.28 Participant..................................... 10
2.29 Plan............................................ 10
2.30 Plan Administrator.............................. 10
2.31 Plan Year....................................... 10
2.32 Self-Employed Individuals....................... 10
2.33 Shares.......................................... 10
2.34 Sponsor......................................... 10
2.35 Taxable Wage Base............................... 10
2.36 Total and Permanent Disability.................. 10
2.37 Trust........................................... 11
2.38 Trust Agreement................................. 11
2.39 Trustee......................................... 11
2.40 Valuation Date.................................. 11
2.41 Vesting Computation Period...................... 11
2.42 Year of Service................................. 11
ARTICLE 3
ELIGIBILITY AND YEARS OF SERVICE
3.1 Eligibility Requirements........................ 11
3.2 Participation and Service Upon Reemployment..... 12
3.3 Predecessor Employers........................... 12
ARTICLE 4
CONTRIBUTIONS
4.1 Employer Contributions.......................... 13
4.2 Payment......................................... 13
4.3 Nondeductible Voluntary Contributions by
Participants.................................... 14
4.4 Rollovers....................................... 14
4.5 Direct Transfers................................ 14
ARTICLE 5
ALLOCATIONS
5.1 Individual Accounts............................. 15
5.2 Minimum Allocation.............................. 16
5.3 Allocation of Employer Contributions and
Forfeitures..................................... 17
5.4 Coordination of Social Security Integration..... 19
5.5 Withdrawals and Distributions................... 19
5.6 Determination of Value of Trust Fund and of Net
Earnings or Losses.............................. 19
5.7 Allocation of Net Earnings or Losses............ 20
5.8 Responsibilities of the Plan Administrator...... 21
ARTICLE 6
LIMITATIONS ON ALLOCATIONS
6.1 Employers Who Do Not Maintain Other Qualified
Plans........................................... 21
6.2 Employers Who Maintain Other Qualified Master
or Prototype Defined Contribution Plans......... 22
6.3 Employers Who, In Addition to This Plan,
Maintain Other Qualified Plans Which are
Defined Contribution Plans Other Than Master or
Prototype Plans................................. 24
6.4 Employers, Who In Addition To This Plan,
Maintain A Qualified Defined Benefit Plan....... 24
6.5 Definitions..................................... 24
ARTICLE 7
TRUST FUND
7.1 Receipt of Contributions by Trustee............. 29
7.2 Investment Responsibility....................... 29
7.3 Investment Limitations.......................... 30
ARTICLE 8
VESTING
8.1 Nondeductible Voluntary Contributions and
Earnings........................................ 30
8.2 Rollovers, Transfers and Earnings............... 31
8.3 Employer Contributions and Earnings............. 31
8.4 Amendments to Vesting Schedule.................. 31
8.5 Determination of Years of Service............... 32
8.6 Forfeiture of Nonvested Amounts................. 33
8.7 Reinstatement of Benefit........................ 33
ARTICLE 9
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
9.1 General......................................... 34
9.2 Qualified Joint and Survivor Annuity............ 34
9.3 Qualified Preretirement Survivor Annuity........ 34
9.4 Definitions..................................... 34
9.5 Notice Requirements............................. 36
9.6 Safe Harbor Rules............................... 38
9.7 Transitional Rules.............................. 39
ARTICLE 10
DISTRIBUTION PROVISIONS
10.1 Vesting on Distribution Before Break in Service. 41
10.2 Restrictions on Immediate Distributions......... 42
10.3 Commencement of Benefits........................ 44
10.4 Early Retirement With Age and Service Require-
ment............................................ 44
10.5 Nontransferability of Annuities................. 44
10.6 Conflicts With Annuity Contracts................ 44
ARTICLE 11
TIMING AND MODES OF DISTRIBUTION
11.1 General Rules................................... 45
11.2 Required Beginning Date......................... 45
11.3 Limits on Distribution Periods.................. 45
11.4 Determination of Amount to be Distributed Each
Year............................................ 45
11.5 Death Distribution Provisions................... 46
11.6 Designation of Beneficiary...................... 48
11.7 Definitions..................................... 48
11.8 Transitional Rules.............................. 51
11.9 Optional Forms of Benefit....................... 52
ARTICLE 12
WITHDRAWALS
12.1 Withdrawal of Nondeductible Voluntary Contribu-
tions........................................... 54
12.2 Hardship Withdrawals............................ 54
12.3 Manner of Making Withdrawals.................... 55
12.4 Limitations on Withdrawals...................... 55
ARTICLE 13
LOANS
13.1 General Provisions.............................. 55
13.2 Administration of Loan Program.................. 57
13.3 Amount of Loan.................................. 57
13.4 Manner of Making Loans.......................... 57
13.5 Terms of Loan................................... 58
13.6 Security for Loan............................... 58
13.7 Segregated Investment........................... 59
13.8 Repayment of Loan............................... 59
13.9 Default on Loan................................. 59
13.10Unpaid Amounts.................................. 59
ARTICLE 14
INSURANCE
14.1 Insurance....................................... 60
14.2 Policies........................................ 60
14.3 Beneficiary..................................... 60
14.4 Payment of Premiums............................. 60
14.5 Limitation on Insurance Premiums................ 61
14.6 Insurance Company............................... 62
14.7 Distribution of Policies........................ 62
14.8 Policy Features................................. 64
14.9 Changed Conditions.............................. 64
14.10Conflicts....................................... 64
ARTICLE 15
ADMINISTRATION
15.1 Duties and Responsibilities of Fiduciaries;
Allocation of Fiduciary Responsibility.......... 64
15.2 Powers and Responsibilities of the Plan
Administrator................................... 65
15.3 Allocation of Duties and Responsibilities....... 67
15.4 Appointment of the Plan Administrator........... 67
15.5 Expenses........................................ 67
15.6 Liabilities..................................... 67
15.7 Claims Procedure................................ 68
ARTICLE 16
AMENDMENT, TERMINATION AND MERGER
16.1 Sponsor's Power to Amend........................ 69
16.2 Amendment by Adopting Employer.................. 69
16.3 Vesting Upon Plan Termination................... 70
16.4 Vesting Upon Complete Discontinuance of
Contributions................................... 70
16.5 Maintenance of Benefits Upon Merger............. 70
16.6 Special Amendments.............................. 70
ARTICLE 17
MISCELLANEOUS
17.1 Exclusive Benefit of Participants and
Beneficiaries................................... 70
17.2 Nonguarantee of Employment...................... 71
17.3 Rights to Trust Assets.......................... 71
17.4 Nonalienation of Benefits....................... 71
17.5 Aggregation Rules............................... 72
17.6 Failure of Qualification........................ 73
17.7 Applicable Law.................................. 73
<PAGE>
ARTICLE 1
GENERAL
1.1 Purpose. The Employer hereby establishes this Plan to provide
retirement, death and disability benefits for eligible employees and their
Beneficiaries. This Plan is a standardized prototype paired defined
contribution plan and is designed to permit adoption of profit sharing
provisions, money purchase pension provisions, or both. The provisions
herein and the selections made by the Employer by execution of the money
purchase pension or profit sharing Adoption Agreement or Agreements, shall
constitute the Plan. It is intended that the Plan and Trust qualify under
sections 401 and 501 of the Internal Revenue Code of 1986, as amended and
that it comply with the provisions of the Employee Retirement Income
Security Act of 1974, as amended.
1.2 Trust. The Employer has simultaneously adopted a Trust to
receive, invest, and distribute funds in accordance with the Plan.
ARTICLE 2
DEFINITIONS
2.1 Account. The aggregate of the individual bookkeeping
subaccounts established for each Participant, as provided in section 5.1.
2.2 Adoption_Agreement. The written agreement or agreements of
the Employer and the Trustee by which the Employer establishes this Plan
and adopts the Trust Agreement forming a part hereof, as the same may be
amended from time to time. The Adoption Agreement contains all the
options that may be selected by the Employer. The information set forth
in the Adoption Agreement executed by the Employer shall be deemed to be
a part of this Plan as if set forth in full herein.
2.3 Affiliated_Employers. The Employer and any corporation which
is a member of a controlled group of corporations (as defined in section
-1-
<PAGE>
414(b) of the Code) which includes the Employer, any trade or business
(whether or not incorporated) which is under common control (as defined
in section 414(c) of the Code) with the Employer, or any service
organization (whether or not incorporated) which is a member of an
affiliated service group (as defined in sections 414(m) and (o) of the
Code) which includes the Employer.
2.4 Beneficiary. The person or persons (natural or otherwise)
designated by a Participant in accordance with section 11.6 to receive any
undistributed amounts credited to the Participant's Account under the Plan
at the time of the Participant's death.
2.5 Break_in_Service. An Eligibility Computation Period or
Vesting Computation Period in which an Employee fails to complete more
than five hundred (500) Hours of Service.
2.6 Code. The Internal Revenue Code of 1986, as amended from time
to time, or any successor statute.
2.7 Compensation.
(a) Compensation will mean all of each Participant's W-2
earnings.
(b) For any self-employed individual covered under the Plan,
Compensation will mean Earned Income.
(c) Compensation shall include only that Compensation that
is actually paid to the Participant during the Plan Year.
(d) Notwithstanding the above, if elected by the Employer
in the Adoption Agreement, Compensation shall include any amount which is
contributed by the Employer pursuant to a salary reduction agreement and
which is not includable in the gross income of the Employee under sections
125, 402(a)(8), 402(h) or 403(b) of the Code. The effective date of this
subsection shall be elected by the Employer in the Adoption Agreement.
(e) The annual Compensation of each Participant taken into
-2-
<PAGE>
account under the Plan for any year shall not exceed two hundred thousand
dollars ($200,000), as adjusted by the Secretary at the same time and in
the same manner as under section 415(d) of the Code. In determining the
Compensation of a Participant for purposes of this limitation, the rules
of section 414(q)(6) of the Code shall apply, except in applying such
rules, the term "family" shall include only the Spouse of the Participant
and any lineal descendants of the Participant who have not attained age
nineteen (19) before the close of the year. If, as a result of the
application of such rules, the adjusted two hundred thousand dollar
($200,000) limitation is exceeded, then (except for purposes of
determining the portion of Compensation up to the Integration Level to the
extent this Plan provides for permitted disparity), the limitation shall
be prorated among the affected individuals in proportion to each such
individual's Compensation as determined under this section prior to the
application of this limitation.
(f) The effective date of this subsection shall be the
first Plan Year beginning on or after January 1, 1989.
2.8 Custodian. The custodian, if any, designated in the Adoption
Agreement.
2.9 Determination_Date. With respect to any Plan Year subsequent
to the first Plan Year, the last day of the preceding Plan Year. For the
first Plan Year of the Plan, the last day of that Plan Year.
2.10 Early_Retirement_Date. The first day of the month coincident
with or next following the date upon which the Participant satisfies the
early retirement age and service requirements in the Adoption Agreement;
provided, however, such requirements may not be less than age fifty- five
(55), nor more than fifteen (15) Years of Service.
2.11 Earned_Income. The net earnings from self- employment in the
trade or business with respect to which the Plan is established, for which
personal services of the individual are a material income-producing
factor. Net earnings will be determined without regard to items not
included in gross income and the deductions allocable to such items. Net
earnings are reduced by contributions to a qualified plan to the extent
deductible under section 404 of the Code. Net earnings shall be
determined with regard to the deduction allowed to the Employer by section
164(f) of the Code for taxable years beginning after December 31, 1989.
2.12 Effective_Date. The first day of the first Plan Year for
which the Plan is effective as specified in the Adoption Agreement.
2.13 Eligibility_Computation_Period. For purposes of determining
Years of Service and Breaks in Service for eligibility to participate, the
initial Eligibility Computation Period shall be the twelve (12)
consecutive month period beginning with the day the Employee first
performs an Hour of Service for the Employer (employment commencement
date). The succeeding twelve (12) consecutive month periods commence with
the first anniversary of the Employee's employment commencement date.
-3-
<PAGE>
2.14 Employee. Any person, including a Self-Employed Individual,
who is employed by the Employer maintaining the Plan or any other employer
required to be aggregated with such Employer under sections 414(b), (c),
(m) or (o) of the Code. The term "Employee" shall also include any Leased
Employee deemed to be an Employee of any Employer described above as
provided in sections 414(n) or (o) of the Code.
2.15 Employer. The corporation, proprietorship, partnership or
other organization that adopts the Plan by execution of an Adoption
Agreement.
2.16 Employer_Contributions. The contribution of the Employer to
the Plan and Trust as set forth in section 4.1 and the Adoption Agreement.
2.17 Entry_Dates. The Effective Date shall be the first Entry
Date. Thereafter, the Entry Dates shall be the first day of each Plan
Year and the first day of the seventh month of each Plan Year.
2.18 ERISA. The Employee Retirement Income Security Act of 1974,
as amended.
2.19 Hour_of_Service.
(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 only for the computation period or
periods 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 to an Employee on account of any single, continuous period
during which the Employee performs no duties (whether or not such period
occurs in a single computation period). Hours under this paragraph will
be calculated and credited pursuant to section 2530.200b-2 of the
Department of Labor regulations which are incorporated herein by this
reference.
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(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 paragraph (a) or
paragraph (b), as the case may be, and under this paragraph (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 an Employee
has a Break in Service, Hours of Service shall also include an
uncompensated authorized leave of absence not in excess of two (2) years,
or military leave while the Employee's reemployment rights are protected
by law or such additional or other periods as granted by the Employer as
military leave (credited on the basis of forty (40) Hours of Service per
each week or eight (8) Hours of Service per working day), provided the
Employee returns to employment at the end of his leave of absence or
within ninety (90) days of the end of his military leave, whichever is
applicable.
(e) Hours of Service will be credited for employment with
other members of an affiliated service group (under section 414(m)), a
controlled group of corporations (under section 414(b)), or a group of
trades or businesses under common control (under section 414(c)) of which
the adopting Employer is a member, and any other entity required to be
aggregated with the Employer pursuant to section 414(o) and the
regulations thereunder. Hours of Service will also be credited for any
individual considered an Employee for purposes of this Plan under section
414(n) or section 414(o) and the regulations thereunder.
(f) Solely for purposes of determining whether an Employee
has a Break in Service, Hours of Service shall also include absence from
work for maternity or paternity reasons, if the absence begins on or after
the first day of the first Plan Year beginning after 1984. During this
absence, the Employee shall be credited with the Hours of Service which
would have been credited but for the absence, or, if such hours cannot be
determined with eight (8) hours per day. An absence from work for
maternity or paternity reasons means an absence:
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(i) by reason of the pregnancy of an Employee;
(ii) by reason of the birth of a child of the
Employee;
(iii) by reason of the placement of a child with the
Employee in connection with adoption; or
(iv) for purposes of caring for such a child for a
period immediately following such birth or placement.
These Hours of Service shall be credited in the computation period
following the computation period in which the absence begins, except as
necessary to prevent a Break in Service in the computation period in which
the absence begins. However, no more than five hundred one (501) Hours
of Service will be credited for purposes of any such maternity or
paternity absence from work.
(g) The Employer may elect to compute Hours of Service by
the use of one of the service equivalencies in the Adoption Agreement.
Only one method may be selected. If selected, the service equivalency
must be applied to all Employees covered under the Plan.
(h) If the Employer amends the method of crediting service
from the elapsed time method described in section 1.410(a)-7 of the
Treasury regulations to the Hours of Service computation method by the
adoption of this Plan, or an Employee transfers from a plan under which
service is determined on the basis of elapsed time, the following rules
shall apply for purposes of determining the Employee's service under this
Plan up to the time of amendment or transfer:
(i) the Employee shall receive credit, as of the date
of amendment or transfer, for a number of Years of Service equal to the
number of one (1) year periods of service credited to the Employee as of
the date of the amendment or transfer; and
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(ii) the Employee shall receive credit in the
applicable computation period which includes the date of amendment or
transfer, for a number of Hours of Service determined by applying the
weekly service equivalency specified in paragraph (g) to any fractional
part of a year credited to the Employee under this paragraph (h) as of the
date of amendment or transfer. The use of the weekly service equivalency
shall apply to all Employees who formerly were credited with service under
the elapsed time method.
