1933 Act Registration No. 33-16905
1940 Act Registration No. 811-5309
As filed with the Securities and Exchange Commission on January 29, 1997
================================================================================
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. 27 [X]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT
COMPANY ACT OF 1940 [X]
Amendment No. 28
FIRST AMERICAN INVESTMENT FUNDS, INC.
(Exact Name of Registrant as Specified in Charter)
OAKS, PENNSYLVANIA 19456
(Address of Principal Executive Offices) (Zip Code)
(610) 254-1924
(Registrant's Telephone Number, including Area Code)
DAVID LEE
C/O SEI INVESTMENTS COMPANY, OAKS, PENNSYLVANIA 19456
(Name and Address of Agent for Service)
COPIES TO:
Kathryn Stanton, Esq. Michael J. Radmer, Esq.
SEI Investments Company James D. Alt, Esq.
Oaks, Pennsylvania 19456 Dorsey & Whitney LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
It is proposed that this filing shall become effective (check appropriate box):
[ ] immediately upon filing pursuant to paragraph (b) of rule 485
[X] on January 31, 1997 pursuant to paragraph (b) of rule 485
[ ] 60 days after filing pursuant to paragraph (a)(1) of Rule 485
[ ] on (date) pursuant to paragraph (a)(1) of Rule 485
[ ] 75 days after filing pursuant to paragraph (a)(2) of Rule 485
[ ] on (date) pursuant to paragraph (a)(2) of Rule 485
Registrant has registered an indefinite number or amount of securities under the
Securities Act of 1933 pursuant to Rule 24f-2 under the Investment Company Act
of 1940. A Rule 24f-2 Notice was filed with the Securities and Exchange
Commission on November 25, 1996.
================================================================================
FIRST AMERICAN INVESTMENT FUNDS, INC.
POST-EFFECTIVE AMENDMENT NO. 27
CROSS REFERENCE SHEET FOR ITEMS REQUIRED BY FORM N-1A
NOTE: PART A of this Registration Statement consists of six Prospectuses, as
follows:
1. Retail Class Prospectus relating to Class A and Class B Shares of
the following funds (the "Equity Funds"): Stock Fund, Equity Index
Fund, Balanced Fund, Asset Allocation Fund, Equity Income Fund,
Diversified Growth Fund, Emerging Growth Fund, Regional Equity
Fund, Special Equity Fund, Technology Fund, Health Sciences Fund,
Real Estate Securities Fund, and International Fund.
2. Institutional Class Prospectus relating to Class C Shares of the
Equity Funds.
3. Retail Class Prospectus relating to Class A and Class B Shares of
the following funds (the "Taxable Fixed Income Funds"): Limited
Term Income Fund, Intermediate Term Income Fund, Fixed Income
Fund, and Intermediate Government Bond Fund.
4. Institutional Class Prospectus relating to Class C Shares of the
Taxable Fixed Income Funds.
5. Retail Class Prospectus relating to Class A Shares of the
following funds (the "Tax Free Funds"): Intermediate Tax Free
Fund, Minnesota Insured Intermediate Tax Free Fund, and Colorado
Intermediate Tax Free Fund.
6. Institutional Class Prospectus relating to Class C Shares of the
Tax Free Funds.
PART B of this Registration Statement consists of one Statement of
Additional Information, which relates to all six of the Prospectuses listed
above.
CROSS REFERENCE SHEET FOR THE EQUITY FUNDS:
ITEM NUMBER OF FORM N-1A
PART A CAPTION IN PROSPECTUS
RETAIL CLASSES PROSPECTUS
1 Cover Page
2 Summary; Fees and Expenses
3 Financial Highlights
4 The Funds; Investment Objectives and Policies; Special Investment
Methods
5 Management; Distributor
5A Included in Annual Report to Shareholders
6 Fund Shares; Investing in the Funds; Federal Income Taxes
7 Distributor; Investing in the Funds; Determining the Price of
Shares
8 Redeeming Shares
9 Not Applicable
INSTITUTIONAL CLASS PROSPECTUS
1 Cover Page
2 Summary; Fees and Expenses
3 Financial Highlights
4 The Funds; Investment Objectives and Policies; Special Investment
Methods
5 Management; Distributor
5A Included in Annual Report to Shareholders
6 Fund Shares; Purchases and Redemptions of Shares; Federal Income
Taxes
7 Distributor; Purchases and Redemptions of Shares
8 Purchases and Redemptions of Shares
9 Not Applicable
CAPTION IN STATEMENT
PART B OF ADDITIONAL INFORMATION
10 Cover Page
11 Table of Contents
12 General Information
13 Additional Information Concerning Fund Investments; Investment
Restrictions
14 Directors and Executive Officers
15 Capital Stock
16 Investment Advisory and Other Services
17 Portfolio Transactions and Allocation of Brokerage
18 Not Applicable
19 Net Asset Value and Public Offering Price
20 Taxation
21 Investment Advisory and Other Services
22 Fund Performance
23 Financial Statements
CROSS REFERENCE SHEET FOR THE TAXABLE FIXED INCOME FUNDS:
ITEM NUMBER OF FORM N-1A
PART A CAPTION IN PROSPECTUS
RETAIL CLASSES PROSPECTUS
1 Cover Page
2 Summary; Fees and Expenses
3 Financial Highlights
4 The Funds; Investment Objectives and Policies; Special Investment
Methods
5 Management; Distributor
5A Included in Annual Report to Shareholders
6 Fund Shares; Investing in the Funds; Federal Income Taxes
7 Distributor; Investing in the Funds; Determining the Price of
Shares
8 Redeeming Shares
9 Not Applicable
INSTITUTIONAL CLASS PROSPECTUS
1 Cover Page
2 Summary; Fees and Expenses
3 Financial Highlights
4 The Funds; Investment Objectives and Policies; Special Investment
Methods
5 Management; Distributor
5A Included in Annual Report to Shareholders
6 Fund Shares; Purchases and Redemptions of Shares; Federal Income
Taxes
7 Distributor; Purchases and Redemptions of Shares
8 Purchases and Redemptions of Shares
9 Not Applicable
CAPTION IN STATEMENT
PART B OF ADDITIONAL INFORMATION
10 Cover Page
11 Table of Contents
12 General Information
13 Additional Information Concerning Fund Investments; Investment
Restrictions
14 Directors and Executive Officers
15 Capital Stock
16 Investment Advisory and Other Services
17 Portfolio Transactions and Allocation of Brokerage
18 Not Applicable
19 Net Asset Value and Public Offering Price
20 Taxation
21 Investment Advisory and Other Services
22 Fund Performance
23 Financial Statements
CROSS REFERENCE SHEET FOR THE TAX FREE FUNDS:
ITEM NUMBER OF FORM N-1A
PART A CAPTION IN PROSPECTUS
RETAIL CLASS PROSPECTUS
1 Cover Page
2 Summary; Fees and Expenses
3 Financial Highlights
4 The Funds; Investment Objectives and Policies; Special Investment
Methods
5 Management; Distributor
5A Included in Annual Report to Shareholders
6 Fund Shares; Investing in the Funds; Income Taxes
7 Distributor; Investing in the Funds; Determining the Price of
Shares
8 Redeeming Shares
9 Not Applicable
INSTITUTIONAL CLASS PROSPECTUS
1 Cover Page
2 Summary; Fees and Expenses
3 Financial Highlights
4 The Funds; Investment Objectives and Policies; Special Investment
Methods
5 Management; Distributor
5A Included in Annual Report to Shareholders
6 Fund Shares; Purchases and Redemptions of Shares; Income Taxes
7 Distributor; Purchases and Redemptions of Shares
8 Purchases and Redemptions of Shares
9 Not Applicable
CAPTION IN STATEMENT
PART B OF ADDITIONAL INFORMATION
10 Cover Page
11 Table of Contents
12 General Information
13 Additional Information Concerning Fund Investments; Investment
Restrictions
14 Directors and Executive Officers
15 Capital Stock
16 Investment Advisory and Other Services
17 Portfolio Transactions and Allocation of Brokerage
18 Not Applicable
19 Net Asset Value and Public Offering Price
20 Taxation
21 Investment Advisory and Other Services
22 Fund Performance
23 Financial Statements
FIRST AMERICAN INVESTMENT FUNDS, INC.
EQUITY FUNDS
RETAIL CLASSES
Stock Fund Regional Equity Fund
Equity Index Fund Special Equity Fund
Balanced Fund Technology Fund
Asset Allocation Fund Health Sciences Fund
Equity Income Fund Real Estate Securities Fund
Diversified Growth Fund International Fund
Emerging Growth Fund
PROSPECTUS
JANUARY 31, 1997
[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 8
Class A Share Fees and Expenses 8
Class B Share Fees and Expenses 10
Information Concerning Fees and
Expenses 12
FINANCIAL HIGHLIGHTS 14
THE FUNDS 18
INVESTMENT OBJECTIVES AND
POLICIES 18
Stock Fund 19
Equity Index Fund 20
Balanced Fund 21
Asset Allocation Fund 23
Equity Income Fund 24
Diversified Growth Fund 26
Emerging Growth Fund 26
Regional Equity Fund 27
Special Equity Fund 28
Technology Fund 30
Health Sciences Fund 31
Real Estate Securities Fund 32
International Fund 34
Risks to Consider 36
MANAGEMENT 36
Investment Adviser 36
Sub-Adviser to International
Fund 38
Portfolio Managers 38
Custodian 41
Administrator 41
Transfer Agent 42
DISTRIBUTOR 42
INVESTING IN THE FUNDS 43
Share Purchases 43
Minimum Investment Required 44
Alternative Sales Charge Options 45
Systematic Exchange Program 49
Systematic Investment Program 50
Exchanging Securities for Fund
Shares 50
Certificates and Confirmations 50
Dividends and Distributions 50
Exchange Privilege 51
REDEEMING SHARES 52
By Telephone 53
By Mail 53
By Systematic Withdrawal Program 54
Redemption Before Purchase
Instruments Clear 55
Accounts with Low Balances 55
DETERMINING THE PRICE OF SHARES 55
Determining Net Asset Value 55
Foreign Securities 56
FEDERAL INCOME TAXES 57
FUND SHARES 58
CALCULATION OF PERFORMANCE DATA 59
SPECIAL INVESTMENT METHODS 60
Cash Items 60
Repurchase Agreements 60
When-Issued and Delayed-Delivery
Transactions 61
Lending of Portfolio Securities 61
Options Transactions 62
Futures and Options on Futures 63
Fixed Income Securities 64
Foreign Securities 65
Foreign Currency Transactions 67
Mortgage-Backed Securities 68
Asset-Backed Securities 69
Bank Instruments 69
Portfolio Transactions 69
Portfolio Turnover 70
Investment Restrictions 70
Information Concerning
Compensation Paid to First Trust
National Association and
Its Affiliates 71
FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456
RETAIL CLASSES PROSPECTUS
The shares described in this Prospectus represent interests in First
American Investment Funds, Inc., which consists of mutual funds with several
different investment portfolios and objectives. This Prospectus relates to
the Class A and Class B Shares of the following funds (the "Funds"):
* STOCK FUND * REGIONAL EQUITY FUND
* EQUITY INDEX FUND * SPECIAL EQUITY FUND
* BALANCED FUND * TECHNOLOGY FUND
* ASSET ALLOCATION FUND * HEALTH SCIENCES FUND
* EQUITY INCOME FUND * REAL ESTATE SECURITIES FUND
* DIVERSIFIED GROWTH FUND * INTERNATIONAL FUND
* EMERGING GROWTH FUND
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF
ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL,
DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated January 31, 1997 for the Funds
has been filed with the Securities and Exchange Commission and is
incorporated in its entirety by reference in this Prospectus. To obtain
copies of the Statement of Additional Information at no charge, or to obtain
other information or make inquiries about the Funds, call (800) 637-2548 or
write SEI Financial Services Company, Oaks, Pennsylvania 19456.
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.
The date of this Prospectus is January 31, 1997.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment
company which offers shares in several different mutual funds. This
Prospectus provides information with respect to the Class A and Class B
Shares of the following funds (the "Funds"):
STOCK FUND has a primary objective of capital appreciation and a secondary
objective to provide current income. Under normal market conditions, the
Fund invests at least 65% of its total assets in common stocks diversified
among a broad range of industries and among companies that have a market
capitalization of at least $500 million. In selecting equity securities, the
Fund's adviser employs a value-based selection discipline.
EQUITY INDEX FUND has an objective of providing investment results that
correspond to the performance of the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500"). The Fund invests substantially in common stocks
included in the S&P 500. The Fund's adviser believes that its objective can
best be achieved by investing in the common stocks of approximately 250 to
500 of the issues included in the S&P 500.
BALANCED FUND has an objective of maximizing total return (capital
appreciation plus income). The Fund seeks to achieve its objective by
investing in a balanced portfolio of equity securities and fixed income
securities. Over the long term, it is anticipated that the Fund's asset mix
will average approximately 60% equity securities and 40% fixed income
securities, with the asset mix normally ranging between 40% and 75% equity
securities, between 25% and 60% fixed income securities, and between 0% and
25% money market instruments.
ASSET ALLOCATION FUND has an objective of maximizing total return over the
long term by allocating its assets principally among common stocks, bonds,
and short-term instruments. There are no limitations on the proportions in
which the Fund's adviser may allocate the Fund's investments among these
three classes of assets, and the Fund may at times be fully invested in a
single asset class if the adviser believes that it offers the most favorable
total return outlook.
EQUITY INCOME FUND has an objective of long-term growth of capital and
income. Under normal market conditions, the Fund invests at least 65% of its
total assets in equity securities of issuers believed by the Fund's adviser
to be characterized by sound management, the ability to finance expected
growth and the ability to pay above average dividends.
DIVERSIFIED GROWTH FUND has a primary objective of long-term growth of
capital and a secondary objective to provide current income. Under normal
market conditions, the Fund invests at least 65% of its total assets in
equity securities of a diverse group of companies that will provide
representation across all economic sectors included in the S&P 500. The
adviser may overweight the Fund's portfolio holdings in sectors that it
believes provide above average total return potential.
EMERGING GROWTH FUND has an objective of growth of capital. Under normal
market conditions, the Fund invests at least 65% of its total assets in
equity securities of small-capitalization companies that exhibit, in the
adviser's opinion, outstanding potential for superior growth. Companies that
participate in sectors that are identified by the adviser as having
long-term growth potential generally are expected to make up a substantial
portion of the Fund's holdings.
REGIONAL EQUITY FUND has an objective of capital appreciation. The Fund
seeks to achieve its objective by investing, in normal market conditions, at
least 65% of its total assets in equity securities of small-capitalization
companies headquartered in Minnesota, North and South Dakota, Montana,
Wisconsin, Michigan, Iowa, Nebraska, Colorado and Illinois. The Fund invests
in the securities of rapidly growing companies within this size category and
geographic area.
SPECIAL EQUITY FUND has an objective of capital appreciation. Under normal
market conditions, the Fund invests at least 65% of its total assets in
equity securities of mid-capitalization companies. The Fund's policy is to
invest in equity securities which the Fund's adviser believes offer the
potential for greater than average capital appreciation. The adviser
believes that this policy can best be achieved by investing in the equity
securities of companies where fundamental changes are occurring, are likely
to occur, or have occurred and where, in the opinion of the adviser, the
changes have not been adequately reflected in the price of the securities.
TECHNOLOGY FUND has an objective of long-term growth of capital. Under
normal market conditions, the Fund invests at least 65% of its total assets
in equity securities of companies which the Fund's adviser believes have, or
will develop, products, processes or services that will provide or will
benefit significantly from technological advances and improvements.
HEALTH SCIENCES FUND has an objective of long-term growth of capital. Under
normal market conditions, the Fund invests at least 65% of its total assets
in equity securities of companies which the Fund's adviser considers to be
principally engaged in the development, production or distribution of
products or services connected with health care or medicine.
REAL ESTATE SECURITIES FUND has an objective of providing above average
current income and long-term capital appreciation by investing primarily in
equity securities of real estate companies. Under normal market conditions,
the Fund invests at least 65% of its total assets in income producing equity
securities of publicly traded companies principally engaged in the real
estate industry. A majority of the Fund's total assets will be invested in
securities of real estate investment trusts ("REITs"), with an expected
emphasis on equity REITs.
INTERNATIONAL FUND has an objective of long-term growth of capital. Under
normal market conditions, the Fund invests at least 65% of its total assets
in an internationally diversified portfolio of equity securities which trade
in markets other than the United States. Investments are expected to be made
primarily in developed markets and larger capitalization companies. However,
the Fund also may invest in emerging markets where smaller capitalization
companies are the norm.
INVESTMENT ADVISER AND SUB-ADVISER First Bank National Association (the
"Adviser") serves as investment adviser to each of the Funds. Marvin &
Palmer Associates, Inc. (the "Sub-Adviser") serves as sub-adviser to
International Fund. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the
"Distributor") serves as the distributor of the Funds' shares. SEI Financial
Management Corporation (the "Administrator") serves as the administrator of
the Funds. See "Management" and "Distributor."
OFFERING PRICES Class A Shares of the Funds are sold at net asset value plus
a maximum sales charge of 4.50%. These sales charges are reduced on
purchases of $50,000 or more. Purchases of $1 million or more of Class A
Shares are not subject to an initial sales charge, but a contingent deferred
sales charge of 1.00% will be imposed on such purchases in the event of
redemption within 24 months following the purchase except in the case of
Equity Index Fund. Class A Shares of the Funds otherwise are redeemed at net
asset value without any additional charge. Class A Shares of each Fund are
subject to a shareholder servicing fee computed at an annual rate of 0.25%
of the average daily net assets of that class. See "Investing in the Funds
-- Alternative Sales Charge Options."
Class B Shares of the Funds are sold at net asset value without an initial
sales charge. Class B Shares of each Fund are subject to Rule 12b-1
distribution and shareholder servicing fees computed at an annual rate
totaling 1.00% of the average daily net assets of that class. If Class B
Shares are redeemed within six years after purchase, they are subject to a
contingent deferred sales charge declining from 5.00% in the first year to
zero after six years. Class B Shares automatically convert into Class A
Shares approximately eight years after purchase. See "Investing in the Funds
-- Alternative Sales Charge Options."
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS The minimum initial investment is
$1,000 ($250 for IRAs) for each Fund. Subsequent investments must be $100 or
more. Regular investment in the Funds is simplified through the Systematic
Investment Program through which monthly purchases of $100 or more are
possible. See "Investing in the Funds -- Minimum Investment Required" and
"-- Systematic Investment Program."
EXCHANGES Shares of any Fund may be exchanged for the same class of shares
of other funds in the First American family at the shares' respective net
asset values with no additional charge. See "Investing in the Funds --
Exchange Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net
asset value next determined after receipt of a redemption request by the
Funds' transfer agent, less any applicable contingent deferred sales charge.
Each Fund may, upon 60 days written notice, redeem an account if the
account's net asset value falls below $500. See "Investing in the Funds" and
"Redeeming Shares."
RISKS TO CONSIDER Each of the Funds is subject to the risk of generally
adverse equity markets. Investors also should recognize that market prices
of equity securities generally, and of particular companies' equity
securities, frequently are subject to greater volatility than prices of
fixed income securities.
Because each of the Funds other than Equity Index Fund is actively managed
to a greater or lesser degree, their performance will reflect in part the
ability of the Adviser or Sub-Adviser to select securities which are suited
to achieving their investment objectives. Due to their active management,
these Funds could underperform other mutual funds with similar investment
objectives or the market generally.
In addition, (i) certain of the Funds are subject to risks associated with
investing in small-capitalization companies; (ii) Regional Equity Fund is
subject to risks associated with concentrating its investments in a single
geographic region; (iii) Technology Fund, Health Sciences Fund and Real
Estate Securities Fund are subject to risks associated with concentrating
their investments in a single or related economic sectors; (iv) Real Estate
Securities Fund is subject to risks associated with direct investments in
REITs; (v) International Fund is subject to risks associated with investing
in foreign securities and to currency risk; (vi) Equity Income Fund may
invest a significant portion of its assets in less than investment grade
convertible debt obligations; (vii) certain Funds other than International
Fund may invest specified portions of their assets in securities of foreign
issuers which are listed on a United States stock exchange or represented by
American Depository Receipts or, in the case of Balanced Fund, are debt
obligations of foreign issuers denominated in United States dollars; and
(viii) certain Funds may invest (but not for speculative purposes) in stock
index futures contracts, options on stock indices, options on stock index
futures, index participation contracts based on the S&P 500, and/or exchange
traded put and call options on interest rate futures contracts and on
interest rates indices. See "Investment Objectives and Policies" and
"Special Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or
a shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an
investor's behalf.
FEES AND EXPENSES RETAIL CLASSES
CLASS A SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
EQUITY ASSET EQUITY
STOCK INDEX BALANCED ALLOCATION INCOME
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases (as a percentage of
offering price)(1) 4.50% 4.50% 4.50% 4.50% 4.50%
Maximum sales load imposed on
reinvested dividends None None None None None
Deferred sales load None None None None None
Redemption fees None None None None None
Exchange fees None None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fee (after
voluntary fee waivers and
reimbursements)(2) 0.62% 0.16% 0.61% 0.47% 0.50%
Rule 12b-1 fees 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3)
Other expenses (after voluntary fee
waivers and reimbursements)(2) 0.18% 0.19% 0.19% 0.33% 0.25%
Total fund operating expenses
(after voluntary fee waivers
and reimbursements)(2) 1.05% 0.60% 1.05% 1.05% 1.00%
EXAMPLE(4)
You would pay the following expenses on a $1,000 investment, assuming (i) the
maximum applicable sales charge for all funds; (ii) a 5% annual return; and
(iii) redemption at the end of each time period:
1 year $55 $51 $55 $55 $55
3 years $77 $63 $77 $77 $75
5 years $100 $77 $100 $100 $98
10 years $167 $117 $167 $167 $162
</TABLE>
(1) The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. Purchases of $1 million or more of Class
A Shares are not subject to an initial sales charge, but a contingent
deferred sales charge of 1.00% will be imposed on such purchases in the
event of redemption within 24 months following the purchase except in the
case of Equity Index Fund. See "Investing in the Funds -- Alternative Sales
Charge Options."
(2) The Adviser and the Administrator intend to waive a portion of their fees
and/or reimburse expenses on a voluntary basis, and the amounts shown
reflect these waivers and reimbursements as of the date of this Prospectus.
Each of these persons intends to maintain such waivers and reimbursements in
effect for the current fiscal year but reserves the right to discontinue
such waivers and reimbursements at any time in its sole discretion. Absent
any fee waivers, investment advisory fees as an annualized percentage of
average daily net assets would be 0.70% for each Fund except International
Fund, as to which they would be 1.25%; and total fund operating expenses
calculated on such basis would be 1.13% for Stock Fund, 1.15% for Equity
Index Fund, 1.14% for Balanced Fund, 1.28% for Asset Allocation Fund,
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
HEALTH REAL ESTATE
DIVERSIFIED EMERGING REGIONAL SPECIAL TECHNOLOGY SCIENCES SECURITIES INTERNATIONAL
GROWTH FUND GROWTH FUND EQUITY FUND EQUITY FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50% 4.50%
None None None None None None None None
None None None None None None None None
None None None None None None None None
None None None None None None None None
0.57% 0.63% 0.68% 0.70% 0.59% 0.00% 0.00% 1.25%
0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3) 0.25%(3)
0.23% 0.27% 0.20% 0.18% 0.31% 0.90% 0.80% 0.47%
1.05% 1.15% 1.13% 1.13% 1.15% 1.15% 1.05% 1.97%
$55 $56 $56 $56 $56 $56 $55 $64
$77 $80 $79 $79 $80 $80 $77 $104
$100 $105 $104 $104 $105 $105 $100 $146
$167 $178 $176 $176 $178 $178 $167 $264
</TABLE>
1.20% for Equity Income Fund, 1.17% for Diversified Growth Fund, 1.21% for
Emerging Growth Fund, 1.15% for Regional Equity Fund, 1.13% for Special
Equity Fund, 1.26% for Technology Fund, 2.12% for Health Sciences Fund,
1.76% for Real Estate Securities Fund, and 1.97% for International Fund.
Other expenses includes an administration fee.
(3) Of this amount, 0.25% is designated as a shareholder servicing fee and none
as a distribution fee.
(4) Absent the fee waivers and reimbursements referred to in (2) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Stock Fund, $56, $79, $104 and $176; Equity Index Fund, $56, $80, $105 and
$178; Balanced Fund, $56, $80, $105 and $177; Asset Allocation Fund, $57,
$84, $112 and $193; Equity Income Fund, $57, $81, $108 and $184; Diversified
Growth Fund, $56, $80, $106 and $181; Emerging Growth Fund, $57, $82, $109
and $185; Regional Equity Fund, $56, $80, $105 and $178; Special Equity
Fund, $56, $79, $104 and $176; Technology Fund, $57, $83, $111 and $190;
Health Sciences Fund, $66, $108, $154, and $279; Real Estate Securities
Fund, $62, $98, $136 and $243; and International Fund, $64, $104, $146 and
$264.
FEES AND EXPENSES RETAIL CLASSES
CLASS B SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
EQUITY ASSET EQUITY
STOCK INDEX BALANCED ALLOCATION INCOME
FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases (as a percentage of
offering price) None None None None None
Maximum sales load imposed on
reinvested dividends None None None None None
Maximum contingent deferred sales
charge (as a percentage of original
purchase price or redemption
proceeds, as applicable) 5.00% 5.00% 5.00% 5.00% 5.00%
Redemption fees None None None None None
Exchange fees None None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after
voluntary fee waivers and
reimbursements)(1) 0.62% 0.16% 0.61% 0.47% 0.50%
Rule 12b-1 fees 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
Other expenses (after voluntary fee
waivers and reimbursements)(1) 0.18% 0.19% 0.19% 0.33% 0.25%
Total fund operating expenses
(after voluntary fee waivers
and reimbursements)(3) 1.80% 1.35% 1.80% 1.80% 1.75%
EXAMPLE:
ASSUMING REDEMPTION(3)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return; (ii) redemption at the end of each time period; and (iii) payment
of the maximum applicable contingent deferred sales charge of 5% in year 1, 4%
in year 3, 2% in year 5, and automatic conversion to Class A shares at the end
of year 8:
1 year $68 $64 $68 $68 $68
3 years $97 $83 $97 $97 $95
5 years $117 $94 $117 $117 $115
10 years $192 $142 $192 $192 $186
ASSUMING NO REDEMPTION(4)
You would pay the following expenses on the same investment, assuming no redemption:
1 year $18 $14 $18 $18 $18
3 years $57 $43 $57 $57 $55
5 years $97 $74 $97 $97 $95
10 years $192 $142 $192 $192 $186
</TABLE>
(1) The Adviser and the Administrator intend to waive a portion of their fees
and/or reimburse expenses on a voluntary basis, and the amounts shown
reflect these waivers and reimbursements as of the date of this Prospectus.
Each of these persons intends to maintain such waivers and reimbursements in
effect for the current fiscal year but reserves the right to discontinue
such waivers and reimbursements at any time in its sole discretion. Absent
any fee waivers, investment advisory fees for each Fund as an annualized
percentage of average daily net assets would be 0.70% for each Fund except
International Fund, as to which they would be 1.25%; and total fund
operating expenses calculated on such basis would be 1.88% for Stock Fund,
1.90% for Equity Index Fund, 1.89% for Balanced Fund, 2.03% for Asset
Allocation Fund, 1.95% for Equity Income Fund, 1.92% for Diversified Growth
Fund, 1.96% for Emerging Growth Fund, 1.90% for Regional Equity Fund, 1.88%
for Special Equity Fund, 2.01% for Technology Fund 2.87% for Health Sciences
Fund, 2.51% for Real Estate Securities Fund, and 2.72% for International
Fund. Other expenses includes an administration fee.
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
EMERGING REGIONAL SPECIAL HEALTH REAL ESTATE
DIVERSIFIED GROWTH EQUITY EQUITY TECHNOLOGY SCIENCES SECURITIES INTERNATIONAL
GROWTH FUND FUND FUND FUND FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C> <C> <C> <C>
None None None None None None None None
None None None None None None None None
5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00% 5.00%
None None None None None None None 0.00%
None None None None None None None None
0.57% 0.63% 0.68% 0.70% 0.59% 0.00% 0.00% 1.25%
1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2) 1.00%(2)
0.23% 0.27% 0.20% 0.18% 0.31% 0.90% 0.80% 0.47%
1.80% 1.90% 1.88% 1.88% 1.90% 1.90% 1.80% 2.72%
$68 $69 $69 $69 $69 $69 $68 $78
$97 $100 $99 $99 $100 $100 $97 $124
$117 $123 $122 $122 $123 $123 $117 $164
$192 $203 $201 $201 $203 $203 $192 $287
$18 $19 $19 $19 $19 $19 $18 $28
$57 $60 $59 $59 $60 $60 $57 $84
$97 $103 $102 $102 $103 $103 $97 $144
$192 $203 $201 $201 $203 $203 $192 $287
</TABLE>
(2) Of this amount, 0.25% is designated as a shareholder servicing fee and 0.75%
as a distribution fee.
(3) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Stock Fund, $69, $99, $122 and $201; Equity Index Fund, $69, $100, $123 and
$203; Balanced Fund, $69, $99, $122 and $202; Asset Allocation Fund, $71,
$104, $129 and $217; Equity Income Fund; $70, $101, $125 and $208;
Diversified Growth Fund, $69, $100, $124 and $205; Emerging Growth Fund,
$70, $102, $126 and $209; Regional Equity Fund, $69, $100, $123 and $203;
Special Equity Fund, $69, $99, $122 and $201; Technology Fund, $70, $103,
$128 and $214; Health Sciences Fund, $79, $129, $171 and $302; Real Estate
Securities Fund, $75, $118, $154 and $266; and International Fund, $78,
$124, $164 and $287.
(4) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Stock Fund, $19, $59, $102 and $201; Equity Index Fund, $19, $60, $103 and
$203; Balanced Fund, $19, $59, $102 and $202; Asset Allocation Fund, $21,
$64, $109 and $217; Equity Income Fund; $20, $61, $105 and $208; Diversified
Growth Fund, $19, $60, $104 and $205; Emerging Growth Fund, $20, $62, $106
and $209; Regional Equity Fund, $19, $60, $103 and $203; Special Equity
Fund, $19, $59, $102 and $201; Technology Fund, $20, $63, $108 and $214;
Health Sciences Fund, $29, $89, $151 and $302; Real Estate Securities Fund,
$25, $78, $134 and $266; and International Fund, $28, $84, $144 and $287.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund may
bear directly or indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the
foregoing tables and examples relates only to the Class A and Class B Shares
of the Funds. The Funds also offer Class C Shares which are subject to the
same expenses except that they bear no sales loads, and distribution fees or
shareholder servicing fees.
The examples in the above tables are based on projected annual Fund
operating expenses after voluntary fee waivers and expense reimbursements by
the Adviser, the Distributor and the Administrator. Although these persons
intend to maintain such waivers in effect for the current fiscal year, any
such waivers are voluntary and may be discontinued at any time. Prior to fee
waivers, investment advisory fees accrue at the annual rate as a percentage
of average daily net assets of 0.70% for each of the Funds except
International Fund, as to which they are 1.25%.
The Class A Shares of each Fund pay shareholder servicing fees to the
Distributor in an amount equaling 0.25% per year of each such class's
average daily net assets, and the Class B Shares of each Fund bear
distribution and shareholder servicing fees totaling 1.00% per year of each
such class's average daily net assets. The Distributor also receives the
sales charge for distributing the Funds' Class A Shares. Due to the
distribution and shareholder servicing fees paid by these classes of shares,
long-term shareholders may pay more than the equivalent of the maximum
front-end sales charges otherwise permitted by NASD rules. For additional
information, see "Distributor."
Other expenses include fees paid by each Fund to the Administrator for
providing various services necessary to operate the Funds. These include
shareholder servicing and certain accounting and other services. The
Administrator provides these services for a fee calculated at an annual rate
of 0.12% of average daily net assets of each Fund subject to a minimum of
$50,000 per Fund per fiscal year; provided, that to the extent that the
aggregate net assets of all First American funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. Other expenses of the Funds
also includes the cost of maintaining shareholder records, furnishing
shareholder statements and reports, and other services. Investment advisory
fees, administrative fees and other expenses are reflected in the Funds'
daily dividends and are not charged to individual shareholder accounts.
(This page has been left blank intentionally.)
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction
with the Funds' financial statements, the related notes thereto and the
independent auditors' report of KPMG Peat Marwick LLP appearing in FAIF's
annual report to shareholders for the year ended September 30, 1996. Further
information about the Funds' performance is contained in such annual report
to share- holders, which may be obtained without charge by calling (800)
637-2548 or by writing SEI Financial Services Company, Oaks, Pennsylvania
19456.
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
<S> <C> <C> <C> <C>
STOCK FUND
Class A
1996 $19.57 $0.36 $ 4.07 $(0.36)
1995 16.51 0.33 3.64 (0.32)
1994 16.00 0.31 1.00 (0.30)
1993 14.04 0.22 1.99 (0.23)
1992 13.62 0.24 0.81 (0.29)
1991(6) 10.64 0.28 2.95 (0.22)
1990(7) 12.09 0.25 (1.17) (0.25)
1989(7) 10.35 0.25 1.70 (0.20)
1988(7)(8) 10.03 0.27 0.35 (0.30)
Class B
1996 $19.49 $0.22 $ 4.06 $(0.22)
1995 16.49 0.26 3.55 (0.22)
1994(2) 16.65 0.03 (0.10) (0.09)
EQUITY INDEX FUND
Class A
1996 $13.35 $0.27 $ 2.32 $(0.27)
1995 10.68 0.25 2.76 (0.25)
1994 10.60 0.25 0.09 (0.25)
1993(1) 10.00 0.20 0.60 (0.20)
Class B
1996 $13.30 $0.17 $ 2.31 $(0.17)
1995 10.66 0.23 2.68 (0.18)
1994(2) 10.68 0.01 0.04 (0.07)
BALANCED FUND
Class A
1996 $12.12 $0.39 $ 1.43 $(0.39)
1995 10.54 0.38 1.72 (0.37)
1994 10.73 0.34 (0.02) (0.34)
1993(1) 10.00 0.28 0.75 (0.28)
Class B
1996 $12.09 $0.31 $ 1.42 $(0.31)
1995 10.53 0.29 1.71 (0.29)
1994(2) 10.66 0.06 (0.12) (0.07)
ASSET ALLOCATION FUND
Class A
1996 $11.73 $0.34 $ 1.03 $(0.34)
1995 10.39 0.36 1.58 (0.35)
1994 10.60 0.27 (0.08) (0.26)
1993(1) 10.00 0.19 0.60 (0.19)
Class B
1996 $11.68 $0.25 $ 1.02 $(0.25)
1995 10.37 0.27 1.57 (0.28)
1994(2) 10.40 0.05 (0.03) (0.05)
</TABLE>
*Total return excludes sales charges.
+Returns, excluding sales charges, are for the period indicated and have not
been annualized.
(A) Beginning in 1996, average commission rate paid per share is disclosed for
all applicable security purchases and sales subject to commissions. The
comparability of this information may be affected by the fact that
commission rates per share vary significantly among foreign countries.
(B) Represents a distribution in excess of net investment income due to the tax
treatment of foreign currency related transactions.
(1) Commenced operations on December 14, 1992. All ratios for the period have
been annualized.
(2) Class B shares have been offered since August 15, 1994. All ratios for the
period have been annualized.
(3) On April 28, 1994 the Board of Directors approved a change in this Fund's
fiscal year end from November 30 to September 30, effective September 30,
1994, and shareholders approved a change of investment adviser from
Boulevard Bank National Association to First Bank National Association. All
ratios for the period have been annualized.
(4) For the period ended November 30.
(5) Commenced operations on December 18, 1992. All ratios for the period have
been annualized.
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME TO ASSETS PORTFOLIO AVERAGE
FROM CAPITAL VALUE END TOTAL OF PERIOD AVERAGE NET AVERAGE NET (EXCLUDING TURNOVER COMMISSION
GAINS OF PERIOD RETURN* (000) ASSETS ASSETS WAIVERS) RATE RATE (A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ (1.05) $22.59 23.90% $ 22,965 1.05% 1.64% 1.13% 40% $ 0.0653
(0.59) 19.57 25.26 13,076 1.00 1.89 1.19 52 --
(0.50) 16.51 8.35 8,421 0.76 1.51 1.20 65 --
(0.02) 16.00 15.82 134,186 0.75 1.94 1.28 48 --
(0.34) 14.04 7.88 3,644 1.45 1.75 4.46 39 --
(0.03) 13.62 30.49+ 2,386 1.45 2.47 7.42 76 --
(0.28) 10.64 (8.22) 1,161 1.45 2.24 9.47 41 --
(0.01) 12.09 20.33 323 1.24 2.26 36.39 74 --
-- 10.35 6.40+ 206 1.02 2.67 28.60 80 --
$ (1.05) $22.50 23.08% $ 23,316 1.80% 0.89% 1.88% 40% $ 0.0653
(0.59) 19.49 24.20 7,051 1.79 1.10 1.94 52 --
-- 16.49 (0.43)+ 346 1.75 1.58 2.01 65 --
$ (0.18) $15.49 19.75% $ 6,221 0.60% 1.87% 1.15% 10% $ 0.0377
(0.09) 13.35 28.90 2,140 0.57 2.16 1.20 9 --
(0.01) 10.68 3.25 758 0.35 2.23 1.23 11 --
-- 10.60 8.02+ 139,957 0.35 2.52 1.30 1 --
$ (0.18) $15.43 18.95% $ 8,252 1.35% 1.11% 1.90% 10% $ 0.0377
(0.09) 13.30 27.87 1,197 1.35 1.34 1.95 9 --
-- 10.66 0.48+ 29 1.35 1.68 2.03 11 --
$ (0.41) $13.14 15.61% 20,927 1.05% 3.05% 1.14% 73% $ 0.0619
(0.15) 12.12 20.57 15,288 0.99 3.41 1.19 77 --
(0.17) 10.54 3.02 13,734 0.77 2.63 1.24 98 --
(0.02) 10.73 10.39+ 111,225 0.75 3.31 1.29 77 --
$ (0.41) $13.10 14.78% $ 15,542 1.80% 2.32% 1.89% 73% $ 0.0619
(0.15) 12.09 19.58 3,120 1.79 2.60 1.94 77 --
-- 10.53 (0.55)+ 270 1.75 2.80 2.05 98 --
$ (0.41) $12.35 12.09% $ 1,841 1.05% 2.84% 1.28% 57% $ 0.0409
(0.25) 11.73 19.51 993 0.99 3.29 1.26 87 --
(0.14) 10.39 1.81 707 0.75 2.01 1.29 32 --
-- 10.60 8.01+ 56,393 0.75 2.40 1.34 31 --
$ (0.41) $12.29 11.29% $ 2,300 1.80% 2.12% 2.03% 57% $ 0.0409
(0.25) 11.68 18.51 571 1.79 2.35 2.01 87 --
-- 10.37 0.19 11 1.75 1.94 2.12 32 --
</TABLE>
(6) On September 3, 1991, the Board of Directors of FAIF approved a change in
FAIF's fiscal year end from October 31 to September 30, effective September
30, 1991. All ratios for the period have been annualized.
(7) For the period ended October 31.
(8) Commenced operations on December 22, 1987. All ratios for the period have
been annualized.
(9) Commenced operations on April 4, 1994. All ratios for the period have been
annualized.
(10) Class A shares have been offered since April 7, 1994. All ratios for the
period have been annualized.
(11) Commenced operations on January 31, 1996. All ratios for the period have
been annualized.
(12) Commenced operations on September 29, 1995. All ratios for the period have
been annualized.
FINANCIAL HIGHLIGHTS
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET DISTRIBUTIONS
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT FROM CAPITAL
PERIOD INCOME INVESTMENTS INCOME GAINS
<S> <C> <C> <C> <C> <C>
EQUITY INCOME FUND
Class A
1996 $11.24 $0.39 $ 1.42 $ (0.39) $(0.01)
1995 9.89 0.41 1.33 (0.39) --
1994(3) 9.87 0.41 -- (0.39) --
1993(4)(5) 10.00 0.57 (0.14) (0.56) --
Class B
1996 $11.20 $0.31 $ 1.42 $ (0.31) $(0.01)
1995 9.88 0.33 1.32 (0.33) --
1994(2) 9.87 0.04 0.02 (0.05) --
DIVERSIFIED GROWTH FUND
Class A
1996 $11.75 $0.15 $ 1.88 $ (0.15) $ --
1995 9.09 0.15 2.66 (0.15) --
1994(3) 9.39 0.10 (0.29) (0.11) --
1993(4)(5) 10.00 0.11 (0.63) (0.09) --
Class B
1996 $11.73 $0.08 $ 1.84 $ (0.08) $ --
1995 9.09 0.09 2.65 (0.10) --
1994(2) 8.87 0.01 0.23 (0.02) --
EMERGING GROWTH FUND
Class A
1996 $13.40 $(0.06) $ 1.78 $ -- $(0.35)
1995 10.57 0.01 2.99 (0.02) (0.15)
1994(9) 10.00 0.01 0.57 (0.01) --
Class B
1996 $13.29 $(0.12) $ 1.71 $ -- $(0.35)
1995 10.55 (0.03) 2.92 -- (0.15)
1994(2) 9.89 (0.01) 0.67 -- --
REGIONAL EQUITY FUND
Class A
1996 $17.12 $ 0.04 $ 1.70 $ (0.04) $(1.11)
1995 12.52 0.08 4.90 (0.06) (0.32)
1994 11.96 0.08 0.71 (0.07) (0.16)
1993(1) 10.00 0.05 1.96 (0.05) --
Class B
1996 $16.99 $ 0.04) $ 1.64 $ (0.01) $(1.11)
1995 12.50 0.04 4.80 (0.03) (0.32)
1994(2) 12.19 -- 0.33 (0.02) --
SPECIAL EQUITY FUND
Class A
1996 $17.89 $ 0.20 $ 3.94 $ (0.20) $(1.42)
1995 17.30 0.35 1.60 (0.34) (1.02)
1994 15.81 0.28 2.52 (0.28) (1.03)
1993 13.61 0.23 2.32 (0.25) (0.10)
1992 12.98 0.21 1.61 (0.27) (0.92)
1991(6) 10.33 0.30 2.61 (0.26) --
1990(7) 12.96 0.47 (2.03) (0.46) (0.61)
1989(7) 11.55 0.47 1.39 (0.41) (0.04)
1988(7)(8) 10.03 0.34 1.57 (0.39) --
Class B
1996 $17.83 $ 0.09 $ 3.91 $ (0.10) $(1.42)
1995 17.29 0.29 1.51 (0.24) (1.02)
1994(2) 16.51 0.01 0.85 (0.08) --
TECHNOLOGY FUND
Class A
1996 $18.24 $(0.05) $ 2.95 $ -- $(1.89)
1995 11.19 (0.03) 7.31 -- (0.23)
1994(9) 10.00 (0.01) 1.20 -- --
Class B
1996 $18.02 $(0.14) $ 2.86 $ -- $(1.89)
1995 11.17 (0.04) 7.12 -- (0.23)
1994(2) 9.85 (0.02) 1.34 -- --
HEALTH SCIENCES FUND
Class A
1996(11) $10.00 $ 0.01 $(0.14) $ (0.01) $ --
Class B
1996(11) $10.00 $(0.02) $(0.16) $ (0.01) $ --
REAL ESTATE SECURITIES FUND
Class A
1996 $10.38 $ 0.52 $ 1.30 $ (0.51) $ --
1995(12) 10.37 -- 0.01 -- --
Class B
1996 $10.37 $ 0.44 $1.27 $ (0.45) $ --
1995(12) 10.37 -- -- -- --
INTERNATIONAL FUND
Class A
1996 $10.28 $(0.02) $ 0.20 $ (0.18)(B) $ --
1995 10.21 -- 0.07 -- --
1994(10) 9.98 (0.01) 0.24 -- --
Class B
1996 $10.20 $(0.07) $ 0.17 $ (0.16)(B) $ --
1995 10.21 (0.03) 0.02 -- --
1994(2) 10.23 (0.01) (0.01) -- --
</TABLE>
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME (LOSS) ASSETS PORTFOLIO AVERAGE
FROM RETURN OF VALUE END TOTAL OF PERIOD AVERAGE NET TO AVERAGE NET (EXCLUDING TURNOVER COMMISSION
CAPITAL OF PERIOD RETURN* (000) ASSETS ASSETS WAIVERS) RATE RATE (A)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $12.65 16.41% $ 2,581 1.00% 3.25% 1.20% 23% $ 0.0700
-- 11.24 18.06 1,995 0.92 3.91 1.31 23 --
-- 9.89 4.22+ 1,852 0.88 4.88 1.39 108 --
-- 9.87 4.44+ 28,786 0.75 6.09 1.36 68 --
$ -- $12.61 15.66% $ 3,770 1.75% 2.49% 1.95% 23% $ 0.0700
-- 11.20 17.10 1,233 1.75 3.05 2.06 23 --
-- 9.88 0.57+ 1 1.75 4.39 2.14 108 --
$ -- $13.63 17.38% $ 5,318 1.04% 1.13% 1.17% 21% $ 0.0593
-- 11.75 31.21 2,710 0.92 1.52 1.26 28 --
-- 9.09 (2.07)+ 1,900 0.90 1.15 1.33 101 --
-- 9.39 (5.18)+ 31,084 0.78 1.26 1.25 5 --
$ -- $13.57 16.41% $ 5,775 1.79% 0.36% 1.92% 21% $ 0.0593
-- 11.73 30.29 819 1.75 0.58 2.01 28 --
-- 9.09 2.75+ 12 1.75 1.20 2.08 101 --
$ -- $14.77 13.21% $ 1,867 1.14% (0.52)% 1.21% 39% $ 0.0700
-- 13.40 28.82 386 1.04 0.00 1.44 51 --
-- 10.57 5.88+ 91 0.79 0.23 2.84 19 --
$ -- $14.53 12.32% $ 799 1.89% (1.26)% 1.96% 39% $ 0.0700
-- 13.29 27.89 268 1.84 (0.83) 2.19 51 --
-- 10.55 6.67+ 18 1.80 (0.85) 3.59 19 --
$ -- $17.71 10.97% $25,325 1.13% 0.24% 1.15% 36% $ 0.0697
-- 17.12 41.17 14,917 1.05 0.58 1.20 42 --
-- 12.52 6.76 8,345 0.82 0.59 1.25 41 --
-- 11.96 20.17+ 58,427 0.80 0.59 1.30 28 --
$ -- $17.47 10.14% $27,671 1.88% (0.52)% 1.90% 36% $ 0.0697
-- 16.99 39.98 7,630 1.84 (0.25) 1.95 42 --
-- 12.50 2.73+ 185 1.80 (0.41) 2.05 41 --
$ -- $20.41 25.23% $17,987 1.13% 1.06% 1.13% 143% $ 0.0673
-- 17.89 12.63 11,609 1.09 2.08 1.20 72 --
-- 17.30 18.70 7,333 0.81 1.88 1.23 116 --
-- 15.81 18.91 81,899 0.81 2.07 1.31 104 --
-- 13.61 15.17 3,586 1.50 1.61 4.18 146 --
-- 12.98 28.38+ 3,423 1.50 2.60 5.13 116 --
-- 10.33 (13.24) 2,761 1.50 4.09 4.21 113 --
-- 12.96 17.41 2,000 1.38 4.07 8.68 102 --
-- 11.55 19.56+ 578 1.20 4.02 15.60 51 --
$ -- $20.31 24.35% $12,847 1.88% 0.25% 1.88% 143% $ 0.0673
-- 17.83 11.64 4,847 1.88 1.22 1.95 72 --
-- 17.29 5.22+ 370 1.68 0.47 2.03 116 --
$ -- $19.25 18.60% $ 4,799 1.15% (0.85)% 1.26% 119% $ 0.0700
-- 18.24 66.22 1,464 1.13 (0.61) 1.55 74 --
-- 11.19 11.90+ 61 0.80 (0.21) 3.37 43 --
$ -- $18.85 17.75% $ 4,881 1.90% (1.60)% 2.01% 119% $ 0.0700
-- 18.02 64.52 2,031 1.88 (1.41) 2.30 74 --
-- 11.17 13.40+ 2 1.80 (1.44) 4.12 43 --
$ -- $ 9.86 (1.32)%+ $ 629 1.15% 0.18% 2.12% 19% $ 0.0700
$ -- $ 9.81 (1.86)%+ $ 281 1.90% (0.61)% 2.87% 19% $ 0.0700
$(0.17) $11.52 18.17% $ 226 1.05% 4.36% 1.76% 8% $ 0.0704
-- 10.38 0.00 1 1.05 0.00 2.59 0 --
$(0.17) $11.46 17.00% $ 263 1.80% 4.29% 2.51% 8% $ 0.0704
-- 10.37 0.00 1 1.80 0.00 3.34 0 --
$ -- $10.28 $ 1.84% $ 1,964 1.97% (0.28)% 1.97% 100% $ 0.0345
-- 10.28 0.69 876 1.93 (0.13) 2.06 57 --
-- 10.21 2.30+ 464 1.75 (0.26) 2.30 16 --
$ -- $10.14 1.02% $ 1,175 2.72% (0.96)% 2.72% 100% $ 0.0345
-- 10.20 (0.10) 306 2.76 (0.95) 2.81 57 --
-- 10.21 (0.20)+ 22 2.75 (0.71) 3.05 16 --
</TABLE>
THE FUNDS
FAIF is an open-end management investment company which offers shares in
several different mutual funds (collectively, the "FAIF Funds"), each of
which evidences an interest in a separate and distinct investment portfolio.
Shareholders may purchase shares in each FAIF Fund through three separate
classes (Class A, Class B and Class C) which provide for variations in
distribution costs, shareholder servicing fees, voting rights and dividends.
Except for these differences among classes, each share of each FAIF Fund
represents an undivided proportionate interest in that fund. FAIF is
incorporated under the laws of the State of Maryland, and its principal
offices are located at Oaks, Pennsylvania 19456.
This Prospectus relates only to the Class A and Class B Shares of the Funds
named on the cover hereof. Information regarding the Class C Shares of these
Funds and regarding the Class A, Class B and Class C Shares of the other
FAIF Funds is contained in separate prospectuses that may be obtained from
FAIF's Distributor, SEI Financial Services Company, Oaks, Pennsylvania
19456, or by calling (800) 637-2548. The Board of Directors of FAIF may
authorize additional series or classes of common stock in the future.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The
Funds' investment objectives are not fundamental and therefore may be
changed without a vote of shareholders. Such changes could result in a Fund
having investment objectives different from those which shareholders
considered appropriate at the time of their investment in a Fund.
Shareholders will receive written notification at least 30 days prior to any
change in a Fund's investment objectives. Each of the Funds except
Technology Fund, Health Sciences Fund, and Real Estate Securities Fund is a
diversified investment company, as defined in the Investment Company Act of
1940 (the "1940 Act"). Technology Fund, Health Sciences Fund, and Real
Estate Securities Fund are non-diversified companies under the 1940 Act.
If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from
changes in asset values will not be deemed to violate the limitation except
in the case of the limitation on illiquid investments. Similarly, if the
Fund is required or permitted to invest a stated percentage of its assets in
companies with no more or no less than a stated market capitalization,
deviations from the stated percentages which result from changes in
companies' market capitalizations after the Fund purchases their shares will
not be deemed to violate the limitation. A Fund which is limited to
investing in securities with specified ratings is not required to sell a
security if its rating is reduced or discontinued after purchase, but the
Fund may consider doing so. However, except in the case of Equity Income
Fund, in no event will more than 5% of any Fund's net assets be invested in
non-investment grade securities. Descriptions of the rating categories of
Standard & Poor's Corporation ("Standard & Poor's") and Moody's Investors
Service, Inc. ("Moody's") are contained in the Statement of Additional
Information.
When the term "equity securities" is used in this Prospectus, it refers to
common stock and securities which are convertible into or exchangeable for,
or which carry warrants or other rights to acquire, common stock.
This section also contains information concerning certain investment risks
borne by Fund shareholders under the heading "-- Risks to Consider." Further
information concerning the securities in which the Funds may invest and
related matters is set forth under "Special Investment Methods."
STOCK FUND
OBJECTIVES. Stock Fund has a primary objective of capital appreciation. A
secondary objective of the Fund is to provide current income.
INVESTMENT POLICIES. Under normal market conditions, Stock Fund invests at
least 65% of its total assets in common stocks diversified among a broad
range of industries and among companies that have a market capitalization of
at least $500 million. In selecting equity securities, the Adviser employs a
value-based selection discipline. The Adviser anticipates investing in
equity securities of companies it believes are selling at less than fair
value and offer the potential for appreciation as a result of improved
profitability reflecting corporate restructuring or elimination of
unprofitable operations, change in management or management goals, or
improving demand for the companies' goods or services.
The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of less than $500
million and in fixed income securities of the kinds described under "Special
Investment Methods -- Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed on
a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call options
on stock indices related to such equity securities; (iv) purchase securities
on a when-issued or delayed-delivery basis; and (v) engage in the lending of
portfolio securities. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
EQUITY INDEX FUND
OBJECTIVE. Equity Index Fund has an objective of providing investment
results that correspond to the performance of the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500").
INVESTMENT POLICIES. Equity Index Fund invests substantially (at least 65%
of total assets) in common stocks included in the S&P 500. The Adviser
believes that the Fund's objective can best be achieved by investing in the
common stocks of approximately 250 to 500 of the issues included in the S&P
500, depending on the size of the Fund.
Standard & Poor's designates the stocks included in the S&P 500 on a
statistical basis. A particular stock's weighting in the S&P 500 is based on
its total market value (that is, its market price per share times the number
of shares outstanding) relative to that of all stocks included in the S&P
500. From time to time, Standard & Poor's may add or delete stocks to or
from the S&P 500. Inclusion of a particular stock in the S&P 500 does not
imply any opinion by Standard & Poor's as to its merits as an investment,
nor is Standard & Poor's a sponsor of or in any way affiliated with the
Fund.
The Fund is managed by utilizing a computer program that identifies which
stocks should be purchased or sold in order to replicate, as closely as
possible, the composition of the S&P 500. The Fund includes a stock in its
investment portfolio in the order of the stock's weighting in the S&P 500,
starting with the most heavily weighted stock. Thus, the proportion of Fund
assets invested in a stock or industry closely approximates the percentage
of the S&P 500 represented by that stock or industry. Portfolio turnover is
expected to be well below that of actively managed mutual funds. Inasmuch as
the common stock of the Adviser's parent company First Bank System, Inc. is
included in the S&P 500, such stock may be purchased by the Fund consistent
with its indexing-based policies.
Although the Fund will not duplicate the S&P 500's performance precisely, it
is anticipated that there will be a close correlation between the Fund's
performance and that of the S&P 500 in both rising and falling markets. The
Fund will attempt to achieve a correlation between the performance of its
portfolio and that of the S&P 500 of at least 95%, without taking into
account expenses of the Fund. A perfect correlation would be indicated by a
figure of 100%, which would be achieved if the Fund's net asset value,
including the value of its dividends and capital gains distributions,
increased or decreased in exact proportion to changes in the S&P 500. The
Fund's ability to replicate the performance of the S&P 500 may be affected
by, among other things, changes in securities markets, the manner in which
Standard & Poor's calculates the S&P 500, and the amount and timing of cash
flows into and out of the Fund. Although cash flows into and out of the Fund
will affect the Fund's portfolio turnover rate and its ability to replicate
the S&P 500's performance, investment adjustments will be made, as
practicably as possible, to account for these circumstances.
The Fund also may invest up to 20% of its total assets in the aggregate in
stock index futures contracts, options on stock indices, options on stock
index futures, and index participation contracts based on the S&P 500. The
Fund will not invest in these types of contracts and options for speculative
purposes, but rather to maintain sufficient liquidity to meet redemption
requests; to increase the level of Fund assets devoted to replicating the
composition of the S&P 500; and to reduce transaction costs. These types of
contracts and options and certain associated risks are described under
"Special Investment Methods -- Options Transactions." In addition, the Fund
may engage in securities lending as described under "Special Investment
Methods -- Lending of Portfolio Securities."
In order to maintain liquidity during times of unusual market conditions,
the Fund also may invest temporarily in cash and cash items of the kinds
described under "Special Investment Methods -- Cash Items."
BALANCED FUND
OBJECTIVE. Balanced Fund has an objective of maximizing total return
(capital appreciation plus income).
INVESTMENT POLICIES. Balanced Fund seeks to achieve its objective by
investing in a balanced portfolio of equity securities and fixed income
securities. The asset mix of the Fund normally will range between 40% and
75% equity securities, between 25% and 60% fixed income securities
(including only that portion of the value of convertible securities
attributable to their fixed income characteristics), and between 0% and 25%
money market instruments. Over the long term, it is anticipated that the
Fund's asset mix will average approximately 60% equity securities and 40%
fixed income securities. The Adviser may make moderate shifts among asset
classes in order to attempt to increase returns or reduce risk.
With respect to the equity security portion of the Fund's portfolio, the
Adviser follows the same investment policies as are described above under
"-- Stock Fund -- Investment Policies."
The fixed income portion of the Fund's portfolio is invested in investment
grade debt securities, at least 65% of which are United States Government
obligations and corporate debt obligations and mortgage-related securities
rated at least A by Standard & Poor's or Moody's or which have been assigned
an equivalent rating by another nationally recognized statistical rating
organization. Under normal market conditions, the weighted average maturity
of the fixed income securities held by the Fund will not exceed 15 years.
The Fund's permitted fixed income investments include notes, bonds and
discount notes of United States Government agencies or instrumentalities;
domestic issues of corporate debt obligations having floating or fixed rates
of interest and rated at least BBB by Standard & Poor's or Baa by Moody's,
or which have been assigned an equivalent rating by another nationally
recognized statistical rating organization, or which are of comparable
quality in the judgment of the Adviser; other investments, including
mortgage-backed securities, which are rated in one of the four highest
categories by a nationally recognized statistical rating organization or
which are of comparable quality in the judgment of the Adviser; and
commercial paper which is rated A-1 by Standard & Poor's or P-1 by Moody's
or which has been assigned an equivalent rating by another nationally
recognized statistical rating organization. Unrated securities will not
exceed 10% in the aggregate of the value of the total fixed income
securities held by the Fund.
Subject to the foregoing limitations, the fixed income securities in which
the Fund may invest include (i) mortgage-backed securities (provided that
the Fund will not invest more than 10% of its total fixed income assets in
interest-only, principal-only or inverse floating rate mortgage-backed
securities); (ii) asset-backed securities; and (iii) bank instruments. In
addition, the Fund may invest up to 15% of its total fixed income assets in
foreign securities payable in United States dollars. For information about
these kinds of investments and certain associated risks, see the related
headings under "Special Investment Methods," and for information concerning
certain risks associated with investing in fixed income securities
generally, see "Special Investment Methods -- Fixed Income Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call options
on stock indices related to such equity securities; (iv) purchase securities
on a when-issued or delayed-delivery basis; (v) engage in the lending of
portfolio securities; (vi) in order to attempt to reduce risk, invest in
exchange traded put and call options on interest rate futures contracts and
on interest rate indices; and (vii) in order to attempt to reduce risk,
write covered call options on interest rate indices. For information about
these investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
ASSET ALLOCATION FUND
OBJECTIVE. Asset Allocation Fund has an objective of maximizing total return
over the long term by allocating its assets principally among common stocks,
bonds, and short-term instruments.
INVESTMENT POLICIES. Asset Allocation Fund allocates its investments
principally among (i) common stocks included in the S&P 500, (ii) direct
obligations of the United States Treasury, and (iii) short-term instruments.
There are no limitations on the proportions in which the Adviser may
allocate the Fund's investments among these three classes of assets. The
Fund thus is not a "balanced" fund, in that it is not required to allocate
its investments in specific proportions or ranges among these asset classes.
The Adviser regularly reviews the Fund's investment allocation and varies
the allocation to emphasize the asset class or classes that, in the
Adviser's then-current judgment, provide the most favorable total return
outlook. There is no limitation on the amount that may be invested in any
one asset class, and the Fund may at times be fully invested in a single
asset class if the Adviser believes that it offers the most favorable total
return outlook.
In making asset allocation decisions, the Adviser utilizes a proprietary
quantitative model which predicts future asset class returns based on
historical experience using probability theory. By investing in common
stocks intended to approximate the total return of the S&P 500, as described
below, the Adviser attempts to minimize the risk of individual equity
security selection in the common stock class. By limiting the bond class to
direct obligations of the United States Treasury, the Adviser attempts to
eliminate credit risk from this class.
Within the common stock asset class, the Adviser seeks to produce a total
return approximating that of the S&P 500. In order to achieve this result,
the Adviser follows the same indexing-based policies for this asset class as
are described above under "-- Equity Index Fund -- Investment Policies."
Inasmuch as the common stock of the Adviser's parent company First Bank
System, Inc. is included in the S&P 500, such stock may be purchased by the
Fund consistent with its indexing-based policies.
Within the bond asset class, the Fund may invest in any maturity of direct
obligations of the United States Treasury. The Adviser thus has discretion
in determining the weighted average maturity of the investments within this
asset class. For information concerning certain risks associated with
investing in fixed income securities generally, see "Special Investment
Methods -- Fixed Income Securities."
Within the short-term asset class, the Fund may hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash
Items."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) purchase securities on a when-issued
or delayed-delivery basis; (iv) engage in the lending of portfolio
securities; (v) in order to attempt to reduce risk, invest in exchange
traded put and call options on interest rate futures contracts and on
interest rate indices; and (vi) in order to manage allocations among asset
classes efficiently, invest in interest rate and stock index futures. For
information about these investment methods, restrictions on their use, and
certain associated risks, see the related headings under "Special Investment
Methods."
EQUITY INCOME FUND
OBJECTIVE. Equity Income Fund has an objective of long-term growth of
capital and income.
INVESTMENT POLICIES. Under normal market conditions, Equity Income Fund
invests at least 65% of its total assets in equity securities of issuers
believed by the Adviser to be characterized by sound management, the ability
to finance expected growth and the ability to pay above average dividends.
The Fund invests in equity securities that have relatively high dividend
yields and which, in the Adviser's opinion, will result in a relatively
stable Fund dividend with a growth rate sufficient to maintain the
purchasing power of the income stream. Although the Adviser anticipates that
higher yielding equity securities will generally represent the core holdings
of the Fund, the Fund may invest in lower yielding but higher growth equity
securities to the extent that the Adviser believes such investments are
appropriate to achieve portfolio balance. All securities held by the Fund
will provide current income consistent with the Fund's investment objective.
The "equity securities" in which the Fund may invest include corporate debt
obligations which are convertible into common stock. These convertible debt
obligations may include obligations rated at the time of purchase as low as
CCC by Standard & Poor's or Caa by Moody's, or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the
Adviser. Debt obligations rated less than BBB by Standard & Poor's or Baa by
Moody's are considered to be less than "investment grade" and are sometimes
referred to as "junk bonds." Obligations rated CCC by Standard & Poor's or
Caa by Moody's are considered to be of poor standing and are predominantly
speculative. Descriptions of Standard & Poor's and Moody's rating categories
are contained in the Statement of Additional Information. If the rating of
an obligation is reduced below the categories set forth above after purchase
or is discontinued, the Fund is not required to sell the obligation but may
consider doing so.
Purchases of less than investment grade convertible debt obligations are
intended to advance the Fund's objective of long-term growth of capital
through the "upside" potential of the obligations' conversion features and
to advance the Fund's objective of income through receipt of interest
payable on the obligations. The Fund will not invest more than 25% of its
total assets in convertible debt obligations which are rated less than
investment grade or which are of comparable quality in the judgment of the
Adviser. For the year ended September 30, 1996, the following weighted
average percentages of the Fund's total assets were invested in convertible
and nonconvertible debt obligations with the indicated Standard & Poor's
ratings or their equivalents: AAA, 0%; AA, 0%; A, 0%; BBB, 3%; BB, 3%; B,
5%; and CCC, 0%.
Debt obligations which are rated less than investment grade generally are
subject to greater market fluctuations and greater risk of loss of income
and principal due to default by the issuer than are higher-rated
obligations. The value of these obligations tends to reflect short-term
corporate, economic, interest rate and market developments and investor
perceptions of the issuer's credit quality to a greater extent than
investment grade obligations. In addition, since the market for these
obligations is relatively new and does not have as many participants as the
market for higher-rated obligations, it may be more difficult to dispose of
or to determine the value of these obligations. In the case of a convertible
debt obligation, these risks may be present in a greater degree where the
principal amount of the obligation is greater than the current market value
of the common stock into which it is convertible.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed on
a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call options
on stock indices related to such equity securities; (iv) purchase securities
on a when-issued or delayed-delivery basis; and (v) engage in the lending of
portfolio securities. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
DIVERSIFIED GROWTH FUND
OBJECTIVES. Diversified Growth Fund has a primary objective of long-term
growth of capital. A secondary objective of the Fund is to provide current
income.
INVESTMENT POLICIES. Under normal market conditions, Diversified Growth Fund
invests at least 65% of its total assets in equity securities of a diverse
group of companies that will provide representation across all economic
sectors included in the S&P 500. The Adviser may overweight the Fund's
portfolio holdings in sectors that it believes provide above average total
return potential and may underweight the Fund's holdings in those sectors
that it believes have a lower total return potential. Within a given sector,
the Fund's assets are invested in securities of those companies that, in the
Adviser's judgment, exhibit a combination of above average growth in revenue
and earnings, strong management and sound and improving financial condition.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed on
a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call options
on stock indices related to such equity securities; (iv) purchase securities
on a when-issued or delayed-delivery basis; and (v) engage in the lending of
portfolio securities. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
EMERGING GROWTH FUND
OBJECTIVE. Emerging Growth Fund has an objective of growth of capital.
INVESTMENT POLICIES. Under normal market conditions, Emerging Growth Fund
invests at least 65% of its total assets in equity securities of
small-capitalization companies that exhibit, in the Adviser's opinion,
outstanding potential for superior growth. For these purposes,
small-capitalization companies are deemed those with market capitalizations
of less than $1 billion. Companies that participate in sectors that are
identified by the Adviser as having long-term growth potential generally are
expected to make up a substantial portion of the Fund's holdings. These
companies often have established a market niche or have developed unique
products or technologies that are expected by the Adviser to produce
superior growth in revenues and earnings.
The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of $1 billion or
more and in fixed income securities of the kinds described under "Special
Investment Methods -- Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed on
a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call options
on stock indices related to such equity securities; (iv) purchase securities
on a when-issued or delayed-delivery basis; and (v) engage in the lending of
portfolio securities. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
REGIONAL EQUITY FUND
OBJECTIVE. Regional Equity Fund has an objective of capital appreciation.
INVESTMENT POLICIES. Regional Equity Fund seeks to achieve its objective by
investing, in normal market conditions, at least 65% of its total assets in
equity securities of small-capitalization companies headquartered in
Minnesota, North and South Dakota, Montana, Wisconsin, Michigan, Iowa,
Nebraska, Colorado and Illinois.
The Adviser anticipates investing primarily in the securities of rapidly
growing small-capitalization companies which generally will have the
following characteristics, in the Adviser's opinion: (i) company-specific
fundamentals that grow shareholder value, (ii) experienced,
shareholder-oriented management, and (iii) undervaluation by the market. For
these purposes, small-capitalization companies are deemed those with market
capitalizations of less than $1 billion.
In addition to the risks associated with investing in small-capitalization
companies, see "-- Risk Factors -- Small-Capitalization Companies" below,
the Fund's policy of concentrating its equity investments in a geographic
region means that it will be subject to adverse economic, political or other
developments in that region. Although the region in which the Fund
principally invests has a diverse industrial base (including, but not
limited to, agriculture, mining, retail, transportation, utilities, heavy
and light manufacturing, financial services, insurance, computer technology
and medical technology), this industrial base is not as diverse as that of
the country as a whole. The Fund therefore may be less diversified by
industry and company than other funds with a similar investment objective
and no geographic limitation.
The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities without regard to the location of the issuer's
headquarters or the issuer's market capitalization and in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call options
on stock indices related to such equity securities; (iv) purchase securities
on a when-issued or delayed-delivery basis; and (v) engage in the lending of
portfolio securities. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
SPECIAL EQUITY FUND
OBJECTIVE. Special Equity Fund has an objective of capital appreciation.
INVESTMENT POLICIES. Under normal market conditions, Special Equity Fund
invests at least 65% of its total assets in equity securities of
mid-capitalization companies. For these purposes, mid-capitalization
companies are deemed those with market capitalizations of from $1 billion to
$5 billion. The Fund's policy is to invest in equity securities which the
Adviser believes offer the potential for greater than average capital
appreciation. The Adviser believes that this policy can best be achieved by
investing in the equity securities of companies where fundamental changes
are occurring, are likely to occur, or have occurred and where, in the
opinion of the Adviser, the changes have not been adequately reflected in
the price of the securities and thus are considered by the Adviser to be
undervalued.
Undervalued securities may include securities of companies which (i) have
been unpopular for some time but where, in the Adviser's opinion, recent
developments (such as those listed in the next sentence) suggest the
possibility of improved operating results; (ii) have recently experienced
marked popularity but which, in the opinion of the Adviser, have temporarily
fallen out of favor for reasons that are considered by the Adviser to be
non-recurring or short-term; and (iii) appear to the Adviser to be
undervalued in relation to popular securities of other companies in the same
industry. Typically, but not exclusively, the Adviser will consider
investing in undervalued issues in which it sees the possibility of
substantially improved market price due to increasing demand for an issuer's
products or services, the development of new or improved products or
services, the probability of increased operating efficiencies, the
elimination of unprofitable products or operations, changes in management or
management goals, fundamental changes in the industry in which the issuer
operates, new or increased emphasis on research and development, or possible
mergers or acquisitions.
In selecting securities judged to be undervalued and in investing in
potential "turnaround" situations, the Adviser will be acting on opinions
and exercising judgments which may be contrary to those of the majority of
investors. These opinions and judgments involve the risks of either (i) a
correct judgment by the majority, in which case losses may be incurred or
profits may be limited, or (ii) a long delay before majority recognition of
the accuracy of the Adviser's judgment, in which case capital invested by
the Fund in an individual security or group of securities may be
nonproductive for an extended period.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed on
a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call options
on stock indices related to such equity securities; (iv) purchase securities
on a when-issued or delayed-delivery basis; and (v) engage in the lending of
portfolio securities. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
TECHNOLOGY FUND
OBJECTIVE. Technology Fund has an objective of long-term growth of
capital.
INVESTMENT POLICIES. Under normal market conditions, Technology Fund invests
at least 65% of its total assets in equity securities of companies which the
Adviser believes have, or will develop, products, processes or services that
will provide or will benefit significantly from technological advances and
improvements. The description of the technology sector is interpreted
broadly by the Adviser and may include such products or services as
inexpensive computing power, such as personal computers; improved methods of
communications, such as satellite transmission; or labor saving machines or
instruments, such as computer-aided design equipment. The prime emphasis of
the Fund is to identify those companies positioned, in the Adviser's
opinion, to benefit from technological advances in areas such as
semiconductors, minicomputers and peripheral equipment, scientific
instruments, computer software, communications, and future automation trends
in both office and factory settings.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed on
a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call options
on stock indices related to such equity securities; (iv) purchase securities
on a when-issued or delayed-delivery basis; and (v) engage in the lending of
portfolio securities. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
Technology Fund operates as a non-diversified investment company, as defined
in the 1940 Act, but intends to conduct its operations so as to qualify as a
regulated investment company for purposes of the Internal Revenue Code of
1986, as amended. Since a relatively high percentage of the assets of the
Fund may be invested in the securities of a limited number of issuers which
will be in the same or related economic sectors, the Fund's portfolio
securities may be more susceptible to any single economic, technological or
regulatory occurrence than the portfolio securities of diversified
investment companies. In addition, competitive pressures may have a
significant effect on the financial condition of companies in the technology
industry. For example, if technology continues to advance at an accelerated
rate, and the number of companies and product offerings continue to expand,
these companies could become increasingly sensitive to short product cycles
and aggressive pricing.
HEALTH SCIENCES FUND
OBJECTIVE. Health Sciences Fund has an objective of long-term growth of
capital.
INVESTMENT POLICIES. Under normal market conditions, Health Sciences Fund
invests at least 65% of its total assets in equity securities of companies
which the Adviser considers to be principally engaged in the development,
production or distribution of products or services connected with health
care or medicine. Examples of these products and services include
pharmaceuticals, health care services and administration, diagnostics,
medical equipment and supplies, medical technology, and medical research and
development. The Adviser anticipates investing in companies that have the
potential for above average growth in revenue and earnings as a result of
new or unique products, processes or services, increasing demand for a
company's products or services, established market leadership, or
exceptional management. A company will be deemed "principally engaged" in
the health sciences industries if at the time of investment the Adviser
determines that at least 50% of its assets, revenues or profits are derived
from those industries.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed on
a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call options
on stock indices related to such equity securities; (iv) purchase securities
on a when-issued or delayed-delivery basis; and (v) engage in the lending of
portfolio securities. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
Health Sciences Fund operates as a non-diversified investment company, as
defined in the 1940 Act, but intends to conduct its operations so as to
qualify as a regulated investment company for purposes of the Internal
Revenue Code of 1986, as amended. Since a relatively high percentage of the
assets of the Fund may be invested in the securities of a limited number of
issuers which will be in the same or related economic sectors, the Fund's
portfolio securities may be more susceptible to any single economic,
technological or regulatory occurrence than the portfolio securities of
diversified investment companies. Many products and services in the health
sciences industries may become rapidly obsolete due to technological and
scientific advances. In addition, the health sciences industries generally
are subject to greater governmental regulation than many other industries,
so that changes in governmental policies may have a material effect on the
demand for products and services in these industries. Regulatory approvals
generally are required before new drugs, medical devices or medical
procedures can be introduced and before health care providers can acquire
additional facilities or equipment.
REAL ESTATE SECURITIES FUND
OBJECTIVE. Real Estate Securities Fund has an objective of providing above
average current income and long-term capital appreciation by investing
primarily in equity securities of real estate companies.
INVESTMENT POLICIES. Under normal market conditions, Real Estate Securities
Fund invests at least 65% of its total assets in income producing equity
securities of publicly traded companies principally engaged in the real
estate industry. For this purpose, a company is deemed to be "principally
engaged" in the real estate industry if (i) it derives at least 50% of its
revenues or profits from the ownership, construction, management, financing
or sale of residential, commercial or industrial real estate, or (ii) has at
least 50% of the fair market value of its assets invested in such real
estate. The Fund seeks to invest in equity securities that provide a
dividend yield that exceeds the composite dividend yield of the securities
included in the S&P 500.
A majority of the Fund's total assets will be invested in securities of real
estate investment trusts ("REITs"). REITs are publicly traded corporations
or trusts that specialize in acquiring, holding, and managing residential,
commercial or industrial real estate. A REIT is not taxed at the entity
level on income distributed to its shareholders or unitholders if it
distributes to shareholders or unitholders at least 95% of its taxable
income for each taxable year and complies with regulatory requirements
relating to its organization, ownership, assets and income.
REITs generally can be classified as Equity REITs, Mortgage REITs, and
Hybrid REITs. An Equity REIT invests the majority of its assets directly in
real property and derives its income primarily from rents and from capital
gains on real estate appreciation which are realized through property sales.
A Mortgage REIT invests the majority of its assets in real estate mortgage
loans and derives its income primarily from interest payments. A Hybrid REIT
combines the characteristics of an Equity REIT and a Mortgage REIT. Although
the Fund can invest in all three kinds of REITs, its emphasis is expected to
be on investments in Equity REITs.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods -- Fixed
Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed on
a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call options
on stock indices related to such equity securities; (iv) purchase securities
on a when-issued or delayed-delivery basis; and (v) engage in the lending of
portfolio securities. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in cash items of the
kinds described under "Special Investment Methods -- Cash Items." The Fund
also may invest not more than 35% of its total assets in cash and cash items
in order to utilize assets awaiting normal investment.
Because Real Estate Securities Fund invests primarily in the real estate
industry, it is particularly subject to risks associated with that industry.
The real estate industry has been subject to substantial fluctuations and
declines on a local, regional and national basis in the past and may
continue to be in the future. Real property values and incomes from real
property may decline due to general and local economic conditions,
overbuilding and increased competition, increases in property taxes and
operating expenses, changes in zoning laws, casualty or condemnation losses,
regulatory limitations on rents, changes in neighborhoods and in
demographics, increases in market interest rates, or other factors. Factors
such as these may adversely affect companies which own and operate real
estate directly, companies which lend to such companies, and companies which
service the real estate industry. Although the Fund will operate as a
non-diversified investment company under the 1940 Act, it intends to conduct
its operations so as to qualify as a regulated investment company under the
Internal Revenue Code of 1986, as amended.
Because the Fund may invest a substantial portion of its assets in REITs, it
also is subject to risks associated with direct investments in REITs. Equity
REITs will be affected by changes in the values of and incomes from the
properties they own, while Mortgage REITs may be affected by the credit
quality of the mortgage loans they hold. In addition, REITs are dependent on
specialized management skills and on their ability to generate cash flow for
operating purposes and to make distributions to shareholders or unitholders.
REITs may have limited diversification and are subject to risks associated
with obtaining financing for real property, as well as to the risk of
self-liquidation. REITs also can be adversely affected by their failure to
qualify for tax-free pass-through treatment of their income under the Code
or their failure to maintain an exemption from registration under the 1940
Act. By investing in REITs indirectly through the Fund, a shareholder bears
not only a proportionate share of the expenses of the Fund, but also may
indirectly bear similar expenses of some of the REITs in which it invests.
INTERNATIONAL FUND
OBJECTIVE. International Fund has an objective of long-term growth of
capital.
INVESTMENT POLICIES. Under normal market conditions, International Fund
invests at least 65% of its total assets in an internationally diversified
portfolio of equity securities which trade in markets other than the United
States. Generally these securities are issued by companies (i) domiciled in
countries other than the United States, or (ii) that derive at least 50% of
either their revenues or their pre-tax income from activities outside of the
United States. The securities in which the Fund invests include common and
preferred stock, securities (bonds and preferred stock) convertible into
common stock, warrants and securities representing underlying international
securities such as American Depositary Receipts and European Depositary
Receipts. The Fund also may hold securities of other investment companies
(which investments are also subject to the advisory fee) and depositary or
custodial receipts representing beneficial interests in any of the foregoing
securities.
The Fund may invest in securities of issuers in, but not limited to,
Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China,
Columbia, the Czech Republic, Denmark, Finland, France, Germany, Greece,
Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Korea,
Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway,
Pakistan, Peru, the Philippines, Poland, Portugal, Singapore, South Africa,
Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United
Kingdom, and Venezuela. Normally, the Fund will invest at least 65% of its
total assets in securities traded in at least three foreign countries,
including the countries listed above. It is possible, although not currently
anticipated, that up to 35% of the Fund's assets could be invested in United
States companies.
In investing the Fund's assets, the Sub-Adviser expects to place primary
emphasis on country selection, followed by selection of industries or
sectors within or across countries and by selection of individual stocks
corresponding to the industries or sectors selected. Investments are
expected to be made primarily in developed markets and larger capitalization
companies. However, the Fund also may invest in emerging markets where
smaller capitalization companies are the norm.
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 50% of the equity securities owned by the Fund and write call options
on stock indices related to such equity securities; (iv) purchase securities
on a when-issued or delayed-delivery basis; (v) engage in the lending of
portfolio securities; (vi) engage in foreign currency transactions; (vii) in
order to attempt to reduce risk, purchase put and call options on foreign
currencies; (viii) write covered call options on foreign currencies owned by
the Fund; and (ix) enter into contracts for the future purchase or delivery
of securities, foreign currencies, and indices, purchase or sell options on
any such futures contracts and engage in related closing transactions. For
information about these investment methods, restrictions on their use, and
certain associated risks, see the related headings under "Special Investment
Methods."
Under normal market conditions, it is expected that the Fund will be fully
invested in equity securities and related hedging instruments (except for
short-term investments of cash for liquidity purposes and pending
investment). However, for temporary defensive purposes during times of
unusual market conditions, the Fund may without limitation hold cash or
invest in cash items of the kinds described under "Special Investment
Methods -- Cash Items."
International Fund is subject to special risks associated with investing in
foreign securities and to declines in net asset value resulting from changes
in exchange rates between the United States dollar and foreign currencies.
These risks are discussed under "Special Investment Methods -- Foreign
Securities" and "-- Foreign Currency Transactions" elsewhere herein. Because
of the special risks associated with foreign investing and the Sub-Adviser's
ability to invest substantial portions of the Fund's assets in a small
number of countries, the Fund may be subject to greater volatility than most
mutual funds which invest principally in domestic securities.
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks in addition to
those noted above with respect to particular Funds. These include the
following:
EQUITY SECURITIES GENERALLY. Market prices of equity securities generally,
and of particular companies' equity securities, frequently are subject to
greater volatility than prices of fixed income securities. Market prices of
equity securities as a group have dropped dramatically in a short period of
time on several occasions in the past, and they may do so again in the
future. Each of the Funds is subject to the risk of generally adverse equity
markets.
SMALL-CAPITALIZATION COMPANIES. Emerging Growth Fund and Regional Equity
Fund emphasize investments in companies with relatively small market
capitalizations, and the remaining Funds (excluding Equity Index Fund and
Asset Allocation Fund) are permitted to invest in equity securities of such
companies. The equity securities of small-capitalization companies
frequently have experienced greater price volatility in the past than those
of larger-capitalization companies, and they may be expected to do so in the
future. To the extent that the Funds invest in small-capitalization
companies, they are subject to this risk of greater volatility.
ACTIVE MANAGEMENT. All of the Funds other than Equity Index Fund are
actively managed to a greater or lesser degree by the Adviser or, in the
case of International Fund, the Sub-Adviser. The performance of these Funds
therefore will reflect in part the ability of the Adviser or Sub-Adviser to
select securities which are suited to achieving the Funds' investment
objectives. Due to their active management, these Funds could underperform
other mutual funds with similar investment objectives or the market
generally.
OTHER. Investors also should review "Special Investment Methods" for
information concerning risks associated with certain investment techniques
which may be utilized by the Funds.
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing
the overall management and electing the officers of FAIF. Subject to the
overall direction and supervision of the Board of Directors, the Adviser
acts as investment adviser for and manages the investment portfolios of
FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis,
Minnesota 55480, acts as the Funds' investment adviser through its First
Asset Management group. The Adviser has acted as an investment adviser to
FAIF since its inception in 1987 and has acted as investment adviser to
First American Funds, Inc. since 1982 and to First American Strategy Funds,
Inc. since 1996. As of December 31, 1996, the Adviser was managing accounts
with an aggregate value of approximately $35 billion, including mutual fund
assets in excess of $12 billion. First Bank System, Inc., 601 Second Avenue
South, Minneapolis, Minnesota 55480, is the holding company for the Adviser.
Each of the Funds other than International Fund has agreed to pay the
Adviser monthly fees calculated on an annual basis equal to 0.70% of its
average daily net assets. International Fund pays the Adviser a monthly fee
calculated on the same basis equal to 1.25% of its average daily net assets,
out of which the Adviser pays the Sub-Adviser's fee. The Adviser may, at its
option, waive any or all of its fees, or reimburse expenses, with respect to
any Fund from time to time. Any such waiver or reimbursement is voluntary
and may be discontinued at any time. The Adviser also may absorb or
reimburse expenses of the Funds from time to time, in its discretion, while
retaining the ability to be reimbursed by the Funds for such amounts prior
to the end of the fiscal year. This practice would have the effect of
lowering a Fund's overall expense ratio and of increasing yield to
investors, or the converse, at the time such amounts are absorbed or
reimbursed, as the case may be.
While the advisory fee payable to the Adviser with respect to International
Fund is higher than the advisory fee paid by most mutual funds, the Adviser
believes it is comparable to that paid by many funds having similar
investment objectives and policies.
The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from being
affiliated with companies principally engaged in those activities. In
addition, administrative and judicial interpretations of the Glass-Steagall
Act prohibit bank holding companies and their bank and nonbank subsidiaries
from organizing, sponsoring or controlling registered open-end investment
companies that are continuously engaged in distributing their shares. Bank
holding companies and their bank and nonbank subsidiaries may serve,
however, as investment advisers to registered investment companies, subject
to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, the Funds have received an opinion from
their counsel that the Adviser is not prohibited from performing the
investment advisory services described above, and that FBS Investment
Services, Inc. ("ISI"), a wholly owned broker-dealer subsidiary of the
Adviser, is not prohibited from serving as a Participating Institution as
described herein. In the event of changes in federal or state statutes or
regulations or judicial and administrative interpretations or decisions
pertaining to permissible activities of bank holding companies and their
bank and nonbank subsidiaries, the Adviser and ISI might be prohibited from
continuing these arrangements. In that event, it is expected that the Board
of Directors would make other arrangements and that shareholders would not
suffer adverse financial consequences.
SUB-ADVISER TO INTERNATIONAL FUND
Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801, is Sub-Adviser to International Fund under an
agreement with the Adviser (the "Sub-Advisory Agreement"). The Sub-Adviser
is responsible for the investment and reinvestment of International Fund's
assets and the placement of brokerage transactions in connection therewith.
For its services under the Sub-Advisory Agreement, the Sub-Adviser is paid a
monthly fee by the Adviser calculated on an annual basis equal to 0.75% of
the first $100 million of International Fund's average daily net assets,
0.70% of the second $100 million of International Fund's average daily net
assets, 0.65% of the third $100 million of International Fund's average
daily net assets, and 0.60% of International Fund's average daily net assets
in excess of $300 million.
The Sub-Adviser, a privately held company, was founded in 1986 by David F.
Marvin and Stanley Palmer. The stock of the Sub-Adviser is owned by Mr.
Marvin, Mr. Palmer and 22 other holders. The Sub-Adviser is engaged in the
management of global, non-United States and emerging markets equity
portfolios for institutional accounts. At September 30, 1996, the
Sub-Adviser managed a total of $3.3 billion in investments for 51
institutional investors.
PORTFOLIO MANAGERS
Stock Fund and Balanced Fund are managed by a committee comprised of Mr.
Doak, Mr. Murphy, Mr. Rovner, Mr. Dubiak, Mr. Whitcomb, Mr. Shields and
Mr. Twele, whose backgrounds are set forth below. Asset Allocation Fund,
Equity Income Fund and Diversified Growth Fund are managed by a committee
comprised of Mr. Bren, Mr. Doak, Mr. Dubiak, Ms. Johnson, Mr. Murphy, Mr.
Whitcomb, and Mr. Johnson, whose backgrounds also are set forth below. The
remaining Funds are managed or co-managed as indicated below.
JAMES DOAK is a member of the committees which manage five of the Funds, as
set forth above. Jim joined the Adviser in 1982 after serving for two years
as vice president of INA Capital Advisors and ten years as Vice President of
Loomis-Sayles & Co. He has managed assets for individual and institutional
clients, specializing in equity investments, and served as the analyst and
portfolio manager for Stock Fund since its inception in December 1987. Jim
received his bachelor's degree from Brown University and his master's degree
in business administration from the Wharton School of Business. He is a
Chartered Financial Analyst.
JOHN M. MURPHY, JR. is a member of the committees which manage five of the
Funds, as set forth above. John is Chief Investment Officer of the
Adviser's First Asset Management group, having joined the Adviser in 1984.
He has more than 30 years in the investment management field and served
with Investment Advisers, Inc. and Blyth, Eastman, Dillon & Co. before
joining the Adviser. He received his bachelor's degree from Regis College.
JAMES S. ROVNER is a member of the committee which manages two of the Funds,
as set forth above, and he is portfolio manager for Special Equity Fund and
portfolio co-manager for Equity Index Fund. Jim joined the Adviser in 1986
and has managed assets for institutional and individual clients for over 15
years, specializing in equity and balanced investment strategies. Jim
received his bachelor's degree and his master's degree in business
administration from the University of Wisconsin. He is a Chartered Financial
Analyst.
GERALD C. BREN is a member of the committee which manages three of the
Funds, as set forth above, and he is portfolio co-manager for Emerging
Growth Fund and Health Sciences Fund. Gerald joined the Adviser in 1972 as
an investment analyst. He received his master's degree in business
administration from the University of Chicago in 1972 and his Chartered
Financial Analyst certification in 1977.
ALBIN S. DUBIAK is a member of the committees which manage five of the
Funds, as set forth above, and he is portfolio co-manager for Emerging
Growth Fund, Regional Equity Fund, and Health Sciences Fund. Al began his
investment career as a security trader with The First National Bank of
Chicago in 1963 before joining the Adviser as an investment analyst in 1969.
Al received his bachelor's degree from Indiana University in 1962 and his
master's degree in business administration from the University of Arizona in
1969.
CORI B. JOHNSON is a member of the committee which manages three of the
Funds, as set forth above, and she is portfolio manager for Real Estate
Securities Fund. Cori has been managing assets using quantitative analysis
techniques since 1992. She joined the Adviser in 1991 as a securities
analyst. Cori received her bachelor's degree from Concordia College and her
master's degree in business administration from the University of Minnesota.
She is a Chartered Financial Analyst.
ROLAND P. WHITCOMB is a member of the committees which manage five of the
Funds, as set forth above, and he is portfolio co-manager for Regional
Equity Fund and Technology Fund. Roland joined the Adviser in 1986 after
serving as an account executive with Smith Barney & Co. since 1979. He
received his bachelor's degree from the University of Chicago and is a
Chartered Financial Analyst.
JEFF A. JOHNSON is a member of the committee which manages three of the
Funds, as set forth above, and he is portfolio co-manager for Regional
Equity Fund and Technology Fund. Jeff has been employed by the Adviser in
investment management since 1991 and in commercial lending from 1985 to
1991. He received his master of arts degree from the University of Iowa.
KEVIN SHIELDS is a member of the committee which manages two of the Funds,
as set forth above. Kevin, who joined the Adviser in 1993, received his
bachelor's degree from Marquette University and his master's degree from the
University of Wisconsin -- Madison.
JOHN A. TWELE is a member of the committee which manages two of the Funds,
as set forth above. Prior to joining the Adviser in 1996, he was employed in
various positions at American Express Financial Advisers; Investment
Advisers, Inc.; Kemper Financial; and Mercantile Trust. John received his
bachelor's degree from Indiana University.
KATHLEEN F. TURNER is portfolio co-manager for Equity Index Fund. Prior to
joining the Adviser in 1994, she was employed at Grant's Interest Rate
Observer. Kathleen received her bachelor's degree from Indiana University.
A committee comprised of the following seven individuals shares the
management of International Fund on behalf of the Sub-Adviser:
DAVID F. MARVIN is Chairman of the Sub-Adviser and founded the firm
together with Mr. Palmer in 1986. Before founding the Sub-Adviser, Mr.
Marvin was Vice President in charge of DuPont Corporation's $10 billion
internally-managed pension fund. Prior to that Mr. Marvin was Associate
Portfolio Manager, and then Head Portfolio Manager, for Investors
Diversified Services' IDS Stock Fund. Mr. Marvin started in the investment
business in 1965 as a securities analyst for Chicago Title & Trust. He
received his bachelor's degree from the University of Illinois and his
master's degree in business administration from Northwestern University. He
is a Chartered Financial Analyst and a member of the Financial Analysts
Federation.
STANLEY PALMER is President of the Sub-Adviser and co-founder of the firm.
Mr. Palmer was Equity Portfolio Manager for DuPont Corporation from 1978
through 1986, an analyst and portfolio manager at Investors Diversified
Services from 1971 through 1978, and an analyst at Harris Trust & Savings
Bank from 1964 through 1971. He received his bachelor's degree from Gustavus
Adolphus College and his master's degree in business administration from the
University of Iowa. He is a Chartered Financial Analyst and a member of the
Financial Analysts Federation.
WILLIAM E. DODGE has been Senior Managing Director and Portfolio Manager of
the Sub-Adviser since 1996. Mr. Dodge was Chief Investment Strategist and
Chairman of the Investment Policy Committee of Dean Witter in New York from
1991 to 1996, and he served as a Senior Portfolio Manager, Director of
Quantitative Equity Strategies, and United States equity analyst at the
DuPont Corporation pension fund from 1983 to 1991. From 1976 to 1983 Mr.
Dodge served in various United States portfolio management and analytical
positions including senior investment manager of a bank trust department
from 1981 to 1983. He received his bachelor's degree and his master's degree
in business administration from the University of Massachusetts at Amherst.
He is a Chartered Financial Analyst and a member of the Financial Analysts
Federation.
TERRY B. MASON is a Senior Vice President and Portfolio Manager of the
Sub-Adviser. Before joining the Sub-Adviser, Mr. Mason was employed for 14
years by DuPont Corporation, the last five as international equity analyst
and international trader. He received his bachelor's degree from Glassboro
State College and his master's degree in business administration from
Widener University.
JAY F. MIDDLETON is a Vice President and Portfolio Manager for the
Sub-Adviser and joined the firm in 1989. He received his bachelor's degree
from Wesleyan University.
TODD D. MARVIN is a Vice President and Portfolio Manager for the
Sub-Adviser and joined the firm in 1991. Before joining the Sub-Adviser,
Mr. Marvin was employed by Oppenheimer & Company as an analyst in
investment banking. Mr. Marvin received his bachelor's degree from
Wesleyan University.
DAVID L. SCHAEN is a Vice President and Portfolio Manager of the
Sub-Adviser. Before becoming a Portfolio Manager, Mr. Schaen was Head Trader
for the Sub-Adviser from 1991 to 1994 and an International Analyst for the
Sub-Adviser from 1994 to 1995. Prior to 1991 he was Head Trader and
Investment Officer at the Bank of Delaware. He received his bachelor's
degree from the University of Delaware and his master's degree in business
administration from Widener University.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the Adviser.
As compensation for its services to the Funds, the Custodian is paid monthly
fees equal to 0.03% of the applicable Fund's average daily net assets (0.25%
of average daily net assets in the case of International Fund).
Sub-custodian fees with respect to International Fund are paid by the
Custodian out of this amount. In addition, the Custodian is reimbursed for
its out-of-pocket expenses incurred while providing its services to the
Funds.
Rules adopted under the 1940 Act permit International Fund to maintain its
securities and cash in the custody of certain eligible foreign banks and
depositories. International Fund's portfolio of non-United States securities
are held by sub-custodians which are approved by the directors of FAIF in
accordance with these rules. This determination is made pursuant to these
rules following a consideration of a number of factors including, but not
limited to, the reliability and financial stability of the institution; the
ability of the institution to perform custodian services for International
Fund; the reputation of the institution in its national market; the
political and economic stability of the country in which the institution is
located; and the risks of potential nationalization or expropriation of
International Fund's assets.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation,
Oaks, Pennsylvania 19456. The Administrator, a wholly-owned subsidiary of
SEI Investments Company, provides the Funds with certain administrative
services necessary to operate the Funds. These services include shareholder
servicing and certain accounting and other services. The Administrator
provides these services for a fee calculated at an annual rate of 0.12% of
each Fund's average daily net assets, subject to a minimum administrative
fee during each fiscal year of $50,000 per Fund; provided, that to the
extent that the aggregate net assets of all First American funds exceed $8
billion, the percentage stated above is reduced to 0.105%. From time to
time, the Administrator may voluntarily waive its fees or reimburse expenses
with respect to any of the Funds. Any such waivers or reimbursements may be
made at the Administrator's discretion and may be terminated at any time.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent
is 1004 Baltimore, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of
the Funds and of the other FAIF Funds. The Distributor is a Pennsylvania
corporation and is the principal distributor for a number of investment
companies. The Distributor is a wholly-owned subsidiary of SEI Investments
Company and is located at Oaks, Pennsylvania 19456. The Distributor is not
affiliated with the Adviser, First Bank System, Inc., the Custodian or their
respective affiliates.
Shares of the Funds are distributed through the Distributor and securities
firms, financial institutions (including, without limitation, banks) and
other industry professionals (the "Participating Institutions") which enter
into sales agreements with the Distributor to perform share distribution or
shareholder support services.
FAIF has adopted a Plan of Distribution for the Class A Shares pursuant to
Rule 12b-1 under the 1940 Act (the "Class A Distribution Plan"). The Class A
Distribution Plan authorizes the Distributor to retain the sales charge paid
upon purchase of Class A Shares, except that portion which is reallowed to
Participating Institutions. See "Investing in the Funds -- Alternative Sales
Charge Options." Each Fund also pays the Distributor a shareholder servicing
fee monthly at an annual rate of 0.25% of the Fund's Class A Shares' average
daily net assets. The shareholder servicing fee is intended to compensate
the Distributor for ongoing servicing and/or maintenance of shareholder
accounts and may be used by the Distributor to provide compensation to
institutions through which shareholders hold their shares for ongoing
servicing and/or maintenance of shareholder accounts. The shareholder
servicing fee may be used to provide compensation for shareholder servicing
provided by "one-stop" mutual fund networks through which the Funds are made
available. In addition, the Distributor and the Adviser and its affiliates
may provide compensation for services provided by such networks from their
own resources. From time to time, the Distributor may voluntarily waive its
fees with respect to the Class A Shares of any of the Funds. Any such
waivers may be made at the Distributor's discretion and may be terminated at
any time.
Under another distribution plan (the "Class B Distribution Plan") adopted in
accordance with Rule 12b-1 under the 1940 Act, the Funds may pay to the
Distributor a sales support fee at an annual rate of up to 0.75% of the
average daily net assets of the Class B Shares of the Funds, which fee may
be used by the Distributor to provide compensation for sales support and
distribution activities with respect to Class B Shares of the Funds. This
fee is calculated and paid each month based on the average daily net assets
for that month. In addition to this fee, the Distributor is paid a
shareholder servicing fee of 0.25% of the average daily net assets of the
Class B Shares pursuant to a service plan (the "Class B Service Plan"),
which fee may be used by the Distributor to provide compensation for ongoing
servicing and/or maintenance of shareholder accounts with respect to Class B
Shares of the Funds. Although Class B Shares are sold without an initial
sales charge, the Distributor pays a total of 4.25% of the amount invested
(including a prepaid service fee of 0.25% of the amount invested) to dealers
who sell Class B Shares (excluding exchanges from other Class B Shares in
the First American family). The service fee payable under the Class B
Service Plan is prepaid for the first year as described above.
The Class A and Class B Distribution Plans recognize that the Adviser, the
Administrator, the Distributor, and any Participating Institution may in
their discretion use their own assets to pay for certain additional costs of
distributing Fund shares. Any arrangement to pay such additional costs may
be commenced or discontinued by any of these persons at any time. In
addition, while there is no sales charge on purchases of Class A Shares of
$1 million and more, the Adviser may pay amounts to broker-dealers from its
own assets with respect to such sales. ISI, a subsidiary of the Adviser, is
a Participating Institution.
INVESTING IN THE FUNDS
SHARE PURCHASES
Shares of the Funds are sold at their net asset value, next determined after
an order is received, plus any applicable sales charge, on days on which the
New York Stock Exchange is open for business. Shares may be purchased as
described below. The Funds reserve the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. Shares may be purchased through a financial
institution which has a sales agreement with the Distributor. An investor
may call his or her financial institution to place an order. Purchase orders
must be received by the financial institution by the time specified by the
institution to be assured same day processing, and purchase orders must be
transmitted to and received by the Funds by 3:00 p.m. Central time in order
for shares to be purchased at that day's price. It is the financial
institution's responsibility to transmit orders promptly.
BY MAIL. An investor may place an order to purchase shares of the Funds
directly through the Transfer Agent. Orders by mail will be executed upon
receipt of payment by the Transfer Agent. If an investor's check does not
clear, the purchase will be cancelled and the investor could be liable for
any losses or fees incurred. Third-party checks, credit cards, credit card
checks and cash will not be accepted. When purchases are made by check, the
proceeds of redemptions of the shares purchased are not available until the
Transfer Agent is reasonably certain that the purchase payment has cleared,
which could take up to ten calendar days from the purchase date. In order to
purchase shares by mail, an investor must:
* complete and sign the new account form;
* enclose a check made payable to (Fund name); and
* mail both to DST Systems, Inc., P.O. Box 419382, Kansas City, Missouri
64141-6382.
After an account is established, an investor can purchase shares by mail by
enclosing a check and mailing it to DST Systems, Inc. at the above address.
BY WIRE. To purchase shares of a Fund by wire, call (800) 637-2548 before
3:00 p.m. Central time. All information needed will be taken over the
telephone, and the order will be considered placed when the Custodian
receives payment by wire. If the Custodian does not receive the wire by 3:00
p.m. Central time, the order will be executed the next business day. Federal
funds should be wired as follows: First Bank National Association,
Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST Systems:
Account Number160234580266; For Further Credit To: (Investor Name and Fund
Name). Shares cannot be purchased by Federal Reserve wire on days on which
the New York Stock Exchange is closed and on federal holidays upon which
wire transfers are restricted.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment for each Fund is $1,000 unless the investment
is in a retirement plan, in which case the minimum investment is $250. The
minimum subsequent investment is $100. The Funds reserve the right to waive
the minimum investment requirement for employees of First Bank National
Association, First Trust National Association and First Bank System, Inc.
and their respective affiliates.
ALTERNATIVE SALES CHARGE OPTIONS
THE TWO ALTERNATIVES: OVERVIEW. An investor may purchase shares of a Fund at
a price equal to its net asset value per share plus a sales charge which, at
the investor's election, may be imposed either (i) at the time of the
purchase (the Class A "initial sales charge alternative"), or (ii) on a
contingent deferred basis (the Class B "deferred sales charge alternative").
Each of Class A and Class B represents a Fund's interest in its portfolio of
investments. The classes have the same rights and are identical in all
respects except that (i) Class B Shares bear the expenses of the contingent
deferred sales charge arrangement and distribution and service fees
resulting from such sales arrangement, while Class A Shares bear only
shareholder servicing fees; (ii) each class has exclusive voting rights with
respect to approvals of any Rule 12b-1 distribution plan related to that
specific class (although Class B shareholders may vote on any distribution
fees imposed on Class A Shares as long as Class B Shares convert into Class
A Shares); (iii) only Class B Shares carry a conversion feature; and (iv)
each class has different exchange privileges. Sales personnel of financial
institutions distributing the Funds' shares, and other persons entitled to
receive compensation for selling shares, may receive differing compensation
for selling Class A and Class B Shares.
These alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is more beneficial to that investor. The
amount of a purchase, the length of time an investor expects to hold the
shares, and whether the investor wishes to receive dividends in cash or in
additional shares, will all be factors in determining which sales charge
option is best for a particular investor. An investor should consider
whether, over the time he or she expects to maintain the investment, the
accumulated sales charges on Class B Shares prior to conversion would be
less than the initial sales charge on Class A Shares, and to what extent the
differential may be offset by the expected higher yield of Class A Shares.
Class A Shares will normally be more beneficial to an investor if he or she
qualifies for reduced sales charges as described below. Accordingly, orders
for Class B Shares for $250,000 or more ordinarily will be treated as orders
for Class A Shares or declined.
The Directors of FAIF have determined that no conflict of interest currently
exists between the Class A and Class B Shares. On an ongoing basis, the
Directors, pursuant to their fiduciary duties under the 1940 Act and state
laws, will seek to ensure that no such conflict arises.
CLASS A SHARES.
WHAT CLASS A SHARES COST. Class A Shares of each Fund are offered on a
continuous basis at their next determined offering price, which is net asset
value, plus a sales charge as set forth below:
EACH FUND:
<TABLE>
<CAPTION>
SALES CHARGE MAXIMUM AMOUNT
AS PERCENTAGE SALES CHARGE AS OF SALES
OF OFFERING PERCENTAGE OF CHARGERE ALLOWED
PRICE NET ASSET VALUE TO PARTICIPATING
INSTITUTIONS
<S> <C> <C> <C>
Less than $50,000 4.50% 4.75% 4.05%
$50,000 but less than $100,000 4.00% 4.17% 3.60%
$100,000 but less than $250,000 3.50% 3.63% 3.15%
$250,000 but less than $500,000 2.75% 2.83% 2.47%
$500,000 but less than $1,000,000 2.00% 2.04% 1.80%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
There is no initial sales charge on purchases of Class A Shares of $1
million or more. However, Participating Institutions will receive a
commission of 1.00% on such sales. Redemptions of Class A Shares purchased
at net asset value within 24 months of purchase will be subject to a
contingent deferred sales charge of 1.00% (unless a Participating
Institution waived its commission on the initial purchase) except in the
case of Equity Index Fund. Class A Shares that are redeemed will not be
subject to this contingent deferred sales charge to the extent that the
value of the shares represents capital appreciation of Fund assets or
reinvestment of dividends or capital gain distributions.
Net asset value is determined at 3:00 p.m. Central time Monday through
Friday except on (i) days on which there are not sufficient changes in the
value of a Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and (iii) on the
following federal holidays: New Year's Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. In
addition, net asset value will not be calculated on Good Friday.
DEALER CONCESSION. A dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid
to a dealer will be retained by the Distributor. In addition, the
Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs which will be paid by the Distributor
from the sales charge it receives or from any other source available to it.
Under any such program, the Distributor will provide promotional incentives,
in the form of cash or other compensation including merchandise, airline
vouchers, trips and vacation packages, to all dealers selling shares of the
Funds. Promotional incentives of these kinds will be offered uniformly to
all dealers and predicated upon the amount of shares of the Funds sold by
the dealer. Whenever 90% or more of a sales charge is paid to a dealer, that
dealer may be deemed to be an underwriter as defined in the Securities Act
of 1933.
The sales charge for shares sold other than through registered
broker/dealers will be retained by the Distributor. The Distributor may pay
fees to financial institutions out of the sales charge in exchange for sales
and/or administrative services performed on behalf of the institution's
customers in connection with the initiation of customer accounts and
purchases of Fund shares.
REDUCING THE CLASS A SALES CHARGE. The sales charge can be reduced on the
purchase of Class A Shares through (i) quantity discounts and accumulated
purchases, or (ii) signing a 13-month letter of intent:
* QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES: As shown in the table
above, larger purchases of Class A Shares reduce the percentage sales
charge paid. Each Fund will combine purchases made on the same day by an
investor, the investor's spouse, and the investor's children under age
21 when it calculates the sales charge. In addition, the sales charge,
if applicable, is reduced for purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account.
* The sales charge discount applies to the total current market value of
any Fund, plus the current market value of any other FAIF Fund and any
other mutual funds having a sales charge and distributed as part of the
First American family of funds. Prior purchases and concurrent purchases
of Class A Shares of any FAIF Fund will be considered in determining the
sales charge reduction. In order for an investor to receive the sales
charge reduction on Class A Shares, the Transfer Agent must be notified
by the investor in writing or by his or her financial institution at the
time the purchase is made that Fund shares are already owned or that
purchases are being combined.
* LETTER OF INTENT: If an investor intends to purchase at least $50,000 of
Class A Shares in a Fund and other FAIF Funds over the next 13 months,
the sales charge may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales charge
adjustment depending on the amount actually purchased within the
13-month period and a provision for the Custodian to hold a percentage
equal to the particular FAIF Fund's maximum sales charge rate of the
total amount intended to be purchased in escrow (in shares) for all FAIF
Funds until the purchase is completed.
The amount held in escrow for all FAIF Funds will be applied to the
investor's account at the end of the 13-month period after deduction of
the sales load applicable to the dollar value of shares actually
purchased. In this event, an appropriate number of escrowed shares may
be redeemed in order to realize the difference in the sales charge.
A letter of intent will not obligate the investor to purchase shares,
but if he or she does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased.
This letter may be dated as of a prior date to include any purchases
made within the past 90 days.
SALES OF CLASS A SHARES AT NET ASSET VALUE. Purchases of a Fund's Class A
Shares by the Adviser, the Sub-Adviser or any of their affiliates, or any of
their or FAIF's officers, directors, employees, retirees, sales
representatives and partners, registered representatives of any
broker/dealer authorized to sell Fund shares, and full-time employees of
FAIF's general counsel, and members of their immediate families (i.e.,
parent, child, spouse, sibling, step or adopted relationships, and UTMA
accounts naming qualifying persons), may be made at net asset value without
a sales charge. A Fund's Class A Shares also may be purchased at net asset
value without a sales charge by fee-based registered investment advisers,
financial planners and registered broker/dealers who are purchasing shares
on behalf of their customers and by purchasers through "one-stop" mutual
fund networks through which the Funds are made available. In addition, Class
A Shares may be purchased at net asset value without a sales charge by
qualified defined contribution plans participating in the First American
401(k) Plan Program. Although there is no sales charge imposed on such
purchases, the Adviser may pay to Participating Institutions an amount of up
to 2.00% on such sales.
If Class A Shares of a Fund have been redeemed, the shareholder has a
one-time right, within 30 days, to reinvest the redemption proceeds in Class
A Shares of any FAIF Fund at the next-determined net asset value without any
sales charge. The Transfer Agent must be notified by the shareholder in
writing or by his or her financial institution of the reinvestment in order
to eliminate a sales charge. If the shareholder redeems his or her shares of
a Fund, there may be tax consequences.
In addition, purchases of Class A Shares of a Fund that are funded by
proceeds received upon the redemption (within 60 days of the purchase of
Fund shares) of shares of any unrelated open-end investment company that
charges a sales load and rollovers from retirement plans that utilize the
Funds as investment options may be made at net asset value. To make such a
purchase at net asset value, an investor or the investor's broker must, at
the time of purchase, submit a written request to the Transfer Agent that
the purchase be processed at net asset value pursuant to this privilege,
accompanied by a photocopy of the confirmation (or similar evidence) showing
the redemption from the unrelated fund. The redemption of the shares of the
non-related fund is, for federal income tax purposes, a sale upon which a
gain or loss may be realized.
CLASS B SHARES.
CONTINGENT DEFERRED SALES CHARGE. Class B Shares are sold at net asset value
without any initial sales charge. If an investor redeems Class B Shares
within eight years of purchase, he or she will pay a contingent deferred
sales charge at the rates set forth below. This charge is assessed on an
amount equal to the lesser of the then-current market value or the cost of
the shares being redeemed. Accordingly, no sales charge is imposed on
increases in net asset value above the initial purchase price or on shares
derived from reinvestment of dividends or capital gain distributions.
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
First 5.00%
Second 5.00%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh None
Eighth None
In determining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first of any
Class A Shares in the shareholder's Fund account; second, of any Class B
Shares held for more than eight years and Class B Shares acquired pursuant
to reinvestment of dividends or other distributions; and third, of Class B
Shares held longest during the eight-year period. This method should result
in the lowest possible sales charge.
The contingent deferred sales charge is waived on redemption of Class B
Shares (i) within one year following the death or disability (as defined in
the Internal Revenue Code) of a shareholder, and (ii) to the extent that the
redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has
attained the age of 70 1/2 . A shareholder or his or her representative must
notify the Transfer Agent prior to the time of redemption if such
circumstances exist and the shareholder is eligible for this waiver.
CONVERSION FEATURE. At the end of the period ending eight years after the
beginning of the month in which the shares were issued, Class B Shares will
automatically convert to Class A Shares and will no longer be subject to the
Class B distribution and service fees. This conversion will be on the basis
of the relative net asset values of the two classes.
SYSTEMATIC EXCHANGE PROGRAM
Shares of a Fund may also be purchased through automatic monthly deductions
from a shareholder's account in the same class of shares of Prime
Obligations Fund of First American Funds, Inc. Under a systematic exchange
program, a shareholder enters an agreement to purchase a specified class of
shares of one or more Funds over a specified period of time, and initially
purchases Prime Obligations Fund shares of the same class in an amount equal
to the total amount of the investment. On a monthly basis a specified dollar
amount of shares of Prime Obligations Fund is exchanged for shares of the
same class of the Funds specified. The systematic exchange program of
investing a fixed dollar amount at regular intervals over time has the
effect of reducing the average cost per share of the Funds. This effect also
can be achieved through the systematic investment program described below.
Because purchases of Class A Shares are subject to an initial sales charge,
it may be beneficial for an investor to execute a Letter of Intent in
connection with the systematic exchange program. A shareholder may apply for
participation in this program through his or her financial institution or by
calling (800) 637-2548.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account and invested in Fund shares at the net asset
value next determined after an order is received, plus any applicable sales
charge. A shareholder may apply for participation in this program through
his or her financial institution or call (800) 637-2548.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval by the Fund and a determination
by the Fund and the Adviser that the securities to be exchanged are
acceptable. Securities accepted by a Fund will be valued in the same manner
that a Fund values its assets. The basis of the exchange will depend upon
the net asset value of Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
Confirmations of each purchase and redemption are sent to each shareholder.
In addition, monthly confirmations are sent to report all transactions and
dividends paid during that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly with respect to Stock Fund, Equity
Index Fund, Balanced Fund, Asset Allocation Fund, Equity Income Fund,
Diversified Growth Fund and Special Equity Fund, to all shareholders of
record on the record date. Dividends are declared paid quarterly with
respect to Emerging Growth Fund, Regional Equity Fund, Technology Fund,
Health Sciences Fund, and Real Estate Securities Fund, and annually with
respect to International Fund. Distributions of any net realized long-term
capital gains will be made at least once every 12 months. A portion of the
quarterly distributions paid by Real Estate Securities Fund may be a return
of capital. Dividends and distributions are automatically reinvested in
additional shares of the Fund paying the dividend on payment dates at the
ex-dividend date net asset value without a sales charge, unless shareholders
request cash payments on the new account form or by writing to the Fund.
All shareholders on the record date are entitled to the dividend. If shares
are purchased before a record date for a dividend or a distribution of
capital gains, a shareholder will pay the full price for the shares and will
receive some portion of the purchase price back as a taxable dividend or
distribution (to the extent, if any, that the dividend or distribution is
otherwise taxable to holders of Fund shares). If shares are redeemed or
exchanged before the record date for a dividend or distribution or are
purchased after the record date, those shares are not entitled to the
dividend or distribution.
The amount of dividends payable on Class A and Class B Shares generally will
be less than the dividends payable on Class C Shares because of the
distribution and/or shareholder servicing expenses charged to Class A and
Class B Shares. The amount of dividends payable on Class A Shares generally
will be more than the dividends payable on the Class B Shares because of the
higher distribution and shareholder servicing fees paid by Class B Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class A or Class B Shares of a Fund for currently
available Class A or Class B Shares, respectively, of the other FAIF Funds
or of other funds in the First American family. Class A Shares of the Funds,
whether acquired by direct purchase, reinvestment of dividends on such
shares, or otherwise, may be exchanged for Class A Shares of other funds
without the payment of any sales charge (i.e., at net asset value).
Exchanges of shares among the First American family of funds must meet any
applicable minimum investment of the fund for which shares are being
exchanged.
For purposes of calculating the Class B Shares' eight-year conversion period
or contingent deferred sales charges payable upon redemption, the holding
period of Class B Shares of the "old" fund and the holding period of Class B
Shares of the "new" fund are aggregated.
The ability to exchange shares of the Funds does not constitute an offering
or recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares
being acquired may be sold. An investor who is considering acquiring shares
in another First American fund pursuant to the exchange privilege should
obtain and carefully read a prospectus of the fund to be acquired. Exchanges
may be accomplished by a written request, or by telephone if a preauthorized
exchange authorization is on file with the Transfer Agent, shareholder
servicing agent, or financial institution.
Written exchange requests must be signed exactly as shown on the
authorization form, and the signatures may be required to be guaranteed as
for a redemption of shares by an entity described below under "Redeeming
Shares -- Directly From the Funds -- Signatures." Neither the Funds, the
Distributor, the Transfer Agent, any shareholder servicing agent, or any
financial institution will be responsible for further verification of the
authenticity of the exchange instructions.
Telephone exchange instructions made by an investor may be carried out only
if a telephone authorization form completed by the investor is on file with
the Transfer Agent, shareholder servicing agent, or financial institution.
Shares may be exchanged between two First American funds by telephone only
if both funds have identical shareholder registrations.
Telephone exchange instructions may be recorded and will be binding upon the
shareholder. Telephone instructions must be received by the Transfer Agent
before 3:00 p.m. Central time, or by a shareholder's shareholder servicing
agent or financial institution by the time specified by it, in order for
shares to be exchanged the same day. Neither the Transfer Agent nor any Fund
will be responsible for the authenticity of exchange instructions received
by telephone if it reasonably believes those instructions to be genuine. The
Funds and the Transfer Agent will each employ reasonable procedures to
confirm that telephone instructions are genuine, and they may be liable for
losses resulting from unauthorized or fraudulent telephone instructions if
they do not employ these procedures.
Shareholders of the Funds may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his or
her broker or financial institution by telephone, it is recommended that an
exchange request be made in writing and sent by overnight mail to DST
Systems, Inc., 1004 Baltimore, Kansas City, Missouri 64105.
Shareholders who become eligible to purchase Class C Shares may exchange
Class A Shares for Class C Shares. An example of such an exchange would be a
situation in which an individual holder of Class A Shares subsequently opens
a custody or agency account with a financial institution which invests in
Class C Shares.
The terms of any exchange privilege may be modified or terminated by the
Funds at any time. There are currently no additional fees or charges for the
exchange service. The Funds do not contemplate establishing such fees or
charges, but they reserve the right to do so. Shareholders will be notified
of any modification or termination of the exchange privilege and of the
imposition of any additional fees or changes.
REDEEMING SHARES
Each Fund redeems shares at their net asset value next determined after the
Transfer Agent receives the redemption request, reduced by any applicable
contingent deferred sales charge. Redemptions will be made on days on which
the Fund computes its net asset value. Redemption requests can be made as
described below and must be received in proper form.
BY TELEPHONE
A shareholder may redeem shares of a Fund, if he or she elects the privilege
on the initial shareholder application, by calling his or her financial
institution to request the redemption. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request
from the financial institution. Redemption requests must be received by the
financial institution by the time specified by the institution in order for
shares to be redeemed at that day's net asset value, and redemption requests
must be transmitted to and received by the Funds by 3:00 p.m. Central time
in order for shares to be redeemed at that day's net asset value. Pursuant
to instructions received from the financial institution, redemptions will be
made by check or by wire transfer. It is the financial institution's
responsibility to transmit redemption requests promptly.
Shareholders who did not purchase their shares of a Fund through a financial
institution may redeem their shares by telephoning (800) 637-2548. At the
shareholder's request, redemption proceeds will be paid by check mailed to
the shareholder's address of record or wire transferred to the shareholder's
account at a domestic commercial bank that is a member of the Federal
Reserve System, normally within one business day, but in no event more than
seven days after the request. Wire instructions must be previously
established on the account or provided in writing. The minimum amount for a
wire transfer is $1,000. If at any time the Funds determine it necessary to
terminate or modify this method of redemption, shareholders will be promptly
notified.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming shares by telephone. If this should
occur, another method of redemption should be considered. Neither the
Transfer Agent nor any Fund will be responsible for any loss, liability,
cost or expense for acting upon wire transfer instructions or telephone
instructions that it reasonably believes to be genuine. The Transfer Agent
and the Funds will each employ reasonable procedures to confirm that
instructions communicated by telephone are genuine. These procedures may
include taping of telephone conversations. To ensure authenticity of
redemption or exchange instructions received by telephone, the Transfer
Agent examines each shareholder request by verifying the account number
and/or tax identification number at the time such request is made. The
Transfer Agent subsequently sends confirmations of both exchange sales and
exchange purchases to the shareholder for verification. If reasonable
procedures are not employed, the Transfer Agent and the Funds may be liable
for any losses due to unauthorized or fraudulent telephone transactions.
BY MAIL
Any shareholder may redeem Fund shares by sending a written request to the
Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested to be redeemed, and
should be signed exactly as the shares are registered. Shareholders should
call the Fund, shareholder servicing agent or financial institution for
assistance in redeeming by mail. A check for redemption proceeds normally is
mailed within one business day, but in no event more than seven days, after
receipt of a proper written redemption request.
Shareholders requesting a redemption of $5,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or
a redemption payable other than to the shareholder of record, must have
signatures on written redemption requests guaranteed by:
* a trust company or commercial bank the deposits of which are insured by
the Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
* a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges or of the National Association of Securities Dealers;
* a savings bank or savings and loan association the deposits of which are
insured by the Savings Association Insurance Fund, which is administered
by the FDIC; or
* any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantees to institutions that are
members of a signature guarantee program. The Funds and the Transfer Agent
reserve the right to amend these standards at any time without notice.
BY SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders whose account value is at least $5,000 may elect to participate
in the Systematic Withdrawal Program. Under this program, Fund shares are
redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. A shareholder may apply to participate in this program
through his or her financial institution. It is generally not in a
shareholder's best interest to participate in the Systematic Withdrawal
Program at the same time that the shareholder is purchasing additional
shares if a sales charge must be paid in connection with such purchases.
Because automatic withdrawals with respect to Class B Shares are subject to
the contingent deferred sales charge, it may not be in the best interest of
a Class B shareholder to participate in the Systematic Withdrawal Program.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or with funds transmitted through the
Automated Clearing House, the proceeds of redemptions of those shares are
not available until the Transfer Agent is reasonably certain that the
purchase payment has cleared, which could take up to ten calendar days from
the purchase date.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds,
less any applicable contingent deferred sales charge, to the shareholder if
the account balance falls below the required minimum value of $500. Shares
will not be redeemed in this manner, however, if the balance falls below
$500 because of changes in a Fund's net asset value. Before shares are
redeemed to close an account, the shareholder will be notified in writing
and allowed 60 days to purchase additional shares to meet the minimum
account requirement.
DETERMINING THE PRICE OF SHARES
Class A Shares of the Funds are sold at net asset value plus a sales charge,
while Class B Shares are sold without a front-end sales charge. Shares are
redeemed at net asset value less any applicable contingent deferred sales
charge. See "Investing in the Funds -- Alternative Sales Charge Options."
The net asset value per share is determined as of the earlier of the close
of the New York Stock Exchange or 3:00 p.m. Central time on each day the New
York Stock Exchange is open for business, provided that net asset value need
not be determined on days when no Fund shares are tendered for redemption
and no order for that Fund's shares is received and on days on which changes
in the value of portfolio securities will not materially affect the current
net asset value of the Fund's shares. The price per share for purchases or
redemptions is such value next computed after the Transfer Agent receives
the purchase order or redemption request.
It is the responsibility of Participating Institutions promptly to forward
purchase and redemption orders to the Transfer Agent. In the case of
redemptions and repurchases of shares owned by corporations, trusts or
estates, the Transfer Agent or Fund may require additional documents to
evidence appropriate authority in order to effect the redemption, and the
applicable price will be that next determined following the receipt of the
required documentation.
DETERMINING NET ASSET VALUE
The net asset value per share for each of the Funds is determined by
dividing the value of the securities owned by the Fund plus any cash and
other assets (including interest accrued and dividends declared but not
collected), less all liabilities, by the number of Fund shares outstanding.
For the purpose of determining the aggregate net assets of the Funds, cash
and receivables will be valued at their face amounts. Interest will be
recorded as accrued and dividends will be recorded on the ex-dividend date.
Investments in equity securities which are traded on a national securities
exchange (or reported on the NASDAQ national market system) are stated at
the last quoted sales price if readily available for such equity securities
on each business day; other equity securities traded in the over-the-counter
market and listed equity securities for which no sale was reported on that
date are stated at the last quoted bid price. Debt obligations exceeding 60
days to maturity which are actively traded are valued by an independent
pricing service at the most recently quoted bid price. Debt obligations with
60 days or less remaining until maturity may be valued at their amortized
cost. Foreign securities are valued based upon quotation from the primary
market in which they are traded. When market quotations are not readily
available, securities are valued at fair value as determined in good faith
by procedures established and approved by the Board of Directors.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by a Fund is its last sales price on the
exchange prior to the time when assets are valued, unless the bid price is
higher or the asked price is lower, in which event the bid or asked price is
used. In the absence of any sales that day, options will be valued at the
current closing bid price.
Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset value per share of
different classes of shares of the same Fund may differ because of the
differing distribution and/or shareholder servicing expenses charged to
Class A and Class B Shares.
FOREIGN SECURITIES
Any assets or liabilities of the Funds initially expressed in terms of
foreign currencies are translated into United States dollars using current
exchange rates. Trading in securities on foreign markets may be completed
before the close of business on each business day of the Funds. Thus, the
calculation of the Funds' net asset value may not take place
contemporaneously with the determination of the prices of foreign securities
held in the Funds' portfolios. If events materially affecting the value of
foreign securities occur between the time when their price is determined and
the time when the Funds' net asset value is calculated, such securities will
be valued at fair value as determined in good faith by or under the
direction of the Board of Directors. In addition, trading in securities on
foreign markets may not take place on all days on which the New York Stock
Exchange is open for business or may take place on days on which the
Exchange is not open for business. Therefore, the net asset value of a Fund
which holds foreign securities might be significantly affected on days when
an investor has no access to the Fund.
FEDERAL INCOME TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
during its current taxable year in order to be relieved of payment of
federal income taxes on amounts of taxable income it distributes to
shareholders.
Dividends paid from each Fund's net investment income and net short-term
capital gains will be taxable to shareholders as ordinary income, whether or
not the shareholder elects to have such dividends automatically reinvested
in additional shares. Dividends paid by the Funds attributable to
investments in the securities of foreign issuers or REITs will not be
eligible for the 70% deduction for dividends received by corporations.
Dividends paid from the net capital gains of each Fund and designated as
capital gain dividends will be taxable to shareholders as long-term capital
gains, regardless of the length of time for which they have held their
shares in the Fund. Long-term capital gains of individuals are currently
subject to a maximum tax rate of 28%.
Gain or loss realized upon the sale of shares in the Funds will be treated
as capital gain or loss, provided that the shares represented a capital
asset in the hands of the shareholder. Such gain or loss will be long-term
gain or loss if the shares were held for more than one year.
International Fund may be required to pay withholding and other taxes
imposed by foreign countries, generally at rates from 10% to 40%, which
would reduce the Fund's investment income. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. If at
the end of International Fund's taxable year more than 50% of its total
assets consist of securities of foreign corporations, it will be eligible to
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their respective pro
rata portions of such foreign taxes in gross income, treat such amounts as
foreign taxes paid by them, and deduct such amounts in computing their
taxable income or, alternatively, use them as foreign tax credits against
their federal income taxes. If such an election is filed for a year,
International Fund shareholders will be notified of the amounts which they
may deduct as foreign taxes paid or use as foreign tax credits.
International Fund made this election for its last taxable year.
Alternatively, if the amount of foreign taxes paid by International Fund is
not large enough in future years to warrant its making the election
described above, the Fund may claim the amount of foreign taxes paid as a
deduction against its own gross income. In that case, shareholders would not
be required to include any amount of foreign taxes paid by the Fund in their
income and would not be permitted either to deduct any portion of foreign
taxes from their own income or to claim any amount of foreign tax credit for
taxes paid by the Fund.
Each Fund is required by federal law to withhold 31% of reportable payments
(including dividends, capital gain distributions, and redemptions) paid to
certain accounts whose owners have not complied with IRS regulations. In
order to avoid this withholding requirement, each shareholder will be asked
to certify on the shareholder's account application that the social security
or taxpayer identification number provided is correct and that the
shareholder is not subject to backup withholding for previous underreporting
to the IRS.
This is a general summary of the federal tax laws applicable to the Funds
and their shareholders as of the date of this Prospectus. See the Statement
of Additional Information for further details. Before investing in the
Funds, an investor should consult his or her tax adviser about the
consequences of state and local tax laws.
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares
may be issued as either full or fractional shares. Fractional shares have
pro rata the same rights and privileges as full shares. Shares of the Funds
have no preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The
shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able to
elect all of the directors if they choose to do so. On issues affecting only
a particular Fund or Class, the shares of that Fund or Class will vote as a
separate series. Examples of such issues would be proposals to alter a
fundamental investment restriction pertaining to a Fund or to approve,
disapprove or alter a distribution plan pertaining to a Class.
Under the laws of the State of Maryland and FAIF's Articles of
Incorporation, FAIF is not required to hold shareholder meetings unless they
(i) are required by the 1940 Act, or (ii) are requested in writing by the
holders of 25% or more of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "cumulative total
return," its "average annual total return" and its "distribution rate."
Distribution rates may only be used in connection with sales literature and
shareholder communications preceded or accompanied by a Prospectus. Each of
these performance figures is based upon historical results and is not
intended to indicate future performance, and, except for "distribution
rate," is standardized in accordance with Securities and Exchange Commission
("SEC") regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day
period (which period will be stated in the advertisement) by the maximum
offering price per share on the last day of the period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Total return" is based on the overall dollar or percentage change in value
of a hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including, as
applicable, the maximum sales charge imposed on Class A Shares or the
contingent deferred sales charge imposed on Class B Shares redeemed at the
end of the specified period covered by the total return figure. "Cumulative
total return" reflects a Fund's performance over a stated period of time.
"Average annual total return" reflects the hypothetical annually compounded
rate that would have produced the same cumulative total return if
performance had been constant over the entire period. Because average annual
returns tend to smooth out variations in a Fund's performance, they are not
the same as actual year-by-year results. As a supplement to total return
computations, a Fund may also publish "total investment return" computations
which do not assume deduction of the maximum sales charge imposed on Class A
Shares or the contingent deferred sales charge imposed on Class B Shares.
"Distribution rate" is determined by dividing the income dividends per share
for a stated period by the maximum offering price per share on the last day
of the period. All distribution rates published for the Funds are measures
of the level of income dividends distributed during a specified period.
Thus, these rates differ from yield (which measures income actually earned
by a Fund) and total return (which measures actual income, plus realized and
unrealized gains or losses of a Fund's investments). Consequently,
distribution rates alone should not be considered complete measures of
performance.
The performance of the Class A and Class B Shares of a Fund will normally be
lower than for the Class C Shares because Class C Shares are not subject to
the sales charges and distribution and/or shareholder servicing expenses
applicable to Class A and Class B Shares. In addition, the performance of
Class A and Class B Shares of a Fund will differ because of the different
sales charge structures of the classes and because of the differing
distribution and shareholder servicing fees charged to Class B Shares.
In reports or other communications to shareholders and in advertising
material, the performance of each Fund may be compared to recognized
unmanaged indices or averages of the performance of similar securities and
to composites of such indices and averages. Also, the performance of each
Fund may be compared to that of other funds of similar size and objectives
as listed in the rankings prepared by Lipper Analytical Services, Inc. or
similar independent mutual fund rating services, and each Fund may include
in such reports, communications and advertising material evaluations
published by nationally recognized independent ranking services and
publications. For further information regarding the Funds' performance, see
"Fund Performance" in the Statement of Additional Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in
which the Funds may invest and related topics. Further information
concerning these matters is contained in the Statement of Additional
Information.
CASH ITEMS
The "cash items" in which the Funds may invest, as described under
"Investment Objectives and Policies," include short-term obligations such as
rated commercial paper and variable amount master demand notes; United
States dollar-denominated time and savings and time deposits (including
certificates of deposit); bankers acceptances; obligations of the United
States Government or its agencies or instrumentalities; repurchase
agreements collateralized by eligible investments of a Fund; securities of
other mutual funds which invest primarily in debt obligations with remaining
maturities of 13 months or less (which investments also are subject to the
advisory fee); and other similar high-quality short-term United States
dollar-denominated obligations. The other mutual funds in which the Funds
may so invest include money market funds advised by the Adviser, subject to
certain restrictions contained in an exemptive order issued by the
Securities and Exchange Commission with respect thereto.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements. A repurchase
agreement involves the purchase by a Fund of securities with the agreement
that after a stated period of time, the original seller will buy back the
same securities ("collateral") at a predetermined price or yield. Repurchase
agreements involve certain risks not associated with direct investments in
securities. If the original seller defaults on its obligation to repurchase
as a result of its bankruptcy or otherwise, the purchasing Fund will seek to
sell the collateral, which could involve costs or delays. Although
collateral (which may consist of any fixed income security which is an
eligible investment for the Fund entering into the repurchase agreement)
will at all times be maintained in an amount equal to the repurchase price
under the agreement (including accrued interest), a Fund would suffer a loss
if the proceeds from the sale of the collateral were less than the
agreed-upon repurchase price. The Adviser or, in the case of International
Fund, the Sub-Adviser will monitor the creditworthiness of the firms with
which the Funds enter into repurchase agreements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds (excluding Equity Index Fund) may purchase securities on a
when-issued or delayed-delivery basis. When such a transaction is
negotiated, the purchase price is fixed at the time the purchase commitment
is entered, but delivery of and payment for the securities take place at a
later date. A Fund will not accrue income with respect to securities
purchased on a when-issued or delayed-delivery basis prior to their stated
delivery date. Pending delivery of the securities, each Fund will maintain
in a segregated account cash or liquid high-grade securities in an amount
sufficient to meet its purchase commitments.
The purchase of securities on a when-issued or delayed-delivery basis
exposes a Fund to risk because the securities may decrease in value prior to
delivery. In addition, a Fund's purchase of securities on a when-issued or
delayed-delivery basis while remaining substantially fully invested could
increase the amount of the Fund's total assets that are subject to market
risk, resulting in increased sensitivity of net asset value to changes in
market prices. However, the Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with their investment objectives, and not for the
purpose of investment leverage. A seller's failure to deliver securities to
a Fund could prevent the Fund from realizing a price or yield considered to
be advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds may lend portfolio
securities representing up to one-third of the value of its total assets to
broker-dealers, banks or other institutional borrowers of securities. As
with other extensions of credit, there may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower
of the securities fail financially. However, the Funds will only enter into
loan arrangements with broker-dealers, banks, or other institutions which
the Adviser or, in the case of International Fund, the Sub-Adviser has
determined are creditworthy under guidelines established by the Board of
Directors. In these loan arrangements, the Funds will receive collateral in
the form of cash, United States Government securities or other high-grade
debt obligations equal to at least 100% of the value of the securities
loaned. Collateral is marked to market daily. The Funds will pay a portion
of the income earned on the lending transaction to the placing broker and
may pay administrative and custodial fees (including fees to an affiliate of
the Adviser) in connection with these loans.
OPTIONS TRANSACTIONS
PURCHASES OF PUT AND CALL OPTIONS. The Funds may purchase put and call
options. These transactions will be undertaken only for the purpose of
reducing risk to the Funds; that is, for "hedging" purposes. Depending on
the Fund, these transactions may include the purchase of put and call
options on equity securities, on stock indices, on interest rate indices, or
(only in the case of International Fund) on foreign currencies. Options on
futures contracts are discussed below under "Futures and Options on
Futures."
A put option on a security gives the purchaser of the option the right (but
not the obligation) to sell, and the writer of the option the obligation to
buy, the underlying security at a stated price (the "exercise price") at any
time before the option expires. A call option on a security gives the
purchaser the right (but not the obligation) to buy, and the writer the
obligation to sell, the underlying security at the exercise price at any
time before the option expires. The purchase price for a put or call option
is the "premium" paid by the purchaser for the right to sell or buy.
Options on indices are similar to options on securities except that, rather
than the right to take or make delivery of a specific security at a stated
price, an option on an index gives the holder the right to receive, upon
exercise of the option, a defined amount of cash if the closing value of the
index upon which the option is based is greater than, in the case of a call,
or less than, in the case of a put, the exercise price of the option.
None of the Funds other than International Fund will invest more than 5% of
the value of its total assets in purchased options, provided that options
which are "in the money" at the time of purchase may be excluded from this
5% limitation. A call option is "in the money" if the exercise price is
lower than the current market price of the underlying security or index, and
a put option is "in the money" if the exercise price is higher than the
current market price. A Fund's loss exposure in purchasing an option is
limited to the sum of the premium paid and the commission or other
transaction expenses associated with acquiring the option.
The use of purchased put and call options involves certain risks. These
include the risk of an imperfect correlation between market prices of
securities held by a Fund and the prices of options, and the risk of limited
liquidity in the event that a Fund seeks to close out an options position
before expiration by entering into an offsetting transaction.
WRITING OF CALL OPTIONS. The Funds may write (sell) covered call options to
the extent specified with respect to particular Funds under "Investment
Objectives and Policies." These transactions would be undertaken principally
to produce additional income. Depending on the Fund, these transactions may
include the writing of covered call options on equity securities or (only in
the case of International Fund) on foreign currencies which a Fund owns or
has the right to acquire or on interest rate indices.
When a Fund sells a covered call option, it is paid a premium by the
purchaser. If the market price of the security covered by the option does
not increase above the exercise price before the option expires, the option
generally will expire without being exercised, and the Fund will retain both
the premium paid for the option and the security. If the market price of the
security covered by the option does increase above the exercise price before
the option expires, however, the option is likely to be exercised by the
purchaser. In that case the Fund will be required to sell the security at
the exercise price, and it will not realize the benefit of increases in the
market price of the security above the exercise price of the option.
The Funds also may, to the extent specified with respect to particular Funds
under "Investment Objectives and Policies," write call options on stock
indices the movements of which generally correlate with those of the
respective Funds' portfolio holdings, These transactions, which would be
undertaken principally to produce additional income, entail the risk of an
imperfect correlation between movements of the index covered by the option
and movements in the price of the Fund's portfolio securities.
FUTURES AND OPTIONS ON FUTURES
Equity Index Fund, Balanced Fund, Asset Allocation Fund and International
Fund may engage in futures transactions and purchase options on futures to
the extent specified with under "Investment Objectives and Policies."
Depending on the Fund, these transactions may include the purchase of stock
index futures and options on stock index futures, and the purchase of
interest rate futures and options on interest rate futures. In addition,
International Fund may enter into contracts for the future delivery of
securities or foreign currencies and futures contracts based on a specific
security, class of securities, or foreign currency.
A futures contract on a security obligates one party to purchase, and the
other to sell, a specified security at a specified price on a date certain
in the future. A futures contract on an index obligates the seller to
deliver, and entitles the purchaser to receive, an amount of cash equal to a
specific dollar amount times the difference between the value of the index
at the expiration date of the contract and the index value specified in the
contract. The acquisition of put and call options on futures contracts will,
respectively, give a Fund the right (but not the obligation), for a
specified exercise price, to sell or to purchase the underlying futures
contract at any time during the option period.
A Fund may use futures contracts and options on futures in an effort to
hedge against market risks and, in the case of International Fund, as part
of its management of foreign currency transactions. In addition, Equity
Index Fund may use stock index futures and options on futures to maintain
sufficient liquidity to meet redemption requests, to increase the level of
Fund assets devoted to replicating the composition of the S&P 500, and to
reduce transaction costs.
Aggregate initial margin deposits for futures contracts, and premiums paid
for related options, may not exceed 5% of a Fund's total assets, and the
value of securities that are the subject of such futures and options (both
for receipt and delivery) may not exceed 1/3 of the market value of a Fund's
total assets. Futures transactions will be limited to the extent necessary
to maintain each Fund's qualification as a regulated investment company
under the Internal Revenue Code of 1986, as amended.
Where a Fund is permitted to purchase options on futures, its potential loss
is limited to the amount of the premiums paid for the options. As stated
above, this amount may not exceed 5% of a Fund's total assets. Where a Fund
is permitted to enter into futures contracts obligating it to purchase
securities, currency or an index in the future at a specified price, such
Fund could lose 100% of its net assets in connection therewith if it engaged
extensively in such transactions and if the market value or index value of
the subject securities, currency or index at the delivery or settlement date
fell to zero for all contracts into which a Fund was permitted to enter.
Where a Fund is permitted to enter into futures contracts obligating it to
sell securities or currencies (as is the case with respect only to
International Fund), its potential losses are unlimited if it does not own
the securities or currencies covered by the contracts and it is unable to
close out the contracts prior to the settlement date.
Futures transactions involve brokerage costs and require a Fund to segregate
assets to cover contracts that would require it to purchase securities or
currencies. A Fund may lose the expected benefit of futures transactions if
interest rates, exchange rates or securities prices move in an unanticipated
manner. Such unanticipated changes may also result in poorer overall
performance than if the Fund had not entered into any futures transactions.
In addition, the value of a Fund's futures positions may not prove to be
perfectly or even highly correlated with the value of its portfolio
securities or foreign currencies, limiting the Fund's ability to hedge
effectively against interest rate, exchange rate and/or market risk and
giving rise to additional risks. There is no assurance of liquidity in the
secondary market for purposes of closing out futures positions.
FIXED INCOME SECURITIES
The fixed income securities in which Stock Fund, Equity Income Fund,
Diversified Growth Fund, Emerging Growth Fund, Regional Equity Fund, Special
Equity Fund, Technology Fund, Health Sciences Fund, and Real Estate
Securities Fund may invest include securities issued or guaranteed by the
United States Government or its agencies or instrumentalities,
nonconvertible preferred stocks, nonconvertible corporate debt securities,
and short-term obligations of the kinds described above under "-- Cash
Items." Investments in nonconvertible preferred stocks and nonconvertible
corporate debt securities will be limited to securities which are rated at
the time of purchase not less than BBB by Standard & Poor's or Baa by
Moody's (or equivalent short-term ratings), or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the
Adviser. Obligations rated BBB, Baa or their equivalent, although investment
grade, have speculative characteristics and carry a somewhat higher risk of
default than obligations rated in the higher investment grade categories.
In addition, Equity Income Fund may invest up to 25% of its total assets,
and each of the other Funds may invest up to 5% of its net assets, in less
than investment grade convertible debt obligations. For a description of
such obligations and the risks associated therewith, see "Investment
Objectives and Policies -- Equity Income Fund."
The fixed income securities specified above, as well as the fixed income
securities in which Balanced Fund and Asset Allocation Fund may invest as
described under "Investment Objectives and Policies," are subject to (i)
interest rate risk (the risk that increases in market interest rates will
cause declines in the value of debt securities held by a Fund); (ii) credit
risk (the risk that the issuers of debt securities held by a Fund default in
making required payments); and (iii) call or prepayment risk (the risk that
a borrower may exercise the right to prepay a debt obligation before its
stated maturity, requiring a Fund to reinvest the prepayment at a lower
interest rate).
FOREIGN SECURITIES
GENERAL. Under normal market conditions International Fund invests at least
65% of its total assets in equity securities which trade in markets other
than the United States. In addition, the other Funds (excluding Equity Index
Fund, Asset Allocation Fund, and Regional Equity Fund) may invest lesser
proportions of their assets in securities of foreign issuers which are
either listed on a United States securities exchange or represented by
American Depositary Receipts.
Investment in foreign securities is subject to special investment risks that
differ in some respects from those related to investments in securities of
United States domestic issuers. These risks include political, social or
economic instability in the country of the issuer, the difficulty of
predicting international trade patterns, the possibility of the imposition
of exchange controls, expropriation, limits on removal of currency or other
assets, nationalization of assets, foreign withholding and income taxation,
and foreign trading practices (including higher trading commissions,
custodial charges and delayed settlements). Foreign securities also may be
subject to greater fluctuations in price than securities issued by United
States corporations. The principal markets on which these securities trade
may have less volume and liquidity, and may be more volatile, than
securities markets in the United States.
In addition, there may be less publicly available information about a
foreign company than about a United States domiciled company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to United
States domestic companies. There is also generally less government
regulation of securities exchanges, brokers and listed companies abroad than
in the United States. Confiscatory taxation or diplomatic developments could
also affect investment in those countries. In addition, foreign branches of
United States banks, foreign banks and foreign issuers may be subject to
less stringent reserve requirements and to different accounting, auditing,
reporting, and recordkeeping standards than those applicable to domestic
branches of United States banks and United States domestic issuers.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. For many
foreign securities, United States dollar-denominated American Depositary
Receipts, which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. American Depositary Receipts
represent the right to receive securities of foreign issuers deposited in a
domestic bank or a correspondent bank. American Depositary Receipts do not
eliminate all the risk inherent in investing in the securities of foreign
issuers. However, by investing in American Depositary Receipts rather than
directly in foreign issuers' stock, a Fund can avoid currency risks during
the settlement period for either purchases or sales. In general, there is a
large, liquid market in the United States for many American Depositary
Receipts. The information available for American Depositary Receipts is
subject to the accounting, auditing and financial reporting standards of the
domestic market or exchange on which they are traded, which standards are
more uniform and more exacting than those to which many foreign issuers may
be subject. International Fund also may invest in European Depositary
Receipts, which are receipts evidencing an arrangement with a European bank
similar to that for American Depositary Receipts and which are designed for
use in the European securities markets. European Depositary Receipts are not
necessarily denominated in the currency of the underlying security.
Certain American Depositary Receipts and European Depositary Receipts,
typically those denominated as unsponsored, require the holders thereof to
bear most of the costs of the facilities while issuers of sponsored
facilities normally pay more of the costs thereof. The depository of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders in
respect to the deposited securities, whereas the depository of a sponsored
facility typically distributes shareholder communications and passes through
voting rights.
FOREIGN CURRENCY TRANSACTIONS
International Fund invests in securities which are purchased and sold in
foreign currencies. The value of its assets as measured in United States
dollars therefore may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations.
International Fund also will incur costs in converting United States dollars
to local currencies, and vice versa.
International Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future
date certain at a specified price. These forward currency contracts are
traded directly between currency traders (usually large commercial banks)
and their customers.
International Fund may enter into forward currency contracts in order to
hedge against adverse movements in exchange rates between currencies. It may
engage in "transaction hedging" to protect against a change in the foreign
currency exchange rate between the date the Fund contracts to purchase or
sell a security and the settlement date, or to "lock in" the United States
dollar equivalent of a dividend or interest payment made in a foreign
currency. It also may engage in "portfolio hedging" to protect against a
decline in the value of its portfolio securities as measured in United
States dollars which could result from changes in exchange rates between the
United States dollar and the foreign currencies in which the portfolio
securities are purchased and sold. International Fund also may hedge its
foreign currency exchange rate risk by engaging in currency financial
futures and options transactions.
Although a foreign currency hedge may be effective in protecting the Fund
from losses resulting from unfavorable changes in exchanges rates between
the United States dollar and foreign currencies, it also would limit the
gains which might be realized by the Fund from favorable changes in exchange
rates. The Sub-Adviser's decision whether to enter into currency hedging
transactions will depend in part on its view regarding the direction and
amount in which exchange rates are likely to move. The forecasting of
movements in exchange rates is extremely difficult, so that it is highly
uncertain whether a hedging strategy, if undertaken, would be successful. To
the extent that the Sub-Adviser's view regarding future exchange rates
proves to have been incorrect, International Fund may realize losses on its
foreign currency transactions.
International Fund does not intend to enter into forward currency contracts
or maintain a net exposure in such contracts where it would be obligated to
deliver an amount of foreign currency in excess of the value of its
portfolio securities or other assets denominated in that currency.
MORTGAGE-BACKED SECURITIES
With respect to the fixed income portion of its portfolio, Balanced Fund may
invest in mortgage-backed securities which are Agency Pass-Through
Certificates or collateralized mortgage obligations ("CMOs"), as described
below.
Agency Pass-Through Certificates are mortgage pass-through certificates
representing undivided interests in pools of residential mortgage loans.
Distribution of principal and interest on the mortgage loans underlying an
Agency Pass-Through Certificate is an obligation of or guaranteed by
Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage Corporation
("FHLMC"). The obligation of GNMA with respect to such certificates is
backed by the full faith and credit of the United States, while the
obligations of FNMA and FHLMC with respect to such certificates rely solely
on the assets and credit of those entities. The mortgage loans underlying
GNMA certificates are partially or fully guaranteed by the Federal Housing
Administration or the Veterans Administration, while the mortgage loans
underlying FNMA certificates and FHLMC certificates are conventional
mortgage loans which are, in some cases, insured by private mortgage
insurance companies. Agency Pass-Through Certificates may be issued in a
single class with respect to a given pool of mortgage loans or in multiple
classes.
CMOs are debt obligations typically issued by a private special-purpose
entity and collateralized by residential or commercial mortgage loans or
Agency Pass-Through Certificates. Balanced Fund will invest only in CMOs
which are rated in one of the four highest rating categories by a nationally
recognized statistical rating organization or which are of comparable
quality in the judgment of the Adviser. Because CMOs are debt obligations of
private entities, payments on CMOs generally are not obligations of or
guaranteed by any governmental entity, and their ratings and
creditworthiness typically depend, among other factors, on the legal
insulation of the issuer and transaction from the consequences of a
sponsoring entity's bankruptcy. CMOs generally are issued in multiple
classes, with holders of each class entitled to receive specified portions
of the principal payments and prepayments and/or of the interest payments on
the underlying mortgage loans. These entitlements can be specified in a wide
variety of ways, so that the payment characteristics of various classes may
differ greatly from one another. Examples of the more common classes are
provided in the Statement of Additional Information. The CMOs in which the
Fund may invest include classes which are subordinated in right of payment
to other classes, as long as they have the required rating referred to
above.
It generally is more difficult to predict the effect of changes in market
interest rates on the return on mortgaged-backed securities than to predict
the effect of such changes on the return of a conventional fixed-rate debt
instrument, and the magnitude of such effects may be greater in some cases.
The return on interest-only and principal-only mortgage-backed securities is
particularly sensitive to changes in interest rates and prepayment speeds.
When interest rates decline and prepayment speeds increase, the holder of an
interest-only mortgage-backed security may not even recover its initial
investment. Similarly, the return on an inverse floating rate CMO is likely
to decline more sharply in periods of increasing interest rates than that of
a fixed-rate security. For these reasons, interest-only, principal-only and
inverse floating rate mortgage-backed securities generally have greater risk
than more conventional classes of mortgage-backed securities. Balanced Fund
will not invest more than 10% of its total fixed income assets in
interest-only, principal-only or inverse floating rate mortgage backed
securities.
ASSET-BACKED SECURITIES
With respect to the fixed income portion of its portfolio, Balanced Fund may
invest in asset-backed securities. Asset-backed securities generally
constitute interests in, or obligations secured by, a pool of receivables
other than mortgage loans, such as automobile loans and leases, credit card
receivables, home equity loans and trade receivables. Asset-backed
securities generally are issued by a private special-purpose entity. Their
ratings and creditworthiness typically depend on the legal insulation of the
issuer and transaction from the consequences of a sponsoring entity's
bankruptcy, as well as on the credit quality of the underlying receivables
and the amount and credit quality of any third-party credit enhancement
supporting the underlying receivables or the asset-backed securities.
Asset-backed securities and their underlying receivables generally are not
issued or guaranteed by any governmental entity.
BANK INSTRUMENTS
The bank instruments in which Balanced Fund may invest include time and
savings deposits, deposit notes and bankers acceptances (including
certificates of deposit) in commercial or savings banks. They also include
Eurodollar Certificates of Deposit issued by foreign branches of United
States or foreign banks; Eurodollar Time Deposits, which are United States
dollar-denominated deposits in foreign branches of United States or foreign
banks; and Yankee Certificates of Deposit, which are United States
dollar-denominated certificates of deposit issued by United States branches
of foreign banks and held in the United States. For a description of certain
risks of investing in foreign issuers' securities, see "-- Foreign
Securities" above. In each instance, Balanced Fund may only invest in bank
instruments issued by an institution which has capital, surplus and
undivided profits of more than $100 million or the deposits of which are
insured by the Bank Insurance Fund or the Savings Association Insurance
Fund.
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected with
market makers or issuers, unless better overall price and execution are
available through a brokerage transaction. It is anticipated that most
portfolio transactions involving debt securities will be executed on a
principal basis. Also, with respect to the placement of portfolio
transactions with securities firms, subject to the overall policy to seek to
place portfolio transactions as efficiently as possible and at the best
price, research services and placement of orders by securities firms for a
Fund's shares may be taken into account as a factor in placing portfolio
transactions for the Fund.
PORTFOLIO TURNOVER
Although the Funds do not intend generally to trade for short-term profits,
they may dispose of a security without regard to the time it has been held
when such action appears advisable to the Adviser or, in the case of
International Fund, the Sub-Adviser. The portfolio turnover rate for a Fund
may vary from year to year and may be affected by cash requirements for
redemptions of shares. High portfolio turnover rates generally would result
in higher transaction costs and could result in additional tax consequences
to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds
are set forth in full in the Statement of Additional Information. The
fundamental restrictions include the following:
* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets, except for Asset Allocation Fund,
which may borrow in amounts not to exceed 33-1/3% of its total assets.
None of the Funds will borrow money for leverage purposes. For the
purpose of this investment restriction, the use of options and futures
transactions and the purchase of securities on a when-issued or
delayed-delivery basis shall not be deemed the borrowing of money. If a
Fund engages in borrowing, its share price may be subject to greater
fluctuation, and the interest expense associated with the borrowing may
reduce the Fund's net income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions and except, in the case of Emerging Growth Fund, Technology
Fund, and International Fund as may be necessary to make margin payments
in connection with foreign currency futures and other derivative
transactions.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of
its net assets in all forms of illiquid investments, as determined pursuant
to applicable Securities and Exchange Commission rules and interpretations.
Section 4(2) commercial paper and Rule 144A securities may be determined to
be "liquid" under guidelines adopted by the Board of Directors. Investing in
Rule 144A securities could have the effect of increasing the level of
illiquidity in a Fund to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities.
INFORMATION CONCERNING COMPENSATION PAID TO FIRST TRUST NATIONAL
ASSOCIATION AND ITS AFFILIATES
First Trust National Association ("First Trust") may act as fiduciary with
respect to plans subject to the Employee Retirement Income Security Act of
1974 ("ERISA") which invest in the Fund. This section sets forth information
concerning compensation that First Trust and its affiliates may receive from
the Fund.
First Trust, as custodian for the assets of the Funds, receives the
custodian fees specified herein under the caption "Management -- Custodian."
First Bank National Association, which is under common ownership with First
Trust, acts as investment adviser to the Funds and receives the advisory
fees specified herein under the caption "Management -- Investment Adviser."
First Trust and its affiliates may receive shareholder servicing fees in the
amounts specified herein under the caption "Distributor." First Trust also
may act as securities lending agent in connection with the Funds' securities
lending transactions and receive as compensation for such services, fees
equal to 40% of the Funds' income from such securities lending transactions.
FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
Oaks, Pennsylvania 19456
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
Oaks, Pennsylvania 19456
TRANSFER AGENT
DST SYSTEMS, INC.
1004 Baltimore
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1003(1/97) R
FIRST AMERICAN INVESTMENT FUNDS, INC.
EQUITY FUNDS
INSTITUTIONAL CLASS
Stock Fund Regional Equity Fund
Equity Index Fund Special Equity Fund
Balanced Fund Technology Fund
Asset Allocation Fund Health Sciences Fund
Equity Income Fund Real Estate Securities Fund
Diversified Growth Fund International Fund
Emerging Growth Fund
PROSPECTUS
JANUARY 31, 1997
[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 8
Class C Share Fees and Expenses 8
Information Concerning Fees and
Expenses 10
FINANCIAL HIGHLIGHTS 12
THE FUNDS 16
INVESTMENT OBJECTIVES AND POLICIES 16
Stock Fund 17
Equity Index Fund 18
Balanced Fund 19
Asset Allocation Fund 20
Equity Income Fund 21
Diversified Growth Fund 23
Emerging Growth Fund 24
Regional Equity Fund 25
Special Equity Fund 26
Technology Fund 27
Health Sciences Fund 28
Real Estate Securities Fund 29
International Fund 31
Risks to Consider 32
MANAGEMENT 33
Investment Adviser 33
Sub-Adviser to International Fund 34
Portfolio Managers 35
Custodian 37
Administrator 38
Transfer Agent 38
DISTRIBUTOR 38
PURCHASES AND REDEMPTIONS OF SHARES 39
Share Purchases and Redemptions 39
What Shares Cost 39
Exchanging Securities for Fund Shares 41
Certificates and Confirmations 41
Dividends and Distributions 41
Exchange Privilege 41
FEDERAL INCOME TAXES 42
FUND SHARES 43
CALCULATION OF PERFORMANCE DATA 44
SPECIAL INVESTMENT METHODS 45
Cash Items 45
Repurchase Agreements 45
When-Issued and Delayed-Delivery
Transactions 46
Lending of Portfolio Securities 46
Options Transactions 46
Futures and Options on Futures 48
Fixed Income Securities 49
Foreign Securities 50
Foreign Currency Transactions 51
Mortgage-Backed Securities 52
Asset-Backed Securities 53
Bank Instruments 53
Portfolio Transactions 54
Portfolio Turnover 54
Investment Restrictions 54
Information Concerning
Compensation Paid to First Trust
National Association and Its
Affiliates 55
FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456
INSTITUTIONAL CLASS PROSPECTUS
The shares described in this Prospectus represent interests in First
American Investment Funds, Inc., which consists of mutual funds with several
different investment portfolios and objectives. This Prospectus relates to
the Class C Shares of the following funds (the "Funds"):
* STOCK FUND * REGIONAL EQUITY FUND
* EQUITY INDEX FUND * SPECIAL EQUITY FUND
* BALANCED FUND * TECHNOLOGY FUND
* ASSET ALLOCATION FUND * HEALTH SCIENCES FUND
* EQUITY INCOME FUND * REAL ESTATE SECURITIES FUND
* DIVERSIFIED GROWTH FUND * INTERNATIONAL FUND
* EMERGING GROWTH FUND
Class C Shares of the Funds are offered through banks and certain other
institutions for the investment of their own funds and funds for which they
act in a fiduciary, agency or custodial capacity.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF
ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL,
DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated January 31, 1997 for the Funds
has been filed with the Securities and Exchange Commission and is
incorporated in its entirety by reference in this Prospectus. To obtain
copies of the Statement of Additional Information at no charge, or to obtain
other information or make inquiries about the Funds, call (800) 637-2548 or
write SEI Financial Services Company, Oaks, Pennsylvania 19456.
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.
The date of this Prospectus is January 31, 1997.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment
company which offers shares in several different mutual funds. This
Prospectus provides information with respect to the Class C Shares of the
following funds (the "Funds"):
STOCK FUND has a primary objective of capital appreciation and a secondary
objective to provide current income. Under normal market conditions, the
Fund invests at least 65% of its total assets in common stocks diversified
among a broad range of industries and among companies that have a market
capitalization of at least $500 million. In selecting equity securities, the
Fund's adviser employs a value-based selection discipline.
EQUITY INDEX FUND has an objective of providing investment results that
correspond to the performance of the Standard & Poor's 500 Composite Stock
Price Index (the "S&P 500"). The Fund invests substantially in common stocks
included in the S&P 500. The Fund's adviser believes that its objective can
best be achieved by investing in the common stocks of approximately 250 to
500 of the issues included in the S&P 500.
BALANCED FUND has an objective of maximizing total return (capital
appreciation plus income). The Fund seeks to achieve its objective by
investing in a balanced portfolio of equity securities and fixed income
securities. Over the long term, it is anticipated that the Fund's asset mix
will average approximately 60% equity securities and 40% fixed income
securities, with the asset mix normally ranging between 40% and 75% equity
securities, between 25% and 60% fixed income securities, and between 0% and
25% money market instruments.
ASSET ALLOCATION FUND has an objective of maximizing total return over the
long term by allocating its assets principally among common stocks, bonds,
and short-term instruments. There are no limitations on the proportions in
which the Fund's adviser may allocate the Fund's investments among these
three classes of assets, and the Fund may at times be fully invested in a
single asset class if the adviser believes that it offers the most favorable
total return outlook.
EQUITY INCOME FUND has an objective of long-term growth of capital and
income. Under normal market conditions, the Fund invests at least 65% of its
total assets in equity securities of issuers believed by the Fund's adviser
to be characterized by sound management, the ability to finance expected
growth and the ability to pay above average dividends.
DIVERSIFIED GROWTH FUND has a primary objective of long-term growth of
capital and a secondary objective to provide current income. Under normal
market conditions, the Fund invests at least 65% of its total assets in
equity securities of a diverse group of companies that will provide
representation across all economic sectors included in the S&P 500. The
adviser may overweight the Fund's portfolio holdings in sectors that it
believes provide above average total return potential.
EMERGING GROWTH FUND has an objective of growth of capital. Under normal
market conditions, the Fund invests at least 65% of its total assets in
equity securities of small-capitalization companies that exhibit, in the
adviser's opinion, outstanding potential for superior growth. Companies that
participate in sectors that are identified by the adviser as having
long-term growth potential generally are expected to make up a substantial
portion of the Fund's holdings.
REGIONAL EQUITY FUND has an objective of capital appreciation. The Fund
seeks to achieve its objective by investing, in normal market conditions, at
least 65% of its total assets in equity securities of small-capitalization
companies headquartered in Minnesota, North and South Dakota, Montana,
Wisconsin, Michigan, Iowa, Nebraska, Colorado and Illinois. The Fund invests
in the securities of rapidly growing companies within this size category and
geographic area.
SPECIAL EQUITY FUND has an objective of capital appreciation. Under normal
market conditions, the Fund invests at least 65% of its total assets in
equity securities of mid-capitalization companies. The Fund's policy is to
invest in equity securities which the Fund's adviser believes offer the
potential for greater than average capital appreciation. The adviser
believes that this policy can best be achieved by investing in the equity
securities of companies where fundamental changes are occurring, are likely
to occur, or have occurred and where, in the opinion of the adviser, the
changes have not been adequately reflected in the price of the securities.
TECHNOLOGY FUND has an objective of long-term growth of capital. Under
normal market conditions, the Fund invests at least 65% of its total assets
in equity securities of companies which the Fund's adviser believes have, or
will develop, products, processes or services that will provide or will
benefit significantly from technological advances and improvements.
HEALTH SCIENCES FUND has an objective of long-term growth of capital. Under
normal market conditions, the Fund invests at least 65% of its total assets
in equity securities of companies which the Fund's adviser considers to be
principally engaged in the development, production or distribution of
products or services connected with health care or medicine.
REAL ESTATE SECURITIES FUND has an objective of providing above average
current income and long-term capital appreciation by investing primarily in
equity securities of real estate companies. Under normal market conditions,
the Fund invests at least 65% of its total assets in income producing equity
securities of publicly traded companies principally engaged in the real
estate industry. A majority of the Fund's total assets will be invested in
securities of real estate investment trusts ("REITs"), with an expected
emphasis on equity REITs.
INTERNATIONAL FUND has an objective of long-term growth of capital. Under
normal market conditions, the Fund invests at least 65% of its total assets
in an internationally diversified portfolio of equity securities which trade
in markets other than the United States. Investments are expected to be made
primarily in developed markets and larger capitalization companies. However,
the Fund also may invest in emerging markets where smaller capitalization
companies are the norm.
INVESTMENT ADVISER AND SUB-ADVISER First Bank National Association (the
"Adviser") serves as investment adviser to each of the Funds. Marvin &
Palmer Associates, Inc. (the "Sub-Adviser") serves as sub-adviser to
International Fund. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the
"Distributor") serves as the distributor of the Funds' shares. SEI Financial
Management Corporation (the "Administrator") serves as the administrator of
the Funds. See "Management" and "Distributor."
ELIGIBLE INVESTORS; OFFERING PRICES Class C Shares are offered through banks
and certain other institutions for the investment of their own funds and
funds for which they act in a fiduciary, agency or custodial capacity. Class
C Shares are sold at net asset value without any front-end or deferred sales
charges. See "Purchases and Redemptions of Shares."
EXCHANGES Class C Shares of any Fund may be exchanged for Class C Shares of
other funds in the First American family at the shares' respective net asset
values with no additional charge. See "Purchases and Redemptions of Shares
-- Exchange Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net
asset value next determined after receipt of a redemption request by the
Funds' transfer agent, with no additional charge. See "Purchases and
Redemptions of Shares."
RISKS TO CONSIDER Each of the Funds is subject to the risk of generally
adverse equity markets. Investors also should recognize that market prices
of equity securities generally, and of particular companies' equity
securities, frequently are subject to greater volatility than prices of
fixed income securities.
Because each of the Funds other than Equity Index Fund is actively managed
to a greater or lesser degree, their performance will reflect in part the
ability of the Adviser or Sub-Adviser to select securities which are suited
to achieving their investment objectives. Due to their active management,
these Funds could underperform other mutual funds with similar investment
objectives or the market generally.
In addition, (i) certain of the Funds are subject to risks associated with
investing in small-capitalization companies; (ii) Regional Equity Fund is
subject to risks associated with concentrating its investments in a single
geographic region; (iii) Technology Fund, Health Sciences Fund and Real
Estate Securities Fund are subject to risks associated with concentrating
their investments in a single or related economic sectors; (iv) Real Estate
Securities Fund is subject to risks associated with direct investments in
REITs; (v) International Fund is subject to risks associated with investing
in foreign securities and to currency risk; (vi) Equity Income Fund may
invest a significant portion of its assets in less than investment grade
convertible debt obligations; (vii) certain Funds other than International
Fund may invest specified portions of their assets in securities of foreign
issuers which are listed on a United States stock exchange or represented by
American Depository Receipts or, in the case of Balanced Fund, are debt
obligations of foreign issuers denominated in United States dollars; and
(viii) certain Funds may invest (but not for speculative purposes) in stock
index futures contracts, options on stock indices, options on stock index
futures, index participation contracts based on the S&P 500, and/or exchange
traded put and call options on interest rate futures contracts and on
interest rate indices. See "Investment Objectives and Policies" and "Special
Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or
a shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an
investor's behalf.
FEES AND EXPENSES INSTITUTIONAL CLASSES
CLASS C SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
EQUITY ASSET
STOCK INDEX BALANCED ALLOCATION
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on purchases None None None None
Maximum sales load imposed on
reinvested dividends None None None None
Deferred sales load None None None None
Redemption fees None None None None
Exchange fees None None None None
Annual Fund Operating Expenses (as a percentage of average net assets)
Investment advisory fees
(after voluntary fee waivers and reimbursements)(1) 0.62% 0.16% 0.61% 0.47%
Rule 12b-1 fees None None None None
Other expenses (after voluntary fee waivers)(1) 0.18% 0.19% 0.19% 0.33%
Total fund operating expenses
(after voluntary fee waivers
and reimbursements)(1) 0.80% 0.35% 0.80% 0.80%
EXAMPLE(2)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5% annual
return, and (ii) redemption at the end of each time period:
1 year $ 8 $ 4 $ 8 $ 8
3 years $ 26 $ 11 $ 26 $ 26
5 years $ 44 $ 20 $ 44 $ 44
10 years $ 99 $ 44 $ 99 $ 99
</TABLE>
(1) The Adviser and the Administrator intend to waive a portion of their fees
and/or reimburse expenses on a voluntary basis, and the amounts shown
reflect these waivers and reimbursements as of the date of this Prospectus.
Each of these persons intends to maintain such waivers and reimbursements in
effect for the current fiscal year but reserves the right to discontinue
such waivers and reimbursements at any time in its sole discretion. Absent
any fee waivers, investment advisory fees as an annualized percentage of
average daily net assets would be 0.70% for each Fund except International
Fund, as to which they would be 1.25%; and total fund operating expenses
calculated on such basis would be 0.88%% for Stock Fund, 0.90% for Equity
Index Fund, 0.89% for Balanced Fund, 1.03% for Asset Allocation Fund, 0.95%
for Equity Income Fund, 0.92% for Diversified Growth Fund, 0.96% for
Emerging Growth Fund, 0.90% for Regional Equity Fund, 0.88% for Special
Equity Fund, 1.01% for Technology Fund, 1.87% for Health Sciences Fund,
1.51% for Real Estate Securities Fund, and 1.72% for International Fund.
Other expenses includes an administration fee.
(wide table continued)
<TABLE>
<CAPTION>
EQUITY SPECIAL
INCOME DIVERSIFIED EMERGING REGIONAL EQUITY
FUND GROWTH FUND GROWTH FUND EQUITY FUND FUND
<S> <C> <C> <C> <C> <C>
None None None None None
None None None None None
None None None None None
None None None None None
None None None None None
0.50% 0.57% 0.63% 0.68% 0.70%
None None None None None
0.25% 0.23% 0.27% 0.20% 0.18%
0.75% 0.80% 0.90% 0.88% 0.88%
$ 8 $ 8 $ 9 $ 9 $ 9
$ 24 $ 26 $ 29 $ 28 $ 28
$ 42 $ 44 $ 50 $ 49 $ 49
$ 93 $ 99 $ 111 $ 108 $ 108
</TABLE>
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<TABLE>
<CAPTION>
HEALTH
TECHNOLOGY SCIENCES REAL ESTATE INTERNATIONAL
FUND FUND SECURITIES FUND FUND
<S> <C> <C> <C> <C>
None None None None
None None None None
None None None None
None None None None
None None None None
0.59% 0.00% 0.00% 1.25%
None None None None
0.31% 0.90% 0.80% 0.47%
0.90% 0.90% 0.80% 1.72%
$ 9 $ 9 $ 8 $ 17
$ 29 $ 29 $ 26 $ 54
$ 50 $ 50 $ 44 $ 93
$ 111 $ 111 $ 99 $ 203
</TABLE>
(2) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Stock Fund, $9, $28, $49 and $108; Equity Index Fund, $9, $29, $50 and $111;
Balanced Fund, $9, $28, $49 and $110; Asset Allocation Fund, $11, $33, $57
and $126; Equity Income Fund, $10, $30, $53 and $117; Diversified Growth
Fund, $9, $29, $51 and $113; Emerging Growth Fund, $10, $31, $53 and $118;
Regional Equity Fund, $9, $29, $50 and $111; Special Equity Fund, $9, $28,
$49 and $108; Technology Fund, $10, $32, $56 and $124; Health Sciences Fund,
$19, $59, $101 and $219; Real Estate Securities Fund, $15, $48, $82 and
$180; and International Fund, $17, $54, $93 and $203.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund may
bear directly or indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the
foregoing tables and examples relates only to the Class C Shares of the
Funds. The Funds also offer Class A and Class B Shares which are subject to
the same expenses and, in addition, to a front-end or contingent deferred
sales load and certain distribution and/or shareholder servicing expenses.
The examples in the above tables are based on projected annual Fund
operating expenses after voluntary fee waivers and expense reimbursements by
the Adviser and the Administrator. Although these persons intend to maintain
such waivers in effect for the current fiscal year, any such waivers are
voluntary and may be discontinued at any time. Prior to fee waivers,
investment advisory fees accrue at the annual rate as a percentage of
average daily net assets of 0.70% for each of the Funds except International
Fund, as to which they are 1.25%.
Other expenses include fees paid by each Fund to the Administrator for
providing various services necessary to operate the Funds. These include
shareholder servicing and certain accounting and other services. The
Administrator provides these services for a fee calculated at an annual rate
of 0.12% of average daily net assets of each Fund subject to a minimum of
$50,000 per Fund per fiscal year; provided, that to the extent that the
aggregate net assets of all First American funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. Other expenses of the Funds
also includes the cost of maintaining shareholder records, furnishing
shareholder statements and reports, and other services. Investment advisory
fees, administrative fees and other expenses are reflected in the Funds'
daily dividends and are not charged to individual shareholder accounts.
(This page has been left blank intentionally.)
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction
with the Funds' financial statements, the related notes thereto and the
independent auditors' report of KPMG Peat Marwick LLP appearing in FAIF's
annual report to shareholders for the year ended September 30, 1996. Further
information about the Funds' performance is contained in such annual report
to shareholders, which may be obtained without charge by calling (800)
637-2548 or by writing SEI Financial Services Company, Oaks, Pennsylvania
19456.
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
<S> <C> <C> <C> <C>
STOCK FUND
Class C
1996 $19.56 $0.42 $ 4.09 $(0.42)
1995 16.50 0.36 3.64 (0.35)
1994(1) 16.47 0.25 0.03 (0.25)
EQUITY INDEX FUND
Class C
1996 $13.34 $0.31 $ 2.31 $(0.31)
1995 10.67 0.28 2.75 (0.27)
1994(2) 10.85 0.20 (0.18) (0.20)
BALANCED FUND
Class C
1996 $12.13 $0.42 $ 1.43 $(0.42)
1995 10.54 0.40 1.73 (0.39)
1994(2) 10.86 0.25 (0.32) (0.25)
ASSET ALLOCATION FUND
Class C
1996 $11.72 $0.37 $ 1.03 $(0.37)
1995 10.38 0.38 1.58 (0.37)
1994(2) 10.68 0.20 (0.30) (0.20)
</TABLE>
+Returns are for the period indicated and have not been annualized.
(A) Beginning in 1996, average commission rate paid per share is disclosed for
all applicable securities purchases and sales subject to commissions. The
comparability of this information may be affected by the fact that
commission rates vary significantly among foreign countries.
(B) Represents a distribution in excess of net investment income due to the tax
treatment of foreign currency related transactions.
(1) This class of shares has been offered since February 4, 1994 (the Fund
itself having commenced operations on December 22, 1987). All ratios for the
period have been annualized.
(2) This class of shares has been offered since February 4. 1994 (the Fund
itself having commenced operations on December 14, 1992). All ratios for the
period have been annualized.
(3) This class of shares has been offered since August 2, 1994 (the Fund itself
having commenced operations on December 18, 1992). All ratios for the period
have been annualized.
(4) Commenced operations on April 4, 1994. All ratios for the period have been
annualized.
(5) Commenced operations on January 31, 1996. All ratios for the period have
been annualized.
(6) Commenced operations on June 30, 1995. All ratios for the period have been
annualized.
(wide table continued)
<TABLE>
<CAPTION>
DISTRIBUTIONS NET ASSET NET ASSETS END
FROM CAPITAL VALUE END OF PERIOD
GAINS OF PERIOD TOTAL RETURN (000)
<S> <C> <C> <C> <C>
$(1.05) $22.60 24.32% $471,206
(0.59) 19.56 25.50 312,559
-- 16.50 1.70+ 154,949
$(0.18) $15.47 19.98% $348,539
(0.09) 13.34 29.17 218,932
-- 10.67 0.18+ 163,688
$(0.41) $13.15 15.89% $332,786
(0.15) 12.13 20.89 192,145
-- 10.54 (0.64)+ 125,285
$(0.41) $12.34 12.37% $ 54,781
(0.25) 11.72 19.75 43,210
-- 10.38 (0.90)+ 47,227
</TABLE>
(wide table continued)
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
EXPENSES TO INCOME TO ASSETS AVERAGE
AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO COMMISSION
ASSETS ASSETS WAIVERS) TURNOVER RATE RATE (A)
<S> <C> <C> <C> <C> <C>
0.80% 1.90% 0.88% 40% $0.0653
0.79 2.10 0.94 52 --
0.75 2.28 1.01 65 --
0.35% 2.14% 0.90% 10% $0.0377
0.35 2.41 0.95 9 --
0.35 2.59 1.03 11 --
0.80% 3.31% 0.89% 73% $0.0619
0.79 3.61 0.94 77 --
0.75 3.51 1.05 98 --
0.80% 3.08% 1.03% 57% $0.0409
0.79 3.53 1.01 87 --
0.75 2.91 1.12 32 --
</TABLE>
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET DISTRIBUTIONS
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT FROM CAPITAL
PERIOD INCOME INVESTMENTS INCOME GAINS
<S> <C> <C> <C> <C> <C>
EQUITY INCOME FUND
Class C
1996 $11.24 $ 0.42 $ 1.43 $(0.42) $(0.01)
1995 9.89 0.41 1.35 (0.41) --
1994(3) 9.90 0.07 (0.03) (0.05) --
DIVERSIFIED GROWTH FUND
Class C
1996 $11.78 $ 0.18 $ 1.88 $(0.18) $ --
1995 9.10 0.17 2.67 (0.16) --
1994(3) 8.92 0.03 0.18 (0.03) --
EMERGING GROWTH FUND
Class C
1996 $13.41 $(0.03) $ 1.77 $(0.01) $(0.35)
1995 10.56 0.03 2.99 (0.02) (0.15)
1994(4) 10.00 0.01 0.56 (0.01) --
REGIONAL EQUITY FUND
Class C
1996 $17.13 $ 0.09 $ 1.70 $(0.06) $(1.11)
1995 12.52 0.11 4.90 (0.08) (0.32)
1994(2) 12.41 0.07 0.11 (0.07) --
SPECIAL EQUITY FUND
Class C
1996 $17.89 $ 0.25 $ 3.95 $(0.24) $(1.42)
1995 17.30 0.38 1.61 (0.38) (1.02)
1994(1) 16.34 0.22 0.96 (0.22) --
TECHNOLOGY FUND
Class C
1996 $18.24 $(0.04) $ 2.98 $ -- $(1.89)
1995 11.19 (0.03) 7.31 -- (0.23)
1994(4) 10.00 (0.01) 1.20 -- --
HEALTH SCIENCES FUND
Class C
1996 (5) $10.00 $ 0.03 $(0.15) $(0.01) $ --
REAL ESTATE SECURITIES FUND
Class C
1996 $10.37 $ 0.57 $ 1.29 $(0.53) $ --
1995(6) 10.00 0.13 0.39 (0.11) --
INTERNATIONAL FUND
Class C
1996 $10.30 $(0.01) $ 0.22 $(0.20)(B) $ --
1995 10.22 0.01 0.07 -- --
1994(4) 10.00 (0.01) 0.23 -- --
</TABLE>
(wide table continued)
<TABLE>
<CAPTION>
RATIO OF
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO
FROM RETURN OF VALUE END OF PERIOD AVERAGE NET
CAPITAL OF PERIOD TOTAL RETURN (000) ASSETS
<S> <C> <C> <C> <C> <C>
$ -- $12.66 16.79% $ 64,590 0.75%
-- 11.24 18.24 52,126 0.75
-- 9.89 0.45+ 17,489 0.75
$ -- $13.66 17.58% $255,900 0.79%
-- 11.78 31.57 132,854 0.75
-- 9.10 2.36+ 31,875 0.75
$ -- $14.79 13.39% $ 73,025 0.89%
-- 13.41 29.16 41,716 0.84
-- 10.56 5.68+ 6,849 0.80
$ -- $17.75 11.27% $259,138 0.88%
-- 17.13 41.40 188,583 0.84
-- 12.52 1.46+ 96,045 0.80
$ -- $20.43 25.61% $247,828 0.88%
-- 17.89 12.84 201,786 0.88
-- 17.30 7.31+ 128,806 0.79
$ -- $19.29 18.85% $ 64,602 0.90%
-- 18.24 66.22 29,272 0.88
-- 11.19 11.90%+ 6,491 0.80
$ -- $ 9.87 (1.20)%+ $ 12,485 0.90%
$(0.17) $11.53 18.53% $ 17,895 0.80%
(0.04) 10.37 5.19+ 5,756 0.80
$ -- $10.31 2.11% $135,238 1.72%
-- 10.30 0.78 94,400 1.74
-- 10.22 2.20+ 47,963 1.75
</TABLE>
(wide table continued)
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
INVESTMENT AVERAGE NET
INCOME (LOSS) ASSETS PORTFOLIO AVERAGE
TO AVERAGE NET (EXCLUDING TURNOVER COMMISSION
ASSETS WAIVERS) RATE RATE (A)
<S> <C> <C> <C> <C>
3.50% 0.95% 23% $0.0700
4.11 1.06 23 --
5.61 1.14 108 --
1.39% 0.92% 21% $0.0593
1.69 1.01 28 --
2.37 1.08 101 --
(0.24)% 0.96% 39% $0.0700
0.20 1.19 51 --
0.23 2.59 19 --
0.49% 0.90% 36% $0.0697
0.78 0.95 42 --
0.82 1.05 41 --
1.35% 0.88% 143% $0.0673
2.30 0.95 72 --
1.93 1.03 116 --
(0.60)% 1.01% 119% $0.0700
(0.35) 1.30 74 --
(0.21) 3.12 43 --
0.43% 1.87% 19% $0.0700
5.13% 1.51% 8% $0.0704
6.01 2.34 0 --
(0.06)% 1.72% 100% $0.0345
0.12 1.81 57 --
(0.19) 2.05 16 --
</TABLE>
THE FUNDS
FAIF is an open-end management investment company which offers shares in
several different mutual funds (collectively, the "FAIF Funds"), each of
which evidences an interest in a separate and distinct investment portfolio.
Shareholders may purchase shares in each FAIF Fund through three separate
classes (Class A, Class B and Class C) which provide for variations in
distribution costs, shareholder servicing fees, voting rights and dividends.
Except for these differences among classes, each share of each FAIF Fund
represents an undivided proportionate interest in that fund. FAIF is
incorporated under the laws of the State of Maryland, and its principal
offices are located at Oaks, Pennsylvania 19456.
This Prospectus relates only to the Class C Shares of the Funds named on the
cover hereof. Information regarding the Class A and Class B Shares of these
Funds and regarding the Class A, Class B and Class C Shares of the other
FAIF Funds is contained in separate prospectuses that may be obtained from
FAIF's Distributor, SEI Financial Services Company, Oaks, Pennsylvania
19456, or by calling (800) 637-2548. The Board of Directors of FAIF may
authorize additional series or classes of common stock in the future.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The
Funds' investment objectives are not fundamental and therefore may be
changed without a vote of shareholders. Such changes could result in a Fund
having investment objectives different from those which shareholders
considered appropriate at the time of their investment in a Fund.
Shareholders will receive written notification at least 30 days prior to any
change in a Fund's investment objectives. Each of the Funds except
Technology Fund, Health Sciences Fund, and Real Estate Securities Fund is a
diversified investment company, as defined in the Investment Company Act of
1940 (the "1940 Act"). Technology Fund, Health Sciences Fund, and Real
Estate Securities Fund are non-diversified companies under the 1940 Act.
If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from
changes in asset values will not be deemed to violate the limitation except
in the case of the limitation on illiquid investments. Similarly, if the
Fund is required or permitted to invest a stated percentage of its assets in
companies with no more or no less than a stated market capitalization,
deviations from the stated percentages which result from changes in
companies' market capitalizations after the Fund purchases their shares will
not be deemed to violate the limitation. A Fund which is limited to
investing in securities with specified ratings is not required to sell a
security if its rating is reduced or discontinued after purchase, but the
Fund may consider doing so. However, except in the case of Equity Income
Fund, in no event will more than 5% of any Fund's net assets be invested in
non-investment grade securities. Descriptions of the rating categories of
Standard & Poor's Corporation ("Standard & Poor's") and Moody's Investors
Service, Inc. ("Moody's") are contained in the Statement of Additional
Information.
When the term "equity securities" is used in this Prospectus, it refers to
common stock and securities which are convertible into or exchangeable for,
or which carry warrants or other rights to acquire, common stock.
This section also contains information concerning certain investment risks
borne by Fund shareholders under the heading "-- Risks to Consider." Further
information concerning the securities in which the Funds may invest and
related matters is set forth under "Special Investment Methods."
STOCK FUND
OBJECTIVES. Stock Fund has a primary objective of capital appreciation. A
secondary objective of the Fund is to provide current income.
INVESTMENT POLICIES. Under normal market conditions, Stock Fund invests at
least 65% of its total assets in common stocks diversified among a broad
range of industries and among companies that have a market capitalization
of at least $500 million. In selecting equity securities, the Adviser
employs a value-based selection discipline. The Adviser anticipates
investing in equity securities of companies it believes are selling at
less than fair value and offer the potential for appreciation as a result
of improved profitability reflecting corporate restructuring or
elimination of unprofitable operations, change in management or management
goals, or improving demand for the companies' goods or services.
The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of less than
$500 million and in fixed income securities of the kinds described under
"Special Investment Methods -- Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed
on a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed-delivery basis; and (v) engage in
the lending of portfolio securities. For information about these
investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market
conditions, the Fund may without limitation hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash
Items." The Fund also may invest not more than 35% of its total assets in
cash and cash items in order to utilize assets awaiting normal investment.
EQUITY INDEX FUND
OBJECTIVE. Equity Index Fund has an objective of providing investment
results that correspond to the performance of the Standard & Poor's 500
Composite Stock Price Index (the "S&P 500").
INVESTMENT POLICIES. Equity Index Fund invests substantially (at least 65%
of total assets) in common stocks included in the S&P 500. The Adviser
believes that the Fund's objective can best be achieved by investing in
the common stocks of approximately 250 to 500 of the issues included in
the S&P 500, depending on the size of the Fund.
Standard & Poor's designates the stocks included in the S&P 500 on a
statistical basis. A particular stock's weighting in the S&P 500 is based
on its total market value (that is, its market price per share times the
number of shares outstanding) relative to that of all stocks included in
the S&P 500. From time to time, Standard & Poor's may add or delete stocks
to or from the S&P 500. Inclusion of a particular stock in the S&P 500
does not imply any opinion by Standard & Poor's as to its merits as an
investment, nor is Standard & Poor's a sponsor of or in any way affiliated
with the Fund.
The Fund is managed by utilizing a computer program that identifies which
stocks should be purchased or sold in order to replicate, as closely as
possible, the composition of the S&P 500. The Fund includes a stock in its
investment portfolio in the order of the stock's weighting in the S&P 500,
starting with the most heavily weighted stock. Thus, the proportion of
Fund assets invested in a stock or industry closely approximates the
percentage of the S&P 500 represented by that stock or industry. Portfolio
turnover is expected to be well below that of actively managed mutual
funds. Inasmuch as the common stock of the Adviser's parent company First
Bank System, Inc. is included in the S&P 500, such stock may be purchased
by the Fund consistent with its indexing-based policies.
Although the Fund will not duplicate the S&P 500's performance precisely,
it is anticipated that there will be a close correlation between the
Fund's performance and that of the S&P 500 in both rising and falling
markets. The Fund will attempt to achieve a correlation between the
performance of its portfolio and that of the S&P 500 of at least 95%,
without taking into account expenses of the Fund. A perfect correlation
would be indicated by a figure of 100%, which would be achieved if the
Fund's net asset value, including the value of its dividends and capital
gains distributions, increased or decreased in exact proportion to changes
in the S&P 500. The Fund's ability to replicate the performance of the S&P
500 may be affected by, among other things, changes in securities markets,
the manner in which Standard & Poor's calculates the S&P 500, and the
amount and timing of cash flows into and out of the Fund. Although cash
flows into and out of the Fund will affect the Fund's portfolio turnover
rate and its ability to replicate the S&P 500's performance, investment
adjustments will be made, as practicably as possible, to account for these
circumstances.
The Fund also may invest up to 20% of its total assets in the aggregate in
stock index futures contracts, options on stock indices, options on stock
index futures, and index participation contracts based on the S&P 500. The
Fund will not invest in these types of contracts and options for
speculative purposes, but rather to maintain sufficient liquidity to meet
redemption requests; to increase the level of Fund assets devoted to
replicating the composition of the S&P 500; and to reduce transaction
costs. These types of contracts and options and certain associated risks
are described under "Special Investment Methods -- Options Transactions."
In addition, the Fund may engage in securities lending as described under
"Special Investment Methods -- Lending of Portfolio Securities."
In order to maintain liquidity during times of unusual market conditions,
the Fund also may invest temporarily in cash and cash items of the kinds
described under "Special Investment Methods -- Cash Items."
BALANCED FUND
OBJECTIVE. Balanced Fund has an objective of maximizing total return
(capital appreciation plus income).
INVESTMENT POLICIES. Balanced Fund seeks to achieve its objective by
investing in a balanced portfolio of equity securities and fixed income
securities. The asset mix of the Fund normally will range between 40% and
75% equity securities, between 25% and 60% fixed income securities
(including only that portion of the value of convertible securities
attributable to their fixed income characteristics), and between 0% and
25% money market instruments. Over the long term, it is anticipated that
the Fund's asset mix will average approximately 60% equity securities and
40% fixed income securities. The Adviser may make moderate shifts among
asset classes in order to attempt to increase returns or reduce risk.
With respect to the equity security portion of the Fund's portfolio, the
Adviser follows the same investment policies as are described above under
"-- Stock Fund -- Investment Policies."
The fixed income portion of the Fund's portfolio is invested in investment
grade debt securities, at least 65% of which are United States Government
obligations and corporate debt obligations and mortgage-related securities
rated at least A by Standard & Poor's or Moody's or which have been
assigned an equivalent rating by another nationally recognized statistical
rating organization. Under normal market conditions, the weighted average
maturity of the fixed income securities held by the Fund will not exceed
15 years.
The Fund's permitted fixed income investments include notes, bonds and
discount notes of United States Government agencies or instrumentalities;
domestic issues of corporate debt obligations having floating or fixed
rates of interest and rated at least BBB by Standard & Poor's or Baa by
Moody's, or which have been assigned an equivalent rating by another
nationally recognized statistical rating organization, or which are of
comparable quality in the judgment of the Adviser; other investments,
including mortgage-backed securities, which are rated in one of the four
highest categories by a nationally recognized statistical rating
organization or which are of comparable quality in the judgment of the
Adviser; and commercial paper which is rated A-1 by Standard & Poor's or
P-1 by Moody's or which has been assigned an equivalent rating by another
nationally recognized statistical rating organization. Unrated securities
will not exceed 10% in the aggregate of the value of the total fixed
income securities held by the Fund.
Subject to the foregoing limitations, the fixed income securities in which
the Fund may invest include (i) mortgage-backed securities (provided that
the Fund will not invest more than 10% of its total fixed income assets in
interest-only, principal-only or inverse floating rate mortgage-backed
securities); (ii) asset-backed securities; and (iii) bank instruments. In
addition, the Fund may invest up to 15% of its total fixed income assets
in foreign securities payable in United States dollars. For information
about these kinds of investments and certain associated risks, see the
related headings under "Special Investment Methods," and for information
concerning certain risks associated with investing in fixed income
securities generally, see "Special Investment Methods -- Fixed Income
Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed-delivery basis; (v) engage in the
lending of portfolio securities; (vi) in order to attempt to reduce risk,
invest in exchange traded put and call options on interest rate futures
contracts and on interest rate indices; and (vii) in order to attempt to
reduce risk, write covered call options on interest rate indices. For
information about these investment methods, restrictions on their use, and
certain associated risks, see the related headings under "Special
Investment Methods."
For temporary defensive purposes during times of unusual market
conditions, the Fund may without limitation hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash
Items." The Fund also may invest not more than 35% of its total assets in
cash and cash items in order to utilize assets awaiting normal investment.
ASSET ALLOCATION FUND
OBJECTIVE. Asset Allocation Fund has an objective of maximizing total
return over the long term by allocating its assets principally among
common stocks, bonds, and short-term instruments.
INVESTMENT POLICIES. Asset Allocation Fund allocates its investments
principally among (i) common stocks included in the S&P 500, (ii) direct
obligations of the United States Treasury, and (iii) short-term
instruments. There are no limitations on the proportions in which the
Adviser may allocate the Fund's investments among these three classes of
assets. The Fund thus is not a "balanced" fund, in that it is not required
to allocate its investments in specific proportions or ranges among these
asset classes.
The Adviser regularly reviews the Fund's investment allocation and varies
the allocation to emphasize the asset class or classes that, in the
Adviser's then-current judgment, provide the most favorable total return
outlook. There is no limitation on the amount that may be invested in any
one asset class, and the Fund may at times be fully invested in a single
asset class if the Adviser believes that it offers the most favorable
total return outlook.
In making asset allocation decisions, the Adviser utilizes a proprietary
quantitative model which predicts future asset class returns based on
historical experience using probability theory. By investing in common
stocks intended to approximate the total return of the S&P 500, as
described below, the Adviser attempts to minimize the risk of individual
equity security selection in the common stock class. By limiting the bond
class to direct obligations of the United States Treasury, the Adviser
attempts to eliminate credit risk from this class.
Within the common stock asset class, the Adviser seeks to produce a total
return approximating that of the S&P 500. In order to achieve this result,
the Adviser follows the same indexing-based policies for this asset class
as are described above under "-- Equity Index Fund -- Investment
Policies." Inasmuch as the common stock of the Adviser's parent company
First Bank System, Inc. is included in the S&P 500, such stock may be
purchased by the Fund consistent with its indexing-based policies.
Within the bond asset class, the Fund may invest in any maturity of direct
obligations of the United States Treasury. The Adviser thus has discretion
in determining the weighted average maturity of the investments within
this asset class. For information concerning certain risks associated with
investing in fixed income securities generally, see "Special Investment
Methods -- Fixed Income Securities."
Within the short-term asset class, the Fund may hold cash or invest in
cash items of the kinds described under "Special Investment Methods --
Cash Items."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) purchase securities on a
when-issued or delayed-delivery basis; (iv) engage in the lending of
portfolio securities; (v) in order to attempt to reduce risk, invest in
exchange traded put and call options on interest rate futures contracts
and on interest rate indices; and (vi) in order to manage allocations
among asset classes efficiently, invest in interest rate and stock index
futures. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under
"Special Investment Methods."
EQUITY INCOME FUND
OBJECTIVE. Equity Income Fund has an objective of long-term growth of
capital and income.
INVESTMENT POLICIES. Under normal market conditions, Equity Income Fund
invests at least 65% of its total assets in equity securities of issuers
believed by the Adviser to be characterized by sound management, the
ability to finance expected growth and the ability to pay above average
dividends.
The Fund invests in equity securities that have relatively high dividend
yields and which, in the Adviser's opinion, will result in a relatively
stable Fund dividend with a growth rate sufficient to maintain the
purchasing power of the income stream. Although the Adviser anticipates
that higher yielding equity securities will generally represent the core
holdings of the Fund, the Fund may invest in lower yielding but higher
growth equity securities to the extent that the Adviser believes such
investments are appropriate to achieve portfolio balance. All securities
held by the Fund will provide current income consistent with the Fund's
investment objective.
The "equity securities" in which the Fund may invest include corporate
debt obligations which are convertible into common stock. These
convertible debt obligations may include obligations rated at the time of
purchase as low as CCC by Standard & Poor's or Caa by Moody's, or which
have been assigned an equivalent rating by another nationally recognized
statistical rating organization, or which are of comparable quality in the
judgment of the Adviser. Debt obligations rated less than BBB by Standard
& Poor's or Baa by Moody's are considered to be less than "investment
grade" and are sometimes referred to as "junk bonds." Obligations rated
CCC by Standard & Poor's or Caa by Moody's are considered to be of poor
standing and are predominantly speculative. Descriptions of Standard &
Poor's and Moody's rating categories are contained in the Statement of
Additional Information. If the rating of an obligation is reduced below
the categories set forth above after purchase or is discontinued, the Fund
is not required to sell the obligation but may consider doing so.
Purchases of less than investment grade convertible debt obligations are
intended to advance the Fund's objective of long-term growth of capital
through the "upside" potential of the obligations' conversion features and
to advance the Fund's objective of income through receipt of interest
payable on the obligations. The Fund will not invest more than 25% of its
total assets in convertible debt obligations which are rated less than
investment grade or which are of comparable quality in the judgment of the
Adviser. For the year ended September 30, 1996, the following weighted
average percentages of the Fund's total assets were invested in
convertible and nonconvertible debt obligations with the indicated
Standard & Poor's ratings or their equivalents: AAA, 0%; AA, 0%; A, 0%;
BBB, 3%; BB, 3%; B, 5%; and CCC, 0%.
Debt obligations which are rated less than investment grade generally are
subject to greater market fluctuations and greater risk of loss of income
and principal due to default by the issuer than are higher-rated
obligations. The value of these obligations tends to reflect short-term
corporate, economic, interest rate and market developments and investor
perceptions of the issuer's credit quality to a greater extent than
investment grade obligations. In addition, since the market for these
obligations is relatively new and does not have as many participants as
the market for higher-rated obligations, it may be more difficult to
dispose of or to determine the value of these obligations. In the case of
a convertible debt obligation, these risks may be present in a greater
degree where the principal amount of the obligation is greater than the
current market value of the common stock into which it is convertible.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed
on a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed-delivery basis; and (v) engage in
the lending of portfolio securities. For information about these
investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market
conditions, the Fund may without limitation hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash
Items." The Fund also may invest not more than 35% of its total assets in
cash and cash items in order to utilize assets awaiting normal investment.
DIVERSIFIED GROWTH FUND
OBJECTIVES. Diversified Growth Fund has a primary objective of long-term
growth of capital. A secondary objective of the Fund is to provide current
income.
INVESTMENT POLICIES. Under normal market conditions, Diversified Growth
Fund invests at least 65% of its total assets in equity securities of a
diverse group of companies that will provide representation across all
economic sectors included in the S&P 500. The Adviser may overweight the
Fund's portfolio holdings in sectors that it believes provide above
average total return potential and may underweight the Fund's holdings in
those sectors that it believes have a lower total return potential. Within
a given sector, the Fund's assets are invested in securities of those
companies that, in the Adviser's judgment, exhibit a combination of above
average growth in revenue and earnings, strong management and sound and
improving financial condition.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed
on a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed-delivery basis; and (v) engage in
the lending of portfolio securities. For information about these
investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market
conditions, the Fund may without limitation hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash
Items." The Fund also may invest not more than 35% of its total assets in
cash and cash items in order to utilize assets awaiting normal investment.
EMERGING GROWTH FUND
OBJECTIVE. Emerging Growth Fund has an objective of growth of capital.
INVESTMENT POLICIES. Under normal market conditions, Emerging Growth Fund
invests at least 65% of its total assets in equity securities of
small-capitalization companies that exhibit, in the Adviser's opinion,
outstanding potential for superior growth. For these purposes,
small-capitalization companies are deemed those with market
capitalizations of less than $1 billion. Companies that participate in
sectors that are identified by the Adviser as having long-term growth
potential generally are expected to make up a substantial portion of the
Fund's holdings. These companies often have established a market niche or
have developed unique products or technologies that are expected by the
Adviser to produce superior growth in revenues and earnings.
The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities of issuers with a market capitalization of $1 billion or
more and in fixed income securities of the kinds described under "Special
Investment Methods -- Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed
on a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed-delivery basis; and (v) engage in
the lending of portfolio securities. For information about these
investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market
conditions, the Fund may without limitation hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash
Items." The Fund also may invest not more than 35% of its total assets in
cash and cash items in order to utilize assets awaiting normal investment.
REGIONAL EQUITY FUND
OBJECTIVE. Regional Equity Fund has an objective of capital appreciation.
INVESTMENT POLICIES. Regional Equity Fund seeks to achieve its objective
by investing, in normal market conditions, at least 65% of its total
assets in equity securities of small-capitalization companies
headquartered in Minnesota, North and South Dakota, Montana, Wisconsin,
Michigan, Iowa, Nebraska, Colorado and Illinois.
The Adviser anticipates investing primarily in the securities of rapidly
growing small-capitalization companies which generally will have the
following characteristics, in the Adviser's opinion: (i) company-specific
fundamentals that grow shareholder value, (ii) experienced,
shareholder-oriented management, and (iii) undervaluation by the market.
For these purposes, small-capitalization companies are deemed those with
market capitalizations of less than $1 billion.
In addition to the risks associated with investing in small-capitalization
companies, see "-- Risk Factors -- Small-Capitalization Companies" below,
the Fund's policy of concentrating its equity investments in a geographic
region means that it will be subject to adverse economic, political or
other developments in that region. Although the region in which the Fund
principally invests has a diverse industrial base (including, but not
limited to, agriculture, mining, retail, transportation, utilities, heavy
and light manufacturing, financial services, insurance, computer
technology and medical technology), this industrial base is not as diverse
as that of the country as a whole. The Fund therefore may be less
diversified by industry and company than other funds with a similar
investment objective and no geographic limitation.
The Fund also may invest up to 35% of its total assets in the aggregate in
equity securities without regard to the location of the issuer's
headquarters or the issuer's market capitalization and in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed-delivery basis; and (v) engage in
the lending of portfolio securities. For information about these
investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market
conditions, the Fund may without limitation hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash
Items." The Fund also may invest not more than 35% of its total assets in
cash and cash items in order to utilize assets awaiting normal investment.
SPECIAL EQUITY FUND
OBJECTIVE. Special Equity Fund has an objective of capital appreciation.
INVESTMENT POLICIES. Under normal market conditions, Special Equity Fund
invests at least 65% of its total assets in equity securities of
mid-capitalization companies. For these purposes, mid-capitalization
companies are deemed those with market capitalizations of from $1 billion
to $5 billion. The Fund's policy is to invest in equity securities which
the Adviser believes offer the potential for greater than average capital
appreciation. The Adviser believes that this policy can best be achieved
by investing in the equity securities of companies where fundamental
changes are occurring, are likely to occur, or have occurred and where, in
the opinion of the Adviser, the changes have not been adequately reflected
in the price of the securities and thus are considered by the Adviser to
be undervalued.
Undervalued securities may include securities of companies which (i) have
been unpopular for some time but where, in the Adviser's opinion, recent
developments (such as those listed in the next sentence) suggest the
possibility of improved operating results; (ii) have recently experienced
marked popularity but which, in the opinion of the Adviser, have
temporarily fallen out of favor for reasons that are considered by the
Adviser to be non-recurring or short-term; and (iii) appear to the Adviser
to be undervalued in relation to popular securities of other companies in
the same industry. Typically, but not exclusively, the Adviser will
consider investing in undervalued issues in which it sees the possibility
of substantially improved market price due to increasing demand for an
issuer's products or services, the development of new or improved products
or services, the probability of increased operating efficiencies, the
elimination of unprofitable products or operations, changes in management
or management goals, fundamental changes in the industry in which the
issuer operates, new or increased emphasis on research and development, or
possible mergers or acquisitions.
In selecting securities judged to be undervalued and in investing in
potential "turnaround" situations, the Adviser will be acting on opinions
and exercising judgments which may be contrary to those of the majority of
investors. These opinions and judgments involve the risks of either (i) a
correct judgment by the majority, in which case losses may be incurred or
profits may be limited, or (ii) a long delay before majority recognition
of the accuracy of the Adviser's judgment, in which case capital invested
by the Fund in an individual security or group of securities may be
nonproductive for an extended period.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed
on a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed-delivery basis; and (v) engage in
the lending of portfolio securities. For information about these
investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market
conditions, the Fund may without limitation hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash
Items." The Fund also may invest not more than 35% of its total assets in
cash and cash items in order to utilize assets awaiting normal investment.
TECHNOLOGY FUND
OBJECTIVE. Technology Fund has an objective of long-term growth of
capital.
INVESTMENT POLICIES. Under normal market conditions, Technology Fund
invests at least 65% of its total assets in equity securities of companies
which the Adviser believes have, or will develop, products, processes or
services that will provide or will benefit significantly from
technological advances and improvements. The description of the technology
sector is interpreted broadly by the Adviser and may include such products
or services as inexpensive computing power, such as personal computers;
improved methods of communications, such as satellite transmission; or
labor saving machines or instruments, such as computer-aided design
equipment. The prime emphasis of the Fund is to identify those companies
positioned, in the Adviser's opinion, to benefit from technological
advances in areas such as semiconductors, minicomputers and peripheral
equipment, scientific instruments, computer software, communications, and
future automation trends in both office and factory settings.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed
on a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed-delivery basis; and (v) engage in
the lending of portfolio securities. For information about these
investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market
conditions, the Fund may without limitation hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash
Items." The Fund also may invest not more than 35% of its total assets in
cash and cash items in order to utilize assets awaiting normal investment.
Technology Fund operates as a non-diversified investment company, as
defined in the 1940 Act, but intends to conduct its operations so as to
qualify as a regulated investment company for purposes of the Internal
Revenue Code of 1986, as amended. Since a relatively high percentage of
the assets of the Fund may be invested in the securities of a limited
number of issuers which will be in the same or related economic sectors,
the Fund's portfolio securities may be more susceptible to any single
economic, technological or regulatory occurrence than the portfolio
securities of diversified investment companies. In addition, competitive
pressures may have a significant effect on the financial condition of
companies in the technology industry. For example, if technology continues
to advance at an accelerated rate, and the number of companies and product
offerings continue to expand, these companies could become increasingly
sensitive to short product cycles and aggressive pricing.
HEALTH SCIENCES FUND
OBJECTIVE. Health Sciences Fund has an objective of long-term growth of
capital.
INVESTMENT POLICIES. Under normal market conditions, Health Sciences Fund
invests at least 65% of its total assets in equity securities of companies
which the Adviser considers to be principally engaged in the development,
production or distribution of products or services connected with health
care or medicine. Examples of these products and services include
pharmaceuticals, health care services and administration, diagnostics,
medical equipment and supplies, medical technology, and medical research
and development. The Adviser anticipates investing in companies that have
the potential for above average growth in revenue and earnings as a result
of new or unique products, processes or services, increasing demand for a
company's products or services, established market leadership, or
exceptional management. A company will be deemed "principally engaged" in
the health sciences industries if at the time of investment the Adviser
determines that at least 50% of its assets, revenues or profits are
derived from those industries.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed
on a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed-delivery basis; and (v) engage in
the lending of portfolio securities. For information about these
investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market
conditions, the Fund may without limitation hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash
Items." The Fund also may invest not more than 35% of its total assets in
cash and cash items in order to utilize assets awaiting normal investment.
Health Sciences Fund operates as a non-diversified investment company, as
defined in the 1940 Act, but intends to conduct its operations so as to
qualify as a regulated investment company for purposes of the Internal
Revenue Code of 1986, as amended. Since a relatively high percentage of
the assets of the Fund may be invested in the securities of a limited
number of issuers which will be in the same or related economic sectors,
the Fund's portfolio securities may be more susceptible to any single
economic, technological or regulatory occurrence than the portfolio
securities of diversified investment companies. Many products and services
in the health sciences industries may become rapidly obsolete due to
technological and scientific advances. In addition, the health sciences
industries generally are subject to greater governmental regulation than
many other industries, so that changes in governmental policies may have a
material effect on the demand for products and services in these
industries. Regulatory approvals generally are required before new drugs,
medical devices or medical procedures can be introduced and before health
care providers can acquire additional facilities or equipment.
REAL ESTATE SECURITIES FUND
OBJECTIVE. Real Estate Securities Fund has an objective of providing above
average current income and long-term capital appreciation by investing
primarily in equity securities of real estate companies.
INVESTMENT POLICIES. Under normal market conditions, Real Estate
Securities Fund invests at least 65% of its total assets in income
producing equity securities of publicly traded companies principally
engaged in the real estate industry. For this purpose, a company is deemed
to be "principally engaged" in the real estate industry if (i) it derives
at least 50% of its revenues or profits from the ownership, construction,
management, financing or sale of residential, commercial or industrial
real estate, or (ii) has at least 50% of the fair market value of its
assets invested in such real estate. The Fund seeks to invest in equity
securities that provide a dividend yield that exceeds the composite
dividend yield of the securities included in the S&P 500.
A majority of the Fund's total assets will be invested in securities of
real estate investment trusts ("REITs"). REITs are publicly traded
corporations or trusts that specialize in acquiring, holding, and managing
residential, commercial or industrial real estate. A REIT is not taxed at
the entity level on income distributed to its shareholders or unitholders
if it distributes to shareholders or unitholders at least 95% of its
taxable income for each taxable year and complies with regulatory
requirements relating to its organization, ownership, assets and income.
REITs generally can be classified as Equity REITs, Mortgage REITs, and
Hybrid REITs. An Equity REIT invests the majority of its assets directly
in real property and derives its income primarily from rents and from
capital gains on real estate appreciation which are realized through
property sales. A Mortgage REIT invests the majority of its assets in real
estate mortgage loans and derives its income primarily from interest
payments. A Hybrid REIT combines the characteristics of an Equity REIT and
a Mortgage REIT. Although the Fund can invest in all three kinds of REITs,
its emphasis is expected to be on investments in Equity REITs.
The Fund also may invest up to 35% of its total assets in fixed income
securities of the kinds described under "Special Investment Methods --
Fixed Income Securities."
Subject to the limitations stated above, the Fund may invest up to 25% of
its total assets in securities of foreign issuers which are either listed
on a United States stock exchange or represented by American Depositary
Receipts. For information about these kinds of investments and certain
associated risks, see "Special Investment Methods -- Foreign Securities."
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 25% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed-delivery basis; and (v) engage in
the lending of portfolio securities. For information about these
investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market
conditions, the Fund may without limitation hold cash or invest in cash
items of the kinds described under "Special Investment Methods -- Cash
Items." The Fund also may invest not more than 35% of its total assets in
cash and cash items in order to utilize assets awaiting normal investment.
Because Real Estate Securities Fund invests primarily in the real estate
industry, it is particularly subject to risks associated with that
industry. The real estate industry has been subject to substantial
fluctuations and declines on a local, regional and national basis in the
past and may continue to be in the future. Real property values and
incomes from real property may decline due to general and local economic
conditions, overbuilding and increased competition, increases in property
taxes and operating expenses, changes in zoning laws, casualty or
condemnation losses, regulatory limitations on rents, changes in
neighborhoods and in demographics, increases in market interest rates, or
other factors. Factors such as these may adversely affect companies which
own and operate real estate directly, companies which lend to such
companies, and companies which service the real estate industry. Although
the Fund will operate as a non-diversified investment company under the
1940 Act, it intends to conduct its operations so as to qualify as a
regulated investment company under the Internal Revenue Code of 1986, as
amended.
Because the Fund may invest a substantial portion of its assets in REITs,
it also is subject to risks associated with direct investments in REITs.
Equity REITs will be affected by changes in the values of and incomes from
the properties they own, while Mortgage REITs may be affected by the
credit quality of the mortgage loans they hold. In addition, REITs are
dependent on specialized management skills and on their ability to
generate cash flow for operating purposes and to make distributions to
shareholders or unitholders. REITs may have limited diversification and
are subject to risks associated with obtaining financing for real
property, as well as to the risk of self-liquidation. REITs also can be
adversely affected by their failure to qualify for tax-free pass-through
treatment of their income under the Code or their failure to maintain an
exemption from registration under the 1940 Act. By investing in REITs
indirectly through the Fund, a shareholder bears not only a proportionate
share of the expenses of the Fund, but also may indirectly bear similar
expenses of some of the REITs in which it invests.
INTERNATIONAL FUND
OBJECTIVE. International Fund has an objective of long-term growth of
capital.
INVESTMENT POLICIES. Under normal market conditions, International Fund
invests at least 65% of its total assets in an internationally diversified
portfolio of equity securities which trade in markets other than the
United States. Generally these securities are issued by companies (i)
domiciled in countries other than the United States, or (ii) that derive
at least 50% of either their revenues or their pre-tax income from
activities outside of the United States. The securities in which the Fund
invests include common and preferred stock, securities (bonds and
preferred stock) convertible into common stock, warrants and securities
representing underlying international securities such as American
Depositary Receipts and European Depositary Receipts. The Fund also may
hold securities of other investment companies (which investments are also
subject to the advisory fee) and depositary or custodial receipts
representing beneficial interests in any of the foregoing securities.
The Fund may invest in securities of issuers in, but not limited to,
Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China,
Columbia, the Czech Republic, Denmark, Finland, France, Germany, Greece,
Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan,
Korea, Luxembourg, Malaysia, Mexico, the Netherlands, New Zealand, Norway,
Pakistan, Peru, the Philippines, Poland, Portugal, Singapore, South
Africa, Spain, Sri Lanka, Sweden, Switzerland, Taiwan, Thailand, Turkey,
the United Kingdom, and Venezuela. Normally, the Fund will invest at least
65% of its total assets in securities traded in at least three foreign
countries, including the countries listed above. It is possible, although
not currently anticipated, that up to 35% of the Fund's assets could be
invested in United States companies.
In investing the Fund's assets, the Sub-Adviser expects to place primary
emphasis on country selection, followed by selection of industries or
sectors within or across countries and by selection of individual stocks
corresponding to the industries or sectors selected. Investments are
expected to be made primarily in developed markets and larger
capitalization companies. However, the Fund also may invest in emerging
markets where smaller capitalization companies are the norm.
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, purchase put and call options on equity
securities and on stock indices; (iii) write covered call options covering
up to 50% of the equity securities owned by the Fund and write call
options on stock indices related to such equity securities; (iv) purchase
securities on a when-issued or delayed-delivery basis; (v) engage in the
lending of portfolio securities; (vi) engage in foreign currency
transactions; (vii) in order to attempt to reduce risk, purchase put and
call options on foreign currencies; (viii) write covered call options on
foreign currencies owned by the Fund; and (ix) enter into contracts for
the future purchase or delivery of securities, foreign currencies, and
indices, purchase or sell options on any such futures contracts and engage
in related closing transactions. For information about these investment
methods, restrictions on their use, and certain associated risks, see the
related headings under "Special Investment Methods."
Under normal market conditions, it is expected that the Fund will be fully
invested in equity securities and related hedging instruments (except for
short-term investments of cash for liquidity purposes and pending
investment). However, for temporary defensive purposes during times of
unusual market conditions, the Fund may without limitation hold cash or
invest in cash items of the kinds described under "Special Investment
Methods -- Cash Items."
International Fund is subject to special risks associated with investing
in foreign securities and to declines in net asset value resulting from
changes in exchange rates between the United States dollar and foreign
currencies. These risks are discussed under "Special Investment Methods --
Foreign Securities" and "-- Foreign Currency Transactions" elsewhere
herein. Because of the special risks associated with foreign investing and
the Sub-Adviser's ability to invest substantial portions of the Fund's
assets in a small number of countries, the Fund may be subject to greater
volatility than most mutual funds which invest principally in domestic
securities.
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks in addition to
those noted above with respect to particular Funds. These include the
following:
EQUITY SECURITIES GENERALLY. Market prices of equity securities generally,
and of particular companies' equity securities, frequently are subject to
greater volatility than prices of fixed income securities. Market prices
of equity securities as a group have dropped dramatically in a short
period of time on several occasions in the past, and they may do so again
in the future. Each of the Funds is subject to the risk of generally
adverse equity markets.
SMALL-CAPITALIZATION COMPANIES. Emerging Growth Fund and Regional Equity
Fund emphasize investments in companies with relatively small market
capitalizations, and the remaining Funds (excluding Equity Index Fund and
Asset Allocation Fund) are permitted to invest in equity securities of
such companies. The equity securities of small-capitalization companies
frequently have experienced greater price volatility in the past than
those of larger-capitalization companies, and they may be expected to do
so in the future. To the extent that the Funds invest in
small-capitalization companies, they are subject to this risk of greater
volatility.
ACTIVE MANAGEMENT. All of the Funds other than Equity Index Fund are
actively managed to a greater or lesser degree by the Adviser or, in the
case of International Fund, the Sub-Adviser. The performance of these
Funds therefore will reflect in part the ability of the Adviser or
Sub-Adviser to select securities which are suited to achieving the Funds'
investment objectives. Due to their active management, these Funds could
underperform other mutual funds with similar investment objectives or the
market generally.
OTHER. Investors also should review "Special Investment Methods" for
information concerning risks associated with certain investment techniques
which may be utilized by the Funds.
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing
the overall management and electing the officers of FAIF. Subject to the
overall direction and supervision of the Board of Directors, the Adviser
acts as investment adviser for and manages the investment portfolios of
FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis,
Minnesota 55480, acts as the Funds' investment adviser through its First
Asset Management group. The Adviser has acted as an investment adviser to
FAIF since its inception in 1987 and has acted as investment adviser to
First American Funds, Inc. since 1982 and to First American Strategy
Funds, Inc. since 1996. As of December 31, 1996, the Adviser was managing
accounts with an aggregate value of approximately $35 billion, including
mutual fund assets in excess of $12 billion. First Bank System, Inc., 601
Second Avenue South, Minneapolis, Minnesota 55480, is the holding company
for the Adviser.
Each of the Funds other than International Fund has agreed to pay the
Adviser monthly fees calculated on an annual basis equal to 0.70% of its
average daily net assets. International Fund pays the Adviser a monthly
fee calculated on the same basis equal to 1.25% of its average daily net
assets, out of which the Adviser pays the Sub-Adviser's fee. The Adviser
may, at its option, waive any or all of its fees, or reimburse expenses,
with respect to any Fund from time to time. Any such waiver or
reimbursement is voluntary and may be discontinued at any time. The
Adviser also may absorb or reimburse expenses of the Funds from time to
time, in its discretion, while retaining the ability to be reimbursed by
the Funds for such amounts prior to the end of the fiscal year. This
practice would have the effect of lowering a Fund's overall expense ratio
and of increasing yield to investors, or the converse, at the time such
amounts are absorbed or reimbursed, as the case may be.
While the advisory fee payable to the Adviser with respect to
International Fund is higher than the advisory fee paid by most mutual
funds, the Adviser believes it is comparable to that paid by many funds
having similar investment objectives and policies.
The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from
being affiliated with companies principally engaged in those activities.
In addition, administrative and judicial interpretations of the
Glass-Steagall Act prohibit bank holding companies and their bank and
nonbank subsidiaries from organizing, sponsoring or controlling registered
open-end investment companies that are continuously engaged in
distributing their shares. Bank holding companies and their bank and
nonbank subsidiaries may serve, however, as investment advisers to
registered investment companies, subject to a number of terms and
conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, the Funds have received an opinion from
their counsel that the Adviser is not prohibited from performing the
investment advisory services described above. In the event of changes in
federal or state statutes or regulations or judicial and administrative
interpretations or decisions pertaining to permissible activities of bank
holding companies and their bank and nonbank subsidiaries, the Adviser
might be prohibited from continuing these arrangements. In that event, it
is expected that the Board of Directors would make other arrangements and
that shareholders would not suffer adverse financial consequences.
SUB-ADVISER TO INTERNATIONAL FUND
Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801, is Sub-Adviser to International Fund under an
agreement with the Adviser (the "Sub-Advisory Agreement"). The Sub-Adviser
is responsible for the investment and reinvestment of International Fund's
assets and the placement of brokerage transactions in connection
therewith. For its services under the Sub-Advisory Agreement, the
Sub-Adviser is paid a monthly fee by the Adviser calculated on an annual
basis equal to 0.75% of the first $100 million of International Fund's
average daily net assets, 0.70% of the second $100 million of
International Fund's average daily net assets, 0.65% of the third $100
million of International Fund's average daily net assets, and 0.60% of
International Fund's average daily net assets in excess of $300 million.
The Sub-Adviser, a privately held company, was founded in 1986 by David F.
Marvin and Stanley Palmer. The stock of the Sub-Adviser is owned by Mr.
Marvin, Mr. Palmer and 22 other holders. The Sub-Adviser is engaged in the
management of global, non-United States and emerging markets equity
portfolios for institutional accounts. At September 30, 1996, the
Sub-Adviser managed a total of $3.3 billion in investments for 51
institutional investors.
PORTFOLIO MANAGERS
Stock Fund and Balanced Fund are managed by a committee comprised of Mr.
Doak, Mr. Murphy, Mr. Rovner, Mr. Dubiak, Mr. Whitcomb, Mr. Shields and
Mr. Twele, whose backgrounds are set forth below. Asset Allocation Fund,
Equity Income Fund and Diversified Growth Fund are managed by a committee
comprised of Mr. Bren, Mr. Doak, Mr. Dubiak, Ms. Johnson, Mr. Murphy, Mr.
Whitcomb, and Mr. Johnson, whose backgrounds also are set forth below. The
remaining Funds are managed or co-managed as indicated below.
JAMES DOAK is a member of the committees which manage five of the Funds,
as set forth above. Jim joined the Adviser in 1982 after serving for two
years as vice president of INA Capital Advisors and ten years as Vice
President of Loomis-Sayles & Co. He has managed assets for individual and
institutional clients, specializing in equity investments, and served as
the analyst and portfolio manager for Stock Fund since its inception in
December 1987. Jim received his bachelor's degree from Brown University
and his master's degree in business administration from the Wharton School
of Business. He is a Chartered Financial Analyst.
JOHN M. MURPHY, JR. is a member of the committees which manage five of the
Funds, as set forth above. John is Chief Investment Officer of the
Adviser's First Asset Management group, having joined the Adviser in 1984.
He has more than 30 years in the investment management field and served
with Investment Advisers, Inc. and Blyth, Eastman, Dillon & Co. before
joining the Adviser. He received his bachelor's degree from Regis College.
JAMES S. ROVNER is a member of the committee which manages two of the
Funds, as set forth above, and he is portfolio manager for Special Equity
Fund and portfolio co-manager for Equity Index Fund. Jim joined the
Adviser in 1986 and has managed assets for institutional and individual
clients for over 15 years, specializing in equity and balanced investment
strategies. Jim received his bachelor's degree and his master's degree in
business administration from the University of Wisconsin. He is a
Chartered Financial Analyst.
GERALD C. BREN is a member of the committee which manages three of the
Funds, as set forth above, and he is portfolio co-manager for Emerging
Growth Fund and Health Sciences Fund. Gerald joined the Adviser in 1972 as
an investment analyst. He received his master's degree in business
administration from the University of Chicago in 1972 and his Chartered
Financial Analyst certification in 1977.
ALBIN S. DUBIAK is a member of the committees which manage five of the
Funds, as set forth above, and he is portfolio co-manager for Emerging
Growth Fund, Regional Equity Fund, and Health Sciences Fund. Al began his
investment career as a security trader with The First National Bank of
Chicago in 1963 before joining the Adviser as an investment analyst in
1969. Al received his bachelor's degree from Indiana University in 1962
and his master's degree in business administration from the University of
Arizona in 1969.
CORI B. JOHNSON is a member of the committee which manages three of the
Funds, as set forth above, and she is portfolio manager for Real Estate
Securities Fund. Cori has been managing assets using quantitative analysis
techniques since 1992. She joined the Adviser in 1991 as a securities
analyst. Cori received her bachelor's degree from Concordia College and
her master's degree in business administration from the University of
Minnesota. She is a Chartered Financial Analyst.
ROLAND P. WHITCOMB is a member of the committees which manage five of the
Funds, as set forth above, and he is portfolio co-manager for Regional
Equity Fund and Technology Fund. Roland joined the Adviser in 1986 after
serving as an account executive with Smith Barney & Co. since 1979. He
received his bachelor's degree from the University of Chicago and is a
Chartered Financial Analyst.
JEFF A. JOHNSON is a member of the committee which manages three of the
Funds, as set forth above, and he is portfolio co-manager for Regional
Equity Fund and Technology Fund. Jeff has been employed by the Adviser in
investment management since 1991 and in commercial lending from 1985 to
1991. He received his master of arts degree from the University of Iowa.
KEVIN SHIELDS is a member of the committee which manages two of the Funds,
as set forth above. Kevin, who joined the Adviser in 1993, received his
bachelor's degree from Marquette University and his master's degree from
the University of Wisconsin -- Madison.
JOHN A. TWELE is a member of the committee which manages two of the Funds,
as set forth above. Prior to joining the Adviser in 1996, he was employed
in various positions at American Express Financial Advisors; Investment
Advisers, Inc.; Kemper Financial; and Mercantile Trust. John received his
bachelor's degree from Indiana University.
KATHLEEN F. TURNER is portfolio co-manager for Equity Index Fund. Prior to
joining the Adviser in 1994, she was employed at Grant's Interest Rate
Observer. Kathleen received her bachelor's degree from Indiana University.
A committee comprised of the following seven individuals shares the
management of International Fund on behalf of the Sub-Adviser:
DAVID F. MARVIN is Chairman of the Sub-Adviser and founded the firm
together with Mr. Palmer in 1986. Before founding the Sub-Adviser, Mr.
Marvin was Vice President in charge of DuPont Corporation's $10 billion
internally-managed pension fund. Prior to that Mr. Marvin was Associate
Portfolio Manager, and then Head Portfolio Manager, for Investors
Diversified Services' IDS Stock Fund. Mr. Marvin started in the investment
business in 1965 as a securities analyst for Chicago Title & Trust. He
received his bachelor's degree from the University of Illinois and his
master's degree in business administration from Northwestern University.
He is a Chartered Financial Analyst and a member of the Financial Analysts
Federation.
STANLEY PALMER is President of the Sub-Adviser and co-founder of the firm.
Mr. Palmer was Equity Portfolio Manager for DuPont Corporation from 1978
through 1986, an analyst and portfolio manager at Investors Diversified
Services from 1971 through 1978, and an analyst at Harris Trust & Savings
Bank from 1964 through 1971. He received his bachelor's degree from
Gustavus Adolphus College and his master's degree in business
administration from the University of Iowa. He is a Chartered Financial
Analyst and a member of the Financial Analysts Federation.
WILLIAM E. DODGE has been Senior Managing Director and Portfolio Manager
of the Sub-Adviser since 1996. Mr. Dodge was Chief Investment Strategist
and Chairman of the Investment Policy Committee of Dean Witter in New York
from 1991 to 1996, and he served as a Senior Portfolio Manager, Director
of Quantitative Equity Strategies, and United States equity analyst at the
DuPont Corporation pension fund from 1983 to 1991. From 1976 to 1983 Mr.
Dodge served in various United States portfolio management and analytical
positions including senior investment manager of a bank trust department
from 1981 to 1983. He received his bachelor's degree and his master's
degree in business administration from the University of Massachusetts at
Amherst. He is a Chartered Financial Analyst and a member of the Financial
Analysts Federation.
TERRY B. MASON is a Senior Vice President and Portfolio Manager of the
Sub-Adviser. Before joining the Sub-Adviser, Mr. Mason was employed for 14
years by DuPont Corporation, the last five as international equity analyst
and international trader. He received his bachelor's degree from Glassboro
State College and his master's degree in business administration from
Widener University.
JAY F. MIDDLETON is a Vice President and Portfolio Manager for the
Sub-Adviser and joined the firm in 1989. He received his bachelor's degree
from Wesleyan University.
TODD D. MARVIN is a Vice President and Portfolio Manager for the
Sub-Adviser and joined the firm in 1991. Before joining the Sub-Adviser,
Mr. Marvin was employed by Oppenheimer & Company as an analyst in
investment banking. Mr. Marvin received his bachelor's degree from
Wesleyan University.
DAVID L. SCHAEN is a Vice President and Portfolio Manager of the
Sub-Adviser. Before becoming a Portfolio Manager, Mr. Schaen was Head
Trader for the Sub-Adviser from 1991 to 1994 and an International Analyst
for the Sub-Adviser from 1994 to 1995. Prior to 1991 he was Head Trader
and Investment Officer at the Bank of Delaware. He received his bachelor's
degree from the University of Delaware and his master's degree in business
administration from Widener University.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association
(the "Custodian"), First Trust Center, 180 East Fifth Street, St. Paul,
Minnesota 55101. The Custodian is a subsidiary of First Bank System, Inc.,
which also controls the Adviser.
As compensation for its services to the Funds, the Custodian is paid
monthly fees equal to 0.03% of the applicable Fund's average daily net
assets (0.25% of average daily net assets in the case of International
Fund). Sub-custodian fees with respect to International Fund are paid by
the Custodian out of this amount. In addition, the Custodian is reimbursed
for its out-of-pocket expenses incurred while providing its services to
the Funds.
Rules adopted under the 1940 Act permit International Fund to maintain its
securities and cash in the custody of certain eligible foreign banks and
depositories. International Fund's portfolio of non-United States
securities are held by sub-custodians which are approved by the directors
of FAIF in accordance with these rules. This determination is made
pursuant to these rules following a consideration of a number of factors
including, but not limited to, the reliability and financial stability of
the institution; the ability of the institution to perform custodian
services for International Fund; the reputation of the institution in its
national market; the political and economic stability of the country in
which the institution is located; and the risks of potential
nationalization or expropriation of International Fund's assets.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation,
Oaks, Pennsylvania 19456. The Administrator, a wholly-owned subsidiary of
SEI Investments Company, provides the Funds with certain administrative
services necessary to operate the Funds. These services include
shareholder servicing and certain accounting and other services. The
Administrator provides these services for a fee calculated at an annual
rate of 0.12% of each Fund's average daily net assets, subject to a
minimum administrative fee during each fiscal year of $50,000 per Fund;
provided, that to the extent that the aggregate net assets of all First
American funds exceed $8 billion, the percentage stated above is reduced
to 0.105%. From time to time, the Administrator may voluntarily waive its
fees or reimburse expenses with respect to any of the Funds. Any such
waivers or reimbursements may be made at the Administrator's discretion
and may be terminated at any time.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent
is 1004 Baltimore, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of
the Funds and of the other FAIF Funds. The Distributor is a Pennsylvania
corporation and is the principal distributor for a number of investment
companies. The Distributor is a wholly-owned subsidiary of SEI Investments
Company and is located at Oaks, Pennsylvania 19456. The Distributor is not
affiliated with the Adviser, First Bank System, Inc., the Custodian or their
respective affiliates.
The Distributor, the Administrator and the Adviser may in their discretion
use their own assets to pay for certain costs of distributing Fund shares.
They also may discontinue any payment of such costs at any time. In
addition, the Distributor and the Adviser and its affiliates may provide
compensation from their own resources for shareholder services provided by
third parties, including "one-stop" mutual fund networks through which the
Funds are made available.
PURCHASES AND REDEMPTIONS OF SHARES
SHARE PURCHASES AND REDEMPTIONS
Shares of the Funds are sold and redeemed on days on which the New York
Stock Exchange is open for business ("Business Days").
Payment for shares can be made only by wire transfer. Wire transfers of
federal funds for share purchases should be sent to First Bank National
Association, Minneapolis, Minnesota, ABA Number 091000022; For Credit to:
DST Systems: Account Number 160234580266; For Further Credit To: (Investor
Name and Fund Name). Shares cannot be purchased by Federal Reserve wire on
days on which the New York Stock Exchange is closed and on Federal
holidays upon which wire transfers are restricted. Purchase orders will be
effective and eligible to receive dividends declared the same day if the
Transfer Agent receives an order before 3:00 p.m. Central time and the
Custodian receives Federal funds before the close of business that day.
Otherwise, the purchase order will be effective the next Business Day. The
net asset value per share is calculated as of 3:00 p.m. Central time each
Business Day. The Funds reserve the right to reject a purchase order.
The Funds are required to redeem for cash all full and fractional shares
of the Funds. Redemption orders may be made any time before 3:00 p.m.
Central time in order to receive that day's redemption price. For
redemption orders received before 3:00 p.m. Central time, payment will
ordinarily be made the next business day by transfer of Federal funds, but
payment may be made up to 7 days later.
WHAT SHARES COST
Class C Shares of the Funds are sold and redeemed at net asset value. The
net asset value per share is determined as of the earlier of the close of
the New York Stock Exchange or 3:00 p.m. Central time on each day the New
York Stock Exchange is open for business, provided that net asset value
need not be determined on days when no Fund shares are tendered for
redemption and no order for that Fund's shares is received and on days on
which changes in the value of portfolio securities will not materially
affect the current net asset value of the Fund's shares. The price per
share for purchases or redemptions is such value next computed after the
Transfer Agent receives the purchase order or redemption request. In the
case of redemptions and repurchases of shares owned by corporations,
trusts or estates, the Transfer Agent may require additional documents to
evidence appropriate authority in order to effect the redemption, and the
applicable price will be that next determined following the receipt of the
required documentation.
DETERMINING NET ASSET VALUE. The net asset value per share for each of the
Funds is determined by dividing the value of the securities owned by the
Fund plus any cash and other assets (including interest accrued and
dividends declared but not collected), less all liabilities, by the number
of Fund shares outstanding. For the purpose of determining the aggregate
net assets of the Funds, cash and receivables will be valued at their face
amounts. Interest will be recorded as accrued and dividends will be
recorded on the ex-dividend date. Investments in equity securities which
are traded on a national securities exchange (or reported on the NASDAQ
national market system) are stated at the last quoted sales price if
readily available for such equity securities on each business day; other
equity securities traded in the over-the-counter market and listed equity
securities for which no sale was reported on that date are stated at the
last quoted bid price. Debt obligations exceeding 60 days to maturity
which are actively traded are valued by an independent pricing service at
the most recently quoted bid price. Debt obligations with 60 days or less
remaining until maturity may be valued at their amortized cost. Foreign
securities are valued based upon quotation from the primary market in
which they are traded. When market quotations are not readily available,
securities are valued at fair value as determined in good faith by
procedures established and approved by the Board of Directors.
Portfolio securities underlying actively traded options are valued at
their market price as determined above. The current market value of any
exchange traded option held or written by a Fund is its last sales price
on the exchange prior to the time when assets are valued, unless the bid
price is higher or the asked price is lower, in which event the bid or
asked price is used. In the absence of any sales that day, options will be
valued at the current closing bid price.
Although the methodology and procedures for determining net asset value
are identical for all classes of shares, the net asset value per share of
different classes of shares of the same Fund may differ because of the
distribution and/or shareholder servicing expenses charged to Class A and
Class B Shares.
FOREIGN SECURITIES. Any assets or liabilities of the Funds initially
expressed in terms of foreign currencies are translated into United States
dollars using current exchange rates. Trading in securities on foreign
markets may be completed before the close of business on each business day
of the Funds. Thus, the calculation of the Funds' net asset value may not
take place contemporaneously with the determination of the prices of
foreign securities held in the Funds' portfolios. If events materially
affecting the value of foreign securities occur between the time when
their price is determined and the time when the Funds' net asset value is
calculated, such securities will be valued at fair value as determined in
good faith by or under the direction of the Board of Directors. In
addition, trading in securities on foreign markets may not take place on
all days on which the New York Stock Exchange is open for business or may
take place on days on which the Exchange is not open for business.
Therefore, the net asset value of a Fund which holds foreign securities
might be significantly affected on days when an investor has no access to
the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will
allow such exchanges only upon the prior approval by the Fund and a
determination by the Fund and the Adviser that the securities to be
exchanged are acceptable. Securities accepted by a Fund will be valued in
the same manner that a Fund values its assets. The basis of the exchange
will depend upon the net asset value of Fund shares on the day the
securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
Confirmations of each purchase and redemption are sent to each
shareholder. In addition, monthly confirmations are sent to report all
transactions and dividends paid during that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends are declared and paid monthly with respect to Stock Fund, Equity
Index Fund, Balanced Fund, Asset Allocation Fund, Equity Income Fund,
Diversified Growth Fund, and Special Equity Fund, to all shareholders of
record on the record date. Dividends are declared paid quarterly with
respect to Emerging Growth Fund, Regional Equity Fund, Technology Fund,
Health Sciences Fund, and Real Estate Securities Fund and annually with
respect to International Fund. Distributions of any net realized long-term
capital gains will be made at least once every 12 months. A portion of the
quarterly distributions paid by Real Estate Securities Fund may be a
return of capital. Dividends and distributions are automatically
reinvested in additional shares of the Fund paying the dividend on payment
dates at the ex-dividend date net asset value without a sales charge,
unless shareholders request cash payments on the new account form or by
writing to the Fund.
All shareholders on the record date are entitled to the dividend. If
shares are purchased before a record date for a dividend or a distribution
of capital gains, a shareholder will pay the full price for the shares and
will receive some portion of the purchase price back as a taxable dividend
or distribution (to the extent, if any, that the dividend or distribution
is otherwise taxable to holders of Fund shares). If shares are redeemed or
exchanged before the record date for a dividend or distribution or are
purchased after the record date, those shares are not entitled to the
dividend or distribution.
The amount of dividends payable on Class C Shares generally will be more
than the dividends payable on Class A or Class B Shares because of the
distribution and/or shareholder servicing expenses charged to Class A and
Class B Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class C Shares of a Fund for currently available
Class C Shares of the other FAIF Funds or of other funds in the First
American family at net asset value. Exchanges of shares among the First
American family of funds must meet any applicable minimum investment of
the fund for which shares are being exchanged.
The ability to exchange shares of the Funds does not constitute an
offering or recommendation of shares of one fund by another fund. This
privilege is available to shareholders resident in any state in which the
fund shares being acquired may be sold. An investor who is considering
acquiring shares in another First American fund pursuant to the exchange
privilege should obtain and carefully read a prospectus of the fund to be
acquired. Exchanges may be accomplished by a written request, or by
telephone if a preauthorized exchange authorization is on file with the
Transfer Agent, shareholder servicing agent, or financial institution.
Neither the Transfer Agent nor any Fund will be responsible for the
authenticity of exchange instructions received by telephone if it
reasonably believes those instructions to be genuine. The Funds and the
Transfer Agent will each employ reasonable procedures to confirm that
telephone instructions are genuine, and they may be liable for losses
resulting from unauthorized or fraudulent telephone instructions if they
do not employ these procedures. These procedures may include taping of
telephone conversations.