2.20 Integration_Level. The Taxable Wage Base or such lesser
amount elected by the Employer in the Adoption Agreement.
2.21 Key_Employee.
(a) 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
fifty percent (50%) of the dollar limitation under section 415(b)(1)(A)
of the Code; an owner (or considered an owner under section 318 of the
Code) of one of the ten (10) largest interests in the Employer if such
individual's Compensation exceeds one hundred percent (100%) of the dollar
limitation under section 415(c)(1)(A) of the Code; a Five Percent (5%)
Owner of the Employer; or a one percent (1%) owner of the Employer who has
annual Compensation of more than one hundred fifty thousand dollars
($150,000).
(b) For purposes of this section, annual Compensation means
compensation as defined in section 415(c)(3) of the Code, but including
amounts contributed by the Employer pursuant to a salary reduction
agreement which are excludable from the Employee's gross income under
sections 125, 402(a)(8), 402(h) or 403(b) of the Code.
(c) For purposes of this section, determination period is
the Plan Year containing the Determination Date and the four (4) preceding
Plan Years.
2.22 Leased_Employee.
(a) Any person (other than an Employee of any of the
Affiliated Employers) who, pursuant to an agreement between any of the
Affiliated Employers and any other person ("leasing organization"), has
performed service for any of the Affiliated Employers (or for any of the
Affiliated Employers and related persons determined in accordance with
section 414(n)(6) of the Code) on a substantially full-time basis for a
period of at least one (1) year and such services are of a type
historically performed by employees in the Affiliated Employer's business
field. Contributions or benefits provided a Leased Employee by the
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leasing organization which are attributable to services performed for the
Affiliated Employer shall be treated as provided by the Affiliated
Employer.
(b) A Leased Employee shall not be considered an Employee
of an Affiliated Employer if:
(i) such employee is covered by a money purchase
pension plan providing:
(1) a nonintegrated employer contribution rate
of at least ten percent (10%) of compensation (as defined in section
415(c)(3) of the Code), but including amounts contributed pursuant to a
salary reduction agreement which are excludable from the employee's gross
income under sections 125, 402(a)(8), 402(h) or 403(b) of the Code;
(2) immediate participation; and
(3) full and immediate vesting.
and
(ii) Leased Employees do not constitute more than
twenty percent (20%) of the Affiliated Employer's non-Highly-Compensated
workforce.
(c) The determination of whether a person is a Leased
Employee will be made pursuant to section 414(n) of the Code.
2.23 Maximum_Disparity_Rate. The lesser of:
(a) five and seven-tenths percent (5.7%);
(b) the applicable percentage determined in accordance with
the table below:
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If the Integration Level is
The Applicable
More_Than But_Not_More_Than Percentage_Is:
$0 X */ 5.7%
X of TWB 80% of TWB 4.3%
80% of TWB Y **/ 5.4%
*/ X = the greater of $10,000 or 20% of the Taxable Wage Base.
**/ Y = any amount more than 80% of the Taxable Wage Base but less than
100% of the Taxable Wage Base.
"TWB" means the Taxable Wage Base.
If the Integration Level used is equal to the Taxable Wage Base, the
applicable percentage is five and seven-tenths percent (5.7%).
2.24 Maximum_Profit_Sharing_Disparity_Rate. The lesser of:
(a) two and seven-tenths percent (2.7%);
(b) the applicable percentage determined in accordance with
the table below:
If the Integration Level is
The Applicable
More_Than But_Not_More_Than Percentage_Is:
$0 X */ 2.7%
X of TWB 80% of TWB 1.3%
80% of TWB Y **/ 2.4%
*/ X = the greater of $10,000 or 20% of the Taxable Wage Base.
**/ Y = any amount more than 80% of the Taxable Wage Base but less than
100% of the Taxable Wage Base.
"TWB" means the Taxable Wage Base.
If the Integration Level used is equal to the Taxable Wage Base, the
applicable percentage is two and seven-tenths percent (2.7%).
2.25 Non-Key_Employee. Any Employee or former Employee who is not
a Key Employee. In addition, any Beneficiary of a Non-Key Employee shall
be treated as a Non- Key Employee.
2.26 Normal_Retirement_Age. The age selected in the Adoption
Agreement, but not less than age fifty-five (55). If the Employer
enforces a mandatory retirement age, the Normal Retirement Age is the
lesser of that mandatory age or the age specified in the Adoption
Agreement.
2.27 Owner-Employee. 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 a partnership.
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2.28 Participant. A person who has met the eligibility
requirements of section 3.1 and whose Account hereunder has been neither
completely forfeited nor completely distributed.
2.29 Plan. The prototype paired defined contribution profit
sharing and money purchase pension plan provided under this basic plan
document. References to the Plan shall refer to the profit sharing
provisions, the money purchase pension provisions, or both, as the context
may require.
2.30 Plan_Administrator. The person, persons or entity appointed
by the Employer pursuant to ARTICLE 15 to manage and administer the Plan.
2.31 Plan_Year. The twelve (12) consecutive month period
designated by the Employer in the Adoption Agreement.
2.32 Self-Employed_Individual. An individual who has Earned Income
for the taxable year from the trade or business for which the Plan is
established, or an individual who would have had Earned Income for the
taxable year but for the fact that the trade or business had no net
profits for the taxable year.
2.33 Shares. Shares of stock in any regulated investment company
registered under the Investment Company Act of 1940 that are made
available for investment purposes as an investment option under this Plan.
2.34 Sponsor. The sponsor designated in the Adoption Agreement
which has made this Plan available to the Employer.
2.35 Taxable_Wage_Base. The maximum amount of earnings which may
be considered wages for a year under section 3121(a)(1) of the Code in
effect as of the beginning of the Plan Year.
2.36 Total_and_Permanent_Disability. The inability of the
Participant to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment, which condition, in
the opinion of a physician chosen by the Plan Administrator, can be
expected to result in death or which has lasted or can be expected to last
for a continuous period of not less than twelve (12) months.
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2.37 Trust. The fund maintained by the Trustee for the investment
of Plan assets in accordance with the terms and conditions of the Trust
Agreement.
2.38 Trust_Agreement. The agreement between the Employer and the
Trustee under which the assets of the Plan are held, administered, and
managed. The provisions of the Trust Agreement shall be considered an
integral part of this Plan as if set forth fully herein.
2.39 Trustee. The individual or corporate Trustee or Trustees
under the Trust Agreement as they may be constituted from time to time.
2.40 Valuation_Date. The last day of each Plan Year and such other
dates as may be determined by the Plan Administrator, as provided in
section 5.6 for valuing the Trust assets.
2.41 Vesting_Computation_Period. The Plan Year.
2.42 Year_of_Service. An Eligibility Computation Period, Vesting
Computation Period, or Plan Year, whichever is applicable, during which
an Employee has completed at least one thousand (1,000) Hours of Service
(whether or not continuous). The Employer may, in the Adoption Agreement,
specify a fewer number of hours.
ARTICLE 3
ELIGIBILITY AND YEARS OF SERVICE
3.1 Eligibility_Requirements.
(a) Each Employee of the Affiliated Employers shall become
a Participant in the Plan as of the first Entry Date after the date on
which the Employee has satisfied the minimum age and service requirements
specified in the Adoption Agreement.
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(b) The Employer may elect in the Adoption Agreement to
exclude from participation:
(i) Employees included in a unit of employees covered
by a collective bargaining agreement between the Employer and Employee
representatives, if retirement benefits were the subject of good faith
bargaining. For this purpose, the term "Employee representatives" does
not include any organization more than half of whose members are Employees
who are owners, officers, or executives of the Employer; and
(ii) nonresident aliens who receive no earned income
from the Employer which constitutes income from sources within the United
States.
3.2 Participation_and_Service_Upon_Reemployment. Upon the
reemployment of any Employee, the following rules shall determine his
eligibility to participate in the Plan and his credit for prior service.
(a) Participation. If the reemployed Employee was a
Participant in the Plan during his prior period of employment, he shall
be eligible upon reemployment to resume participation in the Plan. If the
reemployed Employee was not a Participant in the Plan, he shall be
considered a new Employee and required to meet the requirements of section
3.1 in order to be eligible to participate in the Plan, subject to the
reinstatement of credit for prior service under paragraph (b) below.
(b) Credit_for_Prior_Service. In the case of any Employee
who is reemployed before or after incurring a Break in Service, any Hour
of Service and Year of Service credited to the Employee at the end of his
prior period of employment shall be reinstated as of the date of his
reemployment.
3.3 Predecessor_Employers. If specified in the Adoption
Agreement, Years of Service with a predecessor employer will be treated
as service for the Employer for eligibility purposes; provided, however,
if the Employer maintains the plan of a predecessor employer, Years of
Service with such employer will be treated as service with the Employer
without regard to any election.
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ARTICLE 4
CONTRIBUTIONS
4.1 Employer_Contributions.
(a) Money_Purchase_Pension_Contributions. For each Plan
Year, the Employer shall contribute to the Trust an amount equal to such
uniform percentage of Compensation of each eligible Participant as may be
determined by the Employer in accordance with the money purchase pension
contribution formula specified in the Adoption Agreement. Subject to the
limitations of section 5.4, the money purchase pension contribution
formula may be integrated with Social Security, as set forth in the
Adoption Agreement.
(b) Profit_Sharing_Contribution. For each Plan Year, the
Employer shall contribute to the Trust an amount as may be determined by
the Employer in accordance with the profit sharing formula set forth in
the Adoption Agreement.
(c) Eligible_Participants. Subject to the Minimum
Allocation rules of section 5.2 and the exclusions specified in this
section, each Participant shall be eligible to share in the Employer
Contribution. An Employer may elect in the Adoption Agreement that
Participants who terminate employment during the Plan Year with not more
than five hundred (500) Hours of Service and who are not Employees as of
the last day of the Plan Year (other than Participants who die, retire or
become totally and Permanently Disabled during the Plan Year) shall not
be eligible to share in the Employer Contribution. An Employer may
further elect in the Adoption Agreement to allocate a contribution on
behalf of a Participant who completes fewer than five hundred (500) Hours
of Service and is otherwise ineligible to share in the Employer
Contribution. If the Employer fails to specify in the Adoption Agreement
the number of Hours of Service required to share in the Employer
Contribution, the number shall be five hundred (500) Hours of Service.
(d) Contribution_Limitation. In no event shall any Employer
Contribution exceed the maximum amount deductible from the Employer's
income under section 404 of the Code, or the maximum limitations under
section 415 of the Code provided in ARTICLE 6.
4.2 Payment. All Employer Contributions to the Trust for any Plan
Year shall be made either in one lump-sum or in installments in U.S.
currency, by check, or in Shares within the time prescribed by law,
including extensions granted by the Internal Revenue Service, for filing
the Employer's federal income tax return for the taxable year with or
within which such Plan Year ends. All Employer Contributions to the Trust
for a money purchase pension plan for any Plan Year shall be made within
the time prescribed by regulations under section 412(c)(10) of the Code.
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4.3 Nondeductible_Voluntary_Contributions_by_Partici pants.
(a) This Plan will not accept nondeductible Employee
contributions for Plan Years beginning after the Plan Year in which this
Plan is adopted by the Employer. Employee contributions made with respect
to Plan years beginning after December 31, 1986 will be limited so as to
meet the nondiscrimination test of section 401(m).
(b) A separate account shall be maintained by the Trustee
for the nondeductible Employee contributions of each Participant.
(c) Employee contributions and earnings thereon shall be
fully vested and nonforfeitable at all times.
(d) The provisions of this section shall apply to Employee
contributions made prior to the first Plan Year after the Plan Year in
which the Employer adopts this Plan.
4.4 Rollovers.
(a) Subject to the approval of the Plan Administrator, a
participant who has participated in any other qualified plan described in
section 401(a) of the Code or in a qualified annuity plan described in
section 403(a) of the Code shall be permitted to make a rollover
contribution in the form of cash to the Trustee of an amount received by
the Participant that is attributable to participation in such other plan
(reduced by any nondeductible voluntary contributions he made to the
plan), provided that the rollover contribution complies with all
requirements of sections 402(a)(5) or 403(a)(4) of the Code, whichever is
applicable.
(b) Before approving such a Participant rollover, the Plan
Administrator may request from the Participant or the Employer any
documents which the Plan Administrator, in its discretion, deems necessary
for such rollover.
(c) Any rollover contribution to the Trust shall be credited
to the Participant's rollover subaccount established under section 5.1 and
separately accounted for.
4.5 Direct_Transfers.
(a) The Plan shall accept a transfer of assets directly from
another plan qualified under sections 401(a) or 403(a) of the Code only
if the Plan Administrator, in its sole discretion, agrees to accept such
a transfer. In determining whether to accept such a transfer the Plan
Administrator shall consider the administrative inconvenience engendered
by such a transfer and any risks to the continued qualification of the
Plan under section 401(a) of the Code. Acceptance of any such transfer
shall not preclude the Plan Administrator from refusing any subsequent
such transfers.
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(b) Any transfer of assets accepted under this section shall
be credited to the Participant's direct transfer subaccount and shall be
separately accounted for at all times and shall remain subject to the
provisions of the transferor plan (as it existed at the time of such
transfer) to the extent required by section 411(d)(6) of the Code
(including, but not limited to, any rights to Qualified Joint and Survivor
Annuities and qualified preretirement survivor annuities) as if such
provisions were part of the Plan. In all other respects, however, such
transferred assets will be subject to the provisions of the Plan.
(c) Assets accepted under this section shall be fully vested
and nonforfeitable.
(d) Before approving such a direct transfer, the Plan
Administrator may request from the Participant or the Employer (or the
prior employer) any documents the Plan Administrator, in its discretion,
deems necessary for such direct transfer.
ARTICLE 5
ALLOCATIONS
5.1 Individual_Accounts. The Plan Administrator shall establish
and maintain an Account in the name of each Participant. The Account
shall contain the following subaccounts:
(a) A money purchase pension contribution subaccount to
which shall be credited each such Participant's share of (i) Employer
Contributions under section 4.1(a); (ii) the net earnings or net losses
on the investment of the assets of the Trust; (iii) distributions; and
(iv) dividends, capital gain distributions and other earnings received on
any Shares credited to the Participant's subaccount;
(b) A profit sharing contribution subaccount to which shall
be credited each such Participant's share of (i) Employer Contributions
under section 4.1(b); (ii) forfeitures; (iii) the net earnings or net
losses on the investment of the assets of the trust; (iv) distributions;
and (v) dividends, capital gain distributions and other earnings received
on any Shares credited to the Participant's subaccount;
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(c) A nondeductible voluntary contribution subaccount to
which shall be credited (i) nondeductible voluntary contributions by the
Participant under section 4.3; (ii) the net earnings or net losses on the
investment of the assets of the Trust; (iii) distributions; and
(iv) dividends, capital gain distributions and other earnings received on
any Shares credited to the Participant's subaccount;
(d) A direct transfer subaccount to which shall be credited
(i) contributions to the Trust accepted under section 4.5(a); (ii) the net
earnings or net losses on the investment of the assets of the Trust;
(iii) distributions; and (iv) dividends, capital gain distributions and
other earnings received on any Shares credited to the Participant's
subaccount;
(e) A rollover subaccount to which shall be credited
(i) contributions to the Trust accepted under section 4.4(a); (ii) the net
earnings or net losses on the investment of the assets of the Trust;
(iii) distributions; and (iv) dividends, capital gain distributions and
other earnings received on any Shares credited to the Participant's
subaccount.
5.2 Minimum_Allocation.
(a) Except as otherwise provided in this section, the
Employer Contributions and forfeitures allocated on behalf of any
Participant who is not a Key Employee shall not be less than the lesser
of three percent (3%) of such Participant's Compensation or in the case
where the Employer has no defined benefit plan which designates this Plan
to satisfy section 401 of the Code, the largest percentage of Employer
Contributions and forfeitures, as a percentage of the first two hundred
thousand dollars ($200,000) of the Key Employee's Compensation, allocated
on behalf of any Key Employee for that year. The minimum allocation is
determined without regard to any Social Security contribution. This
minimum allocation shall be made even though, under other Plan provisions,
the Participant would not otherwise be entitled to receive an allocation,
or would have received a lesser allocation for the year because of (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. For purposes of this
subsection, all defined contribution plans required to be included in an
aggregation group under section 416(g)(2)(A)(i) shall be treated as a
single plan.