Shares of a class in which an investor is no longer eligible to
participate may be exchanged for shares of a class in which that investor
is eligible to participate. An example of this kind of exchange would be a
situation in which Class C Shares of a Fund held by a financial
institution in a trust or agency capacity for one or more individual
beneficiaries are exchanged for Class A Shares of that Fund and
distributed to the individual beneficiaries.
FEDERAL INCOME TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
during its current taxable year in order to be relieved of payment of
federal income taxes on amounts of taxable income it distributes to
shareholders.
Dividends paid from each Fund's net investment income and net short-term
capital gains will be taxable to shareholders as ordinary income, whether or
not the shareholder elects to have such dividends automatically reinvested
in additional shares. Dividends paid by the Funds attributable to
investments in the securities of foreign issuers or REITs will not be
eligible for the 70% deduction for dividends received by corporations.
Dividends paid from the net capital gains of each Fund and designated as
capital gain dividends will be taxable to shareholders as long-term capital
gains, regardless of the length of time for which they have held their
shares in the Fund.
Gain or loss realized upon the sale of shares in the Fund will be treated as
capital gain or loss, provided that the shares represented a capital asset
in the hands of the shareholder. Such gain or loss will be long-term gain or
loss if the shares were held for more than one year.
International Fund may be required to pay withholding and other taxes
imposed by foreign countries, generally at rates from 10% to 40%, which
would reduce the Fund's investment income. Tax conventions between certain
countries and the United States may reduce or eliminate such taxes. If at
the end of International Fund's taxable year more than 50% of its total
assets consist of securities of foreign corporations, it will be eligible to
file an election with the Internal Revenue Service pursuant to which
shareholders of the Fund will be required to include their respective pro
rata portions of such foreign taxes in gross income, treat such amounts as
foreign taxes paid by them, and deduct such amounts in computing their
taxable income or, alternatively, use them as foreign tax credits against
their federal income taxes. If such an election is filed for a year,
International Fund shareholders will be notified of the amounts which they
may deduct as foreign taxes paid or use as foreign tax credits.
International Fund made this election for its last taxable year.
Alternatively, if the amount of foreign taxes paid by International Fund is
not large enough in future years to warrant its making the election
described above, the Fund may claim the amount of foreign taxes paid as a
deduction against its own gross income. In that case, shareholders would not
be required to include any amount of foreign taxes paid by the Fund in their
income and would not be permitted either to deduct any portion of foreign
taxes from their own income or to claim any amount of foreign tax credit for
taxes paid by the Fund.
This is a general summary of the federal tax laws applicable to the Funds
and their shareholders as of the date of this Prospectus. See the Statement
of Additional Information for further details. Before investing in the
Funds, an investor should consult his or her tax adviser about the
consequences of state and local tax laws.
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares
may be issued as either full or fractional shares. Fractional shares have
pro rata the same rights and privileges as full shares. Shares of the Funds
have no preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The
shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able to
elect all of the directors if they choose to do so. On issues affecting only
a particular Fund or Class, the shares of that Fund or Class will vote as a
separate series. Examples of such issues would be proposals to alter a
fundamental investment restriction pertaining to a Fund or to approve,
disapprove or alter a distribution plan pertaining to a Class.
Under the laws of the State of Maryland and FAIF's Articles of
Incorporation, FAIF is not required to hold shareholder meetings unless they
(i) are required by the 1940 Act, or (ii) are requested in writing by the
holders of 25% or more of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "cumulative total
return," its "average annual total return" and its "distribution rate."
Distribution rates may only be used in connection with sales literature and
shareholder communications preceded or accompanied by a Prospectus. Each of
these performance figures is based upon historical results and is not
intended to indicate future performance, and, except for "distribution
rate," is standardized in accordance with Securities and Exchange Commission
("SEC") regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day
period (which period will be stated in the advertisement) by the maximum
offering price per share on the last day of the period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Total return" is based on the overall dollar or percentage change in value
of a hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including, as
applicable, the maximum sales charge imposed on Class A Shares or the
contingent deferred sales charge imposed on Class B Shares redeemed at the
end of the specified period covered by the total return figure. "Cumulative
total return" reflects a Fund's performance over a stated period of time.
"Average annual total return" reflects the hypothetical annually compounded
rate that would have produced the same cumulative total return if
performance had been constant over the entire period. Because average annual
returns tend to smooth out variations in a Fund's performance, they are not
the same as actual year-by-year results. As a supplement to total return
computations, a Fund may also publish "total investment return" computations
which do not assume deduction of the maximum sales charge imposed on Class A
Shares or the contingent deferred sales charge imposed on Class B Shares.
"Distribution rate" is determined by dividing the income dividends per share
for a stated period by the maximum offering price per share on the last day
of the period. All distribution rates published for the Funds are measures
of the level of income dividends distributed during a specified period.
Thus, these rates differ from yield (which measures income actually earned
by a Fund) and total return (which measures actual income, plus realized and
unrealized gains or losses of a Fund's investments). Consequently,
distribution rates alone should not be considered complete measures of
performance.
The performance of the Class C Shares of a Fund will normally be higher than
for the Class A and Class B Shares because Class C Shares are not subject to
the sales charges and distribution and/or shareholder servicing expenses
applicable to Class A and Class B Shares.
In reports or other communications to shareholders and in advertising
material, the performance of each Fund may be compared to recognized
unmanaged indices or averages of the performance of similar securities and
to composites of such indices and averages. Also, the performance of each
Fund may be compared to that of other funds of similar size and objectives
as listed in the rankings prepared by Lipper Analytical Services, Inc. or
similar independent mutual fund rating services, and each Fund may include
in such reports, communications and advertising material evaluations
published by nationally recognized independent ranking services and
publications. For further information regarding the Funds' performance, see
"Fund Performance" in the Statement of Additional Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in
which the Funds may invest and related topics. Further information
concerning these matters is contained in the Statement of Additional
Information.
CASH ITEMS
The "cash items" in which the Funds may invest, as described under
"Investment Objectives and Policies," include short-term obligations such
as rated commercial paper and variable amount master demand notes; United
States dollar-denominated time and savings and time deposits (including
certificates of deposit); bankers acceptances; obligations of the United
States Government or its agencies or instrumentalities; repurchase
agreements collateralized by eligible investments of a Fund; securities of
other mutual funds which invest primarily in debt obligations with
remaining maturities of 13 months or less (which investments also are
subject to the advisory fee); and other similar high-quality short-term
United States dollar-denominated obligations. The other mutual funds in
which the Funds may so invest include money market funds advised by the
Adviser, subject to certain restrictions contained in an exemptive order
issued by the Securities and Exchange Commission with respect thereto.
REPURCHASE AGREEMENTS
Each of the Funds may enter into repurchase agreements. A repurchase
agreement involves the purchase by a Fund of securities with the agreement
that after a stated period of time, the original seller will buy back the
same securities ("collateral") at a predetermined price or yield.
Repurchase agreements involve certain risks not associated with direct
investments in securities. If the original seller defaults on its
obligation to repurchase as a result of its bankruptcy or otherwise, the
purchasing Fund will seek to sell the collateral, which could involve
costs or delays. Although collateral (which may consist of any fixed
income security which is an eligible investment for the Fund entering into
the repurchase agreement) will at all times be maintained in an amount
equal to the repurchase price under the agreement (including accrued
interest), a Fund would suffer a loss if the proceeds from the sale of the
collateral were less than the agreed-upon repurchase price. The Adviser
or, in the case of International Fund, the Sub-Adviser will monitor the
creditworthiness of the firms with which the Funds enter into repurchase
agreements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds (excluding Equity Index Fund) may purchase securities on
a when-issued or delayed-delivery basis. When such a transaction is
negotiated, the purchase price is fixed at the time the purchase
commitment is entered, but delivery of and payment for the securities take
place at a later date. A Fund will not accrue income with respect to
securities purchased on a when-issued or delayed-delivery basis prior to
their stated delivery date. Pending delivery of the securities, each Fund
will maintain in a segregated account cash or liquid high-grade securities
in an amount sufficient to meet its purchase commitments.
The purchase of securities on a when-issued or delayed-delivery basis
exposes a Fund to risk because the securities may decrease in value prior
to delivery. In addition, a Fund's purchase of securities on a when-issued
or delayed-delivery basis while remaining substantially fully invested
could increase the amount of the Fund's total assets that are subject to
market risk, resulting in increased sensitivity of net asset value to
changes in market prices. However, the Funds will engage in when-issued
and delayed-delivery transactions only for the purpose of acquiring
portfolio securities consistent with their investment objectives, and not
for the purpose of investment leverage. A seller's failure to deliver
securities to a Fund could prevent the Fund from realizing a price or
yield considered to be advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds may lend
portfolio securities representing up to one-third of the value of its
total assets to broker-dealers, banks or other institutional borrowers of
securities. As with other extensions of credit, there may be risks of
delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially.
However, the Funds will only enter into loan arrangements with
broker-dealers, banks, or other institutions which the Adviser or, in the
case of International Fund, the Sub-Adviser has determined are
creditworthy under guidelines established by the Board of Directors. In
these loan arrangements, the Funds will receive collateral in the form of
cash, United States Government securities or other high-grade debt
obligations equal to at least 100% of the value of the securities loaned.
Collateral is marked to market daily. The Funds will pay a portion of the
income earned on the lending transaction to the placing broker and may pay
administrative and custodial fees (including fees to an affiliate of the
Adviser) in connection with these loans.
OPTIONS TRANSACTIONS
PURCHASES OF PUT AND CALL OPTIONS. The Funds may purchase put and call
options. These transactions will be undertaken only for the purpose of
reducing risk to the Funds; that is, for "hedging" purposes. Depending on
the Fund, these transactions may include the purchase of put and call
options on equity securities, on stock indices, on interest rate indices,
or (only in the case of International Fund) on foreign currencies. Options
on futures contracts are discussed below under "Futures and Options on
Futures."
A put option on a security gives the purchaser of the option the right
(but not the obligation) to sell, and the writer of the option the
obligation to buy, the underlying security at a stated price (the
"exercise price") at any time before the option expires. A call option on
a security gives the purchaser the right (but not the obligation) to buy,
and the writer the obligation to sell, the underlying security at the
exercise price at any time before the option expires. The purchase price
for a put or call option is the "premium" paid by the purchaser for the
right to sell or buy.
Options on indices are similar to options on securities except that,
rather than the right to take or make delivery of a specific security at a
stated price, an option on an index gives the holder the right to receive,
upon exercise of the option, a defined amount of cash if the closing value
of the index upon which the option is based is greater than, in the case
of a call, or less than, in the case of a put, the exercise price of the
option.
None of the Funds other than International Fund will invest more than 5%
of the value of its total assets in purchased options, provided that
options which are "in the money" at the time of purchase may be excluded
from this 5% limitation. A call option is "in the money" if the exercise
price is lower than the current market price of the underlying security or
index, and a put option is "in the money" if the exercise price is higher
than the current market price. A Fund's loss exposure in purchasing an
option is limited to the sum of the premium paid and the commission or
other transaction expenses associated with acquiring the option.
The use of purchased put and call options involves certain risks. These
include the risk of an imperfect correlation between market prices of
securities held by a Fund and the prices of options, and the risk of
limited liquidity in the event that a Fund seeks to close out an options
position before expiration by entering into an offsetting transaction.
WRITING OF CALL OPTIONS. The Funds may write (sell) covered call options
to the extent specified with respect to particular Funds under "Investment
Objectives and Policies." These transactions would be undertaken
principally to produce additional income. Depending on the Fund, these
transactions may include the writing of covered call options on equity
securities or (only in the case of International Fund) on foreign
currencies which a Fund owns or has the right to acquire or on interest
rate indices.
When a Fund sells a covered call option, it is paid a premium by the
purchaser. If the market price of the security covered by the option does
not increase above the exercise price before the option expires, the
option generally will expire without being exercised, and the Fund will
retain both the premium paid for the option and the security. If the
market price of the security covered by the option does increase above the
exercise price before the option expires, however, the option is likely to
be exercised by the purchaser. In that case the Fund will be required to
sell the security at the exercise price, and it will not realize the
benefit of increases in the market price of the security above the
exercise price of the option.
The Funds also may, to the extent specified with respect to particular
Funds under "Investment Objectives and Policies," write call options on
stock indices the movements of which generally correlate with those of the
respective Funds' portfolio holdings. These transactions, which would be
undertaken principally to produce additional income, entail the risk of an
imperfect correlation between movements of the index covered by the option
and movements in the price of the Fund's portfolio securities.
FUTURES AND OPTIONS ON FUTURES
Equity Index Fund, Balanced Fund, Asset Allocation Fund and International
Fund may engage in futures transactions and purchase options on futures to
the extent specified with under "Investment Objectives and Policies."
Depending on the Fund, these transactions may include the purchase of
stock index futures and options on stock index futures, and the purchase
of interest rate futures and options on interest rate futures. In
addition, International Fund may enter into contracts for the future
delivery of securities or foreign currencies and futures contracts based
on a specific security, class of securities, or foreign currency.
A futures contract on a security obligates one party to purchase, and the
other to sell, a specified security at a specified price on a date certain
in the future. A futures contract on an index obligates the seller to
deliver, and entitles the purchaser to receive, an amount of cash equal to
a specific dollar amount times the difference between the value of the
index at the expiration date of the contract and the index value specified
in the contract. The acquisition of put and call options on futures
contracts will, respectively, give a Fund the right (but not the
obligation), for a specified exercise price, to sell or to purchase the
underlying futures contract at any time during the option period.
A Fund may use futures contracts and options on futures in an effort to
hedge against market risks and, in the case of International Fund, as part
of its management of foreign currency transactions. In addition, Equity
Index Fund may use stock index futures and options on futures to maintain
sufficient liquidity to meet redemption requests, to increase the level of
Fund assets devoted to replicating the composition of the S&P 500, and to
reduce transaction costs.
Aggregate initial margin deposits for futures contracts, and premiums paid
for related options, may not exceed 5% of a Fund's total assets, and the
value of securities that are the subject of such futures and options (both
for receipt and delivery) may not exceed 1/3 of the market value of a
Fund's total assets. Futures transactions will be limited to the extent
necessary to maintain each Fund's qualification as a regulated investment
company under the Internal Revenue Code of 1986, as amended.
Where a Fund is permitted to purchase options on futures, its potential
loss is limited to the amount of the premiums paid for the options. As
stated above, this amount may not exceed 5% of a Fund's total assets.
Where a Fund is permitted to enter into futures contracts obligating it to
purchase securities, currency or an index in the future at a specified
price, such Fund could lose 100% of its net assets in connection therewith
if it engaged extensively in such transactions and if the market value or
index value of the subject securities, currency or index at the delivery
or settlement date fell to zero for all contracts into which a Fund was
permitted to enter. Where a Fund is permitted to enter into futures
contracts obligating it to sell securities or currencies (as is the case
with respect only to International Fund), its potential losses are
unlimited if it does not own the securities or currencies covered by the
contracts and it is unable to close out the contracts prior to the
settlement date.
Futures transactions involve brokerage costs and require a Fund to
segregate assets to cover contracts that would require it to purchase
securities or currencies. A Fund may lose the expected benefit of futures
transactions if interest rates, exchange rates or securities prices move
in an unanticipated manner. Such unanticipated changes may also result in
poorer overall performance than if the Fund had not entered into any
futures transactions. In addition, the value of a Fund's futures positions
may not prove to be perfectly or even highly correlated with the value of
its portfolio securities or foreign currencies, limiting the Fund's
ability to hedge effectively against interest rate, exchange rate and/or
market risk and giving rise to additional risks. There is no assurance of
liquidity in the secondary market for purposes of closing out futures
positions.
FIXED INCOME SECURITIES
The fixed income securities in which Stock Fund, Equity Income Fund,
Diversified Growth Fund, Emerging Growth Fund, Regional Equity Fund,
Special Equity Fund, Technology Fund, Health Sciences Fund and Real Estate
Securities Fund may invest include securities issued or guaranteed by the
United States Government or its agencies or instrumentalities,
nonconvertible preferred stocks, nonconvertible corporate debt securities,
and short-term obligations of the kinds described above under "-- Cash
Items." Investments in nonconvertible preferred stocks and nonconvertible
corporate debt securities will be limited to securities which are rated at
the time of purchase not less than BBB by Standard & Poor's or Baa by
Moody's (or equivalent short-term ratings), or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the
Adviser. Obligations rated BBB, Baa or their equivalent, although
investment grade, have speculative characteristics and carry a somewhat
higher risk of default than obligations rated in the higher investment
grade categories.
In addition, Equity Income Fund may invest up to 25% of its total assets,
and each of the other Funds may invest up to 5% of its net assets, in less
than investment grade convertible debt obligations. For a description of
such obligations and the risks associated therewith, see "Investment
Objectives and Policies -- Equity Income Fund."
The fixed income securities specified above, as well as the fixed income
securities in which Balanced Fund and Asset Allocation Fund may invest as
described under "Investment Objectives and Policies," are subject to (i)
interest rate risk (the risk that increases in market interest rates will
cause declines in the value of debt securities held by a Fund); (ii)
credit risk (the risk that the issuers of debt securities held by a Fund
default in making required payments); and (iii) call or prepayment risk
(the risk that a borrower may exercise the right to prepay a debt
obligation before its stated maturity, requiring a Fund to reinvest the
prepayment at a lower interest rate).
FOREIGN SECURITIES
GENERAL. Under normal market conditions International Fund invests at
least 65% of its total assets in equity securities which trade in markets
other than the United States. In addition, the other Funds (excluding
Equity Index Fund, Asset Allocation Fund, and Regional Equity Fund) may
invest lesser proportions of their assets in securities of foreign issuers
which are either listed on a United States securities exchange or
represented by American Depositary Receipts.
Investment in foreign securities is subject to special investment risks
that differ in some respects from those related to investments in
securities of United States domestic issuers. These risks include
political, social or economic instability in the country of the issuer,
the difficulty of predicting international trade patterns, the possibility
of the imposition of exchange controls, expropriation, limits on removal
of currency or other assets, nationalization of assets, foreign
withholding and income taxation, and foreign trading practices (including
higher trading commissions, custodial charges and delayed settlements).
Foreign securities also may be subject to greater fluctuations in price
than securities issued by United States corporations. The principal
markets on which these securities trade may have less volume and
liquidity, and may be more volatile, than securities markets in the United
States.
In addition, there may be less publicly available information about a
foreign company than about a United States domiciled company. Foreign
companies generally are not subject to uniform accounting, auditing and
financial reporting standards comparable to those applicable to United
States domestic companies. There is also generally less government
regulation of securities exchanges, brokers and listed companies abroad
than in the United States. Confiscatory taxation or diplomatic
developments could also affect investment in those countries. In addition,
foreign branches of United States banks, foreign banks and foreign issuers
may be subject to less stringent reserve requirements and to different
accounting, auditing, reporting, and recordkeeping standards than those
applicable to domestic branches of United States banks and United States
domestic issuers.
AMERICAN DEPOSITARY RECEIPTS AND EUROPEAN DEPOSITARY RECEIPTS. For many
foreign securities, United States dollar-denominated American Depositary
Receipts, which are traded in the United States on exchanges or
over-the-counter, are issued by domestic banks. American Depositary
Receipts represent the right to receive securities of foreign issuers
deposited in a domestic bank or a correspondent bank. American Depositary
Receipts do not eliminate all the risk inherent in investing in the
securities of foreign issuers. However, by investing in American
Depositary Receipts rather than directly in foreign issuers' stock, a Fund
can avoid currency risks during the settlement period for either purchases
or sales. In general, there is a large, liquid market in the United States
for many American Depositary Receipts. The information available for
American Depositary Receipts is subject to the accounting, auditing and
financial reporting standards of the domestic market or exchange on which
they are traded, which standards are more uniform and more exacting than
those to which many foreign issuers may be subject. International Fund
also may invest in European Depositary Receipts, which are receipts
evidencing an arrangement with a European bank similar to that for
American Depositary Receipts and which are designed for use in the
European securities markets. European Depositary Receipts are not
necessarily denominated in the currency of the underlying security.
Certain American Depositary Receipts and European Depositary Receipts,
typically those denominated as unsponsored, require the holders thereof to
bear most of the costs of the facilities while issuers of sponsored
facilities normally pay more of the costs thereof. The depository of an
unsponsored facility frequently is under no obligation to distribute
shareholder communications received from the issuer of the deposited
securities or to pass through the voting rights to facility holders in
respect to the deposited securities, whereas the depository of a sponsored
facility typically distributes shareholder communications and passes
through voting rights.
FOREIGN CURRENCY TRANSACTIONS
International Fund invests in securities which are purchased and sold in
foreign currencies. The value of its assets as measured in United States
dollars therefore may be affected favorably or unfavorably by changes in
foreign currency exchange rates and exchange control regulations.
International Fund also will incur costs in converting United States
dollars to local currencies, and vice versa.
International Fund will conduct its foreign currency exchange transactions
either on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through forward contracts to purchase
or sell foreign currencies. A forward foreign currency exchange contract
involves an obligation to purchase or sell a specific currency at a future
date certain at a specified price. These forward currency contracts are
traded directly between currency traders (usually large commercial banks)
and their customers.
International Fund may enter into forward currency contracts in order to
hedge against adverse movements in exchange rates between currencies. It
may engage in "transaction hedging" to protect against a change in the
foreign currency exchange rate between the date the Fund contracts to
purchase or sell a security and the settlement date, or to "lock in" the
United States dollar equivalent of a dividend or interest payment made in
a foreign currency. It also may engage in "portfolio hedging" to protect
against a decline in the value of its portfolio securities as measured in
United States dollars which could result from changes in exchange rates
between the United States dollar and the foreign currencies in which the
portfolio securities are purchased and sold. International Fund also may
hedge its foreign currency exchange rate risk by engaging in currency
financial futures and options transactions.
Although a foreign currency hedge may be effective in protecting the Fund
from losses resulting from unfavorable changes in exchanges rates between
the United States dollar and foreign currencies, it also would limit the
gains which might be realized by the Fund from favorable changes in
exchange rates. The Sub-Adviser's decision whether to enter into currency
hedging transactions will depend in part on its view regarding the
direction and amount in which exchange rates are likely to move. The
forecasting of movements in exchange rates is extremely difficult, so that
it is highly uncertain whether a hedging strategy, if undertaken, would be
successful. To the extent that the Sub-Adviser's view regarding future
exchange rates proves to have been incorrect, International Fund may
realize losses on its foreign currency transactions.
International Fund does not intend to enter into forward currency
contracts or maintain a net exposure in such contracts where it would be
obligated to deliver an amount of foreign currency in excess of the value
of its portfolio securities or other assets denominated in that currency.
MORTGAGE-BACKED SECURITIES
With respect to the fixed income portion of its portfolio, Balanced Fund
may invest in mortgage-backed securities which are Agency Pass-Through
Certificates or collateralized mortgage obligations ("CMOs"), as described
below.
Agency Pass-Through Certificates are mortgage pass-through certificates
representing undivided interests in pools of residential mortgage loans.
Distribution of principal and interest on the mortgage loans underlying an
Agency Pass-Through Certificate is an obligation of or guaranteed by
Government National Mortgage Association ("GNMA"), the Federal National
Mortgage Association ("FNMA"), or the Federal Home Loan Mortgage
Corporation ("FHLMC"). The obligation of GNMA with respect to such
certificates is backed by the full faith and credit of the United States,
while the obligations of FNMA and FHLMC with respect to such certificates
rely solely on the assets and credit of those entities. The mortgage loans
underlying GNMA certificates are partially or fully guaranteed by the
Federal Housing Administration or the Veterans Administration, while the
mortgage loans underlying FNMA certificates and FHLMC certificates are
conventional mortgage loans which are, in some cases, insured by private
mortgage insurance companies. Agency Pass-Through Certificates may be
issued in a single class with respect to a given pool of mortgage loans or
in multiple classes.
CMOs are debt obligations typically issued by a private special-purpose
entity and collateralized by residential or commercial mortgage loans or
Agency Pass-Through Certificates. Balanced Fund will invest only in CMOs
which are rated in one of the four highest rating categories by a
nationally recognized statistical rating organization or which are of
comparable quality in the judgment of the Adviser. Because CMOs are debt
obligations of private entities, payments on CMOs generally are not
obligations of or guaranteed by any governmental entity, and their ratings
and creditworthiness typically depend, among other factors, on the legal
insulation of the issuer and transaction from the consequences of a
sponsoring entity's bankruptcy. CMOs generally are issued in multiple
classes, with holders of each class entitled to receive specified portions
of the principal payments and prepayments and/or of the interest payments
on the underlying mortgage loans. These entitlements can be specified in a
wide variety of ways, so that the payment characteristics of various
classes may differ greatly from one another. Examples of the more common
classes are provided in the Statement of Additional Information. The CMOs
in which the Fund may invest include classes which are subordinated in
right of payment to other classes, as long as they have the required
rating referred to above.
It generally is more difficult to predict the effect of changes in market
interest rates on the return on mortgaged-backed securities than to
predict the effect of such changes on the return of a conventional
fixed-rate debt instrument, and the magnitude of such effects may be
greater in some cases. The return on interest-only and principal-only
mortgage-backed securities is particularly sensitive to changes in
interest rates and prepayment speeds. When interest rates decline and
prepayment speeds increase, the holder of an interest-only mortgage-backed
security may not even recover its initial investment. Similarly, the
return on an inverse floating rate CMO is likely to decline more sharply
in periods of increasing interest rates than that of a fixed-rate
security. For these reasons, interest-only, principal-only and inverse
floating rate mortgage-backed securities generally have greater risk than
more conventional classes of mortgage-backed securities. Balanced Fund
will not invest more than 10% of its total fixed income assets in
interest-only, principal-only or inverse floating rate mortgage backed
securities.
ASSET-BACKED SECURITIES
With respect to the fixed income portion of its portfolio, Balanced Fund
may invest in asset-backed securities. Asset-backed securities generally
constitute interests in, or obligations secured by, a pool of receivables
other than mortgage loans, such as automobile loans and leases, credit
card receivables, home equity loans and trade receivables. Asset-backed
securities generally are issued by a private special-purpose entity. Their
ratings and creditworthiness typically depend on the legal insulation of
the issuer and transaction from the consequences of a sponsoring entity's
bankruptcy, as well as on the credit quality of the underlying receivables
and the amount and credit quality of any third-party credit enhancement
supporting the underlying receivables or the asset-backed securities.
Asset-backed securities and their underlying receivables generally are not
issued or guaranteed by any governmental entity.
BANK INSTRUMENTS
The bank instruments in which Balanced Fund may invest include time and
savings deposits, deposit notes and bankers acceptances (including
certificates of deposit) in commercial or savings banks. They also include
Eurodollar Certificates of Deposit issued by foreign branches of United
States or foreign banks; Eurodollar Time Deposits, which are United States
dollar-denominated deposits in foreign branches of United States or
foreign banks; and Yankee Certificates of Deposit, which are United States
dollar-denominated certificates of deposit issued by United States
branches of foreign banks and held in the United States. For a description
of certain risks of investing in foreign issuers' securities, see "--
Foreign Securities" above. In each instance, Balanced Fund may only invest
in bank instruments issued by an institution which has capital, surplus
and undivided profits of more than $100 million or the deposits of which
are insured by the Bank Insurance Fund or the Savings Association
Insurance Fund.
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected
with market makers or issuers, unless better overall price and execution
are available through a brokerage transaction. It is anticipated that most
portfolio transactions involving debt securities will be executed on a
principal basis. Also, with respect to the placement of portfolio
transactions with securities firms, subject to the overall policy to seek
to place portfolio transactions as efficiently as possible and at the best
price, research services and placement of orders by securities firms for a
Fund's shares may be taken into account as a factor in placing portfolio
transactions for the Fund.
PORTFOLIO TURNOVER
Although the Funds do not intend generally to trade for short-term
profits, they may dispose of a security without regard to the time it has
been held when such action appears advisable to the Adviser or, in the
case of International Fund, the Sub-Adviser. The portfolio turnover rate
for a Fund may vary from year to year and may be affected by cash
requirements for redemptions of shares. High portfolio turnover rates
generally would result in higher transaction costs and could result in
additional tax consequences to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds
are set forth in full in the Statement of Additional Information. The
fundamental restrictions include the following:
* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets, except for Asset Allocation Fund,
which may borrow in amounts not to exceed 33-1/3% of its total assets.
None of the Funds will borrow money for leverage purposes. For the
purpose of this investment restriction, the use of options and futures
transactions and the purchase of securities on a when-issued or
delayed-delivery basis shall not be deemed the borrowing of money. If a
Fund engages in borrowing, its share price may be subject to greater
fluctuation, and the interest expense associated with the borrowing may
reduce the Fund's net income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions and except, in the case of Emerging Growth Fund, Technology
Fund, and International Fund, as may be necessary to make margin
payments in connection with foreign currency futures and other
derivative transactions.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of
its net assets in all forms of illiquid investments, as determined pursuant
to applicable Securities and Exchange Commission rules and interpretations.
Section 4(2) commercial paper and Rule 144A securities may be determined to
be "liquid" under guidelines adopted by the Board of Directors. Investing in
Rule 144A securities could have the effect of increasing the level of
illiquidity in a Fund to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities.
INFORMATION CONCERNING COMPENSATION PAID TO FIRST TRUST NATIONAL
ASSOCIATION AND ITS AFFILIATES
First Trust National Association ("First Trust") may act as fiduciary with
respect to plans subject to the Employee Retirement Income Security Act of 1974
("ERISA") which invest in the Fund. This section sets forth information
concerning compensation that First Trust and its affiliates may receive from the
Fund.
First Trust, as custodian for the assets of the Funds, receives the custodian
fees specified herein under the caption "Management -- Custodian."
First Bank National Association, which is under common ownerhship with First
Trust, acts as investment adviser to the Funds and receives the advisory fees
specified herein under the caption "Management -- Investment Adviser."
First Trust also may act as securities lending agent in connection with the
Funds' securities lending transactions and receive, as compensation for such
services, fees equal to 40% of the Funds' income from such securities lending
transactions.
FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
Oaks, Pennsylvania 19456
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
Oaks, Pennsylvania 19456
TRANSFER AGENT
DST SYSTEMS, INC.
1004 Baltimore
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1503 (1/97)I
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIXED INCOME FUNDS
RETAIL CLASSES
Limited Term Fixed Income Fund
Income Fund
Intermediate Government
Intermediate Term Bond Fund
Income Fund
PROSPECTUS
JANUARY 31, 1997
[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 6
Class A Share Fees and Expenses 6
Class B Share Fees and Expenses 8
Information Concerning Fees and
Expenses 10
FINANCIAL HIGHLIGHTS 12
THE FUNDS 14
INVESTMENT OBJECTIVES AND
POLICIES 14
Limited Term Income Fund,
Intermediate Term Income Fund,
and Fixed Income Fund 15
Intermediate Government Bond Fund 17
Risks to Consider 18
MANAGEMENT 20
Investment Adviser 20
Portfolio Managers 21
Custodian 21
Administrator 21
Transfer Agent 22
DISTRIBUTOR 22
INVESTING IN THE FUNDS 23
Share Purchases 23
Minimum Investment Required 24
Alternative Sales Charge Options 25
Systematic Exchange Program 30
Systematic Investment Program 30
Exchanging Securities for Fund
Shares 30
Certificates and Confirmations 30
Dividends and Distributions 31
Exchange Privilege 31
REDEEMING SHARES 33
By Telephone 33
By Mail 34
By Systematic Withdrawal Program 34
Redemption Before Purchase
Instruments Clear 35
Accounts with Low Balances 35
DETERMINING THE PRICE OF SHARES 35
Determining Net Asset Value 36
Foreign Securities 36
FEDERAL INCOME TAXES 37
General 37
State and Local Taxation 38
FUND SHARES 38
CALCULATION OF PERFORMANCE DATA 38
SPECIAL INVESTMENT METHODS 40
Bank Instruments 40
Asset-Backed Securities 40
Foreign Securities 40
Mortgage-Backed Securities 41
Repurchase Agreements 43
When-Issued and Delayed-Delivery
Transactions 43
Lending of Portfolio Securities 44
Options Transactions 44
Portfolio Transactions 45
Portfolio Turnover 46
Investment Restrictions 46
Information Concerning
Compensation Paid to First Trust
National Association and
Its Affiliates 47
FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456
RETAIL CLASSES PROSPECTUS
The shares described in this Prospectus represent interests in First
American Investment Funds, Inc., which consists of mutual funds with several
different investment portfolios and objectives. This Prospectus relates to
the Class A and Class B Shares of the following funds (the "Funds"):
* LIMITED TERM INCOME FUND * FIXED INCOME FUND
* INTERMEDIATE TERM INCOME FUND * INTERMEDIATE GOVERNMENT BOND FUND
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF
ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL,
DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated January 31, 1997 for the Funds
has been filed with the Securities and Exchange Commission and is
incorporated in its entirety by reference in this Prospectus. To obtain
copies of the Statement of Additional Information at no charge, or to obtain
other information or make inquiries about the Funds, call (800) 637-2548 or
write SEI Financial Services Company, Oaks, Pennsylvania 19456.
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.
The date of this Prospectus is January 31, 1997.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment
company which offers shares in several different mutual funds. This
Prospectus provides information with respect to the Class A and Class B
Shares of the following funds (the "Funds"):
LIMITED TERM INCOME FUND has an objective of providing current income while
attempting to provide a high degree of principal stability. This Fund
invests in investment grade debt securities, at least 65% of which are
United States Government obligations and corporate debt obligations and
mortgage-backed and asset-backed securities rated at least A by Standard &
Poor's or Moody's or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization. Under normal
market conditions, the weighted average maturity of the securities held by
this Fund will range from 6 months to 2 years.
INTERMEDIATE TERM INCOME FUND has an objective of providing current income
to the extent consistent with preservation of capital. This Fund generally
invests in the same kinds of debt securities as Limited Term Income Fund.
Under normal market conditions, the weighted average maturity of the
securities held by this Fund will range from 2 to 7 years.
FIXED INCOME FUND has an objective of providing a high level of current
income consistent with limited risk to capital. This Fund generally invests
in the same kinds of debt securities as Limited Term Income Fund. Under
normal market conditions, the weighted average maturity of the securities
held by this Fund will not exceed 15 years.
INTERMEDIATE GOVERNMENT BOND FUND has an objective of providing current
income to the extent consistent with preservation of capital. Under normal
market conditions, this Fund invests at least 65% of its total assets in
securities issued or guaranteed by the United States Government and its
agencies and instrumentalities. Under normal market conditions, the weighted
average maturity of the securities held by this Fund will range from 2 to 7
years.
At the present time, Class B Shares are offered only with respect to Fixed
Income Fund.
INVESTMENT ADVISER First Bank National Association (the "Adviser") serves as
investment adviser to each of the Funds. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the
"Distributor") serves as the distributor of the Funds' shares. SEI Financial
Management Corporation (the "Administrator") serves as the administrator of
the Funds. See "Management" and "Distributor."
OFFERING PRICES Class A Shares of the Funds are sold at net asset value plus
a maximum sales charge of 2.00% for Limited Term Income Fund, 3.00% for
Intermediate Government Bond Fund, and 3.75% for Intermediate Term Income
Fund and Fixed Income Fund. These sales charges are reduced on purchases of
$50,000 or more. Purchases of $1 million or more of Class A Shares are not
subject to an initial sale charge, but a contingent deferred sales charge of
1.00% will be imposed on such purchases in the event of redemption within 24
months following the purchase. Class A Shares of the Funds otherwise are
redeemed at net asset value without any additional charge. Class A Shares of
each Fund are subject to a shareholder servicing fee computed at an annual
rate of 0.25% of the average daily net assets of that class. See "Investing
in the Funds -- Alternative Sales Charge Options." Class B Shares of the
Funds are sold at net asset value without an initial sales charge. Class B
Shares of each Fund are subject to Rule 12b-1 distribution and shareholder
servicing fees computed at an annual rate totaling 1.00% of the average
daily net assets of that class. If Class B Shares are redeemed within six
years after purchase, they are subject to a contingent deferred sales charge
declining from 5.00% in the first year to zero after six years. Class B
Shares automatically convert into Class A Shares approximately eight years
after purchase. See "Investing in the Funds -- Alternative Sales Charge
Options."
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS The minimum initial investment is
$1,000 ($250 for IRAs) for each Fund. Subsequent investments must be $100 or
more. Regular investment in the Funds is simplified through the Systematic
Investment Program through which monthly purchases of $100 or more are
possible. See "Investing in the Funds -- Minimum Investment Required" and
"-- Systematic Investment Program."
EXCHANGES Shares of any Fund may be exchanged for the same class of shares
of other funds in the FAIF family at the shares' respective net asset values
with no additional charge. See "Investing in the Funds -- Exchange
Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net
asset value next determined after receipt of a redemption request by the
Funds' transfer agent, less any applicable contingent deferred sales charge.
Each Fund may, upon 60 days written notice, redeem an account if the
account's net asset value falls below $500. See "Investing in the Funds" and
"Redeeming Shares."
RISKS TO CONSIDER Each of the Funds is subject to (i) interest rate risk
(the risk that increases in market interest rates will cause declines in the
value of debt securities held by a Fund); (ii) credit risk (the risk that
the issuers of debt securities held by a Fund default in making required
payments); and (iii) call or prepayment risk (the risk that a borrower may
exercise the right to prepay a debt obligation before its stated maturity,
requiring a Fund to reinvest the prepayment at a lower interest rate). In
addition, those Funds which may invest in mortgage-backed securities are
subject to certain additional risks associated with investing in securities
representing interests in, or secured by, pools of residential mortgage
loans. The Funds also may, in order to attempt to reduce risk, invest in
exchange traded put and call options on interest rate futures contracts and
on interest rate indices. See "Investment Objectives and Policies -- Risks
to Consider" and "Special Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or
a shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an
investor's behalf.
FEES AND EXPENSES
CLASS A SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
LIMITED INTERMEDIATE
TERM INTERMEDIATE FIXED GOVERNMENT
INCOME TERM INCOME INCOME BOND
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases (as a percentage of
offering price)(1) 2.00% 3.75% 3.75% 3.00%
Maximum sales load imposed on
reinvested dividends None None None None
Deferred sales load None None None None
Redemption fees None None None None
Exchange fees None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after
voluntary fee waivers)(2) 0.46% 0.52% 0.53% 0.52%
Rule 12b-1 fees(2) 0% 0% 0.25%(3) 0%
Other expenses (after voluntary
fee waivers and reimbursements)(2) 0.14% 0.18% 0.17% 0.18%
Total fund operating expenses (after
voluntary fee waivers and
reimbursements)(2) 0.60% 0.70% 0.95% 0.70%
EXAMPLE(4)
You would pay the following expenses on a $1,000 investment, assuming (i) the
maximum applicable sales charge for all funds; (ii) a 5% annual return; and
(iii) redemption at the end of each time period:
1 year $26 $ 44 $ 47 $ 37
3 years $39 $ 59 $ 67 $ 52
5 years $53 $ 75 $ 88 $ 68
10 years $94 $121 $150 $114
</TABLE>
(1) The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. Purchases of $1 million or more of Class
A Shares are not subject to an initial sales charge, but a contingent
deferred sales charge of 1.00% will be imposed on such purchases in the
event of redemption within 24 months following the purchase. See "Investing
in the Funds -- Alternative Sales Charge Options."
(2) The Adviser, the Distributor and the Administrator intend to waive a portion
of their fees and/or reimburse expenses on a voluntary basis, and the
amounts shown reflect these waivers and reimbursements as of the date of
this Prospectus. Each of these persons intends to maintain such waivers and
reimbursements in effect for the current fiscal year but reserves the right
to discontinue such waivers and reimbursements at any time in its sole
discretion. Absent any fee waivers, investment advisory fees for each Fund
as an annualized percentage of average daily net assets would be 0.70%; Rule
12b-1 fees calculated on such basis would be 0.25%; and total fund operating
expenses calculated on such basis would be 1.09% for Limited Term Income
Fund, 1.13% for Intermediate Term Income Fund, 1.12% for Fixed Income Fund
and 1.10% for Intermediate Government Bond Fund. Other expenses includes an
administration fee.
(3) Of this amount, 0.25% is designated as a shareholder servicing fee and none
as a distribution fee.
(4) Absent the fee waivers and reimbursements referred to in (2) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Limited Term Income Fund, $31, $54, $79 and $150; Intermediate Term Income
Fund, $49, $72, $97 and $170; Fixed Income Fund, $48, $72, $97 and $169; and
Intermediate Government Bond Fund, $41, $64, $89 and $160.
CLASS B SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
LIMITED INTERMEDIATE
TERM INTERMEDIATE FIXED GOVERNMENT
INCOME TERM INCOME INCOME BOND
FUND FUND FUND FUND
<S> <C> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases (as a percentage of
offering price) None None None None
Maximum sales load imposed on
reinvested dividends None None None None
Maximum contingent deferred sales
charge (as a percentage of original
purchase price or redemption
proceeds, as applicable) 5.00% 5.00% 5.00% 5.00%
Redemption fees None None None None
Exchange fees None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after
voluntary fee waivers and
reimbursements)(1) 0.46% 0.52% 0.53% 0.52%
Rule 12b-1 fees 1.00%(2) 1.00%(2) 1.00%(2) 1.00 %(2)
Other expenses (after voluntary fee
waivers and reimbursements)(1) 0.14% 0.18% 0.17% 0.18%
Total fund operating expenses (after
voluntary fee waivers and
reimbursements)(1) 1.60% 1.70% 1.70% 1.70%
EXAMPLE:
ASSUMING REDEMPTION(3)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return; (ii) redemption at the end of each time period; and (iii) payment
of the maximum applicable contingent deferred sales charge of 5% in year 1, 4%
in year 3, 2% in year 5, and automatic conversion at the end of year 8:
1 year $ 66 $ 67 $ 67 $ 67
3 years $ 90 $ 94 $ 94 $ 94
5 years $107 $112 $112 $112
10 years $163 $174 $181 $174
ASSUMING NO REDEMPTION(4)
You would pay the following expenses on the same investment, assuming no
redemption:
1 year $ 16 $ 17 $ 17 $ 17
3 years $ 50 $ 54 $ 54 $ 54
5 years $ 87 $ 92 $ 92 $ 92
10 years $163 $174 $181 $174
</TABLE>
(1) The Adviser and the Administrator intend to waive a portion of their fees
and/or reimburse expenses on a voluntary basis, and the amounts shown
reflect these waivers and reimbursements as of the date of this Prospectus.
Each of these persons intends to maintain such waivers and reimbursements in
effect for the current fiscal year but reserves the right to discontinue
such waivers and reimbursements at any time in its sole discretion. Absent
any fee waivers, investment advisory fees for each Fund as an annualized
percentage of average daily net assets would be 0.70%; and total fund
operating expenses calculated on such basis would be 1.84% for Limited Term
Income Fund, 1.88% for Intermediate Term Income Fund, 1.87% for Fixed Income
Fund and 1.85% for Intermediate Government Bond Fund. Other expenses
includes an administration fee.
(2) Of this amount, 0.25% is designated as a shareholder servicing fee and 0.75%
as a distribution fee.
(3) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Limited Term Income Fund, $69, $98, $120 and $196; Intermediate Term Income
Fund, $69, $99, $122 and $201; Fixed Income Fund, $69, $99, $121 and $199;
and Intermediate Government Bond Fund, $69, $98, $120 and $197.
(4) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Limited Term Income Fund, $19, $58, $100 and $196; Intermediate Term Income
Fund, $19, $59, $102 and $201; Fixed Income Fund, $19, $59, $101 and $199;
and Intermediate Government Bond Fund, $19, $58, $100 and $197.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund may
bear directly or indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the
foregoing tables and examples relates only to the Class A and Class B Shares
of the Funds. The Funds also offer Class C Shares which are subject to the
same expenses except that they bear no sales loads, distribution fees or
shareholder servicing fees.
The examples in the above tables are based on projected annual Fund
operating expenses after voluntary fee waivers and expense reimbursements by
the Adviser, the Distributor and the Administrator. Although these persons
intend to maintain such waivers in effect for the current fiscal year, any
such waivers are voluntary and may be discontinued at any time. Prior to fee
waivers, investment advisory fees accrue at the annual rate as a percentage
of average daily net assets of 0.70% for each of the Funds.
The Class A Shares of each Fund pay shareholder servicing fees to the
Distributor in an amount equaling 0.25% per year of each such class's
average daily net assets, and the Class B Shares of each Fund bear
distribution and shareholder servicing fees totaling 1.00% per year of each
such class's average daily net assets. The Distributor also receives the
sales charge for distributing the Funds' Class A Shares. Due to the
distribution and shareholder servicing fees paid by these classes of shares,
long-term shareholders may pay more than the equivalent of the maximum
front-end sales charges otherwise permitted by NASD rules. For additional
information, see "Distributor."
Other expenses include fees paid by each Fund to the Administrator for
providing various services necessary to operate the Funds. These include
shareholder servicing and certain accounting and other services. The
Administrator provides these services for a fee calculated at an annual rate
of 0.12% of average daily net assets of each Fund subject to a minimum of
$50,000 per Fund per fiscal year; provided, that to the extent that the
aggregate net assets of all First American funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. Other expenses of the Funds
also includes the cost of maintaining shareholder records, furnishing
shareholder statements and reports, and other services. Investment advisory
fees, administrative fees and other expenses are reflected in the Funds'
daily dividends and are not charged to individual shareholder accounts.
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction
with the Funds' financial statements, the related notes thereto and the
independent auditors' report of KPMG Peat Marwick LLP appearing in FAIF's
annual report to shareholders for the year ended September 30, 1996. Further
information about the Funds' performance is contained in such annual report
to shareholders, which may be obtained without charge by calling (800)
637-2548 or by writing SEI Financial Services Company, Oaks, Pennsylvania
19456.
For the periods ended September 30,
For a share outstanding throughout the period
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
LIMITED TERM INCOME FUND
Class A
1996 $ 9.92 $0.58 $(0.01) $(0.58)
1995 9.85 0.56 0.07 (0.56)
1994 10.06 0.44 (0.22) (0.43)
1993(1) 10.00 0.29 0.07 (0.30)
INTERMEDIATE TERM INCOME FUND
Class A
1996 $ 9.94 $0.55 $ -- $(0.55)
1995 9.55 0.59 0.38 (0.58)
1994 10.22 0.46 (0.56) (0.46)
1993(1) 10.00 0.41 0.29 (0.41)
FIXED INCOME FUND
Class A
1996 $10.98 $0.61 $(0.11) $(0.61)
1995 10.37 0.66 0.61 (0.63)
1994 11.38 0.57 (0.89) (0.57)
1993 11.13 0.62 0.36 (0.61)
1992 10.59 0.66 0.60 (0.66)
1991(2) 10.01 0.65 0.58 (0.65)
1990(3) 10.44 0.74 (0.26) (0.74)
1989(3) 10.13 0.74 0.31 (0.74)
1988(3)(4) 10.03 0.62 0.13 (0.65)
Class B
1996 $10.94 $0.52 $(0.11) $(0.53)
1995 10.35 0.58 0.60 (0.56)
1994(5) 10.54 0.08 (0.17) (0.10)
INTERMEDIATE GOVERNMENT BOND FUND
Class A
1996 $ 9.29 $0.54 $(0.10) $(0.54)
1995 8.98 0.54 0.31 (0.54)
1994 9.52 0.41 (0.51) (0.39)
1993 10.18 0.44 0.02 (0.44)
1992 10.25 0.60 0.28 (0.60)
1991(2) 10.01 0.65 0.24 (0.65)
1990(3) 10.05 0.75 (0.04) (0.75)
1989(3) 9.99 0.74 0.06 (0.74)
1988(3)(4) 10.03 0.58 (0.01) (0.61)
*Total return excludes sales charges.
+Returns, excluding sales charges, are for the period indicated and have not
been annualized.
(1) Commenced operations on December 14, 1992. All ratios for the period have
been annualized.
(2) On September 3, 1991, the Board of Directors of FAIF approved a change in
FAIF's fiscal year end from October 31 to September 30, effective September
30, 1991. All ratios for the period have been annualized.
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME TO ASSETS
FROM CAPITAL VALUE END OF PERIOD AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO
GAINS OF PERIOD TOTAL RETURN* (000) ASSETS ASSETS WAIVERS) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 9.91 5.93% $ 7,627 0.60% 5.80% 1.09% 61%
-- 9.92 6.57 9,977 0.60 5.60 1.22 120
-- 9.85 2.21 9,509 0.60 4.17 1.23 48
-- 10.06 3.61+ 121,800 0.60 3.61 1.27 104
$ (0.01) $ 9.93 5.63% $ 2,213 0.70% 5.43% 1.13% 161%
-- 9.94 10.51 2,437 0.70 5.97 1.19 69
(0.11) 9.55 (1.05) 3,208 0.69 2.48 1.24 177
(0.07) 10.22 7.21+ 67,291 0.70 4.90 1.29 163
$ (0.10) $10.77 4.64% $ 8,332 0.95% 5.55% 1.12% 108%
(0.03) 10.98 12.78 7,853 0.86 6.14 1.19 106
(0.12) 10.37 (2.92) 8,028 0.68 3.83 1.06 142
(0.12) 11.38 9.20 53,601 0.70 5.65 1.14 91
(0.06) 11.13 12.34 5,645 0.99 6.12 2.68 180
-- 10.59 12.48+ 6,045 0.99 6.85 4.11 176
(0.17) 10.01 5.14 2,209 1.07 7.49 5.46 144
-- 10.44 10.93 555 1.22 7.26 22.44 157
-- 10.13 8.07+ 240 0.96 7.18 20.70 93
$ (0.10) $10.72 3.93% $ 16,092 1.70% 4.81% 1.87% 108%
(0.03) 10.94 11.75 7,280 1.70 5.12 1.94 106
-- 10.35 (0.88)+ 115 1.70 4.89 1.92 142
$ -- $ 9.19 4.85% $ 3,320 0.70% 5.85% 1.10% 29%
-- 9.29 9.82 2,860 0.70 6.10 1.22 17
(0.05) 8.98 (1.13) 1,977 0.53 4.49 2.14 74
(0.68) 9.52 4.99 3,716 0.71 4.00 4.73 182
(0.35) 10.18 8.88 589 0.99 6.03 14.14 101
-- 10.25 9.13+ 1,756 0.99 6.99 6.76 100
-- 10.01 7.41 1,573 1.08 7.57 5.55 40
-- 10.05 8.35 1,501 1.19 7.49 9.65 72
-- 9.99 6.18+ 375 0.95 6.78 17.20 0
</TABLE>
(3) For the period ended October 31.
(4) Commenced operations on December 22, 1987. All ratios for the period have
been annualized.
(5) Class B shares have been offered since August 15, 1994. All ratios for the
period have been annualized.
THE FUNDS
FAIF is an open-end management investment company which offers shares in
several different mutual funds (collectively, the "FAIF Funds"), each of
which evidences an interest in a separate and distinct investment portfolio.
Shareholders may purchase shares in each FAIF Fund through three separate
classes (Class A, Class B and Class C) which provide for variations in
distribution costs, shareholder servicing fees, voting rights and dividends.
Except for these differences among classes, each share of each FAIF Fund
represents an undivided proportionate interest in that fund. FAIF is
incorporated under the laws of the State of Maryland, and its principal
offices are located at Oaks, Pennsylvania 19456.
This Prospectus relates only to the Class A and Class B Shares of the Funds
named on the cover hereof. Information regarding the Class C Shares of these
Funds and regarding the Class A, Class B and Class C Shares of the other
FAIF Funds is contained in separate prospectuses that may be obtained from
FAIF's Distributor, SEI Financial Services Company, Oaks, Pennsylvania
19456, or by calling (800) 637-2548. The Board of Directors of FAIF may
authorize additional series or classes of common stock in the future.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The
Funds' investment objectives are not fundamental and therefore may be
changed without a vote of shareholders. Such changes could result in a Fund
having investment objectives different from those which shareholders
considered appropriate at the time of their investment in a Fund.
Shareholders will receive written notification at least 30 days prior to any
change in a Fund's investment objectives. Each of the Funds is a diversified
investment company, as defined in the Investment Company Act of 1940 (the
"1940 Act").
If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from
changes in asset values will not be deemed to violate the limitation except
in the case of the limitation on illiquid investments. A Fund which is
limited to investing in securities with specified ratings is not required to
sell a security if its rating is reduced or discontinued after purchase, but
the Fund may consider doing so. However, in no event will more than 5% of
any Fund's net assets be invested in non-investment grade securities.
Descriptions of the rating categories of Standard & Poor's Corporation
("Standard & Poor's") and Moody's Investors Service, Inc. ("Moody's") are
contained in the Statement of Additional Information.
This section also contains information concerning certain investment risks
borne by Fund shareholders under the heading "-- Risks to Consider." Further
information concerning the securities in which the Funds may invest and
related matters is set forth under "Special Investment Methods."
LIMITED TERM INCOME FUND, INTERMEDIATE TERM INCOME FUND,
AND FIXED INCOME FUND
OBJECTIVES. Limited Term Income Fund has an objective of providing current
income while attempting to provide a high degree of principal stability.
Intermediate Term Income Fund has an objective of providing current income
to the extent consistent with preservation of capital. Fixed Income Fund has
an objective of providing a high level of current income consistent with
limited risk to capital.
INVESTMENT POLICIES. Each of these Funds invests in investment grade debt
securities, at least 65% of which are United States Government obligations
and corporate debt obligations and mortgage-backed and asset-backed
securities rated at least A by Standard & Poor's or Moody's or which have
been assigned an equivalent rating by another nationally recognized
statistical rating organization.
Under normal market conditions, the weighted average maturity of the
securities held by Limited Term Income Fund will range from 6 months to 2
years; that of Intermediate Term Income Fund will range from 2 to 7 years;
and that of Fixed Income Fund will not exceed 15 years.
These Funds' permitted investments include notes, bonds and discount notes
of United States Government agencies or instrumentalities; domestic issues
of corporate debt obligations having floating or fixed rates of interest and
rated at least BBB by Standard & Poor's or Baa by Moody's, or which have
been assigned an equivalent rating by another nationally recognized
statistical rating organization, or which are of comparable quality in the
judgment of the Adviser; other fixed income securities, including
mortgage-backed securities, which are rated in one of the four highest
categories by a nationally recognized statistical rating organization or
which are of comparable quality in the judgment of the Adviser; and
commercial paper which is rated A-1 by Standard & Poor's or P-1 by Moody's
or which has been assigned an equivalent rating by another nationally
recognized statistical rating organization. Unrated securities deemed to be
of comparable quality to rated securities as set forth above will not exceed
10% in the aggregate of the value of the total assets of any of these Funds.
At least 65% of the total assets of Fixed Income Fund will be invested in
fixed rate obligations.
Subject to the foregoing limitations, each of these Funds may invest in the
following kinds of securities, as described under the related headings under
"Special Investment Methods:" (i) mortgage-backed securities (provided that
Limited Term Income Fund will not invest in interest-only, principal-only or
inverse floating rate mortgage-backed securities, and each of Intermediate
Term Income Fund and Fixed Income Fund will not invest more than 10% of its
total assets in the aggregate in these kinds of securities); (ii)
asset-backed securities; and (iii) bank instruments.
In addition, each of these Funds may (i) invest up to 15% of its total
assets in foreign securities payable in United States dollars; (ii) enter
into repurchase agreements; (iii) in order to attempt to reduce risk, invest
in exchange traded put and call options on interest rate futures contracts
and on interest rate indices; (iv) purchase securities on a when-issued or
delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under
"Special Investment Methods."
Limited Term Income Fund also may purchase investment-type insurance
products such as Guaranteed Investment Contracts ("GICs"). A GIC is a
deferred annuity under which the purchaser agrees to pay money to an insurer
(either in a lump sum or in installments) and the insurer promises to pay
interest at a guaranteed rate for the life of the contract. GICs may have
fixed or variable interest rates. A GIC is a general obligation of the
issuing insurance company. The purchase price paid for a GIC becomes part of
the general assets of the insurer, and the contract is paid at maturity from
the general assets of the insurer. In general, GICs are not assignable or
transferable without the permission of the issuing insurance companies and
can be redeemed before maturity only at a substantial discount or penalty.
GICs therefore are usually considered to be illiquid investments. Limited
Term Income Fund will purchase only GICs which are obligations of insurance
companies with a policyholder's rating of A or better by A.M. Best Company.
A description of these ratings is contained in the Statement of Additional
Information.
Although these Funds will not make direct purchases of common or preferred
stocks or rights to acquire common or preferred stocks, they may invest in
debt securities which are convertible into or exchangeable for, or which
carry warrants or other rights to acquire, such stocks. Equity interests
acquired through conversion, exchange or exercise of rights to acquire stock
will be disposed of by these Funds as soon as practicable in an orderly
manner.
For temporary defensive purposes during times of unusual market conditions,
these Funds may without limitation hold cash or invest in cash items. The
Funds also may invest not more than 35% of their total assets in cash and
cash items in order to utilize assets awaiting normal investment. Cash items
may include short-term obligations such as rated commercial paper and
variable amount master demand notes; time and savings deposits (including
certificates of deposit); bankers acceptances; obligations of the United
States Government or its agencies or instrumentalities; repurchase
agreements collateralized by eligible investments; and securities of other
mutual funds which invest primarily in debt securities with remaining
maturities of 13 months or less (which investments also are subject to the
advisory fee). Such other mutual funds include money market funds advised by
the Adviser, subject to certain restrictions contained in an exemptive order
issued by the Securities and Exchange Commission with respect thereto.
INTERMEDIATE GOVERNMENT BOND FUND
OBJECTIVE. Intermediate Government Bond Fund has an objective of providing
current income to the extent consistent with preservation of capital.
INVESTMENT POLICIES. Under normal market conditions, Intermediate Government
Bond Fund invests at least 65% of its total assets in securities issued or
guaranteed by the United States Government and its agencies and
instrumentalities. The Fund's share price and yield, however, are not
guaranteed or insured by the United States Government or any of its agencies
or instrumentalities. Under normal market conditions, the weighted average
maturity of the securities held by this Fund will range from 2 to 7 years.
The types of securities in which the Fund may invest include direct
obligations of the United States Treasury, such as United States Treasury
bonds, notes and bills. In addition, the Fund may invest in obligations
issued or guaranteed as to principal and interest by agencies of the United
States Government or by instrumentalities which have been established or
sponsored by the United States Government, provided, in each case, that
interest on the obligations is excludable from state taxable income by the
holders thereof. Such agencies and instrumentalities include, but are not
limited to, the Farm Credit System Financial Assistance Corporation, the
Federal Home Loan Banks System, the Student Loan Marketing Association and
the Tennessee Valley Authority. Obligations issued or guaranteed by some of
these agencies or instrumentalities are not guaranteed by the United States
Government, but instead rely solely on the assets and credit of the issuing
agency or instrumentality. The United States Treasury, agency and
instrumentality securities in which the Fund may invest include adjustable
rate securities and United States Treasury inflation-protection securities.
The principal amount of such inflation-protection securities is adjusted for
inflation, and periodic interest payments are an amount equal to a fixed
percentage of the inflation-adjusted principal amount.
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, invest in exchange traded put and call
options on interest rate futures contracts and on interest rate indices;
(iii) purchase securities on a when-issued or delayed-delivery basis; and
(iv) engage in the lending of portfolio securities. For information about
these investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in short-term government
securities maturing within 13 months from the date of purchase; or
repurchase agreements with respect to government securities; and securities
of other mutual funds which invest primarily in debt securities with
remaining maturities of 13 months or less (which investments also are
subject to the advisory fee). Such other mutual funds include money market
funds advised by the Adviser, subject to certain restrictions contained in
an exemptive order issued by the Securities and Exchange Commission with
respect thereto.. The Fund also may so invest not more than 35% of its total
assets in such investments in order to utilize assets awaiting normal
investment. See "Special Investment Methods -- Repurchase Agreements."
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks. These include the
following:
INTEREST RATE RISK. Interest rate risk is the risk that the value of a
fixed-rate debt security will decline due to changes in market interest
rates. Because the Funds invest in fixed-rate debt securities, they are
subject to interest rate risk. In general, when interest rates rise, the
value of a fixed-rate debt security declines. Conversely, when interest
rates decline, the value of a fixed-rate debt security generally increases.
Thus, shareholders in the Funds bear the risk that increases in market
interest rates will cause the value of their Fund's portfolio investments to
decline.
In general, the value of fixed-rate debt securities with longer maturities
is more sensitive to changes in market interest rates than the value of such
securities with shorter maturities. Thus, the net asset value of a Fund
which invests in securities with longer weighted average maturities, such as
Fixed Income Fund, should be expected to have greater volatility in periods
of changing market interest rates than that of a Fund which invests in
securities with shorter weighted average maturities, such as Limited Term
Income Fund. Similarly, the volatility of Intermediate Term Income Fund and
Intermediate Government Bond Fund generally should be expected to be between
that of Fixed Income Fund and Limited Term Income Fund. As described below
under "-- Mortgage-Backed Securities," it is more difficult to generalize
about the effect of changes in market interest rates on the values of
mortgage-backed securities.
Although the Adviser may engage in transactions intended to hedge the value
of the Funds' portfolios against changes in market interest rates, there is
no assurance that such hedging transactions will be undertaken or will
fulfill their purpose. See "Special Investment Methods -- Options
Transactions."
CREDIT RISK. Credit risk is the risk that the issuer of a debt security will
fail to make payments on the security when due. Because the Funds invest in
debt securities, they are subject to credit risk.
Securities issued or guaranteed by the United States Government generally
are viewed as carrying minimal credit risk. Securities issued by
governmental entities but not backed by the full faith and credit of the
United States, and securities issued by private entities, are subject to
higher levels of credit risk. The ratings and certain other requirements
which apply to the Funds' permitted investments, as described elsewhere in
this Prospectus, are intended to limit the amount of credit risk undertaken
by the Funds. Nevertheless, shareholders in the Funds bear the risk that
payment defaults could cause the value of their Fund's portfolio investments
to decline. Investors also should note that Limited Term Income Fund,
Intermediate Term Income Fund and Fixed Income Fund can invest in debt
securities rated as low as BBB by Standard & Poor's or Baa by Moody's, or
which have been assigned an equivalent rating by another nationally
recognized statistical rating organization, or which are of comparable
quality in the judgment of the Adviser. Although these rating categories are
investment grade, obligations with these ratings are viewed as having
speculative characteristics and carry a somewhat higher risk of default than
obligations rated in the higher investment grade categories.
CALL RISK. Many corporate bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In
general, it is advantageous for a corporate issuer to call its bonds if they
can be refinanced through the issuance of new bonds which bear a lower
interest rate than that of the called bonds. Call risk is the risk that
corporate bonds will be called during a period of declining market interest
rates so that such refinancings may take place.
If a bond held by a Fund is called during a period of declining interest
rates, the Fund probably will have to reinvest the proceeds received by it
at a lower interest rate than that borne by the called bond, thus resulting
in a decrease in the Fund's income. To the extent that the Funds invest in
callable corporate bonds, Fund shareholders bear the risk that reductions in
income will result from the call of bonds. Most United States Government
securities are not callable before their stated maturity, although U.S.
agency securities often are.
MORTGAGE-BACKED SECURITIES. Because residential mortgage loans generally can
be prepaid in whole or in part by the borrowers at any time without any
prepayment penalty, the holder of a mortgage-backed security which
represents an interest in a pool of such mortgage loans is subject to a form
of call risk which is generally called "prepayment risk." In addition, it is
more difficult to predict the effect of changes in market interest rates on
the return on mortgaged-backed securities than to predict the effect of such
changes on the return of a conventional fixed-rate debt instrument; the
magnitude of such effects may be greater in some cases; and the return on
certain types of mortgage-backed securities, such as interest-only,
principal-only and inverse floating rate mortgage-backed securities, is
particularly sensitive to changes in interest rates and in the rate at which
the mortgage loans underlying the securities are prepaid by borrowers. For
these reasons, a Fund's investments in mortgage-backed securities may
involve greater risks than investments in governmental or corporate bonds.
For further information, see "Special Investment Methods -- Mortgage-Backed
Securities."
OTHER. Investors also should review "Special Investment Methods" for
information concerning risks associated with certain investment techniques
which may be utilized by the Funds.
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing
the overall management and electing the officers of FAIF. Subject to the
overall direction and supervision of the Board of Directors, the Adviser
acts as investment adviser for and manages the investment portfolios of
FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis,
Minnesota 55480, acts as the Funds' investment adviser through its First
Asset Management group. The Adviser has acted as an investment adviser to
FAIF since its inception in 1987 and has acted as investment adviser to
First American Funds, Inc. since 1982 and to First American Strategy Funds,
Inc. since 1996. As of December 31, 1996, the Adviser was managing accounts
with an aggregate value of approximately $35 billion, including mutual fund
assets in excess of $12 billion. First Bank System, Inc., 601 Second Avenue
South, Minneapolis, Minnesota 55480, is the holding company for the Adviser.
Each of the Funds has agreed to pay the Adviser monthly fees calculated on
an annual basis equal to 0.70% of its average daily net assets. The Adviser
may, at its option, waive any or all of its fees, or reimburse expenses,
with respect to any Fund from time to time. Any such waiver or reimbursement
is voluntary and may be discontinued at any time. The Adviser also may
absorb or reimburse expenses of the Funds from time to time, in its
discretion, while retaining the ability to be reimbursed by the Funds for
such amounts prior to the end of the fiscal year. This practice would have
the effect of lowering a Fund's overall expense ratio and of increasing
yield to investors, or the converse, at the time such amounts are absorbed
or reimbursed, as the case may be.
The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from being
affiliated with companies principally engaged in those activities. In
addition, administrative and judicial interpretations of the Glass-Steagall
Act prohibit bank holding companies and their bank and nonbank subsidiaries
from organizing, sponsoring or controlling registered open-end investment
companies that are continuously engaged in distributing their shares. Bank
holding companies and their bank and nonbank subsidiaries may serve,
however, as investment advisers to registered investment companies, subject
to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, the Funds have received an opinion from
their counsel that the Adviser is not prohibited from performing the
investment advisory services described above, and that FBS Investment
Services, Inc. ("ISI"), a wholly owned broker-dealer subsidiary of the
Adviser, is not prohibited from serving as a Participating Institution as
described herein. In the event of changes in federal or state statutes or
regulations or judicial and administrative interpretations or decisions
pertaining to permissible activities of bank holding companies and their
bank and nonbank subsidiaries, the Adviser and ISI might be prohibited from
continuing these arrangements. In that event, it is expected that the Board
of Directors would make other arrangements and that shareholders would not
suffer adverse financial consequences.
PORTFOLIO MANAGERS
MARTIN L. JONES is portfolio manager for Limited Term Income Fund,
Intermediate Term Income Fund and Fixed Income Fund. Martin heads the Fixed
Income Group of the Adviser and has over 20 years of investment experience.
Formerly with Harris Trust & Savings Bank, Dillon, Read & Co., and Loeb
Rhoades & Co., Martin received his bachelor's degree from Texas Tech
University, his master's degree from University of Texas, and his master's
in business administration degree from the University of Chicago.
CHRISTOPHER L. DRAHN is portfolio manager for Intermediate Government Bond
Fund. Chris joined the fixed income department of the Adviser in 1985,
having previously served in its securities lending and corporate trust
areas. He received his master's degree in business administration from the
University of Minnesota and is a Chartered Financial Analyst.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the Adviser.
As compensation for its services to the Funds, the Custodian is paid monthly
fees calculated on an annual basis equal to 0.03% of the applicable Fund's
average daily net assets. In addition, the Custodian is reimbursed for its
out-of-pocket expenses incurred while providing its services to the Funds.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation,
Oaks, Pennsylvania 19456. The Administrator, a wholly-owned subsidiary of
SEI Investments Company, provides the Funds with certain administrative
services necessary to operate the Funds. These services include shareholder
servicing and certain accounting and other services. The Administrator
provides these services for a fee calculated at an annual rate of 0.12% of
each Fund's average daily net assets, subject to a minimum administrative
fee during each fiscal year of $50,000 per Fund; provided, that to the
extent that the aggregate net assets of all First American funds exceed $8
billion, the percentage stated above is reduced to 0.105%. From time to
time, the Administrator may voluntarily waive its fees or reimburse expenses
with respect to any of the Funds. Any such waivers or reimbursements may be
made at the Administrator's discretion and may be terminated at any time.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent
is 1004 Baltimore, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of
the Funds and of the other FAIF Funds. The Distributor is a Pennsylvania
corporation and is the principal distributor for a number of investment
companies. The Distributor is a wholly-owned subsidiary of SEI Investments
Company and is located at Oaks, Pennsylvania 19456. The Distributor is not
affiliated with the Adviser, First Bank System, Inc., the Custodian or their
respective affiliates.
Shares of the Funds are distributed through the Distributor and securities
firms, financial institutions (including, without limitation, banks) and
other industry professionals (the "Participating Institutions") which enter
into sales agreements with the Distributor to perform share distribution or
shareholder support services.
FAIF has adopted a Plan of Distribution for the Class A Shares pursuant to
Rule 12b-1 under the 1940 Act (the "Class A Distribution Plan"). The Class A
Distribution Plan authorizes the Distributor to retain the sales charge paid
upon purchase of Class A Shares, except that portion which is reallowed to
Participating Institutions. See "Investing in the Funds -- Alternative Sales
Charge Options." Each Fund also pays the Distributor a shareholder servicing
fee monthly at an annual rate of 0.25% of the Fund's Class A Shares' average
daily net assets. The shareholder servicing fee is intended to compensate
the Distributor for ongoing servicing and/or maintenance of shareholder
accounts and may be used by the Distributor to provide compensation to
institutions through which shareholders hold their shares for ongoing
servicing and/or maintenance of shareholder accounts. The shareholder
servicing fee may be used to provide compensation for shareholder servicing
provided by "one-stop" mutual fund networks through which the Funds are made
available.
In addition, the Distributor and the Adviser and its affiliates may provide
compensation for services provided by such networks from their own
resources. From time to time, the Distributor may voluntarily waive its fees
with respect to the Class A Shares of any of the Funds. Any such waivers may
be made at the Distributor's discretion and may be terminated at any time.
Under another distribution plan (the "Class B Distribution Plan") adopted in
accordance with Rule 12b-1 under the 1940 Act, the Funds may pay to the
Distributor a sales support fee at an annual rate of up to 0.75% of the
average daily net assets of the Class B Shares of the Funds, which fee may
be used by the Distributor to provide compensation for sales support and
distribution activities with respect to Class B Shares of the Funds. This
fee is calculated and paid each month based on the average daily net assets
for that month. In addition to this fee, the Distributor is paid a
shareholder servicing fee of 0.25% of the average daily net assets of the
Class B Shares pursuant to a service plan (the "Class B Service Plan"),
which fee may be used by the Distributor to provide compensation for ongoing
servicing and/or maintenance of shareholder accounts with respect to Class B
Shares of the Funds. Although Class B Shares are sold without an initial
sales charge, the Distributor pays a total of 4.25% of the amount invested
(including a prepaid service fee of 0.25% of the amount invested) to dealers
who sell Class B Shares (excluding exchanges from other Class B Shares in
the First American family). The service fee payable under the Class B
Service Plan is prepaid for the first year as described above.
The Class A and Class B Distribution Plans recognize that the Adviser, the
Administrator, the Distributor, and any Participating Institution may in
their discretion use their own assets to pay for certain additional costs of
distributing Fund shares. Any arrangement to pay such additional costs may
be commenced or discontinued by any of these persons at any time. In
addition, while there is no sales charge on purchases of Class A Shares of
$1 million and more, the Adviser may pay amounts to broker-dealers from its
own assets with respect to such sales. ISI, a subsidiary of the Adviser, is
a Participating Institution.
INVESTING IN THE FUNDS
SHARE PURCHASES
Shares of the Funds are sold at their net asset value, next determined after
an order is received, plus any applicable sales charge, on days on which the
New York Stock Exchange is open for business. Shares may be purchased as
described below. The Funds reserve the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. Shares may be purchased through a financial
institution which has a sales agreement with the Distributor. An investor
may call his or her financial institution to place an order. Purchase orders
must be received by the financial institution by the time specified by the
institution to be assured same day processing, and purchase orders must be
transmitted to and received by the Funds by 3:00 p.m. Central time in order
for shares to be purchased at that day's price. It is the financial
institution's responsibility to transmit orders promptly.
BY MAIL. An investor may place an order to purchase shares of the Funds
directly through the Transfer Agent. Orders by mail will be executed upon
receipt of payment by the Transfer Agent. If an investor's check does not
clear, the purchase will be cancelled and the investor could be liable for
any losses or fees incurred. Third-party checks, credit cards, credit card
checks and cash will not be accepted. When purchases are made by check, the
proceeds of redemptions of the shares purchased are not available until the
Transfer Agent is reasonably certain that the purchase payment has cleared,
which could take up to ten calendar days from the purchase date. In order to
purchase shares by mail, an investor must:
* complete and sign the new account form;
* enclose a check made payable to (Fund name); and
* mail both to DST Systems, Inc., P.O. Box 419382, Kansas City, Missouri
64141-6382.
After an account is established, an investor can purchase shares by mail by
enclosing a check and mailing it to DST Systems, Inc. at the above address.
BY WIRE. To purchase shares of a Fund by wire, call (800) 637-2548 before
3:00 p.m. Central time. All information needed will be taken over the
telephone, and the order will be considered placed when the Custodian
receives payment by wire. If the Custodian does not receive the wire by 3:00
p.m. Central time, the order will be executed the next business day. Federal
funds should be wired as follows: First Bank National Association,
Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST Systems:
Account Number 160234580266; For Further Credit To: (Investor Name and Fund
Name). Shares cannot be purchased by Federal Reserve wire on days on which
the New York Stock Exchange is closed and on federal holidays upon which
wire transfers are restricted.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment for each Fund is $1,000 unless the investment
is in a retirement plan, in which case the minimum investment is $250. The
minimum subsequent investment is $100. The Funds reserve the right to waive
the minimum investment requirement for employees of First Bank National
Association, First Trust National Association and First Bank System, Inc.
and their respective affiliates.
ALTERNATIVE SALES CHARGE OPTIONS
THE TWO ALTERNATIVES: OVERVIEW. An investor may purchase shares of a Fund at
a price equal to its net asset value per share plus a sales charge which, at
the investor's election, may be imposed either (i) at the time of the
purchase (the Class A "initial sales charge alternative"), or (ii) on a
contingent deferred basis (the Class B "deferred sales charge alternative").
Each of Class A and Class B represents a Fund's interest in its portfolio of
investments. The classes have the same rights and are identical in all
respects except that (i) Class B Shares bear the expenses of the contingent
deferred sales charge arrangement and distribution and service fees
resulting from such sales arrangement, while Class A Shares bear only
shareholder servicing fees; (ii) each class has exclusive voting rights with
respect to approvals of any Rule 12b-1 distribution plan related to that
specific class (although Class B shareholders may vote on any distribution
fees imposed on Class A Shares as long as Class B Shares convert into Class
A Shares); (iii) only Class B Shares carry a conversion feature; and (iv)
each class has different exchange privileges. Sales personnel of financial
institutions distributing the Funds' shares, and other persons entitled to
receive compensation for selling shares, may receive differing compensation
for selling Class A and Class B Shares.
These alternative purchase arrangements permit an investor to choose the
method of purchasing shares that is more beneficial to that investor. The
amount of a purchase, the length of time an investor expects to hold the
shares, and whether the investor wishes to receive dividends in cash or in
additional shares, will all be factors in determining which sales charge
option is best for a particular investor. An investor should consider
whether, over the time he or she expects to maintain the investment, the
accumulated sales charges on Class B Shares prior to conversion would be
less than the initial sales charge on Class A Shares, and to what extent the
differential may be offset by the expected higher yield of Class A Shares.
Class A Shares will normally be more beneficial to an investor if he or she
qualifies for reduced sales charges as described below. Accordingly, orders
for Class B Shares for $250,000 or more ordinarily will be treated as orders
for Class A Shares or declined.
The Directors of FAIF have determined that no conflict of interest currently
exists between the Class A and Class B Shares. On an ongoing basis, the
Directors, pursuant to their fiduciary duties under the 1940 Act and state
laws, will seek to ensure that no such conflict arises.
CLASS A SHARES.
WHAT CLASS A SHARES COST. Class A Shares of each Fund are offered on a
continuous basis at their next determined offering price, which is net asset
value, plus a sales charge as set forth below:
LIMITED TERM INCOME FUND:
<TABLE>
<CAPTION>
MAXIMUM AMOUNT
OF SALES CHARGE
SALES CHARGE AS SALES CHARGEAS REALLOWED TO
PERCENTAGE OF PERCENTAGE OF PARTICIPATING
OFFERING PRICE NET ASSET VALUE INSTITUTIONS
<S> <C> <C> <C>
Less than $50,000 2.00% 2.04% 1.80%
$50,000 but less than $100,000 1.50% 1.52% 1.35%
$100,000 but less than $250,000 1.00% 1.01% 0.90%
$250,000 but less than $500,000 0.75% 0.76% 0.68%
$500,000 but less than $1,000,000 0.50% 0.50% 0.45%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
INTERMEDIATE GOVERNMENT BOND FUND:
<TABLE>
<CAPTION>
MAXIMUM AMOUNT
OF SALES CHARGE
SALES CHARGE AS SALES CHARGE AS REALLOWED TO
PERCENTAGE OF PERCENTAGE OF PARTICIPATING
OFFERING PRICE NET ASSET VALUE INSTITUTIONS
<S> <C> <C> <C>
Less than $50,000 3.00% 3.09% 2.70%
$50,000 but less than $100,000 2.50% 2.56% 2.25%
$100,000 but less than $250,000 2.00% 2.04% 1.80%
$250,000 but less than $500,000 1.50% 1.52% 1.35%
$500,000 but less than $1,000,000 1.00% 1.01% 0.80%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
INTERMEDIATE TERM INCOME FUND AND FIXED INCOME FUND:
<TABLE>
<CAPTION>
MAXIMUM AMOUNT
OF SALES CHARGE
SALES CHARGE AS SALES CHARGE AS REALLOWED TO
PERCENTAGE OF PERCENTAGE OF PARTICIPATING
OFFERING PRICE NET ASSET VALUE INSTITUTIONS
<S> <C> <C> <C>
Less than $50,000 3.75% 3.90% 3.38%
$50,000 but less than $100,000 3.25% 3.36% 2.93%
$100,000 but less than $250,000 2.75% 2.83% 2.48%
$250,000 but less than $500,000 2.00% 2.04% 1.80%
$500,000 but less than $1,000,000 1.00% 1.01% 0.90%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
There is no initial sales charge on purchases of Class A Shares of $1
million or more. However, Participating Institutions will receive a
commission of 1.00% on such sales. Redemptions of Class A Shares purchased
at net asset value within 24 months of purchase will be subject to a
contingent deferred sales charge of 1.00% (unless a Participating
Institution waived its commission on the initial purchase). Class A Shares
that are redeemed will not be subject to this contingent deferred sales
charge to the extent that the value of the shares represents capital
appreciation of Fund assets or reinvestment of dividends or capital gain
distributions.
Net asset value is determined at 3:00 p.m. Central time Monday through
Friday except on (i) days on which there are not sufficient changes in the
value of a Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and (iii) on the
following federal holidays: New Year's Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. In
addition, net asset value will not be calculated on Good Friday.
DEALER CONCESSION. A dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid
to a dealer will be retained by the Distributor. In addition, the
Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs which will be paid by the Distributor
from the sales charge it receives or from any other source available to it.
Under any such program, the Distributor will provide promotional incentives,
in the form of cash or other compensation including merchandise, airline
vouchers, trips and vacation packages, to all dealers selling shares of the
Funds. Promotional incentives of these kinds will be offered uniformly to
all dealers and predicated upon the amount of shares of the Funds sold by
the dealer. Whenever 90% or more of a sales charge is paid to a dealer, that
dealer may be deemed to be an underwriter as defined in the Securities Act
of 1933.
The sales charge for shares sold other than through registered
broker/dealers will be retained by the Distributor. The Distributor may pay
fees to financial institutions out of the sales charge in exchange for sales
and/or administrative services performed on behalf of the institution's
customers in connection with the initiation of customer accounts and
purchases of Fund shares.
REDUCING THE CLASS A SALES CHARGE. The sales charge can be reduced on the
purchase of Class A Shares through (i) quantity discounts and accumulated
purchases, or (ii) signing a 13-month letter of intent:
* QUANTITY DISCOUNTS AND ACCUMULATED PURCHASES: As shown in the table
above, larger purchases of Class A Shares reduce the percentage sales
charge paid. Each Fund will combine purchases made on the same day by an
investor, the investor's spouse, and the investor's children under age
21 when it calculates the sales charge. In addition, the sales charge,
if applicable, is reduced for purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account.
The sales charge discount applies to the total current market value of
any Fund, plus the current market value of any other FAIF Fund and any
other mutual funds having a sales charge and distributed as part of the
First American family of funds. Prior purchases and concurrent purchases
of Class A Shares of any FAIF Fund will be considered in determining the
sales charge reduction. In order for an investor to receive the sales
charge reduction on Class A Shares, the Transfer Agent must be notified
by the investor in writing or by his or her financial institution at the
time the purchase is made that Fund shares are already owned or that
purchases are being combined.
* LETTER OF INTENT: If an investor intends to purchase at least $50,000 of
Class A Shares in a Fund and other FAIF Funds over the next 13 months,
the sales charge may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales charge
adjustment depending on the amount actually purchased within the
13-month period and a provision for the Custodian to hold a percentage
equal to the particular FAIF Fund's maximum sales charge rate of the
total amount intended to be purchased in escrow (in shares) for all FAIF
Funds until the purchase is completed.
The amount held in escrow for all FAIF Funds will be applied to the
investor's account at the end of the 13-month period after deduction of
the sales load applicable to the dollar value of shares actually
purchased. In this event, an appropriate number of escrowed shares may
be redeemed in order to realize the difference in the sales charge.
A letter of intent will not obligate the investor to purchase shares,
but if he or she does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased.
This letter may be dated as of a prior date to include any purchases
made within the past 90 days.
SALES OF CLASS A SHARES AT NET ASSET VALUE. Purchases of a Fund's Class A
Shares by the Adviser, the Sub-Adviser or any of their affiliates, or any of
their or FAIF's officers, directors, employees, retirees, sales
representatives, and partners, registered representatives of any
broker/dealer authorized to sell Fund shares, and full-time employees of
FAIF's general counsel, and members of their immediate families (i.e.,
parent, child, spouse, sibling, step or adopted relationships, and UTMA
accounts naming qualifying persons), may be made at net asset value without
a sales charge. A Fund's Class A Shares also may be purchased at net asset
value without a sales charge by fee-based registered investment advisers,
financial planners and registered broker/dealers who are purchasing shares
on behalf of their customers and by purchasers through "one-stop" mutual
fund networks through which the Funds are made available. In addition, Class
A Shares may be purchased at net asset value without a sales charge by
qualified defined contribution plans participating in the First American
401(k) Plan Program. Although there is no sales charge imposed on such
purchases, the Adviser may pay to Participating Institutions an amount of up
to 2.00% on such sales.
If Class A Shares of a Fund have been redeemed, the shareholder has a
one-time right, within 30 days, to reinvest the redemption proceeds in Class
A Shares of any FAIF Fund at the next-determined net asset value without any
sales charge. The Transfer Agent must be notified by the shareholder in
writing or by his or her financial institution of the reinvestment in order
to eliminate a sales charge. If the shareholder redeems his or her shares of
a Fund, there may be tax consequences.
In addition, purchases of Class A Shares of a Fund that are funded by
proceeds received upon the redemption (within 60 days of the purchase of
Fund shares) of shares of any unrelated open-end investment company that
charges a sales load and rollovers from retirement plans that utilize the
Funds as investment options may be made at net asset value. To make such a
purchase at net asset value, an investor or the investor's broker must, at
the time of purchase, submit a written request to the Transfer Agent that
the purchase be processed at net asset value pursuant to this privilege,
accompanied by a photocopy of the confirmation (or similar evidence) showing
the redemption from the unrelated fund. The redemption of the shares of the
non-related fund is, for federal income tax purposes, a sale upon which a
gain or loss may be realized.
CLASS B SHARES.
CONTINGENT DEFERRED SALES CHARGE. Class B Shares are sold at net asset value
without any initial sales charge. If an investor redeems Class B Shares
within eight years of purchase, he or she will pay a contingent deferred
sales charge at the rates set forth below. This charge is assessed on an
amount equal to the lesser of the then-current market value or the cost of
the shares being redeemed. Accordingly, no sales charge is imposed on
increases in net asset value above the initial purchase price or on shares
derived from reinvestment of dividends or capital gain distributions.
CONTINGENT DEFERRED
SALES CHARGE AS A
PERCENTAGE OF DOLLAR
AMOUNT SUBJECT TO
YEAR SINCE PURCHASE CHARGE
First 5.00%
Second 5.00%
Third 4.00%
Fourth 3.00%
Fifth 2.00%
Sixth 1.00%
Seventh None
Eighth None
Indetermining whether a particular redemption is subject to a contingent
deferred sales charge, it is assumed that the redemption is first of any
Class A Shares in the shareholder's Fund account; second, of any Class B
Shares held for more than eight years and Class B Shares acquired pursuant
to reinvestment of dividends or other distributions; and third, of Class B
Shares held longest during the eight-year period. This method should result
in the lowest possible sales charge.
The contingent deferred sales charge is waived on redemption of Class B
Shares (i) within one year following the death or disability (as defined in
the Internal Revenue Code) of a shareholder, and (ii) to the extent that the
redemption represents a minimum required distribution from an individual
retirement account or other retirement plan to a shareholder who has
attained the age of 70 1/2. A shareholder or his or her representative must
notify the Transfer Agent prior to the time of redemption if such
circumstances exist and the shareholder is eligible for this waiver.
CONVERSION FEATURE. At the end of the period ending eight years after the
beginning of the month in which the shares were issued, Class B Shares will
automatically convert to Class A Shares and will no longer be subject to the
Class B distribution and service fees. This conversion will be on the basis
of the relative net asset values of the two classes.
SYSTEMATIC EXCHANGE PROGRAM
Shares of a Fund may also be purchased through automatic monthly deductions
from a shareholder's account in the same class of shares of Prime
Obligations Fund of First American Funds, Inc. Under a systematic exchange
program, a shareholder enters an agreement to purchase a specified class of
shares of one or more Funds over a specified period of time, and initially
purchases Prime Obligations Fund shares of the same class in an amount equal
to the total amount of the investment. On a monthly basis a specified dollar
amount of shares of Prime Obligations Fund is exchanged for shares of the
same class of the Funds specified. The systematic exchange program of
investing a fixed dollar amount at regular intervals over time has the
effect of reducing the average cost per share of the Funds. This effect also
can be achieved through the systematic investment program described below.
Because purchases of Class A Shares are subject to an initial sales charge,
it may be beneficial for an investor to execute a Letter of Intent in
connection with the systematic exchange program. A shareholder may apply for
participation in this program through his or her financial institution or by
calling (800) 637-2548.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account and invested in Fund shares at the net asset
value next determined after an order is received, plus any applicable sales
charge. A shareholder may apply for participation in this program through
his or her financial institution or call (800) 637-2548.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval by the Fund and a determination
by the Fund and the Adviser that the securities to be exchanged are
acceptable. Securities accepted by a Fund will be valued in the same manner
that a Fund values its assets. The basis of the exchange will depend upon
the net asset value of Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds. Confirmations of each purchase
and redemption are sent to each shareholder. In addition, monthly
confirmations are sent to report all transactions and dividends paid during
that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends with respect to each Fund are declared and paid monthly to all
shareholders of record on the record date. Distributions of any net realized
long-term capital gains will be made at least once every 12 months.
Dividends and distributions are automatically reinvested in additional
shares of the Fund paying the dividend on payment dates at the ex-dividend
date net asset value without a sales charge, unless shareholders request
cash payments on the new account form or by writing to the Fund.
All shareholders on the record date are entitled to the dividend. If shares
are purchased before a record date for a dividend or a distribution of
capital gains, a shareholder will pay the full price for the shares and will
receive some portion of the purchase price back as a taxable dividend or
distribution (to the extent, if any, that the dividend or distribution is
otherwise taxable to holders of Fund shares). If shares are redeemed or
exchanged before the record date for a dividend or distribution or are
purchased after the record date, those shares are not entitled to the
dividend or distribution.
The amount of dividends payable on Class A and Class B Shares generally will
be less than the dividends payable on Class C Shares because of the
distribution and/or shareholder servicing expenses charged to Class A and
Class B Shares. The amount of dividends payable on Class A Shares generally
will be more than the dividends payable on the Class B Shares because of the
higher distribution and shareholder servicing fees paid by Class B Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class A or Class B Shares of a Fund for currently
available Class A or Class B Shares, respectively, of the other FAIF Funds
or of other funds in the First American family. Class A Shares of the Funds,
whether acquired by direct purchase, reinvestment of dividends on such
shares, or otherwise, may be exchanged for Class A Shares of other funds
without the payment of any sales charge (i.e., at net asset value).
Exchanges of shares among the First American family of funds must meet any
applicable minimum investment of the fund for which shares are being
exchanged.
For purposes of calculating the Class B Shares' eight-year conversion period
or contingent deferred sales charges payable upon redemption, the holding
period of Class B Shares of the "old" fund and the holding period of Class B
Shares of the "new" fund are aggregated.
The ability to exchange shares of the Funds does not constitute an offering
or recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares
being acquired may be sold. An investor who is considering acquiring shares
in another First American fund pursuant to the exchange privilege should
obtain and carefully read a prospectus of the fund to be acquired. Exchanges
may be accomplished by a written request, or by telephone if a preauthorized
exchange authorization is on file with the Transfer Agent, shareholder
servicing agent, or financial institution.
Written exchange requests must be signed exactly as shown on the
authorization form, and the signatures may be required to be guaranteed as
for a redemption of shares by an entity described below under "Redeeming
Shares -- Directly From the Funds -- Signatures." Neither the Funds, the
Distributor, the Transfer Agent, any shareholder servicing agent, or any
financial institution will be responsible for further verification of the
authenticity of the exchange instructions.
Telephone exchange instructions made by an investor may be carried out only
if a telephone authorization form completed by the investor is on file with
the Transfer Agent, shareholder servicing agent, or financial institution.
Shares may be exchanged between two First American funds by telephone only
if both funds have identical shareholder registrations.
Telephone exchange instructions may be recorded and will be binding upon the
shareholder. Telephone instructions must be received by the Transfer Agent
before 3:00 p.m. Central time, or by a shareholder's shareholder servicing
agent or financial institution by the time specified by it, in order for
shares to be exchanged the same day. Neither the Transfer Agent nor any Fund
will be responsible for the authenticity of exchange instructions received
by telephone if it reasonably believes those instructions to be genuine. The
Funds and the Transfer Agent will each employ reasonable procedures to
confirm that telephone instructions are genuine, and they may be liable for
losses resulting from unauthorized or fraudulent telephone instructions if
they do not employ these procedures.
Shareholders of the Funds may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his or
her broker or financial institution by telephone, it is recommended that an
exchange request be made in writing and sent by overnight mail to DST
Systems, Inc., 1004 Baltimore, Kansas City, Missouri 64105.
Shareholders who become eligible to purchase Class C Shares may exchange
Class A Shares for Class C Shares. An example of such an exchange would be a
situation in which an individual holder of Class A Shares subsequently opens
a custody or agency account with a financial institution which invests in
Class C Shares.
The terms of any exchange privilege may be modified or terminated by the
Funds at any time. There are currently no additional fees or charges for the
exchange service. The Funds do not contemplate establishing such fees or
charges, but they reserve the right to do so. Shareholders will be notified
of any modification or termination of the exchange privilege and of the
imposition of any additional fees or changes.
REDEEMING SHARES
Each Fund redeems shares at their net asset value next determined after the
Transfer Agent receives the redemption request, reduced by any applicable
contingent deferred sales charge. Redemptions will be made on days on which
the Fund computes its net asset value. Redemption requests can be made as
described below and must be received in proper form.
BY TELEPHONE
A shareholder may redeem shares of a Fund, if he or she elects the privilege
on the initial shareholder application, by calling his or her financial
institution to request the redemption. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request
from the financial institution. Redemption requests must be received by the
financial institution by the time specified by the institution in order for
shares to be redeemed at that day's net asset value, and redemption requests
must be transmitted to and received by the Funds by 3:00 p.m. Central time
in order for shares to be redeemed at that day's net asset value. Pursuant
to instructions received from the financial institution, redemptions will be
made by check or by wire transfer. It is the financial institution's
responsibility to transmit redemption requests promptly.
Shareholders who did not purchase their shares of a Fund through a financial
institution may redeem their shares by telephoning (800) 637-2548. At the
shareholder's request, redemption proceeds will be paid by check mailed to
the shareholder's address of record or wire transferred to the shareholder's
account at a domestic commercial bank that is a member of the Federal
Reserve System, normally within one business day, but in no event more than
seven days after the request. Wire instructions must be previously
established on the account or provided in writing. The minimum amount for a
wire transfer is $1,000. If at any time the Funds determine it necessary to
terminate or modify this method of redemption, shareholders will be promptly
notified.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming shares by telephone. If this should
occur, another method of redemption should be considered. Neither the
Transfer Agent nor any Fund will be responsible for any loss, liability,
cost or expense for acting upon wire transfer instructions or telephone
instructions that it reasonably believes to be genuine. These procedures may
include taping of telephone conversations. To ensure authenticity of
redemption or exchange instructions received by telephone, the Transfer
Agent examines each shareholder request by verifying the account number
and/or tax identification number at the time such request is made. The
Transfer Agent subsequently sends confirmations of both exchange sales and
exchange purchases to the shareholder for verification. If reasonable
procedures are not employed, the Transfer Agent and the Funds may be liable
for any losses due to unauthorized or fraudulent telephone transactions.
BY MAIL
Any shareholder may redeem Fund shares by sending a written request to the
Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested to be redeemed, and
should be signed exactly as the shares are registered. Shareholders should
call the Fund, shareholder servicing agent or financial institution for
assistance in redeeming by mail. A check for redemption proceeds normally is
mailed within one business day, but in no event more than seven days, after
receipt of a proper written redemption request.
Shareholders requesting a redemption of $5,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or
a redemption payable other than to the shareholder of record, must have
signatures on written redemption requests guaranteed by:
* a trust company or commercial bank the deposits of which are insured by
the Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
* a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges or of the National Association of Securities Dealers;
* a savings bank or savings and loan association the deposits of which are
insured by the Savings Association Insurance Fund, which is administered
by the FDIC; or
* any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantees to institutions that are
members of a signature guarantee program. The Funds and the Transfer Agent
reserve the right to amend these standards at any time without notice.
BY SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders whose account value is at least $5,000 may elect to participate
in the Systematic Withdrawal Program. Under this program, Fund shares are
redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. A shareholder may apply to participate in this program
through his or her financial institution. It is generally not in a
shareholder's best interest to participate in the Systematic Withdrawal
Program at the same time that the shareholder is purchasing additional
shares if a sales charge must be paid in connection with such purchases.
Because automatic withdrawals with respect to Class B Shares are subject to
the contingent deferred sales charge, it may not be in the best interest of
a Class B shareholder to participate in the Systematic Withdrawal Program.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or with funds transmitted through the
Automated Clearing House, the proceeds of redemptions of those shares are
not available until the Transfer Agent is reasonably certain that the
purchase payment has cleared, which could take up to ten calendar days from
the purchase date.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds,
less any applicable contingent deferred sales charge, to the shareholder if
the account balance falls below the required minimum value of $500. Shares
will not be redeemed in this manner, however, if the balance falls below
$500 because of changes in a Fund's net asset value. Before shares are
redeemed to close an account, the shareholder will be notified in writing
and allowed 60 days to purchase additional shares to meet the minimum
account requirement.
DETERMINING THE PRICE OF SHARES
Class A Shares of the Funds are sold at net asset value plus a sales charge,
while Class B Shares are sold without a front-end sales charge. Shares are
redeemed at net asset value less any applicable contingent deferred sales
charge. See "Investing in the Funds -- Alternative Sales Charge Options."
The net asset value per share is determined as of the earlier of the close
of the New York Stock Exchange or 3:00 p.m. Central time on each day the New
York Stock Exchange is open for business, provided that net asset value need
not be determined on days when no Fund shares are tendered for redemption
and no order for that Fund's shares is received and on days on which changes
in the value of portfolio securities will not materially affect the current
net asset value of the Fund's shares. The price per share for purchases or
redemptions is such value next computed after the Transfer Agent receives
the purchase order or redemption request.
It is the responsibility of Participating Institutions promptly to forward
purchase and redemption orders to the Transfer Agent. In the case of
redemptions and repurchases of shares owned by corporations, trusts or
estates, the Transfer Agent or Fund may require additional documents to
evidence appropriate authority in order to effect the redemption, and the
applicable price will be that next determined following the receipt of the
required documentation.
DETERMINING NET ASSET VALUE
The net asset value per share for each of the Funds is determined by
dividing the value of the securities owned by the Fund plus any cash and
other assets (including interest accrued and dividends declared but not
collected), less all liabilities, by the number of Fund shares outstanding.
For the purpose of determining the aggregate net assets of the Funds, cash
and receivables will be valued at their face amounts. Interest will be
recorded as accrued and dividends will be recorded on the ex-dividend date.
Debt obligations exceeding 60 days to maturity which are actively traded are
valued by an independent pricing service at the most recently quoted bid
price. Debt obligations with 60 days or less remaining until maturity may be
valued at their amortized cost. Foreign securities are valued based upon
quotation from the primary market in which they are traded. When market
quotations are not readily available, securities are valued at fair value as
determined in good faith by procedures established and approved by the Board
of Directors.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by a Fund is its last sales price on the
exchange prior to the time when assets are valued, unless the bid price is
higher or the asked price is lower, in which event the bid or asked price is
used. In the absence of any sales that day, options will be valued at the
current closing bid price.
Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset value per share of
different classes of shares of the same Fund may differ because of the
differing distribution and/or shareholder servicing expenses charged to
Class A and Class B Shares.
FOREIGN SECURITIES
Trading in securities on foreign markets may be completed before the close
of business on each business day of the Funds. Thus, the calculation of the
Funds' net asset value may not take place contemporaneously with the
determination of the prices of foreign securities held in the Funds'
portfolios. If events materially affecting the value of foreign securities
occur between the time when their price is determined and the time when the
Funds' net asset value is calculated, such securities will be valued at fair
value as determined in good faith by or under the direction of the Board of
Directors. In addition, trading in securities on foreign markets may not
take place on all days on which the New York Stock Exchange is open for
business or may take place on days on which the Exchange is not open for
business. Therefore, the net asset value of a Fund which holds foreign
securities might be significantly affected on days when an investor has no
access to the Fund.
FEDERAL INCOME TAXES
GENERAL
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
during its current taxable year in order to be relieved of payment of
federal income taxes on amounts of taxable income it distributes to
shareholders.
Dividends paid from each Fund's net investment income and net short-term
capital gains will be taxable to shareholders as ordinary income, whether or
not the shareholder elects to have such dividends automatically reinvested
in additional shares. Dividends paid by the Funds will not be eligible for
the 70% deduction for dividends received by corporations.
Dividends paid from the net capital gains of each Fund and designated as
capital gain dividends will be taxable to shareholders as long-term capital
gains, regardless of the length of time for which they have held their
shares in the Fund. Long-term capital gains of individuals are currently
subject to a maximum tax rate of 28%.
Gain or loss realized upon the sale of shares in the Funds will be treated
as capital gain or loss, provided that the shares represented a capital
asset in the hands of the shareholder. Such gain or loss will be long-term
gain or loss if the shares were held for more than one year.
Each Fund is required by federal law to withhold 31% of reportable payments
(including dividends, capital gain distributions, and redemptions) paid to
certain shareholders who have not complied with IRS regulations. In order to
avoid this withholding requirement, each investor will be asked to certify
on his or her account application that the social security or taxpayer
identification number provided is correct and that the investor is not
subject to backup withholding for previous underreporting to the IRS.
This is a general summary of the federal tax laws applicable to the Funds
and their shareholders as of the date of this Prospectus. See the Statement
of Additional Information for further details.
STATE AND LOCAL TAXATION
Distributions from all of the Funds may be subject to state or local taxes.
Dividends paid by a Fund that are attributable to interest earned on
obligations of the United States government, its instrumentalities or
agencies may be exempt from state or local taxation. Shareholders should
consult their own tax advisers regarding state and local taxation.
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares
may be issued as either full or fractional shares. Fractional shares have
pro rata the same rights and privileges as full shares. Shares of the Funds
have no preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The
shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able to
elect all of the directors if they choose to do so. On issues affecting only
a particular Fund or Class, the shares of that Fund or Class will vote as a
separate series. Examples of such issues would be proposals to alter a
fundamental investment restriction pertaining to a Fund or to approve,
disapprove or alter a distribution plan pertaining to a Class.
Under the laws of the State of Maryland and FAIF's Articles of
Incorporation, FAIF is not required to hold shareholder meetings unless they
(i) are required by the 1940 Act, or (ii) are requested in writing by the
holders of 25% or more of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "cumulative total
return," its "average annual total return" and its "distribution rate."
Distribution rates may only be used in connection with sales literature and
shareholder communications preceded or accompanied by a Prospectus. Each of
these performance figures is based upon historical results and is not
intended to indicate future performance, and, except for "distribution
rate," is standardized in accordance with Securities and Exchange Commission
("SEC") regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day
period (which period will be stated in the advertisement) by the maximum
offering price per share on the last day of the period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Total return" is based on the overall dollar or percentage change in value
of a hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including, as
applicable, the maximum sales charge imposed on Class A Shares or the
contingent deferred sales charge imposed on Class B Shares redeemed at the
end of the specified period covered by the total return figure. "Cumulative
total return" reflects a Fund's performance over a stated period of time.
"Average annual total return" reflects the hypothetical annually compounded
rate that would have produced the same cumulative total return if
performance had been constant over the entire period. Because average annual
returns tend to smooth out variations in a Fund's performance, they are not
the same as actual year-by-year results. As a supplement to total return
computations, a Fund may also publish "total investment return" computations
which do not assume deduction of the maximum sales charge imposed on Class A
Shares or the contingent deferred sales charge imposed on Class B Shares.
"Distribution rate" is determined by dividing the income dividends per share
for a stated period by the maximum offering price per share on the last day
of the period. All distribution rates published for the Funds are measures
of the level of income dividends distributed during a specified period.
Thus, these rates differ from yield (which measures income actually earned
by a Fund) and total return (which measures actual income, plus realized and
unrealized gains or losses of a Fund's investments). Consequently,
distribution rates alone should not be considered complete measures of
performance.
The performance of the Class A and Class B Shares of a Fund will normally be
lower than for the Class C Shares because Class C Shares are not subject to
the sales charges and distribution and/or shareholder servicing expenses
applicable to Class A and Class B Shares. In addition, the performance of
Class A and Class B Shares of a Fund will differ because of the different
sales charge structures of the classes and because of the differing
distribution and shareholder servicing fees charged to Class B Shares.
In reports or other communications to shareholders and in advertising
material, the performance of each Fund may be compared to recognized
unmanaged indices or averages of the performance of similar securities and
to composites of such indices and averages. Also, the performance of each
Fund may be compared to that of other funds of similar size and objectives
as listed in the rankings prepared by Lipper Analytical Services, Inc. or
similar independent mutual fund rating services, and each Fund may include
in such reports, communications and advertising material evaluations
published by nationally recognized independent ranking services and
publications. For further information regarding the Funds' performance, see
"Fund Performance" in the Statement of Additional Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in
which the Funds may invest and related topics. Further information
concerning these matters is contained in the Statement of Additional
Information.
BANK INSTRUMENTS
The bank instruments in which Limited Term Income Fund, Intermediate Term
Income Fund, and Fixed Income Fund may invest include time and savings
deposits, deposit notes and bankers acceptances (including certificates of
deposit) in commercial or savings banks. They also include Eurodollar
Certificates of Deposit issued by foreign branches of United States or
foreign banks; Eurodollar Time Deposits, which are United States
dollar-denominated deposits in foreign branches of United States or foreign
banks; and Yankee Certificates of Deposit, which are United States
dollar-denominated certificates of deposit issued by United States branches
of foreign banks and held in the United States. For a description of certain
risks of investing in foreign issuers' securities, see "-- Foreign
Securities" below. In each instance, the Funds may only invest in bank
instruments issued by an institution which has capital, surplus and
undivided profits of more than $100 million or the deposits of which are
insured by the Bank Insurance Fund or the Savings Association Insurance
Fund.
ASSET-BACKED SECURITIES
Each of Limited Term Income Fund, Intermediate Term Income Fund, and Fixed
Income Fund may invest in asset-backed securities. Asset-backed securities
generally constitute interests in, or obligations secured by, a pool of
receivables other than mortgage loans, such as automobile loans and leases,
credit card receivables, home equity loans and trade receivables. Like
collateralized mortgage obligations, asset-backed securities generally are
issued by a private special-purpose entity. Their ratings and
creditworthiness typically depend on the legal insulation of the issuer and
transaction from the consequences of a sponsoring entity's bankruptcy, as
well as on the credit quality of the underlying receivables and the amount
and credit quality of any third-party credit enhancement supporting the
underlying receivables or the asset-backed securities. Asset-backed
securities and their underlying receivables generally are not issued or
guaranteed by any governmental entity.
FOREIGN SECURITIES
Each of Limited Term Income Fund, Intermediate Term Income Fund and Fixed
Income Fund may invest up to 15% of its total assets in foreign securities
payable in United States dollars. These securities may include securities
issued or guaranteed by (i) the Government of Canada, any Canadian Province,
or any instrumentality or political subdivision thereof; (ii) any other
foreign government, agency or instrumentality; (iii) foreign subsidiaries of
United States corporations; and (iv) foreign banks having total capital and
surplus at the time of investment of at least $1 billion. Such foreign bank
or corporate securities must be rated by at least one major United States
rating agency as having a quality not less than that which would be required
for comparable domestic securities. In addition, Limited Term Income Fund,
Intermediate Term Income Fund, and Fixed Income Fund also may invest in
Eurodollar Certificates of Deposit, Eurodollar Time Deposits and Yankee
Certificates of Deposit as described under "-- Bank Instruments" above.
Although investments of these kinds are not subject to currency risk because
they are denominated in United States dollars, they are subject to certain
other risks associated with foreign investments. Risks which may affect
foreign issuers include political, social or economic instability in the
country of the issuer, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets, and
nationalization of assets. Foreign issuers may not be subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic United States issuers. In addition, foreign branches
of United States banks and foreign banks may be subject to less stringent
regulatory requirements than United States banks.
MORTGAGE-BACKED SECURITIES
Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income
Fund may invest in mortgage-backed securities. Each of these Funds will
invest only in mortgage-backed securities which are Agency Pass-Through
Certificates or collateralized mortgage obligations ("CMOs"), as described
below.
Agency Pass-Through Certificates are mortgage pass-through certificates
representing undivided interests in pools of residential mortgage loans.
Distribution of principal and interest on the mortgage loans underlying an
Agency Pass-Through Certificate is an obligation of or guaranteed by GNMA,
FNMA or FHLMC. The obligation of GNMA with respect to such certificates is
backed by the full faith and credit of the United States, while the
obligations of FNMA and FHLMC with respect to such certificates rely solely
on the assets and credit of those entities. The mortgage loans underlying
GNMA certificates are partially or fully guaranteed by the Federal Housing
Administration or the Veterans Administration, while the mortgage loans
underlying FNMA certificates and FHLMC certificates are conventional
mortgage loans which are, in some cases, insured by private mortgage
insurance companies.
Agency Pass-Through Certificates may be issued in a single class with
respect to a given pool of mortgage loans or in multiple classes. Holders of
single-class pass-through certificates are entitled to receive their
proportionate share of all principal payments and prepayments on the
underlying mortgage loans together with interest on the unpaid principal at
a stated pass-through rate. Holders of each class in an issue of
multiple-class pass-through certificates are entitled to receive a specified
portion of all principal payments and prepayments and/or interest at a
stated pass-through rate on the underlying mortgage loans. A class of
pass-through certificates which entitles the holder to receive all of the
interest and none of the principal on the underlying mortgage loans is
referred to as an "interest-only" class, while a class which entitles the
holder to receive all of the principal payments and prepayments and none of
the interest on the underlying mortgage loans is referred to as a
"principal-only" class. Agency Pass-Through Certificates may be based on a
pool of fixed-rate mortgage loans or on a pool of adjustable-rate mortgage
loans, the interest rates on which change periodically based on changes in a
specified index rate. In the latter case, the pass-through rate of interest
on the Agency Pass-Through Certificates changes with changes in the rates
borne by the underlying mortgage loans.
CMOs are debt obligations typically issued by a private special-purpose
entity and collateralized by residential or commercial mortgage loans or
Agency Pass-Through Certificates. The Funds will invest only in CMOs which
are rated in one of the four highest rating categories by a nationally
recognized statistical rating organization, or which are of comparable
quality in the judgment of the Adviser. Because CMOs are debt obligations of
private entities, payments on CMOs generally are not obligations of or
guaranteed by any governmental entity, and their ratings and
creditworthiness typically depend on, among other factors, the legal
insulation of the issuer and transaction from the consequences of a
sponsoring entity's bankruptcy.
CMOs generally are issued in multiple classes, with holders of each class
entitled to receive specified portions of the principal payments and
prepayments and/or of the interest payments on the underlying mortgage
loans. These entitlements can be specified in a wide variety of ways, so
that the payment characteristics of various classes may differ greatly from
one another. Examples of the more common classes are provided in the
Statement of Additional Information. The CMOs in which the Funds may invest
include classes which are subordinated in right of payment to other classes,
as long as they have the required rating referred to above.
Residential mortgage loans generally can be prepaid in whole or in part by
the borrowers at any time without any prepayment penalty. As a result, the
rate at which mortgage loans in a given pool are prepaid (the "prepayment
speed") is likely to increase if interest rates decline (due in part to
prepayments associated with refinancings at lower rates) and to decrease if
interest rates increase, particularly in the case of a pool of fixed-rate
mortgage loans. Thus, the holder of an interest in a mortgage pool is likely
to have to reinvest greater amounts of principal during periods of declining
interest rates than during periods of increasing rates. However, the
relationship between changes in interest rates and changes in prepayment
speeds is not predictable with precision, nor is the likelihood of changes
in interest rates which might lead to changes in prepayment speeds. In
addition, changes in interest rates and prepayment speeds have differing
effects on the return on different kinds of CMO classes. For these reasons,
it is more difficult to predict the effect of changes in market interest
rates on the return on mortgaged-backed securities than to predict the
effect of such changes on the return of a conventional fixed-rate debt
instrument, and the magnitude of such effects may be greater in some cases.
The return on interest-only and principal-only mortgage-backed securities is
particularly sensitive to changes in interest rates and prepayment speeds.
When interest rates decline and prepayment speeds increase, the holder of an
interest-only mortgage-backed security may not even recover its initial
investment. Similarly, the return on an inverse floating rate CMO is likely
to decline more sharply in periods of increasing interest rates than that of
a fixed-rate security. For these reasons, interest-only, principal-only and
inverse floating rate mortgage-backed securities generally have greater risk
than more conventional classes of mortgage-backed securities. The
limitations on each Fund's investments in interest-only, principal-only and
inverse floating rate mortgage-backed securities are set forth above under
"Investment Objectives and Policies."
REPURCHASE AGREEMENTS
A repurchase agreement involves the purchase by a Fund of securities with
the agreement that after a stated period of time, the original seller will
buy back the same securities ("collateral") at a predetermined price or
yield. Repurchase agreements involve certain risks not associated with
direct investments in securities. If the original seller defaults on its
obligation to repurchase as a result of its bankruptcy or otherwise, the
purchasing Fund will seek to sell the collateral, which could involve costs
or delays. Although collateral (which may consist of any fixed income
security which is an eligible investment for the Fund entering into the
repurchase agreement) will at all times be maintained in an amount equal to
the repurchase price under the agreement (including accrued interest), a
Fund would suffer a loss if the proceeds from the sale of the collateral
were less than the agreed-upon repurchase price. The Adviser will monitor
the creditworthiness of the firms with which the Funds enter into repurchase
agreements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or
delayed-delivery basis. When such a transaction is negotiated, the purchase
price is fixed at the time the purchase commitment is entered, but delivery
of and payment for the securities take place at a later date. A Fund will
not accrue income with respect to securities purchased on a when-issued or
delayed-delivery basis prior to their stated delivery date. Pending delivery
of the securities, each Fund will maintain in a segregated account cash or
liquid high-grade securities in an amount sufficient to meet its purchase
commitments.
The purchase of securities on a when-issued or delayed-delivery basis
exposes a Fund to risk because the securities may decrease in value prior to
delivery. In addition, a Fund's purchase of securities on a when-issued or
delayed-delivery basis while remaining substantially fully invested could
increase the amount of the Fund's total assets that are subject to market
risk, resulting in increased sensitivity of net asset value to changes in
market prices. However, the Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with their investment objectives, and not for the
purpose of investment leverage. A seller's failure to deliver securities to
a Fund could prevent the Fund from realizing a price or yield considered to
be advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds may lend portfolio
securities representing up to one-third of the value of its total assets to
broker-dealers, banks or other institutional borrowers of securities. As
with other extensions of credit, there may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower
of the securities fail financially. However, the Funds will only enter into
loan arrangements with broker-dealers, banks, or other institutions which
the Adviser has determined are creditworthy under guidelines established by
the Board of Directors. In these loan arrangements, the Funds will receive
collateral in the form of cash, United States Government securities or other
high-grade debt obligations equal to at least 100% of the value of the
securities loaned. Collateral is marked to market daily. The Funds will pay
a portion of the income earned on the lending transaction to the placing
broker and may pay administrative and custodial fees (including fees to an
affiliate of the Adviser) in connection with these loans.
OPTIONS TRANSACTIONS
Each of the Funds may, in order to reduce risk, invest in exchange traded
put and call options on interest rate futures contracts and on interest rate
indices. Such investments will be made solely as a hedge against adverse
changes resulting from market conditions in the values of securities held by
the Funds or which they intend to purchase and where the transactions are
deemed appropriate to reduce risks inherent in the Funds' portfolios or
contemplated investments.
None of the Funds will invest more than 5% of the value of its total assets
in purchased options, provided that options which are "in the money" at the
time of purchase may be excluded from this 5% limitation. A call option is
"in the money" if the exercise price is lower than the current market price
of the underlying contract or index, and a put option is "in the money" if
the exercise price is higher than the current market price. A Fund's loss
exposure in purchasing an option is limited to the sum of the premium paid
(purchase price of the option) and the commission or other transaction
expenses associated with acquiring the option.
An interest rate futures contract provides for the future sale by one party
and purchase by the other party of a certain amount of a specific financial
instrument (debt security) at a specified price, date, time and place. An
option on an interest rate futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for
the premium paid, to purchase (in the case of a call option) or sell (in the
case of a put option) an interest rate futures contract at a specified
exercise price at any time prior to the expiration date of the option. In
order to hedge its portfolio against anticipated changes in interest rates,
a Fund might purchase a put option on an interest rate futures contract if
interest rates were expected to rise, or might purchase a call option on an
interest rate futures contract if rates were expected to decline.
Options on interest rate indices are similar to options on interest rate
futures contracts except that, rather than the right to take or make
delivery of a specific financial instrument at a specified price, an option
on an interest rate index gives the holder the right to receive, upon
exercise of the option, a defined amount of cash if the closing value of the
interest rate index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of
the option. Put and call options on interest rate indices thus may be used
in a fashion similar to that of options on interest rate futures contracts
to hedge the value of a portfolio of debt securities against anticipated
changes in interest rates.
The use of options on interest rate futures contracts and on interest rate
indices involves certain risks. These include the risk that changes in
interest rates on the hedged instruments may not correlate to changes in
interest rates on the instrument or index upon which the hedge is based, and
the risk of limited liquidity in the event that a Fund seeks to close out an
options position before expiration by entering into an offsetting
transaction.
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected with
market makers or issuers, unless better overall price and execution are
available through a brokerage transaction. It is anticipated that most
portfolio transactions involving debt securities will be executed on a
principal basis. Also, with respect to the placement of portfolio
transactions with securities firms, subject to the overall policy to seek to
place portfolio transactions as efficiently as possible and at the best
price, research services and placement of orders by securities firms for a
Fund's shares may be taken into account as a factor in placing portfolio
transactions for the Fund.
PORTFOLIO TURNOVER
Although the Funds do not intend generally to trade for short-term profits,
they may dispose of a security without regard to the time it has been held
when such action appears advisable to the Adviser. The portfolio turnover
rate for a Fund may vary from year to year and may be affected by cash
requirements for redemptions of shares. High portfolio turnover rates
generally would result in higher transaction costs and could result in
additional tax consequences to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds are
set forth in full in the Statement of Additional Information. The
fundamental restrictions include the following:
* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets. None of the Funds will borrow money
for leverage purposes. For the purpose of this investment restriction,
the use of options and futures transactions and the purchase of
securities on a when-issued or delayed-delivery basis shall not be
deemed the borrowing of money. If a Fund engages in borrowing, its share
price may be subject to greater fluctuation, and the interest expense
associated with the borrowing may reduce the Fund's net income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of
its net assets in all forms of illiquid investments, as determined pursuant
to applicable Securities and Exchange Commission rules and interpretations.
Section 4(2) commercial paper and Rule 144A securities may be determined to
be "liquid" under guidelines adopted by the Board of Directors. Investing in
Rule 144A securities could have the effect of increasing the level of
illiquidity in a Fund to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities.
INFORMATION CONCERNING COMPENSATION PAID TO FIRST TRUST NATIONAL
ASSOCIATION AND ITS AFFILIATES
First Trust National Association ("First Trust") may act as fiduciary with
respect to plans subject to the Employee Retirement Income Security Act of
1974 ("ERISA") which invest in the Funds. This section sets forth
information concerning compensation that First Trust and its affiliates may
receive from the Funds.