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(b) For purposes of computing the minimum allocation,
Compensation shall mean Compensation as defined in section 6.5(b) of the
Plan.
(c) The provision in subsection (a) above shall not apply
to any Participant who was not employed by the Employer on the last day
of the Plan Year.
(d) The provision in subsection (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.
(e) The minimum allocation required (to the extent required
to be nonforfeitable under section 416(b)) may not be forfeited under
section 411(a)(3)(B) or 411(a)(3)(D).
5.3 Allocation_of_Employer_Contributions_and_Forfeitures.
(a) All money purchase pension contributions for a given
Plan Year shall be allocated to the Account of the Participant for whom
such contribution was made. Any forfeiture from a Participant's money
purchase pension contribution subaccount arising under the Plan for a
given Plan Year shall be applied as specified in the Adoption Agreement,
either: (i) to reduce the Employer Contribution in that year, or if in
excess of the Employer Contribution for such Plan Year, the excess amounts
shall be used to reduce the Employer Contribution in the next succeeding
Plan Year or Years or (ii) to be added to the Employer Contributions and
allocated accordingly.
(b) All profit sharing contributions and forfeitures from
a Participant's profit sharing contribution subaccount will be allocated
to the Account of each Participant in the ratio that such Participant's
Compensation bears to the Compensation of all Participants. However, if
the profit sharing contribution formula selected in the Adoption
Agreement is integrated with Social Security, profit sharing contributions
for the Plan Year plus any forfeitures will be allocated to Participants'
Accounts as follows:
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(i) Step_One. Contributions and forfeitures will be
allocated to each Participant's Account in the ratio that each
Participant's total Compensation bears to all Participants' total
Compensation, but not in excess of three percent (3%) of each
Participant's Compensation. (Step One is not applicable if the Employer
enters into the money purchase pension Adoption Agreement).
(ii) Step_Two. Any contributions and forfeitures
remaining after the allocation in Step One (if any) will be allocated to
each Participant's Account in the ratio that each Participant's
Compensation for the Plan Year in excess of the Integration Level bears
to the excess Compensation of all Participants, but not in excess of three
percent (3%). (Step Two is not applicable if the Employer enters into the
money purchase pension Adoption Agreement).
(iii) Step_Three. Any contributions and forfeitures
remaining after the allocation in Step Two (if any) will be allocated to
each Participant's Account in the ratio that the sum of each Participant's
total Compensation and Compensation in excess of the Integration Level
bears to the sum of all Participants' total Compensation and Compensation
in excess of the Integration Level, but not in excess of whichever of the
following is applicable:
(i) if the Employer has not adopted the money
purchase pension Adoption Agreement, then the Maximum Profit Sharing
Disparity Rate; or
(ii) If the Employer has adopted the money purchase
pension Adoption Agreement, then the lesser of:
(1) the percentage of each Participant's
Compensation for the Plan Year up to the Integration Level determined by
dividing the allocation by such Compensation (the base contribution
percentage); or
(2) the Maximum Disparity Rate.
(iv) Step_Four. Any remaining contributions or
forfeitures will be allocated to each Participant's Account in the ratio
that each Participant's total Compensation for the Plan Year bears to all
Participants' total Compensation for that year.
(c) Notwithstanding anything in (a) or (b) above to the
contrary, forfeitures arising under a Participant's money purchase pension
contribution subaccount will only be used to reduce the contributions of
the Participant's Employer who adopted this Plan, and forfeitures arising
under a Participant's profit sharing contribution subaccount will be
reallocated only for the benefit of Employees of the Participant's
Employer who adopted this Plan.
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5.4 Coordination_of_Social_Security_Integration. If the Employer
maintains plans involving integration with Social Security other than this
Plan, and if any Participant is eligible to participate in more than one
of such plans, all such plans will be considered to be integrated if the
extent of the integration of all such plans does not exceed one hundred
percent (100%). For purposes of the preceding sentence, the extent of
integration of a plan is the ratio (expressed as a percentage) which the
actual benefits, benefit rate, offset rate, or Employer Contribution rate
under the plan bears to the integration limitation applicable to such
plan. If the Employer enters into both the money purchase pension
Adoption Agreement and the profit sharing Adoption Agreement under this
Plan, integration with Social Security may only be selected in one Adop-
tion Agreement.
5.5 Withdrawals_and_Distributions. Any distribution to a
Participant or his Beneficiary, any amount transferred from a
Participant's Account directly to the Trustee of any other qualified plan
described in section 401(a) of the Code or to a qualified annuity plan
described in section 403(a) of the Code, or any withdrawal by a
Participant shall be charged to the appropriate subaccount(s) of the
Participant as of the date of the distribution or the withdrawal.
5.6 Determination_of_Value_of_Trust_Fund_and_of_Net
Earnings_or_Losses. As of each Valuation Date the Trustee shall determine
for the period then ended the sum of the net earnings or losses of the
Trust (excluding with respect to Shares and other assets specifically
allocated to a specific Participant's subaccount, (i) dividends and
capital gain distributions from Shares, (ii) receipts or income
attributable to insurance policies, (iii) income gains and/or losses
attributable to a Participant's loans made pursuant to ARTICLE 13 or to
any other assets) which shall reflect accrued but unpaid interest,
dividends, gains, or losses realized from the sale, exchange or collection
of assets, other income received, appreciation in the fair market value
of assets, depreciation in the fair market value of assets, administration
expenses, and taxes and other expenses paid. Gains or losses realized and
adjustments for appreciation or depreciation in fair market value shall
be computed with respect to the difference between such value as of the
preceding Valuation Date or date of purchase, whichever is applicable, and
the value as of the date of disposition or the current Valuation Date,
whichever is applicable.
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5.7 Allocation_of_Net_Earnings_or_Losses.
(a) As of each Valuation Date the net earnings or losses of
the Trust (excluding with respect to Shares and other assets specifically
allocated to a specific Participant's subaccount, (i) dividends and
capital gain distributions from Shares, (ii) dividends or credits
attributable to insurance policies, (iii) income gains and/or losses
attributable to a Participant's loans made pursuant to ARTICLE 13 or to
any other assets, all of which shall be allocated to such Participant's
subaccount) for the valuation period then ending shall be allocated to the
Accounts of all Participants (or Beneficiaries) having credits in the fund
both on such date and at the beginning of such valuation period. Such
allocation shall be made by the application of a fraction, the numerator
of which is the value of the Account of a specific Participant (or
Beneficiary) as of the immediately preceding Valuation Date, reduced by
any distributions therefrom since such preceding Valuation Date, and the
denominator of which is the total value of all such Accounts as of the
preceding Valuation Date, reduced by any distributions therefrom since
such preceding Valuation Date.
(b) To the extent that Shares and other assets are
specifically allocated to a specific Participant's subaccount:
(i) dividends and capital gain distributions from Shares; (ii) dividends
or credits attributable to insurance policies; and (iii) income gains
and/or losses attributable to a Participant's loans made pursuant to
ARTICLE 13 or to any other assets, all shall be allocated to such Partici-
pant's subaccount.
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5.8 Responsibilities_of_the_Plan_Administrator. The Plan
Administrator shall maintain accurate records with respect to the
contributions made by or on behalf of Participants under the Plan, and
shall furnish the Trustee with written instructions directing the Trustee
to allocate all Plan contributions to the Trust among the separate
Accounts of Participants in accordance with section 5.1 above. In making
any such allocation, the Trustee shall be fully entitled to rely on the
instructions furnished by the Plan Administrator, and shall be under no
duty to make any inquiry or investigation with respect thereto.
ARTICLE 6
LIMITATIONS ON ALLOCATIONS
6.1 Employers_Who_Do_Not_Maintain_Other_Qualified Plans.
(a) If the Participant does not participate in, and has
never participated in another qualified plan or a welfare benefit fund,
as defined in section 419(e) of the Code, maintained by the Employer, or
an individual medical account, as defined in section 415(l)(2) of the
Code, maintained by the Employer, which provides an Annual Addition as
defined in section 6.5(a), the amount of Annual Additions that may be
credited to the Participant's Account for any Limitation Year will not
exceed the lesser of the Maximum Permissible Amount or any other
limitation contained in this Plan. If the Employer Contribution that
would otherwise be contributed or allocated to the Participant's 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 determining the Participant's actual
Compensation for the Limitation Year, the Employer may determine the
Maximum Permissible Amount for a Participant on the basis of a reasonable
estimation of the Participant's Compensation for the Limitation Year,
uniformly determined for all Participants similarly situated.
(c) As soon as is administratively feasible after the end
of the Limitation Year, the Maximum Permissible Amount for the Limitation
Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
(d) If, pursuant to subsection (c) or as a result of the
allocation of forfeitures, there is an Excess Amount the excess will be
disposed of as follows:
(i) Any nondeductible voluntary Employee
contributions, to the extent they would reduce the Excess Amount, will be
returned to the Participant;
(ii) If after the application of paragraph (i) an
Excess Amount still exists, and the Participant is covered by the Plan at
the end of the Limitation Year, the Excess Amount in the Participant's
Account will be used to reduce Employer Contributions (including any
allocation of forfeitures) for such Participant in the next Limitation
Year, and each succeeding Limitation Year if necessary;
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(iii) If after the application of paragraph (i) an
Excess Amount still exists, and the Participant is not covered by the Plan
at the end of the Limitation Year, the Excess Amount will be held
unallocated in a suspense account. The suspense account will be applied
to reduce future Employer Contributions (including allocation of any
forfeitures) for all remaining Participants in the next Limitation Year,
and each succeeding Limitation Year if necessary;
(iv) If a suspense account is in existence at any time
during the Limitation Year pursuant to this section, it will not
participate in the allocation of the Trust's investment gains and losses.
If a suspense account is in existence at any time during a particular
Limitation Year, all amounts in the suspense account must be allocated and
reallocated to Participants' Accounts before any Employer or any Employee
contributions may be made to the Plan for that Limitation Year. Excess
amounts may not be distributed to Participants or former Participants.
6.2 Employers_Who_Maintain_Other_Qualified_Master_or
Prototype_Defined_Contribution_Plans.
(a) This section applies if, in addition to this Plan, the
Participant is covered under another qualified master or prototype defined
contribution plan maintained by the Employer, a welfare benefit fund, as
defined in section 419(e) of the Code maintained by the Employer or an
individual medical account, as defined in section 415(l)(2) of the Code,
maintained by the Employer which provides an Annual Addition as defined
in section 6.5(a), during any Limitation Year. The Annual Additions that
may be credited to a Participant's Account under this Plan for any such
Limitation Year will not exceed the Maximum Permissible Amount reduced by
the Annual Additions credited to a Participant's Account under the other
plans and welfare benefit funds for the same Limitation Year. If the
Annual Additions with respect to the Participant under other defined
contribution plans and welfare benefit funds maintained by the Employer
are less than the Maximum Permissible Amount and the Employer Contribution
that would otherwise be contributed or allocated to the Participant's
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.
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(b) Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer may determine the
Maximum Permissible Amount for a Participant in the manner described in
section 6.1(b).
(c) As soon as is administratively feasible after the end
of the Limitation Year, the Maximum Permissible Amount for the Limitation
Year will be determined on the basis of the Participant's actual
Compensation for the Limitation Year.
(d) If, pursuant to section 6.2(c), or as a result of the
allocation of forfeitures, a Participant's Annual Additions under this
Plan and such other plans would result in an Excess Amount for a
Limitation Year, the Excess Amount will be deemed to consist of the Annual
Additions last allocated, except that Annual Additions attributable to a
welfare benefit fund or individual medical account will be deemed to have
been allocated first regardless of the actual allocation date.
(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, times
(ii) the ratio of (1) the Annual Additions allocated
to the Participant for the Limitation Year as of such date under this Plan
to (2) the total Annual Additions allocated to the Participant for the
Limitation Year as of such date under this and all the other qualified
master or prototype defined contribution plans.
(f) Any Excess Amount attributed to this Plan will be
disposed of in the manner described in section 6.1(d).
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6.3 Employers_Who,_In_Addition_to_this_Plan,_Maintain
Other_Qualified_Plans_Which_Are_Defined_Contribution_Plans
Other_than_Master_or_Prototype_Plans. If the Participant is covered under
another qualified defined contribution plan maintained by the Employer
which is not a Master or Prototype Plan, Annual Additions which may be
credited to the Participant's Account under this Plan for any Limitation
Year will be limited in accordance with section 6.2 as though the other
plan were a Master or Prototype Plan unless the Employer provides other
limitations in the Adoption Agreement.
6.4 Employers_Who,_In_Addition_to_This_Plan,_Maintain
A_Qualified_Defined_Benefit_Plan. If the Employer maintains, or at any
time maintained, a qualified defined benefit plan covering any Participant
in this Plan, the sum of the Participant's Defined Benefit Fraction and
Defined Contribution Fraction will not exceed 1.0 in any Limitation Year.
The Annual Additions which may be credited to the Participant's Account
under this Plan for any Limitation Year will be limited in accordance with
the Adoption Agreement.
6.5 Definitions. Unless otherwise expressly provided herein, for
purposes of this ARTICLE only, the following definitions and rules of
interpretation shall apply:
(a) Annual_Additions. The sum of the following amounts
credited to a Participant's Account for the Limitation Year:
(i) Employer Contributions;
(ii) Employee contributions;
(iii) forfeitures; and
(iv) amounts allocated after March 31, 1984 to an
individual medical account, as defined in section 415(l)(2) of the Code,
which is part of a pension or annuity plan maintained by the Employer, are
treated as Annual Additions to a defined contribution plan. Also, amounts
derived from contributions paid or accrued after December 31, 1985, in
taxable years ending after such date, which are attributable to post-
retirement medical benefits allocated to the separate account of a key
employee, as defined in section 419A(d)(3) of the Code, under a welfare
benefit fund, as defined in section 419(e) of the Code, maintained by the
Employer, are treated as Annual Additions to a defined contribution plan.
For this purpose, any Excess Amount applied under sections 6.1(d) or
6.2(f) in the Limitation Year to reduce Employer Contributions will be
considered Annual Additions for such Limitation Year.
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(b) Compensation. A Participant's earned income, wages,
salaries, and fees for professional services and other amounts received
for personal services actually rendered in the course of employment with
the Employer maintaining the Plan (including, but not limited to,
commissions paid salesmen, compensation for services on the basis of a
percentage of profits, commissions on insurance premiums, tips and
bonuses), and excluding the following:
(i) Employer contributions to a plan of deferred
compensation which are not includable in the Employee's gross income for
the taxable year in which contributed, or Employer Contributions under a
simplified employee pension plan to the extent such contributions are
excluded from the Employee's gross income, or any distributions from a
plan of deferred compensation;
(ii) Amounts realized from the exercise of a
nonqualified stock option, or when restricted stock (or property) held by
the Employee either becomes freely transferable or is no longer subject
to a substantial risk of forfeiture;
(iii) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(iv) Other amounts which received special tax
benefits, or contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an annuity described
in section 403(b) of the Code (whether or not the amounts are actually
excludable from the gross income of the Employee).
For purposes of applying the limitations of this
ARTICLE, Compensation for a Limitation Year is the Compensation actually
paid or includable in gross income during such year.
Notwithstanding the preceding sentence, Compensation for
a Participant in a defined contribution plan who is Totally and
Permanently Disabled (as defined in section 22(e)(3) of the Code) is the
Compensation such Participant would have received for the Limitation Year
if the Participant had been paid at the rate of Compensation paid
immediately before becoming permanently and totally disabled; such imputed
Compensation for the disabled Participant may be taken into account only
if the Participant is not a Highly-Compensated Employee (as defined in
section 414(q) of the Code), and contributions made on behalf of such
Participant are nonforfeitable when made.
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(c) Defined_Benefit_Fraction. A fraction, the numerator of
which is the sum of the Participant's Projected Annual Benefits under all
the defined benefit plans (whether or not terminated) maintained by the
Employer, and the denominator of which is the lesser of one hundred
percent (100%) of the dollar limitation determined for the Limitation Year
under sections 415(b) and (d) of the Code or one hundred forty percent
(140%) of highest average compensation, including any adjustments under
section 415(b) of the Code.