First Trust, as custodian for the assets of the Funds, receives the
custodian fees specified herein under the caption "Management -- Custodian."
First Bank National Association, which is under common ownership with First
Trust, acts as investment adviser to the Funds and receives the advisory
fees specified herein under the caption "Management -- Investment Adviser."
First Trust and its affiliates may receive shareholder servicing fees in the
amounts specified herein under the caption "Distributor." First Trust also
may act as securities lending agent in connection with the Funds' securities
lending transaction and receive, as compensation for such services, fees
equal to 40% of the Funds' income from such securities lending transactions.
FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
Oaks, Pennsylvania 19456
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
Oaks, Pennsylvania 19456
TRANSFER AGENT
DST SYSTEMS, INC.
1004 Baltimore
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1001 (1/97) R
FIRST AMERICAN INVESTMENT FUNDS, INC.
FIXED INCOME FUNDS
INSTITUTIONAL CLASS
Limited Term Fixed Income Fund
Income Fund
Intermediate Government
Intermediate Term Bond Fund
Income Fund
PROSPECTUS
JANUARY 31, 1997
[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 6
Class C Share Fees and Expenses 6
Information Concerning Fees and
Expenses 7
FINANCIAL HIGHLIGHTS 8
THE FUNDS 10
INVESTMENT OBJECTIVES AND POLICIES 10
Limited Term Income Fund,
Intermediate Term Income Fund, and
Fixed Income Fund 11
Intermediate Government Bond Fund 13
Risks to Consider 14
MANAGEMENT 16
Investment Adviser 16
Portfolio Managers 17
Custodian 17
Administrator 17
Transfer Agent 18
DISTRIBUTOR 18
PURCHASES AND REDEMPTIONS OF SHARES 18
Share Purchases and Redemptions 18
What Shares Cost 19
Exchanging Securities for Fund Shares 20
Certificates and Confirmations 20
Dividends and Distributions 21
Exchange Privilege 21
FEDERAL INCOME TAXES 22
FUND SHARES 22
CALCULATION OF PERFORMANCE DATA 23
SPECIAL INVESTMENT METHODS 24
Bank Instruments 24
Asset-Backed Securities 25
Foreign Securities 25
Mortgage-Backed Securities 26
Repurchase Agreements 28
When-Issued and Delayed-Delivery
Transactions 28
Lending of Portfolio Securities 28
Options Transactions 29
Portfolio Transactions 30
Portfolio Turnover 30
Investment Restrictions 30
Information Concerning Compensation
Paid to First Trust National
Association and Its Affiliates 31
FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456
INSTITUTIONAL CLASS PROSPECTUS
The shares described in this Prospectus represent interests in First
American Investment Funds, Inc., which consists of mutual funds with several
different investment portfolios and objectives. This Prospectus relates to
the Class C Shares of the following funds (the "Funds"):
* LIMITED TERM INCOME FUND * FIXED INCOME FUND
* INTERMEDIATE TERM INCOME FUND * INTERMEDIATE GOVERNMENT BOND FUND
Class C Shares of the Funds are offered through banks and certain other
institutions for the investment of their own funds and funds for which they
act in a fiduciary, agency or custodial capacity.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF
ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL,
DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated January 31, 1997 for the Funds
has been filed with the Securities and Exchange Commission and is
incorporated in its entirety by reference in this Prospectus. To obtain
copies of the Statement of Additional Information at no charge, or to obtain
other information or make inquiries about the Funds, call (800) 637-2548 or
write SEI Financial Services Company, Oaks, Pennsylvania 19456.
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.
The date of this Prospectus is January 31, 1997.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment
company which offers shares in several different mutual funds. This
Prospectus provides information with respect to the Class C Shares of the
following funds (the "Funds"):
LIMITED TERM INCOME FUND has an objective of providing current income while
attempting to provide a high degree of principal stability. This Fund
invests in investment grade debt securities, at least 65% of which are
United States Government obligations and corporate debt obligations and
mortgage-backed and asset-backed securities rated at least A by Standard &
Poor's or Moody's or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization. Under normal
market conditions, the weighted average maturity of the securities held by
this Fund will range from 6 months to 2 years.
INTERMEDIATE TERM INCOME FUND has an objective of providing current income
to the extent consistent with preservation of capital. This Fund generally
invests in the same kinds of debt securities as Limited Term Income Fund.
Under normal market conditions, the weighted average maturity of the
securities held by this Fund will range from 2 to 7 years.
FIXED INCOME FUND has an objective of providing a high level of current
income consistent with limited risk to capital. This Fund generally invests
in the same kinds of debt securities as Limited Term Income Fund. Under
normal market conditions, the weighted average maturity of the securities
held by this Fund will not exceed 15 years.
INTERMEDIATE GOVERNMENT BOND FUND has an objective of providing current
income to the extent consistent with preservation of capital. Under normal
market conditions, this Fund invests at least 65% of its total assets in
securities issued or guaranteed by the United States Government and its
agencies and instrumentalities. Under normal market conditions, the weighted
average maturity of the securities held by this Fund will range from 2 to 7
years.
INVESTMENT ADVISER First Bank National Association (the "Adviser") serves as
investment adviser to each of the Funds. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the
"Distributor") serves as the distributor of the Funds' shares. SEI Financial
Management Corporation (the "Administrator") serves as the administrator of
the Funds. See "Management" and "Distributor."
ELIGIBLE INVESTORS; OFFERING PRICES Class C Shares are offered through banks
and certain other institutions for the investment of their own funds and
funds for which they act in a fiduciary, agency or custodial capacity. Class
C Shares are sold at net asset value without any front-end or deferred sales
charges. See "Purchases and Redemptions of Shares."
EXCHANGES Class C Shares of any Fund may be exchanged for Class C Shares of
other funds in the First American family at the shares' respective net asset
values with no additional charge. See "Purchases and Redemptions of Shares
-- Exchange Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net
asset value next determined after receipt of a redemption request by the
Funds' transfer agent, with no additional charge. See "Purchases and
Redemptions of Shares."
RISKS TO CONSIDER Each of the Funds is subject to (i) interest rate risk
(the risk that increases in market interest rates will cause declines in the
value of debt securities held by a Fund); (ii) credit risk (the risk that
the issuers of debt securities held by a Fund default in making required
payments); and (iii) call or prepayment risk (the risk that a borrower may
exercise the right to prepay a debt obligation before its stated maturity,
requiring a Fund to reinvest the prepayment at a lower interest rate). In
addition, those Funds which may invest in mortgage-backed securities are
subject to certain additional risks associated with investing in securities
representing interests in, or secured by, pools of residential mortgage
loans. The Funds also may, in order to attempt to reduce risk, invest in
exchange traded put and call options on interest rate futures contracts and
on interest rate indices. See "Investment Objectives and Policies -- Risks
to Consider" and "Special Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or
a shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an
investor's behalf.
FEES AND EXPENSES INSTITUTIONAL CLASSES
CLASS C SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
LIMITED INTERMEDIATE
TERM INTERMEDIATE FIXED GOVERNMENT
INCOME TERM INCOME INCOME BOND
FUND FUND FUND FUND
<S> <C> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed
on purchases None None None None
Maximum sales load imposed
on reinvested dividends None None None None
Deferred sales load None None None None
Redemption fees None None None None
Exchange fees None None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees (after
voluntary fee waivers and
reimbursements)(1) 0.46% 0.52% 0.53% 0.52%
Rule 12b-1 fees None None None None
Other expenses (after
voluntary fee waivers)(1) 0.14% 0.18% 0.17% 0.18%
Total fund operating expenses
(after voluntary fee waivers
and reimbursements)(1) 0.60% 0.70% 0.70% 0.70%
EXAMPLE(2)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return, and (ii) redemption at the end of each time period:
1 year $ 6 $ 7 $ 7 $ 7
3 years $ 19 $ 22 $ 22 $ 22
5 years $ 33 $ 39 $ 39 $ 39
10 years $ 75 $ 87 $ 87 $ 87
</TABLE>
(1) The Adviser and the Administrator intend to waive a portion of their fees
and/or reimburse expenses on a voluntary basis, and the amounts shown
reflect these waivers and reimbursements as of the date of this Prospectus.
Each of these persons intends to maintain such waivers and reimbursements in
effect for the current fiscal year but reserves the right to discontinue
such waivers and reimbursements at any time in its sole discretion. Absent
any fee waivers, investment advisory fees for each Fund as an annualized
percentage of average daily net assets would be 0.70%; and total fund
operating expenses calculated on such basis would be 0.84% for Limited Term
Income Fund, 0.88% for Intermediate Term Income Fund, 0.87% for Fixed Income
Fund and 0.85% for Intermediate Government Bond Fund. Other expenses
includes an administration fee.
(2) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Limited Term Income Fund, $9, $27, $47 and $104; Intermediate Term Income
Fund, $9, $28, $49 and $108; Fixed Income Fund, $9, $28, $48 and $107; and
Intermediate Government Bond Fund, $9, $27, $47 and $105.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund may
bear directly or indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the
foregoing tables and examples relates only to the Class C Shares of the
Funds. The Funds also offer Class A and Class B Shares which are subject to
the same expenses and, in addition, to a front-end or contingent deferred
sales load and certain distribution and/or shareholder servicing expenses.
The examples in the above tables are based on projected annual Fund
operating expenses after voluntary fee waivers and expense reimbursements by
the Adviser and the Administrator. Although these persons intend to maintain
such waivers in effect for the current fiscal year, any such waivers are
voluntary and may be discontinued at any time. Prior to fee waivers,
investment advisory fees accrue at the annual rate as a percentage of
average daily net assets of 0.70% for each of the Funds.
Other expenses include fees paid by each Fund to the Administrator for
providing various services necessary to operate the Funds. These include
shareholder servicing and certain accounting and other services. The
Administrator provides these services for a fee calculated at an annual rate
of 0.12% of average daily net assets of each Fund subject to a minimum of
$50,000 per Fund per fiscal year; provided, that to the extent that the
aggregate net assets of all First American funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. Other expenses of the Funds
also includes the cost of maintaining shareholder records, furnishing
shareholder statements and reports, and other services. Investment advisory
fees, administrative fees and other expenses are reflected in the Funds'
daily dividends and are not charged to individual shareholder accounts.
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction
with the Funds' financial statements, the related notes thereto and the
independent auditors' report of KPMG Peat Marwick LLP appearing in FAIF's
annual report to shareholders for the year ended September 30, 1996. Further
information about the Funds' performance is contained in such annual report
to shareholders, which may be obtained without charge by calling (800)
637-2548 or by writing SEI Financial Services Company, Oaks, Pennsylvania
19456.
For the periods ended September 30,
For a share outstanding throughout the period
<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
<S> <C> <C> <C> <C>
LIMITED TERM INCOME FUND
Class C
1996 $ 9.92 $0.58 $(0.01) $(0.58)
1995 9.85 0.56 0.07 (0.56)
1994(1) 10.02 0.29 (0.17) (0.29)
INTERMEDIATE TERM INCOME FUND
Class C
1996 $ 9.94 $0.55 $ -- $(0.55)
1995 9.55 0.58 0.39 (0.58)
1994(1) 10.01 0.31 (0.46) (0.31)
FIXED INCOME FUND
Class C
1996 $10.97 $0.63 $(0.11) $(0.63)
1995 10.37 0.66 0.62 (0.65)
1994(2) 11.11 0.38 (0.74) (0.38)
INTERMEDIATE GOVERNMENT BOND FUND
Class C
1996 $ 9.29 $0.54 $(0.11) $(0.54)
1995 8.98 0.54 0.31 (0.54)
1994(2) 9.41 0.27 (0.43) (0.27)
</TABLE>
+Returns are for the period indicated and have not been annualized.
(1) This class of shares has been offered since February 4, 1994 (the Fund
itself having commenced operations on December 14, 1992). All ratios for the
period have been annualized.
(2) This class of shares has been offered since February 4, 1994 (the Fund
itself having commenced operations on December 22, 1987). All ratios for the
period have been annualized.
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME TO ASSETS
FROM CAPITAL VALUE END OF PERIOD AVERAGE NET AVERAGE NET (EXCLUDING PORTFOLIO
GAINS OF PERIOD TOTAL RETURN (000) ASSETS ASSETS WAIVERS) TURNOVER RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$ -- $ 9.91 5.93% $ 93,588 0.60% 5.80% 0.84% 61%
-- 9.92 6.57 111,439 0.60 5.67 0.97 120
-- 9.85 1.24+ 70,266 0.60 4.40 1.03 48
$(0.01) $ 9.93 5.63% $ 98,702 0.70% 5.45% 0.88% 161%
-- 9.94 10.51 88,375 0.70 5.94 0.94 69
-- 9.55 (1.48)+ 68,445 0.58 4.81 1.07 177
$(0.10) $10.76 4.90% $391,211 0.70% 5.81% 0.87% 108%
(0.03) 10.97 12.86 289,816 0.70 6.28 0.94 106
-- 10.37 (3.23)+ 90,187 0.61 5.53 0.92 142
$ -- $ 9.18 4.74% $140,230 0.70% 5.85% 0.85% 29%
-- 9.29 9.82 100,168 0.70 6.13 0.97 17
-- 8.98 (1.66)+ 27,776 0.36 5.32 1.45 74
</TABLE>
THE FUNDS
FAIF is an open-end management investment company which offers shares in
several different mutual funds (collectively, the "FAIF Funds"), each of
which evidences an interest in a separate and distinct investment portfolio.
Shareholders may purchase shares in each FAIF Fund through three separate
classes (Class A, Class B and Class C) which provide for variations in
distribution costs, shareholder servicing fees, voting rights and dividends.
Except for these differences among classes, each share of each FAIF Fund
represents an undivided proportionate interest in that fund. FAIF is
incorporated under the laws of the State of Maryland, and its principal
offices are located at Oaks, Pennsylvania 19456.
This Prospectus relates only to the Class C Shares of the Funds named on the
cover hereof. Information regarding the Class A and Class B Shares of these
Funds and regarding the Class A, Class B and Class C Shares of the other
FAIF Funds is contained in separate prospectuses that may be obtained from
FAIF's Distributor, SEI Financial Services Company, Oaks, Pennsylvania,
19456, or by calling (800) 637-2548. The Board of Directors of FAIF may
authorize additional series or classes of common stock in the future.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The
Funds' investment objectives are not fundamental and therefore may be
changed without a vote of shareholders. Such changes could result in a Fund
having investment objectives different from those which shareholders
considered appropriate at the time of their investment in a Fund.
Shareholders will receive written notification at least 30 days prior to any
change in a Fund's investment objectives. Each of the Funds is a diversified
investment company, as defined in the Investment Company Act of 1940 (the
"1940 Act").
If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from
changes in asset values will not be deemed to violate the limitation except
in the case of the limitation on illiquid investments. A Fund which is
limited to investing in securities with specified ratings is not required to
sell a security if its rating is reduced or discontinued after purchase, but
the Fund may consider doing so. However, in no event will more than 5% of
any Fund's net assets be invested in non-investment grade securities.
Descriptions of the rating categories of Standard & Poor's Corporation
("Standard & Poor's") and Moody's Investors Service, Inc. ("Moody's") are
contained in the Statement of Additional Information.
This section also contains information concerning certain investment risks
borne by Fund shareholders under the heading "-- Risks to Consider." Further
information concerning the securities in which the Funds may invest and
related matters is set forth under "Special Investment Methods."
LIMITED TERM INCOME FUND, INTERMEDIATE TERM INCOME FUND, AND FIXED INCOME
FUND
OBJECTIVES. Limited Term Income Fund has an objective of providing current
income while attempting to provide a high degree of principal stability.
Intermediate Term Income Fund has an objective of providing current income
to the extent consistent with preservation of capital. Fixed Income Fund has
an objective of providing a high level of current income consistent with
limited risk to capital.
INVESTMENT POLICIES. Each of these Funds invests in investment grade debt
securities, at least 65% of which are United States Government obligations
and corporate debt obligations and mortgage-backed and asset-backed
securities rated at least A by Standard & Poor's or Moody's or which have
been assigned an equivalent rating by another nationally recognized
statistical rating organization.
Under normal market conditions, the weighted average maturity of the
securities held by Limited Term Income Fund will range from 6 months to 2
years; that of Intermediate Term Income Fund will range from 2 to 7 years;
and that of Fixed Income Fund will not exceed 15 years.
These Funds' permitted investments include notes, bonds and discount notes
of United States Government agencies or instrumentalities; domestic issues
of corporate debt obligations having floating or fixed rates of interest and
rated at least BBB by Standard & Poor's or Baa by Moody's, or which have
been assigned an equivalent rating by another nationally recognized
statistical rating organization, or which are of comparable quality in the
judgment of the Adviser; other fixed income securities, including
mortgage-backed securities, which are rated in one of the four highest
categories by a nationally recognized statistical rating organization or
which are of comparable quality in the judgment of the Adviser; and
commercial paper which is rated A-1 by Standard & Poor's or P-1 by Moody's
or which has been assigned an equivalent rating by another nationally
recognized statistical rating organization. Unrated securities deemed to be
of comparable quality to rated securities as set forth above will not exceed
10% in the aggregate of the value of the total assets of any of these Funds.
At least 65% of the total assets of Fixed Income Fund will be invested in
fixed rate obligations.
Subject to the foregoing limitations, each of these Funds may invest in the
following kinds of securities, as described under the related headings under
"Special Investment Methods:" (i) mortgage-backed securities (provided that
Limited Term Income Fund will not invest in interest-only, principal-only or
inverse floating rate mortgage-backed securities, and each of Intermediate
Term Income Fund and Fixed Income Fund will not invest more than 10% of its
total assets in the aggregate in these kinds of securities); (ii)
asset-backed securities; and (iii) bank instruments.
In addition, each of these Funds may (i) invest up to 15% of its total
assets in foreign securities payable in United States dollars; (ii) enter
into repurchase agreements; (iii) in order to attempt to reduce risk, invest
in exchange traded put and call options on interest rate futures contracts
and on interest rate indices; (iv) purchase securities on a when-issued or
delayed-delivery basis; and (v) engage in the lending of portfolio
securities. For information about these investment methods, restrictions on
their use, and certain associated risks, see the related headings under
"Special Investment Methods."
Limited Term Income Fund also may purchase investment-type insurance
products such as Guaranteed Investment Contracts ("GICs"). A GIC is a
deferred annuity under which the purchaser agrees to pay money to an insurer
(either in a lump sum or in installments) and the insurer promises to pay
interest at a guaranteed rate for the life of the contract. GICs may have
fixed or variable interest rates. A GIC is a general obligation of the
issuing insurance company. The purchase price paid for a GIC becomes part of
the general assets of the insurer, and the contract is paid at maturity from
the general assets of the insurer. In general, GICs are not assignable or
transferable without the permission of the issuing insurance companies and
can be redeemed before maturity only at a substantial discount or penalty.
GICs therefore are usually considered to be illiquid investments. Limited
Term Income Fund will purchase only GICs which are obligations of insurance
companies with a policyholder's rating of A or better by A.M. Best Company.
A description of these ratings is contained in the Statement of Additional
Information.
Although these Funds will not make direct purchases of common or preferred
stocks or rights to acquire common or preferred stocks, they may invest in
debt securities which are convertible into or exchangeable for, or which
carry warrants or other rights to acquire, such stocks. Equity interests
acquired through conversion, exchange or exercise of rights to acquire stock
will be disposed of by these Funds as soon as practicable in an orderly
manner.
For temporary defensive purposes during times of unusual market conditions,
these Funds may without limitation hold cash or invest in cash items. The
Funds also may invest not more than 35% of their total assets in cash and
cash items in order to utilize assets awaiting normal investment. Cash items
may include short-term obligations such as rated commercial paper and
variable amount master demand notes; time and savings deposits (including
certificates of deposit); bankers acceptances; obligations of the United
States Government or its agencies or instrumentalities; repurchase
agreements collateralized by eligible investments; and securities of other
mutual funds which invest primarily in debt securities with remaining
maturities of 13 months or less (which investments also are subject to the
advisory fee). Such other mutual funds include money market funds advised by
the Adviser, subject to certain restrictions contained in an exemptive order
issued by the Securities and Exchange Commission with respect thereto.
INTERMEDIATE GOVERNMENT BOND FUND
OBJECTIVE. Intermediate Government Bond Fund has an objective of providing
current income to the extent consistent with preservation of capital.
INVESTMENT POLICIES. Under normal market conditions, Intermediate Government
Bond Fund invests at least 65% of its total assets in securities issued or
guaranteed by the United States Government and its agencies and
instrumentalities. The Fund's share price and yield, however, are not
guaranteed or insured by the United States Government or any of its agencies
or instrumentalities. Under normal market conditions, the weighted average
maturity of the securities held by this Fund will range from 2 to 7 years.
The types of securities in which the Fund may invest include direct
obligations of the United States Treasury, such as United States Treasury
bonds, notes and bills. In addition, the Fund may invest in obligations
issued or guaranteed as to principal and interest by agencies of the United
States Government or by instrumentalities which have been established or
sponsored by the United States Government, provided, in each case, that
interest on the obligations is excludable from state taxable income by the
holders thereof. Such agencies and instrumentalities include, but are not
limited to, the Farm Credit System Financial Assistance Corporation, the
Federal Home Loan Banks System, the Student Loan Marketing Association and
the Tennessee Valley Authority. Obligations issued or guaranteed by some of
these agencies or instrumentalities are not guaranteed by the United States
Government, but instead rely solely on the assets and credit of the issuing
agency or instrumentality. The United States Treasury, agency and
instrumentality securities in which the Fund may invest include adjustable
rate securities and United States Treasury inflation-protection securities.
The principal amount of such inflation-protection securities is adjusted for
inflation, and periodic interest payments are an amount equal to a fixed
percentage of the inflation-adjusted principal amount.
In addition, the Fund may (i) enter into repurchase agreements; (ii) in
order to attempt to reduce risk, invest in exchange traded put and call
options on interest rate futures contracts and on interest rate indices;
(iii) purchase securities on a when-issued or delayed-delivery basis; and
(iv) engage in the lending of portfolio securities. For information about
these investment methods, restrictions on their use, and certain associated
risks, see the related headings under "Special Investment Methods."
For temporary defensive purposes during times of unusual market conditions,
the Fund may without limitation hold cash or invest in short-term government
securities maturing within 13 months from the date of purchase; repurchase
agreements with respect to government securities; and securities of other
mutual funds which invest primarily in debt securities with remaining
maturities of 13 months or less (which investments also are subject to the
advisory fee). Such other mutual funds include money market funds advised by
the Adviser, subject to certain restrictions contained in an exemptive order
issued by the Securities and Exchange Commission with respect thereto. The
Fund also may so invest not more than 35% of its total assets in such
investments in order to utilize assets awaiting normal investment. See
"Special Investment Methods -- Repurchase Agreements."
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks. These include the
following:
INTEREST RATE RISK. Interest rate risk is the risk that the value of a
fixed-rate debt security will decline due to changes in market interest
rates. Because the Funds invest in fixed-rate debt securities, they are
subject to interest rate risk. In general, when interest rates rise, the
value of a fixed-rate debt security declines. Conversely, when interest
rates decline, the value of a fixed-rate debt security generally increases.
Thus, shareholders in the Funds bear the risk that increases in market
interest rates will cause the value of their Fund's portfolio investments to
decline.
In general, the value of fixed-rate debt securities with longer maturities
is more sensitive to changes in market interest rates than the value of such
securities with shorter maturities. Thus, the net asset value of a Fund
which invests in securities with longer weighted average maturities, such as
Fixed Income Fund, should be expected to have greater volatility in periods
of changing market interest rates than that of a Fund which invests in
securities with shorter weighted average maturities, such as Limited Term
Income Fund. Similarly, the volatility of Intermediate Term Income Fund and
Intermediate Government Bond Fund generally should be expected to be between
that of Fixed Income Fund and Limited Term Income Fund. As described below
under "-- Mortgage-Backed Securities," it is more difficult to generalize
about the effect of changes in market interest rates on the values of
mortgage-backed securities.
Although the Adviser may engage in transactions intended to hedge the value
of the Funds' portfolios against changes in market interest rates, there is
no assurance that such hedging transactions will be undertaken or will
fulfill their purpose. See "Special Investment Methods -- Options
Transactions."
CREDIT RISK. Credit risk is the risk that the issuer of a debt security will
fail to make payments on the security when due. Because the Funds invest in
debt securities, they are subject to credit risk. Securities issued or
guaranteed by the United States Government generally are viewed as carrying
minimal credit risk.
Securities issued by governmental entities but not backed by the full faith
and credit of the United States, and securities issued by private entities,
are subject to higher levels of credit risk. The ratings and certain other
requirements which apply to the Funds' permitted investments, as described
elsewhere in this Prospectus, are intended to limit the amount of credit
risk undertaken by the Funds. Nevertheless, shareholders in the Funds bear
the risk that payment defaults could cause the value of their Fund's
portfolio investments to decline. Investors also should note that Limited
Term Income Fund, Intermediate Term Income Fund and Fixed Income Fund can
invest in debt securities rated as low as BBB by Standard & Poor's or Baa by
Moody's, or which have been assigned an equivalent rating by another
nationally recognized statistical rating organization, or which are of
comparable quality in the judgment of the Adviser. Although these rating
categories are investment grade, obligations with these ratings are viewed
as having speculative characteristics and carry a somewhat higher risk of
default than obligations rated in the higher investment grade categories.
CALL RISK. Many corporate bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In
general, it is advantageous for a corporate issuer to call its bonds if they
can be refinanced through the issuance of new bonds which bear a lower
interest rate than that of the called bonds. Call risk is the risk that
corporate bonds will be called during a period of declining market interest
rates so that such refinancings may take place.
If a bond held by a Fund is called during a period of declining interest
rates, the Fund probably will have to reinvest the proceeds received by it
at a lower interest rate than that borne by the called bond, thus resulting
in a decrease in the Fund's income. To the extent that the Funds invest in
callable corporate bonds, Fund shareholders bear the risk that reductions in
income will result from the call of bonds. Most United States Government
securities are not callable before their stated maturity, although U.S.
agency securities often are.
MORTGAGE-BACKED SECURITIES. Because residential mortgage loans generally can
be prepaid in whole or in part by the borrowers at any time without any
prepayment penalty, the holder of a mortgage-backed security which
represents an interest in a pool of such mortgage loans is subject to a form
of call risk which is generally called "prepayment risk." In addition, it is
more difficult to predict the effect of changes in market interest rates on
the return on mortgaged-backed securities than to predict the effect of such
changes on the return of a conventional fixed-rate debt instrument; the
magnitude of such effects may be greater in some cases; and the return on
certain types of mortgage-backed securities, such as interest-only,
principal-only and inverse floating rate mortgage-backed securities, is
particularly sensitive to changes in interest rates and in the rate at which
the mortgage loans underlying the securities are prepaid by borrowers. For
these reasons, a Fund's investments in mortgage-backed securities may
involve greater risks than investments in governmental or corporate bonds.
For further information, see "Special Investment Methods -- Mortgage-Backed
Securities."
OTHER. Investors also should review "Special Investment Methods" for
information concerning risks associated with certain investment techniques
which may be utilized by the Funds.
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing
the overall management and electing the officers of FAIF. Subject to the
overall direction and supervision of the Board of Directors, the Adviser
acts as investment adviser for and manages the investment portfolios of
FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis,
Minnesota 55480, acts as the Funds' investment adviser through its First
Asset Management group. The Adviser has acted as an investment adviser to
FAIF since its inception in 1987 and has acted as investment adviser to
First American Funds, Inc. since 1982 and to First American Strategy Funds,
Inc. since 1996. As of December 31, 1996, the Adviser was managing accounts
with an aggregate value of approximately $35 billion, including mutual fund
assets in excess of $12 billion. First Bank System, Inc., 601 Second Avenue
South, Minneapolis, Minnesota 55480, is the holding company for the Adviser.
Each of the Funds has agreed to pay the Adviser monthly fees calculated on
an annual basis equal to 0.70% of its average daily net assets. The Adviser
may, at its option, waive any or all of its fees, or reimburse expenses,
with respect to any Fund from time to time. Any such waiver or reimbursement
is voluntary and may be discontinued at any time. The Adviser also may
absorb or reimburse expenses of the Funds from time to time, in its
discretion, while retaining the ability to be reimbursed by the Funds for
such amounts prior to the end of the fiscal year. This practice would have
the effect of lowering a Fund's overall expense ratio and of increasing
yield to investors, or the converse, at the time such amounts are absorbed
or reimbursed, as the case may be.
The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from being
affiliated with companies principally engaged in those activities. In
addition, administrative and judicial interpretations of the Glass-Steagall
Act prohibit bank holding companies and their bank and nonbank subsidiaries
from organizing, sponsoring or controlling registered open-end investment
companies that are continuously engaged in distributing their shares. Bank
holding companies and their bank and nonbank subsidiaries may serve,
however, as investment advisers to registered investment companies, subject
to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, the Funds have received an opinion from
their counsel that the Adviser is not prohibited from performing the
investment advisory services described above. In the event of changes in
federal or state statutes or regulations or judicial and administrative
interpretations or decisions pertaining to permissible activities of bank
holding companies and their bank and nonbank subsidiaries, the Adviser might
be prohibited from continuing these arrangements. In that event, it is
expected that the Board of Directors would make other arrangements and that
shareholders would not suffer adverse financial consequences.
PORTFOLIO MANAGERS
MARTIN L. JONES is portfolio manager for Limited Term Income Fund,
Intermediate Term Income Fund and Fixed Income Fund. Martin heads the Fixed
Income Group of the Adviser and has over 20 years of investment experience.
Formerly with Harris Trust & Savings Bank, Dillon, Read & Co., and Loeb
Rhoades & Co., Martin received his bachelor's degree from Texas Tech
University, his master's degree from University of Texas, and his master's
in business administration degree from the University of Chicago.
CHRISTOPHER L. DRAHN is portfolio manager for Intermediate Government Bond
Fund. Chris joined the fixed income department of the Adviser in 1985,
having previously served in its securities lending and corporate trust
areas. He received his master's degree in business administration from the
University of Minnesota and is a Chartered Financial Analyst.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the Adviser.
As compensation for its services to the Funds, the Custodian is paid monthly
fees calculated on an annual basis equal to 0.03% of the applicable Fund's
average daily net assets. In addition, the Custodian is reimbursed for its
out-of-pocket expenses incurred while providing its services to the Funds.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation,
Oaks, Pennsylvania 19456. The Administrator, a wholly-owned subsidiary of
SEI Investments Company, provides the Funds with certain administrative
services necessary to operate the Funds. These services include shareholder
servicing and certain accounting and other services. The Administrator
provides these services for a fee calculated at an annual rate of 0.12% of
each Fund's average daily net assets, subject to a minimum administrative
fee during each fiscal year of $50,000 per Fund; provided, that to the
extent that the aggregate net assets of all First American funds exceed $8
billion, the percentage stated above is reduced to 0.105%. From time to
time, the Administrator may voluntarily waive its fees or reimburse expenses
with respect to any of the Funds. Any such waivers or reimbursements may be
made at the Administrator's discretion and may be terminated at any time.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent
is 1004 Baltimore, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of
the Funds and of the other FAIF Funds. The Distributor is a Pennsylvania
corporation and is the principal distributor for a number of investment
companies. The Distributor is a wholly-owned subsidiary of SEI Investments
Company and is located at Oaks, Pennsylvania 19456. The Distributor is not
affiliated with the Adviser, First Bank System, Inc., the Custodian or their
respective affiliates.
The Distributor, the Administrator and the Adviser may in their discretion
use their own assets to pay for certain costs of distributing Fund shares.
They also may discontinue any payment of such costs at any time. In
addition, the Distributor and the Adviser and its affiliates may provide
compensation from their own resources for shareholder services provided by
third parties, including "one-stop" mutual fund networks through which the
Funds are made available.
PURCHASES AND REDEMPTIONS OF SHARES
SHARE PURCHASES AND REDEMPTIONS
Shares of the Funds are sold and redeemed on days on which the New York
Stock Exchange is open for business ("Business Days").
Payment for shares can be made only by wire transfer. Wire transfers of
federal funds for share purchases should be sent to First Bank National
Association, Minneapolis, Minnesota, ABA Number 091000022; For Credit to:
DST Systems: Account Number 160234580266; For Further Credit To: (Investor
Name and Fund Name). Shares cannot be purchased by Federal Reserve wire on
days on which the New York Stock Exchange is closed and on Federal holidays
upon which wire transfers are restricted. Purchase orders will be effective
and eligible to receive dividends declared the same day if the Transfer
Agent receives an order before 3:00 p.m. Central time and the Custodian
receives Federal funds before the close of business that day. Otherwise, the
purchase order will be effective the next Business Day. The net asset value
per share is calculated as of 3:00 p.m. Central time each Business Day. The
Funds reserve the right to reject a purchase order.
The Funds are required to redeem for cash all full and fractional shares of
the Funds. Redemption orders may be made any time before 3:00 p.m. Central
time in order to receive that day's redemption price. For redemption orders
received before 3:00 p.m. Central time, payment will ordinarily be made the
next business day by transfer of Federal funds, but payment may be made up
to 7 days later.
WHAT SHARES COST
Class C Shares of the Funds are sold and redeemed at net asset value. The
net asset value per share is determined as of the earlier of the close of
the New York Stock Exchange or 3:00 p.m. Central time on each day the New
York Stock Exchange is open for business, provided that net asset value need
not be determined on days when no Fund shares are tendered for redemption
and no order for that Fund's shares is received and on days on which changes
in the value of portfolio securities will not materially affect the current
net asset value of the Fund's shares. The price per share for purchases or
redemptions is such value next computed after the Transfer Agent receives
the purchase order or redemption request. In the case of redemptions and
repurchases of shares owned by corporations, trusts or estates, the Transfer
Agent may require additional documents to evidence appropriate authority in
order to effect the redemption, and the applicable price will be that next
determined following the receipt of the required documentation.
DETERMINING NET ASSET VALUE. The net asset value per share for each of the
Funds is determined by dividing the value of the securities owned by the
Fund plus any cash and other assets (including interest accrued and
dividends declared but not collected), less all liabilities, by the number
of Fund shares outstanding. For the purpose of determining the aggregate net
assets of the Funds, cash and receivables will be valued at their face
amounts. Interest will be recorded as accrued and dividends will be recorded
on the ex-dividend date. Debt obligations exceeding 60 days to maturity
which are actively traded are valued by an independent pricing service at
the most recently quoted bid price. Debt obligations with 60 days or less
remaining until maturity may be valued at their amortized cost. Foreign
securities are valued based upon quotation from the primary market in which
they are traded. When market quotations are not readily available,
securities are valued at fair value as determined in good faith by
procedures established and approved by the Board of Directors.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by a Fund is its last sales price on the
exchange prior to the time when assets are valued, unless the bid price is
higher or the asked price is lower, in which event the bid or asked price is
used. In the absence of any sales that day, options will be valued at the
current closing bid price.
Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset value per share of
different classes of shares of the same Fund may differ because of the
distribution and/or shareholder servicing expenses charged to Class A and
Class B Shares.
FOREIGN SECURITIES. Trading in securities on foreign markets may be
completed before the close of business on each business day of the Funds.
Thus, the calculation of the Funds' net asset value may not take place
contemporaneously with the determination of the prices of foreign securities
held in the Funds' portfolios. If events materially affecting the value of
foreign securities occur between the time when their price is determined and
the time when the Funds' net asset value is calculated, such securities will
be valued at fair value as determined in good faith by or under the
direction of the Board of Directors. In addition, trading in securities on
foreign markets may not take place on all days on which the New York Stock
Exchange is open for business or may take place on days on which the
Exchange is not open for business. Therefore, the net asset value of a Fund
which holds foreign securities might be significantly affected on days when
an investor has no access to the Fund.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval by the Fund and a determination
by the Fund and the Adviser that the securities to be exchanged are
acceptable. Securities accepted by a Fund will be valued in the same manner
that a Fund values its assets. The basis of the exchange will depend upon
the net asset value of Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
Confirmations of each purchase and redemption are sent to each shareholder.
In addition, monthly confirmations are sent to report all transactions and
dividends paid during that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends with respect to each Fund are declared and paid monthly to all
shareholders of record on the record date. Distributions of any net realized
long-term capital gains will be made at least once every 12 months.
Dividends and distributions are automatically reinvested in additional
shares of the Fund paying the dividend on payment dates at the ex-dividend
date net asset value without a sales charge, unless shareholders request
cash payments on the new account form or by writing to the Fund.
All shareholders on the record date are entitled to the dividend. If shares
are purchased before a record date for a dividend or a distribution of
capital gains, a shareholder will pay the full price for the shares and will
receive some portion of the purchase price back as a taxable dividend or
distribution (to the extent, if any, that the dividend or distribution is
otherwise taxable to holders of Fund shares). If shares are redeemed or
exchanged before the record date for a dividend or distribution or are
purchased after the record date, those shares are not entitled to the
dividend or distribution.
The amount of dividends payable on Class C Shares generally will be more
than the dividends payable on Class A or Class B Shares because of the
distribution and/or shareholder servicing expenses charged to Class A and
Class B Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class C Shares of a Fund for currently available
Class C Shares of the other FAIF Funds or of other funds in the First
American family at net asset value. Exchanges of shares among the First
American family of funds must meet any applicable minimum investment of the
fund for which shares are being exchanged.
The ability to exchange shares of the Funds does not constitute an offering
or recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares
being acquired may be sold. An investor who is considering acquiring shares
in another First American fund pursuant to the exchange privilege should
obtain and carefully read a prospectus of the fund to be acquired. Exchanges
may be accomplished by a written request, or by telephone if a preauthorized
exchange authorization is on file with the Transfer Agent, shareholder
servicing agent, or financial institution. Neither the Transfer Agent nor
any Fund will be responsible for the authenticity of exchange instructions
received by telephone if it reasonably believes those instructions to be
genuine. The Funds and the Transfer Agent will each employ reasonable
procedures to confirm that telephone instructions are genuine, and they may
be liable for losses resulting from unauthorized or fraudulent telephone
instructions if they do not employ these procedures. These procedures may
include taping of telephone conversations.
Shares of a class in which an investor is no longer eligible to participate
may be exchanged for shares of a class in which that investor is eligible to
participate. An example of this kind of exchange would be a situation in
which Class C Shares of a Fund held by a financial institution in a trust or
agency capacity for one or more individual beneficiaries are exchanged for
Class A Shares of that Fund and distributed to the individual beneficiaries.
FEDERAL INCOME TAXES
Each Fund intends to qualify as a regulated investment company under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"),
during its current taxable year in order to be relieved of payment of
federal income taxes on amounts of taxable income it distributes to
shareholders.
Dividends paid from each Fund's net investment income and net short-term
capital gains will be taxable to shareholders as ordinary income, whether or
not the shareholder elects to have such dividends automatically reinvested
in additional shares. Dividends paid by the Funds will not be eligible for
the 70% deduction for dividends received by corporations. Dividends paid
from the net capital gains of each Fund and designated as capital gain
dividends will be taxable to shareholders as long-term capital gains,
regardless of the length of time for which they have held their shares in
the Fund.
Gain or loss realized upon the sale of shares in the Funds will be treated
as capital gain or loss, provided that the shares represented a capital
asset in the hands of the shareholder. Such gain or loss will be long-term
gain or loss if the shares were held for more than one year.
This is a general summary of the federal tax laws applicable to the Funds
and their shareholders as of the date of this Prospectus. See the Statement
of Additional Information for further details.
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares
may be issued as either full or fractional shares. Fractional shares have
pro rata the same rights and privileges as full shares. Shares of the Funds
have no preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The
shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able to
elect all of the directors if they choose to do so. On issues affecting only
a particular Fund or Class, the shares of that Fund or Class will vote as a
separate series. Examples of such issues would be proposals to alter a
fundamental investment restriction pertaining to a Fund or to approve,
disapprove or alter a distribution plan pertaining to a Class.
Under the laws of the State of Maryland and FAIF's Articles of
Incorporation, FAIF is not required to hold shareholder meetings unless they
(i) are required by the 1940 Act, or (ii) are requested in writing by the
holders of 25% or more of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "cumulative total
return," its "average annual total return" and its "distribution rate."
Distribution rates may only be used in connection with sales literature and
shareholder communications preceded or accompanied by a Prospectus. Each of
these performance figures is based upon historical results and is not
intended to indicate future performance, and, except for "distribution
rate," is standardized in accordance with Securities and Exchange Commission
("SEC") regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day
period (which period will be stated in the advertisement) by the maximum
offering price per share on the last day of the period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Total return" is based on the overall dollar or percentage change in value
of a hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including, as
applicable, the maximum sales charge imposed on Class A Shares or the
contingent deferred sales charge imposed on Class B Shares redeemed at the
end of the specified period covered by the total return figure. "Cumulative
total return" reflects a Fund's performance over a stated period of time.
"Average annual total return" reflects the hypothetical annually compounded
rate that would have produced the same cumulative total return if
performance had been constant over the entire period. Because average annual
returns tend to smooth out variations in a Fund's performance, they are not
the same as actual year-by-year results. As a supplement to total return
computations, a Fund may also publish "total investment return" computations
which do not assume deduction of the maximum sales charge imposed on Class A
Shares or the contingent deferred sales charge imposed on Class B Shares.
"Distribution rate" is determined by dividing the income dividends per share
for a stated period by the maximum offering price per share on the last day
of the period. All distribution rates published for the Funds are measures
of the level of income dividends distributed during a specified period.
Thus, these rates differ from yield (which measures income actually earned
by a Fund) and total return (which measures actual income, plus realized and
unrealized gains or losses of a Fund's investments). Consequently,
distribution rates alone should not be considered complete measures of
performance.
The performance of the Class C Shares of a Fund will normally be higher than
for the Class A and Class B Shares because Class C Shares are not subject to
the sales charges and distribution and/or shareholder servicing expenses
applicable to Class A and Class B Shares.
In reports or other communications to shareholders and in advertising
material, the performance of each Fund may be compared to recognized
unmanaged indices or averages of the performance of similar securities and
to composites of such indices and averages. Also, the performance of each
Fund may be compared to that of other funds of similar size and objectives
as listed in the rankings prepared by Lipper Analytical Services, Inc. or
similar independent mutual fund rating services, and each Fund may include
in such reports, communications and advertising material evaluations
published by nationally recognized independent ranking services and
publications. For further information regarding the Funds' performance, see
"Fund Performance" in the Statement of Additional Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in
which the Funds may invest and related topics. Further information
concerning these matters is contained in the Statement of Additional
Information.
BANK INSTRUMENTS
The bank instruments in which Limited Term Income Fund, Intermediate Term
Income Fund and Fixed Income Fund may invest include time and savings
deposits, deposit notes and bankers acceptances (including certificates of
deposit) in commercial or savings banks. They also include Eurodollar
Certificates of Deposit issued by foreign branches of United States or
foreign banks; Eurodollar Time Deposits, which are United States
dollar-denominated deposits in foreign branches of United States or foreign
banks; and Yankee Certificates of Deposit, which are United States
dollar-denominated certificates of deposit issued by United States branches
of foreign banks and held in the United States. For a description of certain
risks of investing in foreign issuers' securities, see "-- Foreign
Securities" below. In each instance, the Funds may only invest in bank
instruments issued by an institution which has capital, surplus and
undivided profits of more than $100 million or the deposits of which are
insured by the Bank Insurance Fund or the Savings Association Insurance
Fund.
ASSET-BACKED SECURITIES
Each of Limited Term Income Fund, Intermediate Term Income Fund and Fixed
Income Fund may invest in asset-backed securities. Asset-backed securities
generally constitute interests in, or obligations secured by, a pool of
receivables other than mortgage loans, such as automobile loans and leases,
credit card receivables, home equity loans and trade receivables. Like
collateralized mortgage obligations, asset-backed securities generally are
issued by a private special-purpose entity. Their ratings and
creditworthiness typically depend on the legal insulation of the issuer and
transaction from the consequences of a sponsoring entity's bankruptcy, as
well as on the credit quality of the underlying receivables and the amount
and credit quality of any third-party credit enhancement supporting the
underlying receivables or the asset-backed securities. Asset-backed
securities and their underlying receivables generally are not issued or
guaranteed by any governmental entity.
FOREIGN SECURITIES
Each of Limited Term Income Fund, Intermediate Term Income Fund and Fixed
Income Fund may invest up to 15% of its total assets in foreign securities
payable in United States dollars. These securities may include securities
issued or guaranteed by (i) the Government of Canada, any Canadian Province,
or any instrumentality or political subdivision thereof; (ii) any other
foreign government, agency or instrumentality; (iii) foreign subsidiaries of
United States corporations; and (iv) foreign banks having total capital and
surplus at the time of investment of at least $1 billion. Such foreign bank
or corporate securities must be rated by at least one major United States
rating agency as having a quality not less than that which would be required
for comparable domestic securities. In addition, Limited Term Income Fund,
Intermediate Term Income Fund and Fixed Income Fund also may invest in
Eurodollar Certificates of Deposit, Eurodollar Time Deposits and Yankee
Certificates of Deposit as described under "-- Bank Instruments" above.
Although investments of these kinds are not subject to currency risk because
they are denominated in United States dollars, they are subject to certain
other risks associated with foreign investments. Risks which may affect
foreign issuers include political, social or economic instability in the
country of the issuer, the possibility of the imposition of exchange
controls, expropriation, limits on removal of currency or other assets, and
nationalization of assets. Foreign issuers may not be subject to uniform
accounting, auditing and financial reporting standards comparable to those
applicable to domestic United States issuers. In addition, foreign branches
of United States banks and foreign banks may be subject to less stringent
regulatory requirements than United States banks.
MORTGAGE-BACKED SECURITIES
Limited Term Income Fund, Intermediate Term Income Fund and Fixed Income
Fund may invest in mortgage-backed securities. Each of these Funds will
invest only in mortgage-backed securities which are Agency Pass-Through
Certificates or collateralized mortgage obligations ("CMOs"), as described
below.
Agency Pass-Through Certificates are mortgage pass-through certificates
representing undivided interests in pools of residential mortgage loans.
Distribution of principal and interest on the mortgage loans underlying an
Agency Pass-Through Certificate is an obligation of or guaranteed by GNMA,
FNMA or FHLMC. The obligation of GNMA with respect to such certificates is
backed by the full faith and credit of the United States, while the
obligations of FNMA and FHLMC with respect to such certificates rely solely
on the assets and credit of those entities. The mortgage loans underlying
GNMA certificates are partially or fully guaranteed by the Federal Housing
Administration or the Veterans Administration, while the mortgage loans
underlying FNMA certificates and FHLMC certificates are conventional
mortgage loans which are, in some cases, insured by private mortgage
insurance companies.
Agency Pass-Through Certificates may be issued in a single class with
respect to a given pool of mortgage loans or in multiple classes. Holders of
single-class pass-through certificates are entitled to receive their
proportionate share of all principal payments and prepayments on the
underlying mortgage loans together with interest on the unpaid principal at
a stated pass-through rate. Holders of each class in an issue of
multiple-class pass-through certificates are entitled to receive a specified
portion of all principal payments and prepayments and/or interest at a
stated pass-through rate on the underlying mortgage loans. A class of
pass-through certificates which entitles the holder to receive all of the
interest and none of the principal on the underlying mortgage loans is
referred to as an "interest-only" class, while a class which entitles the
holder to receive all of the principal payments and prepayments and none of
the interest on the underlying mortgage loans is referred to as a
"principal-only" class. Agency Pass-Through Certificates may be based on a
pool of fixed-rate mortgage loans or on a pool of adjustable-rate mortgage
loans, the interest rates on which change periodically based on changes in a
specified index rate. In the latter case, the pass-through rate of interest
on the Agency Pass-Through Certificates changes with changes in the rates
borne by the underlying mortgage loans.
CMOs are debt obligations typically issued by a private special-purpose
entity and collateralized by residential or commercial mortgage loans or
Agency Pass-Through Certificates. The Funds will invest only in CMOs which
are rated in one of the four highest rating categories by a nationally
recognized statistical rating organization or which are of comparable
quality in the judgment of the Adviser. Because CMOs are debt obligations of
private entities, payments on CMOs generally are not obligations of or
guaranteed by any governmental entity, and their ratings and
creditworthiness typically depend on, among other factors, the legal
insulation of the issuer and transaction from the consequences of a
sponsoring entity's bankruptcy.
CMOs generally are issued in multiple classes, with holders of each class
entitled to receive specified portions of the principal payments and
prepayments and/or of the interest payments on the underlying mortgage
loans. These entitlements can be specified in a wide variety of ways, so
that the payment characteristics of various classes may differ greatly from
one another. Examples of the more common classes are provided in the
Statement of Additional Information. The CMOs in which the Funds may invest
include classes which are subordinated in right of payment to other classes,
as long as they have the required rating referred to above.
Residential mortgage loans generally can be prepaid in whole or in part by
the borrowers at any time without any prepayment penalty. As a result, the
rate at which mortgage loans in a given pool are prepaid (the "prepayment
speed") is likely to increase if interest rates decline (due in part to
prepayments associated with refinancings at lower rates) and to decrease if
interest rates increase, particularly in the case of a pool of fixed-rate
mortgage loans. Thus, the holder of an interest in a mortgage pool is likely
to have to reinvest greater amounts of principal during periods of declining
interest rates than during periods of increasing rates. However, the
relationship between changes in interest rates and changes in prepayment
speeds is not predictable with precision, nor is the likelihood of changes
in interest rates which might lead to changes in prepayment speeds. In
addition, changes in interest rates and prepayment speeds have differing
effects on the return on different kinds of CMO classes. For these reasons,
it is more difficult to predict the effect of changes in market interest
rates on the return on mortgaged-backed securities than to predict the
effect of such changes on the return of a conventional fixed-rate debt
instrument, and the magnitude of such effects may be greater in some cases.
The return on interest-only and principal-only mortgage-backed securities is
particularly sensitive to changes in interest rates and prepayment speeds.
When interest rates decline and prepayment speeds increase, the holder of an
interest-only mortgage-backed security may not even recover its initial
investment. Similarly, the return on an inverse floating rate CMO is likely
to decline more sharply in periods of increasing interest rates than that of
a fixed-rate security. For these reasons, interest-only, principal-only and
inverse floating rate mortgage-backed securities generally have greater risk
than more conventional classes of mortgage-backed securities. The
limitations on each Fund's investments in interest-only, principal-only and
inverse floating rate mortgage-backed securities are set forth above under
"Investment Objectives and Policies."
REPURCHASE AGREEMENTS
A repurchase agreement involves the purchase by a Fund of securities with
the agreement that after a stated period of time, the original seller will
buy back the same securities ("collateral") at a predetermined price or
yield. Repurchase agreements involve certain risks not associated with
direct investments in securities. If the original seller defaults on its
obligation to repurchase as a result of its bankruptcy or otherwise, the
purchasing Fund will seek to sell the collateral, which could involve costs
or delays. Although collateral (which may consist of any fixed income
security which is an eligible investment for the Fund entering into the
repurchase agreement) will at all times be maintained in an amount equal to
the repurchase price under the agreement (including accrued interest), a
Fund would suffer a loss if the proceeds from the sale of the collateral
were less than the agreed-upon repurchase price. The Adviser will monitor
the creditworthiness of the firms with which the Funds enter into repurchase
agreements.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or
delayed-delivery basis. When such a transaction is negotiated, the purchase
price is fixed at the time the purchase commitment is entered, but delivery
of and payment for the securities take place at a later date. A Fund will
not accrue income with respect to securities purchased on a when-issued or
delayed-delivery basis prior to their stated delivery date. Pending delivery
of the securities, each Fund will maintain in a segregated account cash or
liquid high-grade securities in an amount sufficient to meet its purchase
commitments.
The purchase of securities on a when-issued or delayed-delivery basis
exposes a Fund to risk because the securities may decrease in value prior to
delivery. In addition, a Fund's purchase of securities on a when-issued or
delayed-delivery basis while remaining substantially fully invested could
increase the amount of the Fund's total assets that are subject to market
risk, resulting in increased sensitivity of net asset value to changes in
market prices. However, the Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with their investment objectives, and not for the
purpose of investment leverage. A seller's failure to deliver securities to
a Fund could prevent the Fund from realizing a price or yield considered to
be advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds may lend portfolio
securities representing up to one-third of the value of its total assets to
broker-dealers, banks or other institutional borrowers of securities. As
with other extensions of credit, there may be risks of delay in recovery of
the securities or even loss of rights in the collateral should the borrower
of the securities fail financially. However, the Funds will only enter into
loan arrangements with broker-dealers, banks, or other institutions which
the Adviser has determined are creditworthy under guidelines established by
the Board of Directors. In these loan arrangements, the Funds will receive
collateral in the form of cash, United States Government securities or other
high-grade debt obligations equal to at least 100% of the value of the
securities loaned. Collateral is marked to market daily. The Funds will pay
a portion of the income earned on the lending transaction to the placing
broker and may pay administrative and custodial fees (including fees to an
affiliate of the Adviser) in connection with these loans.
OPTIONS TRANSACTIONS
Each of the Funds may, in order to reduce risk, invest in exchange traded
put and call options on interest rate futures contracts and on interest rate
indices. Such investments will be made solely as a hedge against adverse
changes resulting from market conditions in the values of securities held by
the Funds or which they intend to purchase and where the transactions are
deemed appropriate to reduce risks inherent in the Funds' portfolios or
contemplated investments.
None of the Funds will invest more than 5% of the value of its total assets
in purchased options, provided that options which are "in the money" at the
time of purchase may be excluded from this 5% limitation. A call option is
"in the money" if the exercise price is lower than the current market price
of the underlying contract or index, and a put option is "in the money" if
the exercise price is higher than the current market price. A Fund's loss
exposure in purchasing an option is limited to the sum of the premium paid
(purchase price of the option) and the commission or other transaction
expenses associated with acquiring the option.
An interest rate futures contract provides for the future sale by one party
and purchase by the other party of a certain amount of a specific financial
instrument (debt security) at a specified price, date, time and place. An
option on an interest rate futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for
the premium paid, to purchase (in the case of a call option) or sell (in the
case of a put option) an interest rate futures contract at a specified
exercise price at any time prior to the expiration date of the option. In
order to hedge its portfolio against anticipated changes in interest rates,
a Fund might purchase a put option on an interest rate futures contract if
interest rates were expected to rise, or might purchase a call option on an
interest rate futures contract if rates were expected to decline.
Options on interest rate indices are similar to options on interest rate
futures contracts except that, rather than the right to take or make
delivery of a specific financial instrument at a specified price, an option
on an interest rate index gives the holder the right to receive, upon
exercise of the option, a defined amount of cash if the closing value of the
interest rate index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of
the option. Put and call options on interest rate indices thus may be used
in a fashion similar to that of options on interest rate futures contracts
to hedge the value of a portfolio of debt securities against anticipated
changes in interest rates.
The use of options on interest rate futures contracts and on interest rate
indices involves certain risks. These include the risk that changes in
interest rates on the hedged instruments may not correlate to changes in
interest rates on the instrument or index upon which the hedge is based, and
the risk of limited liquidity in the event that a Fund seeks to close out an
options position before expiration by entering into an offsetting
transaction.
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected with
market makers or issuers, unless better overall price and execution are
available through a brokerage transaction. It is anticipated that most
portfolio transactions involving debt securities will be executed on a
principal basis. Also, with respect to the placement of portfolio
transactions with securities firms, subject to the overall policy to seek to
place portfolio transactions as efficiently as possible and at the best
price, research services and placement of orders by securities firms for a
Fund's shares may be taken into account as a factor in placing portfolio
transactions for the Fund.
PORTFOLIO TURNOVER
Although the Funds do not intend generally to trade for short-term profits,
they may dispose of a security without regard to the time it has been held
when such action appears advisable to the Adviser. The portfolio turnover
rate for a Fund may vary from year to year and may be affected by cash
requirements for redemptions of shares. High portfolio turnover rates
generally would result in higher transaction costs and could result in
additional tax consequences to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds are
set forth in full in the Statement of Additional Information. The
fundamental restrictions include the following:
* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets. None of the Funds will borrow money
for leverage purposes. For the purpose of this investment restriction,
the use of options and futures transactions and the purchase of
securities on a when-issued or delayed-delivery basis shall not be
deemed the borrowing of money. If a Fund engages in borrowing, its share
price may be subject to greater fluctuation, and the interest expense
associated with the borrowing may reduce the Fund's net income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of
its net assets in all forms of illiquid investments, as determined pursuant
to applicable Securities and Exchange Commission rules and interpretations.
Section 4(2) commercial paper and Rule 144A securities may be determined to
be "liquid" under guidelines adopted by the Board of Directors. Investing in
Rule 144A securities could have the effect of increasing the level of
illiquidity in a Fund to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities.
INFORMATION CONCERNING COMPENSATION PAID TO FIRST TRUST NATIONAL ASSOCIATION
AND ITS AFFILIATES
First Trust National Association ("First Trust") may act as fiduciary with
respect to plans subject to the Employee Retirement Income Security Act of
1974 ("ERISA") which invest in the Funds. This section sets forth
information concerning compensation that First Trust and its affiliates may
receive from the Funds.
First Trust, as custodian for the assets of the Funds, receives the
custodian fees specified herein under the caption "Management -- Custodian."
First Bank National Association, which is under common ownership with First
Trust, acts as investment adviser to the Funds and receives the advisory
fees specified under the caption "Management -- Investment Adviser."
First Trust also may act as securities lending agent in connection with the
Funds' securities lending transactions and receive, as compensation for such
services, fees equal to 40% of the Funds' income from such securities
lending transactions.
FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
Oaks, Pennsylvania 19456
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
Oaks, Pennsylvania 19456
TRANSFER AGENT
DST SYSTEMS, INC.
1004 Baltimore
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1501 (1/97) I
FIRST AMERICAN INVESTMENT FUNDS, INC.
TAX FREE INCOME FUNDS
RETAIL CLASS
INTERMEDIATE TAX COLORADO INTERMEDIATE
FREE FUND TAX FREE FUND
MINNESOTA INSURED
INTERMEDIATE TAX FREE FUND
PROSPECTUS
JANUARY 31, 1997
[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 6
Class A Share Fees and Expenses 6
Information Concerning Fees and
Expenses 7
FINANCIAL HIGHLIGHTS 8
THE FUNDS 10
INVESTMENT OBJECTIVES AND
POLICIES 10
Intermediate Tax Free Fund 11
Minnesota Insured Intermediate
Tax Free Fund and Colorado
Intermediate Tax Free Fund 12
Risks to Consider 14
MANAGEMENT 17
Investment Adviser 17
Portfolio Managers 18
Custodian 19
Administrator 19
Transfer Agent 19
DISTRIBUTOR 19
INVESTING IN THE FUNDS 20
Share Purchases 20
Minimum Investment Required 21
Class A Share Price and
Sales Charge 22
Systematic Exchange Program 25
Systematic Investment Program 25
Exchanging Securities for
Fund Shares 25
Certificates and Confirmations 25
Dividends and Distributions 26
Exchange Privilege 26
REDEEMING SHARES 28
By Telephone 28
By Mail 29
By Systematic Withdrawal Program 29
Redemption Before Purchase
Instruments Clear 30
Accounts with Low Balances 30
DETERMINING THE PRICE OF SHARES 30
Determining Net Asset Value 31
INCOME TAXES 31
Federal Income Taxation 31
Minnesota Income Taxation 33
Colorado Income Taxation 34
Other State and Local Taxation 35
TAX-EXEMPT VS. TAXABLE INCOME 35
FUND SHARES 36
CALCULATION OF PERFORMANCE DATA 36
SPECIAL INVESTMENT METHODS 38
Municipal Bonds and Other
Municipal Obligations 38
Insurance for Minnesota Insured
Intermediate Tax Free Fund 40
Temporary Taxable Investments 41
Repurchase Agreements 42
Inverse Floating Rate
Obligations 42
When-Issued and Delayed-Delivery
Transactions 43
Lending of Portfolio Securities 43
Options Transactions 44
Portfolio Transactions 45
Portfolio Turnover 45
Investment Restrictions 45
FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456
RETAIL CLASS PROSPECTUS
The shares described in this Prospectus represent interests in First
American Investment Funds, Inc., which consists of mutual funds with several
different investment portfolios and objectives. This Prospectus relates to
the Class A Shares of the following funds (the "Funds"):
* INTERMEDIATE TAX FREE FUND * COLORADO INTERMEDIATE TAX FREE FUND
* MINNESOTA INSURED INTERMEDIATE
TAX FREE FUND
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF
ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL,
DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated January 31, 1997 for the Funds
has been filed with the Securities and Exchange Commission and is
incorporated in its entirety by reference in this Prospectus. To obtain
copies of the Statement of Additional Information at no charge, or to obtain
other information or make inquiries about the Funds, call (800) 637-2548 or
write SEI Financial Services Company, Oaks, Pennsylvania 19456.
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 REPRE- SENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
The date of this Prospectus is January 31, 1997.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment
company which offers shares in several different mutual funds. This
Prospectus provides information with respect to the Class A Shares of the
following funds (the "Funds"):
INTERMEDIATE TAX FREE FUND has an objective of providing current income that
is exempt from federal income tax to the extent consistent with preservation
of capital. Under normal market conditions, this Fund invests at least 80%
of its net assets in municipal obligations, the interest on which is exempt
from federal income tax. No more than 20% of the securities owned by this
Fund will generate income that is subject to the federal alternative minimum
tax. Under normal market conditions, the weighted average maturity of the
securities held by this Fund will range from 3 to 10 years.
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND has an objective of providing
current income which is exempt from both federal income tax and Minnesota
state income tax to the extent consistent with preservation of capital.
Under normal market conditions, this Fund invests at least 80% of its net
assets in municipal obligations, the interest on which is exempt from
federal and Minnesota income tax. No more than 20% of the securities owned
by this Fund will generate income that is subject to the federal or the
Minnesota alternative minimum tax. At least 65% of the tax-exempt
obligations held by this Fund will consist of insured bonds, escrow secured
bonds and defeased bonds. Under normal market conditions, the weighted
average maturity of the securities held by this Fund will range from 3 to 10
years.
COLORADO INTERMEDIATE TAX FREE FUND has an objective of providing current
income which is exempt from both federal income tax and Colorado state
income tax to the extent consistent with preservation of capital. Under
normal market conditions, this Fund invests at least 80% of its net assets
in municipal obligations, the interest on which is exempt from federal and
Colorado income tax. No more than 20% of the securities owned by this Fund
will generate income that is subject to the federal alternative minimum tax.
Under normal market conditions, the weighted average maturity of the
securities held by this Fund will range from 3 to 10 years.
INVESTMENT ADVISER First Bank National Association (the "Adviser") serves
as investment adviser to each of the Funds. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the
"Distributor") serves as the distributor of the Funds' shares. SEI
Financial Management Corporation (the "Administrator") serves as the
administrator of the Funds. See "Management" and "Distributor."
OFFERING PRICES Class A Shares of the Funds are sold at net asset value plus
a maximum sales charge of 3.00%. These sales charges are reduced on
purchases of $50,000 or more. Purchases of $1 million or more of Class A
Shares are not subject to an initial sales charge, but a contingent deferred
sales charge of 1.00% will be imposed on such purchases in the event of
redemption within 24 months following the purchase. Class A Shares of the
Funds otherwise are redeemed at net asset value without any additional
charge. Class A Shares of each Fund are subject to a shareholder servicing
fee computed at an annual rate of 0.25% of the average daily net assets of
that class. See "Investing in the Funds -- Class A Share Price and Sales
Charge."
MINIMUM INITIAL AND SUBSEQUENT INVESTMENTS The minimum initial investment is
$1,000 ($250 for IRAs) for each Fund. Subsequent investments must be $100 or
more. Regular investment in the Funds is simplified through the Systematic
Investment Program through which monthly purchases of $100 or more are
possible. See "Investing in the Funds -- Minimum Investment Required" and
"-- Systematic Investment Program."
EXCHANGES Shares of any Fund may be exchanged for the same class of shares
of other funds in the First American family at the shares' respective net
asset values with no additional charge. See "Investing in the Funds --
Exchange Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net
asset value next determined after receipt of a redemption request by the
Funds' transfer agent, less any applicable contingent deferred sales charge.
Each Fund may, upon 60 days written notice, redeem an account if the
account's net asset value falls below $500. See "Investing in the Funds" and
"Redeeming Shares."
RISKS TO CONSIDER Each of the Funds is subject to (i) interest rate risk
(the risk that increases in market interest rates will cause declines in the
value of debt securities held by a Fund); (ii) credit risk (the risk that
the issuers of debt securities held by a Fund default in making required
payments); and (iii) call or prepayment risk (the risk that a borrower may
exercise the right to prepay a debt obligation before its stated maturity,
requiring a Fund to reinvest the prepayment at a lower interest rate).
In addition, the value of municipal obligations held by the Funds may be
adversely affected by local political and economic conditions and
developments in the states and political subdivisions which issue the
obligations. Investors should note in this regard that Minnesota Insured
Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund invest in
municipal obligations of issuers located only in Minnesota and Colorado,
respectively. The Funds also may, in order to attempt to reduce risk, invest
in exchange traded put and call options on interest rate futures contracts
and on interest rate indices. See "Investment Objectives and Policies --
Risks to Consider" and "Special Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or
a shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an
investor's behalf.
FEES AND EXPENSES
CLASS A SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
MINNESOTA
INSURED COLORADO
INTERMEDIATE INTERMEDIATE INTERMEDIATE
TAX FREE TAX FREE TAX FREE
FUND FUND FUND
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases (as a percentage of offering
price)(1) 3.00% 3.00% 3.00%
Maximum sales load imposed on
reinvested dividends None None None
Deferred sales load None None None
Redemption fees None None None
Exchange fees None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees
(after voluntary fee waivers and
reimbursements)(2) 0.48% 0.47% 0.47%
Rule 12b-1 fees(2) None None None
Other expenses (after voluntary fee
waivers and reimbursements)(2) 0.22% 0.23% 0.23%
Total fund operating expenses
(after voluntary fee waivers and
reimbursements)(2) 0.70% 0.70% 0.70%
EXAMPLE(3)
Youwould pay the following expenses on a $1,000 investment, assuming (i) the
maximum applicable sales charge for all funds; (ii) a
5% annual return; and (iii) redemption at the end of each time period:
1 year $ 37 $ 37 $ 37
3 years $ 52 $ 52 $ 52
5 years $ 68 $ 68 $ 68
10 years $ 114 $ 114 $ 114
</TABLE>
(1) The rules of the Securities and Exchange Commission require that the maximum
sales charge be reflected in the above table. However, certain investors may
qualify for reduced sales charges. Purchases of $1 million or more of Class
A Shares are not subject to an initial sales charge, but a contingent
deferred sales charge of 1.00% will be imposed on such purchases in the
event of redemption within 24 months following the purchase. See "Investing
in the Funds -- Class A Share Price and Sales Charge."
(2) The Adviser, the Distributor and the Administrator intend to waive a portion
of their fees and/or reimburse expenses on a voluntary basis, and the
amounts shown reflect these waivers and reimbursements as of the date of
this Prospectus. Each of these persons intends to maintain such waivers and
reimbursements in effect for the current fiscal year but reserves the right
to discontinue such waivers and reimbursements at any time in its sole
discretion. Absent any fee waivers, investment advisory fees for each Fund
as an annualized percentage of average daily net assets would be 0.70%; Rule
12b-1 fees calculated on such basis would be 0.25%; and total fund operating
expenses calculated on such basis would be 1.17% for Intermediate Tax Free
Fund, 1.18% for Minnesota Insured Intermediate Tax Free and 1.18% for
Colorado Intermediate Tax Free Fund. Other expenses includes an
administration fee.
(3) Absent the fee waivers and reimbursements referred to in (2) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Intermediate Tax Free Fund, $42, $66, $92 and $168; Minnesota Insured
Intermediate Tax Free Fund, $42, $66, $93 and $169; and Colorado
Intermediate Tax Free Fund, $42, $66, $93 and $169.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund may
bear directly or indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the
foregoing tables and examples relates only to the Class A Shares of the
Funds. The Funds also offer Class C Shares which are subject to the same
expenses except that they bear no sales loads or shareholder servicing fees.
The examples in the above tables are based on projected annual Fund
operating expenses after voluntary fee waivers and expense reimbursements by
the Adviser, the Distributor and the Administrator. Although these persons
intend to maintain such waivers in effect for the current fiscal year, any
such waivers are voluntary and may be discontinued at any time. Prior to fee
waivers, investment advisory fees accrue at the annual rate as a percentage
of average daily net assets of 0.70% for each of the Funds.
The Class A Shares of each Fund pay shareholder servicing fees to the
Distributor in an amount equaling 0.25% per year of each such class's
average daily net assets (which fees currently are being waived). The
Distributor also receives the sales charge for distributing the Funds' Class
A Shares. For additional information, see "Distributor."
Other expenses include fees paid by each Fund to the Administrator for
providing various services necessary to operate the Funds. These include
shareholder servicing and certain accounting and other services. The
Administrator provides these services for a fee calculated at an annual rate
of 0.12% of average daily net assets of each Fund subject to a minimum of
$50,000 per Fund per fiscal year; provided, that to the extent that the
aggregate net assets of all First American funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. Other expenses of the Funds
also includes the cost of maintaining shareholder records, furnishing
shareholder statements and reports, and other services. Investment advisory
fees, administrative fees and other expenses are reflected in the Funds'
daily dividends and are not charged to individual shareholder accounts.
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction
with the Funds' financial statements, the related notes thereto and the
independent auditors' report of KPMG Peat Marwick LLP appearing in FAIF's
annual report to shareholders for the year ended September 30, 1996. Further
information about the Funds' performance is contained in such annual report
to shareholders, which may be obtained without charge by calling (800)
637-2548 or by writing SEI Financial Services Company, Oaks, Pennsylvania
19456.
For the periods ended September 30,
For a share outstanding throughout the period
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
INTERMEDIATE TAX FREE FUND
Class A
1996 $10.72 $0.46 $ 0.01 $(0.46)
1995 10.28 0.49 0.43 (0.48)
1994 10.92 0.44 (0.57) (0.44)
1993 10.56 0.47 0.42 (0.47)
1992 10.34 0.53 0.22 (0.53)
1991(1) 10.04 0.50 0.31 (0.50)
1990(2) 10.08 0.56 (0.04) (0.56)
1989(2) 10.19 0.56 (0.11) (0.56)
1988(2)(3) 10.03 0.47 0.16 (0.47)
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Class A
1996 $ 9.92 $0.45 $ 0.02 $(0.45)
1995 9.58 0.46 0.33 (0.45)
1994(4) 10.00 0.25 (0.42) (0.25)
COLORADO INTERMEDIATE TAX FREE FUND
Class A
1996 $10.51 $0.49 $(0.04) $(0.49)
1995 10.15 0.49 0.36 (0.49)
1994(5) 10.00 0.21 0.16 (0.22)
*Total return excludes sales charges.
+Returns, excluding sales charges, are for the period indicated and have not
been annualized.
(1) On September 3, 1991, the Board of Directors of FAIF approved a change in
FAIF's fiscal year end from October 31 to September 30, effective September
30, 1991. All ratios for the period have been annualized.
(2) For the period ended October 31.
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME TO ASSETS PORTFOLIO
FROM CAPITAL VALUE END TOTAL OF PERIOD AVERAGE NET AVERAGE NET (EXCLUDING TURNOVER
GAINS OF PERIOD RETURN* (000) ASSETS ASSETS WAIVERS) RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.07) $10.66 4.45% $2,618 0.66% 4.35% 1.17% 53%
-- 10.72 9.15 983 0.67 4.71 1.30 68
(0.07) 10.28 (1.25) 1,128 0.59 4.13 2.78 52
(0.06) 10.92 8.66 2,969 0.71 4.31 5.09 27
-- 10.56 7.23 725 0.99 4.83 16.09 23
(0.01) 10.34 8.15+ 637 0.99 5.35 15.48 15
-- 10.04 5.31 537 1.08 5.58 13.85 4
-- 10.08 4.57 491 1.09 5.57 19.55 4
-- 10.19 6.73+ 425 0.84 5.87 13.60 0
$(0.03) $ 9.91 4.80% $3,916 0.70% 4.52% 1.18% 19%
-- 9.92 8.46 2,219 0.70 4.74 1.25 38
-- 9.58 (1.68)+ 1,508 0.67 4.57 1.84 22
$(0.05) $10.42 4.39% $2,861 0.70% 4.69% 1.18% 20%
-- 10.51 8.57 2,189 0.70 4.83 1.27 19
-- 10.15 3.66+ 693 0.69 4.51 4.96 4
</TABLE>
(3) Commenced operations on December 22, 1987. All ratios for the period have
been annualized.
(4) Commenced operations on February 25, 1994. All ratios for the period have
been annualized.
(5) Commenced operations on April 4, 1994. All ratios for the period have been
annualized.
THE FUNDS
FAIF is an open-end management investment company which offers shares in
several different mutual funds (collectively, the "FAIF Funds"), each of
which evidences an interest in a separate and distinct investment portfolio.
Shareholders may purchase shares in each FAIF Fund through several separate
classes which provide for variations in distribution costs, shareholder
servicing fees, voting rights and dividends. Except for these differences
among classes, each share of each FAIF Fund represents an undivided
proportionate interest in that fund. FAIF is incorporated under the laws of
the State of Maryland, and its principal offices are located at Oaks,
Pennsylvania 19456.
This Prospectus relates only to the Class A Shares of the Funds named on the
cover hereof. Information regarding the Class C Shares of these Funds and
regarding the Class A, Class B and Class C Shares of the other FAIF Funds is
contained in separate prospectuses that may be obtained from FAIF's
Distributor, SEI Financial Services Company, Oaks, Pennsylvania 19456, or by
calling (800) 637-2548. The Board of Directors of FAIF may authorize
additional series or classes of common stock in the future.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The
Funds' investment objectives are not fundamental and therefore may be
changed without a vote of shareholders. Such changes could result in a Fund
having investment objectives different from those which shareholders
considered appropriate at the time of their investment in a Fund.
Shareholders will receive written notification at least 30 days prior to any
change in a Fund's investment objectives. Intermediate Tax Free Fund is a
diversified investment company, as defined in the Investment Company Act of
1940 (the "1940 Act"). Minnesota Insured Intermediate Tax Free Fund and
Colorado Intermediate Tax Free Fund are nondiversified investment companies
under the 1940 Act.
If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from
changes in asset values will not be deemed to violate the limitation except
in the case of the limitation on illiquid investments. A Fund which is
limited to investing in securities with specified ratings is not required to
sell a security if its rating is reduced or discontinued after purchase, but
the Fund may consider doing so. However, in no event will more than 5% of
any Fund's net assets be invested in non-investment grade securities.
Descriptions of the rating categories of Standard & Poor's Corporation
("Standard & Poor's") and Moody's Investors Service, Inc. ("Moody's") are
contained in the Statement of Additional Information.
This section also contains information concerning certain investment risks
borne by Fund shareholders under the heading "-- Risks to Consider." Further
information concerning the securities in which the Funds may invest and
related matters is set forth under "Special Investment Methods."
INTERMEDIATE TAX FREE FUND
OBJECTIVE. Intermediate Tax Free Fund has an objective of providing current
income which is exempt from federal income tax to the extent consistent with
preservation of capital.
INVESTMENT POLICIES. Under normal market conditions, Intermediate Tax Free
Fund invests at least 80% of its net assets in municipal bonds and other
municipal obligations, the interest on which is, in the opinion of bond
counsel to the issuer, exempt from federal income tax. No more than 20% of
the securities owned by the Fund will generate income that is an item of tax
preference for the purpose of the federal alternative minimum tax. Municipal
obligations generating income subject to taxation under the federal
alternative minimum tax rules will not be counted as tax exempt obligations
for purposes of the 80% test. See "Income Taxes." The types of municipal
bonds and other municipal obligations in which the Fund may invest are
described under "Special Investment Methods -- Municipal Bonds and Other
Municipal Obligations."
Under normal market conditions, the weighted average maturity of the
securities held by Intermediate Tax Free Fund will range from 3 to 10 years.
Intermediate Tax Free Fund may purchase obligations which are rated no lower
than BBB by Standard & Poor's or Baa by Moody's, or which have been assigned
an equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the
Adviser. The Fund also may purchase municipal notes which are rated no lower
than SP-1 by Standard & Poor's or MIG/VMIG-1 by Moody's or which have been
assigned an equivalent rating by another nationally recognized statistical
rating organization. Unrated securities will not exceed 10% in the aggregate
of the value of the total assets of the Fund.
While the assets of Intermediate Tax Free Fund ordinarily will be invested
in municipal obligations, on occasion the Fund may temporarily hold
short-term securities, other than municipal obligations, the income from
which is taxable. Temporary taxable investments would be held solely for the
purpose of managing exceptional in-flows and out-flows of cash or for
temporary defensive purposes to preserve existing portfolio values. Under
normal circumstances, the Fund may not invest more than 20% of its assets in
investments other than municipal obligations. However, in periods of adverse
markets when a temporary defensive position to protect capital is deemed
advisable and practicable, the Fund may have more than 20% of its assets in
temporary taxable investments or cash. The types of investments which are
permitted for these purposes are described under "Special Investment Methods
-- Temporary Taxable Investments."
The Fund also may temporarily invest in shares of investment companies which
invest primarily in short-term municipal obligations with maturities not
exceeding 13 months. Investments of these types are also subject to the
advisory fee. Income from these investments is normally exempt from federal
income tax. Where the income from these investments is exempt from federal
income tax, the investments will be counted as tax exempt obligations for
purposes of the 80% test described above.
The Fund also may (i) in order to attempt to reduce risk, invest in exchange
traded put and call options on interest rate futures contracts and on
interest rate indices; (ii) purchase securities on a when-issued or
delayed-delivery basis; and (iii) engage in the lending of portfolio
securities. In addition, the Fund may invest up to 5% of its net assets in
inverse floating rate municipal obligations. For information about these
investment methods, restrictions on their use, and certain associated risks,
see the related headings under "Special Investment Methods."
The requirement, described above, that Intermediate Tax Free Fund invest at
least 80% of its net assets in tax free obligations under normal market
conditions is a fundamental policy, which cannot be changed without
shareholder vote. Under normal market conditions, the Fund will invest at
least 65% of its total assets in municipal obligations which are municipal
bonds. See "Special Investment Methods -- Municipal Bonds and Other
Municipal Obligations."
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND AND
COLORADO INTERMEDIATE TAX FREE FUND
OBJECTIVES. Minnesota Insured Intermediate Tax Free Fund has an objective of
providing current income which is exempt from both federal income tax and
Minnesota state income tax to the extent consistent with preservation of
capital. Colorado Intermediate Tax Free Fund has an objective of providing
current income which is exempt from both federal income tax and Colorado
state income tax to the extent consistent with preservation of capital.
INVESTMENT POLICIES. Under normal market conditions, each of these Funds
invests at least 80% of its net assets in municipal bonds and other
municipal obligations of the state referred to in its title, the interest on
which is, in the opinion of bond counsel to the issuer, exempt from federal
income tax and that state's income tax. No more than 20% of the securities
owned by either of these Funds will generate income that is an item of tax
preference for the purpose of the federal alternative minimum tax and, in
the case of Minnesota Insured Intermediate Tax Free Fund, for the purpose of
the Minnesota alternative minimum tax. Municipal obligations generating
income subject to taxation under the federal alternative minimum tax rules
or, in the case of Minnesota Insured Intermediate Tax Free Fund, under the
Minnesota alternative minimum tax rules, will not be counted as tax exempt
obligations for purposes of the 80% test. See "Income Taxes." The types of
municipal bonds and other municipal obligations in which these Funds may
invest are described under "Special Investment Methods -- Municipal Bonds
and Other Municipal Obligations."
Under normal market conditions, the weighted average maturity of the
securities held by each of these Funds will range from 3 to 10 years.
Each of these Funds may purchase obligations which are rated (without regard
to insurance) no lower than BBB by Standard & Poor's or Baa by Moody's, or
which have been assigned an equivalent rating by another nationally
recognized statistical rating organization, or which are of comparable
quality in the judgment of the Adviser. Each of these Funds also may
purchase municipal notes which are rated no lower than SP-1 by Standard &
Poor's or MIG/VMIG-1 by Moody's or which have been assigned an equivalent
rating by another nationally recognized statistical rating organization.
Unrated securities will not exceed 10% in the aggregate of the value of the
total assets of either of these Funds.
While the assets of each of these Funds ordinarily will be invested in
municipal obligations, on occasion either Fund may temporarily hold
short-term securities, other than municipal obligations, the income from
which is taxable. Temporary taxable investments would be held solely for the
purpose of managing exceptional in-flows and out-flows of cash or for
temporary defensive purposes to preserve existing portfolio values. Under
normal circumstances, a Fund may not invest more than 20% of its assets in
investments other than municipal obligations. However, in periods of adverse
markets when a temporary defensive position to protect capital is deemed
advisable and practicable, a Fund may have more than 20% of its assets in
temporary taxable investments or cash. The types of investments which are
permitted for these purposes are described under "Special Investment Methods
-- Temporary Taxable Investments."
Each of these Funds also may temporarily invest in shares of investment
companies which invest primarily in short-term municipal obligations with
maturities not exceeding 13 months. Investments of these types are also
subject to the advisory fee. Income from these investments is normally
exempt from federal income tax but may not be exempt from the applicable
state tax. Where the income from these investments is exempt from both
federal income tax and the applicable state tax, the investments will be
counted as tax exempt obligations for purposes of the 80% test described
above.
Each of these Funds also may (i) in order to attempt to reduce risk, invest
in exchange traded put and call options on interest rate futures contracts
and on interest rate indices; (ii) purchase securities on a when-issued or
delayed-delivery basis; (iii) engage in the lending of portfolio securities;
and (iv) invest up to 5% of its net assets in inverse floating rate
municipal obligations. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
As a nonfundamental policy, at least 65% of the tax-exempt obligations in
the investment portfolio of Minnesota Insured Intermediate Tax Free Fund
will consist of: (i) obligations that at all times are fully insured as to
the scheduled payment of all installments of interest and principal; and
(ii) obligations which have an AAA rating by Standard & Poor's or an Aaa
rating by Moody's or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization, where the
payment of interest and principal is guaranteed by the United States
Government or an agency or instrumentality of the United States Government,
or where the payment of interest and principal is secured by an escrow
account consisting of obligations guaranteed by the United States Government
or its agencies or instrumentalities ("escrow secured bonds" or "defeased
bonds"), without having to purchase additional insurance therefor. This
policy may not be eliminated except upon 30 days advance notice to
shareholders of Minnesota Insured Intermediate Tax Free Fund. In addition,
pending the investment or reinvestment of its assets in longer-term
tax-exempt obligations, this Fund may invest in short-term tax-exempt
obligations, without obtaining insurance, provided such instruments carry an
AAA or A-1 rating by Standard & Poor's or an Aaa or SP-1 rating by Moody's
or which have been assigned an equivalent rating by another nationally
recognized statistical rating organization. Bond insurance does not
guarantee the market value of the securities held in this Fund's portfolio.
For further information concerning the insurance applicable to this Fund's
investments, see "Special Investment Methods -- Insurance for Minnesota
Insured Intermediate Tax Free Fund."
The tax-exempt obligations held by Colorado Intermediate Tax Free Fund need
not be insured.
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks. These include the
following:
INTEREST RATE RISK. Interest rate risk is the risk that the value of a
fixed-rate debt security will decline due to changes in market interest
rates. Because the Funds invest in fixed-rate debt securities, they are
subject to interest rate risk. In general, when interest rates rise, the
value of a fixed-rate debt security declines. Conversely, when interest
rates decline, the value of a fixed-rate debt security generally increases.
Thus, shareholders in the Funds bear the risk that increases in market
interest rates will cause the value of their Fund's portfolio investments to
decline.
In general, the value of fixed-rate debt securities with longer maturities
is more sensitive to changes in market interest rates than the value of such
securities with shorter maturities. Thus, the net asset value of a Fund
which invests in securities with longer weighted average maturities should
be expected to have greater volatility in periods of changing market
interest rates than that of a Fund which invests in securities with shorter
weighted average maturities.
Although the Adviser may engage in transactions intended to hedge the value
of the Funds' portfolios against changes in market interest rates, there is
no assurance that such hedging transactions will be undertaken or will
fulfill their purpose. See "Special Investment Methods -- Options
Transactions."
CREDIT RISK. Credit risk is the risk that the issuer of a debt security will
fail to make payments on the security when due. Because the Funds invest in
debt securities, they are subject to credit risk.
As described under "Special Investment Methods -- Municipal Bonds and Other
Municipal Obligations," the revenue bonds and municipal lease obligations in
which the Funds invest may entail greater credit risk than the general
obligation bonds in which they invest. This is the case because revenue
bonds and municipal lease obligations generally are not backed by the faith,
credit or general taxing power of the issuing governmental entity. In
addition, as described under that section, municipal lease obligations also
are subject to nonappropriation risk, which is a type of nonpayment risk.
Investors also should note that even general obligation bonds of the states
and their political subdivisions are not free from the risk of default.
The ratings and certain other requirements which apply to the Funds'
permitted investments, as described elsewhere in this Prospectus, are
intended to limit the amount of credit risk undertaken by the Funds.
Nevertheless, shareholders in the Funds bear the risk that payment defaults
could cause the value of their Fund's portfolio investments to decline.
Investors also should note that the Funds can invest in municipal
obligations rated as low as BBB by Standard & Poor's or Baa by Moody's, or
which have been assigned an equivalent rating by another nationally
recognized statistical rating organization, or which are of comparable
quality in the judgment of the Adviser. Although these rating categories are
investment grade, obligations with these ratings are viewed as having
speculative characteristics and carry a somewhat higher risk of default than
obligations rated in the higher investment grade categories.
Although the bond insurance carried by Minnesota Insured Intermediate Tax
Free Fund is intended to mitigate credit risk, its effectiveness depends
on the creditworthiness of the bond insurers. See "Special Investment
Methods -- Insurance for Minnesota Insured Intermediate Tax Free Fund."
CALL RISK. Many municipal bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In
general, it is advantageous for an issuer to call its bonds if they can be
refinanced through the issuance of new bonds which bear a lower interest
rate than that of the called bonds. Call risk is the risk that bonds will be
called during a period of declining market interest rates so that such
refinancings may take place.
If a bond held by a Fund is called during a period of declining interest
rates, the Fund probably will have to reinvest the proceeds received by it
at a lower interest rate than that borne by the called bond, thus resulting
in a decrease in the Fund's income. To the extent that the Funds invest in
callable bonds, Fund shareholders bear the risk that reductions in income
will result from the call of bonds.
STATE AND LOCAL POLITICAL AND ECONOMIC CONDITIONS. The value of municipal
obligations owned by the Funds may be adversely affected by local political
and economic conditions and developments. Adverse conditions in an industry
significant to a local economy could have a correspondingly adverse effect
on the financial condition of local issuers. Other factors that could affect
tax-exempt obligations include a change in the local, state or national
economy, demographic factors, ecological or environmental concerns,
statutory limitations on the issuer's ability to increase taxes and other
developments generally affecting the revenues of issuers (for example,
legislation or court decisions reducing state aid to local governments or
mandating additional services).
Intermediate Tax Free Fund cannot invest 25% or more of its total assets in
obligations of issuers located in the same state (for this purpose, the
location of an "issuer" shall be deemed to be the location of the entity the
revenues of which are the primary source of payment or the location of the
project or facility which may be the subject of the obligation). See
"Special Investment Methods -- Investment Restrictions." Minnesota Insured
Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund each will
invest primarily in municipal obligations issued by the state and its
political subdivisions named in its title. For this reason, the municipal
obligations held by these two Funds will be particularly affected by local
conditions in those states. A more detailed description of the factors
affecting Minnesota and Colorado issuers of municipal obligations is set
forth in the Statement of Additional Information.
OTHER. Investors also should review "Special Investment Methods" for
information concerning risks associated with certain investment techniques
which may be utilized by the Funds. In addition, investors in Minnesota
Insured Intermediate Tax Free Fund should note that the 1995 Minnesota
Legislature enacted a statement of intent specifying certain circumstances
under which interest on the Minnesota municipal obligations held by the Fund
might become taxable for Minnesota state income tax purposes. See "Income
Taxes -- Minnesota Income Taxation."
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing
the overall management and electing the officers of FAIF. Subject to the
overall direction and supervision of the Board of Directors, the Adviser
acts as investment adviser for and manages the investment portfolios of
FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis,
Minnesota 55480, acts as the Funds' investment adviser through its First
Asset Management group. The Adviser has acted as an investment adviser to
FAIF since its inception in 1987 and has acted as investment adviser to
First American Funds, Inc. since 1982 and to First American Strategy Funds,
Inc. since 1996. As of December 31, 1996, the Adviser was managing accounts
with an aggregate value of approximately $35 billion, including mutual fund
assets in excess of $12 billion. First Bank System, Inc., 601 Second Avenue
South, Minneapolis, Minnesota 55480, is the holding company for the Adviser.
Each of the Funds has agreed to pay the Adviser monthly fees calculated on
an annual basis equal to 0.70% of its average daily net assets. The Adviser
may, at its option, waive any or all of its fees, or reimburse expenses,
with respect to any Fund from time to time. Any such waiver or reimbursement
is voluntary and may be discontinued at any time. The Adviser also may
absorb or reimburse expenses of the Funds from time to time, in its
discretion, while retaining the ability to be reimbursed by the Funds for
such amounts prior to the end of the fiscal year. This practice would have
the effect of lowering a Fund's overall expense ratio and of increasing
yield to investors, or the converse, at the time such amounts are absorbed
or reimbursed, as the case may be.
The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from being
affiliated with companies principally engaged in those activities. In
addition, administrative and judicial interpretations of the Glass-Steagall
Act prohibit bank holding companies and their bank and nonbank subsidiaries
from organizing, sponsoring or controlling registered open-end investment
companies that are continuously engaged in distributing their shares. Bank
holding companies and their bank and nonbank subsidiaries may serve,
however, as investment advisers to registered investment companies, subject
to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, the Funds have received an opinion from
their counsel that the Adviser is not prohibited from performing the
investment advisory services described above, and that FBS Investment
Services, Inc. ("ISI"), a wholly owned broker-dealer subsidiary of the
Adviser, is not prohibited from serving as a Participating Institution as
described herein. In the event of changes in federal or state statutes or
regulations or judicial and administrative interpretations or decisions
pertaining to permissible activities of bank holding companies and their
bank and nonbank subsidiaries, the Adviser and ISI might be prohibited from
continuing these arrangements. In that event, it is expected that the Board
of Directors would make other arrangements and that shareholders would not
suffer adverse financial consequences.
PORTFOLIO MANAGERS
RICHARD W. STANLEY is portfolio co-manager for each of the Funds. Dick
entered the investment business via investment sales with Smith Barney & Co.
in 1958. He then moved to Heritage Investment Advisers as head of fixed
income investment in 1973. He joined the Adviser in early 1986 as Vice
President and Manager of Fixed Income/Personal Trust. Dick received his
master's in business administration degree from Cornell University in 1958
and received his Chartered Financial Analyst certification in 1977.
CHRISTOPHER L. DRAHN is portfolio co-manager for Intermediate Tax Free Fund
and Minnesota Insured Intermediate Tax Free Fund. Chris joined the fixed
income department of the Adviser in 1985, having previously served in its
securities lending and corporate trust areas. He received his master's
degree in business administration from the University of Minnesota and is a
Chartered Financial Analyst.
TERRY MALTARICH is portfolio co-manager for Colorado Intermediate Tax Free
Fund. Terry joined the Adviser in 1994 after 20 years of investment
experience with Colorado Capital Advisors (which was combined into the
Adviser) and Great West Life Insurance Company. He received his bachelor's
degree from Miami University.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the Adviser.
As compensation for its services to the Funds, the Custodian is paid monthly
fees calculated on an annual basis equal to 0.03% of the applicable Fund's
average daily net assets. In addition, the Custodian is reimbursed for its
out-of-pocket expenses incurred while providing its services to the Funds.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation,
Oaks, Pennsylvania 19456. The Administrator, a wholly-owned subsidiary of
SEI Investments Company, provides the Funds with certain administrative
services necessary to operate the Funds. These services include shareholder
servicing and certain accounting and other services. The Administrator
provides these services for a fee calculated at an annual rate of 0.12% of
each Fund's average daily net assets, subject to a minimum administrative
fee during each fiscal year of $50,000 per Fund; provided, that to the
extent that the aggregate net assets of all First American funds exceed $8
billion, the percentage stated above is reduced to 0.105%. From time to
time, the Administrator may voluntarily waive its fees or reimburse expenses
with respect to any of the Funds. Any such waivers or reimbursements may be
made at the Administrator's discretion and may be terminated at any time.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent
is 1004 Baltimore, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of
the Funds and of the other FAIF Funds. The Distributor is a Pennsylvania
corporation and is the principal distributor for a number of investment
companies. The Distributor is a wholly-owned subsidiary of SEI Investments
Company, and is located at Oaks, Pennsylvania 19456. The Distributor is not
affiliated with the Adviser, First Bank System, Inc., the Custodian or their
respective affiliates.
Shares of the Funds are distributed through the Distributor and securities
firms, financial institutions (including, without limitation, banks) and
other industry professionals (the "Participating Institutions") which enter
into sales agreements with the Distributor to perform share distribution or
shareholder support services.
FAIF has adopted a Plan of Distribution for the Class A Shares pursuant to
Rule 12b-1 under the 1940 Act (the "Class A Distribution Plan"). The Class A
Distribution Plan authorizes the Distributor to retain the sales charge paid
upon purchase of Class A Shares, except that portion which is reallowed to
Participating Institutions. See "Investing in the Funds -- Class A Share
Price and Sales Charge." Each Fund also pays the Distributor a shareholder
servicing fee monthly at an annual rate of 0.25% of the Fund's Class A
Shares' average daily net assets. The shareholder servicing fee is intended
to compensate the Distributor for ongoing servicing and/or maintenance of
shareholder accounts and may be used by the Distributor to provide
compensation to institutions through which shareholders hold their shares
for ongoing servicing and/or maintenance of shareholder accounts. The
shareholder servicing fee may be used to provide compensation for
shareholder services provided by "one-stop" mutual fund networks through
which the Funds are made available. In addition, the Distributor and the
Adviser and its affiliates may provide compensation for services provided by
such networks from their own resources. From time to time, the Distributor
may voluntarily waive its fees with respect to the Class A Shares of any of
the Funds. Any such waivers may be made at the Distributor's discretion and
may be terminated at any time.
The Class A Distribution Plan recognizes that the Adviser, the
Administrator, the Distributor, and any Participating Institution may in
their discretion use their own assets to pay for certain additional costs of
distributing Fund shares. Any arrangement to pay such additional costs may
be commenced or discontinued by any of these persons at any time. In
addition, while there is no sales charge on purchases of Class A Shares of
$1 million and more, the Adviser may pay amounts to broker-dealers from its
own assets with respect to such sales. ISI, a subsidiary of the Adviser, is
a Participating Institution.
INVESTING IN THE FUNDS
SHARE PURCHASES
Shares of the Funds are sold at their net asset value, next determined after
an order is received, plus any applicable sales charge, on days on which the
New York Stock Exchange is open for business. Shares may be purchased as
described below. The Funds reserve the right to reject any purchase request.
THROUGH A FINANCIAL INSTITUTION. Shares may be purchased through a financial
institution which has a sales agreement with the Distributor. An investor
may call his or her financial institution to place an order. Purchase orders
must be received by the financial institution by the time specified by the
institution to be assured same day processing, and purchase orders must be
transmitted to and received by the Funds by 3:00 p.m. Central time in order
for shares to be purchased at that day's price. It is the financial
institution's responsibility to transmit orders promptly.
BY MAIL. An investor may place an order to purchase shares of the Funds
directly through the Transfer Agent. Orders by mail will be executed upon
receipt of payment by the Transfer Agent. If an investor's check does not
clear, the purchase will be cancelled and the investor could be liable for
any losses or fees incurred. Third-party checks, credit cards, credit card
checks and cash will not be accepted. When purchases are made by check, the
proceeds of redemptions of the shares purchased are not available until the
Transfer Agent is reasonably certain that the purchase payment has cleared,
which could take up to ten calendar days from the purchase date. In order to
purchase shares by mail, an investor must:
* complete and sign the new account form;
* enclose a check made payable to (Fund name); and
* mail both to DST Systems, Inc., P.O. Box 419382, Kansas City, Missouri
64141-6382.
After an account is established, an investor can purchase shares by mail by
enclosing a check and mailing it to DST Systems, Inc. at the above address.
BY WIRE. To purchase shares of a Fund by wire, call (800) 637-2548 before
3:00 p.m. Central time. All information needed will be taken over the
telephone, and the order will be considered placed when the Custodian
receives payment by wire. If the Custodian does not receive the wire by 3:00
p.m. Central time, the order will be executed the next business day. Federal
funds should be wired as follows: First Bank National Association,
Minneapolis, Minnesota, ABA Number 091000022; For Credit to: DST Systems,
Account Number 160234580266; For Further Credit To: (Investor Name and Fund
Name). Shares cannot be purchased by Federal Reserve wire on days on which
the New York Stock Exchange is closed and on federal holidays upon which
wire transfers are restricted.
MINIMUM INVESTMENT REQUIRED
The minimum initial investment for each Fund is $1,000 unless the investment
is in a retirement plan, in which case the minimum investment is $250. The
minimum subsequent investment is $100. The Funds reserve the right to waive
the minimum investment requirement for employees of First Bank National
Association, First Trust National Association and First Bank System, Inc.
and their respective affiliates.
CLASS A SHARE PRICE AND SALES CHARGE
WHAT CLASS A SHARES COST. Class A Shares of each Fund are offered on a
continuous basis at their next determined offering price, which is net asset
value, plus a sales charge as set forth below:
<TABLE>
<CAPTION>
MAXIMUM AMOUNT
OF SALES CHARGE
SALES CHARGE AS SALES CHARGE AS REALLOWED TO
PERCENTAGE OF PERCENTAGE OF PARTICIPATING
OFFERING PRICE NET ASSET VALUE INSTITUTIONS
<S> <C> <C> <C>
Less than $50,000 3.00% 3.09% 2.70%
$50,000 but less than $100,000 2.50% 2.56% 2.25%
$100,000 but less than $250,000 2.00% 2.04% 1.80%
$250,000 but less than $500,000 1.50% 1.52% 1.35%
$500,000 but less than $1,000,000 1.00% 1.01% 0.80%
$1,000,000 and over 0.00% 0.00% 0.00%
</TABLE>
There is no initial sales charge on purchases of Class A Shares of $1
million or more. However, Participating Institutions will receive a
commission of 1.00% on such sales. Redemptions of Class A Shares purchased
at net asset value within 24 months of purchase will be subject to a
contingent deferred sales charge of 1.00% (unless a Participating
Institution waived its commission on the initial purchase). Class A Shares
that are redeemed will not be subject to this contingent deferred sales
charge to the extent that the value of the shares represents capital
appreciation of Fund assets or reinvestment of dividends or capital gain
distributions.
Net asset value is determined at 3:00 p.m. Central time Monday through
Friday except on (i) days on which there are not sufficient changes in the
value of a Fund's portfolio securities that its net asset value might be
materially affected; (ii) days during which no shares are tendered for
redemption and no orders to purchase shares are received; and (iii) on the
following federal holidays: New Year's Day, Presidents' Day, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day, and Christmas Day. In
addition, net asset value will not be calculated on Good Friday.
DEALER CONCESSION. A dealer will normally receive up to 90% of the
applicable sales charge. Any portion of the sales charge which is not paid
to a dealer will be retained by the Distributor. In addition, the
Distributor may, from time to time in its sole discretion, institute one or
more promotional incentive programs which will be paid by the Distributor
from the sales charge it receives or from any other source available to it.
Under any such program, the Distributor will provide promotional incentives,
in the form of cash or other compensation including merchandise, airline
vouchers, trips and vacation packages, to all dealers selling shares of the
Funds. Promotional incentives of these kinds will be offered uniformly to
all dealers and predicated upon the amount of shares of the Funds sold by
the dealer. Whenever 90% or more of a sales charge is paid to a dealer, that
dealer may be deemed to be an underwriter as defined in the Securities Act
of 1933.
The sales charge for shares sold other than through registered
broker/dealers will be retained by the Distributor. The Distributor may pay
fees to financial institutions out of the sales charge in exchange for sales
and/or administrative services performed on behalf of the institution's
customers in connection with the initiation of customer accounts and
purchases of Fund shares.
REDUCING THE CLASS A SALES CHARGE. The sales charge can be reduced on the
purchase of Class A Shares through (i) quantity discounts and accumulated
purchases, or (ii) signing a 13-month letter of intent:
* Quantity Discounts and Accumulated Purchases: As shown in the table
above, larger purchases of Class A Shares reduce the percentage sales
charge paid. Each Fund will combine purchases made on the same day by an
investor, the investor's spouse, and the investor's children under age
21 when it calculates the sales charge. In addition, the sales charge,
if applicable, is reduced for purchases made at one time by a trustee or
fiduciary for a single trust estate or a single fiduciary account.
The sales charge discount applies to the total current market value of
any Fund, plus the current market value of any other FAIF Fund and any
other mutual funds having a sales charge and distributed as part of the
First American family of funds. Prior purchases and concurrent purchases
of Class A Shares of any FAIF Fund will be considered in determining the
sales charge reduction. In order for an investor to receive the sales
charge reduction on Class A Shares, the Transfer Agent must be notified
by the investor in writing or by his or her financial institution at the
time the purchase is made that Fund shares are already owned or that
purchases are being combined.
* Letter of Intent: If an investor intends to purchase at least $50,000 of
Class A Shares in a Fund and other FAIF Funds over the next 13 months,
the sales charge may be reduced by signing a letter of intent to that
effect. This letter of intent includes a provision for a sales charge
adjustment depending on the amount actually purchased within the
13-month period and a provision for the Custodian to hold a percentage
equal to the particular FAIF Fund's maximum sales charge rate of the
total amount intended to be purchased in escrow (in shares) for all FAIF
Funds until the purchase is completed.
The amount held in escrow for all FAIF Funds will be applied to the
investor's account at the end of the 13-month period after deduction of
the sales load applicable to the dollar value of shares actually
purchased. In this event, an appropriate number of escrowed shares may
be redeemed in order to realize the difference in the sales charge.
A letter of intent will not obligate the investor to purchase shares,
but if he or she does, each purchase during the period will be at the
sales charge applicable to the total amount intended to be purchased.
This letter may be dated as of a prior date to include any purchases
made within the past 90 days.
SALES OF CLASS A SHARES AT NET ASSET VALUE. Purchases of a Fund's Class A
Shares by the Adviser, the Sub-Adviser or any of their affiliates, or any of
their or FAIF's officers, directors, employees, retirees, sales
representatives and partners, registered representatives of any
broker/dealer authorized to sell Fund shares, and full-time employees of
FAIF's general counsel, and members of their immediate families (i.e.,
parent, child, spouse, sibling, step or adopted relationships, and UTMA
accounts naming qualifying persons), may be made at net asset value without
a sales charge. A Fund's Class A Shares also may be purchased at net asset
value without a sales charge by fee-based registered investment advisers,
financial planners and registered broker/dealers who are purchasing shares
on behalf of their customers and by purchasers through "one-stop" mutual
fund networks through which the Funds are made available. In addition, Class
A Shares may be purchased at net asset value without a sales charge by
qualified defined contribution plans participating in the First American
401(k) Plan Program.
If Class A Shares of a Fund have been redeemed, the shareholder has a
one-time right, within 30 days, to reinvest the redemption proceeds in Class
A Shares of any FAIF fund at the next-determined net asset value without any
sales charge. The Transfer Agent must be notified by the shareholder in
writing or by his or her financial institution of the reinvestment in order
to eliminate a sales charge. If the shareholder redeems his or her shares of
a Fund, there may be tax consequences.
In addition, purchases of Class A Shares of a Fund that are funded by
proceeds received upon the redemption (within 60 days of the purchase of
Fund shares) of shares of any unrelated open-end investment company that
charges a sales load and rollovers from retirement plans that utilize the
Funds as investment options may be made at net asset value. To make such a
purchase at net asset value, an investor or the investor's broker must, at
the time of purchase, submit a written request to the Transfer Agent that
the purchase be processed at net asset value pursuant to this privilege,
accompanied by a photocopy of the confirmation (or similar evidence) showing
the redemption from the unrelated fund. The redemption of the shares of the
non-related fund is, for federal income tax purposes, a sale upon which a
gain or loss may be realized.
SYSTEMATIC EXCHANGE PROGRAM
Shares of a Fund may also be purchased through automatic monthly deductions
from a shareholder's account in the same class of shares of Prime
Obligations Fund of First American Funds, Inc. Under a systematic exchange
program, a shareholder enters an agreement to purchase a specified class of
shares of one or more Funds over a specified period of time, and initially
purchases Prime Obligations Fund shares of the same class in an amount equal
to the total amount of the investment. On a monthly basis a specified dollar
amount of shares of Prime Obligations Fund is exchanged for shares of the
same class of the Funds specified. The systematic exchange program of
investing a fixed dollar amount at regular intervals over time has the
effect of reducing the average cost per share of the Funds. This effect also
can be achieved through the systematic investment program described below.
Because purchases of Class A Shares are subject to an initial sales charge,
it may be beneficial for an investor to execute a Letter of Intent in
connection with the systematic exchange program. A shareholder may apply for
participation in this program through his or her financial institution or by
calling (800) 637-2548.
SYSTEMATIC INVESTMENT PROGRAM
Once a Fund account has been opened, shareholders may add to their
investment on a regular basis in a minimum amount of $100. Under this
program, funds may be automatically withdrawn periodically from the
shareholder's checking account and invested in Fund shares at the net asset
value next determined after an order is received, plus any applicable sales
charge. A shareholder may apply for participation in this program through
his or her financial institution or call (800) 637-2548.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval by the Fund and a determination
by the Fund and the Adviser that the securities to be exchanged are
acceptable. Securities accepted by a Fund will be valued in the same manner
that a Fund values its assets. The basis of the exchange will depend upon
the net asset value of Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
Confirmations of each purchase and redemption are sent to each shareholder.
In addition, monthly confirmations are sent to report all transactions and
dividends paid during that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends with respect to each Fund are declared and paid monthly to all
shareholders of record on the record date. Distributions of any net realized
long-term capital gains will be made at least once every 12 months.
Dividends and distributions are automatically reinvested in additional
shares of the Fund paying the dividend on payment dates at the ex-dividend
date net asset value without a sales charge, unless shareholders request
cash payments on the new account form or by writing to the Fund.
All shareholders on the record date are entitled to the dividend. If shares
are purchased before a record date for a dividend or a distribution of
capital gains, a shareholder will pay the full price for the shares and will
receive some portion of the purchase price back as a taxable dividend or
distribution (to the extent, if any, that the dividend or distribution is
otherwise taxable to holders of Fund shares). If shares are redeemed or
exchanged before the record date for a dividend or distribution or are
purchased after the record date, those shares are not entitled to the
dividend or distribution.
The amount of dividends payable on Class A Shares generally will be less
than the dividends payable on Class C Shares because of the shareholder
servicing expenses charged to Class A Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class A Shares of a Fund for currently available
Class A Shares of the other FAIF Funds or of other funds in the First
American family. Class A Shares of the Funds, whether acquired by direct
purchase, reinvestment of dividends on such shares, or otherwise, may be
exchanged for Class A Shares of other funds without the payment of any sales
charge (i.e., at net asset value). Exchanges of shares among the First
American family of funds must meet any applicable minimum investment of the
fund for which shares are being exchanged.
The ability to exchange shares of the Funds does not constitute an offering
or recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares
being acquired may be sold. An investor who is considering acquiring shares
in another First American fund pursuant to the exchange privilege should
obtain and carefully read a prospectus of the fund to be acquired. Exchanges
may be accomplished by a written request, or by telephone if a preauthorized
exchange authorization is on file with the Transfer Agent, shareholder
servicing agent, or financial institution.
Written exchange requests must be signed exactly as shown on the
authorization form, and the signatures may be required to be guaranteed as
for a redemption of shares by an entity described below under "Redeeming
Shares -- Directly From the Funds -- Signatures." Neither the Funds, the
Distributor, the Transfer Agent, any shareholder servicing agent, or any
financial institution will be responsible for further verification of the
authenticity of the exchange instructions.
Telephone exchange instructions made by an investor may be carried out only
if a telephone authorization form completed by the investor is on file with
the Transfer Agent, shareholder servicing agent, or financial institution.
Shares may be exchanged between two First American funds by telephone only
if both funds have identical shareholder registrations.
Telephone exchange instructions may be recorded and will be binding upon the
shareholder. Telephone instructions must be received by the Transfer Agent
before 3:00 p.m. Central time, or by a shareholder's shareholder servicing
agent or financial institution by the time specified by it, in order for
shares to be exchanged the same day. Neither the Transfer Agent nor any Fund
will be responsible for the authenticity of exchange instructions received
by telephone if it reasonably believes those instructions to be genuine. The
Funds and the Transfer Agent will each employ reasonable procedures to
confirm that telephone instructions are genuine, and they may be liable for
losses resulting from unauthorized or fraudulent telephone instructions if
they do not employ these procedures.
Shareholders of the Funds may have difficulty in making exchanges by
telephone through brokers and other financial institutions during times of
drastic economic or market changes. If a shareholder cannot contact his or
her broker or financial institution by telephone, it is recommended that an
exchange request be made in writing and sent by overnight mail to DST
Systems, Inc., 1004 Baltimore, Kansas City, Missouri 64105.
Shareholders who become eligible to purchase Class C Shares may exchange
Class A Shares for Class C Shares. An example of such an exchange would be a
situation in which an individual holder of Class A Shares subsequently opens
a custody or agency account with a financial institution which invests in
Class C Shares.
The terms of any exchange privilege may be modified or terminated by the
Funds at any time. There are currently no additional fees or charges for the
exchange service. The Funds do not contemplate establishing such fees or
charges, but they reserve the right to do so. Shareholders will be notified
of any modification or termination of the exchange privilege and of the
imposition of any additional fees or changes.
REDEEMING SHARES
Each Fund redeems shares at their net asset value next determined after the
Transfer Agent receives the redemption request, reduced by any applicable
contingent deferred sales charge. Redemptions will be made on days on which
the Fund computes its net asset value. Redemption requests can be made as
described below and must be received in proper form.
BY TELEPHONE
A shareholder may redeem shares of a Fund, if he or she elects the privilege
on the initial shareholder application, by calling his or her financial
institution to request the redemption. Shares will be redeemed at the net
asset value next determined after the Fund receives the redemption request
from the financial institution. Redemption requests must be received by the
financial institution by the time specified by the institution in order for
shares to be redeemed at that day's net asset value, and redemption requests
must be transmitted to and received by the Funds by 3:00 p.m. Central time
in order for shares to be redeemed at that day's net asset value. Pursuant
to instructions received from the financial institution, redemptions will be
made by check or by wire transfer. It is the financial institution's
responsibility to transmit redemption requests promptly.
Shareholders who did not purchase their shares of a Fund through a financial
institution may redeem their shares by telephoning (800) 637-2548. At the
shareholder's request, redemption proceeds will be paid by check mailed to
the shareholder's address of record or wire transferred to the shareholder's
account at a domestic commercial bank that is a member of the Federal
Reserve System, normally within one business day, but in no event more than
seven days after the request. Wire instructions must be previously
established on the account or provided in writing. The minimum amount for a
wire transfer is $1,000. If at any time the Funds determine it necessary to
terminate or modify this method of redemption, shareholders will be promptly
notified.
In the event of drastic economic or market changes, a shareholder may
experience difficulty in redeeming shares by telephone. If this should
occur, another method of redemption should be considered. Neither the
Transfer Agent nor any Fund will be responsible for any loss, liability,
cost or expense for acting upon wire transfer instructions or telephone
instructions that it reasonably believes to be genuine. These procedures may
include taping of telephone conversations. To ensure authenticity of
redemption or exchange instructions received by telephone, the Transfer
Agent examines each shareholder request by verifying the account number
and/or taxpayer identification number at the time such request is made. The
Transfer Agent subsequently sends confirmations of both exchange sales and
exchange purchases to the shareholder for verification. If reasonable
procedures are not employed, the Transfer Agent and the Funds may be liable
for any losses due to unauthorized or fraudulent telephone transactions.
BY MAIL
Any shareholder may redeem Fund shares by sending a written request to the
Transfer Agent, shareholder servicing agent, or financial institution. The
written request should include the shareholder's name, the Fund name, the
account number, and the share or dollar amount requested to be redeemed, and
should be signed exactly as the shares are registered. Shareholders should
call the Fund, shareholder servicing agent or financial institution for
assistance in redeeming by mail. A check for redemption proceeds normally is
mailed within one business day, but in no event more than seven days, after
receipt of a proper written redemption request.
Shareholders requesting a redemption of $5,000 or more, a redemption of any
amount to be sent to an address other than that on record with the Fund, or
a redemption payable other than to the shareholder of record, must have
signatures on written redemption requests guaranteed by:
* a trust company or commercial bank the deposits of which are insured by
the Bank Insurance Fund, which is administered by the Federal Deposit
Insurance Corporation ("FDIC");
* a member firm of the New York, American, Boston, Midwest, or Pacific
Stock Exchanges or of the National Association of Securities Dealers;
* a savings bank or savings and loan association the deposits of which are
insured by the Savings Association Insurance Fund, which is administered
by the FDIC; or
* any other "eligible guarantor institution," as defined in the Securities
Exchange Act of 1934.
The Funds do not accept signatures guaranteed by a notary public.
The Funds and the Transfer Agent have adopted standards for accepting
signature guarantees from the above institutions. The Funds may elect in the
future to limit eligible signature guarantees to institutions that are
members of a signature guarantee program. The Funds and the Transfer Agent
reserve the right to amend these standards at any time without notice.
BY SYSTEMATIC WITHDRAWAL PROGRAM
Shareholders whose account value is at least $5,000 may elect to participate
in the Systematic Withdrawal Program. Under this program, Fund shares are
redeemed to provide for periodic withdrawal payments in an amount directed
by the shareholder. A shareholder may apply to participate in this program
through his or her financial institution. It is generally not in a
shareholder's best interest to participate in the Systematic Withdrawal
Program at the same time that the shareholder is purchasing additional
shares if a sales charge must be paid in connection with such purchases.
REDEMPTION BEFORE PURCHASE INSTRUMENTS CLEAR
When shares are purchased by check or with funds transmitted through the
Automated Clearing House, the proceeds of redemptions of those shares are
not available until the Transfer Agent is reasonably certain that the
purchase payment has cleared, which could take up to ten calendar days from
the purchase date.
ACCOUNTS WITH LOW BALANCES
Due to the high cost of maintaining accounts with low balances, a Fund may
redeem shares in any account, except retirement plans, and pay the proceeds,
less any applicable contingent deferred sales charge, to the shareholder if
the account balance falls below the required minimum value of $500. Shares
will not be redeemed in this manner, however, if the balance falls below
$500 because of changes in a Fund's net asset value. Before shares are
redeemed to close an account, the shareholder will be notified in writing
and allowed 60 days to purchase additional shares to meet the minimum
account requirement.
DETERMINING THE PRICE OF SHARES
Class A Shares of the Funds are sold at net asset value plus a sales charge.
Shares are redeemed at net asset value less any applicable contingent
deferred sales charge. See "Investing in the Funds -- Class A Share Price
and Sales Charge."
The net asset value per share is determined as of the earlier of the close
of the New York Stock Exchange or 3:00 p.m. Central time on each day the New
York Stock Exchange is open for business, provided that net asset value need
not be determined on days when no Fund shares are tendered for redemption
and no order for that Fund's shares is received and on days on which changes
in the value of portfolio securities will not materially affect the current
net asset value of the Fund's shares. The price per share for purchases or
redemptions is such value next computed after the Transfer Agent receives
the purchase order or redemption request.
It is the responsibility of Participating Institutions promptly to forward
purchase and redemption orders to the Transfer Agent. In the case of
redemptions and repurchases of shares owned by corporations, trusts or
estates, the Transfer Agent or Fund may require additional documents to
evidence appropriate authority in order to effect the redemption, and the
applicable price will be that next determined following the receipt of the
required documentation.
DETERMINING NET ASSET VALUE
The net asset value per share for each of the Funds is determined by
dividing the value of the securities owned by the Fund plus any cash and
other assets (including interest accrued and dividends declared but not
collected), less all liabilities, by the number of Fund shares outstanding.
For the purpose of determining the aggregate net assets of the Funds, cash
and receivables will be valued at their face amounts. Interest will be
recorded as accrued and dividends will be recorded on the ex-dividend date.
Debt obligations exceeding 60 days to maturity which are actively traded are
valued by an independent pricing service at the most recently quoted bid
price. Debt obligations with 60 days or less remaining until maturity may be
valued at their amortized cost. When market quotations are not readily
available, securities are valued at fair value as determined in good faith
by procedures established and approved by the Board of Directors.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by a Fund is its last sales price on the
exchange prior to the time when assets are valued, unless the bid price is
higher or the asked price is lower, in which event the bid or asked price is
used. In the absence of any sales that day, options will be valued at the
current closing bid price.
INCOME TAXES
FEDERAL INCOME TAXATION
Each Fund is treated as a different entity for federal income tax purposes.
Each of the Funds qualified during its last fiscal year as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), and all of the Funds intend to so qualify in the future. If so
qualified and provided certain distribution requirements are met, a Fund
will not be liable for federal income taxes to the extent it distributes its
income to its shareholders.
Distributions of net interest income from tax-exempt obligations that are
designated by each Fund as exempt-interest dividends are excludable from the
gross income of the Fund's shareholders. A portion of such dividends may,
however, be subject to the alternative minimum tax, as discussed below.