Notwithstanding the above, if the Participant was a
Participant as of the first day of the first Limitation Year beginning
after December 31, 1986, in one or more defined benefit plans maintained
by the Employer which were in existence on May 6, 1986, the denominator
of this fraction will not be less than one hundred twenty-five percent
(125%) of the sum of the annual benefits under such plans which the
Participant had accrued as of the close of the last Limitation Year
beginning before January 1, 1987, disregarding any changes in the terms
and conditions of the Plan after May 5, 1986. The preceding sentence
applies only if the defined benefit plans individually and in the
aggregate satisfied the requirements of section 415 of the Code for all
Limitation Years beginning before January 1, 1987.
(d) Defined_Contribution_Dollar_Limitation. Thirty thousand
dollars ($30,000) or, if greater, one- fourth (1/4) of the defined benefit
dollar limitation set forth in section 415(b)(1) of the Code as in effect
for the Limitation Year.
(e) Defined_Contribution_Fraction. A fraction, the
numerator of which is the sum of the Annual Additions to the Participant's
Account under all the defined contribution plans (whether or not
terminated) maintained by the Employer for the current and all prior
Limitation Years (including the Annual Additions attributable to the
Participant's nondeductible voluntary contributions to all defined benefit
plans, whether or not terminated, maintained by the Employer, and the
Annual Additions attributable to all welfare benefit funds, as defined in
section 419(e) of the Code and individual medical accounts, as defined in
section 415(l)(2) of the Code, maintained by the Employer), and the
denominator of which is the sum of the maximum aggregate amounts for the
current and all prior Limitation Years of service with the Employer
(regardless of whether a defined contribution plan was maintained by the
Employer). The maximum aggregate amount in any Limitation Year is the
lesser of one hundred percent (100%) of the dollar limitation in effect
under section 415(c)(1)(A) of the Code or thirty-five percent (35%) of the
Participant's Compensation for such year.
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If the Participant was a Participant as of the end of the
first day of the first Limitation Year beginning after December 31, 1986,
in one or more defined contribution plans maintained by the Employer which
were in existence on May 6, 1986, the numerator of this fraction will be
adjusted if the sum of this fraction and the Defined Benefit Fraction
would otherwise exceed 1.0 under the terms of this Plan. Under the
adjustment, an amount equal to the product of (1) the excess of the sum
of the fractions over 1.0 times (2) the denominator of this fraction, will
be permanently subtracted from the numerator of this fraction. The
adjustment is calculated using the fractions as they would be computed as
of the end of the last Limitation Year beginning before January 1, 1987,
and disregarding any changes in the terms and conditions of the Plan made
after May 5, 1986, but using the section 415 limitation applicable to the
first Limitation Year beginning on or after January 1, 1987. The Annual
Addition for any Limitation Year beginning before January 1, 1987, shall
not be recomputed to treat all Employee contributions as Annual Additions.
(f) Employer. For purposes of this ARTICLE, Employer shall
mean the employer that adopts this Plan, and all members of a controlled
group of corporations (as defined in section 414(b) of the Code as
modified by section 415(h) of the Code), all commonly controlled trades
or businesses (as defined in section 414(c) of the Code as modified by
section 415(h) of the Code), or affiliated service groups (as defined in
section 414(m) of the Code) of which the adopting Employer is a part and
any other entity required to be aggregated with the Employer pursuant to
regulations under section 414(o) of the Code.
(g) Excess_Amount. The excess of the Participant's Annual
Addition for the Limitation Year over the Maximum Permissible Amount.
(h) Highest_Average_Compensation. The average compensation
for the three consecutive Plan Years that produce the highest average.
(i) Limitation_Year. A Plan Year, or the twelve (12)
consecutive month period elected by the Employer in the Adoption
Agreement. All qualified plans maintained by the Employer must use the
same Limitation Year. If the Limitation Year is amended to a different
twelve (12) consecutive month period, the new Limitation Year must begin
on a date within the Limitation Year in which the amendment is made.
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(j) Master_or_Prototype_Plan. A plan the form of which is
the subject of a favorable opinion letter from the Internal Revenue
Service.
(k) Maximum_Permissible_Amount. The maximum Annual Addition
that may be contributed or allocated to a Participant's Account under the
Plan for any Limitation Year shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation;
or
(b) twenty-five percent (25%) of the Participant's
Compensation for the Limitation Year.
The Compensation limitation referred to in subsection (b)
shall not apply to any contribution for medical benefits (within the
meaning of section 401(h) or section 419A(f)(2) of the Code) which is
otherwise treated as an Annual Addition under section 415(l)(1) or section
419A(d)(2) of the Code.
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 will not exceed the Defined
Contribution Dollar Limitation multiplied by the following fraction:
Number of Months in the Short Limitation Year
---------------------------------------------
12
(l) Projected_Annual_Benefit. The annual retirement benefit
(adjusted to an actuarially equivalent straight life annuity if such
benefit is expressed in a form other than a straight life annuity or
Qualified Joint and Survivor Annuity) to which the Participant would be
entitled under the terms of the Plan assuming:
(i) the Participant will continue employment until
Normal Retirement Age under the Plan (or current age, if later), and
(ii) the Participant's Compensation for the current
Limitation Year and all other relevant factors used to determine benefits
under the Plan will remain constant for all future Limitation Years.
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ARTICLE 7
TRUST FUND
7.1 Receipt_of_Contributions_by_Trustee. All contributions to the
Trust that are received by the Trustee, together with any earnings
thereon, shall be held, managed and administered by the Trustee named in
the Adoption Agreement in accordance with the terms and conditions of the
Trust Agreement and the Plan. The Trustee may use a Custodian designated
by the Sponsor to perform recordkeeping and custodial functions. The
Trustee shall be subject to the proper directions of the Employer or the
Plan Administrator made in accordance with the terms of the Plan and
ERISA.
7.2 Investment_Responsibility.
(a) If the Employer elects in the Adoption Agreement to
exercise investment authority and responsibility, the selection of the
investments in which assets of the Trust are invested shall be the
responsibility of the Plan Administrator and each Participant will have
a ratable interest in all assets of the Trust.
(b) If the Adoption Agreement so provides and the Employer
elects to permit each Participant or Beneficiary to select the investments
in his Account, no person, including the Trustee and the Plan
Administrator, shall be liable for any loss or for any breach of fiduciary
duty which results from such Participant's or Beneficiary's exercise of
control.
(c) If the Adoption Agreement so provides and the Employer
elects to permit each Participant or Beneficiary to select the investments
in his Account, the Employer or the Plan Administrator must complete a
schedule of Participant designations.
(d) If Participants and Beneficiaries are permitted to
select the investment in their Accounts, all investment related expenses,
including administrative fees charged by brokerage houses, will be charged
against the Accounts of the Participants.
(e) The Plan Administrator may at any time change the
selection of investments in which the assets of the Trust are invested,
or subject to such reasonable restrictions as may be imposed by the
Sponsor for administrative convenience, may submit an amended schedule of
Participant designations. Such amended documents may provide for a
variance in the percentages of contributions to any particular investment
or a request that Shares in the Trust be reinvested in whole or in part
in other Shares.
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7.3 Investment_Limitations. The Sponsor may impose reasonable
investment limitations on the Employer and the Plan Administrator relating
to the type of permissible investments in the Trust or the minimum
percentage of Trust assets to be invested in Shares.
ARTICLE 8
VESTING
8.1 Nondeductible_Voluntary_Contributions_and Earnings. The
Participant's nondeductible voluntary contribution subaccount shall be
fully vested and nonforfeitable at all times and no forfeitures will occur
as a result of an Employee's withdrawal of nondeductible voluntary
contributions.
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8.2 Rollovers,_Transfers_and_Earnings. The Participant's rollover
subaccount and direct transfer subaccount shall be fully vested and
nonforfeitable at all times.
8.3 Employer_Contributions_and_Earnings. Notwithstanding the
vesting schedule elected by the Employer in the Adoption Agreement, the
Participant's money purchase pension contribution subaccount and profit
sharing contribution subaccount shall be fully vested and nonforfeitable
upon the Participant's death, disability, attainment of Normal Retirement
Age, or, if the Adoption Agreement provides for an Early Retirement Date,
attainment of the required age and completion of the required service.
In the absence of any of the preceding events, the Participant's money
purchase contribution subaccount and his profit sharing contribution
subaccount shall vest in accordance with a minimum vesting schedule
specified in the Adoption Agreement. The schedule must be at least as
favorable to Participants as either schedule (a) or (b) below.
(a) Graduated vesting according to the following schedule:
Years_of_Service Vested_Percentage
Less than 2 0%
2 but less than 3 20%
3 but less than 4 40%
4 but less than 5 60%
5 but less than 6 80%
6 or more 100%
(b) Full one hundred percent (100%) vesting after three (3)
Years of Service.
8.4 Amendments_to_Vesting_Schedule.
(a) If the Plan's vesting schedule is amended, or the Plan
is amended in any way that directly or indirectly affects the computation
of the Participant's nonforfeitable percentage or if the Plan is deemed
amended by an automatic change to or from a top-heavy vesting schedule,
each Participant with at least three (3) Years of Service with the
Employer may elect, within a reasonable period after the adoption of the
amendment or change, to have the nonforfeitable percentage computed under
the Plan without regard to such amendment or change. For any Participants
who do 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.
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(b) The period during which the election may be made shall
commence with the date the amendment is adopted or deemed to be made and
shall end on the latest of:
(i) sixty (60) days after the amendment is adopted;
(ii) sixty (60) days after the amendment becomes
effective; or
(iii) sixty (60) days after the Participant is issued
written notice of the amendment by the Employer or Plan Administrator.
(c) No amendment to the Plan shall be effective to the
extent that it has the effect of decreasing a Participant's accrued
benefit. Notwithstanding the preceding sentence, a Participant's Account
balance may be reduced to the extent permitted under section 412(c)(8) of
the Code. For purposes of this paragraph, a Plan amendment which has the
effect of decreasing a Participant's 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.
8.5 Determination_of_Years_of_Service. For purposes of
determining the vested and nonforfeitable percentage of the Participant's
Employer Contribution subaccounts, all of the Participant's Years of
Service with the Employer or an Affiliated Employer shall be taken into
account. If specified in the Adoption Agreement, Years of Service with
a predecessor employer will be treated as service for the Employer;
provided, however, if the Employer maintains the plan of a predecessor
employer, Years of Service with such predecessor employer will be treated
as service with the Employer without regard to any election.
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8.6 Forfeiture_of_Nonvested_Amounts.
(a) For Plan Years beginning before 1985, any portion of a
Participant's Account that is not vested shall be forfeited by him as of
the last day of the Plan Year in which a Break in Service occurs. For
Plan Years beginning after 1984, any portion of a Participant's Account
that is not vested shall be forfeited by him as of the last day of the
Plan Year in which his fifth consecutive Break in Service occurs. Any
amounts thus forfeited shall be reallocated as provided in ARTICLE 5 and
shall not be considered part of a Participant's Account in computing his
vested interest. The remaining portion of the Participant's Account will
be nonforfeitable.
(b) If a distribution is made at a time when a Participant
has a vested right to less than one hundred percent (100%) of the value
of the Participant's Account attributable to Employer Contributions and
forfeitures, as determined in accordance with the provisions of section
8.3, and the nonvested portion of the Participant's Account has not yet
been forfeited in accordance with paragraph (a) above:
(i) a separate remainder subaccount shall 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 vested
portion of the separate remainder subaccount shall be equal to an amount
("X") determined by the following formula:
X = P(AB + (R x D)) - (R x D)
For purposes of applying the formula: P is the vested
percentage at the relevant time; AB is the Account balance at the relevant
time; D is the amount of the distribution; and R is the ratio of the
Account balance at the relevant time to the Account balance after
distribution.
8.7 Reinstatement_of_Benefit. 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.
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ARTICLE 9
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
9.1 General. The provisions of this ARTICLE shall apply to any
Participant who is credited with at least one (1) Hour of Service with the
Employer on or after August 23, 1984, and such other Participants as
provided in section 9.7.
9.2 Qualified_Joint_and_Survivor_Annuity. Unless an optional form
of benefit is selected pursuant to a Qualified Election within the ninety
(90) day period ending on the Annuity Starting Date, a married
Participant's Vested Account Balance will be paid in the form of a
Qualified Joint and Survivor Annuity and an unmarried Participant's Vested
Account Balance will be paid in the form of a life annuity. The
Participant may elect to have such annuity distributed upon attainment of
the Earliest Retirement Age under the Plan.
9.3 Qualified_Preretirement_Survivor_Annuity. Unless an optional
form of benefit has been selected within the Election Period pursuant to
a Qualified Election, if a Participant dies before the Annuity Starting
Date, then the Participant's Vested Account Balance shall be applied
toward the purchase of an annuity for the life of the Surviving Spouse.
The Surviving Spouse may elect to have such annuity distributed within a
reasonable period after the Participant's death.
9.4 Definitions.
(a) Election_Period.
(i) The period which begins on the first day of the
Plan Year in which the Participant attains age thirty-five (35) and ends
on the date of the Participant's death. If a Participant separates from
service prior to the first day of the Plan Year in which age thirty-five
(35) is attained, with respect to the Account balance as of the date of
separation, the Election Period shall begin on the date of separation.
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(ii) A Participant who has not yet attained age
thirty-five (35) as of the end of any current Plan Year may make a special
Qualified Election to waive the qualified preretirement survivor annuity
for the period beginning on the date of such election and ending on the
first day of the Plan Year in which the Participant will attain age
thirty-five (35). Such election shall not be valid unless the Participant
receives a written explanation of the qualified preretirement survivor
annuity in such terms as are comparable to the explanation required under
section 9.5. Qualified preretirement survivor annuity coverage will be
automatically reinstated as of the first day of the Plan Year in which the
Participant attains age thirty-five (35). Any new waiver on or after such
date shall be subject to the full requirements of this ARTICLE.
(b) Earliest_Retirement_Age. The earliest date on which,
under the Plan, the Participant could elect to receive retirement
benefits.
(c) Qualified_Election.
(i) A waiver of a Qualified Joint and Survivor
Annuity or a qualified preretirement survivor annuity. Any waiver of a
Qualified Joint and Survivor Annuity or a qualified preretirement survivor
annuity shall not be effective unless:
(1) the Participant's Spouse consents in
writing to the election;
(2) 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);
(3) the Spouse's consent acknowledges the
effect of the election; and
(4) the Spouse's consent is witnessed by a Plan
representative or notary public. Additionally, a Participant's waiver of
the Qualified Joint and Survivor Annuity shall not be effective unless the
election designates a form of benefit payment which may not be changed
without spousal consent (or the Spouse expressly permits designations by
the participant without any further spousal consent). If it is
established to the satisfaction of a Plan representative that there is no
Spouse or that the Spouse cannot be located, a waiver will be deemed a
Qualified Election.
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(ii) Any consent by a Spouse obtained under this
provision (or establishment that the consent of Spouse may not be
obtained) shall be effective only with respect to such Spouse. A consent
that permits designations by the Participant without any requirement of
further consent by such Spouse must acknowledge that the Spouse has the
right to limit consent to a specific Beneficiary, and a specific form of
benefit where applicable, and that the Spouse voluntarily elects to
relinquish either or both of such rights. A revocation of a prior waiver
may be made by a Participant without the consent of the Spouse at any time
before the commencement of benefits. The number of revocations shall not
be limited. No consent obtained under this provision shall be valid
unless the Participant has received notice as provided in section 9.5.
(d) Qualified_Joint_and_Survivor_Annuity. An immediate
annuity for the life of the Participant with a survivor annuity for the
life of the Spouse which equals 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.
(e) Spouse_(Surviving_Spouse). The Spouse or Surviving
Spouse of the Participant, provided that a former spouse will be treated
as the Spouse or Surviving Spouse and a current Spouse will not be treated
as the Spouse or Surviving Spouse to the extent provided under a qualified
domestic relations order as described in section 414(p) of the Code.
(f) Annuity_Starting_Date. The first day of the first
period for which an amount is paid as an annuity or any other form.