Distributions paid from other interest income and from any net realized
short-term capital gains will be taxable to shareholders as ordinary income,
whether received in cash or in additional shares. Since none of the Funds'
income will consist of dividends from domestic corporations, the
dividends-received deduction for corporations will not be applicable to
taxable distributions by the Funds. Distributions paid from long-term
capital gains (and designated as such) will be taxable as long-term capital
gains for federal income tax purposes, whether received in cash or shares,
regardless of how long a shareholder has held the shares in a Fund.
Long-term capital gains of individuals are currently taxed at a maximum rate
of 28%.
Gain or loss realized on the sale or exchange of shares in a Fund will be
treated as capital gain or loss, provided that (as is usually the case) the
shares represented a capital asset in the hands of the shareholder. Such
gain or loss will be long-term gain or loss if the shares were held for more
than one year.
For federal income tax purposes, an alternative minimum tax ("AMT") is
imposed on taxpayers to the extent that such tax, if any, exceeds a
taxpayer's regular income tax liability (with certain adjustments).
Liability for AMT will depend on each shareholder's tax situation.
Exempt-interest dividends attributable to interest income on certain
tax-exempt obligations issued after August 7, 1986, to finance certain
private activities will be treated as an item of tax preference that is
included in alternative minimum taxable income for purposes of computing the
federal AMT for all taxpayers and the federal environmental tax on
corporations. Each Fund may invest up to 20% of its total assets in
obligations the interest on which is treated as an item of tax preference
for federal income tax purposes. Also, a portion of all other tax-exempt
interest received by a corporation, including exempt-interest dividends,
will be included in adjusted current earnings and in earnings and profits
for purposes of determining the federal corporate alternative minimum tax,
the environmental tax imposed on corporations under Section 59A of the Code,
and the branch profits tax imposed on foreign corporations under Section 884
of the Code. Each shareholder is advised to consult his or her tax adviser
with respect to the possible effects of such tax preference items.
The Tax Reform Act of 1986 imposed new requirements on certain tax-exempt
bonds which, if not satisfied, could result in loss of tax exemption for
interest on such bonds, even retroactively to the date of issuance of the
bonds. Proposals may be introduced before Congress in the future, the
purpose of which will be to further restrict or eliminate the federal income
tax exemption for tax-exempt bonds held by the Funds. The Funds will avoid
investment in bonds which, in the opinion of the Adviser, pose a material
risk of the loss of tax exemption. Further, if a bond in a Fund's portfolio
lost its exempt status, the Fund would make every effort to dispose of that
investment on terms that are not detrimental to the Fund.
In certain instances, the portion of Social Security benefits received by a
shareholder that is subject to federal income tax may be affected by the
amount of exempt-interest dividends received by the shareholder from the
Funds.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Funds will not be deductible for federal income purposes.
A Fund may be required to "back-up" withhold 31% of any dividend,
distribution, or redemption payment made to a shareholder who fails to
furnish the Fund with the shareholder's Social Security number or other
taxpayer identification number or to certify that he or she is not subject
to back-up withholding.
Information concerning distributions will be mailed to shareholders
annually. Shareholders are required for information purposes to report
exempt-interest dividends and other tax-exempt interest on their tax
returns.
MINNESOTA INCOME TAXATION
Minnesota taxable net income is based generally on federal taxable income.
The portion of exempt-interest dividends paid by Minnesota Insured
Intermediate Tax Free Fund that is derived from interest on tax-exempt
obligations issued by the state of Minnesota, its political subdivisions and
instrumentalities, is excluded from the Minnesota taxable net income of
individuals, estates and trusts, provided that the portion of the
exempt-interest dividends from such Minnesota sources paid to all
shareholders represents 95 percent or more of the exempt-interest dividends
paid by the respective Fund. The remaining portion of such dividends, and
dividends that are not exempt-interest dividends or capital gain dividends,
are included in the Minnesota taxable net income of individuals, estates and
trusts, except for dividends directly attributable to interest on
obligations of the United States Government, its territories and
possessions. Exempt-interest dividends are not excluded from the Minnesota
taxable income of corporations and financial institutions. Dividends
qualifying for federal income tax purposes as capital gain dividends are to
be treated by shareholders as long-term capital gains. Minnesota has
repealed the favorable treatment of long-term capital gains, while retaining
restrictions on the deductibility of capital losses. As under federal law,
the portion of Social Security benefits subject to Minnesota income tax may
be affected by the amount of exempt-interest dividends received by the
shareholders. Exempt-interest dividends attributable to interest on certain
private activity bonds issued after August 7, 1986 will be included in
Minnesota alternative minimum taxable income of individuals, estates and
trusts for purposes of computing Minnesota's alternative minimum tax.
Dividends generally will not qualify for the dividends-received deduction
for corporations and financial institutions.
The 1995 Minnesota Legislature has enacted a statement of intent that
interest on obligations of Minnesota governmental units and Indian tribes be
included in net income of individuals, estates and trusts for Minnesota
income tax purposes if a court determines that Minnesota's exemption of such
interest unlawfully discriminates against interstate commerce because
interest on obligations of governmental issuers located in other states is
so included. This provision applies to taxable years that begin during or
after the calendar year in which any such court decision becomes final,
irrespective of the date on which the obligations were issued. Minnesota
Insured Intermediate Tax Free Fund is not aware of any decision in which a
court has held that a state's exemption of interest on its own bonds or
those of its political subdivisions or Indian tribes, but not of interest on
the bonds of other states or their political subdivisions or Indian tribes,
unlawfully discriminates against interstate commerce or otherwise
contravenes the United States Constitution. Nevertheless, the Fund cannot
predict the likelihood that interest on the Minnesota bonds held by the Fund
would become taxable under this Minnesota statutory provision.
COLORADO INCOME TAXATION
To the extent that dividends paid by Colorado Intermediate Tax Free Fund are
derived from interest on tax-exempt obligations issued by the state of
Colorado, its political subdivisions and instrumentalities, such dividends
will also be exempt from Colorado income taxes for individuals, trusts,
estates, and corporations. The remaining portion of such dividends, and
dividends that are not exempt-interest dividends or capital gain dividends,
are included in the Colorado taxable income of individuals, trusts, estates,
and corporations, except for dividends directly attributable to interest on
obligations of the United States Government. Dividends qualifying for
federal income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains under Colorado law. However,
Colorado has repealed the favorable treatment of long-term capital gains,
while retaining restrictions on the deductibility of capital losses.
Dividends paid by Colorado Intermediate Tax Free Fund that are derived from
interest on tax-exempt obligations issued by the state of Colorado, its
political subdivisions and instrumentalities (including tax-exempt
obligations treated for federal purposes as private activity bonds) will not
be treated as items of tax preference for purposes of the alternative
minimum tax that Colorado imposes on individuals, trusts and estates.
As under federal law, the portion of Social Security benefits subject to
Colorado income tax may be affected by the amount of exempt-interest
dividends received by the shareholders.
OTHER STATE AND LOCAL TAXATION
Except to the extent described above under "-- Minnesota Income Taxation"
and "-- Colorado Income Taxation," distributions by all the Funds may be
subject to state and local taxation even if they are exempt from federal
income taxes. Shareholders are urged to consult their own tax advisers
regarding state and local taxation.
TAX-EXEMPT VS. TAXABLE INCOME
The tables below show the approximate yields that taxable securities must
earn to equal yields that are (i) exempt from federal income taxes; (ii)
exempt from both federal and Minnesota income taxes; and (iii) exempt from
both federal and Colorado income taxes, under selected income tax brackets
scheduled to be in effect in 1997. The effective combined rates reflect the
deduction of state income taxes from federal income. The 34.1%, 36.9%,
41.4%, and 44.7% combined federal/Minnesota rates assume that the investor
is subject to an 8.5% marginal Minnesota income tax rate and a marginal
federal income tax rate of 28%, 31%, 36% and 39.6%, respectively. The 31.6%,
34.5%, 39.2% and 42.6% combined federal/Colorado rates assume that the
investor is subject to a 5% Colorado income tax rate and a marginal federal
income tax rate of 28%, 31%, 36% and 39.6%, respectively. The combined rates
do not reflect federal rules concerning the phase-out of personal exemptions
and limitations on the allowance of itemized deductions for certain
high-income taxpayers. The tables are based upon yields that are derived
solely from tax-exempt income. To the extent that a Fund's yield is derived
from taxable income, the Fund's tax equivalent yield will be less than set
forth in the tables. The tax-free yields used in these tables should not be
considered as representations of any particular rates of return and are for
purposes of illustration only.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAX-EQUIVALENT YIELDS
COMBINED FEDERAL AND COMBINED FEDERAL AND
FEDERAL TAX BRACKETS MINNESOTA TAX BRACKETS COLORADO TAX BRACKETS
TAX-FREE
YIELDS 28% 31% 36% 39.6% 34.1% 36.9% 41.4% 44.7% 31.6% 34.5% 39.2% 42.6%
3.0% 4.17% 4.35% 4.69% 4.97% 4.55% 4.75% 5.12% 5.42% 4.39% 4.58% 4.93% 5.23%
3.5% 4.86% 5.07% 5.47% 5.79% 5.31% 5.55% 5.97% 6.33% 5.12% 5.34% 5.76% 6.10%
4.0% 5.56% 5.80% 6.25% 6.62% 6.07% 6.34% 6.83% 7.23% 5.85% 6.11% 6.58% 6.97%
4.5% 6.25% 6.52% 7.03% 7.45% 6.83% 7.13% 7.68% 8.14% 6.58% 6.87% 7.40% 7.84%
5.0% 6.94% 7.25% 7.81% 8.28% 7.59% 7.92% 8.53% 9.04% 7.31% 7.63% 8.22% 8.71%
5.5% 7.64% 7.97% 8.59% 9.11% 8.35% 8.72% 9.39% 9.95% 8.04% 8.40% 9.05% 9.59%
6.0% 8.33% 8.70% 9.38% 9.93% 9.10% 9.51% 10.24% 10.85% 8.77% 9.16% 9.87% 10.46%
6.5% 9.03% 9.42% 10.16% 10.76% 9.86% 10.30% 11.09% 11.75% 9.50% 9.92% 10.69% 11.32%
</TABLE>
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares
may be issued as either full or fractional shares. Fractional shares have
pro rata the same rights and privileges as full shares. Shares of the Funds
have no preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The
shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able to
elect all of the directors if they choose to do so. On issues affecting only
a particular Fund or Class, the shares of that Fund or Class will vote as a
separate series. Examples of such issues would be proposals to alter a
fundamental investment restriction pertaining to a Fund or to approve,
disapprove or alter a distribution plan pertaining to a Class.
Under the laws of the State of Maryland and FAIF's Articles of
Incorporation, FAIF is not required to hold shareholder meetings unless they
(i) are required by the 1940 Act, or (ii) are requested in writing by the
holders of 25% or more of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "tax equivalent yield,"
its "cumulative total return," its "average annual total return," its
"distribution rate" and its "tax equivalent distribution rate." Distribution
rates and tax equivalent distribution rates may only be used in connection
with sales literature and shareholder communications preceded or accompanied
by a Prospectus. Each of these performance figures is based upon historical
results and is not intended to indicate future performance, and, except for
"distribution rate" and "tax equivalent distribution rate," is standardized
in accordance with Securities and Exchange Commission ("SEC") regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day
period (which period will be stated in the advertisement) by the maximum
offering price per share on the last day of the period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Tax equivalent yield" is that yield which a taxable investment must
generate in order to equal a Fund's yield for an investor in a stated
federal or combined federal/state income tax bracket (normally assumed to be
the maximum tax rate or combined rate). Tax equivalent yield is computed by
dividing that portion of the yield which is tax-exempt by one minus the
stated income tax rate, and adding the resulting amount to that portion, if
any, of the yield which is not tax-exempt.
"Total return" is based on the overall dollar or percentage change in value
of a hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including the
maximum sales charge imposed on Class A Shares. "Cumulative total return"
reflects a Fund's performance over a stated period of time. "Average annual
total return" reflects the hypothetical annually compounded rate that would
have produced the same cumulative total return if performance had been
constant over the entire period. Because average annual returns tend to
smooth out variations in a Fund's performance, they are not the same as
actual year-by-year results. As a supplement to total return computations, a
Fund may also publish "total investment return" computations which do not
assume deduction of the maximum sales charge imposed on Class A Shares.
"Distribution rate" is determined by dividing the income dividends per share
for a stated period by the maximum offering price per share on the last day
of the period. "Tax equivalent distribution rate" is computed by dividing
the portion of the distribution rate (determined as described above) which
is tax-exempt by one minus the stated federal or combined federal/state
income tax rate, and adding to the resulting amount that portion, if any, of
the distribution rate which is not tax-exempt. All distribution rates
published for the Funds are measures of the level of income dividends
distributed during a specified period. Thus, these rates differ from yield
(which measures income actually earned by a Fund) and total return (which
measures actual income, plus realized and unrealized gains or losses of a
Fund's investments). Consequently, distribution rates alone should not be
considered complete measures of performance.
The performance of the Class A Shares of a Fund will normally be lower than
for the Class C Shares because Class C Shares are not subject to the sales
charges and shareholder servicing expenses applicable to Class A Shares.
In reports or other communications to shareholders and in advertising
material, the performance of each Fund may be compared to recognized
unmanaged indices or averages of the performance of similar securities and
to composites of such indices and averages. Also, the performance of each
Fund may be compared to that of other funds of similar size and objectives
as listed in the rankings prepared by Lipper Analytical Services, Inc. or
similar independent mutual fund rating services, and each Fund may include
in such reports, communications and advertising material evaluations
published by nationally recognized independent ranking services and
publications. For further information regarding the Funds' performance, see
"Fund Performance" in the Statement of Additional Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in
which the Funds may invest and related topics. Further information
concerning these matters is contained in the Statement of Additional
Information.
MUNICIPAL BONDS AND OTHER MUNICIPAL OBLIGATIONS
As described under "Investment Objectives and Policies," each of the Funds
invests principally in municipal bonds and other municipal obligations.
These bonds and other obligations are issued by the states and by their
local and special-purpose political subdivisions. The term "municipal bond"
as used in this Prospectus includes short-term municipal notes issued by the
states and their political subdivisions.
MUNICIPAL BONDS. The two general classifications of municipal bonds are
"general obligation" bonds and "revenue" bonds. General obligation bonds are
secured by the governmental issuer's pledge of its faith, credit and taxing
power for the payment of principal and interest. They are usually paid from
general revenues of the issuing governmental entity. Revenue bonds, on the
other hand, are usually payable only out of a specific revenue source rather
than from general revenues. Revenue bonds ordinarily are not backed by the
faith, credit or general taxing power of the issuing governmental entity.
The principal and interest on revenue bonds for private facilities are
typically paid out of rents or other specified payments made to the issuing
governmental entity by a private company which uses or operates the
facilities. Examples of these types of obligations are industrial revenue
bonds and pollution control revenue bonds. Industrial revenue bonds are
issued by governmental entities to provide financing aid to community
facilities such as hospitals, hotels, business or residential complexes,
convention halls and sport complexes. Pollution control revenue bonds are
issued to finance air, water and solids pollution control systems for
privately operated industrial or commercial facilities.
Revenue bonds for private facilities usually do not represent a pledge of
the credit, general revenues or taxing powers of the issuing governmental
entity. Instead, the private company operating the facility is the sole
source of payment of the obligation. Sometimes, the funds for payment of
revenue bonds come solely from revenue generated by operation of the
facility. Revenue bonds which are not backed by the credit of the issuing
governmental entity frequently provide a higher rate of return than other
municipal obligations, but they entail greater risk than obligations which
are guaranteed by a governmental unit with taxing power. Federal income tax
laws place substantial limitations on industrial revenue bonds, and
particularly certain specified private activity bonds issued after August 7,
1986. In the future, legislation could be introduced in Congress which could
further restrict or eliminate the income tax exemption for interest on debt
obligations in which the Funds may invest.
MUNICIPAL LEASES. Each Fund also may purchase participation interests in
municipal leases. Participation interests in municipal leases are undivided
interests in a lease, installment purchase contract or conditional sale
contract entered into by a state or local governmental unit to acquire
equipment or facilities. Municipal leases frequently have special risks
which generally are not associated with general obligation bonds or revenue
bonds.
Municipal leases and installment purchase or conditional sale contracts
(which usually provide for title to the leased asset to pass to the
governmental issuer upon payment of all amounts due under the contract) have
evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements for
the issuance of municipal debt. The debt-issuance limitations are deemed to
be inapplicable because of the inclusion in many leases and contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money
is appropriated for this purpose by the appropriate legislative body on a
yearly or other periodic basis. Although these kinds of obligations are
secured by the leased equipment or facilities, the disposition of the
pledged property in the event of non-appropriation or foreclosure might, in
some cases, prove difficult and time-consuming. In addition, disposition
upon non-appropriation or foreclosure might not result in recovery by a Fund
of the full principal amount represented by an obligation.
In light of these concerns, each Fund has adopted and follows procedures for
determining whether municipal lease obligations purchased by the Fund are
liquid and for monitoring the liquidity of municipal lease securities held
in the Fund's portfolio. These procedures require that a number of factors
be used in evaluating the liquidity of a municipal lease security, including
the frequency of trades and quotes for the security, the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers, the willingness of dealers to undertake to make a market in the
security, the nature of the marketplace in which the security trades, and
other factors which the Adviser may deem relevant. As described below under
"-- Investment Restrictions," each Fund is subject to limitations on the
percentage of illiquid securities it can hold.
INSURANCE FOR MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
At least 65% of the tax-exempt obligations in the investment portfolio of
Minnesota Insured Intermediate Tax Free Fund will consist of insured
securities, escrow secured bonds or defeased bonds. The "insured securities"
in this Fund's investment portfolio are insured as to the scheduled payment
of all installments of principal and interest as they fall due. The purpose
of this insurance is to minimize credit risk to this Fund and its
shareholders associated with defaults in tax-exempt obligations owned by the
Fund. However, insurance does not guarantee the market value of the
securities in this Fund's investment portfolio, which will continue to
fluctuate in response to changes in market interest rates. See "Investment
Objectives and Policies -- Risks to Consider -- Interest Rate Risk."
Therefore, the amount received upon redemption of shares of this Fund may be
more or less than the original cost of the shares less any applicable sales
charge paid in connection with the acquisition of such shares.
Generally, except as noted above, each insured municipal obligation held by
Minnesota Insured Intermediate Tax Free Fund will be covered by Original
Issue Insurance, Secondary Market Insurance or Portfolio Insurance.
"Original Issuance Insurance" is purchased by the issuer of a municipal
obligation or by a third party at the time of original issuance of the
obligation, while "Secondary Market Insurance" may be purchased by a third
party (including Minnesota Insured Intermediate Tax Free Fund) subsequent to
the original issuance of a municipal obligation. "Portfolio Insurance" is
insurance purchased by Minnesota Insured Intermediate Tax Free Fund to cover
municipal obligations while they are held in the Fund's portfolio. Premiums
for Portfolio Insurance will be paid from the Fund's assets and will reduce
the current yield on its investment portfolio by the amount of the premiums.
The Fund's investment manager estimates that annual premiums for Portfolio
Insurance would be less than .01% of the Fund's average daily net assets.
Because Portfolio Insurance coverage would terminate upon the sale of an
insured security by Minnesota Insured Intermediate Tax Free Fund, this kind
of insurance would not have an effect on the resale value of the security.
Therefore, the Fund generally will retain any such securities covered only
by Portfolio Insurance which are in default or in significant risk of
default and will place a value on the insurance equal to the difference
between the market value of the defaulted security and the market value of
similar securities which are not in default. Both Original Issue Insurance
and Secondary Market Insurance are non-cancelable and continue in force as
long as the insured security is outstanding and the applicable insurer
remains in business.
Minnesota Insured Intermediate Tax Free Fund may acquire securities that are
already covered by Original Issue Insurance or Secondary Market Insurance
without having to acquire additional insurance thereon, provided that the
claims paying ability of the insurer is rated AAA or SP-1 by Standard &
Poor's or Aaa or MIG-1 by Moody's or has been assigned an equivalent rating
by another nationally recognized statistical rating organization. One of the
purposes of these kinds of insurance is to enable the securities covered
thereby to be sold as AAA or Aaa rated insured securities at a market price
higher than might be obtained if the securities were not insured. Therefore,
these kinds of insurance may be considered to represent an element of the
market value of the securities insured. However, the exact effect, if any,
on market value cannot be estimated.
Secondary Market Insurance may be purchased by Minnesota Insured
Intermediate Tax Free Fund if, in the opinion of the Fund's investment
manager, the market value or net proceeds of a sale of the covered security
by the Fund would exceed the current value of the security without
insurance, plus the cost of the insurance. When the Fund purchases Secondary
Market Insurance, the single premium is added to the cost basis of the
security and is not considered an item of expense of the Fund. Any excess of
a security's market value as an AAA or Aaa rated security over its market
value without the insurance, including the single premium cost thereof,
would inure to the Fund in determining the net capital gain or loss realized
by the Fund upon the sale of the security.
The investment policy of this Fund requiring insurance on investments
applies only to tax-exempt obligations held by the Fund and will not affect
the Fund's ability to hold its assets in cash or to invest in escrow secured
and defeased bonds or in certain short-term tax-exempt obligations as
described elsewhere herein, or its ability to invest in uninsured taxable
obligations for temporary or liquidity purposes or on a defensive basis in
accordance with the investment policies and restrictions of the Fund.
Minnesota Insured Intermediate Tax Free Fund is authorized to obtain
Portfolio Insurance from insurers that have obtained a claims-paying ability
rating of AAA or SP-1 from Standard & Poor's or Aaa or MIG-1 from Moody's or
an equivalent rating from another nationally recognized statistical rating
organization. Such insurers may include AMBAC Indemnity Corporation
("AMBAC"), Municipal Bond Investors Assurance Corp. ("MBIA"), Financial
Guaranty Insurance Company ("FGIC"), Financial Security Assurance, Inc.
("FSA"), or other companies meeting these criteria. For more information
concerning Portfolio Insurance, see the Statement of Additional Information.
TEMPORARY TAXABLE INVESTMENTS
Each of the Funds may make temporary taxable investments as described under
"Investment Objectives and Policies." Temporary taxable investments will
include only the following types of obligations maturing within 13 months
from the date of purchase: (i) obligations of the United States Government,
its agencies and instrumentalities; (ii) commercial paper rated not less
than A-1 by Standard & Poor's or P-1 by Moody's or which has been assigned
an equivalent rating by another nationally recognized statistical rating
organization; (iii) other short-term debt securities issued or guaranteed by
corporations having outstanding debt rated not less than BBB by Standard &
Poor's or Baa by Moody's or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization; (iv)
certificates of deposit of domestic commercial banks subject to regulation
by the United States Government or any of its agencies or instrumentalities,
with assets of $500 million or more based on the most recent published
reports; and (v) repurchase agreements with domestic banks or securities
dealers involving any of the securities which the Fund is permitted to hold.
See "-- Repurchase Agreements" below.
REPURCHASE AGREEMENTS
The temporary taxable investments which each Fund may make include
repurchase agreements. A repurchase agreement involves the purchase by a
Fund of securities with the agreement that after a stated period of time,
the original seller will buy back the same securities ("collateral") at a
predetermined price or yield. Repurchase agreements involve certain risks
not associated with direct investments in securities. If the original seller
defaults on its obligation to repurchase as a result of its bankruptcy or
otherwise, the purchasing Fund will seek to sell the collateral, which could
involve costs or delays. Although collateral (which may consist of any fixed
income security which is an eligible investment for the Fund entering into
the repurchase agreement) will at all times be maintained in an amount equal
to the repurchase price under the agreement (including accrued interest), a
Fund would suffer a loss if the proceeds from the sale of the collateral
were less than the agreed-upon repurchase price. The Adviser will monitor
the creditworthiness of the firms with which the Funds enter into repurchase
agreements.
INVERSE FLOATING RATE OBLIGATIONS
Each of the Funds may invest up to 5% of its net assets in inverse floating
rate municipal obligations. An inverse floating rate obligation entitles the
holder to receive interest at a rate which changes in the opposite direction
from, and in the same magnitude as or in a multiple of, changes in a
specified index rate. Although an inverse floating rate municipal obligation
would tend to increase portfolio income during a period of generally
decreasing market interest rates, its income and value would tend to decline
during a period of generally increasing market interest rates. In addition,
its decline in value may be greater than for a fixed-rate municipal
obligation, particularly if the interest rate borne by the floating rate
municipal obligation is adjusted by a multiple of changes in the specified
index rate. For these reasons, inverse floating rate municipal obligations
have more risk than more conventional fixed-rate and floating rate municipal
obligations.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or
delayed-delivery basis. When such a transaction is negotiated, the purchase
price is fixed at the time the purchase commitment is entered, but delivery
of and payment for the securities take place at a later date. A Fund will
not accrue income with respect to securities purchased on a when-issued or
delayed-delivery basis prior to their stated delivery date. Pending delivery
of the securities, each Fund will maintain in a segregated account cash or
liquid high-grade securities in an amount sufficient to meet its purchase
commitments.
The purchase of securities on a when-issued or delayed-delivery basis
exposes a Fund to risk because the securities may decrease in value prior to
delivery. In addition, a Fund's purchase of securities on a when-issued or
delayed-delivery basis while remaining substantially fully invested could
increase the amount of the Fund's total assets that are subject to market
risk, resulting in increased sensitivity of net asset value to changes in
market prices. However, the Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with their investment objectives, and not for the
purpose of investment leverage. A seller's failure to deliver securities to
a Fund could prevent the Fund from realizing a price or yield considered to
be advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds may lend portfolio
securities representing up to one-third of the value of its total assets to
broker-dealers, banks or other institutional borrowers of securities. If the
Funds engage in securities lending, distributions paid to shareholders from
the resulting income will not be excludable from shareholders' gross income
for income tax purposes. As with other extensions of credit, there may be
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
the Funds will only enter into loan arrangements with broker-dealers, banks,
or other institutions which the Adviser has determined are creditworthy
under guidelines established by the Board of Directors. In these loan
arrangements, the Funds will receive collateral in the form of cash, United
States Government securities or other high-grade debt obligations equal to
at least 100% of the value of the securities loaned. Collateral is marked to
market daily. The Funds will pay a portion of the income earned on the
lending transaction to the placing broker and may pay administrative and
custodial fees (including fees to an affiliate of the Adviser) in connection
with these loans.
OPTIONS TRANSACTIONS
Each of the Funds may, in order to reduce risk, invest in exchange traded
put and call options on interest rate futures contracts and on interest rate
indices. Such investments will be made solely as a hedge against adverse
changes resulting from market conditions in the values of securities held by
the Funds or which they intend to purchase and where the transactions are
deemed appropriate to reduce risks inherent in the Funds' portfolios or
contemplated investments.
None of the Funds will invest more than 5% of the value of its total assets
in purchased options, provided that options which are "in the money" at the
time of purchase may be excluded from this 5% limitation. A call option is
"in the money" if the exercise price is lower than the current market price
of the underlying contract or index, and a put option is "in the money" if
the exercise price is higher than the current market price. A Fund's loss
exposure in purchasing an option is limited to the sum of the premium paid
(purchase price of the option) and the commission or other transaction
expenses associated with acquiring the option.
An interest rate futures contract provides for the future sale by one party
and purchase by the other party of a certain amount of a specific financial
instrument (debt security) at a specified price, date, time and place. An
option on an interest rate futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for
the premium paid, to purchase (in the case of a call option) or sell (in the
case of a put option) an interest rate futures contract at a specified
exercise price at any time prior to the expiration date of the option. In
order to hedge its portfolio against anticipated changes in interest rates,
a Fund might purchase a put option on an interest rate futures contract if
interest rates were expected to rise, or might purchase a call option on an
interest rate futures contract if rates were expected to decline.
Options on interest rate indices are similar to options on interest rate
futures contracts except that, rather than the right to take or make
delivery of a specific financial instrument at a specified price, an option
on an interest rate index gives the holder the right to receive, upon
exercise of the option, a defined amount of cash if the closing value of the
interest rate index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of
the option. Put and call options on interest rate indices thus may be used
in a fashion similar to that of options on interest rate futures contracts
to hedge the value of a portfolio of debt securities against anticipated
changes in interest rates.
The use of options on interest rate futures contracts and on interest rate
indices involves certain risks. These include the risk that changes in
interest rates on the hedged instruments may not correlate to changes in
interest rates on the instrument or index upon which the hedge is based, and
the risk of limited liquidity in the event that a Fund seeks to close out an
options position before expiration by entering into an offsetting
transaction.
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected with
market makers or issuers, unless better overall price and execution are
available through a brokerage transaction. It is anticipated that most
portfolio transactions involving debt securities will be executed on a
principal basis. Also, with respect to the placement of portfolio
transactions with securities firms, subject to the overall policy to seek to
place portfolio transactions as efficiently as possible and at the best
price, research services and placement of orders by securities firms for a
Fund's shares may be taken into account as a factor in placing portfolio
transactions for the Fund.
PORTFOLIO TURNOVER
Although the Funds do not intend generally to trade for short-term profits,
they may dispose of a security without regard to the time it has been held
when such action appears advisable to the Adviser. The portfolio turnover
rate for a Fund may vary from year to year and may be affected by cash
requirements for redemptions of shares. High portfolio turnover rates
generally would result in higher transaction costs and could result in
additional tax consequences to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds
are set forth in full in the Statement of Additional Information. The
fundamental restrictions include the following:
* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets. None of the Funds will borrow money
for leverage purposes. For the purpose of this investment restriction,
the use of options and futures transactions and the purchase of
securities on a when-issued or delayed-delivery basis shall not be
deemed the borrowing of money. If a Fund engages in borrowing, its share
price may be subject to greater fluctuation, and the interest expense
associated with the borrowing may reduce the Fund's net income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
* Intermediate Tax Free Fund will not invest 25% or more of the value of
its total assets in obligations of issuers located in the same state
(for this purpose, the location of an "issuer" shall be deemed to be the
location of the entity the revenues of which are the primary source of
payment or the location of the project or facility which may be the
subject of the obligation). None of the Funds will invest 25% or more of
the value of its total assets in revenue bonds or notes, payment for
which comes from revenues from any one type of activity (for this
purpose, the term "type of activity" shall include without limitation
(i) sewage treatment and disposal; (ii) gas provision; (iii) electric
power provision; (iv) water provision; (v) mass transportation systems;
(vi) housing; (vii) hospitals; (viii) nursing homes; (ix) street
development and repair; (x) toll roads; (xi) airport facilities; and
(xii) educational facilities), except that, in circumstances in which
other appropriate available investments may be in limited supply, such
Funds may invest without limitation in gas provision, electric power
provision, water provision, housing and hospital obligations. This
restriction does not apply to general obligation bonds or notes or, in
the case of Intermediate Tax Free Fund, to pollution control revenue
bonds. However, in the case of the latter Fund, it is anticipated that
normally (unless there are unusually favorable interest and market
factors) less than 25% of such Fund's total assets will be invested in
pollution control bonds. This restriction does not apply to securities
of the United States Government or its agencies and instrumentalities or
repurchase agreements relating thereto.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of
its net assets in all forms of illiquid investments, as determined pursuant
to applicable Securities and Exchange Commission rules and interpretations.
Section 4(2) commercial paper and Rule 144A securities may be determined to
be "liquid" under guidelines adopted by the Board of Directors. Investing in
Rule 144A securities could have the effect of increasing the level of
illiquidity in a Fund to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities.
FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
Oaks, Pennsylvania 19456
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
Oaks, Pennsylvania 19456
TRANSFER AGENT
DST SYSTEMS, INC.
1004 Baltimore
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1002(1/97) R
FIRST AMERICAN INVESTMENT FUNDS, INC.
TAX FREE INCOME FUNDS
INSTITUTIONAL CLASS
INTERMEDIATE TAX FREE FUND COLORADO INTERMEDIATE TAX FREE FUND
MINNESOTA INSURED INTERMEDIATE
TAX FREE FUND
PROSPECTUS
JANUARY 31, 1997
[LOGO] FIRST AMERICAN FUNDS
THE POWER OF DISCIPLINED INVESTING
TABLE OF CONTENTS
PAGE
SUMMARY 4
FEES AND EXPENSES 6
Class C Share Fees and Expenses 6
Information Concerning Fees and
Expenses 7
FINANCIAL HIGHLIGHTS 8
THE FUNDS 10
INVESTMENT OBJECTIVES AND POLICIES 10
Intermediate Tax Free Fund 11
Minnesota Insured Intermediate Tax
Free Fund and Colorado Intermediate
Tax Free Fund 12
Risks to Consider 14
MANAGEMENT 17
Investment Adviser 17
Portfolio Managers 18
Custodian 18
Administrator 19
Transfer Agent 19
DISTRIBUTOR 19
PURCHASES AND REDEMPTIONS OF SHARES 20
Share Purchases and Redemptions 20
What Shares Cost 20
Exchanging Securities for Fund
Shares 21
Certificates and Confirmations 21
Dividends and Distributions 22
Exchange Privilege 22
INCOME TAXES 23
TAX-EXEMPT VS. TAXABLE INCOME 26
FUND SHARES 27
CALCULATION OF PERFORMANCE DATA 28
SPECIAL INVESTMENT METHODS 29
Municipal Bonds and Other Municipal
Obligations 29
Insurance for Minnesota Insured
Intermediate Tax Free Fund 31
Temporary Taxable Investments 33
Repurchase Agreements 33
Inverse Floating Rate Obligations 34
When-Issued and Delayed-Delivery
Transactions 34
Lending of Portfolio Securities 35
Options Transactions 35
Portfolio Transactions 36
Portfolio Turnover 36
Investment Restrictions 37
FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456
INSTITUTIONAL CLASS PROSPECTUS
The shares described in this Prospectus represent interests in First
American Investment Funds, Inc., which consists of mutual funds with several
different investment portfolios and objectives. This Prospectus relates to
the Class C Shares of the following funds (the "Funds"):
* INTERMEDIATE TAX FREE FUND * COLORADO INTERMEDIATE TAX FREE FUND
* MINNESOTA INSURED INTERMEDIATE
TAX FREE FUND
Class C Shares of the Funds are offered through banks and certain other
institutions for the investment of their own funds and funds for which they
act in a fiduciary, agency or custodial capacity.
SHARES OF THE FUNDS ARE NOT DEPOSITS OR OBLIGATIONS OF, OR GUARANTEED OR
ENDORSED BY, ANY BANK, INCLUDING FIRST BANK NATIONAL ASSOCIATION AND ANY OF
ITS AFFILIATES, NOR ARE THEY INSURED BY THE FEDERAL DEPOSIT INSURANCE
CORPORATION, THE FEDERAL RESERVE BOARD OR ANY OTHER AGENCY. AN INVESTMENT IN
THE FUNDS INVOLVES INVESTMENT RISK, INCLUDING POSSIBLE LOSS OF PRINCIPAL,
DUE TO FLUCTUATIONS IN EACH FUND'S NET ASSET VALUE.
This Prospectus concisely sets forth information about the Funds that a
prospective investor should know before investing. It should be read and
retained for future reference.
A Statement of Additional Information dated January 31, 1997 for the Funds
has been filed with the Securities and Exchange Commission and is
incorporated in its entirety by reference in this Prospectus. To obtain
copies of the Statement of Additional Information at no charge, or to obtain
other information or make inquiries about the Funds, call (800) 637-2548 or
write SEI Financial Services Company, Oaks, Pennsylvania 19456.
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.
The date of this Prospectus is January 31, 1997.
SUMMARY
First American Investment Funds, Inc. ("FAIF") is an open-end investment
company which offers shares in several different mutual funds. This
Prospectus provides information with respect to the Class C Shares of the
following funds (the "Funds"):
INTERMEDIATE TAX FREE FUND has an objective of providing current income that
is exempt from federal income tax to the extent consistent with preservation
of capital. Under normal market conditions, this Fund invests at least 80%
of its net assets in municipal obligations, the interest on which is exempt
from federal income tax. No more than 20% of the securities owned by this
Fund will generate income that is subject to the federal alternative minimum
tax. Under normal market conditions, the weighted average maturity of the
securities held by this Fund will range from 3 to 10 years.
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND has an objective of providing
current income which is exempt from both federal income tax and Minnesota
state income tax to the extent consistent with preservation of capital.
Under normal market conditions, this Fund invests at least 80% of its net
assets in municipal obligations, the interest on which is exempt from
federal and Minnesota income tax. No more than 20% of the securities owned
by this Fund will generate income that is subject to the federal or the
Minnesota alternative minimum tax. At least 65% of the tax-exempt
obligations held by this Fund will consist of insured bonds, escrow secured
bonds and defeased bonds. Under normal market conditions, the weighted
average maturity of the securities held by this Fund will range from 3 to 10
years.
COLORADO INTERMEDIATE TAX FREE FUND has an objective of providing current
income which is exempt from both federal income tax and Colorado state
income tax to the extent consistent with preservation of capital. Under
normal market conditions, this Fund invests at least 80% of its net assets
in municipal obligations, the interest on which is exempt from federal and
Colorado income tax. No more than 20% of the securities owned by this Fund
will generate income that is subject to the federal alternative minimum tax.
Under normal market conditions, the weighted average maturity of the
securities held by this Fund will range from 3 to 10 years.
INVESTMENT ADVISER First Bank National Association (the "Adviser") serves as
investment adviser to each of the Funds. See "Management."
DISTRIBUTOR; ADMINISTRATOR SEI Financial Services Company (the
"Distributor") serves as the distributor of the Funds' shares. SEI Financial
Management Corporation (the "Administrator") serves as the administrator of
the Funds. See "Management" and "Distributor."
ELIGIBLE INVESTORS; OFFERING PRICES Class C Shares are offered through banks
and certain other institutions for the investment of their own funds and
funds for which they act in a fiduciary, agency or custodial capacity. Class
C Shares are sold at net asset value without any front-end or deferred sales
charges. See "Purchases and Redemptions of Shares."
EXCHANGES Class C Shares of any Fund may be exchanged for Class C Shares of
other funds in the First American family at the shares' respective net asset
values with no additional charge. See "Purchases and Redemptions of Shares
-- Exchange Privilege."
REDEMPTIONS Shares of each Fund may be redeemed at any time at their net
asset value next determined after receipt of a redemption request by the
Funds' transfer agent, with no additional charge. See "Purchases and
Redemptions of Shares."
RISKS TO CONSIDER Each of the Funds is subject to (i) interest rate risk
(the risk that increases in market interest rates will cause declines in the
value of debt securities held by a Fund); (ii) credit risk (the risk that
the issuers of debt securities held by a Fund default in making required
payments); and (iii) call or prepayment risk (the risk that a borrower may
exercise the right to prepay a debt obligation before its stated maturity,
requiring a Fund to reinvest the prepayment at a lower interest rate).
In addition, the value of municipal obligations held by the Funds may be
adversely affected by local political and economic conditions and
developments in the states and political subdivisions which issue the
obligations. Investors should note in this regard that Minnesota Insured
Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund invest in
municipal obligations of issuers located only in Minnesota and Colorado,
respectively. The Funds also may, in order to attempt to reduce risk, invest
in exchange traded put and call options on interest rate futures contracts
and on interest rate indices. See "Investment Objectives and Policies --
Risks to Consider" and "Special Investment Methods."
SHAREHOLDER INQUIRIES Any questions or communications regarding the Funds or
a shareholder account should be directed to the Distributor by calling (800)
637-2548, or to the financial institution which holds shares on an
investor's behalf.
FEES AND EXPENSES
CLASS C SHARE FEES AND EXPENSES
<TABLE>
<CAPTION>
MINNESOTA COLORADO
INSURED INTERMEDIATE
INTERMEDIATE INTERMEDIATE TAX FREE
TAX FREE FUND TAX FREE FUND FUND
<S> <C> <C> <C>
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load imposed on
purchases None None None
Maximum sales load imposed on
reinvested dividends None None None
Deferred sales load None None None
Redemption fees None None None
Exchange fees None None None
ANNUAL FUND OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
Investment advisory fees
(after voluntary fee waivers and
reimbursements)(1) 0.48% 0.47% 0.47%
Rule 12b-1 fees None None None
Other expenses (after voluntary
fee waivers)(1) 0.22% 0.23% 0.23%
Total fund operating expenses
(after voluntary fee waivers and
reimbursements)(1) 0.70% 0.70% 0.70%
EXAMPLE(2)
You would pay the following expenses on a $1,000 investment, assuming (i) a 5%
annual return, and (ii) redemption at the end of each time period:
1 year $ 7 $ 7 $ 7
3 years $ 22 $ 22 $ 22
5 years $ 39 $ 39 $ 39
10 years $ 87 $ 87 $ 87
</TABLE>
(1) The Adviser and the Administrator intend to waive a portion of their fees
and/or reimburse expenses on a voluntary basis, and the amounts shown
reflect these waivers and reimbursements as of the date of this Prospectus.
Each of these persons intends to maintain such waivers and reimbursements in
effect for the current fiscal year but reserves the right to discontinue
such waivers and reimbursements at any time in its sole discretion. Absent
any fee waivers, investment advisory fees for each Fund as an annualized
percentage of average daily net assets would be 0.70%; and total fund
operating expenses calculated on such basis would be 0.92% for Intermediate
Tax Free Fund, 0.93% for Minnesota Insured Intermediate Tax Free and 0.93%
for Colorado Intermediate Tax Free Fund. Other expenses includes an
administration fee.
(2) Absent the fee waivers and reimbursements referred to in (1) above, the
dollar amounts for the 1, 3, 5 and 10-year periods would be as follows:
Intermediate Tax Free Fund, $9, $29, $51 and $113; Minnesota Insured
Intermediate Tax Free Fund, $9, $30, $51 and $114; and Colorado Intermediate
Tax Free Fund, $9, $30, $51 and $114.
INFORMATION CONCERNING FEES AND EXPENSES
The purpose of the preceding tables is to assist the investor in
understanding the various costs and expenses that an investor in a Fund may
bear directly or indirectly. THE EXAMPLES CONTAINED IN THE TABLES SHOULD NOT
BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE EXPENSES. ACTUAL EXPENSES
MAY BE GREATER OR LESS THAN THOSE SHOWN. The information set forth in the
foregoing tables and examples relates only to the Class C Shares of the
Funds. The Funds also offer Class A Shares which are subject to the same
expenses and, in addition, to a front-end or contingent deferred sales load
and certain shareholder servicing expenses.
The examples in the above tables are based on projected annual Fund
operating expenses after voluntary fee waivers and expense reimbursements by
the Adviser and the Administrator. Although these persons intend to maintain
such waivers in effect for the current fiscal year, any such waivers are
voluntary and may be discontinued at any time. Prior to fee waivers,
investment advisory fees accrue at the annual rate as a percentage of
average daily net assets of 0.70% for each of the Funds.
Other expenses include fees paid by each Fund to the Administrator for
providing various services necessary to operate the Funds. These include
shareholder servicing and certain accounting and other services. The
Administrator provides these services for a fee calculated at an annual rate
of 0.12% of average daily net assets of each Fund subject to a minimum of
$50,000 per Fund per fiscal year; provided, that to the extent that the
aggregate net assets of all First American funds exceed $8 billion, the
percentage stated above is reduced to 0.105%. Other expenses of the Funds
also includes the cost of maintaining shareholder records, furnishing
shareholder statements and reports, and other services. Investment advisory
fees, administrative fees and other expenses are reflected in the Funds'
daily dividends and are not charged to individual shareholder accounts.
FINANCIAL HIGHLIGHTS
The following audited financial highlights should be read in conjunction
with the Funds' financial statements, the related notes thereto and the
independent auditors' report of KPMG Peat Marwick LLP appearing in FAIF's
annual report to shareholders for the year ended September 30, 1996. Further
information about the Funds' performance is contained in such annual report
to shareholders, which may be obtained without charge by calling (800)
637-2548 or by writing SEI Financial Services Company, Oaks, Pennsylvania,
19456.
For the periods ended September 30,
For a share outstanding throughout this period
<TABLE>
<CAPTION>
REALIZED AND
UNREALIZED DIVIDENDS
NET ASSET VALUE NET GAINS OR FROM NET
BEGINNING OF INVESTMENT (LOSSES) ON INVESTMENT
PERIOD INCOME INVESTMENTS INCOME
<S> <C> <C> <C> <C>
INTERMEDIATE TAX FREE FUND
Class C
1996 $10.72 $0.46 $ 0.00 $(0.46)
1995 10.28 0.49 0.43 (0.48)
1994(1) 10.89 0.29 (0.61) (0.29)
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Class C
1996 $ 9.92 $0.45 $ 0.02 $(0.45)
1995 9.59 0.45 0.33 (0.45)
1994(2) 10.00 0.25 (0.41) (0.25)
COLORADO INTERMEDIATE TAX FREE FUND
Class C
1996 $10.51 $0.49 $(0.04) $(0.49)
1995 10.16 0.48 0.36 (0.49)
1994(3) 10.00 0.22 0.16 (0.22)
</TABLE>
+Returns are for the period indicated and have not been annualized.
(1) This class of shares has been offered since February 4, 1994 (the Fund
itself having commenced operations on December 22, 1987). All ratios for the
period have been annualized.
[WIDE TABLE CONTINUED FROM ABOVE]
<TABLE>
<CAPTION>
RATIO OF
RATIO OF NET EXPENSES TO
RATIO OF INVESTMENT AVERAGE NET
DISTRIBUTIONS NET ASSET NET ASSETS END EXPENSES TO INCOME TO ASSETS PORTFOLIO
FROM CAPITAL VALUE END OF PERIOD AVERAGE NET AVERAGE NET (EXCLUDING TURNOVER
GAINS OF PERIOD TOTAL RETURN (000) ASSETS ASSETS WAIVERS) RATE
<S> <C> <C> <C> <C> <C> <C> <C> <C>
$(0.07) $10.65 4.35% $66,994 0.66% 4.35% 0.92% 53%
-- 10.72 9.15 46,025 0.67 4.73 1.05 68
-- 10.28 (2.91)+ 6,168 0.45 4.48 2.20 52
$(0.03) $ 9.91 4.80% $93,394 0.70% 4.53% 0.93% 19%
-- 9.92 8.34 61,693 0.70 4.76 1.00 38
-- 9.59 (1.58)+ 20,272 0.67 4.57 1.59 22
$(0.05) $10.42 4.39% $48,927 0.70% 4.69% 0.93% 20%
-- 10.51 8.47 50,071 0.70 4.84 1.02 19
-- 10.16 3.76 + 7,281 0.69 4.51 4.71 4
</TABLE>
(2) Commenced operations on February 25, 1994. All ratios for the period have
been annualized.
(3) Commenced operations on April 4, 1994. All ratios for the period have been
annualized.
THE FUNDS
FAIF is an open-end management investment company which offers shares in
several different mutual funds (collectively, the "FAIF Funds"), each of
which evidences an interest in a separate and distinct investment portfolio.
Shareholders may purchase shares in each FAIF Fund through several separate
classes which provide for variations in distribution costs, shareholder
servicing fees, voting rights and dividends. Except for these differences
among classes, each share of each FAIF Fund represents an undivided
proportionate interest in that fund. FAIF is incorporated under the laws of
the State of Maryland, and its principal offices are located at Oaks,
Pennsylvania 19456.
This Prospectus relates only to the Class C Shares of the Funds named on the
cover hereof. Information regarding the Class A Shares of these Funds and
regarding the Class A, Class B and Class C Shares of the other FAIF Funds is
contained in separate prospectuses that may be obtained from FAIF's
Distributor, SEI Financial Services Company, Oaks, Pennsylvania, 19456, or
by calling (800) 637-2548. The Board of Directors of FAIF may authorize
additional series or classes of common stock in the future.
INVESTMENT OBJECTIVES AND POLICIES
This section describes the investment objectives and policies of the Funds.
There is no assurance that any of these objectives will be achieved. The
Funds' investment objectives are not fundamental and therefore may be
changed without a vote of shareholders. Such changes could result in a Fund
having investment objectives different from those which shareholders
considered appropriate at the time of their investment in a Fund.
Shareholders will receive written notification at least 30 days prior to any
change in a Fund's investment objectives. Intermediate Tax Free Fund is a
diversified investment company, as defined in the Investment Company Act of
1940 (the "1940 Act"). Minnesota Insured Intermediate Tax Free Fund and
Colorado Intermediate Tax Free Fund are nondiversified investment companies
under the 1940 Act.
If a percentage limitation on investments by a Fund stated below or in the
Statement of Additional Information is adhered to at the time of an
investment, a later increase or decrease in percentage resulting from
changes in asset values will not be deemed to violate the limitation except
in the case of the limitation on illiquid investments. A Fund which is
limited to investing in securities with specified ratings is not required to
sell a security if its rating is reduced or discontinued after purchase, but
the Fund may consider doing so. However, in no event will more than 5% of
any Fund's net assets be invested in non-investment grade securities.
Descriptions of the rating categories of Standard & Poor's Corporation
("Standard & Poor's") and Moody's Investors Service, Inc. ("Moody's") are
contained in the Statement of Additional Information.
This section also contains information concerning certain investment risks
borne by Fund shareholders under the heading "-- Risks to Consider." Further
information concerning the securities in which the Funds may invest and
related matters is set forth under "Special Investment Methods."
INTERMEDIATE TAX FREE FUND
OBJECTIVE. Intermediate Tax Free Fund has an objective of providing current
income which is exempt from federal income tax to the extent consistent with
preservation of capital.
INVESTMENT POLICIES. Under normal market conditions, Intermediate Tax Free
Fund invests at least 80% of its net assets in municipal bonds and other
municipal obligations, the interest on which is, in the opinion of bond
counsel to the issuer, exempt from federal income tax. No more than 20% of
the securities owned by the Fund will generate income that is an item of tax
preference for the purpose of the federal alternative minimum tax. Municipal
obligations generating income subject to taxation under the federal
alternative minimum tax rules will not be counted as tax exempt obligations
for purposes of the 80% test. See "Income Taxes." The types of municipal
bonds and other municipal obligations in which the Fund may invest are
described under "Special Investment Methods -- Municipal Bonds and Other
Municipal Obligations."
Under normal market conditions, the weighted average maturity of the
securities held by Intermediate Tax Free Fund will range from 3 to 10 years.
Intermediate Tax Free Fund may purchase obligations which are rated no lower
than BBB by Standard & Poor's or Baa by Moody's, or which have been assigned
an equivalent rating by another nationally recognized statistical rating
organization, or which are of comparable quality in the judgment of the
Adviser. The Fund also may purchase municipal notes which are rated no lower
than SP-1 by Standard & Poor's or MIG/VMIG-1 by Moody's or which have been
assigned an equivalent rating by another nationally recognized statistical
rating organization. Unrated securities will not exceed 10% in the aggregate
of the value of the total assets of the Fund.
While the assets of Intermediate Tax Free Fund ordinarily will be invested
in municipal obligations, on occasion the Fund may temporarily hold
short-term securities, other than municipal obligations, the income from
which is taxable. Temporary taxable investments would be held solely for the
purpose of managing exceptional in-flows and out-flows of cash or for
temporary defensive purposes to preserve existing portfolio values. Under
normal circumstances, the Fund may not invest more than 20% of its assets in
investments other than municipal obligations. However, in periods of adverse
markets when a temporary defensive position to protect capital is deemed
advisable and practicable, the Fund may have more than 20% of its assets in
temporary taxable investments or cash. The types of investments which are
permitted for these purposes are described under "Special Investment Methods
-- Temporary Taxable Investments."
The Fund also may temporarily invest in shares of investment companies which
invest primarily in short-term municipal obligations with maturities not
exceeding 13 months. Investments of these types are also subject to the
advisory fee. Income from these investments is normally exempt from federal
income tax. Where the income from these investments is exempt from federal
income tax, the investments will be counted as tax exempt obligations for
purposes of the 80% test described above.
The Fund also may (i) in order to attempt to reduce risk, invest in exchange
traded put and call options on interest rate futures contracts and on
interest rate indices; (ii) purchase securities on a when-issued or
delayed-delivery basis; and (iii) engage in the lending of portfolio
securities. In addition, the Fund may invest up to 5% of its net assets in
inverse floating rate municipal obligations. For information about these
investment methods, restrictions on their use, and certain associated risks,
see the related headings under "Special Investment Methods."
The requirement, described above, that Intermediate Tax Free Fund invest at
least 80% of its net assets in tax free obligations under normal market
conditions is a fundamental policy, which cannot be changed without
shareholder vote. Under normal market conditions, that Fund will invest at
least 65% of its total assets in municipal obligations which are municipal
bonds. See "Special Investment Methods -- Municipal Bonds and Other
Municipal Obligations."
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND AND
COLORADO INTERMEDIATE TAX FREE FUND
OBJECTIVES. Minnesota Insured Intermediate Tax Free Fund has an objective of
providing current income which is exempt from both federal income tax and
Minnesota state income tax to the extent consistent with preservation of
capital. Colorado Intermediate Tax Free Fund has an objective of providing
current income which is exempt from both federal income tax and Colorado
state income tax to the extent consistent with preservation of capital.
INVESTMENT POLICIES. Under normal market conditions, each of these Funds
invests at least 80% of its net assets in municipal bonds and other
municipal obligations of the state referred to in its title, the interest on
which is, in the opinion of bond counsel to the issuer, exempt from federal
income tax and that state's income tax. No more than 20% of the securities
owned by either of these Funds will generate income that is an item of tax
preference for the purpose of the federal alternative minimum tax and, in
the case of Minnesota Insured Intermediate Tax Free Fund, for the purpose of
the Minnesota alternative minimum tax. Municipal obligations generating
income subject to taxation under the federal alternative minimum tax rules
or, in the case of Minnesota Insured Intermediate Tax Free Fund, under the
Minnesota alternative minimum tax rules, will not be counted as tax exempt
obligations for purposes of the 80% test. See "Income Taxes." The types of
municipal bonds and other municipal obligations in which these Funds may
invest are described under "Special Investment Methods -- Municipal Bonds
and Other Municipal Obligations."
Under normal market conditions, the weighted average maturity of the
securities held by each of these Funds will range from 3 to 10 years.
Each of these Funds may purchase obligations which are rated (without regard
to insurance) no lower than BBB by Standard & Poor's or Baa by Moody's, or
which have been assigned an equivalent rating by another nationally
recognized statistical rating organization, or which are of comparable
quality in the judgment of the Adviser. Each of these Funds also may
purchase municipal notes which are rated no lower than SP-1 by Standard &
Poor's or MIG/VMIG-1 by Moody's or which have been assigned an equivalent
rating by another nationally recognized statistical rating organization.
Unrated securities will not exceed 10% in the aggregate of the value of the
total assets of either of these Funds.
While the assets of each of these Funds ordinarily will be invested in
municipal obligations, on occasion either Fund may temporarily hold
short-term securities, other than municipal obligations, the income from
which is taxable. Temporary taxable investments would be held solely for the
purpose of managing exceptional in-flows and out-flows of cash or for
temporary defensive purposes to preserve existing portfolio values. Under
normal circumstances, a Fund may not invest more than 20% of its assets in
investments other than municipal obligations. However, in periods of adverse
markets when a temporary defensive position to protect capital is deemed
advisable and practicable, a Fund may have more than 20% of its assets in
temporary taxable investments or cash. The types of investments which are
permitted for these purposes are described under "Special Investment Methods
-- Temporary Taxable Investments."
Each of these Funds also may temporarily invest in shares of investment
companies which invest primarily in short-term municipal obligations with
maturities not exceeding 13 months. Investments of these types are also
subject to the advisory fee. Income from these investments is normally
exempt from federal income tax but may not be exempt from the applicable
state tax. Where the income from these investments is exempt from both
federal income tax and the applicable state tax, the investments will be
counted as tax exempt obligations for purposes of the 80% test described
above.
Each of these Funds also may (i) in order to attempt to reduce risk, invest
in exchange traded put and call options on interest rate futures contracts
and on interest rate indices; (ii) purchase securities on a when-issued or
delayed-delivery basis; (iii) engage in the lending of portfolio securities;
and (iv) invest up to 5% of its net assets in inverse floating rate
municipal obligations. For information about these investment methods,
restrictions on their use, and certain associated risks, see the related
headings under "Special Investment Methods."
As a nonfundamental policy, at least 65% of the tax-exempt obligations in
the investment portfolio of Minnesota Insured Intermediate Tax Free Fund
will consist of: (i) obligations that at all times are fully insured as to
the scheduled payment of all installments of interest and principal; and
(ii) obligations which have an AAA rating by Standard & Poor's or an Aaa
rating by Moody's or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization, where the
payment of interest and principal is guaranteed by the United States
Government or an agency or instrumentality of the United States Government,
or where the payment of interest and principal is secured by an escrow
account consisting of obligations guaranteed by the United States Government
or its agencies or instrumentalities ("escrow secured bonds" or "defeased
bonds"), without having to purchase additional insurance therefor. This
policy may not be eliminated except upon 30 days advance notice to
shareholders of Minnesota Insured Intermediate Tax Free Fund. In addition,
pending the investment or reinvestment of its assets in longer-term
tax-exempt obligations, this Fund may invest in short-term tax-exempt
obligations, without obtaining insurance, provided such instruments carry an
AAA or A-1 rating by Standard & Poor's or an Aaa or SP-1 rating by Moody's
or which have been assigned an equivalent rating by another nationally
recognized statistical rating organization. Bond insurance does not
guarantee the market value of the securities held in this Fund's portfolio.
For further information concerning the insurance applicable to this Fund's
investments, see "Special Investment Methods -- Insurance for Minnesota
Insured Intermediate Tax Free Fund."
The tax-exempt obligations held by Colorado Intermediate Tax Free Fund need
not be insured.
RISKS TO CONSIDER
An investment in any of the Funds involves certain risks. These include the
following:
INTEREST RATE RISK. Interest rate risk is the risk that the value of a
fixed-rate debt security will decline due to changes in market interest
rates. Because the Funds invest in fixed-rate debt securities, they are
subject to interest rate risk. In general, when interest rates rise, the
value of a fixed-rate debt security declines. Conversely, when interest
rates decline, the value of a fixed-rate debt security generally increases.
Thus, shareholders in the Funds bear the risk that increases in market
interest rates will cause the value of their Fund's portfolio investments to
decline.
In general, the value of fixed-rate debt securities with longer maturities
is more sensitive to changes in market interest rates than the value of such
securities with shorter maturities. Thus, the net asset value of a Fund
which invests in securities with longer weighted average maturities should
be expected to have greater volatility in periods of changing market
interest rates than that of a Fund which invests in securities with shorter
weighted average maturities.
Although the Adviser may engage in transactions intended to hedge the value
of the Funds' portfolios against changes in market interest rates, there is
no assurance that such hedging transactions will be undertaken or will
fulfill their purpose. See "Special Investment Methods -- Options
Transactions."
CREDIT RISK. Credit risk is the risk that the issuer of a debt security will
fail to make payments on the security when due. Because the Funds invest in
debt securities, they are subject to credit risk.
As described under "Special Investment Methods -- Municipal Bonds and Other
Municipal Obligations," the revenue bonds and municipal lease obligations in
which the Funds invest may entail greater credit risk than the general
obligation bonds in which they invest. This is the case because revenue
bonds and municipal lease obligations generally are not backed by the faith,
credit or general taxing power of the issuing governmental entity. In
addition, as described under that section, municipal lease obligations also
are subject to nonappropriation risk, which is a type of nonpayment risk.
Investors also should note that even general obligation bonds of the states
and their political subdivisions are not free from the risk of default.
The ratings and certain other requirements which apply to the Funds'
permitted investments, as described elsewhere in this Prospectus, are
intended to limit the amount of credit risk undertaken by the Funds.
Nevertheless, shareholders in the Funds bear the risk that payment defaults
could cause the value of their Fund's portfolio investments to decline.
Investors also should note that the Funds can invest in municipal
obligations rated as low as BBB by Standard & Poor's or Baa by Moody's, or
which have been assigned an equivalent rating by another nationally
recognized statistical rating organization, or which are of comparable
quality in the judgment of the Adviser. Although these rating categories are
investment grade, obligations with these ratings are viewed as having
speculative characteristics and carry a somewhat higher risk of default than
obligations rated in the higher investment grade categories.
Although the bond insurance carried by Minnesota Insured Intermediate Tax
Free Fund is intended to mitigate credit risk, its effectiveness depends
on the creditworthiness of the bond insurers. See "Special Investment
Methods -- Insurance for Minnesota Insured Intermediate Tax Free Fund."
CALL RISK. Many municipal bonds may be redeemed at the option of the issuer
("called") at a specified price prior to their stated maturity date. In
general, it is advantageous for an issuer to call its bonds if they can be
refinanced through the issuance of new bonds which bear a lower interest
rate than that of the called bonds. Call risk is the risk that bonds will be
called during a period of declining market interest rates so that such
refinancings may take place.
If a bond held by a Fund is called during a period of declining interest
rates, the Fund probably will have to reinvest the proceeds received by it
at a lower interest rate than that borne by the called bond, thus resulting
in a decrease in the Fund's income. To the extent that the Funds invest in
callable bonds, Fund shareholders bear the risk that reductions in income
will result from the call of bonds.
STATE AND LOCAL POLITICAL AND ECONOMIC CONDITIONS. The value of municipal
obligations owned by the Funds may be adversely affected by local political
and economic conditions and developments. Adverse conditions in an industry
significant to a local economy could have a correspondingly adverse effect
on the financial condition of local issuers. Other factors that could affect
tax-exempt obligations include a change in the local, state or national
economy, demographic factors, ecological or environmental concerns,
statutory limitations on the issuer's ability to increase taxes and other
developments generally affecting the revenues of issuers (for example,
legislation or court decisions reducing state aid to local governments or
mandating additional services).
Intermediate Tax Free Fund cannot invest 25% or more of its total assets in
obligations of issuers located in the same state (for this purpose, the
location of an "issuer" shall be deemed to be the location of the entity the
revenues of which are the primary source of payment or the location of the
project or facility which may be the subject of the obligation). See
"Special Investment Methods -- Investment Restrictions." Minnesota Insured
Intermediate Tax Free Fund and Colorado Intermediate Tax Free Fund each will
invest primarily in municipal obligations issued by the state and its
political subdivisions named in its title. For this reason, the municipal
obligations held by these two Funds will be particularly affected by local
conditions in those states. A more detailed description of the factors
affecting Minnesota and Colorado issuers of municipal obligations is set
forth in the Statement of Additional Information.
OTHER. Investors also should review "Special Investment Methods" for
information concerning risks associated with certain investment techniques
which may be utilized by the Funds. In addition, investors in Minnesota
Insured Intermediate Tax Free Fund should note that the 1995 Minnesota
Legislature enacted a statement of intent specifying certain circumstances
under which interest on the Minnesota municipal obligations held by the Fund
might become taxable for Minnesota state income tax purposes. See "Income
Taxes - Minnesota Income Taxation."
MANAGEMENT
The Board of Directors of FAIF has the primary responsibility for overseeing
the overall management and electing the officers of FAIF. Subject to the
overall direction and supervision of the Board of Directors, the Adviser
acts as investment adviser for and manages the investment portfolios of
FAIF.
INVESTMENT ADVISER
First Bank National Association, 601 Second Avenue South, Minneapolis,
Minnesota 55480, acts as the Funds' investment adviser through its First
Asset Management group. The Adviser has acted as an investment adviser to
FAIF since its inception in 1987 and has acted as investment adviser to
First American Funds, Inc. since 1982 and to First American Strategy Funds,
Inc. since 1996. As of December 31, 1996, the Adviser was managing accounts
with an aggregate value of approximately $35 billion, including mutual fund
assets in excess of $12 billion. First Bank System, Inc., 601 Second Avenue
South, Minneapolis, Minnesota 55480, is the holding company for the Adviser.
Each of the Funds has agreed to pay the Adviser monthly fees calculated on
an annual basis equal to 0.70% of its average daily net assets. The Adviser
may, at its option, waive any or all of its fees, or reimburse expenses,
with respect to any Fund from time to time. Any such waiver or reimbursement
is voluntary and may be discontinued at any time. The Adviser also may
absorb or reimburse expenses of the Funds from time to time, in its
discretion, while retaining the ability to be reimbursed by the Funds for
such amounts prior to the end of the fiscal year. This practice would have
the effect of lowering a Fund's overall expense ratio and of increasing
yield to investors, or the converse, at the time such amounts are absorbed
or reimbursed, as the case may be.
The Glass-Steagall Act generally prohibits banks from engaging in the
business of underwriting, selling or distributing securities and from being
affiliated with companies principally engaged in those activities. In
addition, administrative and judicial interpretations of the Glass-Steagall
Act prohibit bank holding companies and their bank and nonbank subsidiaries
from organizing, sponsoring or controlling registered open-end investment
companies that are continuously engaged in distributing their shares. Bank
holding companies and their bank and nonbank subsidiaries may serve,
however, as investment advisers to registered investment companies, subject
to a number of terms and conditions.
Although the scope of the prohibitions and limitations imposed by the
Glass-Steagall Act has not been fully defined by the courts or the
appropriate regulatory agencies, the Funds have received an opinion from
their counsel that the Adviser is not prohibited from performing the
investment advisory services described above. In the event of changes in
federal or state statutes or regulations or judicial and administrative
interpretations or decisions pertaining to permissible activities of bank
holding companies and their bank and nonbank subsidiaries, the Adviser might
be prohibited from continuing these arrangements. In that event, it is
expected that the Board of Directors would make other arrangements and that
shareholders would not suffer adverse financial consequences.
PORTFOLIO MANAGERS
RICHARD W. STANLEY is portfolio co-manager for each of the Funds. Dick
entered the investment business via investment sales with Smith Barney & Co.
in 1958. He then moved to Heritage Investment Advisers as head of fixed
income investment in 1973. He joined the Adviser in early 1986 as Vice
President and Manager of Fixed Income/Personal Trust. Dick received his
master's in business administration degree from Cornell University in 1958
and received his Chartered Financial Analyst certification in 1977.
CHRISTOPHER L. DRAHN is portfolio co-manager for Intermediate Tax Free Fund
and Minnesota Insured Intermediate Tax Free Fund. Chris joined the fixed
income department of the Adviser in 1985, having previously served in its
securities lending and corporate trust areas. He received his master's
degree in business administration from the University of Minnesota and is a
Chartered Financial Analyst.
TERRY MALTARICH is portfolio co-manager for Colorado Intermediate Tax Free
Fund. Terry joined the Adviser in 1994 after 20 years of investment
experience with Colorado Capital Advisors (which was combined into the
Adviser) and Great West Life Insurance Company. He received his bachelor's
degree from Miami University.
CUSTODIAN
The custodian of the Funds' assets is First Trust National Association (the
"Custodian"), First Trust Center, 180 East Fifth Street, St. Paul, Minnesota
55101. The Custodian is a subsidiary of First Bank System, Inc., which also
controls the Adviser.
As compensation for its services to the Funds, the Custodian is paid monthly
fees calculated on an annual basis equal to 0.03% of the applicable Fund's
average daily net assets. In addition, the Custodian is reimbursed for its
out-of-pocket expenses incurred while providing its services to the Funds.
ADMINISTRATOR
The administrator for the Funds is SEI Financial Management Corporation,
Oaks, Pennsylvania 19456. The Administrator, a wholly-owned subsidiary of
SEI Investments Company, provides the Funds with certain administrative
services necessary to operate the Funds. These services include shareholder
servicing and certain accounting and other services. The Administrator
provides these services for a fee calculated at an annual rate of 0.12% of
each Fund's average daily net assets, subject to a minimum administrative
fee during each fiscal year of $50,000 per Fund; provided, that to the
extent that the aggregate net assets of all First American funds exceed $8
billion, the percentage stated above is reduced to 0.105%. From time to
time, the Administrator may voluntarily waive its fees or reimburse expenses
with respect to any of the Funds. Any such waivers or reimbursements may be
made at the Administrator's discretion and may be terminated at any time.
TRANSFER AGENT
DST Systems, Inc. (the "Transfer Agent") serves as the transfer agent and
dividend disbursing agent for the Funds. The address of the Transfer Agent
is 1004 Baltimore, Kansas City, Missouri 64105. The Transfer Agent is not
affiliated with the Distributor, the Administrator or the Adviser.
DISTRIBUTOR
SEI Financial Services Company is the principal distributor for shares of
the Funds and of the other FAIF Funds. The Distributor is a Pennsylvania
corporation and is the principal distributor for a number of investment
companies. The Distributor is a wholly-owned subsidiary of SEI Investments
Company and is located at Oaks, Pennsylvania, 19456. The Distributor is not
affiliated with the Adviser, First Bank System, Inc., the Custodian or their
respective affiliates.
The Distributor, the Administrator and the Adviser may in their discretion
use their own assets to pay for certain costs of distributing Fund shares.
They also may discontinue any payment of such costs at any time. In
addition, the Distributor and the Adviser and its affiliates may provide
compensation from their own resources for shareholder services provided by
third parties, including "one-stop" mutual fund networks through which the
Funds are made available.
PURCHASES AND REDEMPTIONS OF SHARES
SHARE PURCHASES AND REDEMPTIONS
Shares of the Funds are sold and redeemed on days on which the New York
Stock Exchange is open for business ("Business Days").
Payment for shares can be made only by wire transfer. Wire transfers of
federal funds for share purchases should be sent to First Bank National
Association, Minneapolis, Minnesota, ABA Number 091000022; For Credit to:
DST Systems: Account Number 160234580266; For Further Credit To: (Investor
Name and Fund Name). Shares cannot be purchased by Federal Reserve wire on
days on which the New York Stock Exchange is closed and on Federal holidays
upon which wire transfers are restricted. Purchase orders will be effective
and eligible to receive dividends declared the same day if the Transfer
Agent receives an order before 3:00 p.m. Central time and the Custodian
receives Federal funds before the close of business that day. Otherwise, the
purchase order will be effective the next Business Day. The net asset value
per share is calculated as of 3:00 p.m. Central time each Business Day. The
Funds reserve the right to reject a purchase order.
The Funds are required to redeem for cash all full and fractional shares of
the Funds. Redemption orders may be made any time before 3:00 p.m. Central
time in order to receive that day's redemption price. For redemption orders
received before 3:00 p.m. Central time, payment will ordinarily be made the
next business day by transfer of Federal funds, but payment may be made up
to 7 days later.
WHAT SHARES COST
Class C Shares of the Funds are sold and redeemed at net asset value. The
net asset value per share is determined as of the earlier of the close of
the New York Stock Exchange or 3:00 p.m. Central time on each day the New
York Stock Exchange is open for business, provided that net asset value need
not be determined on days when no Fund shares are tendered for redemption
and no order for that Fund's shares is received and on days on which changes
in the value of portfolio securities will not materially affect the current
net asset value of the Fund's shares. The price per share for purchases or
redemptions is such value next computed after the Transfer Agent receives
the purchase order or redemption request. In the case of redemptions and
repurchases of shares owned by corporations, trusts or estates, the Transfer
Agent may require additional documents to evidence appropriate authority in
order to effect the redemption, and the applicable price will be that next
determined following the receipt of the required documentation.
DETERMINING NET ASSET VALUE. The net asset value per share for each of the
Funds is determined by dividing the value of the securities owned by the
Fund plus any cash and other assets (including interest accrued and
dividends declared but not collected), less all liabilities, by the number
of Fund shares outstanding. For the purpose of determining the aggregate net
assets of the Funds, cash and receivables will be valued at their face
amounts. Interest will be recorded as accrued and dividends will be recorded
on the ex-dividend date. Debt obligations exceeding 60 days to maturity
which are actively traded are valued by an independent pricing service at
the most recently quoted bid price. Debt obligations with 60 days or less
remaining until maturity may be valued at their amortized cost. When market
quotations are not readily available, securities are valued at fair value as
determined in good faith by procedures established and approved by the Board
of Directors.
Portfolio securities underlying actively traded options are valued at their
market price as determined above. The current market value of any exchange
traded option held or written by a Fund is its last sales price on the
exchange prior to the time when assets are valued, unless the bid price is
higher or the asked price is lower, in which event the bid or asked price is
used. In the absence of any sales that day, options will be valued at the
current closing bid price.
Although the methodology and procedures for determining net asset value are
identical for all classes of shares, the net asset value per share of
different classes of shares of the same Fund may differ because of the
shareholder servicing expenses charged to Class A Shares.
EXCHANGING SECURITIES FOR FUND SHARES
A Fund may accept securities in exchange for Fund shares. A Fund will allow
such exchanges only upon the prior approval by the Fund and a determination
by the Fund and the Adviser that the securities to be exchanged are
acceptable. Securities accepted by a Fund will be valued in the same manner
that a Fund values its assets. The basis of the exchange will depend upon
the net asset value of Fund shares on the day the securities are valued.
CERTIFICATES AND CONFIRMATIONS
The Transfer Agent maintains a share account for each shareholder. Share
certificates will not be issued by the Funds.
Confirmations of each purchase and redemption are sent to each shareholder.
In addition, monthly confirmations are sent to report all transactions and
dividends paid during that month for the Funds.
DIVIDENDS AND DISTRIBUTIONS
Dividends with respect to each Fund are declared and paid monthly to all
shareholders of record on the record date. Distributions of any net realized
long-term capital gains will be made at least once every 12 months.
Dividends and distributions are automatically reinvested in additional
shares of the Fund paying the dividend on payment dates at the ex-dividend
date net asset value without a sales charge, unless shareholders request
cash payments on the new account form or by writing to the Fund.
All shareholders on the record date are entitled to the dividend. If shares
are purchased before a record date for a dividend or a distribution of
capital gains, a shareholder will pay the full price for the shares and will
receive some portion of the purchase price back as a taxable dividend or
distribution (to the extent, if any, that the dividend or distribution is
otherwise taxable to holders of Fund shares). If shares are redeemed or
exchanged before the record date for a dividend or distribution or are
purchased after the record date, those shares are not entitled to the
dividend or distribution.
The amount of dividends payable on Class C Shares generally will be more
than the dividends payable on Class A Shares because of the shareholder
servicing expenses charged to Class A Shares.
EXCHANGE PRIVILEGE
Shareholders may exchange Class C Shares of a Fund for currently available
Class C Shares of the other FAIF Funds or of other funds in the First
American family at net asset value. Exchanges of shares among the First
American family of funds must meet any applicable minimum investment of the
fund for which shares are being exchanged.
The ability to exchange shares of the Funds does not constitute an offering
or recommendation of shares of one fund by another fund. This privilege is
available to shareholders resident in any state in which the fund shares
being acquired may be sold. An investor who is considering acquiring shares
in another First American fund pursuant to the exchange privilege should
obtain and carefully read a prospectus of the fund to be acquired. Exchanges
may be accomplished by a written request, or by telephone if a preauthorized
exchange authorization is on file with the Transfer Agent, shareholder
servicing agent, or financial institution. Neither the Transfer Agent nor
any Fund will be responsible for the authenticity of exchange instructions
received by telephone if it reasonably believes those instructions to be
genuine. The Funds and the Transfer Agent will each employ reasonable
procedures to confirm that telephone instructions are genuine, and they may
be liable for losses resulting from unauthorized or fraudulent telephone
instructions if they do not employ these procedures. These procedures may
include taping of telephone conversations.
Shares of a class in which an investor is no longer eligible to participate
may be exchanged for shares of a class in which that investor is eligible to
participate. An example of this kind of exchange would be a situation in
which Class C Shares of a Fund held by a financial institution in a trust or
agency capacity for one or more individual beneficiaries are exchanged for
Class A Shares of that Fund and distributed to the individual beneficiaries.
INCOME TAXES
FEDERAL INCOME TAXATION
Each Fund is treated as a different entity for federal income tax purposes.
Each of the Funds qualified during its last fiscal year as a regulated
investment company under the Internal Revenue Code of 1986, as amended (the
"Code"), and all of the Funds intend to so qualify in the future. If so
qualified and provided certain distribution requirements are met, a Fund
will not be liable for federal income taxes to the extent it distributes its
income to its shareholders.
Distributions of net interest income from tax-exempt obligations that are
designated by each Fund as exempt-interest dividends are excludable from the
gross income of the Fund's shareholders. A portion of such dividends may,
however, be subject to the alternative minimum tax, as discussed below.
Distributions paid from other interest income and from any net realized
short-term capital gains will be taxable to shareholders as ordinary income,
whether received in cash or in additional shares. Since none of the Funds'
income will consist of dividends from domestic corporations, the
dividends-received deduction for corporations will not be applicable to
taxable distributions by the Funds. Distributions paid from long-term
capital gains (and designated as such) will be taxable as long-term capital
gains for federal income tax purposes, whether received in cash or shares,
regardless of how long a shareholder has held the shares in a Fund.
Shareholders not subject to federal income taxation will not be taxed on
distributions by a Fund.
Gain or loss realized on the sale or exchange of shares in a Fund will be
treated as capital gain or loss, provided that (as is usually the case) the
shares represented a capital asset in the hands of the shareholder. Such
gain or loss will be long-term gain or loss if the shares were held for more
than one year.
For federal income tax purposes, an alternative minimum tax ("AMT") is
imposed on taxpayers to the extent that such tax, if any, exceeds a
taxpayer's regular income tax liability (with certain adjustments).
Liability for AMT will depend on each shareholder's tax situation.
Exempt-interest dividends attributable to interest income on certain
tax-exempt obligations issued after August 7, 1986, to finance certain
private activities will be treated as an item of tax preference that is
included in alternative minimum taxable income for purposes of computing the
federal AMT for all taxpayers and the federal environmental tax on
corporations. Each Fund may invest up to 20% of its total assets in
obligations the interest on which is treated as an item of tax preference
for federal income tax purposes. Also, a portion of all other tax-exempt
interest received by a corporation, including exempt-interest dividends,
will be included in adjusted current earnings and in earnings and profits
for purposes of determining the federal corporate alternative minimum tax,
the environmental tax imposed on corporations under Section 59A of the Code,
and the branch profits tax imposed on foreign corporations under Section 884
of the Code.
The Tax Reform Act of 1986 imposed new requirements on certain tax-exempt
bonds which, if not satisfied, could result in loss of tax exemption for
interest on such bonds, even retroactively to the date of issuance of the
bonds. Proposals may be introduced before Congress in the future, the
purpose of which will be to further restrict or eliminate the federal income
tax exemption for tax-exempt bonds held by the Funds. The Funds will avoid
investment in bonds which, in the opinion of the Adviser, pose a material
risk of the loss of tax exemption. Further, if a bond in a Fund's portfolio
lost its exempt status, the Fund would make every effort to dispose of that
investment on terms that are not detrimental to the Fund.
In certain instances, the portion of Social Security benefits received by a
shareholder that is subject to federal income tax may be affected by the
amount of exempt-interest dividends received by the shareholder from the
Funds.
Interest on indebtedness incurred by a shareholder to purchase or carry
shares of the Funds will not be deductible for federal income purposes.
Information concerning distributions will be mailed to shareholders
annually. Shareholders who are subject to federal income tax are required
for information purposes to report exempt-interest dividends and other
tax-exempt interest on their tax returns.
MINNESOTA INCOME TAXATION
Minnesota taxable net income is based generally on federal taxable income.
The portion of exempt-interest dividends paid by Minnesota Insured
Intermediate Tax Free Fund that is derived from interest on tax-exempt
obligations issued by the state of Minnesota, its political subdivisions and
instrumentalities, is excluded from the Minnesota taxable net income of
individuals, estates and trusts, provided that the portion of the
exempt-interest dividends from such Minnesota sources paid to all
shareholders represents 95 percent or more of the exempt-interest dividends
paid by the respective Fund. The remaining portion of such dividends, and
dividends that are not exempt-interest dividends or capital gain dividends,
are included in the Minnesota taxable net income of individuals, estates and
trusts, except for dividends directly attributable to interest on
obligations of the United States Government, its territories and
possessions. Exempt-interest dividends are not excluded from the Minnesota
taxable income of corporations and financial institutions. Dividends
qualifying for federal income tax purposes as capital gain dividends are to
be treated by shareholders as long-term capital gains. Minnesota has
repealed the favorable treatment of long-term capital gains, while retaining
restrictions on the deductibility of capital losses. As under federal law,
the portion of Social Security benefits subject to Minnesota income tax may
be affected by the amount of exempt-interest dividends received by the
shareholders. Exempt-interest dividends attributable to interest on certain
private activity bonds issued after August 7, 1986 will be included in
Minnesota alternative minimum taxable income of individuals, estates and
trusts for purposes of computing Minnesota's alternative minimum tax.
Dividends generally will not qualify for the dividends-received deduction
for corporations and financial institutions.
The 1995 Minnesota Legislature has enacted a statement of intent that
interest on obligations of Minnesota governmental units and Indian tribes be
included in net income of individuals, estates and trusts for Minnesota
income tax purposes if a court determines that Minnesota's exemption of such
interest unlawfully discriminates against interstate commerce because
interest on obligations of governmental issuers located in other states is
so included. This provision applies to taxable years that begin during or
after the calendar year in which any such court decision becomes final,
irrespective of the date on which the obligations were issued. Minnesota
Insured Intermediate Tax Free Fund is not aware of any decision in which a
court has held that a state's exemption of interest on its own bonds or
those of its political subdivisions or Indian tribes, but not of interest on
the bonds of other states or their political subdivisions or Indian tribes,
unlawfully discriminates against interstate commerce or otherwise
contravenes the United States Constitution. Nevertheless, the Fund cannot
predict the likelihood that interest on the Minnesota bonds held by the Fund
would become taxable under this Minnesota statutory provision.
COLORADO INCOME TAXATION
To the extent that dividends paid by Colorado Intermediate Tax Free Fund are
derived from interest on tax-exempt obligations issued by the state of
Colorado, its political subdivisions and instrumentalities, such dividends
will also be exempt from Colorado income taxes for individuals, trusts,
estates, and corporations. The remaining portion of such dividends, and
dividends that are not exempt-interest dividends or capital gain dividends,
are included in the Colorado taxable income of individuals, trusts, estates,
and corporations, except for dividends directly attributable to interest on
obligations of the United States Government. Dividends qualifying for
federal income tax purposes as capital gain dividends are to be treated by
shareholders as long-term capital gains under Colorado law. However,
Colorado has repealed the favorable treatment of long-term capital gains,
while retaining restrictions on the deductibility of capital losses.
Dividends paid by Colorado Intermediate Tax Free Fund that are derived from
interest on tax-exempt obligations issued by the state of Colorado, its
political subdivisions and instrumentalities (including tax-exempt
obligations treated for federal purposes as private activity bonds) will not
be treated as items of tax preference for purposes of the alternative
minimum tax that Colorado imposes on individuals, trusts and estates.
As under federal law, the portion of Social Security benefits subject to
Colorado income tax may be affected by the amount of exempt-interest
dividends received by the shareholders.
OTHER STATE AND LOCAL TAXATION
Except to the extent described above under "-- Minnesota Income Taxation"
and "-- Colorado Income Taxation," distributions by all the Funds may be
subject to state and local taxation even if they are exempt from federal
income taxes. Shareholders are urged to consult their own tax advisers
regarding state and local taxation.
TAX-EXEMPT VS. TAXABLE INCOME
The tables below show the approximate yields that taxable securities must
earn to equal yields that are (i) exempt from federal income taxes; (ii)
exempt from both federal and Minnesota income taxes; and (iii) exempt from
both federal and Colorado income taxes, under selected income tax brackets
scheduled to be in effect in 1997. The effective combined rates reflect the
deduction of state income taxes from federal income. The 34.1%, 36.9%,
41.4%, and 44.7% combined federal/Minnesota rates assume that the investor
is subject to an 8.5% marginal Minnesota income tax rate and a marginal
federal income tax rate of 28%, 31%, 36% and 39.6%, respectively. The 31.6%,
34.5%, 39.2% and 42.6% combined federal/Colorado rates assume that the
investor is subject to a 5% Colorado income tax rate and a marginal federal
income tax rate of 28%, 31%, 36% and 39.6%, respectively. The combined rates
do not reflect federal rules concerning the phase-out of personal exemptions
and limitations on the allowance of itemized deductions for certain
high-income taxpayers. The tables are based upon yields that are derived
solely from tax-exempt income. To the extent that a Fund's yield is derived
from taxable income, the Fund's tax equivalent yield will be less than set
forth in the tables. The tax-free yields used in these tables should not be
considered as representations of any particular rates of return and are for
purposes of illustration only.
<TABLE>
<CAPTION>
TAX-EQUIVALENT YIELDS
COMBINED FEDERAL AND COMBINED FEDERAL AND
FEDERAL TAX BRACKETS MINNESOTA TAX BRACKETS COLORADO TAX BRACKETS
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
TAX-FREE
YIELDS 28% 31% 36% 39.6% 34.1% 36.9% 41.4% 44.7% 31.6% 34.5% 39.2% 42.6%
3.0% 4.17% 4.35% 4.69% 4.97% 4.55% 4.75% 5.12% 5.42% 4.39% 4.58% 4.93% 5.23%
3.5% 4.86% 5.07% 5.47% 5.79% 5.31% 5.55% 5.97% 6.33% 5.12% 5.34% 5.76% 6.10%
4.0% 5.56% 5.80% 6.25% 6.62% 6.07% 6.34% 6.83% 7.23% 5.85% 6.11% 6.58% 6.97%
4.5% 6.25% 6.52% 7.03% 7.45% 6.83% 7.13% 7.68% 8.14% 6.58% 6.87% 7.40% 7.84%
5.0% 6.94% 7.25% 7.81% 8.28% 7.59% 7.92% 8.53% 9.04% 7.31% 7.63% 8.22% 8.71%
5.5% 7.64% 7.97% 8.59% 9.11% 8.35% 8.72% 9.39% 9.95% 8.04% 8.40% 9.05% 9.59%
6.0% 8.33% 8.70% 9.38% 9.93% 9.10% 9.51% 10.24% 10.85% 8.77% 9.16% 9.87% 10.46%
6.5% 9.03% 9.42% 10.16% 10.76% 9.86% 10.30% 11.09% 11.75% 9.50% 9.92% 10.69% 11.32%
</TABLE>
FUND SHARES
Each share of a Fund is fully paid, nonassessable, and transferable. Shares
may be issued as either full or fractional shares. Fractional shares have
pro rata the same rights and privileges as full shares. Shares of the Funds
have no preemptive or conversion rights.
Each share of a Fund has one vote. On some issues, such as the election of
directors, all shares of all FAIF Funds vote together as one series. The
shares do not have cumulative voting rights. Consequently, the holders of
more than 50% of the shares voting for the election of directors are able to
elect all of the directors if they choose to do so. On issues affecting only
a particular Fund or Class, the shares of that Fund or Class will vote as a
separate series. Examples of such issues would be proposals to alter a
fundamental investment restriction pertaining to a Fund or to approve,
disapprove or alter a distribution plan pertaining to a Class.
Under the laws of the State of Maryland and FAIF's Articles of
Incorporation, FAIF is not required to hold shareholder meetings unless they
(i) are required by the 1940 Act, or (ii) are requested in writing by the
holders of 25% or more of the outstanding shares of FAIF.
CALCULATION OF PERFORMANCE DATA
From time to time, any of the Funds may advertise information regarding its
performance. Each Fund may publish its "yield," its "tax equivalent yield,"
its "cumulative total return," its "average annual total return," its
"distribution rate" and its "tax equivalent distribution rate." Distribution
rates and tax equivalent distribution rates may only be used in connection
with sales literature and shareholder communications preceded or accompanied
by a Prospectus. Each of these performance figures is based upon historical
results and is not intended to indicate future performance, and, except for
"distribution rate" and "tax equivalent distribution rate," is standardized
in accordance with Securities and Exchange Commission ("SEC") regulations.
"Yield" for the Funds is computed by dividing the net investment income per
share (as defined in applicable SEC regulations) earned during a 30-day
period (which period will be stated in the advertisement) by the maximum
offering price per share on the last day of the period. Yield is an
annualized figure, in that it assumes that the same level of net investment
income is generated over a one year period. The yield formula annualizes net
investment income by providing for semi-annual compounding.
"Tax equivalent yield" is that yield which a taxable investment must
generate in order to equal a Fund's yield for an investor in a stated
federal or combined federal/state income tax bracket (normally assumed to be
the maximum tax rate or combined rate). Tax equivalent yield is computed by
dividing that portion of the yield which is tax-exempt by one minus the
stated income tax rate, and adding the resulting amount to that portion, if
any, of the yield which is not tax-exempt.
"Total return" is based on the overall dollar or percentage change in value
of a hypothetical investment in a Fund assuming reinvestment of dividend
distributions and deduction of all charges and expenses, including the
maximum sales charge imposed on Class A Shares or the contingent deferred
sales charge imposed on Class B Shares. "Cumulative total return" reflects a
Fund's performance over a stated period of time. "Average annual total
return" reflects the hypothetical annually compounded rate that would have
produced the same cumulative total return if performance had been constant
over the entire period. Because average annual returns tend to smooth out
variations in a Fund's performance, they are not the same as actual
year-by-year results. As a supplement to total return computations, a Fund
may also publish "total investment return" computations which do not assume
deduction of the maximum sales charge imposed on Class A Shares.
"Distribution rate" is determined by dividing the income dividends per share
for a stated period by the maximum offering price per share on the last day
of the period. "Tax equivalent distribution rate" is computed by dividing
the portion of the distribution rate (determined as described above) which
is tax-exempt by one minus the stated federal or combined federal/state
income tax rate, and adding to the resulting amount that portion, if any, of
the distribution rate which is not tax-exempt. All distribution rates
published for the Funds are measures of the level of income dividends
distributed during a specified period. Thus, these rates differ from yield
(which measures income actually earned by a Fund) and total return (which
measures actual income, plus realized and unrealized gains or losses of a
Fund's investments). Consequently, distribution rates alone should not be
considered complete measures of performance.
The performance of the Class C Shares of a Fund will normally be higher than
for the Class A Shares because Class C Shares are not subject to the sales
charges and shareholder servicing expenses applicable to Class A Shares.
In reports or other communications to shareholders and in advertising
material, the performance of each Fund may be compared to recognized
unmanaged indices or averages of the performance of similar securities and
to composites of such indices and averages. Also, the performance of each
Fund may be compared to that of other funds of similar size and objectives
as listed in the rankings prepared by Lipper Analytical Services, Inc. or
similar independent mutual fund rating services, and each Fund may include
in such reports, communications and advertising material evaluations
published by nationally recognized independent ranking services and
publications. For further information regarding the Funds' performance, see
"Fund Performance" in the Statement of Additional Information.
SPECIAL INVESTMENT METHODS
This section provides additional information concerning the securities in
which the Funds may invest and related topics. Further information
concerning these matters is contained in the Statement of Additional
Information.
MUNICIPAL BONDS AND OTHER MUNICIPAL OBLIGATIONS
As described under "Investment Objectives and Policies," each of the Funds
invests principally in municipal bonds and other municipal obligations.
These bonds and other obligations are issued by the states and by their
local and special-purpose political subdivisions. The term "municipal bond"
as used in this Prospectus includes short-term municipal notes issued by the
states and their political subdivisions.
MUNICIPAL BONDS. The two general classifications of municipal bonds are
"general obligation" bonds and "revenue" bonds. General obligation bonds are
secured by the governmental issuer's pledge of its faith, credit and taxing
power for the payment of principal and interest. They are usually paid from
general revenues of the issuing governmental entity. Revenue bonds, on the
other hand, are usually payable only out of a specific revenue source rather
than from general revenues. Revenue bonds ordinarily are not backed by the
faith, credit or general taxing power of the issuing governmental entity.
The principal and interest on revenue bonds for private facilities are
typically paid out of rents or other specified payments made to the issuing
governmental entity by a private company which uses or operates the
facilities. Examples of these types of obligations are industrial revenue
bonds and pollution control revenue bonds. Industrial revenue bonds are
issued by governmental entities to provide financing aid to community
facilities such as hospitals, hotels, business or residential complexes,
convention halls and sport complexes. Pollution control revenue bonds are
issued to finance air, water and solids pollution control systems for
privately operated industrial or commercial facilities.
Revenue bonds for private facilities usually do not represent a pledge of
the credit, general revenues or taxing powers of the issuing governmental
entity. Instead, the private company operating the facility is the sole
source of payment of the obligation. Sometimes, the funds for payment of
revenue bonds come solely from revenue generated by operation of the
facility. Revenue bonds which are not backed by the credit of the issuing
governmental entity frequently provide a higher rate of return than other
municipal obligations, but they entail greater risk than obligations which
are guaranteed by a governmental unit with taxing power. Federal income tax
laws place substantial limitations on industrial revenue bonds, and
particularly certain specified private activity bonds issued after August 7,
1986. In the future, legislation could be introduced in Congress which could
further restrict or eliminate the income tax exemption for interest on debt
obligations in which the Funds may invest.
MUNICIPAL LEASES. Each Fund also may purchase participation interests in
municipal leases. Participation interests in municipal leases are undivided
interests in a lease, installment purchase contract or conditional sale
contract entered into by a state or local governmental unit to acquire
equipment or facilities. Municipal leases frequently have special risks
which generally are not associated with general obligation bonds or revenue
bonds.
Municipal leases and installment purchase or conditional sale contracts
(which usually provide for title to the leased asset to pass to the
governmental issuer upon payment of all amounts due under the contract) have
evolved as a means for governmental issuers to acquire property and
equipment without meeting the constitutional and statutory requirements for
the issuance of municipal debt. The debt-issuance limitations are deemed to
be inapplicable because of the inclusion in many leases and contracts of
"non-appropriation" clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or contract unless money
is appropriated for this purpose by the appropriate legislative body on a
yearly or other periodic basis. Although these kinds of obligations are
secured by the leased equipment or facilities, the disposition of the
pledged property in the event of non-appropriation or foreclosure might, in
some cases, prove difficult and time-consuming. In addition, disposition
upon non-appropriation or foreclosure might not result in recovery by a Fund
of the full principal amount represented by an obligation.
In light of these concerns, each Fund has adopted and follows procedures for
determining whether municipal lease obligations purchased by the Fund are
liquid and for monitoring the liquidity of municipal lease securities held
in the Fund's portfolio. These procedures require that a number of factors
be used in evaluating the liquidity of a municipal lease security, including
the frequency of trades and quotes for the security, the number of dealers
willing to purchase or sell the security and the number of other potential
purchasers, the willingness of dealers to undertake to make a market in the
security, the nature of the marketplace in which the security trades, and
other factors which the Adviser may deem relevant. As described below under
"-- Investment Restrictions," each Fund is subject to limitations on the
percentage of illiquid securities it can hold.
INSURANCE FOR MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
At least 65% of the tax-exempt obligations in the investment portfolio of
Minnesota Insured Intermediate Tax Free Fund will consist of insured
securities, escrow secured bonds or defeased bonds. The "insured securities"
in this Fund's investment portfolio are insured as to the scheduled payment
of all installments of principal and interest as they fall due. The purpose
of this insurance is to minimize credit risk to this Fund and its
shareholders associated with defaults in tax-exempt obligations owned by the
Fund. However, insurance does not guarantee the market value of the
securities in this Fund's investment portfolio, which will continue to
fluctuate in response to changes in market interest rates. See "Investment
Objectives and Policies -- Risks to Consider -- Interest Rate Risk."
Therefore, the amount received upon redemption of shares of this Fund may be
more or less than the original cost of the shares less any applicable sales
charge paid in connection with the acquisition of such shares.
Generally, except as noted above, each insured municipal obligation held by
Minnesota Insured Intermediate Tax Free Fund will be covered by Original
Issue Insurance, Secondary Market Insurance or Portfolio Insurance.
"Original Issuance Insurance" is purchased by the issuer of a municipal
obligation or by a third party at the time of original issuance of the
obligation, while "Secondary Market Insurance" may be purchased by a third
party (including Minnesota Insured Intermediate Tax Free Fund) subsequent to
the original issuance of a municipal obligation. "Portfolio Insurance" is
insurance purchased by Minnesota Insured Intermediate Tax Free Fund to cover
municipal obligations while they are held in the Fund's portfolio. Premiums
for Portfolio Insurance will be paid from the Fund's assets and will reduce
the current yield on its investment portfolio by the amount of the premiums.
The Fund's investment manager estimates that annual premiums for Portfolio
Insurance would be less than .01% of the Fund's average daily net assets.
Because Portfolio Insurance coverage would terminate upon the sale of an
insured security by Minnesota Insured Intermediate Tax Free Fund, this kind
of insurance would not have an effect on the resale value of the security.
Therefore, the Fund generally will retain any such securities covered only
by Portfolio Insurance which are in default or in significant risk of
default and will place a value on the insurance equal to the difference
between the market value of the defaulted security and the market value of
similar securities which are not in default. Both Original Issue Insurance
and Secondary Market Insurance are non-cancelable and continue in force as
long as the insured security is outstanding and the applicable insurer
remains in business.
Minnesota Insured Intermediate Tax Free Fund may acquire securities that are
already covered by Original Issue Insurance or Secondary Market Insurance
without having to acquire additional insurance thereon, provided that the
claims paying ability of the insurer is rated AAA or SP-1 by Standard &
Poor's or Aaa or MIG-1 by Moody's or has been assigned an equivalent rating
by another nationally recognized statistical rating organization. One of the
purposes of these kinds of insurance is to enable the securities covered
thereby to be sold as AAA or Aaa rated insured securities at a market price
higher than might be obtained if the securities were not insured. Therefore,
these kinds of insurance may be considered to represent an element of the
market value of the securities insured. However, the exact effect, if any,
on market value cannot be estimated.
Secondary Market Insurance may be purchased by Minnesota Insured
Intermediate Tax Free Fund if, in the opinion of the Fund's investment
manager, the market value or net proceeds of a sale of the covered security
by the Fund would exceed the current value of the security without
insurance, plus the cost of the insurance. When the Fund purchases Secondary
Market Insurance, the single premium is added to the cost basis of the
security and is not considered an item of expense of the Fund. Any excess of
a security's market value as an AAA or Aaa rated security over its market
value without the insurance, including the single premium cost thereof,
would inure to the Fund in determining the net capital gain or loss realized
by the Fund upon the sale of the security.
The investment policy of this Fund requiring insurance on investments
applies only to tax-exempt obligations held by the Fund and will not affect
the Fund's ability to hold its assets in cash or to invest in escrow secured
and defeased bonds or in certain short-term tax-exempt obligations as
described elsewhere herein, or its ability to invest in uninsured taxable
obligations for temporary or liquidity purposes or on a defensive basis in
accordance with the investment policies and restrictions of the Fund.
Minnesota Insured Intermediate Tax Free Fund is authorized to obtain
Portfolio Insurance from insurers that have obtained a claims-paying ability
rating of AAA or SP-1 from Standard & Poor's or Aaa or MIG-1 from Moody's or
an equivalent rating from another nationally recognized statistical rating
organization. Such insurers may include AMBAC Indemnity Corporation
("AMBAC"), Municipal Bond Investors Assurance Corp. ("MBIA"), Financial
Guaranty Insurance Company ("FGIC"), Financial Security Assurance, Inc.
("FSA"), or other companies meeting these criteria. For more information
concerning Portfolio Insurance, see the Statement of Additional Information.
TEMPORARY TAXABLE INVESTMENTS
Each of the Funds may make temporary taxable investments as described under
"Investment Objectives and Policies." Temporary taxable investments will
include only the following types of obligations maturing within 13 months
from the date of purchase: (i) obligations of the United States Government,
its agencies and instrumentalities; (ii) commercial paper rated not less
than A-1 by Standard & Poor's or P-1 by Moody's or which has been assigned
an equivalent rating by another nationally recognized statistical rating
organization; (iii) other short-term debt securities issued or guaranteed by
corporations having outstanding debt rated not less than BBB by Standard &
Poor's or Baa by Moody's or which have been assigned an equivalent rating by
another nationally recognized statistical rating organization; (iv)
certificates of deposit of domestic commercial banks subject to regulation
by the United States Government or any of its agencies or instrumentalities,
with assets of $500 million or more based on the most recent published
reports; and (v) repurchase agreements with domestic banks or securities
dealers involving any of the securities which the Fund is permitted to hold.
See "-- Repurchase Agreements" below.
REPURCHASE AGREEMENTS
The temporary taxable investments which each Fund may make include
repurchase agreements. A repurchase agreement involves the purchase by a
Fund of securities with the agreement that after a stated period of time,
the original seller will buy back the same securities ("collateral") at a
predetermined price or yield. Repurchase agreements involve certain risks
not associated with direct investments in securities. If the original seller
defaults on its obligation to repurchase as a result of its bankruptcy or
otherwise, the purchasing Fund will seek to sell the collateral, which could
involve costs or delays. Although collateral (which may consist of any fixed
income security which is an eligible investment for the Fund entering into
the repurchase agreement) will at all times be maintained in an amount equal
to the repurchase price under the agreement (including accrued interest), a
Fund would suffer a loss if the proceeds from the sale of the collateral
were less than the agreed-upon repurchase price. The Adviser will monitor
the creditworthiness of the firms with which the Funds enter into repurchase
agreements.
INVERSE FLOATING RATE OBLIGATIONS
Each of the Funds may invest up to 5% of its net assets in inverse floating
rate municipal obligations. An inverse floating rate obligation entitles the
holder to receive interest at a rate which changes in the opposite direction
from, and in the same magnitude as or in a multiple of, changes in a
specified index rate. Although an inverse floating rate municipal obligation
would tend to increase portfolio income during a period of generally
decreasing market interest rates, its income and value would tend to decline
during a period of generally increasing market interest rates. In addition,
its decline in value may be greater than for a fixed-rate municipal
obligation, particularly if the interest rate borne by the floating rate
municipal obligation is adjusted by a multiple of changes in the specified
index rate. For these reasons, inverse floating rate municipal obligations
have more risk than more conventional fixed-rate and floating rate municipal
obligations.
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
Each of the Funds may purchase securities on a when-issued or
delayed-delivery basis. When such a transaction is negotiated, the purchase
price is fixed at the time the purchase commitment is entered, but delivery
of and payment for the securities take place at a later date. A Fund will
not accrue income with respect to securities purchased on a when-issued or
delayed-delivery basis prior to their stated delivery date. Pending delivery
of the securities, each Fund will maintain in a segregated account cash or
liquid high-grade securities in an amount sufficient to meet its purchase
commitments.
The purchase of securities on a when-issued or delayed-delivery basis
exposes a Fund to risk because the securities may decrease in value prior to
delivery. In addition, a Fund's purchase of securities on a when-issued or
delayed-delivery basis while remaining substantially fully invested could
increase the amount of the Fund's total assets that are subject to market
risk, resulting in increased sensitivity of net asset value to changes in
market prices. However, the Funds will engage in when-issued and
delayed-delivery transactions only for the purpose of acquiring portfolio
securities consistent with their investment objectives, and not for the
purpose of investment leverage. A seller's failure to deliver securities to
a Fund could prevent the Fund from realizing a price or yield considered to
be advantageous.
LENDING OF PORTFOLIO SECURITIES
In order to generate additional income, each of the Funds may lend portfolio
securities representing up to one-third of the value of its total assets to
broker-dealers, banks or other institutional borrowers of securities. If the
Funds engage in securities lending, distributions paid to shareholders from
the resulting income will not be excludable from shareholders' gross income
for income tax purposes. As with other extensions of credit, there may be
risks of delay in recovery of the securities or even loss of rights in the
collateral should the borrower of the securities fail financially. However,
the Funds will only enter into loan arrangements with broker-dealers, banks,
or other institutions which the Adviser has determined are creditworthy
under guidelines established by the Board of Directors. In these loan
arrangements, the Funds will receive collateral in the form of cash, United
States Government securities or other high-grade debt obligations equal to
at least 100% of the value of the securities loaned. Collateral is marked to
market daily. The Funds will pay a portion of the income earned on the
lending transaction to the placing broker and may pay administrative and
custodial fees (including fees to an affiliate of the Adviser) in connection
with these loans.
OPTIONS TRANSACTIONS
Each of the Funds may, in order to reduce risk, invest in exchange traded
put and call options on interest rate futures contracts and on interest rate
indices. Such investments will be made solely as a hedge against adverse
changes resulting from market conditions in the values of securities held by
the Funds or which they intend to purchase and where the transactions are
deemed appropriate to reduce risks inherent in the Funds' portfolios or
contemplated investments.
None of the Funds will invest more than 5% of the value of its total assets
in purchased options, provided that options which are "in the money" at the
time of purchase may be excluded from this 5% limitation. A call option is
"in the money" if the exercise price is lower than the current market price
of the underlying contract or index, and a put option is "in the money" if
the exercise price is higher than the current market price. A Fund's loss
exposure in purchasing an option is limited to the sum of the premium paid
(purchase price of the option) and the commission or other transaction
expenses associated with acquiring the option.
An interest rate futures contract provides for the future sale by one party
and purchase by the other party of a certain amount of a specific financial
instrument (debt security) at a specified price, date, time and place. An
option on an interest rate futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for
the premium paid, to purchase (in the case of a call option) or sell (in the
case of a put option) an interest rate futures contract at a specified
exercise price at any time prior to the expiration date of the option. In
order to hedge its portfolio against anticipated changes in interest rates,
a Fund might purchase a put option on an interest rate futures contract if
interest rates were expected to rise, or might purchase a call option on an
interest rate futures contract if rates were expected to decline.
Options on interest rate indices are similar to options on interest rate
futures contracts except that, rather than the right to take or make
delivery of a specific financial instrument at a specified price, an option
on an interest rate index gives the holder the right to receive, upon
exercise of the option, a defined amount of cash if the closing value of the
interest rate index upon which the option is based is greater than, in the
case of a call, or less than, in the case of a put, the exercise price of
the option. Put and call options on interest rate indices thus may be used
in a fashion similar to that of options on interest rate futures contracts
to hedge the value of a portfolio of debt securities against anticipated
changes in interest rates.
The use of options on interest rate futures contracts and on interest rate
indices involves certain risks. These include the risk that changes in
interest rates on the hedged instruments may not correlate to changes in
interest rates on the instrument or index upon which the hedge is based, and
the risk of limited liquidity in the event that a Fund seeks to close out an
options position before expiration by entering into an offsetting
transaction.
PORTFOLIO TRANSACTIONS
Portfolio transactions in the over-the-counter market will be effected with
market makers or issuers, unless better overall price and execution are
available through a brokerage transaction. It is anticipated that most
portfolio transactions involving debt securities will be executed on a
principal basis. Also, with respect to the placement of portfolio
transactions with securities firms, subject to the overall policy to seek to
place portfolio transactions as efficiently as possible and at the best
price, research services and placement of orders by securities firms for a
Fund's shares may be taken into account as a factor in placing portfolio
transactions for the Fund.
PORTFOLIO TURNOVER
Although the Funds do not intend generally to trade for short-term profits,
they may dispose of a security without regard to the time it has been held
when such action appears advisable to the Adviser. The portfolio turnover
rate for a Fund may vary from year to year and may be affected by cash
requirements for redemptions of shares. High portfolio turnover rates
generally would result in higher transaction costs and could result in
additional tax consequences to a Fund's shareholders.
INVESTMENT RESTRICTIONS
The fundamental and nonfundamental investment restrictions of the Funds are
set forth in full in the Statement of Additional Information. The
fundamental restrictions include the following:
* None of the Funds will borrow money, except from banks for temporary or
emergency purposes. The amount of such borrowing may not exceed 10% of
the borrowing Fund's total assets. None of the Funds will borrow money
for leverage purposes. For the purpose of this investment restriction,
the use of options and futures transactions and the purchase of
securities on a when-issued or delayed-delivery basis shall not be
deemed the borrowing of money. If a Fund engages in borrowing, its share
price may be subject to greater fluctuation, and the interest expense
associated with the borrowing may reduce the Fund's net income.
* None of the Funds will mortgage, pledge or hypothecate its assets,
except in an amount not exceeding 15% of the value of its total assets
to secure temporary or emergency borrowing.
* None of the Funds will make short sales of securities.
* None of the Funds will purchase any securities on margin except to
obtain such short-term credits as may be necessary for the clearance of
transactions.
* Intermediate Tax Free Fund will not invest 25% or more of the value of
its total assets in obligations of issuers located in the same state
(for this purpose, the location of an "issuer" shall be deemed to be the
location of the entity the revenues of which are the primary source of
payment or the location of the project or facility which may be the
subject of the obligation). None of the Funds will invest 25% or more of
the value of its total assets in revenue bonds or notes, payment for
which comes from revenues from any one type of activity (for this
purpose, the term "type of activity" shall include without limitation
(i) sewage treatment and disposal; (ii) gas provision; (iii) electric
power provision; (iv) water provision; (v) mass transportation systems;
(vi) housing; (vii) hospitals; (viii) nursing homes; (ix) street
development and repair; (x) toll roads; (xi) airport facilities; and
(xii) educational facilities), except that, in circumstances in which
other appropriate available investments may be in limited supply, such
Funds may invest without limitation in gas provision, electric power
provision, water provision, housing and hospital obligations. This
restriction does not apply to general obligation bonds or notes or, in
the case of Intermediate Tax Free Fund, to pollution control revenue
bonds. However, in the case of the latter Fund, it is anticipated that
normally (unless there are unusually favorable interest and market
factors) less than 25% of such Fund's total assets will be invested in
pollution control bonds. This restriction does not apply to securities
of the United States Government or its agencies and instrumentalities or
repurchase agreements relating thereto.
A fundamental policy or restriction, including those stated above, cannot be
changed without an affirmative vote of the holders of a "majority" of the
outstanding shares of the applicable Fund, as defined in the 1940 Act.
As a nonfundamental policy, none of the Funds will invest more than 15% of
its net assets in all forms of illiquid investments, as determined pursuant
to applicable Securities and Exchange Commission rules and interpretations.
Section 4(2) commercial paper and Rule 144A securities may be determined to
be "liquid" under guidelines adopted by the Board of Directors. Investing in
Rule 144A securities could have the effect of increasing the level of
illiquidity in a Fund to the extent that qualified institutional buyers
become, for a time, uninterested in purchasing these securities.
FIRST AMERICAN INVESTMENT FUNDS, INC.
Oaks, Pennsylvania 19456
INVESTMENT ADVISER
FIRST BANK NATIONAL ASSOCIATION
601 Second Avenue South
Minneapolis, Minnesota 55402
CUSTODIAN
FIRST TRUST NATIONAL ASSOCIATION
180 East Fifth Street
St. Paul, Minnesota 55101
DISTRIBUTOR
SEI FINANCIAL SERVICES COMPANY
Oaks, Pennsylvania 19456
ADMINISTRATOR
SEI FINANCIAL MANAGEMENT
CORPORATION
Oaks, Pennsylvania 19456
TRANSFER AGENT
DST SYSTEMS, INC.
1004 Baltimore
Kansas City, Missouri 64105
INDEPENDENT AUDITORS
KPMG PEAT MARWICK LLP
90 South Seventh Street
Minneapolis, Minnesota 55402
COUNSEL
DORSEY & WHITNEY LLP
220 South Sixth Street
Minneapolis, Minnesota 55402
FAIF-1502(1/97)I
FIRST AMERICAN INVESTMENT FUNDS, INC.
STATEMENT OF ADDITIONAL INFORMATION
DATED JANUARY 31, 1997
STOCK FUND HEALTH SCIENCES FUND
EQUITY INDEX FUND REAL ESTATE SECURITIES FUND
BALANCED FUND INTERNATIONAL FUND
ASSET ALLOCATION FUND LIMITED TERM INCOME FUND
EQUITY INCOME FUND INTERMEDIATE TERM INCOME FUND
DIVERSIFIED GROWTH FUND FIXED INCOME FUND
EMERGING GROWTH FUND INTERMEDIATE GOVERNMENT BOND FUND
REGIONAL EQUITY FUND INTERMEDIATE TAX FREE FUND
SPECIAL EQUITY FUND MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
TECHNOLOGY FUND COLORADO INTERMEDIATE TAX FREE FUND
This Statement of Additional Information relates to the Class A, Class
B and Class C Shares of the funds named above (the "Funds"), each of which is a
series of First American Investment Funds, Inc. ("FAIF"). This Statement of
Additional Information is not a prospectus, but should be read in conjunction
with the Funds' current Prospectuses dated January 31, 1997. This Statement of
Additional Information is incorporated into the Funds' Prospectuses by
reference. To obtain copies of a Prospectus, write or call the Funds'
distributor SEI Financial Services Company, Oaks, Pennsylvania 19456, telephone:
(800) 637-2548. Please retain this Statement of Additional Information for
future reference.
TABLE OF CONTENTS
PAGE
----
GENERAL INFORMATION........................... 2
ADDITIONAL INFORMATION CONCERNING
FUND INVESTMENTS............................. 3
Short-Term Investments..................... 3
Repurchase Agreements...................... 3
When-Issued and Delayed-Delivery
Transactions............................ 3
Lending of Portfolio Securities............ 4
Options Transactions....................... 4
Futures and Options on Futures............. 5
Foreign Securities......................... 5
Foreign Currency Transactions.............. 6
Mortgage-Backed Securities................. 7
Debt Obligations Rated Less Than
Investment Grade........................ 8
U.S. Treasury Inflation-Protection
Securities.............................. 9
Special Factors Affecting Minnesota
Insured Intermediate Tax Free
Fund.................................... 10
Special Factors Affecting Colorado
Intermediate Tax Free Fund.............. 11
Insurance for Minnesota Insured
Intermediate Tax Free Fund.............. 14
CFTC Information........................... 15
INVESTMENT RESTRICTIONS....................... 16
DIRECTORS AND EXECUTIVE OFFICERS.............. 19
Directors.................................. 19
Executive Officers......................... 19
Compensation............................... 21
INVESTMENT ADVISORY AND OTHER
SERVICES.................................... 22
Investment Advisory Agreement.............. 22
Sub-Advisory Agreement for
International Fund...................... 23
Administration Agreement................... 24
Distributor and Distribution Plans......... 24
Custodian; Transfer Agent; Counsel;
Accountants............................. 26
PORTFOLIO TRANSACTIONS AND ALLOCATION
OF BROKERAGE............................... 27
CAPITAL STOCK................................. 30
NET ASSET VALUE AND PUBLIC OFFERING
PRICE...................................... 36
FUND PERFORMANCE.............................. 39
SEC Standardized Performance Figures....... 39
Non-Standard Distribution Rates............ 42
Certain Performance Comparisons............ 44
TAXATION...................................... 46
RATINGS....................................... 49
FINANCIAL STATEMENTS.......................... 53
GENERAL INFORMATION
First American Investment Funds, Inc. ("FAIF") was incorporated in the
State of Maryland on August 20, 1987 under the name "SECURAL Mutual Funds, Inc."
The Board of Directors and shareholders, at meetings held January 10, 1991, and
April 2, 1991, respectively, approved amendments to the Articles of
Incorporation providing that the name "SECURAL Mutual Funds, Inc." be changed to
"First American Investment Funds, Inc."
FAIF is organized as a series fund and currently issues its shares in
20 series. Each series of shares represents a separate investment portfolio with
its own investment objective and policies (in essence, a separate mutual fund).
The series of FAIF to which this Statement of Additional Information relates are
named on the cover hereof. These series are referred to in this Statement of
Additional Information as the "Funds."
Shareholders may purchase shares of each Fund through three separate
classes, Class A, Class B (except for the tax free Funds) and Class C, which
provide for variations in distribution costs, shareholder servicing fees, voting
rights and dividends. To the extent permitted by the Investment Company Act of
1940, the Funds may also provide for variations in other costs among the classes
although they have no present intention to do so. In addition, a sales load is
imposed on the sale of Class A and Class B Shares of the Funds. Except for
differences among the classes pertaining to distribution costs and shareholder
servicing fees, each share of each Fund represents an equal proportionate
interest in that Fund. Class A and Class B Shares sometimes are referred to
together as the "Retail Class Shares," and Class C Shares sometimes are referred
to as the "Institutional Class Shares."
FAIF has prepared and will provide Prospectuses relating to the Retail
Class Shares and Prospectuses relating to the Institutional Class Shares of the
Funds. These Prospectuses can be obtained by calling or writing SEI Financial
Services Company at the address and telephone number set forth on the cover of
this Statement of Additional Information. This Statement of Additional
Information relates both to the Retail Class Prospectuses and to the
Institutional Class Prospectuses for the Funds. It should be read in conjunction
with the applicable Prospectus.
The Articles of Incorporation and Bylaws of FAIF provide that meetings
of shareholders be held as determined by the Board of Directors and as required
by the 1940 Act. Maryland corporation law requires a meeting of shareholders to
be held upon the written request of shareholders holding 10% or more of the
voting shares of FAIF, with the cost of preparing and mailing the notice of such
meeting payable by the requesting shareholders. The 1940 Act requires a
shareholder vote for all amendments to fundamental investment policies and
restrictions, for approval of all investment advisory contracts and amendments
thereto, and for all amendments to Rule 12b-1 distribution plans.
ADDITIONAL INFORMATION CONCERNING FUND INVESTMENTS
The investment objectives, policies and restrictions of the Funds are
set forth in their respective Prospectuses. Additional information concerning
the investments which may be made by the Funds is set forth under this caption.
Additional information concerning the Funds' investment restrictions is set
forth below under the caption "Investment Restrictions."
SHORT-TERM INVESTMENTS
Most of the Funds can invest in a variety of short-term instruments
which are specified in the respective Prospectuses. Short-term investments and
repurchase agreements may be entered into on a joint basis by the Funds and
other funds advised by the Adviser to the extent permitted by Securities and
Exchange Commission exemptive order relief obtained by them. A brief description
of certain kinds of short-term instruments follows:
COMMERCIAL PAPER. Commercial paper consists of unsecured promissory
notes issued by corporations. Issues of commercial paper normally have
maturities of less than nine months and fixed rates of return. Subject to the
limitations described in the Prospectuses, the Funds may purchase commercial
paper consisting of issues rated at the time of purchase within the two highest
rating categories by Standard & Poor's Corporation ("Standard & Poor's") or
Moody's Investors Service, Inc. ("Moody's"), or which have been assigned an
equivalent rating by another nationally recognized statistical rating
organization. The Funds also may invest in commercial paper that is not rated
but that is determined by the Adviser to be of comparable quality to instruments
that are so rated. For a description of the rating categories of Standard &
Poor's and Moody's, see "Ratings" herein.