(g) Vested_Account_Balance. The aggregate value of the
Participant's Vested Account Balances derived from Employer and Employee
contributions (including rollovers and direct transfers), whether vested
before or upon death, including the proceeds of insurance contracts if
any, on the Participant's life. The provisions of this ARTICLE shall
apply to a Participant who is vested in amounts attributable to Employer
Contributions, Employee contributions (or both) at the time of death or
distribution.
9.5 Notice_Requirements.
(a) In the case of a Qualified Joint and Survivor Annuity,
the Plan Administrator shall no less than thirty (30) days and no more
than ninety (90) days prior to the Annuity Starting Date, provide each
Participant a written explanation of:
(i) the terms and conditions of a Qualified Joint and
Survivor Annuity;
(ii) the Participant's right to make and the effect
of an election to waive the Qualified Joint and Survivor Annuity form of
benefit;
(iii) the rights of a Participant's Spouse; and
(iv) the right to make, and the effect of, a
revocation of a previous election to waive the Qualified Joint and
Survivor Annuity.
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(b) In the case of a qualified preretirement survivor
annuity as described in section 9.3, the Plan Administrator shall provide
each Participant within the applicable period for such Participant a
written explanation of the qualified preretirement survivor annuity in
such terms and in such manner as would be comparable to the explanation
provided for meeting the requirements of subsection (a) applicable to a
Qualified Joint and Survivor Annuity.
(c) The applicable period for a Participant is whichever of
the following periods ends last:
(i) the period beginning with the first day of the
Plan Year in which the Participant attains age thirty-two (32) and ending
with the close of the Plan Year preceding the Plan Year in which the
Participant attains age thirty-five (35);
(ii) a reasonable period ending after the individual
becomes a Participant;
(iii) a reasonable period ending after subsection (e)
ceases to apply to the Participant;
(iv) 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 thirty-five (35).
(d) For purposes of applying subsection (c), a reasonable
period ending after the enumerated events described above in subsections
(ii), (iii) and (iv) is the end of the two-year period beginning one (1)
year prior to the date the applicable event occurs, and ending one (1)
year after that date. In the case of a Participant who separates from
service before the Plan Year in which age thirty-five (35) is attained,
notice shall be provided within the two (2) year period beginning one (1)
year prior to separation and ending one (1) year after separation. If
such a participant thereafter returns to employment with the Employer, the
applicable period for such Participant shall be redetermined.
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(e) Notwithstanding the other requirements of this section,
the respective notices prescribed by this section need not be given to a
Participant if:
(i) the Plan "fully subsidizes" the cost of a
Qualified Joint and Survivor Annuity or qualified preretirement survivor
annuity; and
(ii) the Plan does not allow the Participant to waive
the Qualified Joint and Survivor Annuity or qualified preretirement
survivor annuity and does not allow a married Participant to designate a
nonspouse Beneficiary.
For purposes of this subsection, a plan fully subsidizes the
costs of a benefit if no increase in cost, or decrease in benefits to the
Participant may result from the Participant's failure to elect another
benefit.
9.6 Safe_Harbor_Rules.
(a) This section shall apply to a Participant in a profit
sharing plan, and to any distribution, made on or after the first day of
the first Plan year beginning after December 31, 1988, from or under a
separate account attributable solely to accumulated deductible Employee
contributions, as defined in section 72(o)(5)(B) of the Code, and
maintained on behalf of a Participant in a money purchase pension plan
(including a target benefit plan) if the following conditions are
satisfied:
(i) the Participant does not or cannot elect payments
in the form of a life annuity; and
(ii) on the death of a Participant, the Participant's
Vested Account Balance will be paid to the Participant's Surviving Spouse,
but if there is no Surviving Spouse, or if the Surviving Spouse has
consented in a manner conforming to a Qualified Election, then to the
Participant's Designated Beneficiary.
(b) The Surviving Spouse may elect to have distribution of
the Vested Account Balance commence within the ninety (90) day period
following the date of the Participant's death. The Account balance shall
be adjusted for gains or losses occurring after the Participant's death
in accordance with the provisions of the Plan governing the adjustment of
Account balances for other types of distributions.
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(c) This section shall not be operative with respect to a
Participant in a profit sharing plan if the plan is a direct or indirect
transferee of a defined benefit plan, money purchase plan, a target
benefit plan, stock bonus, or profit sharing plan which is subject to the
survivor annuity requirements of sections 401(a)(11) and 417 of the Code.
If this section is operative, then the provisions of this ARTICLE, other
than section 9.7, shall be inoperative.
(d) The Participant may waive the spousal death benefit
described in this section at any time provided that no such waiver shall
be effective unless it satisfies the conditions of section 9.4(c) (other
than the notification requirement referred to therein) that would apply
to the Participant's waiver of the qualified preretirement survivor
annuity.
(e) For purposes of this section, Vested Account Balance
shall mean, in the case of a money purchase pension plan or a target
benefit plan, the Participant's separate Account balance attributable
solely to accumulated deductible Employee contributions within the meaning
of section 72(o)(5)(B) of the Code. In the case of a profit sharing plan,
Vested Account Balance shall have the same meaning as provided in section
9.4(g).
9.7 Transitional_Rules.
(a) Any living Participant not receiving benefits on
August 23, 1984, who would otherwise not receive the benefits prescribed
by the previous sections of this ARTICLE must be given the opportunity to
elect to have the prior sections of this ARTICLE apply if such Participant
is credited with at least one (1) Hour of Service under this Plan or a
predecessor plan in a Plan Year beginning on or after January 1, 1976, and
such Participant had at least ten (10) years of vesting service when he
or she separated from service.
(b) Any living Participant not receiving benefits on
August 23, 1984, who was credited with at least one (1) Hour of Service
under this Plan or a predecessor plan on or after September 2, 1974, and
who is not otherwise credited with any service in a Plan Year beginning
on or after January 1, 1976, must be given the opportunity to have his or
her benefits paid in accordance with subsection (d).
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(c) The respective opportunities to elect (as described in
subsections (a) and (b) above) must be afforded to the appropriate
Participants during the period commencing on August 23, 1984, and ending
on the date benefits would otherwise commence to said Participants.
(d) Any Participant who has elected pursuant to subsection
(b) and any Participant who does not elect under subsection (a) or who
meets the requirements of subsection (a) except that such Participant does
not have at least ten (10) years of vesting service when he or she
separates from service, shall have his or her benefits distributed in
accordance with all of the following requirements if benefits would have
been payable in the form of a life annuity:
(i) Automatic_Joint_and_Survivor_Annuity. If
benefits in the form of a life annuity become payable to a married
Participant who:
(1) begins to receive payments under the Plan
on or after Normal Retirement Age; or
(2) dies on or after Normal Retirement Age
while still working for the Employer; or
(3) begins to receive payments on or after the
qualified early retirement age; or
(4) separates from service on or after
attaining Normal Retirement Age (or the qualified early retirement age)
and after satisfying the eligibility requirements for the payment of
benefits under the Plan and thereafter dies before beginning to receive
such benefits;
then such benefits will be received under this Plan in the form of a
Qualified Joint and Survivor Annuity, unless the Participant has elected
otherwise during the Election Period. The Election Period must begin at
least six (6) months before the Participant attains qualified early
retirement age and end not more than ninety (90) days before the
commencement of benefits. Any election hereunder will be in writing and
may be changed by the Participant at any time.
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(ii) Election_of_Early_Survivor_Annuity. A
Participant who is employed after attaining the qualified early retirement
age will be given the opportunity to elect, during the Election Period,
to have a survivor annuity payable on death. If the Participant elects
the survivor annuity, payments under such annuity must not be less than
the payments which would have been made to the Spouse under the Qualified
Joint and Survivor Annuity if the Participant had retired on the day
before his or her death. Any election under this provision will be in
writing and may be changed by the Participant at any time. The Election
Period begins on the later of (1) the 90th day before the Participant
attains the qualified early retirement age; or (2) the date on which
participation begins, and ends on the date the Participant terminates
employment.
(e) The following terms shall have the meanings specified
herein:
(i) Qualified_Early_Retirement_Age. The latest of:
(1) the earliest date, under the Plan, on which
the Participant may elect to receive retirement benefits;
(2) the first day of the 120th month beginning
before the Participant reaches Normal Retirement Age; or
(3) the date the Participant begins
participation.
(ii) Qualified_Joint_and_Survivor_Annuity. An annuity
for the life of the Participant with a survivor annuity for the life of
the Spouse as described in section 9.4(d).
ARTICLE 10
DISTRIBUTION PROVISIONS
10.1 Vesting_on_Distribution_Before_Break_in_Service.
(a) If an Employee terminates service, and the value of the
Employee's Vested Account Balance derived from Employer and Employee
contributions is not greater than three thousand five hundred dollars
($3,500), the Employee will receive a distribution of the value of the
entire vested portion of such Account balance and the nonvested portion
will be treated as a forfeiture. 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 section
72(o)(5)(B) of the Code for Plan Years beginning prior to January 1, 1989.
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(b) If an Employee terminates service and elects, in
accordance with this ARTICLE, to receive the value of his Vested Account
Balance, the nonvested portion will be treated as a forfeiture. If the
Employee elects to have distributed less than the entire vested portion
of the 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.
(c) If an Employee receives a distribution pursuant to this
section and the Employee resumes employment covered under this Plan, the
Employee's Employer- derived Account balance will be restored to the
amount on the date of distribution if the Employee repays to the Plan the
full amount of the distribution attributable to Employer Contributions
before the earlier of five (5) years after the first date on which the
Participant is subsequently reemployed by the Employer, or the date the
Participant incurs five (5) consecutive one (1) year Breaks in Service
following the date of the distribution. If an Employee is deemed to
receive a distribution pursuant to this section, and the Employee resumes
employment covered under this Plan before the date the Participant incurs
five (5) consecutive one (1) year Breaks in Service, upon the reemployment
of such Employee, the Employer-derived Account balance of the Employee
will be restored to the amount on the date of such deemed distribution.
10.2 Restrictions_on_Immediate_Distributions.
(a) If the value of a Participant's Vested Account Balance
derived from Employer and Employee contributions exceeds (or at the time
of any prior distribution exceeded) three thousand five hundred dollars
($3,500) and the Account balance is immediately distributable, the
Participant and the Participant's Spouse (or where either the Participant
or the Spouse has died, the survivor) must consent to any distribution of
such Account balance. 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 Plan 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 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.
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(b) Notwithstanding the provisions of subsection (a), 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 9.6 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 Partici-
pant's Spouse shall be required to the extent that a distribution is
required to satisfy section 401(a)(9) or section 415 of the Code. In
addition, upon termination of this Plan if the Plan does not offer an
annuity option (purchased from a commercial provider), the Participant's
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 section 4975(e)(7) of
the Code) within the same controlled group.
(c) 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 Normal Retirement Age or age sixty- two
(62).
(d) For purposes of determining the applicability of the
foregoing consent requirements to distributions made before the first day
of the first Plan Year beginning after December 31, 1988, the
Participant's Vested Account Balance shall not include amounts
attributable to accumulated deductible Employee contributions within the
meaning of section 72(o)(5)(B) of the Code.
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10.3 Commencement_of_Benefits.
(a) Unless the Participant elects otherwise, distribution
of benefits will begin no later than the 60th day after the latest of the
close of the Plan Year in which:
(i) the Participant attains age sixty-five (65) (or
Normal Retirement Age, if earlier);
(ii) the 10th anniversary of the year in which the
Participant commenced participation in the Plan occurs; or
(iii) the Participant terminates service with the
Employer.
(b) Notwithstanding the foregoing, the failure of a
Participant and Spouse to consent to a distribution while a benefit is
immediately distributable, within the meaning of section 10.2 of the Plan,
shall be deemed to be an election to defer commencement of payment of any
benefit sufficient to satisfy this section.
10.4 Early_Retirement_With_Age_and_Service_Require ment. If a
Participant separates from service before satisfying the age requirement
for early retirement, but has satisfied the service requirement, the
Participant will be entitled to elect an early retirement benefit upon
satisfaction of such age requirement.
10.5 Nontransferability_of_Annuities. Any annuity contract
distributed herefrom must be nontransferable.
10.6 Conflicts_With_Annuity_Contracts. The terms of any annuity
contract purchased and distributed by the Plan to a Participant or Spouse
shall comply with the requirements of this Plan.
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ARTICLE 11
TIMING AND MODES OF DISTRIBUTION
11.1 General_Rules.
(a) Subject to ARTICLE 9, the requirements of this ARTICLE
shall apply to any distribution of a Participant's interest and will take
precedence over any inconsistent provisions of this Plan. Unless
otherwise specified, the provisions of this ARTICLE apply to calendar
years beginning after December 31, 1984.
(b) All distributions required under this ARTICLE shall be
determined and made in accordance with the income tax regulations under
section 401(a)(9) of the Code, including the minimum distribution
incidental benefit requirement of section 1.401(a)(9)-2 of the proposed
regulations.
11.2 Required_Beginning_Date. The entire interest of a Participant
must be distributed or begin to be distributed no later than the
Participant's Required Beginning Date.
11.3 Limits_on_Distribution_Periods. As of the first Distribution
Calendar Year, distributions, if not made in a single-sum, may only be
made over one of the following periods (or a combination thereof):
(a) the life of the Participant;
(b) the life of the Participant and a Designated
Beneficiary;
(c) a period certain not extending beyond the Life
Expectancy of the Participant; or
(d) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a Designated Beneficiary.
11.4 Determination_of_Amount_to_be_Distributed_Each Year.
(a) Individual_Account.
(i) If a Participant's Benefit is to be distributed
over (1) a period not extending beyond the Life Expectancy of the
Participant or the joint life and last survivor expectancy of the
Participant and the Participant's Designated Beneficiary or (2) a period
not extending beyond the Life Expectancy of the Designated Beneficiary,
the amount required to be distributed for each calendar year, beginning
with distributions for the first Distribution Calendar Year, must at least
equal the quotient obtained by dividing the Participant's Benefit by the
Applicable Life Expectancy.
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(ii) 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.
(iii) For calendar years beginning after December 31,
1988, the amount to be distributed each year, beginning with distributions
for the first Distribution Calendar Year shall not be less than the
quotient obtained by dividing the Participant's Benefit by the lesser of
(1) the Applicable Life Expectancy or (2) if the Participant's Spouse is
not the Designated Beneficiary, the applicable divisor determined from the
table set forth in Q&A-4 of section 1.401(a)(9)-2 of the proposed
regulations. Distributions after the death of the Participant shall be
distributed using the Applicable Life Expectancy in subsection (a)(i)
above as the relevant divisor without regard to proposed regulations
section 1.401(a)(9)-2.
(iv) The minimum distribution required for the
Participant's first Distribution Calendar Year must be made on or before
the Participant's Required Beginning Date. The minimum distribution for
other calendar years, including the minimum distribution for the
Distribution Calendar Year in which the Employee's Required Beginning Date
occurs, must be made on or before December 31 of that Distribution
Calendar Year.
(b) Other_Forms. If the Participant's Benefit is
distributed in the form of an annuity purchased from an insurance company,
distributions thereunder shall be made in accordance with the requirements
of section 401(a)(9) of the Code and the proposed regulations thereunder.
11.5 Death_Distribution_Provisions.
(a) Distribution_Beginning_Before_Death. If the Participant
dies after distribution of his or her interest has begun, the remaining
portion of such interest will continue to be distributed at least as
rapidly as under the method of distribution being used prior to the
Participant's death.
(b) Distribution_Beginning_After_Death. If the Participant
dies before distribution of his or her interest begins, distribution of
the Participant's entire interest shall be completed by December 31 of the
calendar year containing the fifth anniversary of the Participant's death
except to the extent that an election is made to receive distributions in
accordance with (i) or (ii) below:
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(i) 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;
(ii) if the Designated Beneficiary is the
Participant's Surviving Spouse, the date distributions are required to
begin in accordance with (i) above shall not be earlier than the later of
(1) December 31 of the calendar year immediately following the calendar
year in which the Participant died and (2) December 31 of the calendar
year in which the Participant would have attained age seventy and one-half
(70 1/2).