BANKERS ACCEPTANCES. Bankers acceptances are credit instruments
evidencing the obligation of a bank to pay a draft drawn on it by a customer.
These instruments reflect the obligation both of the bank and of the drawer to
pay the full amount of the instrument upon maturity.
VARIABLE AMOUNT MASTER DEMAND NOTES. Variable amount master demand
notes are unsecured demand notes that permit the indebtedness thereunder to vary
and provide for periodic adjustments in the interest rate according to the terms
of the instrument. Because master demand notes are direct lending arrangements
between a Fund and the issuer, they are not normally traded. Although there is
no secondary market in the notes, a Fund may demand payment of principal and
accrued interest at any time. While the notes are not typically rated by credit
rating agencies, issuers of variable amount master demand notes (which are
normally manufacturing, retail, financial, and other business concerns) must
satisfy the same criteria as set forth above for commercial paper. The Adviser
or Sub-Adviser will consider the earning power, cash flow, and other liquidity
ratios of the issuers of such notes and will continuously monitor their
financial status and ability to meet payment on demand.
REPURCHASE AGREEMENTS
The Funds may invest in repurchase agreements to the extent specified
in their respective Prospectuses. The Funds' custodian will hold the securities
underlying any repurchase agreement, or the securities will be part of the
Federal Reserve/Treasury Book Entry System. The market value of the collateral
underlying the repurchase agreement will be determined on each business day. If
at any time the market value of the collateral falls below the repurchase price
under the repurchase agreement (including any accrued interest), the appropriate
Fund will promptly receive additional collateral (so the total collateral is an
amount at least equal to the repurchase price plus accrued interest).
WHEN-ISSUED AND DELAYED-DELIVERY TRANSACTIONS
When a Fund agrees to purchase securities on a when-issued or
delayed-delivery basis, the Custodian will set aside cash or liquid securities
equal to the amount of the commitment in a separate account. Normally, the
Custodian will set aside securities to satisfy the purchase commitment, and in
that case, a Fund may be required subsequently to place additional assets in the
separate account in order to assure that the value of the account remains equal
to the amount of the Fund's commitments. It may be expected that a Fund's net
assets will fluctuate to a greater degree when it sets aside securities to cover
such purchase commitments than when it sets aside cash. In addition, because a
Fund will set aside cash or liquid securities to satisfy its purchase
commitments in the manner described above, its liquidity and the ability of the
Adviser to manage it might be affected in the event its commitments to purchase
when-issued or delayed-delivery securities ever exceeded 25% of the value of its
assets. Under normal market conditions, however, a Fund's commitments to
purchase when-issued or delayed-delivery securities will not exceed 25% of the
value of its assets.
LENDING OF PORTFOLIO SECURITIES
When a Fund lends portfolio securities, it must receive 100% collateral
as described in the Prospectuses. This collateral must be valued daily by the
Adviser or Sub-Adviser and, if the market value of the loaned securities
increases, the borrower must furnish additional collateral to the lending Fund.
During the time portfolio securities are on loan, the borrower pays the lending
Fund any dividends or interest paid on the securities. Loans are subject to
termination by the lending Fund or the borrower at any time. While a Fund does
not have the right to vote securities on loan, it would terminate the loan and
regain the right to vote if that were considered important with respect to the
investment.
First Trust National Association, the Funds' custodian and an affiliate
of their Adviser, may act as securities lending agent for the Funds and receive
separate compensation for such services, subject to compliance with conditions
contained in a Securities and Exchange Commission exemptive order permitting
First Trust to provide such services and receive such compensation.
OPTIONS TRANSACTIONS
OPTIONS ON SECURITIES. To the extent specified in the Prospectuses,
Funds may purchase put and call options on securities and may write covered call
options on securities which they own or have the right to acquire. A Fund may
purchase put options to hedge against a decline in the value of its portfolio.
By using put options in this way, a Fund would reduce any profit it might
otherwise have realized in the underlying security by the amount of the premium
paid for the put option and by transaction costs. In similar fashion, Fund may
purchase call options to hedge against an increase in the price of securities
that the Fund anticipates purchasing in the future. The premium paid for the
call option plus any transaction costs will reduce the benefit, if any, realized
by the Fund upon exercise of the option, and, unless the price of the underlying
security rises sufficiently, the option may expire unexercised.
The writer (seller) of a call option has no control over when the
underlying securities must be sold; the writer may be assigned an exercise
notice at any time prior to the termination of the option. If a call option is
exercised, the writer experiences a profit or loss from the sale of the
underlying security. The writer of a call option that wishes to terminate its
obligation may effect a "closing purchase transaction." This is accomplished by
buying an option on the same security as the option previously written. If a
Fund was unable to effect a closing purchase transaction in a secondary market,
it would not be able to sell the underlying security until the option expires or
it delivers the underlying security upon exercise.
OPTIONS ON STOCK INDICES. Options on stock indices are similar to
options on individual stocks except that, rather than the right to take or make
delivery of stock at a specified price, an option on a stock index gives the
holder the right to receive, upon exercise of the option, an amount of cash if
the closing value of the stock index upon which the option is based is greater
than, in the case of a call, or lesser than, in the case of a put, the exercise
price of the option. This amount of cash is equal to the difference between the
closing price of the index and the exercise price of the option expressed in
dollars times a specified multiple (the "multiplier"). The writer of the option
is obligated, in return for the premium received, to make delivery of this
amount. Unlike stock options, all settlements for stock index options are in
cash, and gain or loss depends on price movements in the stock market generally
(or in a particular industry or segment of the market) rather than price
movements in individual stocks. The multiplier for an index option performs a
function similar to the unit of trading for a stock option. It determines the
total dollar value per contract of each point in the difference between the
underlying stock index. A multiplier of 100 means that a one-point difference
will yield $100. Options on different stock indices may have different
multipliers.
OPTIONS ON INTEREST RATE INDICES. An option on an interest rate index
gives the holder the right to receive, upon exercise of the option, an amount of
cash if the closing value of the interest rate index upon which the option is
based is greater than, in the case of a call, or lesser than, in the case of a
put, the exercise price of the option. This amount of cash is equal to the
difference between the closing price of the index and the exercise price of the
option expressed in dollars times a specified multiple (the "multiplier"). The
writer of the option is obligated, for the premium received, to make delivery of
this amount. Unlike interest rate futures options contracts, settlements for
interest rate index options are always in cash. Gain or loss depends on price
movements in the interest rate movements with respect to specific financial
instruments. As with stock index options, the multiplier for interest rate index
options determines the total dollar value per contract of each point in the
difference between the exercise price of an option and the current value of the
underlying interest rate index. Options on different interest rate indices may
have different multipliers.
FUTURES AND OPTIONS ON FUTURES
As discussed in the Prospectuses, certain of the Funds may enter into
futures contracts and may purchase options on futures contracts of various
types. These investment techniques are designed primarily to hedge against
anticipated future changes in market conditions or foreign exchange rates which
otherwise might adversely affect the value of securities which a Fund holds or
intends to purchase. The types of futures and options on futures which
particular Funds may utilize are described in the applicable Prospectuses.
At the same time a futures contract is purchased or sold, a Fund
generally must allocate cash or securities as a deposit payment ("initial
deposit"). It is expected that the initial deposit would be approximately 1-1/2%
to 5% of a contract's face value. Daily thereafter, the futures contract is
valued and the payment of "variation margin" may be required, since each day the
Fund would provide or receive cash that reflects any decline or increase in the
contract's value. Futures transactions also involve brokerage costs and require
a Fund to segregate liquid assets, such as cash, United States Government
securities or other liquid high grade debt obligations, to cover its performance
under such contracts.
A Fund may lose the expected benefit of futures transactions if
interest rates, securities prices or foreign exchange rates move in an
unanticipated manner. Such unanticipated changes may also result in poorer
overall performance than if the Fund had not entered into any futures
transactions. In addition, the value of a Fund's futures positions may not prove
to be perfectly or even highly correlated with the value of its portfolio
securities and foreign currencies, limiting the Fund's ability to hedge
effectively against interest rate, foreign exchange rate and/or market risk and
giving rise to additional risks. Because of the low margin requirements in the
futures markets, they may be subject to market forces, including speculative
activity, which do not affect the cash markets. There also is no assurance of
liquidity in the secondary market for purposes of closing out futures positions.
FOREIGN SECURITIES
As described in the applicable Prospectuses, under normal market
conditions International Fund invests principally in foreign securities, and
certain other Funds may invest lesser proportions of their assets in securities
of foreign issuers which are either listed on a United States securities
exchange or represented by American Depositary Receipts.
Fixed commissions on foreign securities exchanges are generally higher
than negotiated commissions on United States exchanges. Foreign markets also
have different clearance and settlement procedures, and in some markets there
have been times when settlements have been unable to keep pace with the volume
of securities transactions, making it difficult to conduct such transactions.
Delays in settlement could result in temporary periods when a portion of the
assets of International Fund is uninvested. In addition, settlement problems
could cause International Fund to miss attractive investment opportunities or to
incur losses due to an inability to sell or deliver securities in a timely
fashion. In the event of a default by an issuer of foreign securities, it may be
more difficult for a Fund to obtain or to enforce a judgment against the issuer.
FOREIGN CURRENCY TRANSACTIONS
As described in the applicable Prospectuses, International Fund may
engage in a variety of foreign currency transactions in connection with its
investment activities. These include forward foreign currency exchange
contracts, foreign currency futures, and foreign currency options.
FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. A forward foreign currency
exchange contract involves an obligation to purchase or sell a specific currency
at a future date, which may be any fixed number of days from the date of the
contract agreed upon by the parties, at a price set at the time of the contract.
These contracts are traded directly between currency traders (usually large
commercial banks) and their customers. International Fund will not enter into
such forward contracts or maintain a net exposure in such contracts where the
Fund would be obligated to deliver an amount of foreign currency in excess of
the value of the Fund's securities or other assets denominated in that currency.
The Fund will comply with applicable Securities and Exchange Commission
announcements requiring it to segregate assets to cover the Fund's commitments
with respect to such contracts. At the present time, these announcements
generally require a fund with a long position in a forward foreign currency
contract to establish with its custodian a segregated account containing cash or
liquid high grade debt securities equal to the purchase price of the contract,
and require a fund with a short position in a forward foreign currency contract
to establish with its custodian a segregated account containing cash or liquid
high grade debt securities that, when added to any margin deposit, equal the
market value of the currency underlying the forward contract. These requirements
will not apply where a forward contract is used in connection with the
settlement of investment purchases or sales or where the position has been
"covered" by entering into an offsetting position. The Fund generally will not
enter into a forward contract with a term longer than one year.
FOREIGN CURRENCY FUTURES TRANSACTIONS. Unlike forward foreign currency
exchange contracts, foreign currency futures contracts and options on foreign
currency futures contracts are standardized as to amount and delivery period and
may be traded on boards of trade and commodities exchanges or directly with a
dealer which makes a market in such contracts and options. It is anticipated
that such contracts may provide greater liquidity and lower cost than forward
foreign currency exchange contracts. As part of its financial futures
transactions, International Fund may use foreign currency futures contracts and
options on such futures contracts. Through the purchase or sale of such
contracts, the Fund may be able to achieve many of the same objectives as
through forward foreign currency exchange contracts more effectively and
possibly at a lower cost.
FOREIGN CURRENCY OPTIONS. A foreign currency option provides the option
buyer with the right to buy or sell a stated amount of foreign currency at the
exercise price at a specified date or during the option period. A call option
gives its owner the right, but not the obligation, to buy the currency, while a
put option gives its owner the right, but not the obligation, to sell the
currency. The option seller (writer) is obligated to fulfill the terms of the
option sold if it is exercised. However, either seller or buyer may close its
position during the option period in the secondary market for such options at
any time prior to expiration.
A foreign currency call option rises in value if the underlying
currency appreciates. Conversely, a foreign currency put option rises in value
if the underlying currency depreciates. While purchasing a foreign currency
option may protect International Fund against an adverse movement in the value
of a foreign currency, it would not limit the gain which might result from a
favorable movement in the value of the currency. For example, if the Fund were
holding securities denominated in an appreciating foreign currency and had
purchased a foreign currency put to hedge against a decline in the value of the
currency, it would not have to exercise its put. In such an event, however, the
amount of the Fund's gain would be offset in part by the premium paid for the
option. Similarly, if the Fund entered into a contract to purchase a security
denominated in a foreign currency and purchased a foreign currency call to hedge
against a rise in the value of the currency between the date of purchase and the
settlement date, the Fund would not need to exercise its call if the currency
instead depreciated in value. In such a case, the Fund could acquire the amount
of foreign currency needed for settlement in the spot market at a lower price
than the exercise price of the option.
MORTGAGE-BACKED SECURITIES
As described in the applicable Prospectuses, Limited Term Income Fund,
Intermediate Term Income Fund, Fixed Income Fund and Balanced Fund also invest
in mortgage-backed securities. Each of these Funds will invest only in
mortgage-backed securities which are Agency Pass-Through Certificates or
collateralized mortgage obligations ("CMOs"), as defined and described in those
Prospectuses.
Agency Pass-Through Certificates are issued or guaranteed by the
Government National Mortgage Association ("GNMA"), the Federal National Mortgage
Association ("FNMA"), or the Federal Home Loan Mortgage Corporation ("FHLMC").
GNMA is a wholly-owned corporate instrumentality of the United States within the
Department of Housing and Urban Development. The guarantee of GNMA with respect
to GNMA certificates is backed by the full faith and credit of the United
States, and GNMA is authorized to borrow from the United States Treasury in an
amount which is at any time sufficient to enable GNMA, with no limitation as to
amount, to perform its guarantee.
FNMA is a federally chartered and privately owned corporation organized
and existing under federal law. Although the Secretary of the Treasury of the
United States has discretionary authority to lend funds to FNMA, neither the
United States nor any agency thereof is obligated to finance FNMA's operations
or to assist FBMA in any other manner.
FHLMC is a federally chartered corporation organized and existing under
federal law, the common stock of which is owned by the Federal Home Loan Banks.
Neither the United States nor any agency thereof is obligated to finance FNMA's
operations or to assist FBMA in any other manner.
The residential mortgage loans evidenced by Agency Pass-Through
Certificates and upon which CMOs are based generally are secured by first
mortgages on one- to four-family residential dwellings. Such mortgage loans
generally have final maturities ranging from 15 to 30 years and provide for
monthly payments in amounts sufficient to amortize their original principal
amounts by the maturity dates. Thus, each monthly payment on such mortgage loans
generally includes both an interest component and a principal component, so that
the holder of the mortgage loans receives both interest and a partial return of
principal in each monthly payment. In general, such mortgage loans can be
prepaid by the borrowers at any time without any prepayment penalty. In
addition, many such mortgage loans contain a "due-on-sale" clause requiring the
loans to be repaid in full upon the sale of the property securing the loans.
Because residential mortgage loans generally provide for monthly amortization
and may be prepaid in full at any time, the weighted average maturity of a pool
of residential mortgage loans is likely to be substantially shorter than its
stated final maturity date. The rate at which a pool of residential mortgage
loans is prepaid may be influenced by many factors and is not predictable with
precisions.
As stated in the applicable Prospectuses, CMOs generally are issued in
multiple classes, with holders of each class entitled to receive specified
portions of the principal payments and prepayments and/or of the interest
payments on the underlying mortgage loans. These entitlements can be specified
in a wide variety of ways, so that the payment characteristics of various
classes may differ greatly from one another. For example:
* In a sequential-pay CMO structure, one class is entitled to receive all
principal payments and prepayments on the underlying mortgage loans
(and interest on unpaid principal) until the principal of the class is
repaid in full, while the remaining classes receive only interest; when
the first class is repaid in full, a second class becomes entitled to
receive all principal payments and prepayments on the underlying
mortgage loans until the class is repaid in full, and so forth.
* A planned amortization class ("PAC") of CMOs is entitled to receive
principal on a stated schedule to the extent that it is available from
the underlying mortgage loans, thus providing a greater (but not
absolute) degree of certainty as to the schedule upon which principal
will be repaid.
* An accrual class of CMOs provides for interest to accrue and be added
to principal (but not be paid currently) until specified payments have
been made on prior classes, at which time the principal of the accrual
class (including the accrued interest which was added to principal) and
interest thereon begins to be paid from payments on the underlying
mortgage loans.
* As discussed above with respect to Agency Pass-Through Certificates, an
interest-only class of CMOs entitles the holder to receive all of the
interest and none of the principal on the underlying mortgage loans,
while a principal-only class of CMOs entitles the holder to receive all
of the principal payments and prepayments and none of the interest on
the underlying mortgage loans.
* A floating rate class of CMOs entitles the holder to receive interest
at a rate which changes in the same direction and magnitude as changes
in a specified index rate. An inverse floating rate class of CMOs
entitles the holder to receive interest at a rate which changes in the
opposite direction from, and in the same magnitude as or in a multiple
of, changes in a specified index rate. Floating rate and inverse
floating rate classes also may be subject to "caps" and "floors" on
adjustments to the interest rates which they bear.
* A subordinated class of CMOs is subordinated in right of payment to one
or more other classes. Such a subordinated class provides some or all
of the credit support for the classes that are senior to it by
absorbing losses on the underlying mortgage loans before the senior
classes absorb any losses. A subordinated class which is subordinated
to one or more classes but senior to one or more other classes is
sometimes referred to as a "mezzanine" class. A subordinated class
generally carries a lower rating than the classes that are senior to
it, but may still carry an investment grade rating.
DEBT OBLIGATIONS RATED LESS THAN INVESTMENT GRADE
As described in the applicable Prospectuses, the "equity securities" in
which certain Funds may invest include corporate debt obligations which are
convertible into common stock. These convertible debt obligations may include
obligations rated as low as CCC by Standard & Poor's or Caa by Moody's or which
have been assigned an equivalent rating by another nationally recognized
statistical rating organization. Debt obligations rated BB, B or CCC by Standard
& Poor's or Ba, B or Caa by Moody's are considered to be less than "investment
grade" and are sometimes referred to as "junk bonds." The limitations on
investments by these Funds in less than investment grade convertible debt
obligations are set forth in the applicable Prospectuses.
Purchases of less than investment grade corporate debt obligations
generally involve greater risks than purchases of higher rated obligations. Less
than investment grade debt obligations are especially subject to adverse changes
in general economic conditions and to changes in the financial condition of
their issuers. During periods of economic downturn or rising interest rates,
issuers of such obligations may experience financial stress that could adversely
affect their ability to make payments of principal and interest and increase the
possibility of default.
Yields on less than investment grade debt obligations will fluctuate
over time. The prices of such obligations have been found to be less sensitive
to interest rate changes than higher rated obligations, but more sensitive to
adverse economic changes or individual corporate developments. Also, during an
economic downturn or period of rising interest rates, highly leveraged issuers
may experience financial stress which could adversely affect their ability to
service principal and interest payment obligations, to meet projected business
goals, and to obtain additional financing. In addition, periods of economic
uncertainty and changes can be expected to result in increased volatility of
market prices of less than investment grade debt obligations.
In addition, the secondary trading market for less than investment
grade debt obligations may be less developed than the market for investment
grade obligations. This may make it more difficult for Equity Income Fund to
value and dispose of such obligations. Adverse publicity and investor
perceptions, whether or not based on fundamental analysis, may decrease the
values and liquidity of less than investment grade obligations, especially in a
thin secondary trading market.
Certain risks also are associated with the use of credit ratings as a
method for evaluating less than investment grade debt obligations. For example,
credit ratings evaluate the safety of principal and interest payments, not the
market value risk of such obligations. In addition, credit rating agencies may
not timely change credit ratings to reflect current events. Thus, the success of
a Fund's use of less than investment grade convertible debt obligations may be
more dependent on the Adviser's own credit analysis than is the case with
investment grade obligations.
U.S. TREASURY INFLATION-PROTECTION SECURITIES
Intermediate Government Bond Fund and, to the extent they may invest in
fixed-income securities, the other Funds, may invest in U.S. Treasury
inflation-protection securities, which are a new type of marketable book-entry
security issued by the United States Department of Treasury ("Treasury ") with a
nominal return linked to the inflation rate in prices. Inflation-protection
securities will be auctioned and issued on a quarterly basis beginning in 1997.
Initially, they will be issued as 10- year notes, with other maturities added
thereafter. The index used to measure inflation will be the non-seasonally
adjusted U.S. City Average All Items Consumer Price Index for All Urban
Consumers ("CPI-U").
The value of the principal will be adjusted for inflation, and every
six months the security will pay interest, which will be an amount equal to a
fixed percentage of the inflation-adjusted value of the principal. The final
payment of principal of the security will not be less than the original par
amount of the security at issuance.
The principal of the inflation-protection security will be indexed to
the non-seasonally adjusted CPI-U. To calculate the inflation-adjusted principal
value for a particular valuation date, the value of the principal at issuance is
multiplied by the index ratio applicable to that valuation date. The index ratio
for any date is the ratio of the reference CPI applicable to such date to the
reference CPI applicable to the original issue date. Semiannual coupon interest
is determined by multiplying the inflation-adjusted principal amount by one-half
of the stated rate of interest on each interest payment date.
Inflation-adjusted principal or the original par amount, whichever is
larger, will be paid on the maturity date as specified in the applicable
offering announcement. If at maturity the inflation-adjusted principal is less
than the original principal value of the security, an additional amount will be
paid at maturity so that the additional amount plus the inflation-adjusted
principal equals the original principal amount. Some inflation-protection
securities may be stripped into principal and interest components. In the case
of a stripped security, the holder of the stripped principal component would
receive this additional amount. The final interest payment, however, will be
based on the final inflation-adjusted principal value, not the original par
amount.
The reference CPI for the first day of any calendar month is the CPI-U
for the third preceding calendar month. (For example, the reference CPI for
December 1 is the CPI-U reported for September of the same year, which is
released in October.) The reference CPI for any other day of the month is
calculated by a linear interpolation between the reference CPI applicable to the
first day of the month and the reference CPI applicable to the first day of the
following month.
Any revisions the Bureau of Labor Statistics (or successor agency)
makes to any CPI-U number that has been previously released will not be used in
calculations of the value of outstanding inflation- protection securities. In
the case that the CPI-U for a particular month is not reported by the last day
of the following month, the Treasury will announce an index number based on the
last year-over-year CPI-U inflation rate available. Any calculations of the
Treasury's payment obligations on the inflation-protection security that need
that month's CPI-U number will be based on the index number that the Treasury
has announced. If the CPI-U is rebased to a different year, the Treasury will
continue to use the CPI-U series based on the base reference period in effect
when the security was first issued as long as that series continues to be
published. If the CPI-U is discontinued during the period the
inflation-protection security is outstanding, the Treasury will, in consultation
with the Bureau of Labor Statistics (or successor agency), determine an
appropriate substitute index and methodology for linking the discontinued series
with the new price index series. Determinations of the Secretary of the Treasury
in this regard are final.
Inflation-protection securities will be held and transferred in either
of two book-entry systems: the commercial book-entry system (TRADES) and
TREASURY DIRECT. The securities will be maintained and transferred at their
original par amount, i.e., not at their inflation-adjusted value. STRIPS
components will be maintained and transferred in TRADES at their value based on
the original par amount of the fully constituted security.
SPECIAL FACTORS AFFECTING MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
As described in the Prospectuses relating to Minnesota Insured
Intermediate Tax Free Fund, except during temporary defensive periods, this Fund
will invest most of its total assets in Minnesota municipal obligations. This
Fund therefore is susceptible to political, economic and regulatory factors
affecting issuers of Minnesota municipal obligations. The following information
provides only a brief summary of the complex factors affecting the financial
situation in Minnesota. This information is derived from sources that are
generally available to investors and is based in part on information obtained
from various state and local agencies in Minnesota. It should be noted that the
creditworthiness of obligations issued by local Minnesota issuers may be
unrelated to the creditworthiness of obligations issued by the State of
Minnesota, and that there is no obligation on the part of Minnesota to make
payment on such local obligations in the event of default.
MINNESOTA FISCAL CONDITION. Minnesota's constitutionally prescribed
fiscal period is a biennium, and Minnesota operates on a biennial budget basis.
Legislative appropriations for each biennium are prepared and adopted during the
final legislative session of the immediately preceding biennium. Prior to each
fiscal year of a biennium, Minnesota's Department of Finance allots a portion of
the applicable biennial appropriation to each agency or other entity for which
an appropriation has been made. An agency or other entity may not expend moneys
in excess of its allotment. If revenues are insufficient to balance total
available resources and expenditures, Minnesota's Commissioner of Finance, with
the approval of the Governor, is required to reduce allotments to the extent
necessary to balance expenditures and forecasted available resources for the
then current biennium. The Governor may prefer legislative action when a large
reduction in expenditures appears necessary, and if Minnesota's legislature is
not in session the Governor is empowered to convene a special session.
Frequently in recent years, legislation has been required to eliminate
projected budget deficits by raising additional revenue, reducing expenditures,
including aids to political subdivisions and higher education, reducing the
State's budget reserve, imposing a sales tax on purchases by local governmental
units, and making other budgetary adjustments. The Minnesota Department of
Finance November 1996 Forecast projects that, under current law, the State will
complete its current biennium June 30, 1997 with a $522 million surplus, plus a
$350 million cash flow account balance, a $261 million budget reserve, and $186
million in other dedicated accounts. Total General Fund expenditures and
transfers for the biennium are projected to be $18.8 billion. The Forecast for
the biennium ending June 30, 1999 shows a General Fund surplus of $1.4 billion,
after funding a $350 million cash flow account, a $261 million budget reserve,
and $186 million in other dedicated cash flows, if current law is not changes.
Under current law spending caps, State expenditures for education finance
(K-12), human services, and corrections in the biennium ending June 30, 1999 may
not be sufficient to maintain program levels of the previous biennium. The State
is party to a variety of civil actions that could adversely affect the State's
General Fund. In addition, substantial portions of State and local revenues are
derived from federal expenditures, and reductions in federal aid to the State
and its political subdivisions and other federal spending cuts may have
substantial adverse effects on the economic and fiscal condition of the State
and its local governmental units. Risks are inherent in making revenue and
expenditure forecasts. Economic or fiscal conditions less favorable than those
reflected in State budget forecasts and planning estimates may create additional
budgetary pressures.
State grants and aids represent a large percentage of the total
revenues of cities, towns, counties and school districts in Minnesota. Even with
respect to bonds that are revenue obligations of the issuer and not general
obligations of Minnesota, there can be no assurance that the fiscal problems
referred to above will not adversely affect the market value or marketability of
the bonds or the ability of the respective obligors to pay interest on and
principal of the bonds.
MINNESOTA ECONOMY. Minnesota relies heavily on a progressive individual
income tax and a retail sales tax for revenue, which results in a fiscal system
unusually sensitive to economic conditions. In 1993, the structure of
Minnesota's economy closely paralleled the structure of the United States
economy as a whole. State employment in ten major sectors was distributed in
approximately the same proportions as national employment.
During the period from 1980 to 1990, overall employment growth in
Minnesota lagged behind national employment growth, in large part due to
declining agricultural employment. The rate of non- farm employment growth in
Minnesota exceeded the rate of national growth, however, in the period of 1990
to 1995, although Minnesota's rate of employment growth has slowed significantly
since mid-1995. Since 1980, Minnesota per capita income generally has remained
above the national average. During 1994, 1995, and 1996, the State's monthly
unemployment rate has been less than the national unemployment rate.
There can be no assurance that Minnesota's economy and fiscal condition
will not materially change in the future or that future difficulties will not
occur. Economic difficulties and the resultant impact on state and local
government finances may adversely affect the market value of obligations in the
portfolio of Minnesota Insured Intermediate Tax Free Fund or the ability of
respective obligors to make timely payment of the principal and interest on such
obligations.
SPECIAL FACTORS AFFECTING COLORADO INTERMEDIATE TAX FREE FUND
As described in the Prospectuses relating to Colorado Intermediate Tax
Free Fund, except during temporary defensive periods, this Fund will invest most
of its total assets in Colorado municipal obligations. Colorado Intermediate Tax
Free Fund therefore is susceptible to political, economic and regulatory factors
affecting issuers of Colorado municipal obligations. The following information
provides only a brief summary of the complex factors affecting the financial
situation in Colorado. This information is derived from sources that are
generally available to investors and is based in part on information obtained
from various state and local agencies in Colorado. It should be noted that the
creditworthiness of obligations issued by local Colorado issuers may be
unrelated to the creditworthiness of obligations issued by the State of
Colorado, and that there is no obligation on the part of the State of Colorado
to make payment on such local obligations in the event of default.
COLORADO FISCAL CONDITION. The Colorado Constitution allocates to the
General Assembly legislative responsibility for appropriating State moneys to
pay the expenses of State government. The fiscal year of the State is the
12-month period commencing July 1 and ending June 30. During the fiscal year for
which appropriations have been made, the General Assembly may increase or
decrease appropriations through supplementary appropriations.
State general fund tax collections for fiscal year 1995-96 increased
6.8% over fiscal year 1994-95 to reach $4,268.7 million. The current estimate
for fiscal year 1996-97 is $4,546.6 million, or an increase of 6.5%. State cash
funds, which consist of a variety of program revenues, totalled $1,893.5 million
for fiscal year 1995-96, and are projected to increase 3.8% for fiscal year
1996-97 to $1,971.6 million.
The State Constitution requires that expenditures for any fiscal year
not exceed revenues for such fiscal year. In addition, Article X, Section 20, of
the State Constitution (see "-- State Constitutional Amendment" below) limits
increases in expenditures of state general funds and cash revenues from year to
year to the sum of State inflation plus the percentage change in population
(adjusted for revenue changes approved by voters). Expenditures in fiscal year
1996-97 are limited to an increase of no more than 6.6% over 1995-96
expenditures. The 6.6% increase factor is equal to the sum of 1995 inflation of
4.3% and population growth of 2.3%. Based upon total general fund tax
collections and state cash revenues for fiscal year 1994-95 of $6,124.3 million,
expenditures for 1996-97 will be limited to $6,528.5 million.
STATE CONSTITUTIONAL AMENDMENT. Section 20, Article X of the Colorado
Constitution ("Amendment One") contains limitations on the ability of
"Districts," which are defined as Colorado State and local governments, to
increase taxes and issue debt obligations, as well as limitations on spending
and revenue generation. The amendment does not apply to "Enterprises," which are
defined as government-owned businesses that are authorized to issue their own
revenue bonds and that receive under 10% of annual revenues in grants from all
state and local governments combined.
Amendment One limits the ability of Districts to increase taxes by
providing that advance voter approval is required for "any new tax, tax rate
increase, mill levy above that for the prior year, valuation for assessment
ratio increase for a property class, or extension of an expiring tax, or a tax
policy change directly causing a net tax revenue gain to any district." An
additional limitation is placed on the maximum annual percentage increase in
property tax revenue.
Amendment One also imposes limitations on government borrowing. The
amendment provides that Districts must have advance voter approval for the
"creation of any multiple-fiscal year direct or indirect district debt or other
financial obligation whatsoever without adequate present cash reserves pledged
irrevocably and held for payments in all future fiscal years," except for
refinancing District bonded debt at a lower interest rate or adding new
employees to existing District pension plans. Prior to the adoption of Amendment
One, voter approval was generally required only for the creation of general
obligation debt.
Spending limitations applicable to the State and separately to local
governments are also included in Amendment One. The amendment provides that the
maximum annual percentage change in each local District's Fiscal Year Spending
shall equal inflation in the prior calendar year plus annual local growth,
adjusted for revenue changes approved by voters after 1991 and certain other
allowed adjustments. "Fiscal Year Spending" is defined as all District
expenditures and reserve increases except refunds made in the current or next
fiscal year, gifts, federal funds, collections for another government, pension
contributions by employees and pension fund earnings, reserve transfers or
expenditures, damage awards and property sales. If revenue from sources not
excluded from Fiscal Year Spending exceeds the spending limit for a fiscal year,
Amendment One provides that the excess must be refunded to taxpayers in the next
fiscal year unless voters approve a revenue change as an offset.
Elections required under Amendment One are limited to the State general
election (the first Tuesday after the first Monday in November in even numbered
years), an election held on the first Tuesday in November in odd numbered years,
or the regular biennial election of the local government.
While it is too early to determine what impacts Amendment One will
ultimately have on the financial operations of Colorado state and local
governments, these constraints on budgetary and debt management flexibility may
create credit concerns. Furthermore, the language of Amendment One is not clear
as to certain matters, including (a) whether property tax rates can be increased
without voter approval to support outstanding or refunding general obligation
bonds, (b) whether new lease rental bonds and certificates of participation
constitute multiple-year financial obligations within the context of the
amendment, and (c) the precise definition of exempt Enterprises. A number of
Colorado courts have rendered decisions regarding various provisions of
Amendment One since its passage. However, there are still many uncertainties as
to the appropriate construction of certain provisions of Amendment One. In view
of the fact that no appellate court has ruled on Amendment One comprehensively,
there can still be no assurance as to the appropriate construction of certain
provisions of Amendment One.
COLORADO ECONOMY. Since 1960, the Colorado economy has moved generally
with the cycles of the national economy, while experiencing greater growth than
the national economy during upturns and more gradual declines during downturns.
During this period, structural changes have transformed both the United States
and the State economies. At the national level, the number of basic industry
jobs (mining, manufacturing and construction) declined substantially as a
percentage of the total private industry work force -- 44.6% in 1960 to 20.7% in
1994, while at the State level, the number of basic industry jobs declined from
26.5% in 1960 to 17.3% in 1994. The difference in the rate of decline can be
attributed to the State's industrial mix, which excludes many industries such as
automobile, steel and textile manufacturing that experienced the steepest
national declines.
The sustained economic growth Colorado achieved during the 1960s and
1970s was curtailed by the national recession in 1974 and 1975, reflecting the
State's general movement with the United States' economy. The recession produced
marked declines in employment and income growth in the State, although at rates
lower than the national economy.
The Colorado economy rebounded strongly in the late 1970s. As a result
of energy price increases in 1979 and 1980, job expansion in oil and mineral
extraction industries accelerated. Expansion in the oil industry resulted in
growth in related services and employment which stimulated, in part, substantial
increases in nonresidential construction in the Denver metropolitan area.
During the second half of 1985, the performance of Colorado's economy
was adversely affected primarily because three sectors of the local economy
suffered setbacks at the same time. First, the energy sector contracted during
each of the preceding five years due, in part, to price decreases of imported
oil resulting in less domestic oil production. Domestic exploration, and, in
some cases, production, had become unprofitable. This trend was reflected in
cutbacks in both oil and gas and mineral extraction industry employment. Second,
a major high technology manufacturer (Storage Technology Corporation) laid off
nearly 5,000 workers during 1984 and 1985. The high-technology industry
generally declined due to overexpansion which produced keen price competition.
Third, after years of healthy growth, excess supply in both residential and
nonresidential construction sectors decreased employment in the construction
sector. In the nonresidential sector, this over-building occurred partially as a
result of the downturn in oil industry employment, which reduced demand for
office space. In the residential sector, the excess supply of housing resulted
from a sharp reduction in in-migration and over-building.
The Colorado economy began to recover and showed positive signs of
growth in 1987, which became more evident in the following years. More recently,
the national recession and the restructuring of the defense industry have
affected the State economy. However, at the end of 1993, the State economy
appeared somewhat healthier than the national economy, based on a number of
economic indicators. During 1995, 83,000 new non-agricultural wage and salary
jobs were added to the state's economy, representing a state job growth rate of
4.7%, compared to a 2.3% job growth rate nationally during this same period of
time. Colorado's job growth is projected at 3.4% during 1996. Colorado's
unemployment rate remained at 4.2% during 1994 and 1995, and is expected to drop
to 3.4% in 1996. Colorado's 1995 unemployment rate was below the national
unemployment rate of 5.6% during the same time period.
Total personal income in Colorado during 1996 is projected to reach
$94.1 billion, an increase of 7.1% compared to 1995. During 1995, total United
States personal income was estimated to have increased 6.1%. Preliminary
estimates for Colorado personal income predict an annual growth rate of 6.7% for
1997.
Total population in Colorado increased by 85,400 during 1995, resulting
in a growth rate of 2.3%. The preliminary estimate for total population increase
for 1996 is 69,500 or 1.9%.
INSURANCE FOR MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Minnesota Insured Fund is authorized to obtain Portfolio Insurance from
insurers that have obtained a claims-paying ability of "AAA" (or a short-term
rating of "SP-1") from Standard & Poor's or "Aaa" (or a short-term rating of
"MIG-1") from Moody's or an equivalent rating from another nationally recognized
statistical rating organization. Such insurers may include AMBAC Indemnity
Corporation ("AMBAC"), Municipal Bond Investors Assurance Corp. ("MBIA"),
Financial Guaranty Insurance Company ("FGIC"), Financial Security Assurance,
Inc. ("FSA"), or other companies meeting the foregoing criteria.
Any Portfolio Insurance policy obtained by Minnesota Insured Fund would
be effective only so long as Minnesota Insured Fund is in existence, the insurer
is still in business and the municipal obligations described in the policy
continue to be held by Minnesota Insured Fund. In the event of a sale of any
municipal obligation by Minnesota Insured Fund or payment thereof prior to
maturity, a Portfolio Insurance policy would terminate as to such municipal
obligation on the settlement date of the sale or the redemption date.
Under a Portfolio Insurance policy, the insurer would unconditionally
guarantee to Minnesota Insured Fund the timely payment of principal and interest
on the municipal obligations as such payments become due but are not paid by the
issuer, except that in the event of any acceleration of the due date of the
principal by reason of mandatory or optional redemption or acceleration
resulting from default or otherwise, other than any advancement of maturity
pursuant to a mandatory sinking fund payment, the payments guaranteed will be
made in such amounts and at such times as payments of principal would have been
due and there had not been any such acceleration. Such a policy would not insure
against loss of any prepayment premium that may at any time be payable with
respect to any municipal obligation. It also would not insure against loss
relating to: (i) optional or mandatory redemptions (other than mandatory sinking
fund redemptions); (ii) any payments to be made on an accelerated basis; (iii)
payments of the purchase price of municipal obligations upon tender by an owner
thereof; or (iv) any preference relating to (i) through (iii) above. It also
would not insure against nonpayment of principal of or interest on the municipal
obligations resulting from the insolvency, negligence or any other act or
omission of the paying agent for the municipal obligations.
AMBAC is a Wisconsin-domiciled stock insurance corporation regulated by
the Office of the Commissioner of Insurance of the State of Wisconsin and
licensed to do business in 50 states, the District of Columbia and the
Commonwealth of Puerto Rico, with statutory capital (unaudited) of approximately
$1.418 billion as of September 30, 1996. Statutory capital consists of AMBAC's
statutory contingency reserve and policyholders' surplus. Copies of AMBAC's
financial statements prepared in accordance with statutory accounting standards
are available from AMBAC. The address of AMBAC's administrative offices is One
State Street Plaza, 17th Floor, New York, New York 10004.
MBIA is a limited liability corporation domiciled in the State of New
York and licensed to do business in all 50 states, the District of Columbia and
the Commonwealth of Puerto Rico. As of December 31, 1995, MBIA had total capital
and surplus of $1.2 billion (unaudited) determined in accordance with statutory
accounting principles prescribed or permitted by insurance regulatory
authorities. Copies of MBIA's year end financial statements are available from
MBIA. The address of MBIA is 113 King Street, Armonk, New York 10504.
FGIC is a monoline financial guaranty insurer domiciled in the State of
New York and subject to regulation by the State of New York Insurance
Department. As of September 30, 1996, the total capital and surplus of FGIC was
approximately $1,097.6 million. FGIC prepares financial statements on the basis
of both statutory accounting principles and generally accepted accounting
principles. Copies of such financial statements may be obtained by writing to
FGIC at 115 Broadway, New York, New York 10006, Attention: Communications
Department.
FSA is a monoline insurance company incorporated in 1984 under the laws
of the State of New York. FSA is licensed to engage in financial guaranty
insurance business in all 50 states, the District of Columbia and Puerto Rico.
As of September 30, 1996 the total policyholders' surplus and contingency
reserves and the total unearned premium reserve, respectively, of FSA and its
consolidated subsidiaries were, in accordance with statutory accounting
principles, approximately $664.8 million (unaudited) and $405.8 million
(unaudited), and the total shareholders' equity and total unearned premium
reserve, respectively, of FSA and its consolidated subsidiaries were, in
accordance with generally accepted accounting principles, approximately $795.2
million (unaudited) and $358.2 million (unaudited). Copies of FSA's financial
statements may be obtained by writing to FSA at 350 Park Avenue, New York, New
York 10022, Attention: Communications Department.
The information relating to AMBAC, MBIA, FGIC and FSA set forth above
has been obtained from publicly available sources. No representation is made as
to the accuracy or adequacy of such information.
CFTC INFORMATION
The Commodity Futures Trading Commission (the "CFTC"), a federal
agency, regulates trading activity pursuant to the Commodity Exchange Act, as
amended. The CFTC requires the registration of "commodity pool operators," which
are defined as any person engaged in a business which is of the nature of an
investment trust, syndicate or a similar form of enterprise, and who, in
connection therewith, solicits, accepts or receives from others funds,
securities or property for the purpose of trading in any commodity for future
delivery on or subject to the rules of any contract market. The CFTC has adopted
Rule 4.5, which provides an exclusion from the definition of commodity pool
operator for any registered investment company which (i) will use commodity
futures or commodity options contracts solely for bona fide hedging purposes
(provided, however, that in the alternative, with respect to each long position
in a commodity future or commodity option contract, an investment company may
meet certain other tests set forth in Rule 4.5); (ii) will not enter into
commodity futures and commodity options contracts for which the aggregate
initial margin and premiums exceed 5% of its assets; (iii) will not be marketed
to the public as a commodity pool or as a vehicle for investing in commodity
interests; (iv) will disclose to its investors the purposes of and limitations
on its commodity interest trading; and (v) will submit to special calls of the
CFTC for information. Any investment company desiring to claim this exclusion
must file a notice of eligibility with both the CFTC and the National Futures
Association. FAIF has made such notice filings with respect to those Funds which
may invest in commodity futures or commodity options contracts.
INVESTMENT RESTRICTIONS
In addition to the investment objectives and policies set forth in the
Prospectuses and under the caption "Additional Information Concerning Fund
Investments" above, each of the Funds is subject to the investment restrictions
set forth below. The investment restrictions set forth in paragraphs 1 through 9
below are fundamental and cannot be changed with respect to a Fund without
approval by the holders of a majority of the outstanding shares of that Fund as
defined in the Investment Company Act of 1940, as amended (the "1940 Act"),
i.e., by the lesser of the vote of (a) 67% of the shares of the Fund present at
a meeting where more than 50% of the outstanding shares are present in person or
by proxy, or (b) more than 50% of the outstanding shares of the Fund.
None of the Funds will:
1. Except for Intermediate Tax Free Fund, Minnesota Insured Intermediate
Tax Free Fund, and Colorado Intermediate Tax Free Fund (collectively,
the "Tax Free Funds") and for Technology Fund and Health Sciences Fund,
invest in any securities if, as a result, 25% or more of the value of
its total assets would be invested in the securities of issuers
conducting their principal business activities in any one industry,
except that Real Estate Securities Fund will invest without restriction
in issuers principally engaged in the real estate industry.
Intermediate Tax Free Fund will not invest 25% or more of the value of
its total assets in obligations of issuers located in the same state
(for this purpose, the location of an "issuer" shall be deemed to be
the location of the entity the revenues of which are the primary source
of payment of the location of the project or facility which may be the
subject of the obligation). None of the Tax Free Funds will invest 25%
or more of the value of its total assets in revenue bonds or notes,
payment for which comes from revenues from any one type of activity
(for this purpose, the term "type of activity" shall include without
limitation (i) sewage treatment and disposal; (ii) gas provision; (iii)
electric power provision; (iv) water provision; (v) mass transportation
systems; (vi) housing; (vii) hospitals; (viii) nursing homes; (ix)
street development and repair; (x) toll roads; (xi) airport facilities;
and (xii) educational facilities), except that, in circumstances in
which other appropriate available investments may be in limited supply,
such Funds may invest without limitation in gas provision, electric
power provision, water provision, housing and hospital obligations.
This restriction does not apply to general obligation bonds or notes
or, in the case of Intermediate Tax Free Fund, to pollution control
revenue bonds. However, in the case of the latter Fund, it it
anticipated that normally (unless there are unusually favorable
interest and market factors) less than 25% of such Fund's total assets
will be invested in pollution control bonds. This restriction does not
apply to securities of the United States Government or its agencies and
instrumentalities or repurchase agreements relating thereto.
2. Issue any senior securities (as defined in the 1940 Act), other than as
set forth in restriction number 3 below and except to the extent that
using options or purchasing securities on a when- issued basis may be
deemed to constitute issuing a senior security.
3. Borrow money, except from banks for temporary or emergency purposes.
The amount of such borrowing may not exceed 10% of the borrowing Fund's
total assets, except for Asset Allocation Fund, which may borrow in
amounts not to exceed 33-1/3% of its total assets. None of the Funds
will borrow money for leverage purposes. For the purpose of this
investment restriction, the use of options and futures transactions and
the purchase of securities on a when-issued or delayed-delivery basis
shall not be deemed the borrowing of money. (As a non-fundamental
policy, no Fund will make additional investments while its borrowings
exceed 5% of total assets.)
4. Mortgage, pledge or hypothecate its assets, except in an amount not
exceeding 15% of the value of its total assets to secure temporary or
emergency borrowing.
5. Make short sales of securities.
6. Purchase any securities on margin except to obtain such short-term
credits as may be necessary for the clearance of transactions and
except, in the case of Emerging Growth Fund, Technology Fund, and
International Fund, as may be necessary to make margin payments in
connection with foreign currency futures and other derivative
transactions.
7. Purchase or sell physical commodities (including, by way of example and
not by way of limitation, grains, oilseeds, livestock, meat, food,
fiber, metals, petroleum, petroleum-based products or natural gas) or
futures or options contracts with respect to physical commodities. This
restriction shall not restrict any Fund from purchasing or selling any
financial contracts or instruments which may be deemed commodities
(including, by way of example and not by way of limitation, options,
futures and options on futures with respect, in each case, to interest
rates, currencies, stock indices, bond indices or interest rate
indices) or any security which is collateralized or otherwise backed by
physical commodities.
8. Purchase or sell real estate or real estate mortgage loans, except that
the Funds may invest in securities secured by real estate or interests
therein or issued by companies that invest in or hold real estate or
interests therein, and except that Intermediate Government Bond Fund,
Intermediate Tax Free Fund, Fixed Income Fund, Intermediate Term Income
Fund, Limited Term Income Fund, Balanced Fund, Asset Allocation Fund,
Minnesota Insured Intermediate Tax Free Fund, Colorado Intermediate Tax
Free Fund, Emerging Growth Fund, Technology Fund, Health Sciences Fund,
Real Estate Securities Fund, and International Fund may invest in
mortgage-backed securities.
9. Act as an underwriter of securities of other issuers, except to the
extent a Fund may be deemed to be an underwriter, under Federal
securities laws, in connection with the disposition of portfolio
securities.
10. Lend any of their assets, except portfolio securities representing up
to one-third of the value of their total assets.
The following restrictions are non-fundamental and may be changed by
FAIF's Board of Directors without shareholder vote. None of the Funds will:
11. Invest more than 15% of its net assets in all forms of illiquid
investments, as determined pursuant to applicable Securities and
Exchange Commission rules and interpretations.
12. Invest in any securities, if as a result more than 5% of the value of
its total assets is invested in the securities of any issuers (other
than, in the case of Real Estate Securities Fund, publicly traded real
estate investment trusts) which, with their predecessors, have a record
of less than three years continuous operation. (Securities of any of
such issuers will not be deemed to fall within this limitation if they
are guraranteed by an entity which has been in continuous operation for
more than three years.)
13. Invest for the purpose of exercising control or management.
14. Purchase or sell real estate limited partnership interests (other than,
in the case of Real Estate Securities Fund, publicly traded real estate
limited partnership interests), or oil, gas or other mineral leases,
rights or royalty contracts, except that the Funds may purchase or sell
securities of companies which invest in or hold the foregoing.
15. Purchase securities of any other registered investment company (as
defined in the 1940 Act), except, subject to 1940 Act limitations, (a)
the Tax Free Funds may purchase shares of open-end investment companies
investing primarily in municipal obligations with remaining maturities
of 13 months or less; (b) International Fund may purchase shares of
open-end investment companies which invest in permitted investments for
such Fund; (c) each of Stock Fund, Equity Index Fund, Balanced Fund,
Asset Allocation Fund, Equity Income Fund, Diversified Growth Fund,
Emerging Growth Fund, Regional Equity Fund, Special Equity Fund,
Technology Fund, Health Sciences Fund, Real Estate Securities Fund,
International Fund, Limited Term Income Fund, Intermediate Term Income
Fund, Fixed Income Fund and Intermediate Government Bond Fund may, as
part of its investment in cash items, invest in securities of other
mutual funds which invest primarily in debt obligations with remaining
maturities of 13 months or less; and (d) all Funds may purchase
securities as part of a merger, consolidation, reorganization or
acquisition of assets. Further, so long as its shares are registered
for sale in the state of California, Intermediate Tax Free Fund will
invest in securities of other open-end investment companies primarily
for the purpose of investing short-term cash on a temporary basis; in
addition, the Fund will waive its advisory fee on any portion of its
assets invested in other open-end investment companies.
16. Invest in foreign securities, except that (a) Limited Term Income Fund,
Intermediate Term Income Fund, and Fixed Income Fund each may invest up
to 15% of its total assets in foreign securities payable in United
States Dollars; (b) Stock Fund, Balanced Fund, Equity Income Fund,
Diversified Growth Fund, Emerging Growth Fund, Special Equity Fund,
Technology Fund, Health Sciences Fund and Real Estate Securities Fund
each may invest may invest up to 25% of its total assets in securities
of foreign issuers which are either listed on a United States stock
exchange or represented by American Depositary Receipts; and (c)
International Fund may invest in foreign securities without limitation.
17. Except for International Fund, invest in warrants; provided, that the
other Funds except for the Tax Free Funds may invest in warrants in an
amount not exceeding 5% of a Fund's net assets. No more than 2% of this
5% may be warrants which are not listed on the New York Stock Exchange.
For determining compliance with its investment restriction relating to
industry concentration, each Fund classifies asset-backed securities in its
portfolio in separate industries based upon a combination of the industry of the
issuer or sponsor and the type of collateral. The industry of the issuer or
sponsor and the type of collateral will be determined by the Adviser. For
example, an asset-backed security known as "Money Store 94D A2" would be
classified as follows: the issuer or sponsor of the security is The Money Store,
a personal finance company, and the collateral underlying the security is
automobile receivables. Therefore, the industry classification would be Personal
Finance Companies -- Automobile. Similarly, an asset-backed security known as
"Midlantic Automobile Grantor Trust 1992-1 B" would be classified as follows:
the issuer or sponsor of the security is Midlantic National Bank, a banking
organization, and the collateral underlying the security is automobile
receivables. Therefore, the industry classification would be Banks --
Automobile. Thus, an issuer or sponsor may be included in more than one
"industry" classification, as may a particular type of collateral.
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of FAIF are listed below, together
with their business addresses and their principal occupations during the past
five years. Directors who are "interested persons" (as that term is defined in
the 1940 Act) of FAIF are identified with an asterisk.
DIRECTORS
Robert J. Dayton, 5140 Norwest Center, Minneapolis, Minnesota 55402:
Director of FAIF since September 1994 and of First American Funds, Inc. ("FAF")
since December 1994 and of First American Strategy Funds, Inc. ("FASF") since
June 1996; Chairman (1989-1993) and Chief Executive Officer (1993-present),
Okabena Company (private family investment office). Age: 54.
Andrew M. Hunter III, 537 Harrington Road, Wayzata, Minnesota 55391:
Director of FAIF, FAF and FASF since January 1997; Chairman of Hunter, Keith
Industries, a diversified manufacturing and services management company, since
1975. Age: 49.
Leonard W. Kedrowski, 16 Dellwood Avenue, Dellwood, Minnesota 55110:
Director of FAIF and FAF since November 1993 and of FASF since June 1996;
President and owner of Executive Management Consulting, Inc., a management
consulting firm; Vice President, Chief Financial Officer, Treasurer, Secretary
and Director of Anderson Corporation, a large privately-held manufacturer of
wood windows, from 1983 to October 1992. Age: 55.
* Robert L. Spies, 4715 Twin Lakes Avenue, Brooklyn Center, Minnesota
55429: Director of FAIF, FAF and FASF since January 31, 1997; employed by First
Bank System, Inc. and subsidiaries from 1957 to January 31, 1997, most recently
as Vice President, First Bank National Association. Since his retirement from
First Bank National Association, Mr. Spies has continued to provide consulting
services to the Bank. Age: 62.
Joseph D. Strauss, 8617 Edenbrook Crossing, # 443, Brooklyn Park,
Minnesota 55443: Director of FAF since 1984 and of FAIF since April 1991 and of
FASF since June 1996; Chairman of FAF's and FAIF's Boards since 1993 and of
FASF's Board since 1996; President of FAF and FAIF from June 1989 to November
1989; Owner and President, Strauss Management Company, since 1993; Owner and
President, Community Resource Partnerships, Inc., a community business retention
survey company, since 1992; attorney-at-law. Age: 56.
Virginia L. Stringer, 712 Linwood Avenue, St. Paul, Minnesota 55105:
Director of FAIF since August 1987 and of FAF since April 1991 and of FASF since
June 1996; Owner and President, Strategic Management Resources, Inc. since 1993;
formerly President and Director of The Inventure Group, a management consulting
and training company, President of Scott's, Inc., a transportation company, and
Vice President of Human Resources of The Pillsbury Company. Age: 52.
Gae B. Veit, P.O. Box 6, Loretto, Minnesota 55357: Director of FAIF and
FAF since December 1993 and of FASF since June 1996; owner and CEO of Shingobee
Builders, Inc., a general contractor. Age: 53.
EXECUTIVE OFFICERS
David Lee, SEI Investments Company, Oaks, Pennsylvania 19456: President
of FAIF and FAF since April 1994 and of FASF since June 1996; Senior Vice
President and Assistant Secretary of FAF and FAIF beginning June 1, 1993; Senior
Vice President of SEI Financial Services Company (the " Distributor") since
1991; President, GW Sierra Trust Funds prior to 1991. Age: 44.
Carmen V. Romeo, SEI Investments Company, Oaks, Pennsylvania 19456:
Treasurer and Assistant Secretary of FAIF and FAF since November 1992 and of
FASF since June 1996; Director, Executive Vice President, Chief Financial
Officer and Treasurer of SEI Corporation ("SEI"), SEI Financial Management
Corporation (the "Administrator") and the Distributor since 1981. Age: 52.
Kevin P. Robins, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FAIF and FAF since April 1994 and of
FASF since June 1996; Vice President, Assistant Secretary and General Counsel of
the Administrator and the Distributor. Age: 36.
Kathryn Stanton, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FAIF and FAF since April 1994 and of
FASF since June 1996; Vice President and Assistant Secretary of the
Administrator and the Distributor since April 1994; Associate, Morgan, Lewis &
Bockius, from 1989 to 1994. Age: 37.
Sandra K. Orlow, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FAIF and FAF since 1992 and of FASF
since June 1996; Vice President and Assistant Secretary of SEI, the
Administrator and the Distributor since 1983. Age: 40.
Marc Cahn, SEI Investments Company, Oaks, Pennsylvania 19456: Vice
President and Assistant Secretary of FAIF. FAF and FASF since June 1996; Vice
President and Assistant Secretary of the Administrator and Distributor since May
1996; Associate General Counsel, Barclays Bank PLC, from 1994 to 1996; ERISA
Counsel, First Fidelity Bancorporation, prior to 1994. Age: 39.
Barbara A. Nugent, SEI Investments Company, Oaks, Pennsylvania 19456:
Vice President and Assistant Secretary of FAIF, FAF and FASF since June 1996;
Vice President and Assistant Secretary of the Administrator and Distributor
since April 1996; Associate, Drinker, Biddle & Reath, from 1994 to 1996;
Assistant Vice President/Administration (1992 to 1993) and Operations (1988 to
1992), Delaware Service Company, Inc. Age: 39.
Joseph Lydon, SEI Investments Company, Oaks, Pennsylvania 19456: Vice
President of FAIF and FAF since June 1995 and of FASF since June 1996; Director
of Business Administration of the Administrator and Distributor since April
1995; Vice President, Fund Group and Adviser, Dreman Value Management, L.P. and
President, Dreman Financial Services, Inc., from 1989 to 1995. Age: 36.
Stephen G. Meyer, SEI Investments Company, Oaks, Pennsylvania 19456:
Controller of FAIF and FAF since March 1995 and of FASF since June 1996;
Director of Internal Audit and Risk Management of SEI from 1992 to 1995; Senior
Associate, Coopers & Lybrand, from 1990 to 1992. Age: 31.
Michael J. Radmer, 220 South Sixth Street, Minneapolis, Minnesota
55402: Secretary of FAIF since April 1991 and of FAF since 1981 and of FASF
since June 1996; Partner, Dorsey & Whitney LLP, a Minneapolis-based law firm and
general counsel of FAIF and FAF. Age: 51.
COMPENSATION
The First American Family of Funds, which includes FAIF, FAF and FASF,
currently pays only to directors of the funds who are not paid employees or
affiliates of the funds a fee of $15,000 per year ($22,500 in the case of the
Chair) plus $2,500 ($3,750 in the case of the Chair) per meeting of the Board
attended and $800 per committee meeting attended ($1,600 in the case of a
committee chair) and reimburses travel expenses of directors and officers to
attend Board meetings. Legal fees and expenses are also paid to Dorsey & Whitney
LLP, the law firm of which Michael J. Radmer, secretary of FAIF, FAF and FASF,
is a partner. The following table sets forth information concerning aggregate
compensation paid to each director of FAIF (i) by FAIF (column 2), and (ii) by
FAIF, FAF and FASF collectively (column 5) during the fiscal year ended
September 30, 1996. No executive officer or affiliated person of FAIF had
aggregate compensation from FAIF in excess of $60,000 during such fiscal year:
<TABLE>
<CAPTION>
(1) (2) (3) (4) (5)
Total Compensation
Aggregate Pension or Retirement Estimated From Registrant and
Name of Compensation Benefits Accrued as Annual Benefits Fund Complex
Person, Position From Registrant Part of Fund Expenses Upon Retirement Paid to Directors
---------------- --------------- --------------------- --------------- -----------------
<S> <C> <C> <C> <C>
Robert J. Dayton, Director $11,729 - 0 - - 0 - $32,850
Andrew M. Hunter III, Director * - 0 - - 0 - - 0 - - 0 -
Leonard W. Kedrowski, Director $12,176 - 0 - - 0 - $34,150
Robert L. Spies, Director * - 0 - - 0 - - 0 - - 0 -
Joseph D. Strauss, Director $20,082 - 0 - - 0 - $56,375
Virginia L. Stringer, Director $12,620 - 0 - - 0 - $35,350
Gae B. Veit, Director $12,466 - 0 - - 0 - $34,950
</TABLE>
* Not a director during the fiscal year ended September 30, 1996.
INVESTMENT ADVISORY AND OTHER SERVICES
INVESTMENT ADVISORY AGREEMENT
First Bank National Association (the "Adviser"), 601 Second Avenue
South, Minneapolis, Minnesota 55480, serves as the investment adviser and
manager of the Funds through its First Asset Management group. The Adviser is a
national banking association that has professionally managed accounts for
individuals, insurance companies, foundations, commingled accounts, trust funds,
and others for over 75 years. The Adviser is a subsidiary of First Bank System,
Inc. ("FBS"), 601 Second Avenue South, Minneapolis, Minnesota 55480, which is a
regional, multi-state bank holding company headquartered in Minneapolis,
Minnesota. FBS is comprised of 13 banks and several trust and nonbank
subsidiaries, with 362 banking locations and 18 nonbank offices primarily in
Minnesota, Colorado, Illinois, Iowa, Kansas, Montana, Nebraska, North Dakota,
South Dakota, Wisconsin and Wyoming. Through its subsidiaries, FBS provides
consumer banking, commercial lending, financing of import/export trade, foreign
exchange and investment services as well as mortgage banking, trust, commercial
and agricultural finance, data processing, leasing and brokerage services.
Pursuant to an Investment Advisory Agreement dated April 2, 1991 (the
"Advisory Agreement"), the Funds engage the Adviser to act as investment adviser
for and to manage the investment of the assets of the Funds. Each Fund other
than International Fund pays the Adviser monthly fees calculated on an annual
basis equal to 0.70% of of its average daily net assets. International Fund pays
the Adviser monthly fees calculated on an annual basis equal to 1.25% of of its
average daily net assets.
Prior to August 1994, the Advisory Agreement provided for Intermediate
Government Bond Fund, Intermediate Tax Free Fund and Fixed Income Fund to pay an
advisory fee calculated on an annual basis as a percentage of average daily net
assets of 0.50% on the first $100 million of net assets, 0.40% on the next $150
million of net assets and 0.30% on net assets of over $250 million, and for
Stock Fund and Special Equity Fund to pay an advisory fee calculated on such
basis of 0.70% on the first $100 of net assets, 0.60% on the next $150 million
of net assets, 0.50% on the next $250 million of net assets and 0.40% on net
assets of over $500 million. Prior to March 28, 1994, Diversified Growth Fund
and Equity Income Fund were advised by Boulevard Bank National Association
pursuant to an investment advisory agreement which provided for such Funds to
pay annual advisory fees equal to 0.75% of their respective average daily net
assets. The Advisory Agreement requires the Adviser to provide FAIF with all
necessary office space, personnel and facilities necessary and incident to the
Adviser's performance of its services thereunder. The Adviser is responsible for
the payment of all compensation to personnel of FAIF and the officers and
directors of FAIF, if any, who are affiliated with the Adviser or any of its
affiliates.
In addition to the investment advisory fee, each Fund pays all its
expenses that are not expressly assumed by the Adviser or any other organization
with which the Fund may enter into an agreement for the performance of services.
Each Fund is liable for such nonrecurring expenses as may arise, including
litigation to which the Fund may be a party, and it may have an obligation to
indemnify its directors and officers with respect to such litigation.
The following table sets forth total advisory fees before waivers and
after waivers for each of the Funds for the fiscal years ended September 30,
1994, September 30, 1995, and September 30, 1996:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPTEMBER 30, 1994 SEPTEMBER 30, 1995 SEPTEMBER 30, 1996
---------------------------- --------------------------- ----------------------------
ADVISORY FEE ADVISORY FEE ADVISORY FEE ADVISORY FEE ADVISORY FEE ADVISORY FEE
BEFORE WAIVERS AFTER WAIVERS BEFORE WAIVERS AFTER WAIVER BEFORE WAIVERS AFTER WAIVERS
-------------- ------------- -------------- ------------ -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Stock Fund.............. $925,957 $629,919 $1,704,596 $1,377,513 $2,987,619 $2,624,360
Equity Index Fund....... 1,076,404 108,274 1,276,975 223,149 2,033,763 452,121
Balanced Fund........... 888,066 559,105 1,174,571 959,016 1,935,552 1,680,465
Asset Allocation Fund... 374,173 214,891 299,411 210,895 369,105 239,383
Equity Income Fund...... 141,151 44,517 289,812 165,042 447,530 316,928
Diversified Growth Fund 169,473 72,518 574,300 367,357 1,327,317 1,072,105
Emerging Growth Fund ... 13,599 4,028 153,171 76,396 415,300 374,771
Regional Equity Fund.... 579,368 398,939 994,725 870,505 2,009,755 1,952,912
Special Equity Fund..... 737,795 515,305 1,240,586 1,158,848 1,583,474 1,583,474
Technology Fund......... 11,299 4,118 121,419 51,186 345,213 291,109
Health Sciences Fund.... * * * * 48,383 (19,192)
Real Estate Securities Fund * * 8,078 0 82,152 (1,797)
International Fund...... 187,599 147,778 868,706 824,596 1,473,242 1,473,242
Limited Term Income Fund 673,117 303,024 748,504 379,177 771,402 493,749
Intermediate Term Income
Fund............... 444,603 193,338 572,967 393,264 692,483 510,735
Fixed Income Fund....... 338,471 201,828 1,394,513 945,687 2,619,764 1,980,027
Intermediate Government
Bond Fund.......... 36,960 (3,017) 565,522 367,513 861,440 640,855
Intermediate Tax Free Fund 19,253 (5,438) 205,854 93,837 412,479 260,272
Minnesota Insured Inter-
mediate Tax Free Fund 42,710 17,871 377,450 227,989 562,547 378,439
Colorado Intermediate Tax
Free Fund.......... 6,400 4,762 284,161 158,606 362,608 243,815
</TABLE>
* Fund was not in operation during this fiscal year.
SUB-ADVISORY AGREEMENT FOR INTERNATIONAL FUND
Marvin & Palmer Associates, Inc., 1201 North Market Street, Suite 2300,
Wilmington, Delaware 19801, is Sub-Adviser for International Fund under an
agreement with the Adviser (the "Sub-Advisory Agreement"). The Sub-Adviser, a
privately-held company, was founded in 1986 by David F. Marvin and Stanley
Palmer. The Sub-Adviser is engaged in the management of global, non-United
States and emerging markets equity portfolios for institutional accounts. At
September 30, 1996, the Sub-Adviser managed a total of $3.3 billion in
investments for 51 institutional investors. Pursuant to the Sub-Advisory
Agreement, the Sub-Adviser is responsible for the investment and reinvestment of
International Fund's assets and the placement of brokerage transactions in
connection therewith. Under the Sub-Advisory Agreement, the Sub-Adviser is
required, among other things, to report to the Adviser or the Board regularly at
such times and in such detail as the Adviser or the Board may from time to time
request in order to permit the Adviser and the Board to determine the adherence
of International Fund to its investment objectives, policies and restrictions.
The Sub-Advisory Agreement also requires the Sub-Adviser to provide all office
space, personnel and facilities necessary and incident to the Sub-Adviser's
performance of its services under the Sub-Advisory Agreement. The Sub-Adviser
also acts as sub-adviser to the Evergreen Emerging Markets Growth Equity Fund.
For its services under the Sub-Advisory Agreement, the Sub-Adviser is
paid a monthly fee by the Adviser calculated on an annual basis equal to 0.75%
of the first $100 million of International Fund's average daily net asets, 0.70%
of the second $100 million of International Fund's average daily net assets,
0.65% of the third $100 million of International Fund's average daily net
assets, and 0.60% of International Fund's average daily net assets in excess of
$300 million.
ADMINISTRATION AGREEMENT
SEI Financial Management Corporation (the "Administrator") serves as
administrator for the Funds pursuant to an Administration Agreement between it
and the Funds. The Administrator is a wholly-owned subsidiary of SEI Investments
Company, which also owns the Funds' distributor. See "-- Distributor and
Distribution Plans" below. Under the Administration Agreement, the Administrator
provides administrative personnel and services to the Funds for a fee as
described in the Funds' Prospectuses. These services include, among others,
regulatory reporting, fund and portfolio accounting, shareholder reporting
services, and compliance monitering services. Prior to June 10, 1994, Federated
Administrative Services served as administrator for Diversified Growth Fund and
Equity Income Fund.
The following table sets forth total administrative fees, after
waivers, paid by each of the Funds for the fiscal years ended September 30,
1994, September 30, 1995, and September 30, 1996:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1994 SEPT. 30, 1995 SEPT. 30, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Stock Fund........................................ $251,561 $294,658 $507,743
Equity Index Fund................................. 268,851 225,545 345,460
Balanced Fund..................................... 237,891 200,402 328,792
Asset Allocation Fund............................. 96,642 55,478 62,753
Equity Income Fund................................ 9,212 55,267 76,098
Diversified Growth Fund........................... 2,204 101,760 225,373
Emerging Growth Fund.............................. (3,515) 50,000 70,492
Regional Equity Fund.............................. 154,447 168,525 341,361
Special Equity Fund............................... 198,455 210,800 269,161
Technology Fund................................... (5,962) 50,000 61,764
Health Sciences Fund.............................. * * 33,059
Real Estate Securities Fund....................... * 12,603 50,010
International Fund................................ 26,814 89,791 140,215
Limited Term Income Fund.......................... 175,230 126,380 135,704
Intermediate Term Income Fund..................... 114,428 98,013 117,703
Fixed Income Fund................................. 110,363 233,555 445,300
Intermediate Government Bond Fund................. 11,943 100,551 146,381
Intermediate Tax Free Fund........................ 9,527 50,199 70,107
Minnesota Insured Intermediate Tax Free
Fund........................................ (2,482) 68,304 95,590
Colorado Intermediate Tax Free Fund............... (11,236) 56,486 61,659
</TABLE>
* Fund was not in operation during this fiscal year.
DISTRIBUTOR AND DISTRIBUTION PLANS
SEI Financial Services Company (the "Distributor") serves as the
distributor for the Class A, Class B and Class C Shares of the Funds. The
Distributor is a wholly-owned subsidiary of SEI Investments Company, which also
owns the Funds' Administrator. See "--Administration Agreement" above.
The Distributor serves as distributor for the Class A and Class C
Shares pursuant to a Distribution Agreement dated February 10, 1994 (the "Class
A/Class C Distribution Agreement") between itself and the Funds, and as
distributor for the Class B Shares pursuant to a Distribution and Service
Agreement dated August 1, 1994, as amended September 14, 1994 (the "Class B
Distribution and Service Agreement") between itself and the Funds. These
agreements are referred to collectively as the "Distribution Agreements."
Under the Distribution Agreements, the Distributor has agreed to
perform all distribution services and functions of the Funds to the extent such
services and functions are not provided to the Funds pursuant to another
agreement. The Distribution Agreements provide that shares of the Funds are
distributed through the Distributor and, with respect to Class A and Class B
Shares, through securities firms, financial institutions (including, without
limitation, banks) and other industry professionals (the "Participating
Institutions") which enter into sales agreements with the Distributor to perform
share distribution or shareholder support services.
The Distributor receives no compensation for distribution of the Class
C Shares. With respect to the Class A Shares, the Distributor receives all of
the front-end sales charges paid upon purchase of the Funds' shares except for a
portion (as disclosed in the Prospectuses) which may be re-allowed to
Participating Institutions. The Class A Shares of each Fund also pay a
shareholder servicing fee to the Distributor monthly at the annual rate of 0.25%
of each Fund's Class A average daily net assets, which fee may be used by the
Distributor to provide compensation for shareholder servicing activities with
respect to the Class A Shares of the kinds described in the Retail Class
Prospectuses.
The Class B Shares of each Fund which offers Class B Shares pay to the
Distributor a sales support fee at an annual rate of 0.75% of the average daily
net assets of the Class B Shares of such Fund, which fee may be used by the
Distributor to provide compensation for sales support and distribution
activities with respect to the Class B Shares. This fee is calculated and paid
each month based on average daily net assets of Class B of each Fund for that
month. In addition to this fee, the Distributor is paid a shareholder servicing
fee at an annual rate of 0.25% of the average daily net assets of each Fund's
Class B Shares pursuant to a service plan (the "Class B Service Plan"), which
fee may be used by the Distributor to provide compensation for shareholder
servicing activities with respect to the Class B Shares of a Fund of the kinds
described in the Retail Class Prospectuses. Although Class B Shares are sold
without a front-end sales charge, the Distributor pays a total of 4.25% of the
amount invested (including a pre-paid service fee of 0.25% of the amount
invested) to dealers who sell Class B Shares (excluding exchanges from other
Class B Shares in the First American family). The servicing fee payable under
the Class B Service Plan is prepaid as described above.
The Distribution Agreements provide that they will continue in effect
for a period of more than one year from the date of their execution only so long
as such continuance is specifically approved at least annually by the vote of a
majority of the Board members of FAIF and by the vote of the majority of those
Board members of FAIF who are not interested persons of FAIF and who have no
direct or indirect financial interest in the operation of FAIF's Rule 12b-1
Plans of Distribution or in any agreement related to such Plans.
FAIF has adopted Plans of Distribution with respect to the Class A and
Class B Shares of the Funds, respectively, pursuant to Rule 12b-1 under the 1940
Act (collectively, the "Plans"). Rule 12b-1 provides in substance that a mutual
fund may not engage directly or indirectly in financing any activity which is
primarily intended to result in the sale of shares, except pursuant to a plan
adopted under the Rule. The Plans authorize the Distributor to retain the sales
charges paid upon purchase of Class A and Class B Shares. Each of the Plans is a
"compensation-type" plan under which the Distributor is entitled to receive the
distribution fee regardless of whether its actual distribution expenses are more
or less than the amount of the fee. The Class B Plan authorizes the Distributor
to retain the contingent deferred sales charge applied on redemptions of Class B
Shares, except that portion which is reallowed to Participating Institutions.
The Plans recognize that the Distributor, any Participating Institution, the
Administrator, and the Adviser, in their discretion, may from time to time use
their own assets to pay for certain additional costs of distributing Class A and
Class B Shares. Any such arrangements to pay such additional costs may be
commenced or discontinued by the Distributor, any Participating Institution, the
Administrator, or the Adviser at any time.
The following table sets forth the total Rule 12b-1 fees, after
waivers, paid by each of the Funds for the fiscal years ended September 30,
1994, September 30, 1995, and September 30, 1996, with respect to the Class A
Shares and the Class B Shares of the Funds. As noted above, no distribution fees
are paid with respect to Class C Shares of the Funds.
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1994 SEPT. 30, 1995 SEPT. 30, 1996
-------------- -------------- --------------
CLASS A CLASS B CLASS A CLASS B CLASS A CLASS B
SHARES SHARES SHARES SHARES SHARES SHARES
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Stock Fund............................ $4,910 $204 $20,690 $24,481 $44,423 $148,550
Equity Index Fund..................... 466 13 2,789 3,291 10,536 43,676
Balanced Fund......................... 8,099 140 28,075 11,450 43,620 83,213
Asset Allocation Fund................. 470 9 1,533 2,220 3,495 14,607
Equity Income Fund.................... 0 1 3,108 3,382 5,787 24,127
Diversified Growth Fund............... 0 11 3,503 2,020 10,113 36,952
Emerging Growth Fund.................. 0 16 331 965 2,147 4,985
Regional Equity Fund.................. 5,763 81 21,635 22,185 52,806 182,709
Special Equity Fund................... 4,077 177 18,403 23,203 32,527 79,817
Technology Fund....................... 0 2 960 4,739 5,967 31,470
Health Sciences Fund.................. * * * * 554 1,001
Real Estate Securities Fund........... * * 0 0 397 1,660
International Fund.................... 0 16 1,099 1,229 3,203 6,605
Limited Term Income Fund.............. 0 1 0 * 0 *
Intermediate Term Income Fund......... 0 * 0 * 0 *
Fixed Income Fund..................... 0 59 11,797 24,078 20,620 134,380
Intermediate Government Bond Fund..... 0 * 0 * 0 *
Intermediate Tax Free Fund............ 0 * 0 * 0 *
Minnesota Insured Intermediate Tax Free
Fund............................. 0 * 0 * 0 *
Colorado Intermediate Tax Free Fund... 0 * 0 * 0 *
</TABLE>
* Fund or class was not in operation during this fiscal year.
For the fiscal years ended September 30, 1994, September 30, 1995, and
September 30, 1996, the Distributor received $701,251, $56,437 and $103,810,
respectively, in sales charges.
CUSTODIAN; TRANSFER AGENT; COUNSEL; ACCOUNTANTS
The custodian of the Funds' assets is First Trust National Association
(the "Custodian"), First Trust Center, 180 East Fifth Street, St. Paul,
Minnesota 55101. The Custodian is a subsidiary of First Bank System, Inc., which
also owns the Adviser.
The Custodian takes no part in determining the investment policies of
the Funds or in deciding which securities are purchased or sold by the Funds.
All of the instruments representing the investments of the Funds and all cash is
held by the Custodian or, as described in the Prospectuses for International
Fund, by a sub-custodian with respect to such Fund. The Custodian or such
sub-custodian delivers securities against payment upon sale and pays for
securities against delivery upon purchase. The Custodian also remits Fund assets
in payment of Fund expenses, pursuant to instructions of FAIF's officers or
resolutions of the Board of Directors.
As compensation for its services to the Funds, the Custodian is paid a
monthly fee calculated on an annual basis equal to 0.03% (0.25% in the case of
International Fund) of such Fund's average daily net assets. Sub-custodian fees
with respect to International Fund are paid by the Custodian out of its fees
from such Fund. In addition, the Custodian is reimbursed for its out-of-pocket
expenses incurred while providing its services to the Funds. The Custodian
continues to serve so long as its appointment is approved at least annually by
the Board of Directors including a majority of the directors who are not
interested persons (as defined under the 1940 Act) of FAIF.
DST Systems, Inc., 1004 Baltimore, Kansas City, Missouri 64105, is
transfer agent and dividend disbursing agent for the shares of the Funds.
Dorsey & Whitney LLP, 220 South Sixth Street, Minneapolis, Minnesota
55402, is independent General Counsel for the Funds.
KPMG Peat Marwick LLP, 90 South Seventh Street, Minneapolis, Minnesota
55402, acts as the Funds' independent auditors, providing audit services
including audits of the annual financial statements and assistance and
consultation in connection with SEC filings.
PORTFOLIO TRANSACTIONS AND ALLOCATION OF BROKERAGE
Decisions with respect to placement of the Funds' portfolio
transactions are made by the Adviser or, in the case of International Fund, the
Sub-Adviser. The Funds' policy is to seek to place portfolio transactions with
brokers or dealers who will execute transactions as efficiently as possible and
at the most favorable price. The Adviser or Sub-Adviser may, however, select a
broker or dealer to effect a particular transaction without communicating with
all brokers or dealers who might be able to effect such transaction because of
the volatility of the market and the desire of the Adviser or Sub- Adviser to
accept a particular price for a security because the price offered by the broker
or dealer meets guidelines for profit, yield or both. Many of the portfolio
transactions involve payment of a brokerage commission by the appropriate Fund.
In some cases, transactions are with dealers or issuers who act as principal for
their own accounts and not as brokers. Transactions effected on a principal
basis are made without the payment of brokerage commissions but at net prices,
which usually include a spread or markup. In effecting transactions in
over-the-counter securities, the Funds deal with market makers unless it appears
that better price and execution are available elsewhere.
While the Adviser does not deem it practicable and in the Funds' best
interest to solicit competitive bids for commission rates on each transaction,
consideration will regularly be given by the Adviser to posted commission rates
as well as to other information concerning the level of commissions charged on
comparable transactions by other qualified brokers. The following table sets
forth the aggregate brokerage commissions paid by each of the Funds during the
fiscal years ended September 30, 1994, September 30, 1995, and September 30,
1996:
<TABLE>
<CAPTION>
YEAR ENDED YEAR ENDED YEAR ENDED
SEPT. 30, 1994 SEPT. 30, 1995 SEPT, 30, 1996
-------------- -------------- --------------
<S> <C> <C> <C>
Stock Fund..................................... $261,742 $549,774 $565,446
Equity Index Fund.............................. 69,675 48,310 85,568
Balanced Fund.................................. 118,715 187,224 232,149
Asset Allocation Fund.......................... 27,388 26,353 22,647
Equity Income Fund............................. 34,709 24,246 32,789
Diversified Growth Fund........................ 67,325 82,987 142,912
Emerging Growth Fund........................... 3,563 20,076 18,305
Regional Equity Fund........................... 69,403 102,861 213,138
Special Equity Fund............................ 438,181 545,209 1,192,448
Technology Fund................................ 5,791 21,126 31,789
Health Sciences Fund........................... * * 11,932
Real Estate Securities Fund.................... * 16,261 34,674
International Fund............................. 190,085 405,632 598,535
Limited Term Income Fund....................... 0 0 0
Intermediate Term Income Fund.................. 0 0 0
Fixed Income Fund.............................. 0 0 0
Intermediate Government Bond Fund.............. 0 0 0
Intermediate Tax Free Fund..................... 0 0 0
Minnesota Insured Intermediate Tax
Free Fund................................ 0 0 0
Colorado Intermediate Tax Free Fund............ 0 0 0
</TABLE>
* Fund was not in operation during this fiscal year.
During the fiscal year ended September 30, 1996, Stock Fund and
Diversified Growth Fund paid brokerage commissions to SEI Financial Services
Company ("SFS") totalling $9,834 and $7,050, respectively, in connection with
portfolio transactions transacted through SFS. SFS also acts as the Funds'
Distributor and is under common control with the Funds' Administrator. These
commissions represented 1.74% and 4.93% of the aggregate brokerage commissions
paid by Stock Fund and Diversified Growth Fund, respectively, during the fiscal
year. Transactions effected by Stock Fund and Diversified Growth Fund through
SFS represented 1.83% and 2.82%, respectively, of the aggregate dollar amount of
transactions involving the payment of commissions effected by these Funds during
the fiscal year.
At September 30, 1996, Equity Index Fund held equity securities of
broker-dealers which are deemed to be "regular brokers or dealers" of the Funds
under the 1940 Act (or of such broker-dealers' parent companies) in the
following amounts: Bankers Trust New York, $432,438; Dean Witter Discover,
$620,730; First Union, $1,254,900; Merrill Lynch & Company, $761,250; JP Morgan,
$1,137,500; Morgan Stanley Group, $517,400; and Salomon Brothers, $328,500. In
addition, at September 30, 1996, Fixed Income Fund held mortgage-backed
securities of Goldman Sachs, which also is deemed a "principal broker or
dealer," in the amount of $6,203,980.
It is expected that International Fund will purchase most foreign
equity securities in the over-the-counter markets or stock exchanges located in
the countries in which the respective principal offices of the issuers of the
various securities are located if that is the best available market. The fixed
commissions paid in connection with most such foreign stock transactions
generally are higher than negotiated commissions on United States transactions.
There generally is less governmental supervision and regulation of foreign stock
exchanges than in the United States. Foreign securities settlements may in some
instances be subject to delays and related administrative uncertainties.
Foreign equity securities may be held in the form of American
Depositary Receipts, or ADRs, European Depositary Receipts, or EDRs, or
securities convertible into foreign equity securities. ADRs and EDRs may be
listed on stock exchanges or traded in the over-the-counter markets in the
United States or overseas. The foreign and domestic debt securities and money
market instruments in which the Funds may invest are generally traded in the
over-the-counter markets.
Subject to the policy of seeking favorable price and execution for the
transaction size and risk involved, in selecting brokers and dealers other than
the Distributor and determining commissions paid to them, the Adviser and, in
the case of International Fund, the Sub-Adviser may consider ability to provide
supplemental performance, statistical and other research information as well as
computer hardware and software for research purpose for consideration, analysis
and evaluation by the staff of the Adviser or Sub-Adviser. In accordance with
this policy, the Funds do not execute brokerage transactions solely on the basis
of the lowest commission rate available for a particular transaction. Subject to
the requirements of favorable price and efficient execution, placement of orders
by securities firms for the purchase of shares of the Funds may be taken into
account as a factor in the allocation of portfolio transactions.
Research services that may be received by the Adviser or Sub-Adviser
would include advice, both directly and in writing, as to the value of
securities, the advisability of investing in, purchasing, or selling securities,
and the availability of securities or purchasers or sellers of securities, as
well as analyses and reports concerning issuers, industries, securities,
economic factors and trends, portfolio strategy, and the performance of
accounts. The research services may allow the Adviser or Sub-Adviser to
supplement its own investment research activities and enable the Adviser or
Sub-Adviser to obtain the views and information of individuals and research
staffs of many different securities firms prior to making investment decisions
for the Funds. To the extent portfolio transactions are effected with brokers
and dealers who furnish research services, the Adviser or Sub-Adviser would
receive a benefit, which is not capable of evaluation in dollar amounts, without
providing any direct monetary benefit to the Funds from these transactions.
Research services furnished by brokers and dealers used by the Funds for
portfolio transactions may be utilized by the Adviser or Sub-Adviser in
connection with investment services for other accounts and, likewise, research
services provided by brokers and dealers used for transactions of other accounts
may be utilized by the Adviser or Sub-Adviser in performing services for the
Funds. The Adviser and Sub-Adviser determine the reasonableness of the
commissions paid in relation to their view of the value of the brokerage and
research services provided, considered in terms of the particular transactions
and their overall responsibilities with respect to all accounts as to which they
exercise investment discretion.
The Adviser and Sub-Adviser have not entered into any formal or
informal agreements with any broker or dealer, and do not maintain any "formula"
that must be followed in connection with the placement of Fund portfolio
transactions in exchange for research services provided to the Adviser or
Sub-Adviser, except as noted below. The Adviser and Sub-Adviser may, from time
to time, maintain an informal list of brokers and dealers that will be used as a
general guide in the placement of Fund business in order to encourage certain
brokers and dealers to provide the Adviser and Sub-Adviser with research
services, which the Adviser or Sub-Adviser anticipates will be useful to it. Any
list, if maintained, would be merely a general guide, which would be used only
after the primary criteria for the selection of brokers and dealers (discussed
above) had been met, and, accordingly, substantial deviations from the list
could occur. The Adviser or Sub-Adviser would authorize the Funds to pay an
amount of commission for effecting a securities transaction in excess of the
amount of commission another broker or dealer would have charged only if the
Adviser or Sub-Adviser determined in good faith that the amount of such
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 overall responsibilities of the Adviser or
Sub-Adviser with respect to the Funds.
The Funds do not effect any brokerage transactions in their portfolio
securities with any broker or dealer affiliated directly or indirectly with the
Adviser or the Distributor unless such transactions, including the frequency
thereof, the receipt of commissions payable in connection therewith, and the
selection of the affiliated broker or dealer effecting such transactions are not
unfair or unreasonable to the shareholders of the Funds, as determined by the
Board of Directors. Any transactions with an affiliated broker or dealer must be
on terms that are both at least as favorable to the Funds as the Funds can
obtain elsewhere and at least as favorable as such affiliated broker or dealer
normally gives to others.
When two or more clients of the Adviser or Sub-Adviser are
simultaneously engaged in the purchase or sale of the same security, the prices
and amounts are allocated in accordance with a formula considered by the Adviser
or Sub-Adviser to be equitable to each client. In some cases, this system could
have a detrimental effect on the price or volume of the security as far as each
client is concerned. In other cases, however, the ability of the clients to
participate in volume transactions may produce better executions for each
client.
CAPITAL STOCK
As of December 15, 1996, the directors and officers of FAIF as a group
owned less than one percent of each class of each Fund's outstanding shares. As
of that date, the Funds were aware that the following persons owned of record
five percent or more of the outstanding shares of each class of stock of the
Funds.
<TABLE>
<CAPTION>
PERCENTAGE OF OUTSTANDING SHARES
--------------------------------
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
STOCK FUND
Var & Co..................................................... 68.24%
P.O. Box 64482
St. Paul, MN 55164
First Trust NA as fiduciary for First Retirement............. 27.12%
180 East Fifth Street
St. Paul, MN 55101
EQUITY INDEX FUND
Var & Co..................................................... 81.18%
P.O. Box 64482
St. Paul, MN 55164
First Trust NA as fiduciary for First Retirement............. 7.49%
180 East Fifth Street
St. Paul, MN 55101
First Trust NA fbo Waldorf Corporation....................... 11.17%
P.O. Box 64010
St. Paul, MN 55164
First Bank NA Custodian of John T. Westrom IRA Rollover...... 7.47%
10112 Girard Avenue South
Bloomington, MN 55431
BALANCED FUND
Var & Co..................................................... 60.24%
P.O. Box 64482
St. Paul, MN 55164
First Trust NA as fiduciary for First Retirement............. 35.22%
180 East Fifth Street
St. Paul, MN 55101
Edward D. Jones and Co. fao Pennington's Inc. 401K Plan...... 6.04%
P.O. Box 2500
Maryland Heights, MO 63043
ASSET ALLOCATION FUND
Var & Co..................................................... 88.93%
P.O. Box 64482
St. Paul, MN 55164
First Trust NA as fiduciary for First Retirement............. 11.07%
180 East Fifth Street
St. Paul, MN 55101
David A. Baumgarten.......................................... 7.05%
1660 North Prospect Avenue, Apt. 2806
Milwaukee, WI 53202
Miller Fashions, Inc......................................... 6.32%
601 Shoreacres Dr., Apt. 208
Fairmont, MN 56031
Peter G. Bailey and Maureen T. Bailey........................ 6.34%
133 Arrowhead Lane
Hayne City, FL 33844
EQUITY INCOME FUND
Var & Co..................................................... 96.70%
P.O. Box 64482
St. Paul, MN 55164
Kenmar B. Jauss and William C. Jauss......................... 7.11%
246 Maple Avenue
Wilmette, IL 60091
DIVERSIFIED GROWTH FUND
Var & Co..................................................... 98.20%
P.O. Box 64482
St. Paul, MN 55164
EMERGING GROWTH FUND
Var & Co..................................................... 92.12%
P.O. Box 64482
St. Paul, MN 55164
First Trust NA as fiduciary for First Retirement............. 6.92%
180 East Fifth Street
St. Paul, MN 55101
Bayban, A Paretnership....................................... 12.55%
c/o First State Bank Bayport
950 N. Highway 95
Bayport, MN 55003
First Bank Custodian fbo Albert P. Young IRA................. 10.04%
P.O. Box 22
Onamia, MN 56359
The Northern Trust Co. fbo Paxon H. Offield.................. 7.45%
50 S. LaSalle St.
Chicago, IL 60603
Brian L. Johnson and Joan M. Johnson......................... 6.23%
P.O. Box 400
Spooner, WI 54801
REGIONAL EQUITY FUND
Var & Co..................................................... 67.90%
P.O. Box 64482
St. Paul, MN 55164
First Trust NA as fiduciary for First Retirement............. 17.68%
180 East Fifth Street
St. Paul, MN 55101
SPECIAL EQUITY FUND
Var & Co..................................................... 87.74%
P.O. Box 64482
St. Paul, MN 55164
First Trust NA as fiduciary for First Retirement............. 12.01%
180 East Fifth Street
St. Paul, MN 55101
Jupiter & Co. c/o Investors Bank & Trust..................... 5.57%
P.O. Box 1637
Boston, MA 02205
REAL ESTATE SECURITIES FUND
Var & Co..................................................... 98.60%
P.O. Box 64482
St. Paul, MN 55164
Beth Ann Starek t/o/d Beverly E. Wilson...................... 15.37%
661 Cascade St.
Lander, WY 82520
First Bank Custodian fbo Andrew D. Gallegos IRA.............. 9.75%
6507 W. Riverside Terrace
Casper, WY 82604
Arthur Rafshol Revocable Trust c/o FBS Investment Services... 6.06%
601 2nd Ave. S.
Minneapolis, MN 55402
Constance Rafshol c/o FBS Investment Services................ 6.06%
601 2nd Ave. S.
Minneapolis, MN 55402
First Bank NA Custodian of Eugene W. Krekelberg IRA.......... 5.40%
3784 Woodlawn Blvd
Eveleth, MN 55734
Kendall M. Anderson and Susan A. Anderson.................... 21.16%
10487 Dupont Road
Bloomington, MN 55431
First Bank Custodian fbo Ann E. Brase IRA.................... 8.31%
4911 Sinclair Ct.
Lincoln, NE 68516
First Bank Custodian fbo Andrew D. Gallegos IRA.............. 8.08%
6507 W. Riverside Terrace
Casper, WY 82604
First Bank Custodian fbo Cleo E. Robare IRA.................. 5.98%
Lincoln, NE 68505
Colorado National Bank Custodian Sondra Green IRA............ 5.21%
4505 S. Yosemite St., Unit 412
Denver, CO 80237
TECHNOLOGY FUND
Var & Co..................................................... 96.78%
P.O. Box 64482
St. Paul, MN 55164
HEALTH SCIENCES FUND
Var & Co..................................................... 95.58%
P.O. Box 64482
St. Paul, MN 55164
First Bank NA Custodian Marvin F. Moes IRA Rollover.......... 15.02%
10758 E. Pinewood Dr.
Parker, CO 80134
The LSI Corp. of America..................................... 11.35%
2100 Xenium Lane
Plymouth, MN 55441
Jean Marie Grouard........................................... 11.20%
710 Marquette Ave.
Minneapolis, MN 55402
Brian E. Palmer & Virginia P. Palmer, co-trustees............ 9.16%
Pillsbury Center S. 220 S. 6th St.
Minneapolis, MN 55402
Ruth B. Phillips............................................. 5.46%
1407 7th St. NW
Austin, MN 55912
Lester B. Boelter & Viola G. Boelter......................... 5.91%
210 Lawrence Blvd. E., P.O. Box 231
Wabasha, MN 55981
INTERNATIONAL FUND
Var & Co..................................................... 91.25%
P.O. Box 64482
St. Paul, MN 55164
First Trust NA as fiduciary for First Retirement............. 7.45%
180 East Fifth Street
St. Paul, MN 5510
Mankato State University Foundation Inc...................... 15.54%
P.O. Box 8400, MSU 60
Mankato, MN 56002-8400
Brian L. Johnson and Joan M. Johnson......................... 6.97%
P.O. Box 400
Spooner, WI 54801
Bayban, A Partnership........................................ 5.76%
c/o First State Bank Bayport
950 N. Highway 95
Bayport, MN 55003
Guenther Patzeiberger........................................ 8.19%
Cristobal Colon # 98
Colon Echegaray Naucaipan
Edo de Mexico 53310
LIMITED TERM INCOME FUND
Var & Co..................................................... 86.54%
P.O. Box 64482
St. Paul, MN 55164
First Trust NA as fiduciary for First Retirement............. 12.45%
180 East Fifth Street
St. Paul, MN 55101
Fleet Wholesale Supply Co. et al. Retirement Plans........... 31.46%
P.O. Box 5055
Brainard, MN 56401
Planned Parenthood of Minnesota.............................. 10.18%
1965 Ford Parkway
St. Paul, MN 55116
INTERMEDIATE TERM INCOME FUND
Var & Co..................................................... 87.27%
P.O. Box 64482
St. Paul, MN 55164
First Trust NA as fiduciary for First Retirement............. 11.55%
180 East Fifth Street
St. Paul, MN 55101
First Bank NA Custodian of Fred L. Brucciani Rollover........ 5.42%
6808 Wooddale Avenue
Edina, MN 55435
FIXED INCOME FUND
Var & Co..................................................... 89.40%
P.O. Box 64482
St. Paul, MN 55164
First Trust NA as fiduciary for First Retirement............. 8.92%
180 East Fifth Street
St. Paul, MN 55101
Mankato State University Foundation Inc...................... 6.32%
P.O. Box 8400, MSU 60
Mankato, MN 56002-8400
INTERMEDIATE GOVERNMENT BOND FUND
Var & Co..................................................... 97.28%
P.O. Box 64482
St. Paul, MN 55164
The Janice Gardner Foundation................................ 14.32%
11580 K-Tel Drive
Minnetonka, MN 55343
Gail B. Cox and Wilma M. Cox................................. 6.29%
R.R. 2, Box 42
Lawson, MO 64062
INTERMEDIATE TAX FREE FUND
Var & Co..................................................... 96.55%
P.O. Box 64482
St. Paul, MN 55164
Brian L. Johnson and Joan M. Johnson......................... 41.67%
P.O. Box 400
Spooner, WI 54801
David E. Brainerd............................................ 11.62%
6 Oakbrook Dr., Unit K 306
Oakbrook, IL 60521
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Var & Co..................................................... 98.74%
P.O. Box 64482
St. Paul, MN 55164
Alfred P. Gale............................................... 21.86%
2350 Highland Rd.
Maple Plain, MN 55359
Norwest Bank Minnesota Trustee for Clarence Holden........... 11.16%
P.O. Box 1450 NW 8477
Minneapolis, MN 55480
Mildred J. Bague c/o First Trust NA.......................... 5.52%
P.O. Box CM-9551
St. Paul, MN 55109
Christine Simonson Irrevocable Trust......................... 5.36%
2455 12th Street SE
St. Cloud, MN 56304
COLORADO INTERMEDIATE TAX FREE FUND
Var & Co..................................................... 96.10%
P.O. Box 64482
St. Paul, MN 55164
Richard Lee Butler t/o/d Jamie L. Butler..................... 5.25%
1260 S. Foothill Dr.
Lakewood, CO 80228
</TABLE>
NET ASSET VALUE AND PUBLIC OFFERING PRICE
The method for determining the public offering price of the shares of a
Fund is summarized in the Retail Class Prospectuses under the captions
"Investing in the Funds" and "Determining the Price of Shares" and in the
Institutional Class Prospectuses under the caption "Purchases and Redemptions of
Shares." The net asset value of each Fund's shares is determined on each day
during which the New York Stock Exchange (the "NYSE") is open for business. The
NYSE is not open for business on the following holidays (or on the nearest
Monday or Friday if the holiday falls on a weekend): New Year's Day,
Washington's Birthday (observed), Good Friday, Memorial Day (observed),
Independence Day, Labor Day, Thanksgiving Day and Christmas Day. Each year the
NYSE may designate different dates for the observance of these holidays as well
as designate other holidays for closing in the future. To the extent that the
securities of a Fund are traded on days that the Fund is not open for business,
such Fund's net asset value per share may be affected on days when investors may
not purchase or redeem shares. This may occur, for example, where a Fund holds
securities which are traded in foreign markets.
On September 30, 1996, the net asset values per share for each class of
shares of the Funds were calculated as follows:
<TABLE>
<CAPTION>
NET ASSET
NET ASSETS SHARES VALUE PER SHARE
(IN DOLLARS) / OUTSTANDING = (IN DOLLARS)
------------ ----------- ------------
<S> <C> <C> <C>
STOCK FUND
Class A................................... 22,964,924 / 1,016,687 = 22.59
Class B................................... 23,315,695 / 1,036,466 = 22.50
Class C................................... 471,205,961 / 20,852,024 = 22.60
EQUITY INDEX FUND
Class A................................... 6,221,031 / 401,729 = 15.49
Class B................................... 8,252,085 / 534,890 = 15.43
Class C................................... 348,538,291 / 22,523,322 = 15.47
BALANCED FUND
Class A................................... 20,927,810 / 1,592,380 = 13.14
Class B................................... 15,539,768 / 1,185,798 = 13.10
Class C................................... 332,787,789 / 25,297,626 = 13.15
ASSET ALLOCATION FUND
Class A................................... 1,841,038 / 149,106 = 12.35
Class B................................... 2,299,828 / 187,059 = 12.29
Class C................................... 54,781,450 / 4,438,357 = 12.34
EQUITY INCOME FUND
Class A................................... 2,581,417 / 204,120 = 12.65
Class B................................... 3,770,310 / 299,068 = 12.61
Class C................................... 64,589,447 / 5,102,222 = 12.66
DIVERSIFIED GROWTH FUND
Class A................................... 5,317,970 / 390,121 = 13.63
Class B................................... 5,774,660 / 425,494 = 13.57
Class C................................... 225,900,305 / 16,533,178 = 13.66
EMERGING GROWTH FUND
Class A................................... 1,866,723 / 126,417 = 14.77
Class B................................... 799,452 / 55,002 = 14.53
Class C................................... 73,024,411 / 4,937,888 = 14.79
REGIONAL EQUITY FUND
Class A................................... 25,325,203 / 1,429,605 = 17.71
Class B................................... 27,671,229 / 1,583,535 = 17.47
Class C................................... 259,137,595 / 14,596,599 = 17.75
SPECIAL EQUITY FUND
Class A................................... 17,986,944 / 881,099 = 20.41
Class B................................... 12,847,442 / 632,703 = 20.31
Class C................................... 247,827,929 / 12,132,670 = 20.43
TECHNOLOGY FUND
Class A................................... 4,798,551 / 249,274 = 19.25
Class B................................... 4,881,501 / 259,003 = 18.85
Class C................................... 64,601,535 / 3,349,509 = 19.29
HEALTH SCIENCES FUND
Class A................................... 628,609 / 63,760 = 9.86
Class B................................... 280,642 / 28,599 = 9.81
Class C................................... 12,485,592 / 1,264,562 = 9.87
REAL ESTATE SECURITIES FUND
Class A................................... 225,957 / 19,607 = 11.52
Class B................................... 263,151 / 22,956 = 11.46
Class C................................... 17,895,001 / 1,552,482 = 11.53
INTERNATIONAL FUND
Class A................................... 1,964,324 / 191,084 = 10.28
Class B................................... 1,174,308 / 115,860 = 10.14
Class C................................... 135,238,312 / 13,122,945 = 10.31
LIMITED TERM INCOME FUND
Class A................................... 7,626,870 / 769,841 = 9.91
Class B................................... * / =
Class C................................... 93,588,111 / 9,447,417 = 9.91
INTERMEDIATE TERM INCOME FUND
Class A................................... 2,212,940 / 222,917 = 9.93
Class B................................... * / =
Class C................................... 98,701,854 / 9,942,822 = 9.93
FIXED INCOME FUND
Class A................................... 8,331,489 / 773,634 = 10.77
Class B................................... 16,092,140 / 1,501,772 = 10.72
Class C................................... 391,211,135 / 36,360,388 = 10.76
INTERMEDIATE GOVERNMENT BOND FUND
Class A................................... 3,319,386 / 361,319 = 9.19
Class B................................... * / =
Class C................................... 140,230,151 / 15,273,099 = 9.18
INTERMEDIATE TAX FREE FUND
Class A................................... 2,617,934 / 245,627 = 10.66
Class C................................... 66,994,445 / 6,289,564 = 10.65
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Class A................................... 3,915,868 / 395,308 = 9.91
Class C................................... 93,393,746 / 9,427,149 = 9.91
COLORADO INTERMEDIATE TAX FREE FUND
Class A................................... 2,861,607 / 274,680 = 10.42
Class C................................... 48,926,833 / 4,696,789 = 10.42
</TABLE>
* Not in operation at September 30, 1996.
FUND PERFORMANCE
SEC STANDARDIZED PERFORMANCE FIGURES
YIELD FOR THE FUNDS. Yield for the Funds is a measure of the net investment
income per share (as defined) earned over a 30-day period expressed as a
percentage of the maximum offering price of a Fund's shares at the end of the
period. Based upon the 30-day period ended September 30, 1996, the yields for
the Class A, Class B and Class C Shares of the Funds were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Stock Fund................................................ 1.36% 0.70% 1.66%
Equity Index Fund......................................... 1.59% 0.95% 1.91%
Balanced Fund............................................. 2.96% 2.37% 3.35%
Asset Allocation Fund..................................... 2.91% 2.31% 3.30%
Equity Income Fund........................................ 3.14% 2.55% 3.53%
Diversified Growth Fund................................... 0.87% 0.18% 1.16%
Emerging Growth Fund...................................... 0% 0% 0%
Regional Equity Fund...................................... 0.21% 0% 0.47%
Special Equity Fund....................................... 0.54% 0% 0.81%
Technology Fund........................................... 0% 0% 0%
Health Sciences Fund...................................... 0.13% 0% 0.31%
Real Estate Securities Fund............................... 5.91% 5.46% 6.42%
International Fund........................................ 0% 0% 0%
Limited Term Income Fund.................................. 5.62% * 5.73%
Intermediate Term Income Fund............................. 5.72% * 5.95%
Fixed Income Fund......................................... 5.70% 5.17% 6.18%
Intermediate Government Bond Fund......................... 5.61% * 5.79%
Intermediate Tax Free Fund................................ 4.10% * 4.22%
Minnesota Insured Intermediate Tax Free Fund.............. 4.28% * 4.41%
Colorado Intermediate Tax Free Fund....................... 4.36% * 4.49%
</TABLE>
* Not in operation at September 30, 1996.
Such yield figures were determined by dividing the net investment income per
share earned during the specified 30-day period by the maximum offering price
per share on the last day of the period, according to the following formula:
Yield = 2 [((a - b) / cd) + 1)^6 - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of reimbursements)
c = average daily number of shares outstanding
during the period that were entitled to receive
dividends
d = maximum offering price per share on
the last day of the period
TAX EQUIVALENT YIELD FOR TAX FREE FUNDS. Tax equivalent yield is the
yield that a taxable investment must generate in order to equal a Fund's yield
for an investor in a stated federal or combined federal/state income tax
bracket. The tax equivalent yield for each tax free Fund named below is computed
by dividing that portion of such Fund's yield (computed as described above) that
is tax exempt by one minus the stated federal or combined federal/state income
tax rate, and adding the resulting number to that portion, if any, of such
Fund's yield that is not tax exempt. Based upon the maximum federal income tax
rate of 39.6% and the combined maximum federal/state tax rates of 44.7% for
Minnesota and 42.6% for Colorado, the tax equivalent yields for the tax free
Funds named below for the 30-day period ended September 30, 1996, computed as
described above, were as follows:
CLASS A CLASS C
------- -------
Intermediate Tax Free Fund................................ 6.79% 6.99%
Minnesota Insured Intermediate Tax Free Fund.............. 7.74% 7.97%
Colorado Intermediate Tax Free Fund....................... 7.60% 7.82%
TOTAL RETURN. Total return measures both the net investment income
generated by, and the effect of any realized or unrealized appreciation or
depreciation of, the underlying investments in a Fund's portfolio. The Fund"
average annual and cumulative total return figures are computed in accordance
with the standardized methods prescribed by the Securities and Exchange
Commission.
AVERAGE ANNUAL TOTAL RETURN. Average annual total return figures are
computed by determining the average annual compounded rates of return over the
periods indicated in the advertisement, sales literature or shareholders'
report, that would equate the initial amount invested to the ending redeemable
value, according to the following formula:
P(1 + T)^n = ERV
Where: P = a hypothetical initial payment of $1,000
T = average annual total return
n = number of years
ERV = ending redeemable value at the end of the
period of a hypothetical $1,000 payment
made at the beginning of such period
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment (if applicable), and (b) all recurring
fees, such as advisory fees, charged as expenses to all shareholder accounts.
CUMULATIVE TOTAL RETURN. Cumulative total return is computed by finding
the cumulative compounded rate of return over the period indicated in the
advertisement that would equate the initial amount invested to the ending
redeemable value, according to the following formula:
CTR = ((ERV - P) / P ) 10
Where: CTR = cumulative total return
ERV = ending redeemable value at the end of, the
period of a hypothetical $1,000 payment
made at the beginning of such period; and
P = initial payment of $1,000
This calculation (i) assumes all dividends and distributions are reinvested at
net asset value on the appropriate reinvestment dates as described in the
Prospectuses, and (ii) deducts (a) the maximum sales charge from the
hypothetical initial $1,000 investment (if applicable), and (b) all recurring
fees, such as advisory fees, charged as expenses to all shareholder accounts.
Based on the foregoing, the average annual and aggregate total returns
for each class of the Funds from inception through September 30, 1996 were as
follows. The performance for Class A and Class B Shares will normally be lower
than for Class C Shares because Class A and Class B Shares are subject to sales
and distribution charges and/or shareholder servicing fees not charged to Class
C Shares.
<TABLE>
<CAPTION>
Average Annual
Cumulative ------------------------------------------------------------------
Since Inception* Since Inception* One Year Five Year
------------------ ------------------ ------------------- ------------------
Without With Without With Without With Without With
Sales Sales Sales Sales Sales Sales Sales Sales
Charge Charge Charge Charge Charge Charge Charge Charge
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STOCK FUND
Class A........... 222.32% 207.86% 14.27% 13.67% 23.90% 18.33% 16.01% 14.95%
Class B........... 52.21% 48.21% 21.85% 20.33% 23.08% 18.08% ** **
Class C........... 58.67% 19.01% 24.32% **
EQUITY INDEX FUND
Class A........... 72.16% 64.43% 15.39% 14.00% 19.75% 14.35% ** **
Class B........... 52.83% 48.83% 22.08% 20.57% 18.95% 13.95% ** **
Class C........... 55.25% 18.04% 19.98% **
BALANCED FUND
Class A........... 58.53% 51.42% 12.91% 11.55% 15.61% 10.42% ** **
Class B........... 36.50% 32.50% 15.76% 14.15% 14.78% 9.78% ** **
Class C........... 39.20% 13.28% 15.89% **
ASSET ALLOCATION FUND
Class A........... 47.30% 40.69% 10.75% 9.41% 12.09% 7.07% ** **
Class B........... 32.15% 28.15% 14.01% 12.37% 11.29% 6.29% ** **
Class C........... 33.35% 11.46% 12.37% **
EQUITY INCOME FUND
***Class A........ 41.30% 34.99% 14.72% 12.66% 16.41% 11.17% ** **
Class B........... 36.20% 32.20% 15.64% 14.03% 15.66% 10.66% ** **
Class C........... 38.71% 16.34% 16.79% **
DIVERSIFIED GROWTH FUND
***Class A........ 54.62% 47.65% 18.90% 16.74% 17.38% 12.13% ** **
Class B........... 55.85% 51.85% 23.21% 21.71% 16.41% 11.41% ** **
Class C........... 58.35% 23.69% 17.58% **
EMERGING GROWTH FUND
Class A........... 54.41% 47.48% 19.06% 16.88% 13.21% 8.13% ** **
Class B........... 53.23% 49.23% 22.23% 20.72% 12.32% 7.32% ** **
Class C........... 54.77% 19.17% 13.39% **
REGIONAL EQUITY FUND
Class A........... 100.99% 91.97% 20.20% 18.75% 10.97% 5.96% ** **
Class B........... 58.38% 54.38% 24.15% 22.66% 10.14% 5.14% ** **
Class C........... 59.63% 19.29% 11.27% **
SPECIAL EQUITY FUND
Class A........... 258.58% 242.49% 15.66% 15.06% 25.23% 19.61% 18.06% 16.98%
Class B........... 46.07% 42.07% 19.51% 17.96% 24.35% 19.35% ** **
Class C........... 52.09% 17.13% 25.61% **
TECHNOLOGY FUND
Class A........... 120.60% 110.70% 37.40% 34.88% 18.60% 13.26% ** **
Class B........... 119.69% 115.69% 44.80% 43.56% 17.75% 12.75% ** **
Class C........... 121.06% 37.51% 18.85% **
HEALTH SCIENCES FUND
Class A........... (1.32)% (5.75)% (1.98)% (8.51)% ** ** ** **
Class B........... (1.86)% (6.77)% (2.78)% (9.99)% ** ** ** **
Class C........... (1.20)% (1.79)% ** **
REAL ESTATE SECURITIES FUND
Class A........... 18.17% 12.84% 18.12% 12.80% 18.17% 12.84% ** **
Class B........... 17.00% 12.00% 16.95% 11.97% 17.00% 12.00% ** **
Class C........... 24.68% 19.27% 18.53% **
INTERNATIONAL FUND
Class A........... 4.90% 0.18% 1.95% 0.07% 1.84% (2.70)% ** **
Class B........... 0.73% (3.24)% 0.34% (1.54)% 1.02% (3.95)% ** **
Class C........... 5.17% 2.04% 2.11% **
LIMITED TERM INCOME FUND
Class A........... 19.55% 17.21% 4.82% 4.27% 5.93% 3.83% ** **
Class B........... ** ** ** ** ** ** ** **
Class C........... 14.29% 5.16% 5.93% **
INTERMEDIATE TERM INCOME FUND
Class A........... 23.85% 19.20% 5.80% 4.74% 5.63% 1.65% ** **
Class B........... ** ** ** ** ** ** ** **
Class C........... 15.00% 5.41% 5.63% **
FIXED INCOME FUND
Class A........... 99.27% 91.79% 8.17% 7.70% 4.64% 0.70% 7.05% 6.24%
Class B........... 15.12% 11.12% 6.85% 5.08% 3.93% (0.98)% ** **
Class C........... 14.57% 5.26% 4.90% **
INTERMEDIATE GOVERNMENT BOND FUND
Class A........... 75.52% 70.24% 6.62% 6.25% 4.85% 1.68% 5.41% 4.77%
Class B........... ** ** ** ** ** ** ** **
Class C........... 13.12% 4.76% 4.74% **
INTERMEDIATE TAX FREE FUND
Class A........... 66.74% 61.72% 6.00% 5.63% 4.45% 1.33% 5.58% 4.93%
Class C........... 10.59% 3.87% 4.35% **
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND
Class A........... 11.76% 8.40% 4.38% 3.16% 4.80% 1.63% ** **
Class C........... 11.75% 4.38% 4.80% **
COLORADO INTERMEDIATE TAX FREE FUND
Class A........... 17.49% 13.96% 6.69% 5.39% 4.39% 1.21% ** **
Class C........... 17.49% 6.69% 4.39% **
</TABLE>
* Inception dates are as follows: Stock Fund, Class A, December 22, 1987;
Class B, August 15, 1994; Class C, February 4, 1994; Equity Index Fund,
Class A, December 14, 1992; Class B, August 15, 1994; Class C, February 4,
1994; Balanced Fund, Class A, December 14, 1992; Class B, August 15, 1994;
Class C, February 4, 1994; Asset Allocation Fund, Class A, December 14,
1992; Class B, August 15, 1994; Class C, February 4, 1994; Equity Income
Fund, Class A, December 18, 1992; Class B, August 15, 1994; Class C, August
2, 1994; Diversified Growth Fund, Class A, December 18, 1992; Class B,
August 15, 1994; Class C, August 2, 1994; Emerging Growth Fund, Class A,
April 4, 1994; Class B, August 15, 1994; Class C, April 4, 1994; Regional
Equity Fund, Class A, December 14, 1992; Class B, August 15, 1994; Class C,
February 4, 1994; Special Equity Fund, Class A, December 22, 1987; Class B,
August 15, 1994; Class C, February 4, 1994; Technology Fund, Class A, April
4, 1994; Class B, August 15, 1994; Class C, April 4, 1994; Health Sciences
Fund, Class A, Class B and Class C, January 31, 1996; Real Estate
Securities Fund, Class A, September 29, 1995; Class B, September 29, 1995;
Class C, June 30, 1995; International Fund, Class A, April 7, 1994; Class
B, August 15, 1994; Class C, April 4, 1994; Limited Term Income Fund, Class
A, December 14, 1992; Class B, August 15, 1994 (closed January 31, 1995);
Class C, February 4, 1994; Intermediate Term Income Fund, Class A, December
14, 1992; Class B, not in operation at September 30, 1996; Class C,
February 4, 1994; Fixed Income Fund, Class A, December 22, 1987; Class B,
August 15, 1994; Class C, February 4, 1994; Intermediate Government Bond
Fund, Class A, December 22, 1987; Class B, not in operation at September
30, 1996; Class C, February 4, 1994; Intermediate Tax Free Fund, Class A,
December 22, 1987; Class C, February 4, 1994; Minnesota Insured
Intermediate Tax Free Fund, Class A, February 25, 1994; Class C, February
28, 1994; Colorado Intermediate Tax Free Fund, Class A, April 4, 1994;
Class C, April 4, 1994.
** Not in operation for entire period.
*** Performance is presented for the period beginning March 25, 1994, the date
First Bank National Association became the Adviser. The per share income
and capital changes for these Funds since inception can be found in the
financial highlights section of the prospectus and annual report to
shareholders. Total return figures from inception of these Funds are
available upon request from the Funds' Distributor SEI Financial Services
Company, Oaks, Pennsylvania 19456, telephone (800) 637-2548.
NON-STANDARD DISTRIBUTION RATES
HISTORICAL DISTRIBUTION RATES. The Funds' historical annualized
distribution rates are computed by dividing the income dividends of a Fund for a
stated period by the maximum offering price on the last day of such period. For
the one-year period ended September 30, 1996, the historical distribution rates
of the Class A, Class B and Class C Shares of the Funds were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Stock Fund................................................ 1.55% 0.99% 1.85%
Equity Index Fund......................................... 1.68% 1.13% 1.98%
Balanced Fund............................................. 2.85% 2.34% 3.21%
Asset Allocation Fund..................................... 2.61% 2.08% 2.97%
Equity Income Fund........................................ 2.97% 2.45% 3.34%
Diversified Growth Fund................................... 1.05% 0.58% 1.29%
Emerging Growth Fund...................................... 0% 0% 0.09%
Regional Equity Fund...................................... 0.22% 0.03% 0.32%
Special Equity Fund....................................... 0.94% 0.47% 1.17%
Technology Fund........................................... 0% 0% 0%
Health Sciences Fund...................................... 0.08% 0.04% 0.11%
Real Estate Securities Fund............................... 5.63% 5.44% 6.10%
International Fund........................................ 1.77% 1.57% 1.92%
Limited Term Income Fund.................................. 5.76% * 5.87%
Intermediate Term Income Fund............................. 5.29% * 5.50%
Fixed Income Fund......................................... 5.41% 4.93% 5.87%
Intermediate Government Bond Fund......................... 5.70% * 5.88%
Intermediate Tax Free Fund................................ 4.20% * 4.34%
Minnesota Insured Intermediate Tax Free Fund.............. 4.38% * 4.52%
Colorado Intermediate Tax Free Fund....................... 4.58% * 4.72%
</TABLE>
* Not in operation at September 30, 1996.
ANNUALIZED CURRENT DISTRIBUTION RATES. The Funds' annualized current
distribution rates are computed by dividing a Fund's income dividends for a
specified month (or three-month period, in the case of an equity Fund) by the
number of days in that month (or three-month period, in the case of an equity
Fund) and multiplying by 365, and dividing the resulting figure by the maximum
offering price on the last day of the specified period. The annualized current
distribution rates for the one or three-month period (as appropriate) ended
September 30, 1996 for Funds were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS B CLASS C
------- ------- -------
<S> <C> <C> <C>
Stock Fund................................................ 1.20% 0.56% 1.49%
Equity Index Fund......................................... 1.79% 1.18% 2.12%
Balanced Fund............................................. 2.80% 2.26% 3.18%
Asset Allocation Fund..................................... 2.96% 2.40% 3.35%
Equity Income Fund........................................ 2.24% 1.65% 2.59%
Diversified Growth Fund................................... 0% 0% 0%
Emerging Growth Fund...................................... 0% 0% 0%
Regional Equity Fund...................................... 0% 0% 0%
Special Equity Fund....................................... 0% 0% 0%
Technology Fund........................................... 0% 0% 0%
Health Sciences Fund...................................... 0% 0% 0%
Real Estate Securities Fund............................... 5.70% 5.36% 6.16%
International Fund........................................ 0% 0% 0%
Limited Term Income Fund.................................. 5.90% * 6.02%
Intermediate Term Income Fund............................. 5.89% * 6.13%
Fixed Income Fund......................................... 5.52% 5.03% 5.99%
Intermediate Government Bond Fund......................... 5.65% * 5.83%
Intermediate Tax Free Fund................................ 4.10% * 4.23%
Minnesota Insured Intermediate Tax Free Fund.............. 4.29% * 4.42%
Colorado Intermediate Tax Free Fund....................... 4.42% * 4.55%
</TABLE>
* Not in operation at September 30, 1996.
TAX EQUIVALENT DISTRIBUTION RATES. The tax equivalent distribution rate
for the tax free Funds is computed by dividing that portion of such a Fund's
annualized current distribution rate (computed as described above) which is
tax-exempt by one minus the stated federal or combined federal/state income tax
rate, and adding the resulting figure to that portion, if any, of the annualized
current distribution rate which is not tax-exempt. Based upon the maximum
federal or combined federal/state income tax rates set forth above under "-- SEC
Standardized Performance Figures -- Tax Equivalent Yield for Tax Free Funds,"
the annualized current distribution rates for the month ended September 30,
1996, for each class of the tax free Funds were as follows:
<TABLE>
<CAPTION>
CLASS A CLASS C
------- -------
<S> <C> <C>
Intermediate Tax Free Fund................................ 6.79% 7.00%
Minnesota Insured Intermediate Tax Free Fund.............. 7.76% 7.99%
Colorado Intermediate Tax Free Fund....................... 7.70% 7.93%
</TABLE>
CERTAIN PERFORMANCE COMPARISONS
The Funds may compare their performance to that of certain published or
otherwise widely disseminated indices or averages compiled by third parties. The
Funds, and the indices and averages to which they may compare their performance,
are as follows, among others:
STOCK FUND may compare its performance to the STANDARD & POOR'S DAILY
STOCK PRICE INDEX OF 500 COMMON STOCKS ("S&P 500"), which is a composite index
of common stocks in industrial, transportation, and financial and public utility
companies. The S&P 500 index assumes reinvestment of all dividends paid by
stocks listed in its index. Taxes due on any of these distributions are not
included, nor are brokerage or other fees calculated in Standard & Poor's
figures. Stock Fund also may compare its performance to the LIPPER GROWTH &
INCOME AVERAGE, which is an average of funds which combine a growth of earnings
orientation and an income requirement for level and/or rising dividends.
EQUITY INDEX FUND may compare its performance to the S&P 500, which is
described above, and to the LIPPER S&P 500 INDEX FUND AVERAGE.
BALANCED FUND may compare its performance to the S&P 500, which is
described above. Balanced Fund also may compare its performance to the LEHMAN
GOVERNMENT/CORPORATE (TOTAL) INDEX, which is a market weighted index comprised
of all public obligations of the U.S. Treasury, excluding flower bonds and
foreign-targeted issues; all publicly issued debt of U.S. Government agencies
and quasi-federal corporations, and corporate debt guaranteed by the U.S.
Government; and all publicly issued, fixed rate, nonconvertible investment grade
dollar-denominated SEC-registered corporate debt. Balanced Fund also may compare
its performance to the LIPPER BALANCED AVERAGE, which is an average of funds
whose primary objective is to conserve principal by maintaining at all times a
balanced portfolio of both stocks and bonds. Balanced Fund also may compare its
performance to a composite constructed from the S&P 500 and the Lehman
Government/Corporate (Total) Index.
ASSET ALLOCATION FUND may compare its performance to the S&P 500 and
the LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX, each of which is described above.
Asset Allocation Fund also may compare its performance to the LIPPER FLEXIBLE
PORTFOLIO AVERAGE, which is an average of funds which allocate investments
across various asset classes, including domestic common stocks, bonds and money
market instruments, with a focus on total return.
EQUITY INCOME FUND may compare its performance to the S&P 500 and the
LEHMAN GOVERNMENT/CORPORATE (TOTAL) INDEX, each of which is described above, and
to a composite constructed from these two indices. Equity Income Fund also may
compare its performance to the LIPPER EQUITY INCOME AVERAGE, which is an average
of funds which seek relatively high current income and growth of income through
investing 60% or more of their portfolios in equities.
DIVERSIFIED GROWTH FUND may compare its performance to the S&P 500 and
the LIPPER GROWTH & INCOME AVERAGE, each of which is described above.
EMERGING GROWTH FUND may compare its performance to the RUSSELL 2000
INDEX, which is a broadly diversified index consisting of approximately 2,000
small capitalization common stocks that can be used to compare to the total
returns of funds whose portfolios are invested primarily in small capitalization
common stocks. Emerging Growth Fund also may compare its performance to the
LIPPER SMALL COMPANY GROWTH AVERAGE, which is an average of funds which limit
their investments to smaller capitalization companies.
REGIONAL EQUITY FUND may compare its performance to the RUSSELL 2000
INDEX and the LIPPER SMALL COMPANY GROWTH AVERAGE, each of which is described
above.
SPECIAL EQUITY FUND may compare its performance to the S&P 400 MIDCAP
AVERAGE, which is a capitalization-weighted index that measures the performance
of the mid-range sector of the U.S. stock market where the median market
capitalization is approximately $700 million. Special Equity Fund also may
compare its performance to the LIPPER MID-CAP AVERAGE, which is an average of
funds which limit their investments to companies with average market
capitalizations and/or revenues between $800 million and the average market
capitalization of the Wilshire 4500 Index.
TECHNOLOGY FUND may compare its performance to the LIPPER TECHNOLOGY
AVERAGE, which is an average of funds which invest in technology-related
equities.
HEALTH SCIENCES FUND may compare its performance to that of the LIPPER
HEALTH/BIOTECHNOLOGY AVERAGE, which is an average of funds which invest at least
65% of their equity portfolio in shares of companies engaged in health care,
medicine and biotechnology.
REAL ESTATE SECURITIES FUND may compare its performance to the NAREIT
EQUITY REIT INDEX, which is a market weighted index based on the last closing
price of the month for all tax-qualified Equity REITs listed on the New York
Stock Exchange, the American Stock Exchange and the NASDAQ National Market
System. Equity REITs are defined as REITs with 75% or more of their gross
invested book assets invested directly or indirectly in the equity ownership of
real estate. Only common shares issued by an Equity REIT are included in the
index. Real Estate Securities Fund also may compare its performance to the
LIPPER REAL ESTATE AVERAGE, which is an average of real estate-oriented funds.
INTERNATIONAL FUND may compare its performance to that of the MORGAN
STANLEY CAPITAL INTERNATIONAL EUROPE, AUSTRALIA AND FAR EAST ("EAFE") INDEX,
which is an aggregate of 15 individual country indices that collectively
represent many of the major markets of the world, excluding the United States
and Canada. International Fund also may compare its performance to the LIPPER
INTERNATIONAL AVERAGE, which is an average of funds which primarily invest in
equity securities whose primary trading markets are outside the United States.
LIMITED TERM INCOME FUND may compare its performance to the MERRILL
LYNCH ONE-YEAR TREASURY INDEX, which is an unmanaged index of a one-year
constant maturity Treasury bill. Limited Term Income Fund also may compare its
performance to the LIPPER SHORT INVESTMENT GRADE DEBT AVERAGE, which is an
average of funds which invest at least 65% of assets in investment grade debt
issues with dollar-weighted average maturities of five years or less.
INTERMEDIATE TERM INCOME FUND may compare its performance to the LEHMAN
INTERMEDIATE GOVERNMENT/CORPORATE INDEX, which is a market weighted index
comprised of all public obligations of the U.S. Treasury, excluding flower bonds
and foreign-targeted issues; all publicly issued debt of U.S. Government
agencies and quasi-federal corporations, and corporate debt guaranteed by the
U.S. Government; and all publicly issued, fixed rate, nonconvertible investment
grade dollar-denominated SEC-registered corporate debt, in each case with
maturities of up to ten years. Intermediate Term Income Fund also may compare
its performance to the LIPPER SHORT-INTERMEDIATE INVESTMENT GRADE DEBT AVERAGE,
which is an average of funds which invest at least 65% of assets in investment
grade debt with dollar-weighted average maturities of one to five years.
FIXED INCOME FUND may compare its performance to the LEHMAN
GOVERNMENT/CORPORATE (TOTAL) INDEX, which is described above. Fixed Income Fund
also may compare its performance to the LIPPER CORPORATE DEBT FUNDS A-RATED
AVERAGE, which is an average of funds which invest 65% or more of assets in
corporate debt issues rated "A" or better or government issues.
INTERMEDIATE GOVERNMENT BOND FUND may compare its performance to the
LEHMAN INTERMEDIATE GOVERNMENT INDEX, which is a market weighted index comprised
of all public obligations of the U.S. Treasury, excluding flower bonds and
foreign-targeted issues, and all publicly issued debt of U.S. Government
agencies and quasi-federal corporations, and corporate debt guaranteed by the
U.S. Government, in each case with maturities of up to ten years. Intermediate
Government Bond Fund also may compare its performance to the LIPPER
SHORT-INTERMEDIATE U.S. GOVERNMENT AVERAGE, which is an average of funds which
invest at least 65% of assets in securities issued or guaranteed by the U.S.
Government, its agencies or instrumentalities with dollar-weighted average
maturities of one to five years.
INTERMEDIATE TAX FREE FUND may compare its performance to the LEHMAN
7-YEAR G.O. INDEX, which is an unmanaged index comprised of state and local
general obligation issues with maturities between 6 and 8 years which were
issued as part of a transaction of at least $50 million and which have a minimum
credit rating of at least Baa. Intermediate Tax Free Fund also may compare its
performance to the LIPPER INTERMEDIATE MUNICIPAL DEBT AVERAGE, which is an
average of funds which invest in municipal debt issues with dollar-weighted
average maturities of five to ten years.
MINNESOTA INSURED INTERMEDIATE TAX FREE FUND may compare its
performance to the LEHMAN 7- YEAR G.O. INDEX and the LIPPER INTERMEDIATE
MUNICIPAL DEBT AVERAGE, each of which is described above.
COLORADO INTERMEDIATE TAX FREE FUND may compare its performance to the
LEHMAN 7-YEAR G.O. INDEX and the LIPPER INTERMEDIATE MUNICIPAL DEBT AVERAGE,
each of which is described above.
Each of the Funds also may compare its performance to the CONSUMER
PRICE INDEX, which is a measure of the average change in prices over time in a
fixed market basket of goods and services.
TAXATION
The tax status of the Funds and the distributions that the Funds will
make to shareholders are summarized in the Prospectuses in the sections entitled
"Federal Income Taxes" (or, in the Prospectuses for the Tax Free Funds, "Income
Taxes"). Each Fund intends to fulfill the requirements of Subchapter M of the
Internal Revenue Code of 1986, as amended (the "Code"), as a regulated
investment company. If so qualified, each Fund will not be liable for federal
income taxes to the extent it distributes its taxable income to its
shareholders.
To qualify under Subchapter M for tax treatment as a regulated
investment company, each Fund must, among other things: (1) derive at least 90%
of its gross income from dividends, interest, and certain other types of
payments related to its investment in stock or securities; (2) distribute to its
shareholders at least 90% of its investment company taxable income (as that term
is defined in the Code determined without regard to the deduction for dividends
paid) and 90% of its net tax-exempt income; (3) derive less than 30% of its
annual gross income from the sale or other disposition of stock, securities,
options, futures, or forward contracts held for less than three months; and (4)
diversify its holdings so that, at the end of each fiscal quarter of the Fund,
(a) at least 50% of the market value of the Fund's assets is represented by
cash, cash items, U.S. Government securities and securities of other regulated
investment companies, and other securities, with these other securities limited,
with respect to any one issuer, to an amount no greater than 5% of the Fund's
total assets and no greater than 10% of the outstanding voting securities of
such issuer, and (b) not more than 25% of the market value of the Fund's total
assets is invested in the securities of any one issuer (other than U.S.
Government securities or securities of other regulated investment companies).
Each Fund is subject to a nondeductible excise tax equal to 4% of the
excess, if any, of the amount required to be distributed for each calendar year
over the amount actually distributed. For this purpose, any amount on which the
Fund is subject to corporate-level income tax is considered to have been
distributed. In order to avoid the imposition of this excise tax, each Fund must
declare and pay dividends representing 98% of its net investment income for that
calendar year and 98% of its capital gains (both long-term and short-term) for
the twelve-month period ending October 31 of the calendar year.
Any loss on the sale or exchange of shares of a Fund generally
will be disallowed to the extent that a shareholder acquires or contracts to
acquire shares of the same Fund within 30 days before or after such sale or
exchange. Furthermore, if Fund shares with respect to which a long-term capital
gain distribution has been made are held for less than six months, any loss on
the sale or exchange of such shares will be treated as a long-term capital loss
to the extent of such long-term capital gain distribution. Furthermore, if a
shareholder of any of the Tax-Free Funds receives an exempt-interest dividend
from such fund and then disposes of his or her shares in such fund within six
months after acquiring them, any loss on the sale or exchange of such shares
will be disallowed to the extent of the exempt-interest dividend.
If one of the Tax-Free Funds disposes of a municipal obligation that it
acquired after April 30, 1993 at a market discount, it must recognize any gain
it realizes on the disposition as ordinary income (and not as capital gain) to
the extent of the accrued market discount.
For federal tax purposes, if a shareholder exchanges shares of a Fund
for shares of any other FAIF Fund pursuant to the exchange privilege (see
"Investing in the Funds -- Exchange Privilege" in the Prospectuses for Class A
and Class B Shares, and "Purchases and Redemptions of Shares -- Exchange
Privilege" in the Prospectuses for Class C Shares), such exchange will be
considered a taxable sale of the shares being exchanged. Furthermore, if a
shareholder of Retail Class Shares carries out the exchange within 90 days of
purchasing shares in a fund on which he or she has incurred a sales charge, the
sales charge cannot be taken into account in determining the shareholder's gain
or loss on the sale of those shares to the extent that the sales charge that
would have been applicable to the purchase of the later-acquired shares in the
other fund is reduced because of the exchange privilege. However, the amount of
any sales charge that may not be taken into account in determining the
shareholder's gain or loss on the sale of the first-acquired shares may be taken
into account in determining gain or loss on the eventual sale or exchange of the
later-acquired shares.
Dividends generally are taxable to shareholders at the time they are
paid. However, dividends declared in October, November and December, made
payable to shareholders of record in such a month and actually paid in January
of the following year are treated as paid and are thereby taxable to
shareholders as of December 31.
If a Fund invests in U.S. Treasury inflation-protection securities, it
will be required to treat as original issue discount any increase in the
principal amount of the securities that occurs during the course of its taxable
year. If a Fund purchases such inflation-protection securities that are issued
in stripped form either as stripped bonds or coupons, it will be treated as if
it had purchased a newly issued debt instrument having original issue discount.
Generally, the original issue discount equals the difference between the "stated
redemption price at maturity" of the obligation and its "issue price" as those
terms are defined in the Code. A Fund holding an obligation with original issue
discount is required to accrue as ordinary income a portion of such original
issue discount even though it receives no cash currently as interest payment
corresponding to the amount of the original issue discount. Because each Fund is
required to distribute substantially all of its net investment income (including
accrued original issue discount) in order to be taxed as a regulated investment
company, it may be required to distribute an amount greater than the total cash
income it actually receives. Accordingly, in order to make the required
distributions, a Fund may be required to borrow or liquidate securities. The
extent to which a Fund may liquidate securities at a gain may be limited by the
requirement that less than 30% of the Fund's gross income (on an annual basis)
consists of gains from the sale of securities held for less than three months.
Under Code Section 1256, except for the transactions the Fund has
identified as hedging transactions, each Fund is required for federal income tax
purposes to recognize as income for each taxable year its net unrealized gains
and losses on futures contracts, options, and (in the case of International
Fund) forward currency contracts as of the end of the year as well as those
actually realized during the year. Except for transactions in futures contracts,
options, or forward currency contracts that are classified as part of a "mixed
straddle," gain or loss recognized with respect to such contracts or options is
considered to be 60% long-term capital gain or loss and 40% short-term capital
gain or loss, without regard to the holding period of the contract. In the case
of a transaction classified as a "mixed straddle," the recognition of losses may
be deferred to a later taxable year.
Sales of forward currency contracts that are intended to hedge against
a change in the value of securities or currencies held by a Fund may affect the
holding period of such securities or currencies and, consequently, the nature of
the gain or loss on such securities or currencies upon disposition.
As stated above, the Code requires a regulated investment company to
diversify its holdings. The Internal Revenue Service has not made its position
clear regarding the treatment of futures contracts and options for purposes of
the diversification test, and the extent to which a Fund can buy or sell futures
contracts and options may be limited by this requirement.
It is expected that any net gain realized from the closing out of
futures contracts, options, or forward currency contracts will be considered
gain from the sale of securities or currencies and therefore qualifying income
for purposes of the 90% of gross income from qualified sources requirement, as
discussed above. In order to avoid realizing excessive gains on securities or
currencies held less than three months, each Fund may be required to defer the
closing out of futures contracts, options, or forward currency contracts beyond
the time when it would otherwise be advantageous to do so. It is expected that
unrealized gains on futures contracts, options, or forward currency contracts,
which have been open for less than three months as of the end of a Fund's fiscal
year and which are recognized for tax purposes, will not be considered gains on
securities or currencies held less than three months for purposes of the 30%
test, as discussed above.
Any realized gain or loss on closing out a futures contract, option, or
forward currency contract such as a forward commitment for the purchase or sale
of foreign currency will generally result in a recognized capital gain or loss
for tax purposes. Code Section 988 may also apply to forward currency contracts.
Under Section 988, each foreign currency gain or loss is generally computed
separately and treated as ordinary income or loss. In the case of overlap
between Sections 1256 and 988, special provisions determine the character and
timing of any income, gain or loss. International Fund will attempt to monitor
Section 988 transactions to avoid an adverse tax impact.
Each Fund will distribute to shareholders annually any net long-term
capital gains that have been recognized for federal income tax purposes
(including unrealized gains at the end of the Fund's fiscal year) on futures
contract, option, or forward currency contract transactions. Such distributions
will be combined with distributions of capital gains realized on the Fund's
other investments.
Pursuant to the Code, distributions of net investment income by a Fund
to a shareholder who, as to the United States, is a nonresident alien
individual, nonresident alien fiduciary of a trust or estate, foreign
corporation, or foreign partnership (a "foreign shareholder") will be subject to
U.S. withholding tax (at a rate of 30% or lower treaty rate). Withholding will
not apply if a dividend paid by a Fund to a foreign shareholder is `'effectively
connected" with a U.S. trade or business of such shareholder, in which case the
reporting and withholding requirements applicable to U.S. citizens or domestic
corporations will apply. Distributions of net long-term capital gains are not
subject to tax withholding but, in the case of a foreign shareholder who is a
nonresident alien individual, such distributions ordinarily will be subject to
U.S. income tax at a rate of 30% if the individual is physically present in the
U.S. for more than 182 days during the taxable year. Each Fund will report
annually to its shareholders the amount of any withholding.
The foregoing relates only to federal income taxation and is a general
summary of the federal tax law in effect as of the date of this Statement of
Additional Information.
RATINGS
A rating of a rating service represents that service's opinion as to
the credit quality of the rated security. However, such ratings are general and
cannot be considered absolute standards of quality or guarantees as to the
creditworthiness of an issuer. A rating is not a recommendation to purchase,
sell or hold a security, because it does not take into account market value or
suitability for a particular investor. Markets values of debt securities may
change as a result of a variety of factors unrelated to credit quality,
including changes in market interest rates.
When a security has been rated by more than one service, the ratings
may not coincide, and each rating should be evaluated independently. Ratings are
based on current information furnished by the issuer or obtained by the rating
services from other sources which they consider reliable. Ratings may be
changed, suspended or withdrawn as a result of changes in or unavailability of
such information, or for other reasons. In general, the Funds are not required
to dispose of a security if its rating declines after it is purchased, although
they may consider doing so.
RATINGS OF CORPORATE DEBT OBLIGATIONS AND MUNICIPAL BONDS
STANDARD & POOR'S CORPORATION
AAA: Securities rated AAA have the highest rating assigned by Standard
& Poor's to a debt obligation. Capacity to pay interest and repay
principal is extremely strong.
AA: Securities rated AA have a very strong capacity to pay interest and
repay principal and differ from the highest rated issues only to a
small degree.
A: Securities rated A have a strong capacity to pay interest and repay
principal, although they are somewhat more susceptible to adverse
effects of changes in circumstances and economic conditions than bonds
in higher rated categories.
BBB: Securities rated BBB are regarded as having an adequate capacity
to pay interest and repay principal. Although such securities normally
exhibit adequate protection standards, adverse economic conditions or
changing circumstances are more likely to lead to a weakened capacity
to pay interest and repay principal for securities in this category
than for those in higher rated categories.
Debt rated BB, B, CCC, CC, and C by Standard & Poor's is regarded, on balance,
as predominantly speculative with respect to capacity to pay interest and repay
principal in accordance with the terms of the obligation. BB indicates the
lowest degree of speculation and C the highest degree of speculation. While such
debt will likely have some quality and protective characteristics, these are
outweighed by large uncertainties or major risk exposures to adverse conditions.
BB: Securities rated BB have less near-term vulnerability to default
than other speculative issues. However, they face major ongoing
uncertainties or exposure to adverse business, financial, or economic
conditions which could lead to inadequate capacity to meet timely
interest and principal payments. The BB rating category is also used
for debt subordinated to senior debt that is assigned an actual or
implied BBB- rating.
B: Securities rated B have a greater vulnerability to default but
currently have the capacity to meet interest payments and principal
repayments. Adverse business, financial, or economic conditions will
likely impair capacity or willingness to pay interest and repay
principal. The B rating category is also used for debt subordinated to
senior debt that is assigned an actual or implied BB or BB- rating.
CCC: Securities rated CCC have a currently identifiable vulnerability
to default, and are dependent upon favorable business, financial, and
economic conditions to meet timely payment of interest and repayment of
principal. In the event of adverse business, financial, or economic
conditions, they are not likely to have the capacity to pay interest
and repay principal. The CCC rating category is also used for debt
subordinated to senior debt that is assigned an actual or implied B or
B- rating.
The ratings from AA to CCC may be modified by the addition of a plus (+) or
minus (-) sign to show relative standing within the major rating categories.
MOODY'S INVESTORS SERVICE, INC.
Aaa: Securities which are rated Aaa are judged to be of the best
quality. They carry the smallest degree of investment risk and are
generally referred to as "gilt edge." Interest payments are protected
by a large or exceptionally stable margin and principal is secure.
While the various protective elements are likely to change, such
changes as can be visualized are most unlikely to impair the
fundamentally strong position of such issues.
Aa: Securities which are rated Aa are judged to be of high quality by
all standards. Together with the Aaa group, they comprise what are
generally known as high grade securities. They are rated lower than the
best securities because margins of protection may not be as large as in
Aaa securities, or fluctuation of protective elements may be of greater
magnitude, or there may be other elements present which make the
long-term risks appear somewhat greater than in Aaa securities.
A: Securities which are rated A possess many favorable investment
attributes and are to be considered as upper medium grade obligations.
Factors giving security to principal and interest are considered
adequate, but elements may be present which suggest a susceptibility to
impairment sometime in the future.
Baa: Securities which are rated Baa are considered as medium grade
obligations, being neither highly protected nor poorly secured.
Interest payments and principal security appear adequate for the
present, but certain protective elements may be lacking or may be
characteristically unreliable over any great length of time. Such
securities lack outstanding investment characteristics, and in fact
have some speculative characteristics.
Ba: An issue which is rated Ba is judged to have speculative elements;
its future cannot be considered as well assured. Often the protection
of interest and principal payments may be very moderate and thereby not
well safeguarded during both good and bad times over the future.
Uncertainty of position characterizes issues in this class.
B: An issue which is rated B generally lacks characteristics of the
desirable investment. Assurance of interest and principal payments or
of maintenance of other terms of the contract over any long period of
time may be small.
Caa: An issue which is rated Caa is of poor standing. Such an issue may
be in default or there may be present elements of danger with respect
to principal or interest.
Those securities in the Aa, A and Baa groups which Moody's believes possess the
strongest investment attributes are designated by the symbols Aa-1, A-1 and
Baa-1. Other Aa, A and Baa securities comprise the balance of their respective
groups. These rankings (1) designate the securities which offer the maximum in
security within their quality groups, (2) designate securities which can be
bought for possible upgrading in quality, and (3) additionally afford the
investor an opportunity to gauge more precisely the relative attractiveness of
offerings in the marketplace.
RATINGS OF PREFERRED STOCK
STANDARD & POOR'S CORPORATION. Standard & Poor's ratings for preferred
stock have the following definitions:
AAA: An issue rated "AAA" has the highest rating that may be assigned
by Standard & Poor's to a preferred stock issue and indicates an
extremely strong capacity to pay the preferred stock obligations.
AA: A preferred stock issue rated "AA" also qualifies as a high-quality
fixed income security. The capacity to pay preferred stock obligations
is very strong, although not as overwhelming as for issues rated "AAA."
A: An issue rated "A" is backed by a sound capacity to pay the
preferred stock obligations, although it is somewhat more susceptible
to the adverse effects of changes in circumstances and economic
conditions.
BBB: An issue rated "BBB" is regarded as backed by an adequate capacity
to pay the preferred stock obligations. Whereas it normally exhibits
adequate protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to make
payments for a preferred stock in this category than for issues in the
category.
MOODY'S INVESTORS SERVICE, INC. Moody's ratings for preferred stock
include the following:
aaa: An issue which is rated "aaa" is considered to be a top-quality
preferred stock. This rating indicates good asset protection and the
least risk of dividend impairment within the universe of preferred
stocks.
aa: An issue which is rated "aa" is considered a high grade preferred
stock. This rating indicates that there is reasonable assurance that
earnings and asset protection will remain relatively well maintained in
the foreseeable future.
a: An issue which is rate "a" is considered to be an upper medium grade
preferred stock. While risks are judged to be somewhat greater than in
the "aaa" and "aa" classifications, earnings and asset protection are,
nevertheless, expected to be maintained at adequate levels.
baa: An issue which is rated "baa" is considered to be medium grade,
neither highly protected nor poorly secured. Earnings and asset
protection appear adequate at present but may be questionable over any
great length of time.
RATINGS OF MUNICIPAL NOTES
STANDARD & POOR'S CORPORATION
SP-1: Very strong capacity to pay principal and interest. Those issues
determined to possess overwhelming safety characteristics are given a
plus (+) designation.
SP-2: Satisfactory capacity to pay principal and interest.
SP-3: Speculative capacity to pay principal and interest.
None of the Funds will purchase SP-3 municipal notes.
MOODY'S INVESTORS SERVICE, INC. Generally, Moody's ratings for state
and municipal short-term obligations are designated Moody's Investment Grade
("MIG"); however, where an issue has a demand feature which makes the issue a
variable rate demand obligation, the applicable Moody's rating is "VMIG."
MIG 1/VMIG 1: This designation denotes the best quality. There is
strong protection by established cash flows, superior liquidity support
or demonstrated broad-based access to the market for refinancing.
MIG 2/VMIG 2: This designation denotes high quality, with margins of
protection ample although not so large as available in the preceding
group.
MIG 3/VMIG 3: This designation denotes favorable quality, with all
security elements accounted for, but lacking the strength of the
preceding grades. Liquidity and cash flow protection may be narrow and
market access for refinancing is likely to be less well established.
None of the Funds will purchase MIG 3/VMIG 3 municipal notes.
RATINGS OF COMMERCIAL PAPER
STANDARD & POOR'S CORPORATION. Commercial paper ratings are graded into
four categories, ranging from "A" for the highest quality obligations to "D" for
the lowest. Issues assigned the A rating are regarded as having the greatest
capacity for timely payment. Issues in this category are further refined with
the designation 1, 2 and 3 to indicate the relative degree of safety. The "A-1"
designation indicates that the degree of safety regarding timely payment is very
strong. Those issues determined to possess overwhelming safety characteristics
will be denoted with a plus (+) symbol designation. None of the Funds will
purchase commercial paper rated A-3 or lower.
MOODY'S INVESTORS SERVICE, INC. Moody's commercial paper ratings are
opinions as to the ability of the issuers to timely repay promissory obligations
not having an original maturity in excess of nine months. Moody's makes no
representation that such obligations are exempt from registration under the
Securities Act of 1933, and it does not represent that any specific instrument
is a valid obligation of a rated issuer or issued in conformity with any
applicable law. Moody's employs the following three designations, all judged to
be investment grade, to indicate the relative repayment capacity of rated
issuers:
PRIME-1: Superior capacity for repayment.
PRIME-2: Strong capacity for repayment.
PRIME-3: Acceptable capacity for repayment.
None of the Funds will purchase Prime-3 commercial paper.
BEST'S RATING SYSTEM FOR INSURANCE COMPANIES
The objective of Best's Rating System is to evaluate the various
factors affecting the overall performance of an insurance company in order to
provide an opinion as to the company's relative financial strength and ability
to meet its contractual obligations. The procedure includes both a quantitative
and qualitative review of the company.
The quantitative evaluation is based on an analysis of the company's
financial condition and operating performance utilizing a series of financial
tests. These tests measure a company's performance in the three critical areas
of Profitability, Leverage and Liquidity in comparison to the norms established
by the A.M. Best Company. These norms are based on an evaluation of the actual
performance of the insurance industry.
Best's review also includes a qualitative evaluation of the adequacy
and soundness of a company's reinsurance, the adequacy of its reserves and the
experience of its management. In addition, various other factors of importance
are considered such as the composition of the company's book of business and the
quality and diversification of its assets.
Upon completion of analysis, Best's Ratings are assigned to those
companies that meet the qualifications for rating. The Best's Rating
classifications are A+ (Superior); A & A- (Excellent); B+ (Very Good); B & B-
(Good); C+ (Fairly Good); and C & C- (Fair). Those not qualifying for a current
Best's Rating are classified in the "Not Assigned" category that has ten
classifications which identify why a company is not eligible for a Best's
Rating. Care should be exercised in the use of Best's Ratings without further
reference to additional Best's publications.
FINANCIAL STATEMENTS
The financial statements of FAIF included in its Annual Report to
Shareholders for the year ended September 30, 1996 are incorporated herein by
reference. Such Annual Report to Shareholders accompanies this Statement of
Additional Information.
PART C -- OTHER INFORMATION
ITEM 24. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial Statements for each series of the Registrant which is
currently required to file such financial statements are
incorporated by reference into the Statement of Additional
Information under the heading "Financial Statements."
(b) Exhibits
(1) (a) Articles of Incorporation, as amended and
supplemented through January 1995. (Incorporated by
reference to Exhibit (1) to Post-Effective Amendment
No. 21.)
(1) (b) Articles Supplementary filed June 16, 1995.
(Incorporated by reference to Exhibit (1)(b) to
Post-Effective Amendment No. 24.)
(2) Bylaws, as amended through March 6, 1995. (Incorporated by
reference to Exhibit (2) to Post-Effective Amendment No.
24.)
(3) Not applicable.
(4) Specimen form of Common Stock Certificate. (Incorporated by
reference to Exhibit (4) to Post-Effective Amendment No.
21.)
(5) (a) Investment Advisory Agreement dated April 2, 1991,
between Registrant and First Bank National
Association, as amended and supplemented through
August 1994. (Incorporated by reference to Exhibit
(5)(a) to Post-Effective Amendment No. 21.)
(5) (b) Amendment No. 5 to Exhibit A to Investment Advisory
Agreement. (Incorporated by reference to Exhibit
(5)(b) to Post-Effective Amendment No. 24.)
(5) (c) Sub-Advisory Agreement relating to International Fund
between First Bank National Association and Marvin &
Palmer Associates, Inc. (Incorporated by reference to
Exhibit (5)(b) to Post-Effective Amendment No. 21.)
* (5) (d) Amendment No. 6 to Exhibit A to Investment Advisory
Agreement.
(6) (a) Distribution Agreement [Class A and Class C]
dated February 10, 1994 between Registrant and SEI
Financial Services Company. (Incorporated by
reference to Exhibit (6)(a) to Post-Effective
Amendment No. 21.)
(6) (b) Distribution and Service Agreement [Class B]
dated August 1, 1994, as amended September 14, 1994
between Registrant and SEI Financial Services
Company. (Incorporated by reference to Exhibit (6)(b)
to Post-Effective Amendment No. 21.)
(6) (c) Form of Dealer Agreement. (Incorporated by reference
to Exhibit (6)(c) to Post-Effective Amendment No.
21.)
(7) Not applicable.
(8) (a) Custodian Agreement dated September 20, 1993,
between Registrant and First Trust National
Association, as supplemented through August 1994.
(Incorporated by reference to Exhibit (8) to
Post-Effective Amendment No. 18.)
(8) (b) Compensation Agreement dated as of June 1, 1995,
pursuant to Custodian Agreement. (Incorporated by
reference to Exhibit (8)(b) to Post-Effective
Amendment No. 24.)
* (8) (c) Compensation Agreement dated as of January 1, 1997,
pursuant to Custodian Agreement.
(9) (a) Administration Agreement dated as of January 1,
1995 between Registrant and SEI Financial Management
Corporation. (Incorporated by reference to Exhibit
(9)(a) to Post-Effective Amendment No. 23.)
(9) (b) Transfer Agency Agreement dated as of March 31,
1994, between Registrant and Supervised Service
Company, Inc. [superseded] (Incorporated by reference
to Exhibit (9)(b) to Post-Effective Amendment No.
21.)
(9) (c) Assignment of Transfer Agency Agreement to DST
Systems, Inc. [superseded] (Incorporated by reference
to Exhibit (9)(c) to Post-Effective Amendment No.
24.)
* (9) (d) Form of Transfer Agency Agreement dated as of
October 1, 1996, between Registrant and DST Systems,
Inc.
(10) (a) Opinion and Consent of D'Ancona & Pflaum dated
November 10, 1987. (Incorporated by reference to
Exhibit (10)(a) to Post-Effective Amendment No. 21.)
(10) (b) Opinion and Consent of Dorsey & Whitney.
(Incorporated by reference to Exhibit (10)(a) to
Post-Effective Amendment No. 15.)
* (11) (a) Consent of KPMG Peat Marwick LLP.
(11) (b) Opinion and Consent of Dorsey & Whitney dated
November 25, 1991. (Incorporated by reference to
Exhibit (11)(b) to Post-Effective Amendment No. 21.)
(12) Not applicable.
(13) Not applicable.
* (14) (a) 401(k) Prototype Basic Plan Document # 02
(1989 Restatement), including Amendment Nos. 1, 2,
and 3 and sample Adoption Agreement.
* (14) (b) Defined Contribution Prototype Basic Plan
Document # 01 (1989 Restatement), including Amendment
Nos. 1 and 2 and sample Adoption Agreement.
* (14) (c) IRA Applications and Documentation.
(15) (a) Form of Distribution Plan [Class A].
(Incorporated by reference to Exhibit (15)(a) to
Post-Effective Amendment No. 21.)
(15) (b) Class B Distribution Plan. (Incorporated by
reference to Exhibit (15)(b) to Post-Effective
Amendment No. 21.)
(15) (c) Service Plan [Class B]. (Incorporated by
reference to Exhibit (15)(c)) to Post-Effective
Amendment No. 21.)
* (16) Schedule for Computation of Performance Calculations.
* (17) Financial Data Schedule meeting the requirements of
Rule 483.
(18) Multiple Class Plan Pursuant to Rule 18f-3. (Incorporated
by reference to Exhibit (18) to Post-Effective Amendment
No. 23.)
(19) (a) Powers of attorney of Directors Dayton,
Kedrowski, Strauss, Stringer and Veit. (Incorporated
by reference to Exhibit (19) to Post-Effective
Amendment No. 26).
* (19) (b) Power of attorney of Director Hunter.
* (19) (c) Consent to being named and power of attorney of
director nominee Spies.
* Filed herewith.
ITEM 25. PERSONS CONTROLLED BY OR UNDER COMMON CONTROL WITH REGISTRANT
None.
ITEM 26. NUMBER OF HOLDERS OF SECURITIES
The following table sets forth the number of holders of shares of each
series of Common Stock of the Registrant as of December 17, 1996:
<TABLE>
<CAPTION>
NUMBER OF RECORD HOLDERS
FUND CLASS A CLASS B CLASS C
<S> <C> <C> <C>
Stock Fund................................... 2,240 3,149 103
Equity Index Fund............................ 605 905 19
Balanced Fund................................ 1,872 1,632 11
Asset Allocation Fund........................ 184 255 6
Equity Income Fund........................... 223 403 18
Diversified Growth Fund...................... 552 860 49
Emerging Growth Fund......................... 207 203 27
Regional Equity Fund......................... 3,221 4,277 54
Special Equity Fund.......................... 2,029 1,820 28
Technology Fund.............................. 672 899 18
International Fund........................... 272 276 42
Real Estate Securities Fund.................. 47 53 10
Health Sciences Fund......................... 87 103 7
Limited Term Income Fund..................... 168 0 7
Intermediate Term Income Fund................ 164 0 19
Fixed Income Fund............................ 566 858 87
Intermediate Government Bond Fund............ 178 0 14
Intermediate Tax Free Fund................... 68 0 7
Minnesota Insured Intermediate Tax
Free Fund.............................. 97 0 11
Colorado Intermediate Tax Free Fund.......... 129 0 11
</TABLE>
ITEM 27. INDEMNIFICATION
The first four paragraphs of Item 27 of Part C of Pre-Effective
Amendment No. 1 to the Registrant's Registration Statement on Form N-1A, dated
November 27, 1987, are incorporated herein by reference.
On February 18, 1988 the indemnification provisions of the Maryland
General Corporation Law (the "Law") were amended to permit, among other things,
corporations to indemnify directors and officers unless it is proved that the
individual (1) acted in bad faith or with active and deliberate dishonesty, (2)
actually received an improper personal benefit in money, property or services,
or (3) in the case of a criminal proceeding, had reasonable cause to believe
that his act or omission was unlawful. The Law was also amended to permit
corporations to indemnify directors and officers for amounts paid in settlement
of stockholders' derivative suits.
The Registrant undertakes that no indemnification or advance will be
made unless it is consistent with Sections 17(h) or 17(i) of the Investment
Company Act of 1940, as now enacted or hereafter amended, and Securities and
Exchange Commission rules, regulations, and releases (including, without
limitation, Investment Company Act of 1940 Release No. 11330, September 2,
1980).
Insofar as the indemnification for liability arising under the
Securities Act of 1933, as amended, may be permitted to directors, officers, and
controlling persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in such Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer, or
controlling person of the Registrant in the successful defense of any action,
suit, or proceeding) is asserted by such director, officer, or controlling
person in connection with the securities being registered, the Registrant will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933, as amended, and will be governed by the final
adjudication of such issue.
ITEM 28. BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Information on the business of the Registrant's investment adviser,
First Bank National Association (the "Adviser"), is described in the section of
the Registrant's Statement of Additional Information, filed as part of this
Registration Statement, entitled "Investment Advisory and Other Services." The
directors and officers of the Adviser are listed below, together with their
principal occupation or other positions of a substantial nature during the past
two fiscal years.
<TABLE>
<CAPTION>
OTHER POSITIONS AND OFFICES
NAME POSITIONS AND OFFICES WITH ADVISER AND PRINCIPAL BUSINESS ADDRESS
<S> <C> <C>
John F. Grundhofer Chairman, President and Chief Chairman, President and Chief
Executive Officer Executive Officer of First Bank
System, Inc. ("FBS").*
Richard A. Zona Director and Vice Chairman--Finance Vice Chairman--Finance of FBS*
Philip G. Heasley Director and Vice Chairman Vice Chairman and Group Head of the
Retail Product Group of FBS.*
Daniel C. Rohr Director and Executive Vice President Executive Vice President, Commercial
Banking Group of FBS.*
J. Robert Hoffmann Director, Executive Vice President Executive Vice President and Chief
and Chief Credit Officer Credit Officer of FBS.*
Lee R. Mitau Director, Executive Vice President, Executive Vice President, General
General Counsel and Secretary Counsel and Secretary of FBS; prior to
October 1995 partner in Dorsey &
Whitney LLP*
Susan E. Lester Director, Executive Vice President and Executive Vice President and Chief
Chief Financial Officer Financial Officer of FBS; prior to
December 1995 executive vice president
and chief financial officer of Shawmut
National Corporation.*
Larry S. Crawford Executive Vice President and General --*
Manager, Retail Banking Group
Robert J. Anderson Executive Vice President --*
John M. Murphy, Jr. Executive Vice President Executive Vice President of FBS;
Chairman and Chief Investment
Officer, First Trust National
Association.*
Robert H. Sayre Executive Vice President Executive Vice President, Human
Resources of FBS.*
</TABLE>
* Address: First Bank Place, 601 Second Avenue South,
Minneapolis, Minnesota 55402.
ITEM 29. PRINCIPAL UNDERWRITERS
(a) Furnish the name of each investment company (other than the
Registrant) for which each principal underwriter currently distributing
securities of the Registrant also acts as a principal under-writer, distributor
or investment adviser:
Registrant's distributor, SEI Financial Services Company ("SFS") acts
as distributor for SEI Liquid Asset Trust, SEI Daily Income Trust, SEI Tax
Exempt Trust, SEI Index Funds, SEI Institutional Managed Trust, SEI
International Trust, Stepstone Funds, The Advisors' Inner Circle Fund, Pillar
Funds, CUFund, STI Classic Funds, CoreFunds, Inc., First American Funds, Inc.,
The Arbor Fund, 1784 Funds, Marquis Funds, Morgan Grenfell Investment Trust, The
PBHG Funds, Inc., Inventor Funds, Inc., The Achievement Funds Trust, Insurance
Investment Products Trust, Bishop Street Funds, CrestFunds, Inc., STI Classic
Variable Trust, ARK Funds, Monitor Funds, FMB Funds, Inc., SEI Asset Allocation
Trust, Turner Funds, and First American Strategy Funds, Inc. pursuant to
distribution agreements dated November 29, 1982, July 15, 1982, December 3,
1982, July 10, 1985, January 22, 1987, August 30, 1988, January 30, 1991,
November 14, 1991, February 28, 1992, May 1, 1992, May 29, 1992, October 30,
1992, November 1, 1992, January 28, 1993, June 1, 1993, August 17, 1993, January
3, 1994, August 1, 1994, December 27, 1994, December 30, 1994, January 27, 1995,
March 1, 1995, August 18, 1995, November 1, 1995, January 11, 1996, March 1,
1996, April 1, 1996, April 29, 1996, and October 1, 1996, respectively.
SFS provides numerous financial services to investment managers,
pension plan sponsors, and bank trust departments. These services include
portfolio evaluation, performance measurement, and consulting services ("Funds
Evaluation") and automated execution, clearing and settlement of securities
transactions ("MarketLink").
(b) Furnish the information required by the following table with
respect to each director, officer or partner of each principal underwriter named
in the answer to Item 21 of Part B. Unless otherwise noted, the business address
of each director or officer is Oaks, Pennsylvania 19456.
<TABLE>
<CAPTION>
NAME POSITIONS AND OFFICES WITH UNDERWRITER POSITIONS AND OFFICES WITH REGISTRANT
- ---- -------------------------------------- -------------------------------------
<S> <C> <C>
Alfred P. West, Jr. Director, Chairman & Chief --
Executive Officer
Henry H. Greer Director, President & Chief --
Operating Officer
Carmen V. Romeo Director, Executive Treasurer, Assistant Secretary
Vice President & Treasurer
Gilbert L. Beebower Executive Vice President --
Richard B. Lieb Executive Vice President, President-Investment --
Services Division
Leo J. Dolan, Jr. Senior Vice President --
Carl A. Guarino Senior Vice President --
Jerome Hickey Senior Vice President --
Larry Hutchinson Senior Vice President --
David G. Lee Senior Vice President President
Steven Kramer Senior Vice President --
William Maddon Senior Vice President --
Jack May Senior Vice President --
A. Keith McDowell Senior Vice President --
Dennis J. McGonigle Senior Vice President --
Hartland J. McKeown Senior Vice President --
Barbara J. Moore Senior Vice President --
James V. Morris Senior Vice President --
Steven Onofrio Senior Vice President --
Kevin P. Robins Senior Vice President, General Counsel Vice President & Assistant Secretary
& Secretary
Robert Wagner Senior Vice President --
Patrick K. Walsh Senior Vice President --
Kenneth Zimmer Senior Vice President --
Robert Aller Vice President --
Marc H. Cahn Vice President & Assistant Secretary Vice President & Assistant Secretary
Gordon W. Carpenter Vice President --
Todd Cipperman Vice President & Assistant Secretary --
Robert Crudup Vice President & Managing Director --
Ed Daly Vice President --
Jeff Drennen Vice President --
Mick Duncan Vice President & Team Leader --
Vic Galef Vice President & Managing Director --
Kathy Heilig Vice President --
Michael Kantor Vice President --
Samuel King Vice President --
Kim Kirk Vice President & Managing Director --
Donald H. Korytowski Vice President --
John Krzeminski Vice President & Managing Director --
Robert S. Ludwig Vice President & Team Leader --
Vicki Malloy Vice President & Team Leader --
Carolyn McLaurin Vice President & Managing Director --
W. Kelso Morrill Vice President --
Barbara A. Nugent Vice President & Assistant Secretary --
Sandra K. Orlow Vice President & Assistant Secretary Vice President & Assistant Secretary
Donald Pepin Vice President & Managing Director --
Larry Pokora Vice President --
Kim Rainey Vice President --
Paul Sachs Vice President --
Mark Samuels Vice President & Managing Director --
Steve Smith Vice President --
Daniel Spaventa Vice President --
Kathryn L. Stanton Vice President & Assistant Secretary Vice President & Assistant Secretary
Wayne M. Withrow Vice President & Managing Director --
William Zawaski Vice President --
James Dougherty Director of Brokerage Services --
</TABLE>
<TABLE>
<CAPTION>
ITEM 30. LOCATION OF ACCOUNTS AND RECORDS
LOCATION
OF TYPE OF
REGULATION RECORD RECORD FUND
<C> <C> <C> <C>
270.31a-1(a) 2 General Ledger B
2 Cash Transaction Statement D
2 Monthly Cash Summary Report M
2 Purchases Report D
2 Sales Report D
2 Realized Gain/Loss Report D
2 Securities Movement and Control List of Assets for Close of Business B
270.31a-1(b)(1) 2 Daily Portfolio Transaction Detail D
2 Daily Settled Purchase and Sales Journal D
2 Money Market Monthly Transaction Journal M
2 Money Market General Ledger Activity Journal M
270.31a-1(b)2(i) 2 General Ledger B
2 Money Market General Ledger Activity Journal M
2 Open Trades/Secs. Out for Transfer Report D
2 Securities Movement and Control List of Assets for Close of Business B
2 Federal Reserve 3E Safe-Keeping Acct. Listing of Securities held
by the Fund B
2 Div. Income Summary Report D
2 Div. and Interest Receivable Report D
2 Earned Income Report B
2 Money Market Daily Accrual Report M
2 Money Market Daily Amortization Report M
2 Statement of Condition B
270.31a-1(b)2(ii) 2 Fund Master Ledger D
2 Corporate Action Announcement Report D
2 Purchases Report D
2 Sales Report D
270.31a-1(b)2(iii) 2 Brokerage Alloc/Commission Detail Report D
270.31a-1(b)2(iv) 1 Shareholder Master Fil -- CRT B
1 Shareholder History File -- CRT B
270.31a-1(b)3 2 Fund Master Ledger D
270.31a-1(b)4 1 Articles of Incorporation B
1 Declaration of Trust B
1 By-Laws B
1 Minute Books B
270.31a-1(b)5 1 Trade Tickets B
2 Purchase Report D
2 Sales Report D
270.31a-1(b)5 1 Trade Tickets B
2 Purchase Report D
2 Sales Report D
270.31a-1(b)6 1 Trade Tickets B
270.31a-1(b)7 2 Fund Master Ledger D
270.31a-1(b)8 2 Statement of Condition B
2 General Ledger B
2 Money Market General Ledger Activity Journal M
270.31a-1(b)9 2 Brokerage Alloc./Commission Detail Report D
1 Brokerage Commission Report B
1 Reduction and Commission Report D
1 Quarterly Brokerage Log B
270.31a-1(b)10 1 Custodian Blanket Authorization B
1 Portfolio Manager Signoff B
270.31a-1(b)11 1 Portfolio Manager Signoff B
270.31a-1(b)12 2 All supporting documentation B
270.31a-1(c) Not applicable
270.31a-1(d) 1 Director Payments thru Fund Journal B
1 Exchange Purchase Journal B
1 Confirmed Payments Journal B
1 Fiduciary Contribution Journal B
1 Direct Payments Journal B
1 Direct Redemptions Journal B
2 General Ledger B
1 Shareholder Master File -- CRT B
1 Shareholder History File -- CRT B
1 Daily Div. Close-out Journal B
1 Asset Transfer/Rollover Journal B
1 Redemption Check Register B
1 Purchase Cancellations Journal B
1 Redemption Cancellation Journal B
1 Fail/Free Report B
1 Broker/Dealer Order Ticket B
1 Inv. Services Order Breakdowns B
1 EDGE Transaction Journal B
1 Shareholder Receipt -- Retail B
1 Account Application -- Retail B
1 Additional Deposit Slip -- Retail B
1 Trade Cancel Form B
1 Confirmation Statement B
1 Shareholder Statement B
1 Form U-4 B
1 Fingerprint Card B
1 Form U-4 Status Report B
1 Form U-4 Score Report B
1 Form U-5 B
270.31a-1(e) Not applicable
270.31a-1(f) 2 General Ledger B
1 Portfolio Manager Signoff B
1 Trade Tickets B
270.31a-2(a)(1) 2 Daily Portfolio Transaction Detail D
2 Daily Settled Pur. and Sales Journal D
2 Money Market Monthly Transaction Journal M
2 Money Market General Ledger Activity Journal M
2 Open Trades/Secs. Out for Transfer Report D
2 Securities Movement and Control List of Assets for Close of
Business B
2 Fed. Reserve 3E Safe-Keeping Acct. Listing of Securities held
by the Fund B
270.31a-2(a)(1) 2 Div. Income Summary Report D
2 Div. and Interest Receivable Report D
2 Earned Income Report B
2 Money Market Daily Accrual Report M
2 Money Market Daily Amortization Report M
2 Statement of Condition B
2 Fund Master Ledger D
2 Corporate Action Announcement Report D
2 Brokerage Alloc./Commission Detail Report D
1 Shareholder Master File -- CRT B
1 Shareholder History File -- CRT B
1 Declaration of Trust B
1 By-laws B
1 Minute Books B
270.31a-2(a)(2) 2 Purchases Report D
2 Sales Report D
2 General Ledger B
2 Money Market General Ledger Activity Journal M
2 Statement of Condition B
2 Fund Master Ledger D
2 Brokerage Alloc./Commission Detail Report D
1 Trade Tickets B
1 Brokerage Commission Report B
1 Reduction and Commission Report D
1 Quarterly Brokerage Log B
1 Custodian Blanket Authorization B
1 Portfolio Manager Signoff B
270.31a-2(a)(3) 1 Sales Literature File B
270.31a-2(b) Not applicable
270.31a-2(c) 1 Director Payments thru Fund Journal B
1 Exchange Purchase Journal B
1 Confirmed Payments Journal B
1 Fiduciary Contribution Journal B
1 Direct Payments Journal B
1 Direct Redemptions Journal B
2 General Ledger B
1 Shareholder Master File -- CRT B
1 Shareholder History File -- CRT B
1 Daily Div. Close-Out Journal B
1 Asset Transfer/Rollover Journal B
1 Redemption Check Register B
1 Purchase Cancellations Journal B
1 Redemption Cancellation Journal B
1 Fail/Free Report B
1 Broker/Dealer Order Ticket B
1 Inv. Services Order Breakdowns B
1 EDGE Transaction Journal B
1 Shareholder Receipt -- Retail B
1 Account Application -- Retail B
1 Additional Deposit Slip -- Retail B
1 Trade Cancel Form B
270.31a-2(c) 1 Confirmation Statement B
1 Shareholder Statement B
1 Form U-4 B
1 Fingerprint Card B
1 Form U-4 Status Report B
1 Form U-4 Score Report B
1 Form U-5 B
270.31a-2(d) Not applicable
270.31a-2(e) 2 General Ledger B
1 Portfolio Manager Signoff B
1 Trade Tickets B
270.31a-2(f)(1) 1 Microfilm B
270.31a-2(f)(2) 1 Retention Plan B
270.31a-2(f)(3) Not applicable
270.31a-3 1 Custodian Agreement B
</TABLE>
(1) SEI Financial Management Corporation and SEI Financial Services Company
Oaks, Pennsylvania 19456
(2) First Trust National Association
180 East Fifth Street
St. Paul, Minnesota 55101
B = Both D = Debt Equity M = Money Market
ITEM 31. MANAGEMENT SERVICES
Not applicable.
ITEM 32. UNDERTAKINGS
Registrant undertakes to call a meeting of shareholders for the purpose
of voting upon the question of removal of a Director(s) when requested in
writing to do so by the holders of at least 10% of Registrant's outstanding
shares and in connection with such meetings to comply with the provisions of
Section 16(c) of the Investment Company Act of 1940 relating to shareholder
communications.
Registrant undertakes to furnish each person to whom a prospectus is
delivered with a copy of the Registrant's latest annual report to shareholders,
upon request and without charge.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, as amended, the Registrant certifies that it
meets all of the requirements for effectiveness of this Post-Effective Amendment
pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused
this Post-Effective Amendment to its Registration Statement No. 2-16905 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Wayne, Commonwealth of Pennsylvania, on the 29th day of January, 1997.
FIRST AMERICAN INVESTMENT FUNDS, INC.
ATTEST: /s/ Stephen G. Meyer By: /s/ Kathryn L. Stanton
---------------------------- --------------------------------------
Stephen G. Meyer Kathryn L. Stanton, Vice President
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 capacity and on the dates indicated.
SIGNATURE TITLE DATE
/s/ Stephen G. Meyer Controller (Principal **
- ---------------------------------- Financial and Accounting
Stephen G. Meyer Officer)
* Director **
- ----------------------------------
Robert J. Dayton
* Director **
- ----------------------------------
Andrew M. Hunter III
* Director **
- ----------------------------------
Leonard W. Kedrowski
* Director **
- ----------------------------------
Joseph D. Strauss
* Director **
- ----------------------------------
Virginia L. Stringer
* Director **
- ----------------------------------
Gae B. Veit
* By: /s/ Kathryn L. Stanton
- ----------------------------------
Kathryn L. Stanton
Attorney in Fact
** January 29, 1997.
EXHIBIT (5)(d)
Final 1/96
FIRST AMERICAN INVESTMENT FUNDS, INC.
AMENDMENT TO INVESTMENT ADVISORY AGREEMENT
AMENDMENT NO. 6
to
EXHIBIT A
EFFECTIVE DATES:
Portfolio Effective Date
Stock Fund April 2, 1991
Special Equity Fund April 2, 1991
Fixed Income Fund April 2, 1991
Intermediate Government Bond Fund April 2, 1991
Intermediate Tax Free Fund April 2, 1991
Intermediate Term Income Fund September 15, 1992
Equity Index Fund September 15, 1992
Regional Equity Fund September 15, 1992
Limited Term Income Fund September 15, 1992
Balanced Fund September 15, 1992
Asset Allocation Fund September 15, 1992
Minnesota Insured Intermediate
Tax Free Fund December 31, 1993
Colorado Intermediate Tax Free Fund December 31, 1993
Emerging Growth Fund December 31, 1993
Technology Fund December 31, 1993
International Fund December 31, 1993
Equity Income Fund January 31, 1994
Diversified Growth Fund January 31, 1994
Real Estate Securities Fund June 12, 1995
Health Sciences Fund January 31, 1996
ADVISORY FEES: Annual Advisory Fee
as a Percentage of
Portfolio Average Daily Net Assets Average Daily Net Assets
Stock Fund On All Assets .70%
Special Equity On All Assets .70%
Fund
Fixed Income On All Assets .70%
Fund
Intermediate On All Assets .70%
Government Bond
Fund
Intermediate Tax On All Assets .70%
Free Fund
Intermediate Term On All Assets .70%
Income Fund
Equity Index Fund On All Assets .70%
Regional Equity On All Assets .70%
Fund
Limited Term On All Assets .70%
Income Fund
Balanced Fund On All Assets .70%
Asset Allocation On All Assets .70%
Fund
Minnesota Insured On All Assets .70%
Intermediate Tax
Free Fund
Colorado Interme- On All Assets .70%
diate Tax Free Fund
Emerging Growth On All Assets .70%
Fund
Technology Fund On All Assets .70%
International Fund On All Assets 1.25%
Equity Income On All Assets .70%
Fund
Diversified Growth On All Assets .70%
Fund
Real Estate Securites On All Assets .70%
Fund
Health Sciences On All Assets .70%
EXHIBIT (8)(c)
1/97
FIRST AMERICAN INVESTMENT FUNDS, INC.
COMPENSATION AGREEMENT DATED AS OF JANUARY 31, 1997
PURSUANT TO CUSTODIAN AGREEMENT
WHEREAS, First American Investment Funds, Inc., a Maryland corporation
(hereinafter called the "Fund"), and First Trust National Association, a
national banking association organized and existing under the laws of the United
States of America with its principal place of business at Minneapolis, Minnesota
(hereinafter called the "Custodian"), previously entered into that Custodian
Agreement dated September 20, 1993 (the "Custodian Agreement"); and
WHEREAS, Article 12 of the Custodian Agreement provides that the
Custodian shall be paid compensation at such rates and at such times as may from
time to time be agreed on in writing by the parties thereto; and
WHEREAS, the Fund and the Custodian previously entered into that
Compensation Agreement dated as of January 31, 1996, for such purpose with
respect to the then-existing series of the Fund; and
WHEREAS, the Fund and the Custodian wish to amend and restate such
compensation agreement in order to change the rate of compensation with respect
to Stock Fund, Equity Index Fund, Balanced Fund, Asset Allocation Fund, Regional
Equity Fund, Special Equity Fund, Limited Term Income Fund, Intermediate Term
Income Fund, Fixed Income Fund, and Intermediate Government Bond Fund.
NOW, THEREFORE, the Fund and the Custodian agree as follows:
1. The compensation payable to the Custodian pursuant to the Custodian
Agreement with respect to the respective series of the Fund shall be payable
monthly at the following annual rates as percentages of the respective series'
average daily net assets: Stock Fund, Equity Index Fund, Balanced Fund, Asset
Allocation Fund, Regional Equity Fund, Special Equity Fund, Limited Term Income
Fund, Intermediate Term Income Fund, Fixed Income Fund, Intermediate Government
Bond Fund, Health Sciences Fund, Real Estate Securities Fund, Equity Income
Fund, Diversified Growth Fund, Emerging Growth Fund, Technology Fund,
Intermediate Tax Free Fund, Minnesota Insured Intermediate Tax Free Fund, and
Colorado Intermediate Tax Free Fund, 0.03%; and International Fund, 0.25%. The
Custodian shall pay subcustodian fees with respect to International Fund out of
the compensation payable to the Custodian with respect to such fund as set forth
above. The Fund shall reimburse the Custodian for all other out-of-pocket
expenses incurred by the Custodian in connection with the performance of the
Custodian's services under the Custodian Agreement.
2. This Compensation Agreement restates and supersedes all prior
compensation agreements pursuant to Article 12 of the Custodian Agreement.
IN WITNESS WHEREOF, the Fund and the Custodian have caused this
instrument to be executed in duplicate as of the date first above written by
their duly authorized officers.
FIRST AMERICAN INVESTMENT
FUNDS, INC.
By
Its
FIRST TRUST NATIONAL
ASSOCIATION
By
Its
EXHIBIT (9)(d)
AGENCY AGREEMENT
THIS AGREEMENT made the 1st day of October, 1996, by and between FIRST
AMERICAN INVESTMENT FUNDS, INC., a corporation existing under the laws of the
State of Maryland, having its principal place of business at 680 East Swedesford
Road, Wayne, Pennsylvania 19087 (the "Fund"), and DST SYSTEMS, INC., a
corporation existing under the laws of the State of Delaware, having its
principal place of business at 333 W. 11th St., 5th Fl., Kansas City, Missouri
64105 ("DST"):
WITNESSETH:
WHEREAS, the Fund desires to appoint DST as Transfer Agent and Dividend
Disbursing Agent, and DST desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
1. Documents to be Filed with Appointment.
In connection with the appointment of DST as Transfer Agent and
Dividend Disbursing Agent for the Fund, there will be filed with DST
the following documents:
A. A certified copy of the resolutions of the Board of Directors
of the Fund (which term when used herein shall include any
Board of Trustees, or other governing body of the Fund,
however styled) appointing DST as Transfer Agent and Dividend
Disbursing Agent, approving the form of this Agreement, and
designating certain persons to sign stock certificates, if
any, and give written instructions and requests on behalf of
the Fund;
B. A certified copy of the Articles of Incorporation (which term
as used herein shall include, where relevant, the Declaration
of Trust, or other basic instrument establishing the existence
and nature of the Fund) of the Fund and all amendments
thereto;
C. A certified copy of the Bylaws of the Fund;
D. Copies of Registration Statements and amendments thereto,
filed with the Securities and Exchange Commission.
E. Specimens of all forms of outstanding stock certificates, in
the forms approved by the Board of Directors of the Fund, with
a certificate of the Secretary of the Fund, as to such
approval;
F. Specimens of the signatures of the officers of the Fund
authorized to sign stock certificates and individuals
authorized to sign written instructions and requests;
G. An opinion of counsel for the Fund, as such opinion(s) have
been filed with the Fund's Registration Statement or notices
required under Rule 24f-2 under the Investment Company Act of
1940 (the "1940 Act"), with respect to:
(1) The Fund's organization and existence under the laws
of its state of organization, and
(2) That all issued shares are validly issued, fully paid
and nonassessable.
2. Certain Representations and Warranties of DST.
DST represents and warrants to the Fund that:
A. It is a corporation duly organized and existing and in good
standing under the laws of Delaware.
B. It is duly qualified to carry on its business in the State of
Missouri.
C. It is empowered under applicable laws and by its Articles of
Incorporation and Bylaws to enter into and perform the
services contemplated in this Agreement.
D. It is registered as a transfer agent to the extent required
under the Securities Exchange Act of 1934 (the "1934 Act").
E. All requisite corporate proceedings have been taken to
authorize it to enter into and perform this Agreement.
F. It has and will continue to have and maintain the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
G. It is in compliance with Securities and Exchange Commission
("SEC") regulations and is not subject to restrictions under
Rule 17Ad.
H. Copies of DST's Rule 17Ad-13 reports will be provided to the
Fund annually as and to the extent required under Rule 17Ad-13
under the 1934 Act.
I. Its fidelity bonding and minimum capital meet the transfer
agency requirements of the New York Stock Exchange and the
American Stock Exchange.
3. Certain Representations and Warranties of the Fund. The Fund represents
and warrants to DST that:
A. It is a corporation duly organized and existing and in good
standing under the laws of the State of Maryland.
B. It is an open-end management investment company registered
under the 1940 Act, as amended, the portfolios of which may be
diversified or non-diversified.
C. A registration statement under the Securities Act of 1933 has
been filed and will be effective with respect to all shares of
the Fund being offered for sale.
D. All requisite steps have been and will continue to be taken to
register the Fund's shares for sale in all applicable states
and such registration will be effective at all times shares
are offered for sale in such state.
E. The Fund is empowered under applicable laws and by its charter
and Bylaws to enter into and perform this Agreement.
4. Scope of Appointment.
A. Subject to the conditions set forth in this Agreement, the
Fund hereby appoints DST as Transfer Agent and Dividend
Disbursing Agent.
B. DST hereby accepts such appointment and agrees that it will
act as the Fund's Transfer Agent and Dividend Disbursing
Agent. DST agrees that it will also act as agent in connection
with the Fund's periodic withdrawal payment accounts and other
open accounts or similar plans for shareholders, if any.
C. The Fund agrees to use its reasonable efforts to deliver to
DST in Kansas City, Missouri, as soon as they are available,
all of its shareholder account records.
D. DST, utilizing TA2000(R), DST's computerized data processing
system for securityholder accounting (the "TA2000 System"),
will perform the following services as transfer and dividend
disbursing agent for the Fund, and as agent of the Fund for
shareholder accounts thereof, in a timely manner: issuing
(including countersigning), transferring and canceling share
certificates, if any; maintaining all shareholder accounts;
providing transaction journals; as requested by the Fund and
subject to payment by the Fund of an additional fee, preparing
shareholder meeting lists for use in connection with any
annual or special meeting and arrange for an affiliate to
print, mail and receive back proxies and to certify the
shareholder votes of the Fund of any portfolios thereof;
mailing shareholder reports and prospectuses; withholding, as
required by federal law, taxes on shareholder accounts,
disbursing income dividends and capital gains distributions to
shareholders, preparing, filing and mailing U.S. Treasury
Department Forms 1099, 1042, and 1042S and performing and
paying backup withholding as required for all shareholders;
preparing and mailing confirmation forms to shareholders and
dealers, as instructed, for all purchases and liquidations of
shares of the Fund and other confirmable transactions in
shareholders' accounts; recording reinvestment of dividends
and distributions in shares of the Fund; providing or making
available on-line daily and monthly reports as provided by the
TA2000 System and as requested by the Fund or its management
company; maintaining those records necessary to carry out
DST's duties hereunder, including all information reasonably
required by the Fund to account for all transactions in the
Fund shares, calculating the appropriate sales charge with
respect to each purchase of the Fund shares as set forth in
the prospectus for the Fund, determining the portion of each
sales charge payable to the dealer participating in a sale in
accordance with schedules delivered to DST by the Fund's
principal underwriter or distributor (hereinafter "principal
underwriter") from time to time, disbursing dealer commissions
collected to such dealers, determining the portion of each
sales charge payable to such principal underwriter and
disbursing such commissions to the principal underwriter;
receiving correspondence pertaining to any former, existing or
new shareholder account, processing such correspondence for
proper recordkeeping, and responding promptly to shareholder
correspondence; mailing to dealers confirmations of wire order
trades; mailing copies of shareholder statements to
shareholders and registered representatives of dealers in
accordance with the Fund's instructions; interfacing with,
accepting and effectuating order for transactions and
registration and maintenance information, all on an automated
basis, from, and providing advices to the Fund's custodian
bank and to the Fund's settlement bank in connection with the
settling of such transactions, with, the National Securities
Clearing Corporation ("NSCC") pertaining to NSCC's Fund/SERV
and Networking programs; and processing, generally on the date
of receipt, purchases or redemptions or instructions to settle
any mail or wire order purchases or redemptions received in
proper order as set forth in the prospectus, rejecting
promptly any requests not received in proper order (as defined
by the Fund or its agents), and causing exchanges of shares to
be executed in accordance with the Fund's instructions and
prospectus and the general exchange privilege applicable.
E. At the request of Fund, DST shall use reasonable efforts to
provide the services set forth in Section 4.D. other than
through DST's usual methods of and procedures to utilize the
TA2000 System, that is by using methods and procedures other
than those usually employed by DST to perform services
requiring more manual intervention by DST, either in the entry
of data, in the maintenance of account lists and/or the
effecting of transactions with respect to timers and accounts
subject to agreements with timers, or in the modification or
amendment of reports generated by the TA2000 System, or which
provides information to DST after the commencement of the
nightly processing cycle of the TA2000 System, thereby
decreasing the effective time for performance by DST (the
"Exception Services").
F. DST shall use reasonable efforts to provide, reasonably
promptly under the circumstances, the same transfer agent
services with respect to any new, additional functions or
features or any changes or improvements to existing functions
or features as provided for in the Fund's instructions,
prospectus or application as amended from time to time, for
the Fund provided (i) DST is advised in advance by the Fund of
any changes therein and (ii) the TA2000 System and the mode of
operations utilized by DST as then constituted supports such
additional functions and features. If any addition to,
improvement of or change in the features and functions
currently provided by the TA2000 System or the operations as
requested by the Fund requires an enhancement or modification
to the TA2000 System or to operations as then conducted by
DST, DST shall not be liable therefore until such modification
or enhancement is installed on the TA2000 System or new mode
of operation is instituted. If any new, additional function or
feature or change or improvement to existing functions or
features or new service or mode of operation measurably
increases DST's cost of performing the services required
hereunder at the current level of service, DST shall advise
the Fund of the amount of such increase and if the Fund elects
to utilize such function, feature or service, DST shall be
entitled to increase its fees by the amount of the increase in
costs. In no event shall DST be responsible for or liable to
provide any additional function, feature, improvement or
change in method of operation until it has consented thereto
in writing.
G. The Fund shall have the right to add new series to the TA2000
System upon at least thirty (30) days' prior written notice to
DST provided that the requirements of the new series are
generally consistent with services then being provided by DST
under this Agreement. Rates or charges for additional series
shall be as set forth in Exhibit A, as hereinafter defined,
for the remainder of the contract term except as such series
use functions, features or characteristics for which DST has
imposed an additional charge as part of its standard pricing
schedule. In the latter event, rates and charges shall be in
accordance with DST's then-standard pricing schedule.
5. Limit of Authority.
Unless otherwise expressly limited by the resolution of appointment or
by subsequent action by the Fund, the appointment of DST as Transfer
Agent will be construed to cover the full amount of authorized stock of
the class or classes for which DST is appointed as the same will, from
time to time, be constituted, and any subsequent increases in such
authorized amount.
In case of such increase the Fund will file with DST:
A. If the appointment of DST was theretofore expressly limited, a
certified copy of a resolution of the Board of Directors of
the Fund increasing the authority of DST;
B. A certified copy of the amendment to the Articles of
Incorporation of the Fund authorizing the increase of stock;
C. A certified copy of the order or consent of each governmental
or regulatory authority required by law to consent to the
issuance of the increased stock, and an opinion of counsel
that the order or consent of no other governmental or
regulatory authority is required;
D. Opinion of counsel for the Fund, as such opinion(s) have been
filed with the Fund's Registration Statement or notices
required under Rule 24f-2 under the 1940 Act, stating:
(1) The status of the additional shares of stock of the
Fund under the Securities Act of 1933, as amended,
and any other applicable federal or state statute;
and
(2) That the additional shares are validly issued, fully
paid and nonassessable.
6. Compensation and Expenses.
A. In consideration for its services hereunder as Transfer Agent
and Dividend Disbursing Agent, the Fund will pay to DST from
time to time a reasonable compensation for all services
rendered as Agent, and also, all its reasonable billable
expenses, charges, counsel fees, and other disbursements
including, in the event of a termination of this Agreement,
the post-deconversion fees ("Compensation and Expenses")
incurred in connection with the agency. Such compensation is
set forth in separate schedules to be agreed to by the Fund
and DST, copies of the initial schedules are attached hereto
as Exhibits A and B. If the Fund has not paid such
Compensation and Expenses to DST within a reasonable time, DST
may charge against any monies held under this Agreement, the
amount of any Compensation and/or Expenses for which it shall
be entitled to reimbursement under this Agreement.
B. The Fund also agrees promptly to reimburse DST for all
reasonable billable expenses or disbursements incurred by DST
in connection with the performance of services under this
Agreement including, but not limited to, expenses for postage,
express delivery services, freight charges, envelopes, checks,
drafts, forms (continuous or otherwise), specially requested
reports and statements, telephone calls, telegraphs,
stationery supplies, counsel fees, outside printing and
mailing firms (including Output Technology, Inc. and Support
Resources, Inc.), magnetic tapes, reels or cartridges (if sent
to the Fund or to a third party at the Fund's request) and
magnetic tape handling charges, off-site record storage, media
for storage of records (e.g., microfilm, microfiche, optical
platters, computer tapes), computer equipment installed at the
Fund's request at the Fund's or a third party's premises,
telecommunications equipment, telephone/telecommunication
lines between the Fund and its agents, on one hand, and DST on
the other, proxy soliciting, processing and/or tabulating
costs, second-site backup computer facility, transmission of
statement data for remote printing or processing, and National
Securities Clearing Corporation ("NSCC") transaction fees to
the extent any of the foregoing are paid by DST. The Fund
agrees to pay postage expenses at least one day in advance if
so requested. In addition, any other expenses incurred by DST
at the request or with the consent of the Fund will be
promptly reimbursed by the Fund.
C. Amounts due hereunder shall be due and paid on or before the
thirtieth (30th) business day after receipt of the statement
therefor by the Fund (the "Due Date"). The Fund is aware that
its failure to pay all amounts in a timely fashion so that
they will be received by DST on or before the Due Date will
give rise to costs to DST not contemplated by this Agreement,
including but not limited to carrying, processing and
accounting charges. Accordingly, subject to Section 6.D.
hereof, in the event that any amounts due hereunder are not
received by DST by the Due Date, the Fund shall pay a late
charge equal to the lesser of the maximum amount permitted by
applicable law or the product of that rate announced from time
to time by State Street Bank and Trust Company as its "Prime
Rate" plus three (3) percentage points times the amount
overdue, times the number of days from the Due Date up to and
including the day on which payment is received by DST divided
by 365. The parties hereby agree that such late charge
represents a fair and reasonable computation of the costs
incurred by reason of late payment or payment of amounts not
properly due. Acceptance of such late charge shall in no event
constitute a waiver of the Fund's or DST's default or prevent
the non-defaulting party from exercising any other rights and
remedies available to it.
D. In the event that any charges are disputed, the Fund shall, on
or before the Due Date, pay all undisputed amounts due
hereunder and notify DST in writing of any disputed charges
for billable expenses which it is disputing in good faith.
Payment for such disputed charges shall be due on or before
the close of the fifth (5th) business day after the day on
which DST provides to the Fund documentation which an
objective observer would agree reasonably supports the
disputed charges (the "Revised Due Date"). Late charges shall
not begin to accrue as to charges disputed in good faith until
the first business day after the Revised Due Date.
E. The fees and charges set forth on Exhibit A shall increase or
may be increased as follows:
(1) On the first day of each new term, but only in
accordance with the "Fee Increases" provision in
Exhibit A;
(2) DST may increase the fees and charges set forth on
Exhibit A upon at least ninety (90) days prior
written notice, if changes in existing laws, rules or
regulations: (i) require substantial system
modifications or (ii) materially increase cost of
performance hereunder;
(3) Upon at least ninety (90) days prior written notice,
DST may impose a reasonable charge for additional
features of TA2000 used by the Fund which features
are not consistent with the Fund's current processing
requirements; and
(4) In the event DST, at the Fund's request or direction,
performs Exception Services, DST shall be entitled to
impose a reasonable increase in the fees and charges
for such Exception Services from those set forth on
Exhibit A to the extent such Exception Services
increase DST's cost of performance.
If DST notifies the Fund of an increase in fees or charges pursuant to
subparagraph (2) of this Section 6.E., the parties shall confer, diligently and
in good faith and agree upon a new fee to cover the amount necessary, but not
more than such amount, to reimburse DST for the Fund's aliquot portion of the
cost of developing the new software to comply with regulatory charges and for
the increased cost of operation.
If DST notifies the Fund of an increase in fees or charges under
subparagraphs (3) or (4) of this Section 6.E., the parties shall confer,
diligently and in good faith, and agree upon a new fee to cover such new fund
feature.
7. Operation of DST System.
In connection with the performance of its services under this
Agreement, DST is responsible for such items as:
A. That entries in DST's records, and in the Fund's records on
the TA2000 System created by DST, accurately reflect the
orders, instructions, and other information received by DST
from the Fund, the Fund's distributor, manager or principal
underwriter, the Fund's investment adviser, or the Fund's
administrator (each an "Authorized Person"), broker-dealers
and/or shareholders;
B. That shareholder lists, shareholder account verifications,
confirmations and other shareholder account information to be
produced from its records or data be available and accurately
reflect the data in the Fund's records on the TA2000 System;
C. The accurate and timely issuance of dividend and distribution
checks in accordance with instructions received from the Fund
and the data in the Fund's records on the TA2000 System;
D. That redemption transactions and payments be effected timely,
under normal circumstances on the day of receipt, and
accurately in accordance with redemption instructions received
by DST from Authorized Persons, broker-dealers or shareholders
and the data in the Fund's records on the TA2000 System;
E. The deposit daily in the Fund's appropriate bank account of
all checks and payments received by DST from NSCC,
broker-dealers or shareholders for investment in shares;
F. Notwithstanding anything herein to the contrary, with respect
to "as of" adjustments, DST will not assume one hundred
percent (100%) responsibility for losses resulting from "as
ofs" due to clerical errors or misinterpretations of
shareholder instructions by DST, but DST will discuss with the
Fund DST's accepting liability for an "as of" on a
case-by-case basis and will accept "financial responsibility"
for a particular situation resulting in a "material" financial
loss to the Fund where DST acted in bad faith or without due
diligence. As used herein: (i) the terms "as of" or "as ofs"
refer to the situation where, as a result of DST's sole error
or omission, DST enters a transaction into the TA2000 System
on a basis of a price determined other than the price next
determined after the receipt by DST of instructions to perform
such transaction; (ii) the term "financial responsibility"
shall include only the loss experienced by the Fund during the
period between the entry of the erroneous transaction or the
omission to enter the transaction into the TA2000 System and
one (1) day after the earliest time when a record disclosing
the erroneous transaction or the omission to process shall
have been made available to or received by the presentor or
the presentor's agent [plus any delay occasioned by DST to
research and to correct the error or omission after notice
thereof has been received by DST]; and a financial loss shall
be "material" when the financial consequences to the Fund of
DST's error or omission shall have resulted in a loss to the
Fund of one full cent ($0.01) per share or greater.
G. The requiring of proper forms of instructions, signatures and
signature guarantees (1) and any necessary documents
supporting the opening of shareholder accounts, transfers,
redemptions and other shareholder account transactions, all in
conformance with DST's present procedures as set forth in its
Legal Manual, Check Acceptance Policy, Checkwriting Draft
Procedures, and Signature Guarantee Procedures (collectively
the "Procedures") with such changes or deviations therefrom as
may be from time to time required or approved by the Fund, its
investment adviser, principal underwriter or administrator, or
its or DST's counsel and the rejection of orders or
instructions not in good order in accordance with the
applicable prospectus or the Procedures;
- --------------
(1) DST shall ascertain that what reasonably purports to be an appropriate
signature guarantee is present if a signature guarantee is required, but DST
shall have no responsibility for verifying the authenticity thereof or the
authority of the person executing the signature guarantee.
H. The maintenance of customary records in connection with its
agency, and particularly those records required to be
maintained pursuant to subparagraph (2)(iv) of paragraph (b)
of Rule 31a-1 under the Investment Company Act of 1940, if
any; and
I. The maintenance of a current, duplicate set of the Fund's
essential records at a secure separate location, in a form
available and usable forthwith in the event of any breakdown
or disaster disrupting its main operation.
8. Indemnification.
A. DST shall at all times use reasonable care, due diligence and
act in good faith in performing its duties under this
Agreement. DST shall provide its services as Transfer Agent in
accordance with Section 17A of the Securities Exchange Act of
1934, and the rules and regulations thereunder. In the absence
of bad faith, willful misconduct, knowing violations of
applicable law pertaining to the manner in which transfer
agency services are to be performed by DST (excluding any
violations arising directly or indirectly out of the actions
or omissions to act of third parties unaffiliated with DST),
reckless disregard of the performance of its duties, or
negligence on its part, DST shall not be liable for any action
taken, suffered, or omitted by it or for any error of judgment
(including reasonable interpretations of unclear, ambiguous or
obscure instructions) made by it or its employees in the
performance of its duties under this Agreement. For those
activities or actions delineated in the Procedures, DST shall
be presumed to have used reasonable care, due diligence and
acted in good faith if it has acted in accordance with the
Procedures, copies of which have been provided to the SEI
Corporation ("SEI"), the administrator to the Fund and
reviewed and approved by SEI's counsel, as amended from time
to time with approval of counsel, or for any deviation
therefrom approved by the Fund or DST counsel.
B. DST shall not be responsible for, and the Fund shall indemnify
and hold DST harmless from and against, any and all losses,
damages, costs, charges, counsel fees, payments, expenses and
liability which are asserted against DST or for which DST is
to be liable, arising out of or attributable to:
(1) All actions of DST required to be taken by DST
pursuant to this Agreement, provided that DST has
acted in good faith and with due diligence and
reasonable care;
(2) The Fund's refusal or failure to comply with the
terms of this Agreement, the Fund's negligence or
willful misconduct, or the breach of any
representation or warranty of the Fund hereunder;
(3) The good faith reliance on, or the carrying out of,
any written or oral instructions or requests of
persons designated by the Fund in writing (see
Exhibit C) from time to time as authorized to give
instructions on its behalf or representatives of an
Authorized Person or DST's good faith reliance on, or
use of, information, data, records and documents
received from, or which have been prepared and/or
maintained by the Fund, its investment advisor, its
sponsor or its principal underwriter;
(4) Defaults by dealers or shareowners with respect to
payment for share orders previously entered if DST
has acted in good faith;
(5) The offer or sale of the Fund's shares in violation
of any requirement under federal securities laws or
regulations or the securities laws or regulations of
any state or in violation of any stop order or other
determination or ruling by any federal agency or
state with respect to the offer or sale of such
shares in such state (unless such violation results
from DST's failure to comply with written
instructions of the Fund or of any officer of the
Fund that no offers or sales be input into the Fund's
securityholder records in or to residents of such
state);
(6) The Fund's errors and mistakes in the use of the
TA2000 System, the data center, computer and related
equipment used to access the TA2000 System (the "DST
Facilities"), and control procedures relating thereto
in the verification of output and in the remote input
of data;
(7) Errors, inaccuracies, and omissions in, or errors,
inaccuracies or omissions of DST arising out of or
resulting from such errors, inaccuracies and
omissions in, the Fund's records, shareholder and
other records, delivered to DST hereunder by the Fund
or its prior agent(s);
(8) Actions or omissions to act by the Fund or agents
designated by the Fund with respect to duties assumed
thereby as provided for in Section 21 hereof; and
(9) DST's performance of Exception Services except where
DST acted or omitted to act in bad faith, with
reckless disregard of its obligations or with gross
negligence.
C. Except where DST is entitled to indemnification under Section
8.B. hereof and with respect to "as ofs" set forth in Section
7.F., DST shall indemnify and hold the Fund harmless from and
against any and all losses, damages, costs, charges, counsel
fees, payments, expenses and liability arising out of DST's
failure to comply with the terms of this Agreement or arising
out of or attributable to DST's negligence or willful
misconduct or breach of any representation or warranty of DST
hereunder.
D. EXCEPT FOR VIOLATIONS OF SECTION 23, IN NO EVENT AND UNDER NO
CIRCUMSTANCES SHALL EITHER PARTY TO THIS AGREEMENT BE LIABLE
TO ANYONE, INCLUDING, WITHOUT LIMITATION TO THE OTHER PARTY,
FOR CONSEQUENTIAL DAMAGES FOR ANY ACT OR FAILURE TO ACT UNDER
ANY PROVISION OF THIS AGREEMENT EVEN IF ADVISED OF THE
POSSIBILITY THEREOF.
E. Promptly after receipt by an indemnified person of notice of
the commencement of any action, such indemnified person will,
if a claim in respect thereto is to be made against an
indemnifying party hereunder, notify the indemnifying party in
writing of the commencement thereof; but the failure so to
notify the indemnifying party will not relieve an indemnifying
party from any liability that it may have to any indemnified
person for contribution or otherwise under the indemnity
agreement contained herein except to the extent it is
prejudiced as a proximate result of such failure to timely
notify. In case any such action is brought against any
indemnified person and such indemnified person seeks or
intends to seek indemnity from an indemnifying party, the
indemnifying party will be entitled to participate in, and, to
the extent that it may wish, assume the defense thereof (in
its own name or in the name and on behalf of any indemnified
party or both with counsel reasonably satisfactory to such
indemnified person); provided, however, if the defendants in
any such action include both the indemnified person and an
indemnifying party and the indemnified person shall have
reasonably concluded that there may be a conflict between the
positions of the indemnified person and an indemnifying party
in conducting the defense of any such action or that there may
be legal defenses available to it and/or other indemnified
persons which are inconsistent with those available to an
indemnifying party, the indemnified person or indemnified
persons shall have the right to select one separate counsel
(in addition to local counsel) to assume such legal defense
and to otherwise participate in the defense of such action on
behalf of such indemnified person or indemnified persons at
such indemnified party's sole expense. Upon receipt of notice
from an indemnifying party to such indemnified person of its
election so to assume the defense of such action and approval
by the indemnified person of counsel, which approval shall not
be unreasonably withheld (and any disapproval shall be
accompanied by a written statement of the reasons therefor),
the indemnifying party will not be liable to such indemnified
person hereunder for any legal or other expenses subsequently
incurred by such indemnified person in connection with the
defense thereof. An indemnifying party will not settle or
compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution
may be sought hereunder (whether or not the indemnified
persons are actual or potential parties to such claim, action,
suit or proceeding) unless such settlement, compromise or
consent includes an unconditional release of each indemnified
person from all liability arising out of such claim, action,
suit or proceeding. An indemnified party will not, without the
prior written consent of the indemnifying party settle or
compromise or consent to the entry of any judgment with
respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution
may be sought hereunder. If it does so, it waives its right to
indemnification therefor.
9. Certain Covenants of DST and the Fund.
A. All requisite steps will be taken by the Fund from time to
time when and as necessary to register the Fund's shares for
sale in all states in which the Fund's shares shall at the
time be offered for sale and require registration. If at any
time the Fund receives notice of any stop order or other
proceeding in any such state affecting such registration or
the sale of the Fund's shares, or of any stop order or other
proceeding under the federal securities laws affecting the
sale of the Fund's shares, the Fund will give prompt notice
thereof to DST.
B. DST hereby agrees to perform such transfer agency functions as
are set forth in Section 4.D. above and 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, and to carry such insurance
as it considers adequate and reasonably available.
C. To the extent required by Section 31 of the Investment Company
Act of 1940 as amended and Rules thereunder, DST agrees that
all records maintained by DST relating to the services to be
performed by DST under this Agreement are the property of the
Fund and will be preserved and will be surrendered promptly to
the Fund on request.
D. DST agrees to furnish the Fund annual reports of its financial
condition, consisting of a balance sheet, earnings statement
and any other publicly available financial information
reasonably requested by the Fund and a copy of the report
issued by its certified public accountants pursuant to Rule
17Ad-13 under the 1934 Act as filed with the SEC. The annual
financial statements will be certified by DST's certified
public accountants and may be included in DST's publicly
distributed Annual Report.
E. DST represents and agrees that it will use its reasonable
efforts to keep current on the trends of the investment
company industry relating to shareholder services and will use
its reasonable efforts to continue to modernize and improve.
F. DST will permit the Fund and its authorized representatives to
make periodic inspections of its operations as such would
involve the Fund at reasonable times during business hours.
G. DST will provide in Kansas City at the Fund's request and
expense training for the Fund's personnel in connection with
use and operation of the TA2000 System. All travel and
reimbursable expenses incurred by the Fund's personnel in
connection with and during training at DST's Facility shall be
borne by the Fund. At the Fund's option and expense, DST also
agrees to use its reasonable efforts to provide two (2) man
weeks of training at the Fund's facility for the Fund's
personnel in connection with the continued operation of the
TA2000 System. Reasonable travel, per diem and reimbursable
expenses incurred by DST personnel in connection with and
during training at the Fund's facility or in connection with
the conversion shall be borne by the Fund.
10. Recapitalization or Readjustment.
In case of any recapitalization, readjustment or other change in the
capital structure of the Fund requiring a change in the form of stock
certificates, DST will issue or register certificates in the new form
in exchange for, or in transfer of, the outstanding certificates in the
old form, upon receiving:
A. Written instructions from an officer of the Fund;
B. Certified copy of the amendment to the Articles of
Incorporation or other document effecting the change;
C. Certified copy of the order or consent of each governmental or
regulatory authority, required by law to the issuance of the
stock in the new form, and an opinion of counsel that the
order or consent of no other government or regulatory
authority is required;
D. Specimens of the new certificates in the form approved by the
Board of Directors of the Fund, with a certificate of the
Secretary of the Fund as to such approval;
E. Opinion of counsel for the Fund stating:
(1) The status of the shares of stock of the Fund in the
new form under the Securities Act of 1933, as amended
and any other applicable federal or state statute;
and
(2) That the issued shares in the new form are, and all
unissued shares will be, when issued, validly issued,
fully paid and nonassessable.
11. Reserved.
12. Death, Resignation or Removal of Signing Officer.
The Fund will file promptly with DST written notice of any change in
the officers authorized to sign written requests or instructions to
give requests or instructions, together with two signature cards
bearing the specimen signature of each newly authorized officer.
13. Future Amendments of Charter and Bylaws.
The Fund will promptly file with DST copies of all material amendments
to its Articles of Incorporation or Bylaws made after the date of this
Agreement.
14. Instructions, Opinion of Counsel and Signatures.
At any time DST may apply to any person authorized by the Fund to give
instructions to DST, and may with the approval of a Fund officer and at
the expense of the Fund, either consult with legal counsel for the Fund
or consult with counsel chosen by DST and acceptable to the Fund, with
respect to any matter arising in connection with the agency and it will
not be liable for any action taken or omitted by it in good faith in
reliance upon such instructions or upon the opinion of such counsel.
For purposes hereof, DST's internal counsel and attorneys employed by
Sonnenschein Nath & Rosenthal, DST's primary outside counsel for
transfer agent matters, are acceptable to the Fund. DST will be
protected in acting upon any paper or document reasonably believed by
it to be genuine and to have been signed by the proper person or
persons and will not be held to have notice of any change of authority
of any person, until receipt of written notice thereof from the Fund.
It will also be protected in recognizing stock certificates which it
reasonably believes to bear the proper manual or facsimile signatures
of the officers of the Fund, and the proper countersignature of any
former Transfer Agent or Registrar, or of a co-Transfer Agent or
co-Registrar.
15. Force Majeure and Disaster Recovery Plans.
A. DST shall not be responsible or liable for its failure or
delay in performance of its obligations under this Agreement
arising out of or caused, directly or indirectly, by
circumstances beyond its reasonable control, including,
without limitation: any interruption, loss or malfunction or
any utility, transportation, computer hardware, provided such
equipment has been reasonably maintained, or third party
software or communication service; inability to obtain labor,
material, equipment or transportation, or a delay in mails;
governmental or exchange action, statute, ordinance, rulings,
regulations or direction; war, strike, riot, emergency, civil
disturbance, terrorism, vandalism, explosions, labor disputes,
freezes, floods, fires, tornadoes, acts of God or public
enemy, revolutions, or insurrection; or any other cause,
contingency, circumstance or delay not subject to DST's
reasonable control which prevents or hinders DST's performance
hereunder.
B. DST currently maintains an agreement with a third party
whereby DST is to be permitted to use on a "shared use" basis
a "hot site" (the "Recovery Facility") maintained by such
party in event of a disaster rendering the DST Facilities
inoperable. DST has developed and is continually revising a
business contingency plan (the "Business Contingency Plan")
detailing which, how, when, and by whom data maintained by DST
at the DST Facilities will be installed and operated at the
Recovery Facility. Provided the Fund is paying its pro rata
portion of the charge therefor, DST will, in the event of a
disaster rendering the DST Facilities inoperable, use
reasonable efforts to convert the TA2000 System containing the
designated Fund data to the computers at the Recovery Facility
in accordance with the then current Business Contingency Plan.
C. DST also currently maintains, separate from the area in which
the operations which provides the services to the Fund
hereunder are located, a Crisis Management Center consisting
of phones, computers and the other equipment necessary to
operate a full service transfer agency business in the event
one of its operations areas is rendered inoperable. The
transfer of operations to other operating areas or to the
Crisis Management Center is also covered in DST's Business
Contingency Plan.
16. Certification of Documents.
The required copy of the Articles of Incorporation of the Fund and
copies of all amendments thereto will be certified by the Secretary of
State (or other appropriate official) of the State of Incorporation,
and if such Articles of Incorporation and amendments are required by
law to be also filed with a county, city or other officer of official
body, a certificate of such filing will appear on the certified copy
submitted to DST. A copy of the order or consent of each governmental
or regulatory authority required by law to the issuance of the stock
will be certified by the Secretary or Clerk of such governmental or
regulatory authority, under proper seal of such authority. The copy of
the Bylaws and copies of all amendments thereto, and copies of
resolutions of the Board of Directors of the Fund, will be certified by
the Secretary or an Assistant Secretary of the Fund under the Fund's
seal.
17. Records.
DST will maintain customary records in connection with its agency, and
particularly will maintain those records required to be maintained
pursuant to subparagraph (2) (iv) of paragraph (b) of Rule 31a-1 under
the Investment Company Act of 1940, if any.
18. Disposition of Books, Records and Canceled Certificates.
DST may send periodically to the Fund, or to where designated by the
Secretary or an Assistant Secretary of the Fund, all books, documents,
and all records no longer deemed needed for current purposes and stock
certificates which have been canceled in transfer or in exchange, upon
the understanding that such books, documents, records, and stock
certificates will be maintained by the Fund under and in accordance
with the requirements of Section 17Ad-7 adopted under the Securities
Exchange Act of 1934. Such materials will not be destroyed by the Fund
without the consent of DST (which consent will not be unreasonably
withheld), but will be safely stored for possible future reference.
19. Provisions Relating to DST as Transfer Agent.
A. Instructions for the transfer, exchange or redemption of
shares of the Fund will be accepted, the registration,
redemption or transfer of the shares be effected and, where
applicable, funds remitted therefor. Upon surrender of the old
certificates in form or receipt by DST of instructions deemed
by DST properly endorsed for transfer, exchange or redemption,
accompanied by such documents as DST may deem necessary to
evidence the authority of the person making the transfer,
exchange or redemption, the transfer, exchange or redemption
of the shares reflected by such certificates be effected and
any sums due in connection therewith be remitted, in
accordance with the instructions contained herein. DST
reserves the right to refuse to transfer or redeem shares
until it is satisfied that the endorsement or signature on the
instruction or any other document is valid and genuine, and
for that purpose it may require a guaranty of signature in
accordance with the Signature Guarantee Procedures. DST also
reserves the right to refuse to transfer, exchange or redeem
shares until it is satisfied that the requested transfer,
exchange or redemption is legally authorized, and DST will
incur no liability for the refusal in good faith to make
transfers or redemptions which, in its judgment, are improper
or unauthorized. DST may, in effecting transfers, exchanges or
redemptions, rely upon DST's Procedures and Simplification
Acts, Uniform Commercial Code or other statutes which protect
it and the Fund in not requiring complete fiduciary
documentation. In cases in which DST is not directed or
otherwise required to maintain the consolidated records of
shareholder's accounts, DST will not be liable for any loss
which may arise by reason of not having such records.
B. DST will, at the expense of the Fund, issue and mail
subscription warrants, effectuate stock dividends, exchanges
or split ups, or act as Conversion Agent upon receiving
written instructions from any officer of the Fund and such
other documents as DST deems necessary.
C. DST will, at the expense of the Fund, supply a shareholder's
list to the Fund for its annual meeting upon receiving a
request from an officer of the Fund. It will also, at the
expense of the Fund, supply lists at such other times as may
be requested by an officer of the Fund.
D. Upon receipt of written instructions of an officer of the
Fund, DST will, at the expense of the Fund, address and mail
notices to shareholders.
E. In case of any request or demand for the inspection of the
stock books of the Fund or any other books in the possession
of DST, DST will endeavor to notify the Fund and to secure
instructions as to permitting or refusing such inspection. DST
reserves the right, however, to exhibit the stock books or
other books to any person in case it is advised by its counsel
that it may be held responsible for the failure to exhibit the
stock books or other books to such person.
20. Provisions Relating to Dividend Disbursing Agency.
A. DST will, at the expense of the Fund, provide a special form
of check containing the imprint of any device or other matter
desired by the Fund. Said checks must, however, be of a form
and size convenient for use by DST.
B. If the Fund desires to include additional printed matter,
financial statements, etc., with the dividend checks, the same
will be furnished DST within a reasonable time prior to the
date of mailing of the dividend checks, at the expense of the
Fund.
C. If the Fund desires its distributions mailed in any special
form of envelopes, sufficient supply of the same will be
furnished to DST but the size and form of said envelopes will
be subject to the approval of DST. If stamped envelopes are
used, they must be furnished by the Fund; or if postage stamps
are to be affixed to the envelopes, the stamps or the cash
necessary for such stamps must be furnished by the Fund.
D. DST shall establish and maintain on behalf of the Fund one or
more deposit accounts as Agent for the Fund, into which DST
shall deposit the funds DST receives for payment of dividends,
distributions, redemptions or other disbursements provided for
hereunder and to draw checks against such accounts.
E. DST is authorized and directed to stop payment of checks
theretofore issued hereunder, but not presented for payment,
when the payees thereof allege either that they have not
received the checks or that such checks have been mislaid,
lost, stolen, destroyed or through no fault of theirs, are
otherwise beyond their control, and cannot be produced by them
for presentation and collection, and, to issue and deliver
duplicate checks in replacement thereof.
21. Assumption of Duties By the Fund or Agents Designated By the Fund.
A. The Fund or its designated agents other than DST may assume
certain duties and responsibilities of DST or those services
of Transfer Agent and Dividend Disbursing Agent as those terms
are referred to in Section 4.D. of this Agreement including
but not limited to answering and responding to telephone
inquiries from shareholders and brokers, accepting shareholder
and broker instructions (either or both oral and written) and
transmitting orders based on such instructions to DST,
preparing and mailing confirmations, obtaining certified TIN
numbers, classifying the status of shareholders and
shareholder accounts under applicable tax law, establishing
shareholder accounts on the TA2000 System and assigning social
codes and Taxpayer Identification Number codes thereof, and
disbursing monies of the Fund, said assumption to be embodied
in writing to be signed by both parties.
B. To the extent the Fund or its agent or affiliate assumes such
duties and responsibilities, DST shall be relieved from all
responsibility and liability therefor and is hereby
indemnified and held harmless against any liability therefrom
and in the same manner and degree as provided for in Section 8
hereof.
C. Initially the Fund or its designees shall be responsible for
the following: (i) answer and respond to phone calls from
shareholders and broker-dealers, and (ii) monitor wire order
settlements and order cancellations of unsettled trades.
22. Termination of Agreement.
A. This Agreement shall be in effect for an initial period of
three (3) years and, thereafter, shall automatically extend
for additional, successive twelve (12) month terms upon the
expiration of any term hereof unless terminated as hereinafter
provided. This Agreement may be terminated by either party
upon the expiration of any term by the delivery to the other
party of one hundred twenty (120) days prior written notice of
such termination, provided, however, that the effective date
of any termination shall not occur during the period from
November 15 through March 15 of any year to avoid adversely
impacting year end.
B. Each party, in addition to any other rights and remedies,
shall have the right to terminate this Agreement forthwith
upon the occurrence at any time of any of the following events
with respect to the other party:
(1) The bankruptcy of the other party or its assigns or
the appointment of a receiver for the other party or
its assigns; or
(2) Failure by the other party or its assigns to perform
its duties in accordance with the Agreement, which
failure materially adversely affects the business
operations of the first party and which failure
continues for thirty (30) days after receipt of
written notice from the first party.
C. Either party may terminate this Agreement at any time by
delivering to the other party written notice of such
termination at least six (6) months prior to the effective
date of such termination.
D. In the event of any termination of this Agreement, the Fund
will continue to pay to DST as invoiced all sums due for DST's
services until completion of the conversion and will pay to
DST, no later than contemporaneously with the dispatch by DST
of the Fund's records, all amounts payable to DST hereunder.
An estimated invoice for fees and reimbursable expenses will
be presented prior to conversion for amounts anticipated to
follow the conversion. The Fund should accrue appropriate
reserves in expectation of invoices/amounts which will be
generated and received following the date of conversion, which
the Fund will pay within thirty (30) days of receipt.
E. In addition, in the event of any termination, DST will,
provided the Fund contemporaneously pays all outstanding
charges and fees, promptly transfer all of the records of the
Fund to the designated successor transfer agent. DST shall
also provide reasonable assistance to the Fund and its
designated successor transfer agent and other information
relating to its services provided hereunder (subject to the
recompense of DST for such assistance and information at its
standard rates and fees for personnel then in effect at that
time); provided, however, as used herein "reasonable
assistance" and "other information" shall not include
assisting any new service or system provider to modify, alter,
enhance, or improve its system or to improve, enhance, or
alter its current system, or to provide any new, functionality
or to require DST to disclose any DST Confidential
Information, as hereinafter defined, or any information which
is otherwise confidential to DST.
F. Subsequent to any termination of this Agreement, the Fund
shall continue to pay to DST, subject to and in accordance
with the terms and conditions set forth in Sections 6.A.,
6.B., 6.C. and 6.D. of this Agreement, for all expenses
incurred on the Fund's behalf and the post-deconversion fees
set forth in Exhibit B to this Agreement (a) until the Fund
accounts are purged from the TA2000 System (no longer being
required for Year End Reporting) with respect to closed
account fees and (b) so long as DST's services are utilized by
the Fund with respect to all fees other than those for closed
accounts.
G. In any event, the effective date of any deconversion as a
result a termination of this Agreement shall not occur during
the period from November 15th through March 15th of any year
to avoid adversely impacting year end.
23. Confidentiality.
A. DST agrees that, except as provided in the last sentence of
Section 19.J. hereof, or as otherwise required by law, DST
will keep confidential all records of and information in its
possession relating to the Fund or its shareholders or
shareholder accounts and will not disclose the same to any
person except at the request or with the consent of the Fund.
B. The Fund owns all of the data supplied by or on behalf of the
Fund to DST. The Fund has proprietary rights to all such data,
records and reports containing such data, but not including
the software programs upon which such data is installed, and
all records relating to such data will be transferred in
accordance with Section 22.D above in the event of
termination.
C. The Fund agrees to keep confidential all non-public financial
statements and other financial records of DST received
hereunder, all accountants' reports relating to DST, the terms
and provisions of this Agreement, including all exhibits and
schedules now or in the future attached hereto and all
manuals, systems and other technical information and data, not
publicly disclosed, relating to DST's operations and programs
furnished to it by DST pursuant to this Agreement and will not
disclose the same to any person except at the request or with
the consent of DST.
D. (1) The Fund acknowledges that DST has proprietary rights
in and to the TA2000 System used to perform services
hereunder including, but not limited to the
maintenance of shareholder accounts and records,
processing of related information and generation of
output, including, without limitation any changes or
modifications of the TA2000 System and any other DST
programs, data bases, supporting documentation, or
procedures (collectively "DST Confidential
Information") which the Fund's access to the TA2000
System or computer hardware or software may permit
the Fund or its employees or agents to become aware
of or to access and that the DST Confidential
Information constitutes confidential material and
trade secrets of DST. The Fund agrees to maintain the
confidentiality of the DST Confidential Information.
(2) The Fund acknowledges that any unauthorized use,
misuse, disclosure or taking of DST Confidential
Information which is confidential as provided by law,
or which is a trade secret, residing or existing
internal or external to a computer, computer system,
or computer network, or the knowing and unauthorized
accessing or causing to be accessed of any computer,
computer system, or computer network, may be subject
to civil liabilities and criminal penalties under
applicable state law. The Fund will advise all of its
employees and agents who have access to any DST
Confidential Information or to any computer equipment
capable of accessing DST or DST hardware or software
of the foregoing.
(3) The Fund acknowledges that disclosure of the DST
Confidential Information may give rise to an
irreparable injury to DST inadequately compensable in
damages. Accordingly, DST may seek (without the
posting of any bond or other security) injunctive
relief against the breach of the foregoing
undertaking of confidentiality and nondisclosure, in
addition to any other legal remedies which may be
available, and the Fund consents to the obtaining of
such injunctive relief. All of the undertakings and
obligations relating to confidentiality and
nondisclosure, whether contained in this Section or
elsewhere in this Agreement shall survive the
termination or expiration of this Agreement for a
period of ten (10) years.
24. Changes and Modifications.
A. During the term of this Agreement DST will use on behalf of
the Fund without additional cost all modifications,
enhancements, or changes which DST may make to the TA2000
System in the normal course of its business and which are
applicable to functions and features offered by the Fund,
unless substantially all DST clients are charged separately
for such modifications, enhancements or changes, including,
without limitation, substantial system revisions or
modifications necessitated by changes in existing laws, rules
or regulations. The Fund agrees to pay DST promptly for
modifications and improvements which are charged for
separately at the rate provided for in DST's standard pricing
schedule which shall be identical for substantially all
clients, if a standard pricing schedule shall exist. If there
is no standard pricing schedule, the parties shall mutually
agree upon the rates to be charged.
B. DST shall have the right, at any time and from time to time,
to alter and modify any systems, programs, procedures or
facilities used or employed in performing its duties and
obligations hereunder; provided that the Fund will be notified
as promptly as possible prior to implementation of such
alterations and modifications and that no such alteration or
modification or deletion shall materially adversely change or
affect the operations and procedures of the Fund in using or
employing the TA2000 System or DST Facilities hereunder or the
reports to be generated by such system and facilities
hereunder, unless the Fund is given thirty (30) days prior
notice to allow the Fund to change its procedures and DST
provides the Fund with revised operating procedures and
controls at the time such notice is delivered to the Fund.
C. All enhancements, improvements, changes, modifications or new
features added to the TA2000 System however developed or paid
for shall be, and shall remain, the confidential and exclusive
property of, and proprietary to, DST.
25. Subcontractors.
Nothing herein shall impose any duty upon DST in connection with or
make DST liable for the actions or omissions to act of unaffiliated
third parties such as, by way of example and not limitation, Airborne
Services, the U.S. mails and telecommunication companies, provided, if
DST selected such company, DST shall have exercised due care in
selecting the same.
26. Limitations on Liability. If the Fund is comprised of more than one
Portfolio, each Portfolio shall be regarded for all purposes hereunder
as a separate party apart from each other Portfolio. Unless the context
otherwise requires, with respect to every transaction covered by this
Agreement, every reference herein to the Fund shall be deemed to relate
solely to the particular Portfolio to which such transaction relates.
Under no circumstances shall the rights, obligations or remedies with
respect to a particular Portfolio constitute a right, obligation or
remedy applicable to any other Portfolio. The use of this single
document to memorialize the separate agreement of each Portfolio is
understood to be for clerical convenience only and shall not constitute
any basis for joining the Portfolios for any reason.
27. Miscellaneous.
A. This Agreement shall be construed according to, and the rights
and liabilities of the parties hereto shall be governed by,
the laws of the State of Missouri, excluding that body of law
applicable to choice of law.
B. All terms and provisions of this Agreement shall be binding
upon, inure to the benefit of and be enforceable by the
parties hereto and their respective successors and permitted
assigns.
C. The representations and warranties, the indemnifications
extended hereunder, and the provisions of Sections 22.F and
6.A through and including 6.D., to the extent incorporated by
Section 22.F., are intended to and shall continue after and
survive the expiration, termination or cancellation of this
Agreement.
D. No provisions of this Agreement may be amended or modified in
any manner except by a written agreement properly authorized
and executed by each party hereto.
E. The captions in this Agreement are included for convenience of
reference only, and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or
effect.
F. This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
G. If any part, term or provision of this Agreement is by the
courts held to be illegal, in conflict with any law or
otherwise invalid, the remaining portion or portions shall be
considered severable and not be affected, and the rights and
obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or
provision held to be illegal or invalid.
H. This Agreement may not be assigned by the Fund or DST without
the prior written consent of the other.
I. Neither the execution nor performance of this Agreement shall
be deemed to create a partnership or joint venture by and
between the Fund and DST. It is understood and agreed that all
services performed hereunder by DST shall be as an independent
contractor and not as an employee of the Fund. This Agreement
is between DST and the Fund and neither this Agreement nor the
performance of services under it shall create any rights in
any third parties. There are no third party beneficiaries
hereto.
J. Except as specifically provided herein, this Agreement does
not in any way affect any other agreements entered into among
the parties hereto and any actions taken or omitted by any
party hereunder shall not affect any rights or obligations of
any other party hereunder.
K. The failure of either party to insist upon the performance of
any terms or conditions of this Agreement or to enforce any
rights resulting from any breach of any of the terms or
conditions of this Agreement, including the payment of
damages, shall not be construed as a continuing or permanent
waiver of any such terms, conditions, rights or privileges,
but the same shall continue and remain in full force and
effect as if no such forbearance or waiver had occurred.
L. This Agreement constitutes the entire agreement between the
parties hereto and supersedes any prior agreement, draft or
agreement or proposal with respect to the subject matter
hereof, whether oral or written, and this Agreement may not be
modified except by written instrument executed by both
parties.
M. All notices to be given hereunder shall be deemed properly
given if delivered in person or if sent by U.S. mail, first
class, postage prepaid, or if sent by facsimile and thereafter
confirmed by mail as follows:
If to DST:
DST Systems, Inc.
1055 Broadway, 7th Fl.
Kansas City, Missouri 64105
Attn: Senior Vice President-Full Service
Facsimile No.: 816-435-3455
With a copy of non-operational notices to:
DST Systems, Inc.
333 W. 11th St., 5th Fl.
Kansas City, Missouri 64105
Attn: Legal Department
Facsimile No.: 816-435-8630
If to the Fund:
First American Investment Funds, Inc.
680 East Swedesford Rd.
Wayne, Pennsylvania 19087
Attn: _________________________
Facsimile No.: ________________
or to such other address as shall have been specified in
writing by the party to whom such notice is to be given.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective duly authorized officers, to be effective as of the
day and year first above written.
DST SYSTEMS, INC.
By:________________________
Title:_____________________
FIRST AMERICAN INVESTMENT
FUNDS, INC.
By:________________________
Title:_____________________
EXHIBIT A
PAGE 1 of 5
DST SYSTEMS, INC.
FIRST AMERICAN TRANSFER AGENCY FEE PROPOSAL
EFFECTIVE NOVEMBER 1, 1996 THROUGH OCTOBER 31, 1999
<TABLE>
A. MINIMUM FEE
<S> <C>
Current - through October 1996
All Cusips $9,000/year
Year 1 - November 1996 through October 1997
Cusips in the range 1-10 $11,000/year
Cusips in the range 11-20 $10,500/year
Cusips in the range > 20 $9,250/year
Year 2 - November 1997 through October 1998
Cusips in the range 1-10 $13,000/year
Cusips in the range 11-20 $12,500/year
Cusips in the range > 20 $11,000/year
Year 3 - November 1998 through October 1999
Cusips in the range 1-10 $15,500/year
Cusips in the range 11-20 $14,000/year
Cusips in the range > 20 $12,500/year
Note: Minimum applies unless charges included in Section B exceed the minimum.
B. ACCOUNT MAINTENANCE AND PROCESSING FEES
Current - through October 1996
Open Accounts:
Daily Accrual Portfolio(s) $22.50 per account per year
Monthly Accrual Portfolio(s) $15.50 per account per year
Other Accruals Portfolio(s) $15.50 per account per year
Closed Accounts $1.20 per account per year
Year 1 - November 1996 through October 1997
Open Accounts:
Daily Accrual Portfolio(s) $23.00 per account per year
Monthly Accrual Portfolio(s) $18.00 per account per year
Other Accruals Portfolio(s) $16.00 per account per year
Closed Accounts $2.85 per account per year
Year 2 - November 1997 through October 1998
Open Accounts:
Daily Accrual Portfolio(s) $24.00 per account per year
Monthly Accrual Portfolio(s) $19.00 per account per year
Other Accruals Portfolio(s) $17.00 per account per year
Closed Accounts $2.85 per account per year
Year 3 - November 1998 through October 1999
Open Accounts:
Daily Accrual Portfolio(s) $25.00 per account per year
Monthly Accrual Portfolio(s) $21.00 per account per year
Other Accruals Portfolio(s) $18.00 per account per year
Closed Accounts $2.85 per account per year
C. OPTIONAL SERVICES
Financial Intermediary Interface (Schwab)
Same Day:
Transaction Fee $2.50 each
Phone Call $4.00 each
Next Day 401(k) Interface:
Purchase $8.75 each
Redemption $13.75 each
- compared to -
Per Cusip Minimums
$1,200 per year 1st three cusips
$900 per year for each additional cusip
EXHIBIT A
Page 3 of 5
Note: Financial Intermediary Interface Minimum applies to all SEI relationships
and is allocated to all management companies. Minimum applies unless the
activity fees for next day items exceed the minimum.
12b-1 Processing $.15 per open and closed account per cycle
CDSC/Sharelot Accounting $1.90 per account per year
Ad-Hoc Reporting
Multi File Reports $400 per report
Single File Reports $250 per report
*Audio ResponseTM System - see Exhibit A
*NSCC - see Exhibit B
Escheatment Costs - as incurred
Conversion/Acquisition Costs - Out of Pocket expenses including but not
limited to travel and accommodations, programming, training, equipment
installation, etc.
*Computer/Technical Personnel:
Business Analyst/Tester:
Dedicated $65,000 per year
On Request:
Senior Staff Support $60 per hour
Staff Support $40 per hour
Clerical Support $30 per hour
Technical/Programming:
Dedicated $102,000 per year
On Request $80 per hour
Technical/C Programming:
Dedicated $130,000 per year
On Request $105 per hour
</TABLE>
EXHIBIT A
PAGE 4 of 5
NOTES TO THE ABOVE FEE SCHEDULE
A. The above schedule does not include reimbursable expenses that are
incurred on the Fund's behalf. Examples of reimbursable expenses are
set forth hereinafter in this Exhibit A. Reimbursable expenses are
billed separately from service fees on a monthly basis.
B. Any fees or reimbursable expenses not paid within 30 days of the date
of the original invoice will be charged a late payment fee in
accordance with Section 6.C. of this Agreement.
FEE INCREASES
Unless new fees are negotiated by Fund and DST for the fourth year or any
succeeding year of this Agreement, the fees and charges set forth in this
Exhibit A shall increase annually as of December 1, 1999 and upon each
succeeding December 1st over the fees and charges during the prior 12 months in
an amount equal to the annual percentage of change in the Consumer Price Index
in the Kansas City, Missouri-Kansas Standard Metropolitan Statistical Area, All
Items, Base 1982-1984=100, as last reported by the U.S. Bureau of Labor
Statistics for the 12 calendar months immediately preceding such anniversary. In
the event that this Agreement was not signed as of the first day of the month,
the fees and charges increase shall be effective as of the first day of the
month immediately following the month during which the anniversary occurred.
OPEN AND CLOSED ACCOUNTS FEES
The monthly fee for an open account shall be charged in the month during which
an account is opened through the month in which such account is closed. The
monthly fee for a closed account shall be charged in the month following the
month during which such account is closed and shall cease to be charged in the
month following the Purge Date, as hereinafter defined. The "Purge Date" for any
year shall be any day after June 1st of that year, as selected by the Fund,
provided that written notification is presented to DST at least forty-five (45)
days prior to the Purge Date.
EXHIBIT A
PAGE 5 of 5
REIMBURSABLE EXPENSES
Forms
Postage (to be paid in advance if so requested)
Mailing Services
Computer Hardware and Software - specific to Fund or installed at
remote site at Fund's direction
Telecommunications Equipment and Lines/Long Distance Charges Magnetic
Tapes, Reels or Cartridges Magnetic Tape Handling Charges
Microfiche/Microfilm Freight Charges Printing Bank Wire and ACH Charges
Proxy Processing - per proxy mailed
not including postage
Includes: Proxy Card
Printing
Outgoing Envelope
Return Envelope
Tabulation and Certification
T.I.N. Certification (W-8 & W-9)
(Postage associated with the return
envelope is included)
N.S.C.C. Communications Charge Currently $1,200.00
(Fund/Serv and Networking) per Fund per Year
Off-site Record Storage
Second Site Disaster Currently $.07
Backup Fee (per account) (guaranteed not to
exceed $.11 through
12/31/97)
Transmission of Statement Data for Currently $.035/per
Remote Processing record
Travel, Per Diem and other Billables
Incurred by DST personnel traveling to,
at and from the Fund at the request
of the Fund
<PAGE>
EXHIBIT B
DST SYSTEMS, INC. / FIRST AMERICAN FUNDS
POST DECONVERSION FEE SCHEDULE
ALL FEES EFFECTIVE AS OF DECONVERSION:
ACCOUNT MAINTENANCE
Closed Accounts $.20/month/acct
Transaction/Maintenance Processing $2.50/item
Telephone Calls $4.00/call
Research Requests $40/hour (1 hr min)
PROGRAMMING
As required at DST's then current standard rates
REIMBURSABLE EXPENSES
This schedule does not include reimbursable expenses that are incurred on the
Fund's behalf. Examples of reimbursable expenses include but are not limited to
forms, postage, mailing services, telephone line/long distance charges,
transmission of statement data for remote print/mail operations, remote client
hardware, document storage, tax certification mailings, magnetic tapes,
printing, microfiche, Fed wire bank charges, ACH bank charges, NSCC charges, as
required or incurred, etc. Reimbursable expenses are billed separately from
Account Maintenance and Programming fees on a monthly basis and late payments
are subject to late charges in accordance with Section 6.C. of this Agreement.
EXHIBIT C
AUTHORIZED PERSONNEL
Pursuant to Section 8.A. of the Agency Agreement between _________________ (the
"Fund") and DST (the "Agreement"), the Fund authorizes the following Fund
personnel to provide instructions to DST, and receive inquiries from DST in
connection with the Agreement:
Name Title
---- -----
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
- ----------------------------- --------------------------------
This Exhibit may be revised by the Fund by providing DST with a substitute
Exhibit B. Any such substitute Exhibit B shall become effective twenty-four (24)
hours after DST's receipt of the document and shall be incorporated into the
Agreement.
ACKNOWLEDGMENT OF RECEIPT:
FIRST AMERICAN INVESTMENT
DST SYSTEMS, INC. FUNDS, INC.