(c) If the Participant has not made an election pursuant to
this section by the time of his or her death, the Participant's Designated
Beneficiary must elect the method of distribution no later than the
earlier of (1) December 31 of the calendar year in which distributions
would be required to begin under this section; or (2) December 31 of the
calendar year which contains the fifth anniversary of the date of death
of the Participant. If the Participant has no Designated Beneficiary, or
if the Designated Beneficiary does not elect a method of distribution,
distribution of the Participant's entire interest must be completed by
December 31 of the calendar year containing the fifth anniversary of the
Participant's death.
(d) For purposes of subsection (b) above, if the Surviving
Spouse dies after the Participant, but before payments to such Spouse
begin, the provisions of subsection (b), with the exception of paragraph
(ii) therein, shall be applied as if the Surviving Spouse were the
Participant.
(e) For purposes of this section, 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.
(f) For the purposes of this section, distribution of a
Participant's interest is considered to begin on the Participant's
Required Beginning Date (or, if subsection (d) above is applicable, the
date distribution is required to begin to the Surviving Spouse pursuant
to subsection (b) above). If distribution in the form of an annuity
described in section 11.4(b) above irrevocably commences to the
Participant before the Required Beginning Date, the date distribution is
considered to begin is the date distribution actually commences.
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11.6 Designation_of_Beneficiary. Subject to the rules of
ARTICLE 9, a Participant (or former Participant) may designate from time
to time any person or persons (who may be designated contingently or
successively and may be an entity other than a natural person) as his
Beneficiary who will be entitled to receive any undistributed amounts
credited to the Participant's separate Account under the Plan at the time
of the Participant's death. Any such Beneficiary designation by a
Participant shall be made in writing in the manner prescribed by the Plan
Administrator, and shall be effective only when filed with the Plan
Administrator during the Participant's lifetime. A Participant may change
or revoke his Beneficiary designation at any time in the manner prescribed
by the Plan Administrator. If any portion of the Participant's Account
is invested in insurance pursuant to ARTICLE 14, the Beneficiary of the
benefits under the insurance policy shall be the person or persons
designated under the policy. If the Designated Beneficiary (or each of
the Designated Beneficiaries) predeceases the Participant, the Partici-
pant's Beneficiary designation shall be ineffective. If no Beneficiary
designation is in effect at the time of the Participant's death, his
Beneficiary shall be his estate.
11.7 Definitions.
(a) Applicable_Life_Expectancy. The Life Expectancy (or
joint and last survivor expectancy) calculated using the attained age of
the Participant (or Designated Beneficiary) as of the Participant's (or
Designated Beneficiary's) birthday in the applicable calendar year reduced
by one (1) 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. If annuity payments commence in accordance
with section 11.4(b) before the Required Beginning Date, the applicable
calendar year is the year such payments commence. If distribution is in
the form of an immediate annuity purchased after the Participant's death
with the Participant's remaining interest, the applicable calendar year
is the year of purchase.
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(b) Designated_Beneficiary. The individual who is
designated as the Beneficiary under the Plan in accordance with section
401(a)(9) and the proposed regulations thereunder.
(c) Distribution_Calendar_Year. A calendar year for which
a minimum distribution is required. For distributions beginning before
the Participant's death, the first Distribution Calendar Year is the
calendar year immediately preceding the calendar year which contains the
Participant's Required Beginning Date. For distributions beginning after
the Participant's death, the first Distribution Calendar Year is the
calendar year in which distributions are required to begin pursuant to
section 11.5 above.
(d) Life_Expectancy.
(i) Life Expectancy and joint and last survivor
expectancy are computed by use of the expected return multiples in
Tables V and VI of section 1.72-9 of the income tax regulations.
(ii) Unless otherwise elected by the Participant (or
Spouse, in the case of distributions described in section 11.5(b)(ii)
above) by the time distributions are required to begin, life expectancies
shall be recalculated annually. Such election shall be irrevocable as to
the Participant (or Spouse) and shall apply to all subsequent years. The
Life Expectancy of a non-Spouse Beneficiary may not be recalculated.
(e) Participant's_Benefit.
(i) The Account balance as of the last valuation date
in the calendar year immediately preceding the Distribution Calendar Year
(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.
(ii) For purposes of subsection (i) above, if any
portion of the minimum distribution for the first Distribution Calendar
Year is made in the second Distribution Calendar Year on or before the
Required Beginning Date, the amount of the minimum distribution made in
the second Distribution Calendar Year shall be treated as if it had been
made in the immediately preceding Distribution Calendar Year.
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(f) Required_Beginning_Date.
(i) General_Rule. The Required Beginning Date of a
Participant is the first day of April of the calendar year following the
calendar year in which the Participant attains age seventy and one-half
(70 1/2).
(ii) Transitional_Rules. The Required Beginning Date
of a Participant who attains age seventy and one-half (70 1/2) before
January 1, 1988, shall be determined in accordance with (1) or (2) below:
(1) Non-Five-Percent_Owners. The Required
Beginning Date of a Participant who is not a Five Percent (5%) Owner is
the first day of April of the calendar year following the calendar year
in which the later of retirement or attainment of age seventy and one-
half (70 1/2) occurs.
(2) Five_Percent_Owners. The Required
Beginning Date of a Participant who is a Five Percent (5%) Owner during
any year beginning after December 31, 1979, is the first day of April
following the later of:
(A) the calendar year in which the
Participant attains age seventy and one-half (70 1/2); or
(B) the earlier of the calendar year with
or within which ends the Plan Year in which the Participant becomes a Five
Percent (5%) Owner, or the calendar year in which the Participant retires.
The Required Beginning Date of a Participant who is not a Five Percent
(5%) 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.
(iii) Five_Percent_Owner. A Participant is treated as
a Five Percent (5%) Owner for purposes of this section if such Participant
is a Five Percent (5%) Owner as defined in section 416(i) of the Code
(determined in accordance with section 416 but without regard to whether
the Plan is top-heavy) at any time during the Plan Year ending with or
within the calendar year in which such owner attains age sixty-six and
one-half (66 1/2) or any subsequent year.
(iv) Once distributions have begun to a Five Percent
(5%) Owner under this section, they must continue to be distributed, even
if the Participant ceases to be a Five Percent (5%) Owner in a subsequent
year.
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11.8 Transitional_Rule.
(a) Notwithstanding the other requirements of this ARTICLE
and subject to the requirements of ARTICLE 9, distribution on behalf of
any Employee, including a Five Percent (5%) Owner, may be made in
accordance with all of the following requirements (regardless of when such
distribution commences):
(i) The distribution by the Trust is one which would
not have disqualified such trust under section 401(a)(9) of the Internal
Revenue Code as in effect prior to amendment by the Deficit Reduction Act
of 1984.
(ii) The distribution is in accordance with a method
of distribution designated by the Employee whose interest in the Trust is
being distributed or, if the Employee is deceased, by a Beneficiary of
such Employee.
(iii) Such designation was in writing, was signed by
the Employee or the Beneficiary, and was made before January 1, 1984.
(iv) The Employee had accrued a benefit under the Plan
as of December 31, 1983.
(v) The method of distribution designated by the
Employee or the Beneficiary specifies the time at which distributions will
be made, and in the case of any distribution upon the Employee's death,
the Beneficiaries of the Employee listed in order of priority.
(b) A distribution upon death will not be covered by this
transitional rule unless the information in the designation contains the
required information described above with respect to the distributions to
be made upon the death of the Employee.
(c) For any distribution which commences before January 1,
1984, but continues after December 31, 1983, the Employee, or the
Beneficiary, to whom such distribution is being made, will be presumed to
have designated the method of distribution under which the distribution
is being made if the method of distribution was specified in writing and
the distribution satisfies the requirements in subsections (a)(i) and
(a)(v).
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(d) If a designation is revoked, any subsequent distribution
must satisfy the requirements of section 401(a)(9) of the Code and the
proposed regulations thereunder. If a designation is revoked subsequent
to the date distributions are required to begin, the Trust must distribute
by the end of the calendar year following the calendar year in which the
revocation occurs the total amount not yet distributed which would have
been required to have been distributed to satisfy section 401(a)(9) of the
Code and the regulations thereunder but for the section 242(b)(2)
election. For calendar years beginning after December 31, 1988, such
distributions must meet the minimum distribution incidental benefit
requirements in section 1.401(a)(9)-2 of the proposed regulations. Any
changes in the designation will be considered to be a revocation of the
designation. However, the mere substitution or addition of another
beneficiary (one not named in the designation) under the designation will
not be considered to be a revocation of the designation, so long as such
substitution or addition does not alter the period over which
distributions are to be made under the designation, directly or indirectly
(for example, by altering the relevant measuring life). In the case in
which an amount is transferred or rolled over from one plan to another
plan, the rules in Q&A J-2 and Q&A J-3 shall apply.
11.9 Optional_Forms_of_Benefit.
(a) Except to the extent benefits are required to be paid
in the form of an automatic joint and survivor annuity under ARTICLE 9,
any amount which a Participant shall be entitled to receive under the Plan
shall be distributed in one or a combination of the following ways:
(i) in a lump-sum payment of cash, the amount of
which shall be determined by redeeming all Shares credited to the
Participant's Account under the Plan as of the date of distribution;
(ii) in a lump-sum payment including a distribution
in kind of all Shares credited to the Participant's Account under the Plan
as of the date of distribution;
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(iii) in substantially equal monthly, quarterly, or
annual installment payments of cash, or the distribution of Shares in
kind, over a period certain not to exceed the Life Expectancy of the
Participant or the joint and last survivor Life Expectancy of the
Participant and his Beneficiary, determined in each case as of the earlier
of: (1) the end of the Plan Year in which occurs the event entitling the
Participant to a distribution of benefits, or (2) the date such
installments commence;
(iv) if permitted by the Sponsor, in monthly,
quarterly, or annual installment payments of cash, or the distribution of
Shares in kind, so that the amount distributed in each Plan Year equals
the quotient obtained by dividing the Participant's Account at the
beginning of that Plan Year by the joint and last survivor Life Expectancy
of the Participant and the Beneficiary for that Plan Year. The Life
Expectancy will be computed using the recomputation method described in
section 11.7(d). Unless the Spouse of the retired Participant is the
Beneficiary, the actuarial present value of all expected payments to the
retired Participant must be more than fifty percent (50%) of the actuarial
present value of payments to the retired Participant and the Beneficiary;
or
(v) by application of the Participant's vested
Account to the purchase of a nontransferable immediate or deferred annuity
contract, on an individual or group basis. Unless the Spouse of the
retired Participant is the Beneficiary, the actuarial present value of all
expected payments to the retired Participant must be more than fifty
percent (50%) of the actuarial present value of payments to the retired
Participant and the Beneficiary.
(b) If the Participant fails to select a method of
distribution, except as may be required by ARTICLE 9, all amounts which
he is entitled to receive under the Plan shall be distributed to him in
a lump-sum payment.
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ARTICLE 12
WITHDRAWALS
12.1 Withdrawal_of_Nondeductible_Voluntary_Contribu tions. Subject
to the Qualified Election requirements of ARTICLE 9 and section 12.3, any
Participant who has made nondeductible voluntary contributions may, upon
thirty (30) days notice in writing filed with the Plan Administrator, have
paid to him all or any portion of the fair market value of his
nondeductible voluntary contribution subaccount.
12.2 Hardship_Withdrawals. If the Adoption Agreement so provides
and the Employer elects, this section applies only to the profit sharing
contribution subaccount and only if the profit sharing allocation formula
selected in the Adoption Agreement is not integrated with Social Security.
(a) Demonstration_of_Need. Subject to the Qualified
Election requirements of ARTICLE 9 and section 12.3, if a Participant
establishes an immediate and heavy financial need for funds because of a
hardship resulting from the purchase or renovation of a primary residence,
the education of the Participant or a member of his immediate family
(including special education), the medical or personal expenses of the
Participant or a member of his immediate family, or other demonstrable
emergency as determined by the Plan Administrator on a uniform and
nondiscriminatory basis, the Participant shall be permitted, subject to
the limitations of subsection (b) below, to make a hardship withdrawal of
an amount credited to his profit sharing contribution subaccount under the
Plan.
(b) Amount_of_Hardship_Withdrawal. The amount of any
hardship withdrawal by a Participant under subsection (a) above shall not
exceed the amount required to meet the immediate financial need created
by the hardship and not reasonably available from other resources of the
Participant.
(c) Prior_Withdrawal_of_Nondeductible_Voluntary
Participant_Contributions. A Participant shall not be permitted to make
a hardship withdrawal under subsection (a) above unless he has already
withdrawn, in accordance with section 12.1, any amount credited to his
nondeductible voluntary contributions subaccount.
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12.3 Manner_of_Making_Withdrawals. Any withdrawal by a Participant
under the Plan shall be made only after the Participant files a written
request with the Plan Administrator specifying the nature of the
withdrawal (and the reasons therefor, if a hardship withdrawal), and the
amount of funds requested to be withdrawn. Upon approving any withdrawal,
the Plan Administrator shall furnish the Trustee with written instructions
directing the Trustee to make the withdrawal in a lump-sum payment of cash
to the Participant. In making any withdrawal payment, the Trustee shall
be fully entitled to rely on the instructions furnished by the Plan
Administrator, and shall be under no duty to make any inquiry or
investigation with respect thereto. Unless section 9.6 is applicable, if
the Participant is married, his Spouse must consent to the withdrawal
pursuant to a Qualified Election (as defined in section 9.4(c)) within the
ninety (90) day period ending on the date of the withdrawal.
12.4 Limitations_on_Withdrawals. The Plan Administrator may
prescribe uniform and nondiscriminatory rules and procedures limiting the
number of times a Participant may make a withdrawal under the Plan during
any Plan Year, and the minimum amount a Participant may withdraw on any
single occasion.
ARTICLE 13
LOANS
13.1 General_Provisions.
(a) If the Adoption Agreement so provides and the Employer
so elects, loans shall be made available to any Participant or Beneficiary
who is a party-in-interest (as defined in section 3(14) of ERISA) on a
reasonably equivalent basis. A Participant or Beneficiary who is not a
party-in-interest (as defined in section 3(14) of ERISA) shall not be
eligible to receive a loan under this ARTICLE.
(b) Loans shall not be made available to Highly- Compensated
Employees (as defined in section 414(q) of the Code) in an amount greater
than the amount made available to other Employees.
(c) Loans must be adequately secured and bear a reasonable
interest rate.
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(d) No Participant loan shall exceed the present value of
the Participant's Vested Account Balance.
(e) Unless section 9.6 is applicable, a Participant must
obtain the consent of his or her Spouse, if any, to use of the Account
balance as security for the loan. Spousal consent shall be obtained no
earlier than the beginning of the ninety (90) day period that ends on the
date on which the loan is to be so secured. The consent must be in
writing, must acknowledge the effect of the loan, and must be witnessed
by a Plan representative or notary public. Such consent shall thereafter
be binding with respect to the consenting Spouse or any subsequent Spouse
with respect to that loan. A new consent shall be required if the Account
balance is used for renegotiation, extension, renewal or other revision
of the loan.
(f) In the event of default, foreclosure on the note and
attachment of security will not occur until a distributable event occurs
under the Plan.
(g) Loans will not be made to any shareholder- employee or
Owner-Employee. For purposes of this requirement, a shareholder-employee
means an Employee or officer of an electing small business (subchapter S)
corporation who owns (or is considered as owning within the meaning of
section 318(a)(1) of the Code), on any day during the taxable year of such
corporation, more than five percent (5%) of the outstanding stock of the
corporation.
(h) If a valid spousal consent has been obtained in
accordance with subsection (e), then, notwithstanding any other provision
of this Plan, the portion of the Participant's Vested Account Balance used
as a security interest held by the Plan by reason of a loan outstanding
to the Participant shall be taken into account for purposes of determining
the amount of the Account balance payable at the time of death or
distribution, but only if the reduction is used as repayment of the loan.
If less than one hundred percent (100%) of the Participant's Vested
Account Balance (determined without regard to the preceding sentence) is
payable to the Surviving Spouse, then the Account balance shall be
adjusted by first reducing the Vested Account Balance by the amount of the
security used as repayment of the loan, and then determining the benefit
payable to the Surviving Spouse.
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13.2 Administration_of_Loan_Program.
(a) The Plan's loan program will be administered by the Plan
Administrator.
(b) Loan requests shall be made on a form prescribed by the
Plan Administrator and shall comply with section 13.4.
(c) Loan requests that comply with all the requirements of
this ARTICLE shall be approved by the Plan Administrator.
(d) The rate of interest to be charged on loans shall be
determined under section 13.5.
(e) The only collateral that may be used as security for a
loan, and the limitations and requirements applicable, are determined
under section 13.6.
(f) The rules regarding defaults are set forth in section
13.9.
13.3 Amount_of_Loan. Loans to any Participant or Beneficiary will
not be made to the extent that such loan, when added to the outstanding
balance of all other loans to the Participant or Beneficiary, would exceed
the lesser of:
(a) fifty thousand dollars ($50,000) reduced by the excess
(if any) of the highest outstanding balance of loans during the one (1)
year period ending on the day before the loan is made, over the
outstanding balance of loans from the Plan on the date the loan is made;
or
(b) one-half (1/2) the present value of the nonforfeitable
accrued benefit of the Participant.
(c) For the purpose of the above limitation, all loans from
all plans of the Employer and other members of a group of employers
described in sections 414(b), 414(c) and 414(m) of the Code are
aggregated.
13.4 Manner_of_Making_Loans. A request by a Participant for a loan
shall be made in writing to the Plan Administrator and shall specify the
amount of the loan, and the subaccount(s) or Shares of the Participant
from which the loan should be made. The terms and conditions on which the
Plan Administrator shall approve loans under the Plan shall be applied on
a uniform and nondiscriminatory basis with respect to all Participants.
If a Participant's request for a loan is approved by the Plan
Administrator, the Plan Administrator shall furnish the Trustee with
written instructions directing the Trustee to make the loan in a lump-sum
payment of cash to the Participant. In making any loan payment under this
ARTICLE, the Trustee shall be fully entitled to rely on the instructions
furnished by the Plan Administrator and shall be under no duty to make any
inquiry or investigation with respect thereto.
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13.5 Terms_of_Loan. Loans shall be made on such terms and subject
to such limitations as the Plan Administrator may prescribe.
Furthermore, any loan shall, by its terms, require that repayment
(principal and interest) be amortized in level payments, not less
frequently than quarterly, over a period not extending beyond five (5)
years from the date of the loan, unless such loan is used to acquire a
dwelling unit which, within a reasonable time (determined at the time the
loan is made) will be used as the principal residence of the Participant.
The rate of interest to be charged shall be determined by the Plan
Administrator in accordance with the rates quoted by representative
financial institutions in the local area for similar loans.
13.6 Security_for_Loan. Any loan to a Participant under the Plan
shall be secured by the pledge of all the Participant's right, title, and
interest in the Trust. Such pledge shall be evidenced by the execution
of a promissory note by the Participant which shall provide that, in the
event of any default by the Participant on a loan repayment, the Plan
Administrator shall be authorized (to the extent permitted by law) to
deduct the amount of the loan outstanding and any unpaid interest due
thereon from the Participant's wages or salary to be thereafter paid by
the Employer, and to take any and all other actions necessary and
appropriate to enforce collection of the unpaid loan. An assignment or
pledge of any portion of the Participant's interest in the Plan and a
loan, pledge, or assignment with respect to any insurance contract
purchased under the Plan, will be treated as a loan under this section.
In the event the value of the Participant's vested Account at any time is
less than one hundred twenty- five percent (125%) of the outstanding loan
balance, the Plan Administrator shall request additional collateral of
sufficient value to adequately secure the repayment of the loan. Failure
to provide such additional collateral upon a request of the Plan
Administrator shall constitute an event of default.
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13.7 Segregated_Investment. Loans shall be considered a
Participant directed investment and, for the limited purposes of
allocating earnings and losses pursuant to ARTICLE 5, shall not be
considered a part of the common fund under the Trust.
13.8 Repayment_of_Loan. The Plan Administrator shall have the sole
responsibility for ensuring that a Participant timely makes all loan
repayments, and for notifying the Trustee in the event of any default by
the Participant on the loan. Each loan repayment shall be paid to the
Trustee and shall be accompanied by written instructions from the Plan
Administrator that identify the Participant on whose behalf the loan
repayment is being made.
13.9 Default_on_Loan.
(a) In the event of a termination of the Participant's
employment with the Affiliated Employers or a default by a Participant on
a loan repayment, all remaining payments on the loan shall be immediately
due and payable. The Employer shall, upon the direction of the Plan
Administrator, to the extent permitted by law, deduct the total amount of
the loan outstanding and any unpaid interest due thereon from the wages
or salaries payable to the Participant by the Employer in accordance with
the Participant's promissory note. In addition, the Plan Administrator
shall take any and all other actions necessary and appropriate to enforce
collection of the unpaid loan. However, attachment of the Participant's
Account pledged as security will not occur until a distributable event
occurs under the Plan.
(b) For purposes of this section, the term "default" shall
mean failure, by a period of at least ten (10) days, to make any loan
payment (whether principal or interest or both) that is due and payable.
Neither the Plan Administrator nor any other fiduciary is required to give
any written or oral notice of default.
13.10 Unpaid_Amounts. Upon the occurrence of a Participant's
retirement or death, or upon a Participant's fifth consecutive Break in
Service or earlier distribution, the unpaid balance of any loan, including
any unpaid interest, shall be deducted from any payment or distribution
from the Trust to which such Participant or his Beneficiary may be
entitled. If after charging the Participant's Account with the unpaid
balance of the loan, including any unpaid interest, there still remains
an unpaid balance of any such loan and interest, then the remaining unpaid
balance of such loan and interest shall be charged against any property
pledged as security with respect to such loan.
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ARTICLE 14
INSURANCE
14.1 Insurance. If the Adoption Agreement so provides and the
Employer elects to allocate or permit Participants to allocate a portion
of their Accounts to purchase life insurance, the ensuing subsections of
this ARTICLE shall apply.
14.2 Policies. The Plan Administrator shall instruct the Trustee
to procure one or more life insurance policies on the Participant's life,
the terms of which shall conform to the requirements of the Plan and the
Code. The policies and the companies which write them shall be subject
to the approval of the Plan Administrator and the Trustee. The Trustee
shall procure and hold such policies in its name or the name of the
nominee. The Trustee shall be the sole owner of all contracts purchased
hereunder, and it shall be so designated in each policy and application
therefor.
14.3 Beneficiary. The Participant shall have the right to name the
Beneficiary and to choose the benefit option under the policy for the
Beneficiary. The Trustee shall designate the Beneficiary of all such
policies in accordance with the written directions of the Plan Adminis-
trator and the policy terms. Such designations may be outlined in the
original application as forwarded to the issuing company. However, the
Plan Administrator shall have available and shall furnish the Participant
with the necessary forms for any Beneficiary designation or change of
Beneficiary and it will keep a copy of all executed designations as part
of its records. Upon a Participant's death, the Plan Administrator will
promptly furnish the Trustee a copy of the last designation and shall
authorize the Trustee to complete such forms as the insurance company may
require in order to effect the benefit option.
14.4 Payment_of_Premiums. Subject to the provisions of sections
7.3 and 14.5, premium payments to the insurer may be made only by the
Trustee with respect to any insurance policy purchased on behalf of a
Participant and shall constitute first an investment of a portion of the
funds of the Participant's Employer Contribution subaccounts up to the
maximum amount of such subaccounts permitted to be applied toward such
premium payments, as provided in section 14.5. If a Participant's
subaccounts lack sufficient assets to pay premiums on a life insurance
policy due on his behalf, the Trustee, at the direction of the Plan
Administrator, acting upon the request of the Participant, shall borrow
under the policy loan provisions, if any, the amount necessary to pay such
premiums, using the cash value of the insurance as security, or the
Trustee may liquidate assets held in the Participant's Account, in the
same order, of sufficient value to pay such premiums. Any loans shall be
repaid by the application of earnings, contributions, or forfeitures to
the Account of the Participant insured by such policy. In the absence of
the Plan Administrator's direction to borrow or to liquidate assets to pay
premiums, the life insurance policy shall be put on a paid-up basis or,
if it has no cash value, cancelled.
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14.5 Limitation_on_Insurance_Premiums. The Trustee shall not pay,
nor shall anyone on behalf of the Trustee pay, any life insurance premium
for any Participant out of the Participant's Employer Contribution
subaccounts unless the amount of such payment, plus all premiums
previously so paid on behalf of the Participant, is less than fifty
percent (50%) of the Employer Contributions and forfeitures allocated to
the Participant's Employer Contribution subaccounts as determined on the
date such premium is paid with respect to reserve life insurance policies
and shall be less than twenty-five percent (25%) thereof with respect to
nonreserve (term) policies, or, if both reserve life and term insurance
are purchased on the life of any Participant, the sum of the term
insurance premium plus one-half (1/2) of the reserve life premiums may not
exceed twenty- five percent (25%) of the Employer Contributions made on
behalf of such Participant. For purposes of these incidental insurance
provisions, reserve life insurance contracts are contracts with both
nondecreasing death benefits and nonincreasing premiums. Dividends
received on life insurance policies shall be considered a reduction of
premiums paid in such computations.
If payment of premiums on a Participant's life insurance
policy is prohibited because of the limitation, the Trustee, as directed
by the Plan Administrator, shall permit the Participant to maintain that
part of the coverage made available by the prohibited premiums, either by
payment of the amount of the prohibited premium by the Participant from
sources other than the Trust or by distributing the policy to the extent
of the Participant's vested interest to the Participant and eliminating
it from the Trust.
Nothing contained in the foregoing provisions of section 14.4
and this section shall be deemed to authorize the payment of any premium
or premiums for any Participant which would result in a failure to
maintain any mandatory investment in Shares required by the Sponsor in the
Account or subaccounts of any such Participant.
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14.6 Insurance_Company. No insurance company which may issue any
policies for the purposes of this Plan shall be required to take or permit
any action contrary to the provisions of said policies, nor shall such
insurance company be deemed to be a party to, or responsible for the
validity of, this Plan for any purpose. No such insurance company shall
be required to look into the terms of this Plan or question any action of
the Trustee hereunder, nor be responsible to see that any action of the
Trustee is authorized by the terms of this Plan. Any such issuing
insurance company shall be fully discharged from any and all liability for
any amount paid to the Trustee or paid in accordance with the direction
of the Trustee, as the case may be, or for any change made or action taken
by such insurance company upon such direction and no such insurance
company shall be obliged to see to the distribution or further application
of any monies paid by it. The certificate of the Trustee signed by one
of its trust officers, assistant secretary, or other authorized
representative thereof, may be received by any insurance company as
conclusive evidence of any of the matters mentioned in this Plan and any
insurance company shall be fully protected in taking or permitting any
action on the faith thereof and shall incur no liability or responsibility
for so doing.
14.7 Distribution_of_Policies. Upon a Participant's death, the
Trustee, upon direction of the Plan Administrator, shall procure the
payment of the proceeds of any policy held by the Participant in
accordance with its terms and this Plan. The Trustee shall be required
to pay over all the proceeds of any policy to the Participant's Designated
Beneficiary in accordance with the distribution provisions of this Plan.
A Participant's Spouse will be the Designated Beneficiary unless a
Qualified Election has been made in accordance with section 9.4(c) of the
Plan. Under no circumstances shall the Trust retain any part of the
proceeds. Subject to the joint and survivor annuity requirements of
ARTICLE 9, the policies shall be converted or distributed upon
commencement of benefits in accordance with the provisions of this
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section. Upon a Participant's retirement at or after his Normal
Retirement Age, unless there is a single sum distribution in which case
any policy shall be distributed, any such policy shall be converted to a
paid-up contract and delivered to the Participant but the Plan
Administrator may, with the Participant's consent, direct that a portion
or all of such cash value of the policy be converted to provide retirement
income as permitted within the terms of the policy and this Plan. Upon
a Participant's retirement due to Total and Permanent Disability, any such
policy shall be held for his account and assigned or delivered to the
Participant in addition to any other benefits provided by this Plan. Upon
a Participant's termination of employment for reasons other than death,
Total and Permanent Disability, or retirement as stated above, to the
extent of life insurance purchased by Employer Contributions, he shall be
entitled to a vested interest in any policy held for his account as his
interest is vested in the remainder of his Employer Contribution
subaccounts (exclusive of any such policy). Whenever the Participant is
entitled to one hundred percent (100%) vesting, then such policy shall be
assigned and delivered to the Participant in accordance with its terms and
the terms of the Plan. Whenever the Participant is entitled to vesting
of less than one hundred percent (100%), then the Participant shall be
entitled to a vested interest of the cash surrender value of any such
policy equal to his percent of vested interest in his Employer
Contribution subaccounts, exclusive of the policy, and one of the
following distribution procedures shall apply:
(a) If the nonvested portion of the cash surrender value of
all policies held for the Participant's Account is less than the amount
of his vested termination benefit exclusive of the policies, then, such
policy shall be assigned to the Participant and the remainder of the
Participant's vested interest in the Participant's Employer Contribution
subaccounts shall be reduced by the cash surrender value of the nonvested
portion of all policies, after which it shall be paid or distributed to
the Participant in accordance with the terms of the Plan; or
(b) If the nonvested portion of the cash surrender value of
all policies held for the Participant's Account exceeds the Participant's
vested interest in the Employer Contribution subaccount exclusive of such
policies, the Participant shall be given the opportunity to purchase such
policies by paying to the Trustee the amount of such excess within thirty
(30) days after notice to him of the amount to be paid. Upon receipt of
such payment said policy shall be assigned and delivered to the Partici-
pant to the full satisfaction of all termination benefits under this Plan.
Any such policy not so purchased shall be surrendered by the Trustee for
its cash value and the proceeds thereof deposited in the Trust for
reallocation pursuant to ARTICLE 5.
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It is the intention hereof that the total termination benefit
of a Participant whose interest is not fully vested shall be equal to the
sum of the vested percentage of his Employer Contribution subaccounts
exclusive of all such policies and the same percentage of the cash value
of all such policies held for his Account. To the extent possible under
the foregoing provisions, such total termination benefits shall be
satisfied by the transfer and delivery to the Participant of one or more
such policies with the balance, if any, to be paid in cash or in kind.
14.8 Policy_Features. The Trustee shall arrange, where possible,
that all policies purchased for the benefit of a Participant shall have
the same dividend option which shall be on the premium reduction plan, and
as nearly as may be possible all policies issued under the Plan shall have
the same anniversary date. To the extent any dividends or credits earned
on insurance policies are not applied toward the next premiums due, they
shall be allocated to the Participant's Employer Contribution subaccount
in the same manner as a Participant's directed investment.
14.9 Changed_Conditions. From time to time because of changed
conditions, the Trustee, acting at the direction of the Plan Administrator
upon the election of the Participant concerned, shall obtain an additional
contract or policy or make such change in the contracts or policies
maintained by the Trustee on the life of the Participant as may be
required by such changed conditions, within the limits permitted by the
insurance company which issued or is requested to issue a contract and the
limits established by this Plan.
14.10 Conflicts. In the event of any conflict between the terms
of the Plan and the provisions of any contract issued hereunder, the terms
of the Plan shall control.
ARTICLE 15
ADMINISTRATION
15.1 Duties_and_Responsibilities_of_Fiduciaries;
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Allocation_of_Fiduciary_Responsibility. A fiduciary of the Plan shall
have only those specific powers, duties, responsibilities, and obligations
as are explicitly given him under the Plan and Trust Agreement. In
general, the Employer shall have the sole responsibility for making
contributions to the Plan required under ARTICLE 4; appointing the Trustee
and the Plan Administrator; and determining the funds available for
investment under the Plan. The Plan Administrator shall have the sole
responsibility for the administration of the Plan, as more fully described
in section 15.2. It is intended that each fiduciary shall be responsible
only for the proper exercise of his own powers, duties, responsibilities,
and obligations under the Plan and Trust Agreement, and shall not be
responsible for any act or failure to act of another fiduciary. A
fiduciary may serve in more than one fiduciary capacity with respect to
the Plan.
15.2 Powers_and_Responsibilities_of_the_Plan_Adminis trator.
(a) Administration_of_the_Plan. The Plan Administrator
shall have all powers necessary to administer the Plan, including the
power to construe and interpret the Plan documents; to decide all
questions relating to an individual's eligibility to participate in the
Plan; to determine the amount, manner, and timing of any distribution of
benefits or withdrawal under the Plan; to approve and ensure the repayment
of any loan to a Participant under the Plan; to resolve any claim for
benefits in accordance with section 15.7; and to appoint or employ
advisors, including legal counsel; to render advice with respect to any
of the Plan Administrator's responsibilities under the Plan. Any
construction, interpretation, or application of the Plan by the Plan
Administrator shall be final, conclusive, and binding. All actions by the
Plan Administrator shall be taken pursuant to uniform standards applied
to all persons similarly situated. The Plan Administrator shall have no
power to add to, subtract from, or modify any of the terms of the Plan,
or to change or add to any benefits provided by the Plan, or to waive or
fail to apply any requirements of eligibility for a benefit under the
Plan.
(b) Records_and_Reports. The Plan Administrator shall be
responsible for maintaining sufficient records to reflect the Eligibility
Computation Periods in which an Employee is credited with one or more
Years of Service for purposes of determining his eligibility to
participate in the Plan, and the Compensation of each Participant for
purposes of determining the amount of contributions that may be made by
or on behalf of the Participant under the Plan. The Plan Administrator
shall be responsible for submitting all required reports and notifications
relating to the Plan to Participants or their Beneficiaries, the Internal
Revenue Service and the Department of Labor.
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(c) Furnishing_Trustee_with_Instructions. The Plan
Administrator shall be responsible for furnishing the Trustee with written
instructions regarding all contributions to the Trust, all distributions
to Participants in accordance with ARTICLE 10, all withdrawals by
Participants in accordance with ARTICLE 12, all loans to Participants in
accordance with ARTICLE 13 and all purchases of life insurance in
accordance with ARTICLE 14. In addition, the Plan Administrator shall be
responsible for furnishing the Trustee with any further information
respecting the Plan which the Trustee may request for the performance of
its duties or for the purpose of making any returns to the Internal
Revenue Service or Department of Labor as may be required of the Trustee.
(d) Rules_and_Decisions. The Plan Administrator may adopt
such rules as it deems necessary, desirable, or appropriate in the
administration of the Plan. All rules and decisions of the Plan
Administrator shall be applied uniformly and consistently to all
Participants in similar circumstances. When making a determination or
calculation, the Plan Administrator shall be entitled to rely upon
information furnished by a Participant or Beneficiary, the Employer, the
legal counsel of the Employer, or the Trustee.
(e) Application_and_Forms_for_Benefits. The Plan
Administrator may require a Participant or Beneficiary to complete and
file with it an application for a benefit, and to furnish all pertinent
information requested by it. The Plan Administrator may rely upon all
such information so furnished to it, including the Participant's or
Beneficiary's current mailing address.
(f) Facility_of_Payment. Whenever, in the Plan
Administrator's opinion, a person entitled to receive a payment of a
benefit or installment thereof is under a legal disability or is
incapacitated in any way so as to be unable to manage his financial
affairs, as determined by a court of competent jurisdiction, it may direct
the Trustee to make payments to such person or to the legal representative
or to a relative or friend of such person for that person's benefit, or
it may direct the Trustee to apply the payment for the benefit of such
person in such manner as it considers advisable.
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15.3 Allocation_of_Duties_and_Responsibilities. The Plan
Administrator may, by written instrument, allocate among its members or
employees any of its duties and responsibilities not already allocated
under the Plan or may designate persons other than members or employees
to carry out any of the Plan Administrator's duties and responsibilities
under the Plan. Any such duties or responsibilities thus allocated must
be described in the written instrument. If a person other than an
Employee of the Employer is so designated, such person must acknowledge
in writing his acceptance of the duties and responsibilities allocated to
him.
15.4 Appointment_of_the_Plan_Administrator. The Employer shall
designate in the Adoption Agreement the Plan Administrator who shall
administer the Employer's Plan. Such Plan Administrator may consist of
an individual, a committee of two or more individuals, whether or not, in
either such case, the individual or any of such individuals are Employees
of the Employer, a consulting firm or other independent agent, the Trustee
(with its consent), or the Employer itself. The Plan Administrator shall
be charged with the full power and the responsibility for administering
the Plan in all its details. If no Plan Administrator has been appointed
by the Employer, or if the person designated as Plan Administrator by the
Employer is not serving as such for any reason, the Employer shall be
deemed to be the Plan Administrator of the Plan. The Plan Administrator
may be removed by the Employer, or may resign by giving notice in writing
to the Employer, and in the event of the removal, resignation, or death,
or other termination of service by the Plan Administrator, the Employer
shall, as soon as practicable, appoint a successor Plan Administrator,
such successor thereafter to have all of the rights, privileges, duties,
and obligations of the predecessor Plan Administrator.
15.5 Expenses. The Employer shall pay all expenses authorized and
incurred by the Plan Administrator in the administration of the Plan
except to the extent such expenses are paid from the Trust.
15.6 Liabilities. The Plan Administrator and each person to whom
duties and responsibilities have been allocated pursuant to section 15.3
may be indemnified and held harmless by the Employer with respect to any
alleged breach of responsibilities performed or to be performed hereunder.
The Employer and each Affiliated Employer shall indemnify and hold
harmless the Sponsor against all claims, liabilities, fines, and
penalties, and all expenses reasonably incurred by or imposed upon him
(including, but not limited to, reasonable attorney's fees) which arise
as a result of actions or failure to act in connection with the operation
and administration of the Plan.
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15.7 Claims_Procedure.
(a) Filing_a_Claim. Any Participant or Beneficiary under
the Plan may file a written claim for a Plan benefit with the Plan
Administrator or with a person named by the Plan Administrator to receive
claims under the Plan.
(b) Notice_of_Denial_of_Claim. In the event of a denial or
limitation of any benefit or payment due to or requested by any
Participant or Beneficiary under the Plan ("claimant"), claimant shall be
given a written notification containing specific reasons for the denial
or limitation of his benefit. The written notification shall contain
specific reference to the pertinent Plan provisions on which the denial
or limitation of his benefit is based. In addition, it shall contain a
description of any other material or information necessary for the
claimant to perfect a claim, and an explanation of why such material or
information is necessary. The notification shall further provide
appropriate information as to the steps to be taken if the claimant wishes
to submit his claim for review. This written notification shall be given
to a claimant within ninety (90) days after receipt of his claim by the
Plan Administrator unless special circumstances require an extension of
time for processing the claim. If such an extension of time for
processing is required, written notice of the extension shall be furnished
to the claimant prior to the termination of said ninety (90) day period,
and such notice shall indicate the special circumstances which make the
postponement appropriate.
(c) Right_of_Review. In the event of a denial or limitation
of his benefit, the claimant or his duly authorized representative shall
be permitted to review pertinent documents and to submit to the Plan
Administrator issues and comments in writing. In addition, the claimant
or his duly authorized representative may make a written request for a
full and fair review of his claim and its denial by the Plan
Administrator; provided, however, that such written request must be
received by the Plan Administrator (or its delegate to receive such
requests) within sixty (60) days after receipt by the claimant of written
notification of the denial or limitation of the claim. The sixty (60) day
requirement may be waived by the Plan Administrator in appropriate cases.
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(d) Decision_on_Review. A decision shall be rendered by the
Plan Administrator within sixty (60) days after the receipt of the request
for review, provided that where special circumstances require an extension
of time for processing the decision, it may be postponed on written notice
to the claimant (prior to the expiration of the initial sixty (60) day
period) for an additional sixty (60) days, but in no event shall the
decision be rendered more than one hundred twenty (120) days after the
receipt of such request for review. Any decision by the Plan Adminis-
trator shall be furnished to the claimant in writing and shall set forth
the specific reasons for the decision and the specific Plan provisions on
which the decision is based.
(e) Court_Action. No Participant or Beneficiary shall have
the right to seek judicial review of a denial of benefits, or to bring any
action in any court to enforce a claim for benefits prior to filing a
claim for benefits or exhausting his rights to review under this section.
ARTICLE 16
AMENDMENT, TERMINATION AND MERGER
16.1 Sponsor's_Power_to_Amend. The Sponsor may amend any part of
the Plan. For purposes of Sponsor's amendments, the mass submitter shall
be recognized as the agent of the Sponsor. If the Sponsor does not adopt
the amendments made by the mass submitter, it will no longer be identical
to or a minor modifier of the mass submitter plan.
16.2 Amendment_by_Adopting_Employer.
(a) The Employer may:
(i) change the choice of options in the Adoption
Agreement;
(ii) add overriding language in the Adoption Agreement
when such language is necessary to satisfy section 415 or section 416 of
the Code because of the required aggregation of multiple plans; and
(iii) add certain model amendments published by the
Internal Revenue Service which specifically provide that their adoption
will not cause the Plan to be treated as individually designed.
(b) An Employer that amends the Plan for any other reason,
including a waiver of the minimum funding requirement under section 412(d)
of the Code, will no longer participate in this prototype plan and will
be considered to have an individually designed plan.
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<PAGE>
16.3 Vesting_Upon_Plan_Termination. In the event of the
termination or partial termination of the Plan, the Account balance of
each affected Participant will be nonforfeitable.
16.4 Vesting_Upon_Complete_Discontinuance_of_Contribu tions. In
the event of a complete discontinuance of contributions under the Plan,
the Account balance of each affected Participant will be nonforfeitable.
16.5 Maintenance_of_Benefits_Upon_Merger. In the event of a merger
or consolidation with, or transfer of assets to any other plan, each
Participant will receive a benefit immediately after such merger,
consolidation or transfer (if the Plan then terminated) which is at least
equal to the benefit the Participant was entitled to immediately before
such merger, consolidation or transfer (if the Plan had been terminated).
16.6 Special_Amendments. The Employer may from time to time make
any amendment to the Plan that may be necessary to satisfy section 415 or
416 of the Code. Any such amendment will be adopted by the Employer by
completing overriding Plan language in the Adoption Agreement. In the
event of such an amendment, the Employer must obtain a separate
determination letter from the Internal Revenue Service to continue
reliance on the Plan's qualified status.
ARTICLE 17
MISCELLANEOUS
17.1 Exclusive_Benefit_of_Participants_and_Beneficia ries.
(a) All assets of the Trust shall be retained for the
exclusive benefit of Participants and their Beneficiaries, and shall be
used only to pay benefits to such persons or to pay the fees and expenses
of the Trust. The assets of the Trust shall not revert to the benefit of
the Employer, except as otherwise specifically provided in section
17.1(b).
(b) To the extent permitted or required by ERISA and the
Code, contributions to the Trust under this Plan are subject to the
following conditions:
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(i) If a contribution or any part thereof is made to
the Trust by the Employer under a mistake of fact, such contribution or
part thereof shall be returned to the Employer within one (1) year after
the date the contribution is made.
(ii) In the event the Plan is determined not to meet
the initial qualification requirements of section 401 of the Code,
contributions made in respect of any period for which such requirements
are not met shall be returned to the Employer within one (1) year after
the Plan is determined not to meet such requirements, but only if the
application for the 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.
(iii) Contributions to the Trust are specifically
conditioned on their deductibility under the Code and, to the extent a
deduction is disallowed for any such contribution, such amount shall be
returned to the Employer within one (1) year after the date of the
disallowance of the deduction.
17.2 Nonguarantee_of_Employment. Nothing contained in this Plan
shall be construed as a contract of employment between the Employer and
any Employee, or as a right of any Employee to be continued in the
employment of the Employer, or as a limitation of the right of the
Employer to discharge any of its Employees, with or without cause.
17.3 Rights_to_Trust_Assets. No Employee, Participant, or
Beneficiary shall have any right to, or interest in, any assets of the
Trust upon termination of employment or otherwise, except as provided
under the Plan. All payments of benefits under the Plan shall be made
solely out of the assets of the Trust.
17.4 Nonalienation_of_Benefits. No benefit or interest available
hereunder will be subject to assignment or alienation, either voluntarily
or involuntarily. The preceding sentence shall also apply to the
creation, assignment, or recognition of a right to any benefit payable
with respect to a Participant pursuant to a domestic relations order,
unless such order is determined to be a qualified domestic relations
order, as defined in section 414(p) of the Code, or any domestic relations
order entered before January 1, 1985.
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17.5 Aggregation_Rules.
(a) Except as provided in ARTICLE 6, all Employees of the
Employer or any Affiliated Employer will be treated as employed by a
single employer.
(b) If this Plan provides contributions or benefits for one
or more Owner-Employees who control both the business for which this Plan
is established and one or more other trades or businesses, this Plan and
the plan established for other trades or businesses must, when looked at
as a single plan, satisfy sections 401(a) and (d) of the Code for the
Employees of this and all other trades or businesses.
(c) If the Plan provides contributions or benefits for one
or more Owner-Employees who control one or more other trades or
businesses, the employees of the other trades or businesses must be
included in a plan which satisfies sections 401(a) and (d) of the Code and
which provides contributions and benefits not less favorable than provided
for Owner-Employees under this Plan.
(d) If an individual is covered as an Owner- Employee under
the plans of two or more trades or businesses which are not controlled and
the individual controls a trade or business, then the contributions or
benefits of the employees under the plan of the trades or businesses which
are controlled must be as favorable as those provided for him under the
most favorable plan of the trade or business which is not controlled.
(e) For purposes of paragraphs (b), (c) and (d), an Owner-
Employee, or two or more Owner-Employees, will be considered to control
a trade or business if the Owner- Employee, or two or more Owner-Employees
together:
(i) own the entire interest in an unincorporated
trade or business; or
(ii) in the case of a partnership, own more than fifty
percent (50%) of either the capital interest or the profits interest in
the partnership.
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For purposes of the preceding sentence, an Owner- Employee,
or two or more Owner-Employees shall be treated as owning an 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.
17.6 Failure_of_Qualification. If the Employer's plan fails to
attain or retain qualification, such plan will no longer participate in
this master/prototype plan and will be considered an individually designed
plan.
17.7 Applicable_Law. Except to the extent otherwise required by
ERISA, as amended, this Plan shall be construed and enforced in accordance
with the laws of the state in which the Employer's principal place of
business is located, as specified in the Adoption Agreement.
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<TABLE> <S> <C>
<ARTICLE> 6
<LEGEND>
The Schedule contains summary financial information extracted from year-
end audited financial statements dated December 31, 1995 and is qualified
in its entirety by reference to such financial statements.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<INVESTMENTS-AT-COST> 9,063,036
<INVESTMENTS-AT-VALUE> 11,641,890
<RECEIVABLES> 36,710
<ASSETS-OTHER> 43,758
<OTHER-ITEMS-ASSETS> 0
<TOTAL-ASSETS> 11,722,358
<PAYABLE-FOR-SECURITIES> 0
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 81,797
<TOTAL-LIABILITIES> 81,797
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 9,057,411
<SHARES-COMMON-STOCK> 852,134
<SHARES-COMMON-PRIOR> 685,863
<ACCUMULATED-NII-CURRENT> 4,296
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> 0
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> 2,578,854
<NET-ASSETS> 11,640,561
<DIVIDEND-INCOME> 12,534
<INTEREST-INCOME> 357,879
<OTHER-INCOME> 0
<EXPENSES-NET> 248,221
<NET-INVESTMENT-INCOME> 122,192
<REALIZED-GAINS-CURRENT> 214,468
<APPREC-INCREASE-CURRENT> 1,367,719
<NET-CHANGE-FROM-OPS> 1,704,379
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 122,375
<DISTRIBUTIONS-OF-GAINS> 187,645
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 343,017
<NUMBER-OF-SHARES-REDEEMED> 197,366
<SHARES-REINVESTED> 20,620
<NET-CHANGE-IN-ASSETS> 2,128,812
<ACCUMULATED-NII-PRIOR> 4,479
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 30,554
<GROSS-ADVISORY-FEES> 98,554
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 248,221
<AVERAGE-NET-ASSETS> 9,855,318
<PER-SHARE-NAV-BEGIN> 11.84
<PER-SHARE-NII> .15
<PER-SHARE-GAIN-APPREC> 2.04
<PER-SHARE-DIVIDEND> (.15)
<PER-SHARE-DISTRIBUTIONS> (.22)
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 13.66
<EXPENSE-RATIO> 2.52
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