By:___________________________ By:____________________________
Title:________________________ Title:_________________________
Date:_________________________ Date:__________________________
EXHIBIT 11(a)
KPMG Peat Marwick LLP
4200 Norwest Center
90 South Seventh Street
Minneapolis, MN 55402
Telephone 612 305 5000
Telefax 612 305 5039
Independent Auditors' Consent
The Board of Directors
First American Investment Funds, Inc.
We consent to the use of our report dated November 8, 1996 incorporated by
reference herein and to the references to our Firm under the headings "FINANCIAL
HIGHLIGHTS" in Part A and "Custodian; Transfer Agent; Counsel; Accountants" in
Part B of the Registration Statement.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Minneapolis, Minnesota
January 22, 1997
EXHIBIT 14(a)
SS. 401(K) PROTOTYPE
BASIC PLAN DOCUMENT #02
1989 RESTATEMENT
SS. 401(K) PROTOTYPE
BASIC PLAN DOCUMENT #02
1989 RESTATEMENT
TABLE OF CONTENTS
Page
SECTION 1. Introduction 1
1.1. Definitions
1.1.1. Accounts
(a) Total Account
(b) Retirement Savings Account
(c) Employer Matching Account
(d) Employer Contributions Account
(e) Rollover Account
(f) Nondeductible Voluntary Account
(g) Deductible Voluntary Account
(h) Transfer Account
(i) Suspense Account
1.1.2. Administrator's Representative
1.1.3. Affiliate
1.1.4. Annual Valuation Date
1.1.5. Beneficiary
1.1.6. Board of Directors
1.1.7. Disability
1.1.8. Effective Date
1.1.9. Eligibility Service
1.1.10. Employee
1.1.11. Employer
1.1.12. Entry Date
1.1.13. Event of Maturity
1.1.14. Fund
1.1.15. Hours of Service
1.1.16. Investment Manager
1.1.17. Normal Retirement Age
1.1.18. One-Year Break in Service
1.1.19. Participant
1.1.20. Plan
1.1.21. Plan Statement
1.1.22. Plan Year
1.1.23. Prior Plan Statement
1.1.24. Prototype Documents
1.1.25. Prototype Sponsor
1.1.26. Recognized Compensation
1.1.27. Recognized Employment
1.1.28. Retirement Savings Agreement
1.1.29. Trustee
1.1.30. Valuation Date
1.1.31. Vested
1.1.32. Vesting Service
1.2. Rules Of Interpretation
1.3. Establishment Of New Plan
1.4. Amendment And Change Of Trustee
1.5. Amendment And Continuation
1.6. Automatic Exclusion From Prototype Plan
1.7. Special Requirements
1.7.1. Discriminatory Benefits
1.7.2. Discriminatory Coverage
1.7.3. Control Defined
SECTION 2. Eligibility And Participation 13
2.1. Initial Entry Into Plan
2.2. Special Rule For Former Participants
2.3. Enrollment
2.4. Waiver Of Enrollment Procedures
2.5. Retirement Savings Agreement
2.6. Modifications Of Retirement Savings Agreement
2.6.1. Increase
2.6.2. Decrease
2.6.3. Voluntary Termination
2.6.4. Termination Of Recognized Employment
2.6.5. Form Of Agreement
2.7. Section 401(k) Compliance
2.7.1. Special Definitions
2.7.2. Special Rules
2.7.3. The Tests
2.7.4. Remedial Action
2.8. Annual Certification
SECTION 3. Contributions And Allocation Thereof 18
3.1. Employer Contributions -- General
3.1.1. Source Of Employer Contributions
3.1.2. Limitation
3.1.3. Form Of Payment
3.2. Retirement Savings Contributions
3.2.1. Amount
3.2.2. Allocation
3.3. Required Matching Contributions
3.3.1. Amount
3.3.2. Allocation
3.4. Discretionary Employer Contributions
3.4.1. General
3.4.2. Curative Allocation -- ss. 401(k)
3.4.3. Discretionary Matching Contributions
3.4.4. Curative Allocation -- ss. 401(m)
3.4.5. Discretionary Profit Sharing Contributions
3.5. Eligible Participants
3.6. Make-Up Contributions For Omitted Participants
3.7. Rollover Contributions
3.7.1. Eligible Contributions
3.7.2. Specific Review
3.7.3. Allocation
3.8. Nondeductible Voluntary Contributions
3.8.1. Method Of Contribution
3.8.2. Payment To Trustee
3.8.3. Allocation
3.9. Deductible Voluntary Contributions
3.10. Section 401(m) Compliance
3.10.1. Special Definitions
3.10.2. Special Rules
3.10.3 The Tests
3.10.4. Remedial Action
3.11. Limitation On Allocations
3.12. Effect Of Disallowance Of Deduction Or Mistake Of Fact
SECTION 4. Investment And Adjustment Of Accounts 27
4.1. Establishment Of Subfunds
4.1.1. Establishing Commingled Subfunds
4.1.2. Individual Subfunds
4.1.3. Operational Rules
4.1.4. Revising Subfunds
4.2. Valuation And Adjustment Of Accounts
4.3. Management And Investment Of Fund
SECTION 5. Vesting 30
5.1. Employer Matching Account And Employer Contributions Account
5.1.1. Progressive Vesting
5.1.2. Full Vesting
5.1.3. Special Rule For Partial Distributions
5.1.4. Effect Of Break On Vesting
5.2. Optional Vesting Schedule
5.2.1. Election
5.2.2. Qualifying Participant
5.2.3. Procedure For Election
5.2.4. Conclusive Election
5.3. Other Accounts
SECTION 6. Maturity 32
6.1. Events Of Maturity
6.2. Disposition Of Non-Vested Portion Of Account
6.2.1. No Break
6.2.2. A Break
6.2.3. Forfeiture Date
6.3. Restoration Of Forfeited Accounts
SECTION 7. Distribution 34
7.1. Application For Distribution
7.1.1. Application Required
7.1.2. Exception For Small Amounts
7.1.3. Exception For Required Distributions
7.2. Time Of Distribution
7.2.1. Earliest Beginning Date
7.2.2. Required Beginning Date
7.3. Forms Of Distribution
7.3.1. Forms Available
7.3.2. Substantially Equal
7.3.3. Life Expectancy
7.3.4. Presumptive Forms
7.3.5. Effect Of Reemployment
7.3.6. TEFRA ss. 242(b) Transitional Rules
7.4. Designation Of Beneficiaries
7.4.1. Right To Designate
7.4.2. Spousal Consent
7.4.3. Failure Of Designation
7.4.4. Definitions
7.4.5. Special Rules
7.5. Death Prior To Full Distribution
7.6. Distribution In Cash
7.7. (Deleted)
7.8. Withdrawals From Voluntary Accounts
7.8.1. When Available
7.8.2. Sequence of Accounts
7.8.3. Limitations
7.8.4. Coordination With Section 4.1
7.9. In-Service Distributions
7.9.1. When Available
7.9.2. Purposes
7.9.3. Limitations
7.9.4. Coordination With Retirement Savings
Agreement
7.9.5. Sequence Of Accounts
7.9.6. Coordination With Section 4.1
7.10. Transitional Rules
7.11 Loans
7.11.1. General Rules
7.11.2. Interest Rate
7.11.3. Loans Made from Participant's Accounts
7.11.4. Loan Rules
7.12. Distributions Of Excess Elective Deferrals, Excess
Contributions And Excess Aggregate Contributions
7.12.1. Distribution Of Excess Elective Deferrals
7.12.2. Distribution Of Excess Contributions
7.12.3. Distribution Of Excess Aggregate
Contributions
7.12.4. Priority
7.12.5. Matching Contributions
SECTION 8. Spendthrift Provisions 52
SECTION 9. Amendment And Termination 53
9.1. Amendment
9.1.1. Amendment By Employer
9.1.2. Amendment By Prototype Sponsor
9.1.3. Limitation On Amendments
9.1.4. Resignation Of Prototype Sponsor
9.2. Discontinuance Of Contributions And Termination Of Plan
9.3. Merger, Etc., With Another Plan
9.4. Adoption By Affiliates
9.4.1. Adoption With Consent
9.4.2. Procedure For Adoption
9.4.3. Effect Of Adoption
SECTION 10. Concerning the Trustee 56
10.1. Dealings With Trustee
10.1.1. No Duty To Inquire
10.1.2. Assumed Authority
10.2. Compensation Of Trustee
10.3. Resignation And Removal Of Trustee
10.3.1. Resignation, Removal And Appointment
10.3.2. Surviving Trustees
10.3.3. Successor Organizations
10.3.4. Co-Trustee Responsibility
10.4. Accountings By Trustee
10.4.1. Periodic Reports
10.4.2. Special Reports
10.4.3. Review Of Reports
10.5. Trustee's Power To Protect Itself On Account Of Taxes
10.6. Other Trust Powers
10.7. Investment Managers
10.7.1. Appointment And Qualifications
10.7.2. Removal
10.7.3. Relation To Other Fiduciaries
10.8. Fiduciary Principles
10.9. Prohibited Transactions
10.10. Indemnity
10.11. Investment In Insurance
10.11.1. Limitation On Payment Of Premiums
10.11.2. Miscellaneous Rules For Purchase Of Contract
10.11.3. Payment Of Expenses
10.11.4. Authority For Contract
10.11.5. Payment Of Contract Upon Death
10.11.6. Payment Of Contract-- Not Upon Death
10.11.7. Value Of Contract
10.11.8. Interpretation
10.12. Employer Directed Investments
SECTION 11. Determinations-- Rules And Regulations 65
11.1. Determinations
11.2. Rules And Regulations
11.3. Method Of Executing Instruments
11.3.1. Employer Or Administrator's Representative
11.3.2. Trustee
11.4. Claims Procedure
11.4.1. Original Claim
11.4.2. Claims Review Procedure
11.4.3. General Rules
11.5. Information Furnished By Participants
SECTION 12. Other Administrative Matters 67
12.1. Employer
12.1.1. Officers
12.1.2. Delegation
12.1.3. Board Of Directors
12.2. Administrator's Representative
12.3. Limitation On Authority
12.4. Conflict Of Interest
12.5. Dual Capacity
12.6. Administrator
12.7. Named Fiduciaries
12.8. Service Of Process
12.9. Residual Authority
12.10. Administrative Expenses
SECTION 13. In General 70
13.1. Disclaimers
13.1.1. Effect On Employment
13.1.2. Sole Source Of Benefits
13.1.3. Co-Fiduciary Matters
13.2. Reversion Of Fund Prohibited
13.3. Execution In Counterparts
13.4. Continuity
13.5. Contingent Top Heavy Plan Rules
Appendix A--Section 415 Limitations On Annual Additions A-1
Appendix B--Contingent Top Heavy Plan Rules B-1
Appendix C--Qualified Domestic Relations Orders C-1
Appendix D--Highly Compensated Employee D-1
Appendix E--TEFRA ss. 242(b) Transitional Rules E-1
Appendix F--Transitional Distribution Rules F-1
Appendix G--Plan Loan Rules G-1
SS. 401(K) PROTOTYPE
BASIC PLAN DOCUMENT #02
1989 RESTATEMENT
SECTION 1
INTRODUCTION
1.1. DEFINITIONS. When the following terms are used herein with initial capital
letters, they shall have the following meanings:
1.1.1. ACCOUNTS -- the following Accounts will be maintained under this
Plan for Participants:
(A) TOTAL ACCOUNT -- a Participant's entire interest in the Fund,
including his Retirement Savings Account, his Employer
Matching Account, his Employer Contributions Account, his
Rollover Account, his Nondeductible Voluntary Account, his
Deductible Voluntary Account, and his Transfer Account, if
any, (but excluding his interest in a Suspense Account).
(B) RETIREMENT SAVINGS ACCOUNT -- the Account maintained for each
Participant to which are credited the Employer contributions
made in consideration of such Participant's earnings
reductions pursuant to Section 3.2 (or comparable provisions
of the Prior Plan Statement, if any) or made pursuant to
Section 3.4.2, together with any increase or decrease thereon.
(C) EMPLOYER MATCHING ACCOUNT -- the Account maintained for each
Participant to which is credited his allocable share of the
Employer contributions and his allocable share of forfeited
Suspense Accounts made pursuant to Section 3.3 or Section
3.4.3 (or comparable provisions of the Prior Plan Statement,
if any) or made pursuant to Section 3.4.4, together with any
increase or decrease thereon.
(D) EMPLOYER CONTRIBUTIONS ACCOUNT -- the Account maintained for
each Participant to which is credited his allocable share of
the Employer contributions and his allocable share of
forfeited Suspense Accounts made pursuant to Section 3.4.5 (or
comparable provisions of the Prior Plan Statement, if any),
together with any increase or decrease thereon.
(E) ROLLOVER ACCOUNT -- the Account maintained for each
Participant to which are credited his rollover contributions
made pursuant to Section 3.7 (or comparable provisions of the
Prior Plan Statement, if any), together with any increase or
decrease thereon.
(F) NONDEDUCTIBLE VOLUNTARY ACCOUNT -- the Account maintained for
each Participant to which are credited his nondeductible
voluntary contributions made pursuant to Section 3.8 (or
comparable provisions of the Prior Plan Statement, if any),
together with any increase or decrease thereon.
(G) DEDUCTIBLE VOLUNTARY ACCOUNT -- the Account maintained for
each Participant to which are credited his deductible
voluntary contributions made pursuant to Section 3.6 of the
Prior Plan Statement (or other comparable provisions of the
Prior Plan Statement, if any), together with any increase or
decrease thereon.
(H) TRANSFER ACCOUNT -- the Account maintained on behalf of a
Participant to which is credited the amount transferred to the
Trustee pursuant to Section 9.3, and not allocated to any
other Account pursuant to that section (or comparable
provisions of the Prior Plan Statement, if any), together with
any increase or decrease thereon.
(I) SUSPENSE ACCOUNT -- the Account maintained for each
Participant to which is credited the portion of his Employer
Matching Account and his Employer Contributions Account which
is not Vested in him upon the occurrence of an Event of
Maturity (pending reemployment or forfeiture pursuant to
Section 6.2), together with any increase or decrease thereon.
1.1.2. ADMINISTRATOR'S REPRESENTATIVE -- the person or committee
appointed to make administrative decisions and rules, to communicate on behalf
of the Employer and to take other actions specified in this Plan Statement and
which is selected pursuant to Section 12.2.
1.1.3. AFFILIATE -- a business entity which is under "common control"
with the Employer or which is a member of an "affiliated service group" that
includes the Employer, as those terms are defined in section 414(b), (c) and (m)
of the Internal Revenue Code. A business entity which is a predecessor to the
Employer shall be treated as an Affiliate if the Employer maintains a plan of
such predecessor business entity or if, and to the extent that, such treatment
is otherwise required by regulations prescribed by the Secretary of the Treasury
under section 414(a) of the Internal Revenue Code. A business entity shall also
be treated as an Affiliate if, and to the extent that, such treatment is
required by regulations prescribed by said Secretary under section 414(o) of
said Code. In addition to such required treatment, the Employer may, in its
discretion, designate as an Affiliate any business entity which is not such a
"common control," "affiliated service group" or "predecessor" business entity
but which is otherwise affiliated with the Employer, subject to such
nondiscriminatory limitations as the Employer may impose.
1.1.4. ANNUAL VALUATION DATE -- unless indicated otherwise in the
Adoption Agreement, the last day of the Employer's taxable year for federal
income tax purposes.
1.1.5. BENEFICIARY -- a person designated by a Participant (or
automatically by operation of this Plan) to receive all or a part of the
Participant's Vested Total Account in the event of the Participant's death prior
to full distribution thereof.
1.1.6. BOARD OF DIRECTORS -- the Board of Directors if the Employer is
a corporation, any general partner if the Employer is a partnership, or the
proprietor if the Employer is a sole proprietor. If the Employer is a
corporation, the Board of Directors shall also mean and refer to any properly
authorized committee of the directors. If there is more than one Employer under
this Plan, the Board of Directors shall be the Board of Directors of the
Employer which is the principal sponsor of this Plan.
1.1.7. DISABILITY -- a medically determinable physical or mental
impairment which is of such a nature that it (i) renders the individual
incapable of performing any substantial gainful employment, (ii) can be expected
to be of long-continued and indefinite duration or result in death, and (iii) is
evidenced by a determination to this effect by a doctor of medicine approved by
the Administrator's Representative. The Administrator's Representative shall
determine the date on which the Disability shall have occurred if such
determination is necessary. In lieu of such a certification, the Employer may
accept, as proof of Disability, the official written determination that the
individual will be eligible for disability benefits under the federal Social
Security Act as now enacted or hereinafter amended (when any waiting period
expires).
1.1.8. EFFECTIVE DATE -- the date set forth in the Adoption Agreement
as of which this Plan Statement is effective; provided, however, certain
provisions specified in this Plan Statement shall be applicable prior to that
date for any Employer maintaining a Plan prior to the first day of the Plan Year
beginning after December 31, 1988.
1.1.9. ELIGIBILITY SERVICE -- a measure of an Employee's service with
the Employer and all Affiliates (stated as a number of years) which is equal to
the number of computation periods for which the Employee is credited with one
thousand (1,000) or more Hours of Service; subject, however, to such of the
following rules as are applicable under the Adoption Agreement:
(A) COMPUTATION PERIODS. The computation periods for determining
the Employee's Eligibility Service (and One-Year Breaks in
Service as applied to his Eligibility Service) shall be (i)
unless (ii) is indicated in the Adoption Agreement:
(i) the twelve (12) consecutive month period beginning
with the date the Employee first performs an Hour of
Service plus all Plan Years beginning after the date
the Employee first performs an Hour of Service
(irrespective of any termination of employment and
subsequent reemployment), or
(ii) the twelve (12) consecutive month period beginning
with the date the Employee first performs an Hour of
Service plus all twelve (12) consecutive month
periods commencing on the annual anniversaries of
such date (irrespective of any termination of
employment and subsequent reemployment).
An Employee who is credited with 1,000 Hours of Service in
both the initial eligibility period described in (i) above and
the first Plan Year commencing prior to the end of such
initial eligibility period shall be credited with two years of
Eligibility Service.
(B) COMPLETION. A year of Eligibility Service shall be deemed
completed only as of the last day of the computation period
(irrespective of the date in such period that the Employee
completed one thousand Hours of Service). (Fractional years of
Eligibility Service shall not be credited.)
(C) PRE-EFFECTIVE DATE SERVICE. Eligibility Service shall be
credited for Hours of Service earned and computation periods
completed before the Effective Date as if the rules of this
Plan Statement were then in effect.
(D) BREAKS IN SERVICE -- BEFORE EFFECTIVE DATE. Eligibility
Service cancelled before the Effective Date by operation of
the Plan's break in service rules as they existed before the
Effective Date shall continue to be cancelled on and after the
Effective Date.
(E) BREAK IN SERVICE. Subject to Section 1.1.9(d), if the Employee
has any break in service occurring before or after the
Effective Date, his service both before and after such break
in service shall be taken into account in computing his
Eligibility Service for the purpose of determining his
entitlement to become a Participant in this Plan.
(F) PREDECESSOR EMPLOYER. If the Employer maintains a plan
previously maintained by a business entity that is merged with
or becomes an Affiliate of the Employer, then Eligibility
Service that would have been earned by persons employed by
such predecessor employer had the rules of this Plan been in
effect, shall be counted as Eligibility Service under this
Plan.
1.1.10. EMPLOYEE -- each individual who is, with respect to the
Employer, or an Affiliate, or both, a Common Law Employee (including
Shareholder-Employee) or a Self-Employed Person (including an Owner-Employee) or
a Leased Employee, which shall be further defined as follows:
(A) COMMON LAW EMPLOYEE -- an individual who performs services as
an employee of the Employer or an Affiliate (including,
without limiting the generality of the foregoing, a
Shareholder-Employee) but who is not a Self-Employed Person
with respect to the Employer.
(B) SHAREHOLDER-EMPLOYEE -- an individual who owns, or is deemed
with attribution to own, more than five percent (5%) of the
outstanding stock of the Employer on any one day of the
taxable year of the Employer with respect to which the Plan is
established; provided, however, that during any taxable year
that the Employer is not an electing small business
corporation (S corporation) there shall be no
Shareholder-Employees. All Shareholder-Employees are Common
Law Employees.
(C) SELF-EMPLOYED PERSON -- an individual who owns either a
capital interest or a profits interest in the Employer with
respect to which the Plan is maintained at a time when such
Employer is either a partnership or a proprietorship or an
individual who has earned income from such Employer (or would
have had earned income if the Employer had had net profits). A
proprietor shall be deemed to be an Employee of a
proprietorship which is the Employer and each partner shall be
deemed to be an Employee of a partnership which is the
Employer.
(D) OWNER-EMPLOYEE -- an individual who is a Self-Employed Person
and who is either the proprietor of the Employer (when it is a
proprietorship) or a partner owning more than ten percent
(10%) either of the capital interests or profits interest of
the Employer (when it is a partnership). All Owner-Employees
are Self-Employed Persons.
(E) LEASED EMPLOYEES -- an individual (other than an employee)
who, pursuant to an agreement with a leasing organization has
performed services for the Employer, or for the Employer and
related persons (determined in accordance with section
414(n)(6) of the Internal Revenue Code) on a substantially
full-time basis for a period of at least one (1) year and has
performed services which are of a type historically performed
by employees of the Employer or an Affiliate. For services
performed prior to January 1, 1987, such an individual shall
not be considered a Leased Employee (with respect to the
Employer or an Affiliate) if such individual is covered by a
money purchase pension plan which provides for: (i) a
nonintegrated employer contribution rate of at least seven and
one-half percent (7-1/2%) of compensation; and (ii) immediate
participation; and (iii) full and immediate vesting. For
services performed after December 31, 1986, such an individual
shall not be considered a Leased Employee (with respect to the
Employer or an Affiliate) if such individual is covered by a
money purchase pension plan which provides for: (i) a
nonintegrated employer contribution rate of at least ten
percent (10%) of "ss.415 compensation" as defined in Appendix
A to this Plan Statement, but including amounts contributed by
the Employer pursuant to a salary reduction agreement which
are excludible from the individual's gross income under
section 125, section 402(a)(8), section 402(h) or section
403(b) of the Internal Revenue Code; and (ii) immediate
participation (except for those individuals whose compensation
from the leasing organization in each plan year during the
four-year period ending with the plan year is less than one
thousand dollars); and (iii) full and immediate vesting;
provided, however, that such an individual will be considered
a Leased Employee (with respect to the Employer or an
Affiliate) if Leased Employees constitute more than twenty
percent (20%) of the recipient's nonhighly compensated work
force as determined in accordance with section
414(n)(5)(C)(ii) of the Internal Revenue Code. An individual
shall also be treated as a Leased Employee of the Employer or
an Affiliate if, and to the extent that, such treatment is
required by regulations prescribed by the Secretary of the
Treasury under section 414(o) of the said Code. Contributions
or benefits provided by the leasing organization to a Leased
Employee which are attributable to services performed for the
recipient Employer shall be treated as provided by the
recipient Employer.
1.1.11. EMPLOYER -- the business entity which establishes a Plan by
executing the Adoption Agreement and any Affiliate of any such business entity
that adopts this Plan by completing the Adoption Agreement with the consent of
the Employer or becomes an adopting employer as provided in Section 9.4. (A sole
proprietor shall be treated as his own Employer. A partnership shall be treated
as the Employer of each partner.)
1.1.12. ENTRY DATE -- the dates (as indicated in the Adoption
Agreement) which shall be either:
(i) the first day of the Plan Year, or
(ii) the first day of the Plan Year and the first day of
the seventh month of the Plan Year, or
(iii) the first day of the Plan Year and the first day of
the fourth, seventh and tenth months of the Plan
Year, or
(iv) the first day of the Plan Year and the first day of
the second through twelfth months of the Plan Year.
The Entry Date shall also include (i) the date upon which an individual who had
previously met the age and service requirements of Section 2.1 but who was not
then in Recognized Employment is transferred to Recognized Employment, (ii) the
date upon which an individual who had previously been a Participant is
reemployed in Recognized Employment, and (iii) such other dates as the
Administrator's Representative may by uniform, nondiscriminatory rules
established from time to time for the commencement of retirement savings under
Section 2.5.
1.1.13. EVENT OF MATURITY -- any of the occurrences described in
Section 6 by reason of which a Participant or Beneficiary may become entitled to
a distribution from the Plan.
1.1.14. FUND -- the assets of the Plan held by the Trustee from time to
time, including all contributions and the investments and reinvestments,
earnings, profits and losses thereon, whether invested under the general
investment authority of the Trustee or under the terms applicable to any
investment Subfund established pursuant to Section 4.1.
1.1.15. HOURS OF SERVICE -- a measure of an Employee's service with the
Employer and all Affiliates, determined for a given computation period and equal
to the number of hours credited to the Employee according to the following
rules:
(A) PAID DUTY. An Hour of Service shall be credited for each hour
for which the Employee is paid, or entitled to payment, for
the performance of duties for the Employer or an Affiliate.
These hours shall be credited to the Employee for the
computation period or periods in which the duties are
performed.
(B) PAID NONDUTY. An Hour of Service shall be credited for each
hour for which the Employee is paid, or entitled to payment,
by the Employer or an Affiliate 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; provided,
however, that:
(i) no more than five hundred one (501) Hours of Service
shall be credited on account of a single continuous
period during which the Employee performs no duties
(whether or not such period occurs in a single
computation period),
(ii) no Hours of Service shall be credited on account of
payments made under a plan maintained solely for the
purpose of complying with applicable worker's
compensation, unemployment compensation or disability
insurance laws,
(iii) no Hours of Service shall be credited on account of
payments which solely reimburse the Employee for
medical or medically related expenses incurred by the
Employee, and
(iv) payments shall be deemed made by or due from the
Employer or an Affiliate whether made directly or
indirectly from a trust fund or an insurer to which
the Employer or an Affiliate contributes or pays
premiums.
These hours shall be credited to the Employee for the
computation period for which payment is made or, if the
payment is not computed by reference to units of time, the
hours shall be credited to the first computation period in
which the event, for which any part of the payment is made,
occurred.
(C) BACK PAY. An Hour of Service shall be credited for each hour
for which back pay, irrespective of mitigation of damages, has
been either awarded or agreed to by the Employer or an
Affiliate. The same Hours of Service credited under paragraph
(a) or (b) shall not be credited under this paragraph (c). The
crediting of Hours of Service under this paragraph (c) for
periods and payments described in paragraph (b) shall be
subject to all the limitations of that paragraph. 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) UNPAID ABSENCES.
(I) LEAVES OF ABSENCE. If (and to the extent that) the
Employer so provides in written rules of
nondiscriminatory application which are in writing
and approved by the Employer before the date upon
which they are effective, an assumed eight (8) hour
day and forty (40) hour week shall be credited during
each unpaid leave of absence authorized by the
Employer or an Affiliate for Plan purposes under such
rules; provided, however, that if the Employee does
not return to employment for any reason other than
death, Disability or attainment of Normal Retirement
Age at the expiration of the leave of absence, such
Hours of Service shall not be credited.
(II) MILITARY LEAVES. If an Employee returns to employment
with the Employer or an Affiliate within the time
prescribed by law for the retention of veteran's
reemployment rights, an assumed eight (8) hour day
and forty (40) hour week shall be credited during
service in the Armed Forces of the United States if
the Employee both entered such service and returned
to employment with the Employer or an Affiliate from
such service under circumstances entitling him to
reemployment rights granted veterans under federal
law.
(III) PARENTING LEAVES. To the extent not otherwise
credited and solely for the purpose of determining
whether a One-Year Break in Service has occurred,
Hours of Service shall be credited to an Employee for
any period of absence from work beginning after
December 31, 1984, due to pregnancy of the Employee,
the birth of a child of the Employee, the placement
of a child with the Employee in connection with the
adoption of such child by the Employee, or for the
purpose of caring for such child for a period
beginning immediately following such birth or
placement. The Employee shall be credited with the
number of Hours of Service which otherwise would
normally have been credited to such Employee but for
such absence. If it is impossible to determine the
number of Hours of Service which would otherwise
normally have been so credited, the Employee shall be
credited with eight (8) Hours of Service for each day
of such absence. In no event, however, shall the
number of Hours of Service credited for any such
absence exceed five hundred one (501) Hours of
Service. Such Hours of Service shall be credited to
the computation period in which such absence from
work begins if crediting all or any portion of such
Hours is necessary to prevent the Employee from
incurring a One-Year Break in Service in such
computation period. If the crediting of such Hours of
Service is not necessary to prevent the occurrence of
a One-Year Break in Service in that computation
period, such Hours of Service shall be credited in
the immediately following computation period (even
though no part of such absence may have occurred in
such subsequent computation period). These Hours of
Service shall not be credited until the Employee
furnishes timely information which may reasonably be
required by the Administrator's Representative to
establish that the absence from work is for a reason
for which these Hours of Service may be credited.
(E) SPECIAL RULES. To the extent not inconsistent with other
provisions hereof, Department of Labor regulations 29 C.F.R.
ss. 2530.200b-2(b) and (c) are hereby incorporated by
reference herein. For periods prior to the first day of the
Plan Year beginning after 1975, Hours of Service may be
determined using whatever records are reasonably accessible
and by making whatever calculations are necessary to determine
the approximate number of Hours of Service completed during
such prior period.
(F) EQUIVALENCY FOR EMPLOYEES. Notwithstanding anything to the
contrary in the foregoing, if the Adoption Agreement shall so
provide, Hours of Service for an Employee shall be credited on
the basis that, without regard to actual hours, such Employee
shall be credited with ten (10) Hours of Service for a
calendar day, forty-five (45) Hours of Service for a calendar
week, ninety-five (95) Hours of Service for each semi-monthly
pay period, or one hundred ninety (190) Hours of Service for a
calendar month if, under the provisions of this section (other
than this paragraph), such Employee would be credited with at
least one (1) Hour of Service during such day, week,
semi-monthly pay period or month.
1.1.16. INVESTMENT MANAGER -- that person other than the Trustee
appointed pursuant to Section 10.7 to manage all or a portion of the Fund.
1.1.17. NORMAL RETIREMENT AGE -- the date a Participant attains the age
specified in the Adoption Agreement or, if none is specified in the Adoption
Agreement, age sixty-five (65) years. If the Employer enforces a mandatory
retirement age, the Normal Retirement Age is the lesser of that mandatory
retirement age or the age specified in the Adoption Agreement. WARNING:
Generally, federal and state law prohibits enforcement of a mandatory retirement
age for Common Law Employees.
1.1.18. ONE-YEAR BREAK IN SERVICE -- a computation period for which an
Employee is not credited with more than five hundred (500) Hours of Service. (A
One-Year Break in Service shall be deemed to occur only on the last day of such
computation period.)
1.1.19. PARTICIPANT -- an Employee who becomes a Participant in this
Plan in accordance with the provisions of Section 2. An Employee who has become
a Participant shall be considered to continue as a Participant in the Plan until
the date of his death or, if earlier, the date when he is no longer employed in
Recognized Employment and upon which the Participant no longer has any Account
under the Plan (that is, he has both received a distribution of all of his
Vested Total Account, if any, and his Suspense Account, if any, has been
forfeited and disposed of as provided in Section 6.2).
1.1.20. PLAN -- the tax-qualified defined contribution profit sharing
plan of the Employer established for the benefit of Employees eligible to
participate therein, as set forth in the Prior Plan Statement and this Plan
Statement. (As used herein, "Plan" refers to the legal entity established by the
Employer and not to the instruments or documents pursuant to which the Plan is
maintained. Those instruments and documents are referred to herein as the "Prior
Plan Statement" and the "Plan Statement.") The Plan shall be referred to by the
name indicated in the Adoption Agreement.
1.1.21. PLAN STATEMENT -- the Prototype Documents as completed and
adopted by the Employer and pursuant to which this Plan is maintained on and
after the Effective Date.
1.1.22. PLAN YEAR -- the twelve (12) consecutive month period ending on
any Annual Valuation Date.
1.1.23. PRIOR PLAN STATEMENT -- the written instrument or instruments
or the series of written instruments under which this Plan was established and
maintained from time to time prior to the Effective Date. (If this Plan was
first established by the Employer's adoption of this Plan Statement, there will
have been no Prior Plan Statement and all references thereto shall be
disregarded.)
1.1.24. PROTOTYPE DOCUMENTS -- the unexecuted form of document entitled
"ss. 401(k) Prototype Basic Plan Document #02 1989 Restatement," including all
Appendices thereto, and the unexecuted and uncompleted form of Adoption
Agreement #001 used in connection with it, including the prototype documents
prior to this 1989 Restatement.
1.1.25. PROTOTYPE SPONSOR -- First Trust National Association, a
national trust association of St. Paul, Minnesota (which has submitted the
Prototype Documents to the National Office of the Internal Revenue Service for
an opinion as to the acceptability of the form of the Prototype Documents under
the Internal Revenue Code and has retained the right to amend as provided in
Section 9).
1.1.26. RECOGNIZED COMPENSATION -- an amount determined for a
Participant for a Plan Year which is the Participant's "ss. 415 compensation" as
defined in the Appendix A to this Plan Statement, subject, however, to the
following rules:
(A) ADOPTION AGREEMENT EXCLUSIONS. For purposes of allocating the
Employer's discretionary profit sharing contribution, if any,
under Section 3.4.5, and forfeited Suspense Accounts, if any,
Recognized Compensation shall not include any items of earned
income (as defined in Appendix A to this Plan Statement) or
compensation excluded by the Employer in the Adoption
Agreement.
(B) PRE-PARTICIPATION. Recognized Compensation shall not include
any earned income (as defined in Appendix A to this Plan
Statement) or compensation received by a Participant on
account of a period of time when he was not a Participant in
the Plan or which is earned income (as defined in Appendix A
to this Plan Statement) or compensation paid for employment in
a capacity that is not Recognized Employment.
(C) EARNINGS REDUCTION PLANS. Recognized Compensation shall
include any amount that would have been received if the
Participant had not entered into a Retirement Savings
Agreement. Recognized Compensation shall be determined before
any reduction authorized by the Participant under a qualified
cash or deferral arrangement under section 401(k) of the
Internal Revenue Code (in addition to this Plan), or a
cafeteria plan under section 125 of the Internal Revenue Code,
or a simplified employee pension under section 408(k)(6) of
the Internal Revenue Code or an annuity under section 403(b)
of the Internal Revenue Code.
(D) $200,000 LIMIT. If the Plan is "top heavy" as defined in
Appendix B or if the Plan Year begins after December 31, 1988,
a Participant's Recognized Compensation shall not exceed Two
Hundred Thousand Dollars ($200,000) or such higher limit as
the Secretary of the Treasury may establish. In determining a
Participant's Recognized Compensation, the rules of section
414(q)(6) of the Internal Revenue Code apply, except that in
applying such rules, the term "family" shall include only the
spouse of the Participant and lineal descendants of the
Participant who have not attained age nineteen (19) years
before the close of the Plan Year; provided, however, that the
rule in this sentence shall not apply to the Seven Thousand
Dollar ($7,000) limit specified in Section 2.5. If
Participants are aggregated as such family members (and do not
otherwise agree in writing), the Recognized Compensation of
each family member shall equal Two Hundred Thousand Dollars
($200,000) (as so adjusted) multiplied by a fraction, the
numerator of which is such family member's Recognized
Compensation (before application of this Section) and the
denominator of which is the total Recognized Compensation
(before application of this Section) of all such family
members.
(E) NO ACCRUED COMPENSATION. Recognized Compensation shall include
only amounts that are actually paid to the Participant during
the Plan Year.
(F) SPECIAL EFFECTIVE DATE. If the Employer maintained the Plan
prior to January 1, 1989, this definition of Recognized
Compensation shall not become effective until the first day of
the first Plan Year beginning after December 31, 1989;
provided, however, the provisions of Section 1.1.26(d) shall
apply as so specified. Until this definition of Recognized
Compensation becomes effective, the comparable provisions of
the Prior Plan Statement shall apply.
1.1.27. RECOGNIZED EMPLOYMENT -- all employment by an Employee
excluding, however:
(i) employment in a unit of Employees whose terms and
conditions of employment are subject to a collective
bargaining agreement between the Employer and
employee representatives if there is evidence that
retirement benefits were the subject of good faith
bargaining between such employee representatives and
Employer, unless such collective bargaining agreement
provides for the inclusion of those Employees in this
Plan, and
(ii) employment by a nonresident alien who is not
receiving any earned income from the Employer which
constitutes income from sources within the United
States unless such alien is formally designated by
the Administrator's Representative as eligible for
participation in this Plan, and
(iii) employment described as excluded in the Adoption
Agreement.
For the purposes of (i), an organization will not be considered to consist of
employee representatives if more than one-half (1/2) of its members are
Employees who are owners, officers or executives of the Employer.
1.1.28. RETIREMENT SAVINGS AGREEMENT -- the agreement which may be
entered into by a Participant as provided in Section 2.
1.1.29. TRUSTEE -- the Trustee originally named in the Adoption
Agreement and its successor or successors in trust.
1.1.30. VALUATION DATE -- the Annual Valuation Date and each other
date, if any, specified in the Adoption Agreement.
1.1.31. VESTED -- nonforfeitable, i.e., a claim obtained by a
Participant or his Beneficiary to that part of an immediate or deferred benefit
hereunder which arises from the Participant's service, which is unconditional
and which is legally enforceable against the Plan.
1.1.32. VESTING SERVICE -- a measure of an Employee's service with the
Employer and all Affiliates (stated as a number of years) which is equal to the
number of computation periods for which the Employee is credited with one
thousand (1,000) or more Hours of Service; subject, however, to such of the
following rules as are applicable under the Adoption Agreement:
(A) COMPUTATION PERIODS. The computation periods for determining
the Employee's Vesting Service (and One-Year Breaks in Service
as applied to his Vesting Service) shall be Plan Years.
(B) COMPLETION. A year of Vesting Service shall be deemed
completed as of the date in the computation period that the
Employee completes one thousand (1,000) Hours of Service.
(Fractional years of Vesting Service shall not be credited.)
(C) PRE-EFFECTIVE DATE SERVICE. Vesting Service shall be credited
for Hours of Service earned and computation periods completed
prior to the Effective Date as if the rules of this Plan
Statement were then in effect.
(D) BREAKS IN SERVICE -- BEFORE EFFECTIVE DATE. Vesting Service
cancelled before the Effective Date by operation of the Plan's
break in service rules as they existed before the Effective
Date shall continue to be cancelled on and after the Effective
Date.
(E) VESTING IN PRE-BREAK ACCOUNTS. If the Employee has five (5) or
more consecutive One-Year Breaks in Service, his service after
such One-Year Breaks in Service shall not be counted as years
of Vesting Service for the purpose of determining the Vested
percentage of that portion of his Employer contributions
allocated with respect to his service before such One-Year
Breaks in Service and separately accounted for under Section
5.1.4.
(F) VESTING IN POST-BREAK ACCOUNTS (VESTING RULE OF PARITY).
Except as provided in the following sentence and subject to
Section 1.1.32(d), if the Employee has any break in service
occurring before or after the Effective Date, his service both
before and after such break in service shall be taken into
account in computing his Vesting Service for the purpose of
determining the Vested percentage of that portion of his
Employer Matching Account or Employer Contributions Account
derived from Employer contributions allocated with respect to
his service after such break in service and separately
accounted for under Section 5.1.4. If the Employee does not
have any Vested right to any portion of an Employer Matching
Account or Employer Contributions Account, however, when he
incurs a One-Year Break in Service, Vesting Service completed
before any One-Year Break in Service shall be disregarded in
determining his Vesting Service (upon a subsequent return to
employment) if the number of his One-Year Breaks in Service
equals or exceeds the greater of five (5) or the aggregate
number of his years of Vesting Service (whether or not
consecutive) completed before such One-Year Breaks in Service.
Such aggregate number of his years of Vesting Service
completed before such One-Year Breaks in Service shall not
include any years of Vesting Service which have been
disregarded under the preceding sentence by reason of any
prior One-Year Breaks in Service.
1.2. RULES OF INTERPRETATION. An individual shall be considered to have attained
a given age on his birthday for that age (and not on the day before). The
birthday of any individual born on a February 29 shall be deemed to be February
28 in any year that is not a leap year. Notwithstanding any other provision of
this Plan Statement or any election or designation made under the Plan, any
individual who feloniously and intentionally kills a Participant or Beneficiary
shall be deemed for all purposes of this Plan and all elections and designations
made under this Plan to have died before such Participant or Beneficiary. A
final judgment of conviction of felonious and intentional killing is conclusive
for the purposes of this section. In the absence of a conviction of felonious
and intentional killing, the Administrator's Representative shall determine
whether the killing was felonious and intentional for purposes of this section.
Whenever appropriate, words used herein in the singular may be read in the
plural, or words used herein in the plural may be read in the singular; the
masculine may include the feminine; and the words "hereof," "herein" or
"hereunder" or other similar compounds of the word "here" shall mean and refer
to the entire Plan Statement and not to any particular paragraph or section of
this Plan Statement unless the context clearly indicates to the contrary. The
titles given to the various sections of this Plan Statement are inserted for
convenience of reference only and are not part of this Plan Statement, and they
shall not be considered in determining the purpose, meaning or intent of any
provision hereof. Any reference in this Plan Statement to a statute or
regulation shall be considered also to mean and refer to any subsequent
amendment or replacement of that statute or regulation. This instrument has been
executed and delivered in the State where the Trustee has its principal place of
business and has been drawn in conformity to the laws of that State and shall,
except to the extent that federal law is controlling, be construed and enforced
in accordance with the laws of that State.
1.3. ESTABLISHMENT OF NEW PLAN. If the Employer's execution of the Adoption
Agreement is an establishment of a new Plan by the Employer, such approval and
adoption is conditioned upon the qualification of the Plan under the pertinent
provisions of the Internal Revenue Code. If this Plan is found not to so
qualify, the Employer may, at its election, amend the Plan Statement, terminate
the Plan in its entirety, or both. If the denial of qualification was in
response to an application for advance determination on the establishment of a
new Plan which was made by the time prescribed by law for filing the Employer's
tax return for the taxable year in which the Plan is adopted (or effective, if
later), the Trustee may be directed by the Employer to return all contributions
made under this Plan to the Participants or to the Employer, as the case may be,
adjusted for their pro rata share of earnings and market gains or losses which
accrued while they were held in the Fund. Such a return of the contribution
shall not be made, however, unless the return is made within one (1) year after
the date the initial qualification of the Plan is denied.
1.4. AMENDMENT AND CHANGE OF TRUSTEE. If the Employer's execution of the
Adoption Agreement is an amendment of a Prior Plan Statement of which the
Trustee was not the trustee, such execution shall not be considered to be a
termination of one plan and the establishment of another but, on the contrary,
shall be considered to be the express continuation of the Plan under new
documents. The Employer has caused, or will forthwith cause, the transfer of the
existing trust fund to the Trustee to be held in trust under this Plan
Statement.
1.5. AMENDMENT AND CONTINUATION. If the Employer's execution of the Adoption
Agreement is an amendment of a Prior Plan Statement of which the Trustee was the
trustee, such execution shall not be considered to be a termination of one plan
and the establishment of another but, on the contrary, shall be considered to be
the express continuation of the Plan under new documents.
1.6. AUTOMATIC EXCLUSION FROM PROTOTYPE PLAN. In the event an Employer adopting
these Prototype Documents fails to obtain or fails to retain qualified status
under sections 401(a) and 501(a) of the Internal Revenue Code, such Employer
shall immediately cease participation under these Prototype Documents and, when
applicable, will be deemed to maintain its Plan under an individually designed
successor retirement plan document.
1.7. SPECIAL REQUIREMENTS.
1.7.1. DISCRIMINATORY BENEFITS. If this Plan provides contributions or
benefits for one or more Owner-Employees who control both the business with
respect to which this Plan is established and one or more other trades or
businesses, this Plan and any plan established for such other trades or
businesses must, when looked at as a single plan, satisfy sections 401(a) and
(d) of the Internal Revenue Code for the employees of this and all other trades
or businesses.
1.7.2. DISCRIMINATORY COVERAGE. If this Plan provides contributions or
benefits for one or more Owner-Employees who control one or more other trades or
businesses, the employees of the other trades or businesses must be included in
a plan which satisfies sections 401(a) and (d) of the Internal Revenue Code and
which provides contributions and benefits not less favorable than provided for
Owner-Employees under this Plan. If an individual is covered as an
Owner-Employee under the plans of two (2) or more trades or businesses which are
not controlled and the individual controls a trade or business, the
contributions or benefits for the employees under the plan of the trades or
businesses which are controlled must be as favorable as those provided for the
Owner-Employee under the most favorable plan of the trade or business which is
not controlled.
1.7.3. CONTROL DEFINED. For purposes of this Section 1.7, 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 50
percent of either the capital interest or the profits
interest in the partnership.
An Owner-Employee, or two or more Owner-Employees, shall be treated as owning
any interest in a partnership which is owned, directly or indirectly, by a
partnership which such Owner-Employee, or such two or more Owner-Employees, are
considered to control within the meaning of the preceding sentence.
SECTION 2
ELIGIBILITY AND PARTICIPATION
2.1. INITIAL ENTRY INTO PLAN. If this Plan Statement is adopted as an amendment
of a Prior Plan Statement, each Employee who immediately before the Effective
Date was a Participant in the Plan prior to the Effective Date and who continues
in Recognized Employment on the Effective Date shall continue as a Participant
in this Plan.
On and after the Effective Date (without regard to whether this Plan Statement
is an amendment of a Prior Plan Statement or the establishment of a new Plan),
each other Employee shall become a Participant on the first Entry Date
coincident with or next following the date that such Employee has both:
(a) satisfied the age requirement set forth in the Adoption
Agreement, if any, and
(b) satisfied the service requirement set forth in the Adoption
Agreement, if any,
if he is then employed in Recognized Employment. If he is not then employed in
Recognized Employment, he shall become a Participant on the first date
thereafter upon which he is employed in Recognized Employment.
2.2. SPECIAL RULE FOR FORMER PARTICIPANTS. A Participant whose employment with
the Employer terminates and who subsequently is reemployed by the Employer shall
immediately reenter the Plan as a Participant as of the date of his return to
Recognized Employment.
2.3. ENROLLMENT. Each Employee who is or will become a Participant as provided
in Section 2.1 or Section 2.2 may enroll for retirement savings by completing a
Retirement Savings Agreement and delivering it to the Administrator's
Representative at least fifteen (15) days (or some other time period specified
by the Administrator's Representative) prior to the Entry Date as of which the
Employee desires to make it effective. If an Employee does not enroll when first
eligible to do so, he may enroll as of any subsequent Entry Date by completing a
Retirement Savings Agreement and delivering it to the Administrator's
Representative at least fifteen (15) days (or some other time period specified
by the Administrator's Representative) prior to that Entry Date.
2.4. WAIVER OF ENROLLMENT PROCEDURES. The Administrator's Representative shall
have the authority to adopt rules that modify and waive the enrollment
procedures set forth in this Section 2 during the period beginning on the
Effective Date and ending twelve (12) months later, in order that an orderly
first enrollment might be completed. This authority to modify and waive the
enrollment procedures does not authorize the Administrator's Representative to
modify the minimum service, age or job classification requirements for
participation in the Plan.
2.5. RETIREMENT SAVINGS AGREEMENT. Subject to the following rules, the
Retirement Savings Agreement which each Participant may execute shall provide
for a reduction equal to not more than the percentage specified in the Adoption
Agreement of the amount of Recognized Compensation which otherwise would be paid
to him by the Employer each payday. Effective for Plan Years beginning after
December 31, 1986, the reduction in earnings agreed to by the Participant,
however, shall not exceed Seven Thousand Dollars ($7,000) for that Participant's
taxable year. Such Seven Thousand Dollar ($7,000) limit shall be adjusted for
cost of living at the same time and in the same manner as under section 415(d)
of the Internal Revenue Code. In the case of a Participant who is a
Self-Employed Person, the reduction in earnings shall be determined by
multiplying such Participant's Recognized Compensation (for the entire Plan
Year) by the enrollment percentage elected by the Participant and multiplying
the resulting amount by the fraction of the Plan Year that each election is in
effect. The Administrator's Representative may, from time to time under uniform,
nondiscriminatory rules, change the minimum and maximum allowable reductions in
earnings. The reductions in earnings agreed to by the Participant shall be made
by the Employer from the Participant's remuneration each payday on or after the
Effective Date for so long as the Retirement Savings Agreement remains in
effect.
2.6. MODIFICATIONS OF RETIREMENT SAVINGS AGREEMENT. The Retirement Savings
Agreement of a Participant may be modified. Unless modified or terminated, the
Retirement Savings Agreement will remain in effect.
2.6.1. INCREASE. A Participant whose Retirement Savings Agreement does
not provide for the full, allowable reduction may, upon giving fifteen (15)
days' prior written notice to the Administrator's Representative, amend his
Retirement Savings Agreement to increase the amount of reduction as of the first
payday on or after any subsequent Entry Date.
2.6.2. DECREASE. A Participant whose Retirement Savings Agreement
provides for more than the minimum allowable reduction may, upon giving fifteen
(15) days' prior written notice to the Administrator's Representative, amend his
Retirement Savings Agreement to decrease the amount of reduction as of the first
payday on or after any subsequent Entry Date.
2.6.3. VOLUNTARY TERMINATION. A Participant who has a Retirement
Savings Agreement in effect may, upon giving fifteen (15) days' prior written
notice to the Administrator's Representative, completely terminate the
Retirement Savings Agreement as of the first day of any payroll period.
Thereafter, such Participant may, upon giving fifteen (15) days' prior written
notice to the Administrator's Representative, enter into a new Retirement
Savings Agreement effective as of the first payday on or after any subsequent
Entry Date if, on that Entry Date, he is employed in Recognized Employment.
2.6.4. TERMINATION OF RECOGNIZED EMPLOYMENT. The Retirement Savings
Agreement of a Participant who ceases to be employed in Recognized Employment
(and who thereby ceases to have Recognized Compensation) shall be terminated
automatically as of the date he ceased to be employed in Recognized Employment.
If such Participant returns to Recognized Employment, he may enter into a new
Retirement Savings Agreement effective as of any Entry Date following his return
to Recognized Employment upon giving fifteen (15) days' prior written notice to
the Administrator's Representative.
2.6.5. FORM OF AGREEMENT. The Administrator's Representative shall
specify the form of the Retirement Savings Agreement, the form of any notices
modifying the Retirement Savings Agreement and all procedures for the delivery
and acceptance of forms and notices.
2.7. SECTION 401(K) COMPLIANCE.
2.7.1. SPECIAL DEFINITIONS. For purposes of this Section 2.7, the
following special definitions shall apply:
(A) "COVERED EMPLOYEE" means an individual who was entitled to
enter into a Retirement Savings Agreement for all or a part of
the Plan Year (whether or not he did so).
(B) "HIGHLY COMPENSATED COVERED EMPLOYEES" means those covered
employees defined as highly compensated employees in Appendix
D to this Plan Statement.
(C) "DEFERRAL PERCENTAGE" means the ratio (calculated separately
for each covered employee) of:
(i) the total amount, for the Plan Year, of Employer
contributions credited to the covered employee's
Retirement Savings Account (excluding Employer
contributions to the Retirement Savings Account taken
into account in determining the contribution
percentage in Section 3.10, provided the 401(k) test
in this Section 2.7 is satisfied both with and
without exclusion of such Employer contributions),
and if the Administrator's Representative elects,
under such rules as the Secretary of the Treasury may
prescribe, all or a portion of the amount, for the
Plan Year, of matching contributions (as defined in
section 401(m)(4)(A) of the Internal Revenue Code
which meet the requirements of section 401(k)(2)(B)
and (C) of the Internal Revenue Code) or qualified
nonelective contributions (within the meaning of
section 401(m)(4)(C) of the Internal Revenue Code) or
both, to
(ii) the covered employee's compensation, as defined
below, for such Plan Year.
For this purpose, Employer contributions, matching
contributions and qualified nonelective contributions will be
considered made in the Plan Year with respect to which they
are made if they are allocated as of a date during such Plan
Year and are delivered to the Trustee within twelve (12)
months after the end of such Plan Year. A covered employee who
did not enter into a Retirement Savings Agreement shall be
treated as having elected a deferred percentage of zero.
(D) "COMPENSATION" means compensation for services performed for
the Employer defined as "ss. 415 compensation" in the Appendix
A to this Plan Statement. The Administrator's Representative
may elect to include as compensation any amount which is
contributed by the Employer pursuant to a salary reduction
agreement which is not includible in the gross income of a
covered employee under sections 125, 402(a)(8), 402(h) or
403(b) of the Internal Revenue Code. Notwithstanding the
definition of "ss. 415 compensation" in the Appendix A to this
Plan Statement: (i) compensation shall always be determined on
a cash (and not on an accrual) basis, (ii) there shall not be
included in compensation amounts received while the covered
employee is not a Participant, and (iii) compensation shall be
determined on a Plan Year basis (which is not necessarily the
same as the limitation year). Effective for Plan Years
beginning after December 31, 1988, a covered employee's
compensation for a Plan Year shall not exceed Two Hundred
Thousand Dollars ($200,000), as adjusted, under the Internal
Revenue Code, for cost of living increases. Effective for Plan
Years beginning after December 31, 1991, or, if later,
beginning more than sixty (60) days after publication by the
Internal Revenue Service of final regulations addressing the
matter, item (ii) above shall be applicable only if permitted
by such final regulations. Otherwise, there shall be included
in compensation all amounts received by the Participant during
the Plan Year (whether or not he was a Participant for the
entire Plan Year).
(E) "AVERAGE DEFERRAL PERCENTAGE" means, for a specified group of
covered employees for the Plan Year, the average of the
deferral percentages for all covered employees in such group.
2.7.2 SPECIAL RULES. For purposes of this Section 2.7, the following
special rules apply:
(A) ROUNDING. Effective for Plan Years beginning after December
31, 1988, the deferral percentages and average deferral
percentage for each group of covered employees shall be
calculated to the nearest one-hundredth of one percent of the
covered employee's compensation.
(B) FAMILY MEMBER. If a highly compensated covered employee is
subject to the family aggregation rules of section 414(q)(6)
of the Internal Revenue Code because such employee is either a
five percent (5%) owner or one of the ten (10) most highly
compensated employees (as defined in Appendix D), the combined
deferral percentage for the family group (which is treated as
one highly compensated covered employee) shall be the greater
of (i) the deferred percentage determined by combining the
amounts described in Section 2.7.1(c) and by combining the
compensation described in Section 2.7.1(d) of all family
members who are highly compensated eligible employees without
regard to family aggregation, and (ii) the deferral percentage
determined by combining the amounts described in Section
2.7.1(c) and by combining the compensation described in
Section 2.7.1(d) of all the family members who are eligible
employees. Such family members with respect to such highly
compensated covered employees shall be disregarded as separate
covered employees in determining the average deferral
percentage of highly compensated covered employees and the
average deferral percentage of all other covered employees.
Effective for Plan Years beginning after December 31, 1988,
the Two Hundred Thousand Dollars ($200,000), as adjusted,
under the Internal Revenue Code, for cost of living increases,
limit specified in Section 2.7.1(d) applies to the above
deferral percentage determination except that for purposes of
that limit, the term "family" shall include only the spouse of
the Participant and lineal descendants of the Participant who
have not attained age nineteen (19) years before the close of
the Plan Year. If a covered employee is required to be
aggregated as a member of more than one family group in the
Plan, all covered employees who are members of those family
groups that include that covered employee are aggregated as
one family group.
(C) MULTIPLE PLANS. The average deferral percentage for any
Participant who is a highly compensated covered employee for
the Plan Year with respect to two or more arrangements
described in section 401(k) of the Internal Revenue Code, that
are maintained by the Employer, shall be determined as if all
such arrangements were a single arrangement. If a highly
compensated covered employee participates in two or more such
arrangements that have different Plan Years, all arrangements
ending with or within the same calendar year shall be treated
as a single arrangement. In the event that this Plan satisfies
the requirements of sections 401(k), 401(a)(4) or 410(b) of
the Internal Revenue Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the
requirements of such sections of the Internal Revenue Code
only if aggregated with this Plan, then this section 2.7.2(c)
shall be applied by determining the average deferral
percentage of covered employees as if all such plans were a
single plan. For Plan Years beginning after December 31, 1989,
plans may be aggregated in order to satisfy section 401(k) of
the Internal Revenue Code only if they have the same Plan
Year.
(D) RECORDS. The Employer shall maintain records sufficient to
demonstrate satisfaction of the average deferral percentage
test and the amount of matching contributions (as defined in
section 401(m)(4)(A) of the Internal Revenue Code which meet
the requirements of section 401(k)(2)(B) and (C) of the
Internal Revenue Code) or qualified nonelective contributions
(within the meaning of section 401(m)(4)(C) of the Internal
Revenue Code), or both, used in such test. The determination
and treatment of the average deferral percentage amounts of
any Participant shall satisfy such other requirements as may
be prescribed by the Secretary of the Treasury.
2.7.3. THE TESTS. Notwithstanding the foregoing provisions, Retirement
Savings Agreements in effect for each Plan Year shall be limited and modified
under uniform and nondiscriminatory rules established by the Administrator's
Representative and by the rules hereinafter provided in order that all such
Retirement Savings Agreements (in the aggregate) will satisfy at least one of
the following two (2) tests for that Plan Year:
TEST 1: The average deferral percentage for the group of highly
compensated covered employees is not more than the average
deferral percentage of all other covered employees multiplied
by one and twenty-five hundredths (1.25).
TEST 2: The excess of the average deferral percentage for the group
of highly compensated covered employees over that of all other
covered employees is not more than two (2) percentage points,
and the average deferral percentage for the group of highly
compensated covered employees is not more than the average
deferral percentage of all other covered employees multiplied
by two (2).
The Administrator's Representative shall maintain records to demonstrate
compliance with one of the two (2) tests described above, including the extent
to which qualified matching contributions (as defined in Section 2.7.1(c)) and
qualified nonelective contributions (as defined in Section 2.7.1(c)) are used in
determining the deferral percentage.
2.7.4. REMEDIAL ACTION. If the Administrator's Representative
determines that neither of the tests will be satisfied (or may not be satisfied)
for a Plan Year, then during such Plan Year, the following actions may be taken
so that one of the tests will be satisfied for such Plan Year:
(a) The highly compensated covered employees who have the highest
enrollment percentage under Section 2.5 shall be deemed for
all purposes of the Plan to have elected for that Plan Year a
lower enrollment percentage (and the amounts credited pursuant
to Section 3.2, and the applicable amount, if any, credited
pursuant to Section 3.3, shall be reduced accordingly).
(b) If neither of the tests is satisfied after such adjustment,
the enrollment percentage under Section 2.5 of the highly
compensated covered employees who then have the highest
enrollment percentage (including any reduced under (a) above)
shall be reduced to a lower enrollment percentage.
(c) If neither of the tests is satisfied after such adjustment,
this method of adjustment shall be repeated one or more
additional times until one of the tests is satisfied.
The Administrator's Representative shall prescribe rules concerning such
adjustments, including the frequency of applying the tests and the commencement
and termination dates for any adjustments. Any amounts required to be
distributed as provided above which are distributed more than 2 1/2 months after
the close of the Plan Year being tested, will result in a ten percent (10%)
penalty tax on the Employer as provided in section 4979 of the Internal Revenue
Code.
2.8. ANNUAL CERTIFICATION. As of each Annual Valuation Date during the
continuance of the Plan, the Administrator's Representative shall certify in
writing the names of all Participants who are entitled to participate in the
Employer contribution for the Plan Year ending on that date and all other facts
that may be required to properly administer the provisions of this Plan.
SECTION 3
CONTRIBUTIONS AND ALLOCATION THEREOF
3.1. EMPLOYER CONTRIBUTIONS - GENERAL.
3.1.1. SOURCE OF EMPLOYER CONTRIBUTIONS. All Employer contributions
to the Plan may be made without regard to profits.
3.1.2. LIMITATION. The contribution of the Employer to the Plan for any
year, when considered in light of its contribution for that year to all other
tax-qualified plans it maintains, shall, in no event, exceed the maximum amount
deductible by it for federal income tax purposes as a contribution to a
tax-qualified profit sharing plan under section 404 of the Internal Revenue
Code. Each such contribution to the Plan is conditioned upon its deductibility
for such purpose.
3.1.3. FORM OF PAYMENT. The appropriate contribution of the Employer to
the Plan, determined as herein provided, shall be paid to the Trustee and may be
paid either in cash or in other assets of any character of a value equal to the
amount of the contribution or in any combination of the foregoing ways.
3.2. RETIREMENT SAVINGS CONTRIBUTIONS.
3.2.1. AMOUNT. Within the time required by regulations of the United
States Department of Labor, the Employer shall contribute to the Trustee for
deposit in the Fund the reduction in Recognized Compensation which was agreed to
by each Participant pursuant to a Retirement Savings Agreement. The Retirement
Savings Agreement shall not apply retroactively.
3.2.2. ALLOCATION. The portion of this contribution made with respect
to each Participant shall be credited to that Participant's Retirement Savings
Account as of the Valuation Date coincident with or immediately following the
last day of the calendar month for which the contribution is made.
3.3. REQUIRED MATCHING CONTRIBUTIONS.
3.3.1. AMOUNT. The Employer shall contribute to the Trustee for deposit
in the Fund and for crediting to the Participant's Employer Matching Account
such amounts, if any, as are required pursuant to the Adoption Agreement as
Employer contributions to match each Participant's reduction in Recognized
Compensation which was agreed to by the Participant pursuant to a Retirement
Savings Agreement; provided, however, that a reduction in Recognized
Compensation above a percentage of a Participant's Recognized Compensation
specified in the Adoption Agreement shall not be used in allocating such
contribution. Such contributions shall be made only for Participants who are
eligible Participants within the meaning of Section 3.5. Such contributions
shall be delivered to the Trustee for deposit in the Fund not later than the
time prescribed by federal law (including extensions) for filing the federal
income tax return of the Employer for the taxable year in which the Plan Year
ends.
3.3.2. ALLOCATION. The Employer required matching contribution
(including forfeited Suspense Accounts, if any, to be reallocated as of the date
of the contribution) which is made with respect to a Participant shall be
credited to that Participant's Employer Matching Account as of the Valuation
Date coincident with or immediately following the last day of the calendar month
in which the contribution is made or, if earlier, the Annual Valuation Date of
the Plan Year for which the contribution is made.
3.4. DISCRETIONARY EMPLOYER CONTRIBUTIONS.
3.4.1. GENERAL. If the Adoption Agreement so provides, the Employer may
(but shall not be required to) make discretionary contributions from year to
year during the continuance of the Plan in such amounts as the Employer shall
from time to time determine. Such contributions shall be delivered to the
Trustee for deposit in the Fund not later than the time prescribed by federal
law (including extensions) for filing the federal income tax return of the
Employer for the taxable year in which the Plan Year ends.
The Employer's discretionary contribution, including forfeited Suspense
Accounts, if any, to be included with that contribution or reallocated as of the
Annual Valuation Date of such Plan Year, for a Plan Year shall be allocated as
follows.
3.4.2. CURATIVE ALLOCATION - ss. 401(K). If, for any Plan Year, neither
of the tests set forth in Section 2.7 has been satisfied and a distribution of
"Excess Contributions" has not been made pursuant to Section 7, then all or a
portion of the Employer's discretionary contribution for that Plan Year shall be
allocated as provided in this Section 3.4.2. Forfeited Suspense Accounts,
however, will not be included in this allocation. The Participants eligible to
share in such allocation shall be only those Participants who, during such Plan
Year, were not "highly compensated covered employees" (as defined in Section
2.7) for that Plan Year and for whom some contribution was made pursuant to
Section 3.2 for such Plan Year. No other Participant shall be eligible to share
in this allocation of the Employer discretionary contribution under this Section
3.4.2. The allocation to be made under this Section 3.4.2 shall be made to the
eligible Participant with the least amount of compensation (as defined in
Section 2.7) and then, in ascending order of compensation (as defined in Section
2.7), to other eligible Participants. The amount of the Employer discretionary
contribution to be allocated under this Section 3.4.2 shall be that amount
required to cause the Plan to satisfy either of the tests set forth in Section
2.7 for the Plan Year; provided, however, that in no case shall amounts be
allocated to a Participant's Retirement Savings Account under this paragraph
which would cause that Participant's deferral percentage (as defined in Section
2.7) to exceed twenty percent (20%). The Employer discretionary contribution so
allocated to a Participant shall be credited to that Participant's Retirement
Savings Account as of the Annual Valuation Date in the Plan Year for which this
Employer discretionary contribution is made.
3.4.3. DISCRETIONARY MATCHING CONTRIBUTIONS. If the Adoption Agreement
so provides, any portion of the Employer's discretionary contribution not
allocated under Section 3.4.2 shall be allocable to the Employer Matching
Accounts of Participants eligible to share in the allocation pursuant to Section
3.5; provided, however, that the Employer's discretionary contribution to be
allocated under this Section 3.4.3 shall be reduced by any amounts necessary to
make the curative allocation described in Section 3.4.4. The contribution, if
any, made by the Employer for a given Plan Year shall be allocated to the
Employer Matching Account of eligible Participants to match a percentage,
determined by the Employer, of each eligible Participant's reduction in
Recognized Compensation which was agreed to by the Participant pursuant to a
Retirement Savings Agreement; provided, however, that a reduction in Recognized
Compensation above a percentage of a Participant's Recognized Compensation
specified in the Adoption Agreement shall not be used in allocating such
contribution. The amount so allocated to a Participant shall be credited to such
Participant's Employer Matching Account as of the Annual Valuation Date in the
Plan Year for which such contribution is made, or if earlier, the Valuation Date
coincident with or next following the date as of which such contribution is
received by the Trustee.
3.4.4. CURATIVE ALLOCATION - ss. 401(M). If, for any Plan Year, neither
of the tests set forth in Section 3.10 has been satisfied and a distribution of
"Excess Aggregate Contributions" has not been made pursuant to Section 7, then
all or any portion of the Employer's discretionary contribution for that Plan
Year which has not been allocated under Section 3.4.2 above shall be allocated
as provided in this Section 3.4.4. Forfeited Suspense Accounts, however, will
not be included in this allocation. The Participants eligible to share in such
allocation shall be only those Participants who, during such Plan Year, were not
highly compensated eligible employees (as defined in Section 3.10) for that Plan
Year and who were entitled to receive an Employer matching contribution pursuant
to Section 3.3 or Section 3.4.3 (or would have been entitled to receive an
Employer matching contribution if one had been made). No other Participant shall
be eligible to share in this allocation of the Employer discretionary
contribution under this Section 3.4.4. The allocation to be made under this
Section 3.4.4 shall be made to the Participant with the least amount of
compensation (as defined in Section 3.10) and then, in ascending order of
compensation (as defined in Section 3.10), to other Participants. The amount of
the Employer discretionary contribution to be allocated under this Section 3.4.4
shall be that amount required to cause the Plan to satisfy either of the tests
set forth in Section 3.10 for the Plan Year. The Employer discretionary
contribution so allocated to a Participant shall be credited to that
Participant's Employer Matching Account as of the Annual Valuation Date in the
Plan Year for which this Employer discretionary contribution is made.
3.4.5. DISCRETIONARY PROFIT SHARING CONTRIBUTIONS. If the Adoption
Agreement so provides, any portion of the Employer's discretionary contribution
not allocated under Section 3.4.2 and Section 3.4.4 above shall be allocable to
the Employer Contributions Accounts of Participants eligible to share in the
allocation pursuant to Section 3.5. The contribution, if any, made by the
Employer for a given Plan Year shall be allocated to the Employer Contributions
Accounts of eligible Participants in the ratio which the Recognized Compensation
of each such eligible Participant for the Plan Year bears to the Recognized
Compensation for such Plan Year of all such eligible Participants. For this
purpose, Recognized Compensation shall not include the items, if any, excluded
by the Employer in the Adoption Agreement. The amount so allocated to a
Participant shall be credited to such Participant's Employer Contributions
Account as of the Annual Valuation Date in the Plan Year for which such
contribution is made, or if earlier, the Valuation Date coincident with or next
following the date as of which such contribution is received by the Trustee.
3.5. ELIGIBLE PARTICIPANTS. A Participant shall be considered eligible to share
in the allocation of Employer matching or discretionary contributions pursuant
to Section 3.3, Section 3.4.3 and Section 3.4.5, if any, and forfeited Suspense
Accounts to be reallocated with such contributions as of the Annual Valuation
Date in such Plan Year, if any, only if such Participant satisfies all of the
following requirements:
(A) PARTICIPANT. The Participant was a Participant at some time
during the Plan Year.
(B) COMPENSATION. The Participant has Recognized Compensation for
such Plan Year.
(C) LAST DAY RULE. If the Adoption Agreement so provides, the
Participant was an Employee on the last day of the Plan Year
(including, for this purpose, individuals temporarily absent
due to illness, vacation or layoff and individuals inducted
into the Armed Forces of the United States during such Plan
Year) or the Participant died, became Disabled or retired at
or after his Normal Retirement Age during such Plan Year.
(D) HOURS OF SERVICE RULE. If the Adoption Agreement so provides,
the Participant has that number of Hours of Service in the
Plan Year required by the Adoption Agreement, or the
Participant died, became Disabled or retired at or after his
Normal Retirement Age during such Plan Year.
No other Participant shall be considered an eligible Participant for such Plan
Year.
3.6. MAKE-UP CONTRIBUTIONS FOR OMITTED PARTICIPANTS. If, after the Employer's
annual contribution for a Plan Year has been made and allocated, it should
appear that, through oversight or a mistake of fact or law, a Participant (or an
Employee who should have been considered a Participant) who should have been
entitled to share in such contribution, received no allocation or received an
allocation which was less than he should have received, the Employer may, at its
election, and in lieu of reallocating such contribution, make a special make-up
contribution for the Account of such Participant in an amount adequate to
provide for him the same addition to his Account for such Plan Year as he should
have received.
3.7. ROLLOVER CONTRIBUTIONS.
3.7.1. ELIGIBLE CONTRIBUTIONS. Unless the Adoption Agreement precludes
it, Employees (whether or not they are Participants) in Recognized Employment
may contribute to this Plan, within such time and in such form and manner as may
be prescribed by the Administrator's Representative in accordance with those
provisions of federal law relating to rollover contributions, property (or the
cash proceeds thereof) received by them in qualifying distributions from certain
types of qualified plans or trusts, employee annuities, individual retirement
accounts or annuities, and retirement bonds. The provisions of this Section
shall be subject to such nondiscriminatory conditions and limitations as the
Administrator's Representative may prescribe from time to time for
administrative convenience and to preserve the tax-qualified status of this
Plan.
3.7.2. SPECIFIC REVIEW. The Administrator's Representative shall have
the right to reject or return any such rollover contribution if, in its opinion,
the acceptance thereof might jeopardize the tax-qualified status of this Plan or
unduly complicate its administration, but the acceptance of any such rollover
contribution shall not be regarded as an opinion or guarantee on the part of the
Employer, the Trustee, the Administrator's Representative or the Plan as to the
tax consequences which may result to the contributing Participant thereby.
3.7.3. ALLOCATION. All rollover contributions made by an Employee to
this Plan shall be allocated to a Rollover Account established for such Employee
except that any portion thereof which represents deductible voluntary employee
contributions shall be allocated to a Deductible Voluntary Account for such
Participant. The amount so allocated to an Employee shall be credited to such
Employee's Account as of the Valuation Date coincident with or next following
the date as of which such contribution is received by the Trustee.
3.8. NONDEDUCTIBLE VOLUNTARY CONTRIBUTIONS.
3.8.1. METHOD OF CONTRIBUTION. If the Adoption Agreement so provides,
each Participant may make a nondeductible voluntary contribution to this Plan
that is included in the Participant's gross income. Such contribution shall be
either a direct contribution in cash or pursuant to a payroll withholding
arrangement agreed to by the Employer. The provisions of this section shall be
subject to the provisions of Section 3.10 and shall also be subject to such
uniform and nondiscriminatory conditions and limitations as the Administrator's
Representative may prescribe from time to time for administrative convenience
and to preserve the tax-qualified status of this Plan.
3.8.2. PAYMENT TO TRUSTEE. The nondeductible voluntary contributions of
Participants shall be collected by the Employer by such means as the
Administrator's Representative shall specify. Within the time required by
regulations of the United States Department of Labor, the Employer shall remit
all such nondeductible voluntary contributions to the Trustee for deposit in the
Fund.
3.8.3. ALLOCATION. All nondeductible voluntary contributions made by a
Participant to this Plan shall be allocated to the Nondeductible Voluntary
Account of such Participant. The amount so allocated to a Participant shall be
credited to such Participant's Nondeductible Voluntary Account as of the
Valuation Date coincident with or next following the date as of which such
contribution is received by the Trustee.
3.9. DEDUCTIBLE VOLUNTARY CONTRIBUTIONS. Prior to January 1, 1987, the Plan
accepted deductible voluntary contributions made in accordance with Section 3.6
of the Prior Plan Statement. All such contributions held in the Deductible
Voluntary Account shall continue to share in any trust earnings or losses, and
be distributed in accordance with the provisions of Section 7. Effective January
1, 1987, however, the Plan shall not accept deductible voluntary contributions
for a taxable year of the Participant beginning after December 31, 1986.
3.10. SECTION 401(M) COMPLIANCE.
3.10.1. SPECIAL DEFINITIONS. For purposes of this Section 3.10, the
following special definitions shall apply:
(A) "ELIGIBLE EMPLOYEE" means an individual who is eligible to
make nondeductible voluntary contributions to this Plan for
any portion of the Plan Year (whether or not he does so) or an
individual who is eligible to receive an Employer matching
contribution for any portion of the Plan Year (whether or not
he does so).
(B) "HIGHLY COMPENSATED ELIGIBLE EMPLOYEES" means those eligible
employees defined as highly compensated employees in Appendix
D to this Plan Statement.
(C) "CONTRIBUTION PERCENTAGE" means, the ratio (calculated
separately for each eligible employee in such group) of:
(i) the total amount, for the Plan Year, of nondeductible
voluntary contributions credited to the eligible
employee's Nondeductible Voluntary Account and the
total amount, for the Plan Year, of Employer matching
contributions credited to the eligible employee's
Employer Matching Account (but if the Administrator's
Representative elects to include the Employer
matching contributions in the 401(k) test in Section
2.7, such contributions shall not be included in the
401(m) test in this Section 3.10), and if the
Administrator's Representative elects, under such
rules as the Secretary of the Treasury may prescribe,
all or a portion of the amount, for the Plan Year, of
Employer contributions credited to the eligible
employee's Retirement Savings Account (provided the
401(k) test in Section 2.7 is satisfied before such
Employer contributions are used in determining the
contribution percentage for the 401(m) test in this
Section 3.10 and continues to be satisfied following
the exclusion of such Employer contributions used to
meet the 401(m) test in this Section 3.10), or
qualified nonelective contributions (within the
meaning of section 401(m)(4)(C) of the Internal
Revenue Code) or both, to
(ii) the eligible employee's compensation, as defined
below, for such Plan Year.
For this purpose, nondeductible voluntary contributions are
considered to have been made in the Plan Year in which
contributed to the Fund. Also, for this purpose, matching
contributions, Employer contributions and qualified
nonelective contributions will be considered made in the Plan
Year with respect to which they are made if they are allocated
as of a date during such Plan Year and are delivered to the
Trustee within twelve (12) months after the end of such Plan
Year. Forfeitures credited to the eligible employee's
Nondeductible Voluntary Account, Employer Matching Account and
Retirement Savings Account shall be included in the "total
amount" described in item (i) in the Plan Year for which such
forfeitures are credited to the Account.
(D) "COMPENSATION" means compensation for services performed for
the Employer defined as "ss. 415 compensation" in the Appendix
A to this Plan Statement. The Administrator's Representative
may elect to include as compensation any amount which is
contributed by the Employer pursuant to a salary reduction
agreement which is not includible in the gross income of an
eligible employee under sections 125, 402(a)(8), 402(h) or
403(b) of the Internal Revenue Code. Notwithstanding the
definition of "ss. 415 compensation" in the Appendix A to this
Plan Statement: (i) compensation shall always be determined on
a cash (and not on an accrual) basis, (ii) there shall not be
included in compensation amounts received while the eligible
employee is not a Participant, and (iii) compensation shall be
determined on a Plan Year basis (which is not necessarily the
same as the limitation year). Effective for Plan Years
beginning after December 31, 1988, an eligible employee's
compensation for a Plan Year shall not exceed Two Hundred
Thousand Dollars ($200,000), as adjusted, under the Internal
Revenue Code, for cost of living increases.
(E) "AVERAGE CONTRIBUTION PERCENTAGE" means, for a specified group
of eligible employees for the Plan Year, the average of the
contribution percentage for all eligible employees in such
group.
3.10.2 SPECIAL RULES. For purposes of this Section 3.10, the following
special rules apply:
(A) ROUNDING. Effective for Plan Years beginning after December
31, 1988, the contribution percentages and average
contribution percentage for each group of eligible employees
shall be calculated to the nearest one-hundredth of one
percent of the eligible employee's compensation.
(B) FAMILY MEMBER. If a highly compensated eligible employee is
subject to the family aggregation rules of section 414(q)(6)
of the Internal Revenue Code because such employee is either a
five percent (5%) owner or one of the ten (10) most highly
compensated employees (as defined in Appendix D), the combined
contribution percentage for the family group (which is treated
as one highly compensated eligible employee) shall be the
greater of (i) the contribution percentage determined by
combining the amounts described in Section 3.10.1(c) and by
combining the compensation described in Section 3.10.1(d) of
all family members who are highly compensated eligible
employees without regard to family aggregation, and (ii) the
contribution percentage determined by combining the amounts
described in Section 3.10.1(c) and by combining the
compensation described in Section 3.10.1(d) of all family
members who are eligible employees. Such family members with
respect to such highly compensated eligible employees shall be
disregarded as separate eligible employees in determining the
average contribution percentage of highly compensated eligible
employees and the average contribution percentage of all other
eligible employees. Effective for Plan Years beginning after
December 31, 1988, the Two Hundred Thousand Dollars
($200,000), as adjusted, under the Internal Revenue Code, for
cost of living increases, limit specified in Section 3.10.1(d)
applies to the above contribution percentage determination
except that for purposes of the limit, the term "family" shall
include only the spouse of the Participant and lineal
descendants of the Participant who have not attained age
nineteen (19) years before the close of that Plan Year. If an
eligible employee is required to be aggregated as a member of
more than one family group in the Plan, all eligible employees
who are members of those family groups that include that
eligible employee are aggregated as one family group.
(C) MULTIPLE USE. Effective for Plan Years beginning after
December 31, 1988, if one or more highly compensated employees
(as defined in Appendix D) are subject to the 401(k) test
described in Section 2.7 and to the 401(m) test described in
this Section 3.10 and the sum of the average deferral
percentage and the average contribution percentage of those
highly compensated employees subject to either or both tests
exceeds the aggregate limit (as defined in this Section 3.10),
then the average contribution percentage of those highly
compensated eligible employees who are also subject to the
401(k) test described in Section 2.7 will be reduced
(beginning with such highly compensated eligible employee
whose contribution percentage is the highest) so that the
aggregate limit is not exceeded. The amount by which each
highly compensated eligible employee's contribution percentage
is reduced shall be treated as an Excess Aggregate
Contribution (as defined in Section 7). The average deferral
percentage and the average contribution percentage of the
highly compensated eligible employees are determined after any
corrections required to meet the tests described in Section
2.7 and in Section 3.10. Multiple use does not occur if both
the average deferral percentage and the average contribution
percentage of the highly compensated employees does not exceed
one and twenty-five hundredths (1.25) multiplied by the
average deferral percentage and average contribution
percentage of the other eligible employees. For purposes of
this Section 3.10, the "aggregate limit" shall mean the sum of
(i) one hundred twenty-five percent (125%) of the GREATER of
(A) the average deferral percentage of employees other than
the highly compensated covered employees for the Plan Year, or
(B) the average contribution percentage of employees other
than the highly compensated eligible employees subject to the
401(m) test in this Section 3.10 for the Plan Year and (ii)
the lesser of two hundred percent (200%) or two (2) plus the
lesser of such average deferral percentage or average
contribution percentage.
(D) MULTIPLE PLANS. For purposes of this Section 3.10, the
contribution percentage for any highly compensated eligible
employee who participates in two or more arrangements
described in section 401(k) of the Internal Revenue Code that
are maintained by the Employer, shall be determined as if the
total of the amounts described in Section 3.10.1(c)(i) above
was made under each such plan. If a highly compensated
eligible employee participates in two or more such
arrangements that have different plan years, all arrangements
ending with or within the same calendar year shall be treated
as a single arrangement. In the event that this Plan satisfies
the requirements of section 401(m), 401(a)(4) or 410(b) of the
Internal Revenue Code only if aggregated with one or more
other plans, or if one or more other plans satisfy the
requirements of such sections of the Internal Revenue Code
only if aggregated with this Plan, then this Section 3.10
shall be applied by determining the contribution percentage of
eligible employees as if all such plans were a single plan.
For plan years beginning after December 31, 1989, plans may be
aggregated in order to satisfy section 401(m) of the Internal
Revenue Code only if they have the same Plan Year.
(E) RECORDS. The Employer shall maintain records sufficient to
demonstrate satisfaction of one of the tests described in
Section 3.10.3 and the amount of matching contributions (as
defined in section 401(m)(4)(A) of the Internal Revenue Code
which meet the requirements of section 401(k)(2)(B) and (C) of
the Internal Revenue Code) or qualified nonelective
contributions (within the meaning of section 401(m)(4)(C) of
the Internal Revenue Code). The determination and treatment of
the contribution percentage of any Participant shall satisfy
such other requirements as may be prescribed by the Secretary
of the Treasury.
3.10.3. THE TESTS. Notwithstanding the provisions of Section 3.3 or
Section 3.4.4 and Section 3.8, the nondeductible voluntary contributions and
Employer matching contributions made for each Plan Year shall be limited and
modified under uniform and nondiscriminatory rules established by the
Administrator's Representative and by the rules hereinafter provided in order
that one of the following two (2) tests is satisfied for that Plan Year:
TEST 1: The average contribution percentage for the group of highly
compensated eligible employees is not more than the average
contribution percentage of all other eligible employees
multiplied by one and twenty-five hundredths (1.25).
TEST 2: The excess of the average contribution percentage for the
group of highly compensated eligible employees over that of
all other eligible employees is not more than two (2)
percentage points, and the average contribution percentage for
the group of highly compensated eligible employees is not more
than the average contribution percentage of all other eligible
employees multiplied by two (2).
The Administrator's Representative shall maintain records to demonstrate
compliance with one of the two (2) tests described above, including the extent
to which Employer contributions credited to Retirement Savings Accounts and
qualified nonelective contributions (as defined in Section 3.10.1(c)) are used
in determining the contribution percentage.
3.10.4. REMEDIAL ACTION. If the Administrator's Representative
determines that neither of the tests will be satisfied (or may not be satisfied)
for a Plan Year, then during such Plan Year, the following actions may be taken
so that one of the tests will be satisfied for such Plan Year:
(a) The nondeductible voluntary contributions of the highly
compensated eligible employees who have the highest
contribution percentage shall be reduced to the extent
necessary to reduce their contribution percentage to the next
lower percentage.
(b) If neither of the tests is satisfied after such adjustment,
the nondeductible voluntary contributions of the highly
compensated eligible employees who then have the highest
contribution percentage (including those reduced under (a)
above) shall be reduced to the extent necessary to reduce
their contribution percentage to the next lower percentage.
(c) If neither of the tests is satisfied after such adjustment,
this method of adjustment shall be repeated one or more
additional times until one of the tests is satisfied or until
no further adjustments can be made in the nondeductible
voluntary contributions of the highly compensated eligible
employees.
(d) If neither of the tests is satisfied after adjusting the
nondeductible voluntary contributions of the highly
compensated eligible employees, then the Employer matching
contributions for the highly compensated eligible employees
who have the highest contribution percentage (including those
reduced under (a) through (c) above) shall be reduced to the
extent necessary to reduce their contribution percentage to
the next lower percentage.
(e) If neither of the tests is satisfied after such adjustment,
the Employer matching contributions for the highly compensated
eligible employees who then have the highest contribution
percentage (including those reduced under (d) above) shall be
reduced to the extent necessary to reduce their contribution
percentage to the next lower percentage.
(f) If neither of the tests is satisfied after such adjustment,
this method of adjustment shall be repeated one or more
additional times until one of the tests is satisfied.
The Administrator's Representative shall prescribe rules concerning such
adjustments, including the frequency of applying the tests and the commencement
and termination dates for any adjustments. Any amounts required to be
distributed as provided above which are distributed more than 2-1/2 months after
the close of the Plan Year being tested, will result in a ten percent (10%)
penalty tax on the Employer as provided in section 4979 of the Internal Revenue
Code.
3.11. LIMITATION ON ALLOCATIONS. In no event shall any amount be allocated to
the Account of any Participant if, or to the extent, such amounts would exceed
the limitations set forth in the Appendix A to this Plan Statement.
3.12. EFFECT OF DISALLOWANCE OF DEDUCTION OR MISTAKE OF FACT. If the deduction
for federal income tax purposes under section 404 of the Internal Revenue Code
should be disallowed, in whole or in part, for any Employer contribution to this
Plan for any year, or if any Employer contribution to this Plan is made by
reason of a mistake of fact, then there shall be calculated the excess of the
amount contributed over the amount that would have been contributed had there
not occurred a mistake in determining the deduction or a mistake of fact. The
Employer, at its election, may direct the Trustee to return such excess,
adjusted for its pro rata share of any net loss (but not any net gain) in the
value of the Fund which accrued while such excess was held therein, to the
Employer within one (1) year of the disallowance of the deduction or the
mistaken payment of the contribution, as the case may be. If the return of such
amount would cause the balance of any Account of any Participant to be reduced
to less than the balance which would have been in such Account had the mistaken
amount not been contributed, however, the amount to be returned to the Employer
shall be limited so as to avoid such reduction.
SECTION 4
INVESTMENT AND ADJUSTMENT OF ACCOUNTS
4.1. ESTABLISHMENT OF SUBFUNDS.
4.1.1. ESTABLISHING COMMINGLED SUBFUNDS. The Administrator's
Representative may (but is not required to) direct the Trustee in writing to
divide the Fund into two (2) or more investment Subfunds, which shall serve as
vehicles for the investment of Participants' Accounts and which shall be managed
either by the Trustee or by one or more Investment Managers, as the
Administrator's Representative shall determine. The Administrator's
Representative shall determine the general investment characteristics and
objectives of each investment Subfund. The Trustee or Investment Manager, as the
case may be, shall have complete investment discretion over each investment
Subfund assigned to it, subject only to the general investment characteristics
and objectives established for the particular investment Subfund. The Account of
each investing Participant shall have a ratable interest in the Subfund.
4.1.2. INDIVIDUAL SUBFUNDS. The Administrator's Representative may (but
is not required to) direct the Trustee in writing to establish investment
Subfunds that consist solely of all or a part of the assets of a single
Participant's Total Account, whose assets the Participant controls by investment
directives to the Trustee and which may not be commingled with the assets of any
other Participant's Accounts. If any Participant is permitted to direct the
Trustee with regard to the investment of his individual investment Subfund, then
all Participants shall be permitted to direct the Trustee with respect to their
individual investment Subfunds. In no event, however, shall the Participant be
allowed to direct the investment of assets in such individual investment Subfund
in any work of art, rug or antique, metal or gem, stamp or coin, alcoholic
beverage or other similar tangible personal property if the investment in such
property shall have been prohibited by the Secretary of the Treasury.
Notwithstanding anything apparently to the contrary in Section 10.6, all voting
or similar rights exercisable with respect to assets held in an individually
directed subfund shall be exercisable solely by the Participant or Beneficiary
whose Account is invested in such individually directed subfund.
4.1.3. OPERATIONAL RULES. In accordance with uniform rules, the
Administrator's Representative shall determine the circumstances under which a
particular investment Subfund may be elected, or shall be automatically
utilized, the minimum or maximum amount or percentage of an Account which may be
invested in a particular investment Subfund, the procedures for making or
changing investment elections and the effect of a Participant's or Beneficiary's
failure to make an effective election with respect to all or any portion of an
Account.
4.1.4. REVISING SUBFUNDS. The Administrator's Representative shall have
the power, from time to time, to dissolve investment Subfunds, to direct that
additional investment Subfunds be established, to change Investment Managers for
any one or more of the investment Subfunds, and, under uniform rules, to
withdraw or limit participation in a particular investment Subfund. In
connection with the power to commingle reserved to the Trustee under Section
10.6, the Administrator's Representative shall also have the power to direct the
Trustee to consolidate any separate investment Subfunds hereunder with any other
separate investment Subfunds having the same investment objectives which are
established under any other retirement plan trust fund of the Employer or any
corporation affiliated in ownership or management with the Employer of which the
Trustee is trustee and which are managed by the Trustee or the same Investment
Manager.
4.2. VALUATION AND ADJUSTMENT OF ACCOUNTS. The Trustee shall value each
investment Subfund as of each Valuation Date, which valuation shall reflect, as
nearly as possible, the then fair market value of the assets comprising such
investment Subfund (including income accumulations therein). In making such
valuations the Trustee may rely upon information supplied by any Investment
Manager having investment responsibility over the particular investment Subfund.
As of each Valuation Date (the "current Valuation Date"), the value of each
Account or portion of an Account invested in a particular investment Subfund,
including Suspense Accounts, determined as of the last preceding Valuation Date
(the "initial Account value") shall be increased (or decreased) by the following
adjustments made in the following sequence:
(A) INTERMEDIATE DISTRIBUTIONS ADJUSTMENT. The initial Account
value shall be adjusted by the total amount:
(i) distributed in fact to (or with respect to) the
Participant from such Account, and
(ii) loaned to the Participant, whether the loan was made
before or after the date on which the initial Account
value is determined, if the Adoption Agreement
provides that loans shall be made from the individual
Account of the Participant who received the loan, and
(iii) transferred from such Account to another Account of
that Participant (or any other Participant) within
this Plan (including amounts transferred to other
investment Subfunds) or to the trustee of another
plan pursuant to an arrangement contemplated under
Section 9.3, and
(iv) transferred into such Account from another Account of
that Participant (or any other Participant) within
this Plan (including amounts transferred from other
investment Subfunds), or from the trustee of another
plan pursuant to an arrangement contemplated under
Section 9.3, and
(v) paid as expenses incurred by the Plan which were
charged specifically against that Account (as
distinguished from being a general charge against the
assets of the Fund),
as of a date subsequent to the last preceding Valuation Date
but prior to the current Valuation Date.
(B) INVESTMENT ADJUSTMENT. The initial Account value (as adjusted
above) shall be increased (or decreased), in the ratio that
such Account value bears to all Account Values, for the:
(i) realized and unrealized gains and losses on the
assets of the Fund, and
(ii) income earned by the Fund (excluding income, if any,
allocated as provided in item (iii) and the last
sentence of this Section 4.2(b)), and
(iii) if the Adoption Agreement so provides, income earned
on contributions made to the Account in advance of
the Valuation Date as of which such contributions are
allocated to the Account, and
(iv) expenses incurred by the Plan and paid generally from
the Fund (rather than charged specifically against a
particular Account),
as of a date subsequent to the last preceding Valuation Date
but not later than the current Valuation Date. In addition,
the initial value of each Retirement Savings Account shall
also be increased (or decreased) for its proportionate share
of income earned on retirement savings contributions, as
described in Section 3.2, deposited to the Account as of any
date subsequent to the last preceding Valuation Date but
before the current Valuation Date.
(C) CONTRIBUTION ADJUSTMENT. The initial Account value (as
adjusted above) shall be increased by the total amount
allocated to such Account under Section 3 as of a date
subsequent to the last preceding Valuation Date but not later
than the current Valuation Date.
(D) FINAL DISTRIBUTIONS ADJUSTMENT. The initial Account value (as
adjusted above) shall be adjusted by the total amount:
(i) distributed in fact to (or with respect to) the
Participant from such Account, and
(ii) transferred from such Account to another Account of
that Participant (or any other Participant) within
this Plan (including amounts transferred to other
investment Subfunds), or to the trustee of another
plan pursuant to an arrangement contemplated under
Section 9.3, and
(iii) paid as expenses incurred by the Plan which were
charged specifically against that Account (as
distinguished from being a general charge against the
assets of the Fund),
as of the current Valuation Date.
4.3. MANAGEMENT AND INVESTMENT OF FUND. The Fund in the hands of the Trustee,
together with all additional contributions made thereto and together with all
net income thereof, shall be controlled, managed, invested, reinvested and
ultimately paid and distributed to Participants and Beneficiaries by the Trustee
with all the powers, rights and discretions generally possessed by trustees, and
with all the additional powers, rights and discretions conferred upon the
Trustee under this Plan Statement. Except to the extent that the Trustee is
subject to the authorized and properly given investment directions of an
Employer, Participant, Beneficiary or Investment Manager, and subject to the
directions of the Administrator's Representative with respect to the payment of
benefits hereunder, the Trustee shall have the exclusive authority to manage and
control the assets of the Fund in its custody and shall not be subject to the
direction of any person in the discharge of its duties, nor shall its authority
be subject to delegation or modification except by formal amendment of this Plan
Statement.
SECTION 5
VESTING
5.1. EMPLOYER MATCHING ACCOUNT AND EMPLOYER CONTRIBUTIONS ACCOUNT.
5.1.1. PROGRESSIVE VESTING. The Employer Matching Account and Employer
Contributions Account of each Participant shall become Vested in him in
accordance with the schedule set forth in the Adoption Agreement; provided,
however, that the Vested percentage of a Participant's Employer Matching Account
and Employer Contributions Account determined as of the Effective Date (or the
date of the execution of the Adoption Agreement by the Employer, if later) shall
be not less than such Vested percentage computed under the Prior Plan Statement,
if any, as of that date.
5.1.2. FULL VESTING. Notwithstanding the foregoing, the entire Employer
Matching Account and Employer Contributions Account of each Participant shall be
fully Vested in him upon the earliest occurrence of any of the following events
while in the employment of the Employer or an Affiliate:
(a) his death,
(b) his attainment of age sixty-five (65) years or, if earlier,
his attainment of his Normal Retirement Age or his attainment
of any earlier age specified in the Adoption Agreement,
(c) the occurrence of his Disability,
(d) a partial termination of the Plan which is effective as to
him, or
(e) a complete termination of the Plan or a complete
discontinuance of Employer contributions hereto.
In addition, a Participant who is not in the employment of the Employer or an
Affiliate upon a complete termination of the Plan or a complete discontinuance
of Employer contributions hereto, shall be so fully Vested if, on the date of
such termination or discontinuance, such Participant has not had a "forfeiture
date" as described in Section 6.2.3.
5.1.3. SPECIAL RULE FOR PARTIAL DISTRIBUTIONS. If a distribution is
made of less than the entire Employer Matching Account or Employer Contributions
Account of a Participant who is not then fully (100%) Vested, then until the
Participant becomes fully Vested in his Employer Matching Account or Employer
Contributions Accounts or until he incurs five (5) or more consecutive One-Year
Breaks in Service, whichever first occurs, (i) a separate account shall be
established for the portion of the Employer Matching Account or Employer
Contributions Account not so distributed and (ii) his Vested interest in such
account at any relevant time shall not be less than an amount ("X") determined
by the formula: X = P[B + (R x D)] - (R x D). For the purpose of applying the
formula, "P" is the Vested percentage at the relevant time (determined pursuant
to Section 5); "B" is the separate account balance at the relevant time; "D" is
the amount of the distribution; and "R" is the ratio of the separate account
balance at the relevant time to the Employer Matching Account or Employer
Contributions Account balance immediately after distribution.
5.1.4. EFFECT OF BREAK ON VESTING. If a Participant who is not fully
(100%) Vested incurs five (5) or more consecutive One-Year Breaks in Service,
returns to Recognized Employment and is thereafter eligible for any additional
allocation of Employer contributions, his undistributed Employer Matching
Account or Employer Contributions Account, if any, attributable to Employer
contributions allocated as of a date before such five (5) consecutive One-Year
Breaks in Service, and in which he has a Vested interest by reason of such prior
service, and his new Employer Matching Account or Employer Contributions
Account, in which he may become Vested by reason of future service, shall be
separately maintained for vesting purposes until he is fully (100%) Vested in
each such Account under the rules of Section 1.1.32 and this Section 5.
5.2. OPTIONAL VESTING SCHEDULE.
5.2.1. ELECTION. If an amendment of this Plan's vesting schedule should
be adopted or the Plan is amended in any way that directly or indirectly affects
the computation of the Participant's Vested percentage, a qualifying Participant
may elect to have the Vested portion of his Employer Matching Account or
Employer Contributions Account determined under the vesting schedule as it
existed immediately before the adoption of such amendment. (In no event shall an
amendment of this Plan's vesting schedule reduce a Participant's Vested
percentage as of the date such amendment is adopted or, if later, the date such
amendment is effective.)
5.2.2. QUALIFYING PARTICIPANT. A Participant in this Plan qualifies for
the election described in this Section 5.2 only if, as of the expiration of the
period described in Section 5.2.3, he has five (5) or more years of Vesting
Service; provided, however, effective for Plan Years beginning after December
31, 1988, a Participant who has one (1) or more Hours of Service in any Plan
Year beginning after December 31, 1988, qualifies for the election described in
this Section 5.2, only if, as of the expiration of the period described in
Section 5.2.3, he has three (3) or more years of Vesting Service.
5.2.3. PROCEDURE FOR ELECTION. The election described in Section 5.2.1
shall be effective only if it is executed in writing upon forms to be prepared
by the Administrator's Representative and delivered to the Administrator's
Representative after the date upon which the amendment is formally adopted and
before the latest of:
(a) the date sixty (60) days after such formal adoption,
(b) the date sixty (60) days after the date such amendment becomes
effective, or
(c) the date sixty (60) days after the date the Participant is
issued written notice of the adoption of the amendment.
5.2.4. CONCLUSIVE ELECTION. Failure to file an election will be deemed
an irrevocable waiver of the election. An election filed in accordance with this
provision will be irrevocable from the date it is filed.
5.3. OTHER ACCOUNTS. The Retirement Savings Account, Rollover Account,
Nondeductible Voluntary Account, Deductible Voluntary Account, and Transfer
Account of each Participant shall be fully (100%) Vested in him at all times.
Each Account will be credited with applicable contributions, forfeitures,
earnings and losses as provided in Section 4.
SECTION 6
MATURITY
6.1. EVENTS OF MATURITY. A Participant's Total Account shall mature and the
Vested portion shall become distributable in accordance with Section 7 upon the
earliest occurrence of any of the following events while in the employment of
the Employer or an Affiliate:
(a) his death,
(b) his separation from service, whether voluntary or involuntary,
(c) his attainment of age seventy and one-half (70-1/2) years,
(d) crediting of any amount to his Account after his attainment of
age seventy and one-half (70-1/2) years,
(e) his Disability,
(f) termination of the Plan without the establishment or
maintenance of another defined contribution plan (other than
an employee stock ownership plan as defined in section
4975(e)(7) of the Internal Revenue Code),
(g) the disposition by the Employer to an unrelated organization
of substantially all of the assets (within the meaning of
section 409(d)(2) of the Internal Revenue Code) used by the
Employer in a trade or business of the Employer, but only with
respect to employees who continue employment with the
organization acquiring such assets and only if the purchase
and sale agreement specifically authorizes distribution of
this Plan's assets in connection with such disposition,
(h) the disposition by the Employer to an unrelated organization
of the Employer's interest in a subsidiary (within the meaning
of section 409(d)(3) of the Internal Revenue Code), but only
with respect to employees who continue employment with such
subsidiary and only if the purchase and sale agreement
specifically authorizes distribution of this Plan's assets in
connection with such disposition, or
(i) if the Adoption Agreement so provides, his attainment of age
fifty-nine and one-half (59-1/2) years.
provided, however, that a transfer from Recognized Employment to employment with
the Employer that is other than Recognized Employment or a transfer from the
employment of one Employer participating in this Plan to another such Employer
or to any Affiliate shall not constitute an Event of Maturity.
6.2. DISPOSITION OF NON-VESTED PORTION OF ACCOUNT. Upon the occurrence of a
Participant's Event of Maturity, if any portion of his Employer Matching Account
or his Employer Contributions Account is not Vested in him, such portion shall
be transferred to his Suspense Account as of the Valuation Date coincident with
or next following such Event of Maturity.
6.2.1. NO BREAK. If such former Participant is reemployed by the
Employer or an Affiliate on or before the Annual Valuation Date coincident with
or immediately following his "forfeiture date" (as defined in Section 6.2.3),
the portion of his Employer Matching Account or his Employer Contributions
Account which was not Vested in him upon his Event of Maturity (and therefore
became his Suspense Account) shall be transferred back to and held in his
Employer Matching Account or his Employer Contributions Account under the Plan
as of the Valuation Date coincident with or next following the reemployment date
and it shall be held there pending the occurrence of another Event of Maturity
effective as to him, during which period of subsequent employment he may earn a
Vested interest in some or all of such portion in accordance with the provisions
of Section 5.
6.2.2. A BREAK. If, however, such former Participant is not reemployed
by the Employer or an Affiliate on or before the Annual Valuation Date
coincident with or immediately following his forfeiture date, the entire portion
of his Employer Matching Account or his Employer Contributions Account which was
not Vested in him upon his Event of Maturity (and therefore became his Suspense
Account) shall be forfeited as of such Annual Valuation Date and shall first be
used to restore any forfeited Suspense Accounts as required in Section 6.3.
Next, any remaining portion shall be used to reduce the Employer required
matching contribution, if any, under Section 3.3, and be allocated as of such
Annual Valuation Date (or as of any succeeding date) to the Employer Matching
Accounts of those Participants employed by the same Employer during the Plan
Year as provided in Section 3.3. Finally, any remaining portion shall, unless
Section 9.4.3 is applicable, be added to the Employer discretionary
contribution, if any, to be allocated, as of such Annual Valuation Date, to the
Retirement Savings Account, Employer Matching Accounts or Employer Contributions
Accounts of those Participants employed by the same Employer during the Plan
Year, as provided in Section 3.4.
6.2.3. FORFEITURE DATE. For the purpose of the foregoing, a
Participant's forfeiture date shall be the date (following his Event of
Maturity) as of which occurred the earliest of:
(i) his fifth (5th) consecutive One-Year Break in Service
following his Event of Maturity,
(ii) the distribution of his entire Vested Total Account,
or
(iii) his Event of Maturity if he has no Vested interest in
his Total Account (that is, his Vested interest,
consisting of zero, will be deemed to be
distributed).
6.3. RESTORATION OF FORFEITED ACCOUNTS. If a Participant:
(a) incurs an Event of Maturity at a time when he was not fully
(100%) Vested in his Employer Matching Account or Employer
Contributions Account, and
(b) has had his Suspense Account (which was established on account
of that Event of Maturity) forfeited and disposed of as
provided in Section 6.2, and
(c) becomes an employee of the Employer or an Affiliate before he
has five (5) consecutive One-Year Breaks in Service following
the Event of Maturity,
then there shall be restored to his Employer Matching Account or his Employer
Contributions Account an amount equal to the amount which was forfeited from his
Suspense Account (without any adjustment for income, gains or losses). This
restoration shall occur as of the Annual Valuation Date next following his
return to participation in the Plan and shall be conditioned upon his remaining
in employment with the Employer or Affiliate until that Annual Valuation Date.
The amount so restored shall be held in a separate account and shall become
Vested in accordance with the rules of Section 5.1.3. The amount necessary to
make the restoration shall come first from Suspense Accounts to be forfeited on
the Annual Valuation Date on which the restoration is to occur. If Suspense
Accounts to be forfeited as of that Annual Valuation Date are not adequate for
this purpose, the Employer shall make a contribution adequate to make the
restoration as of that Annual Valuation Date (in addition to any contributions
required to be made under Section 3).
SECTION 7
DISTRIBUTION
7.1. APPLICATION FOR DISTRIBUTION.
7.1.1. APPLICATION REQUIRED. No distribution shall be made from the
Plan until the Administrator's Representative has received a written application
for distribution from the Participant or the Beneficiary entitled to receive
distribution (the "Distributee"). The Administrator's Representative may
prescribe rules regarding the form of such application, the manner of filing
such application and the information required to be furnished in connection with
such application.
Unless the Participant elects otherwise, distribution of the Participant's
Vested Total Account will begin no later than the 60th day after the latest of
the close of the Plan Year in which:
(a) The Participant attains age 65 (or Normal Retirement Age, if
earlier);
(b) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan; or
(c) the Participant separates from service with the Employer.
Notwithstanding the foregoing, the failure of the Participant (and, if
necessary, the Participant's spouse) to apply for a distribution after the
Participant has had an Event of Maturity shall be an election to defer payment
in satisfaction of the previous sentence.
Subject to Section 7.3.4, the requirements of Section 7.1 and 7.2 shall apply to
any distribution of a Participant's interest and will take precedence over any
inconsistent provisions of the Plan Statement. Unless otherwise specified, these
provisions apply to calendar years beginning after December 31, 1984. All
distributions required under the plan shall be made in accordance with the
provisions of this Section 7 and the regulations under section 401(a)(9) of the
Internal Revenue Code, including the minimum distribution incidental benefit
requirement of Treas. Reg. 1.401(a)(9)-2 (proposed).
7.1.2. EXCEPTION FOR SMALL AMOUNTS. A Vested Total Account which does
not exceed Three Thousand Five Hundred Dollars ($3,500) on the Valuation Date
immediately after the occurrence of an Event of Maturity effective as to a
Participant, shall be automatically distributed in a lump sum as of that date
without a written application for distribution. (If the Participant has no
Vested interest in his Total Account, the "deemed distribution" rule of Section
6.2.3(iii) may apply.)
7.1.3. EXCEPTION FOR REQUIRED DISTRIBUTIONS. Any Vested Total Account
for which no application has been received on the required beginning date
effective as to a Distributee under Section 7.2.2, shall be automatically
distributed in a lump sum (if the Plan is not an exempt profit sharing plan,
however, the Vested Total Account shall be distributed pursuant to Section
7.3.4), without a written application for distribution.
7.2. TIME OF DISTRIBUTION. Upon the receipt of a proper application for
distribution from the Distributee after the occurrence of an Event of Maturity
effective as to a Participant, and after the Participant's Vested Total Account
has been determined and the right of the Distributee to receive a distribution
has been established, the Administrator's Representative (and not the
Distributee) shall cause the Trustee to make or commence distribution as of (and
as soon as may be administratively feasible after but in all events within the
time period required by Section 7.1.1) a Valuation Date specified by the
Distributee which is not earlier than nor later than the dates specified below.
7.2.1. EARLIEST BEGINNING DATE. Distribution to a Distributee shall not
be made or commenced as of a Valuation Date which is earlier than provided for
in the Adoption Agreement. Distribution shall not be made or commenced earlier
than the date (i) the Administrator's Representative receives any required
application for distribution, and (ii) as of a Valuation Date which is earlier
than allowed in the Adoption Agreement.
7.2.2. REQUIRED BEGINNING DATE. Distribution shall be made or commenced
as of the last Valuation Date occurring in the calendar year immediately
preceding the calendar year in which the required beginning date effective as to
the Distributee occurs, and actual distribution shall be made or commenced as
soon thereafter as is feasible, but in all events distribution shall be made or
commenced not later than the following required beginning date:
(a) if the Distributee is a Participant, the April 1 following the
calendar year in which the Distributee attains age seventy and
one-half (70-1/2) years, or
(b) if the Distributee is the Beneficiary of a Participant who
died on or after the April 1 following the calendar year in
which the Participant attained age seventy and one-half
(70-1/2) years, the date or dates which provide for
distribution to such Beneficiary at a rate (considering both
time and amount) that is cumulatively at least as rapid as the
rate of distribution scheduled and commenced prior to the
death of the Participant, or
(c) if the Distributee is a Beneficiary of a Participant who died
before the April 1 following the calendar year in which the
Participant attained age seventy and one-half (70-1/2) years,
the date or dates that allow distribution of the entire amount
to be completed not later than December 31 of the calendar
year in which occurs the fifth (5th) anniversary of the
Participant's death; provided, however, that if the Adoption
Agreement permits and:
(i) if the Beneficiary is an individual who is not the
surviving spouse of the Participant and if in a
written application, timely filed, such individual
Beneficiary requests that distributions be made to
such individual Beneficiary in substantially equal
annual amounts over a period of time not extending
beyond the life expectancy of such Beneficiary,
distributions must commence not later than December
31 of the year following the year of the
Participant's death, or
(ii) if the Beneficiary is the surviving spouse of the
Participant and if in a written application, timely
filed, such spouse Beneficiary requests that
distributions be made to such surviving spouse in
substantially equal annual amounts over a period of
time not extending beyond the life expectancy of the
surviving spouse, distributions may be deferred until
the later of (A) the date specified in paragraph (i)
above or, (B) the December 31 of the calendar year in
which the Participant would have attained age seventy
and one-half (70-1/2) years.
If distributions are made in installments, the second and all
subsequent distributions must be made on or before December 31
of the year for which the distribution is made. A Beneficiary
must elect the method of distribution no later than the
earlier of (i) December 31 of the calendar year in which
distributions would be required to begin under this Section
7.2.2, or (ii) December 31 of the calendar year in which
occurs the fifth (5th) anniversary of the Participant's death.
If a Beneficiary makes no election, distribution of the
Beneficiary's entire interest must be completed by December 31
of the calendar year containing the fifth (5th) anniversary of
the Participant's death.
7.3. FORMS OF DISTRIBUTION.
7.3.1. FORMS AVAILABLE. At the direction of the Administrator's
Representative (subject to Section 7.3.4), the Trustee shall make distribution
of the Participant's Vested Total Account to the Distributee in one of the
following optional forms of benefit as permitted in the Adoption Agreement and
as designated by the Distributee in writing:
(A) LUMP SUM. If the Distributee is either a Participant or a
Beneficiary, in a lump sum as described in the Adoption
Agreement.
(B) FIXED INSTALLMENTS TO PARTICIPANT. If the Distributee is a
Participant, in a series of substantially equal installments
payable annually over a fixed period selected by the
Participant before the first payment which does not exceed the
life expectancy of the Participant. The election to
recalculate life expectancy described in Section 7.3.3 does
not apply to this form of distribution.
(C) MINIMUM INSTALLMENTS TO PARTICIPANTS. If the Distributee is a
Participant, in a series of substantially equal installments
payable annually over the life expectancy of the Participant
or the joint and last survivor life expectancy of the
Participant and his Beneficiary determined as of the date of
the first such installment payment; provided, however, that
the amount of such installments shall automatically be
increased if the series of substantially equal installments
payable annually over the life expectancy of the Participant
or the joint and last survivor life expectancy of the
Participant and his Beneficiary determined again as of the
Participant's required beginning date (see Section 7.2.2(a))
and based on the facts then in existence is greater than the
amount determined as of the first such installment payment.
For calendar years beginning before January 1, 1989, if the
Participant's spouse is not the Beneficiary, then the method
of distribution selected must assure that at least fifty
percent (50%) of the Vested Total Account is paid within the
life expectancy of the Participant.
(D) INSTALLMENTS TO BENEFICIARY. If the Distributee is an
individual who is a Beneficiary of a deceased Participant who
died before the April 1 following the calendar year in which
the Participant would have attained age seventy and one-half
(70-1/2) years, in a series of substantially equal
installments payable annually over a period selected by the
Beneficiary which does not exceed the period permitted by the
Adoption Agreement. If the Distributee is an individual who is
a Beneficiary of a deceased Participant who died on or after
the April 1 following the calendar year in which the
Participant attained age seventy and one-half (70-1/2) years,
in a series of substantially equal installments which are a
continuation of the payments commenced (or scheduled) prior to
the date of the Participant's death (or in a lump sum if the
Adoption Agreement permits such a payment to the Beneficiary).
7.3.2. SUBSTANTIALLY EQUAL. Distributions shall be considered to be
substantially equal if the distributions are determined in whichever of the
following manners is applicable:
(A) FIXED INSTALLMENTS. If distributions are in the form of
installments payable over a fixed period, the amount of the
distribution required to be made for each calendar year (the
"distribution year") shall be determined by dividing the
amount of the Vested Total Account as of the last Valuation
Date in the calendar year immediately preceding the
distribution year (such preceding calendar year being the
"valuation year") by the number of remaining installment
payments to be made (including the distribution being
determined). The amount of the Vested Total Account as of such
Valuation Date shall be increased by the amount of any
contributions and forfeitures allocated to the Vested Total
Account during the valuation year and after such Valuation
Date (including contributions and forfeitures, if any, made
after the end of the valuation year which are allocated as of
dates in the valuation year). The amount of the Vested Total
Account shall be decreased by the amount of any distributions
made in the valuation year and after such Valuation Date.
(B) LIFETIME INSTALLMENTS. If distributions are in the form of
installments over the life expectancy of the recipient or the
joint and last survivor life expectancy of the Participant and
his Beneficiary, the amount of the distribution required to be
made for each calendar year (the "distribution year") shall be
determined by dividing the amount of the Vested Total Account
as of the last Valuation Date in the calendar year immediately
preceding the distribution year (such preceding calendar year
being the "valuation year") by the remaining life expectancy
as of the distribution year. The amount of the Vested Total
Account as of the last Valuation Date in the valuation year
shall be increased by the amount of any contributions and
forfeitures allocated to the Vested Total Account during the
valuation year and after such Valuation Date (including
contributions and forfeitures, if any, made after the end of
the valuation year which are allocated as of dates in the
valuation year). The amount of the Vested Total Account shall
be decreased by distributions made in the valuation year and
after such Valuation Date.
7.3.3. LIFE EXPECTANCY. Life expectancy and joint and last survivor
expectancy shall be determined by use of the expected return multiples in Tables
V and VI of Treas. Reg. 1.72-9. An individual's life expectancy shall be based
upon the individual's attained age on his birthday in the calendar year for
which life expectancy is first being determined and, in the absence of an
election as provided below, shall be reduced by one (1) year in each succeeding
calendar year.
(A) ELECTION TO RECALCULATE LIFE EXPECTANCY. In the case of a
Participant or a Beneficiary who is the surviving spouse of a
Participant (but not in the case of any other individual), the
Participant or such Beneficiary may elect to have life
expectancy redetermined for each succeeding calendar year that
a distribution is required to be made. The election must be
made no later than the time of the first required
distribution. The election is irrevocable and must apply to
all subsequent years.
(B) JOINT AND LAST SURVIVOR. Joint and last survivor life
expectancy shall be determined for the Participant and the
individual who is the Participant's Beneficiary in accordance
with the rules of section 401(a)(9) of the Internal Revenue
Code and the regulations thereunder.
(C) MINIMUM DISTRIBUTION INCIDENTAL BENEFIT REQUIREMENT. In the
case of a Participant and a Beneficiary who is not a spouse of
the Participant, the life expectancy factor used to compute
the amount of the substantially equal payment during the
Participant's lifetime shall not be greater than the factor
determined under Treas. Reg. 1.401(a)(9)-2 (the minimum
distribution incidental benefit requirement).
7.3.4. PRESUMPTIVE FORMS. The selection of a form of distribution shall
be subject, however, to the following rules:
(A) REQUIRED LUMP SUM. As provided in Section 7.1.2, if the value
of the Participant's Vested Total Account is not greater than
Three Thousand Five Hundred Dollars ($3,500) when distributed,
the distribution shall be made in a single lump sum.
(B) QJ&SA CONTRACT. A QJ&SA contract is an immediate,
nontransferable annuity contract issued as an individual
policy or under a master or group contract which provides for
an annual or more frequent annuity payable to and for the
lifetime of the Participant beginning as of a date designated
by the Participant which is not later than the dates specified
in Section 7.2.2, with a survivor annuity payable on an annual
or more frequent basis after the death of the Participant to
and for the lifetime of the surviving spouse of the
Participant (to whom the Participant was married on the
Valuation Date as of which such contract is issued) in an
amount equal to fifty percent (50%) of the amount payable
during the joint lives of the Participant and the surviving
spouse. If payments had started to the Participant prior to
his death, payments of the survivor annuity shall commence
immediately after death. If payments had not started prior to
the Participant's death, the surviving spouse shall designate
the commencement date which shall not be later than the date
the Participant would have attained age seventy and one-half
(70-1/2) years. The contract shall be a QJ&SA contract only if
it is issued on a premium basis which does not discriminate on
the basis of the sex of the Participant or the surviving
spouse and if it complies with the requirements of this Plan
and section 401(a)(9) of the Internal Revenue Code and the
regulations thereunder.
(C) LIFE ANNUITY CONTRACT. A Life Annuity contract is an
immediate,nontransferable annuity contract issued as an
individual policy or under a group or master contract which
provides for an annual or more frequent annuity payable to and
for (i) the lifetime of an unmarried Participant beginning as
of a date designated by the Participant which is not later
than the dates specified in Section 7.2.2, or (ii) the
lifetime of the surviving spouse of a Participant beginning as
of the first day of the month following the Participant's
death or any later date designated by the surviving spouse
which is not later than the date the Participant would have
attained age seventy and one-half (70-1/2) years. The contract
shall be a Life Annuity contract only if it is issued on a
premium basis which does not discriminate on the basis of the
sex of the Participant or the surviving spouse and if it
complies with the requirements of this Plan and section
401(a)(9) of the Internal Revenue Code and the regulations
thereunder.
(D) EXEMPT PROFIT SHARING PLAN. This Plan is an exempt profit
sharing plan if the following conditions are satisfied:
(i) this Plan is adopted as a profit sharing plan and not
as a money purchase pension plan, and
(ii) no Participant under this Plan can elect to receive
payments in the form of a lifetime annuity, and
(iii) this Plan is not a direct or indirect transferee of
assets from a defined benefit pension plan, money
purchase pension plan or target benefit money
purchase pension plan, and
(iv) this Plan is not a direct or indirect transferee from
a stock bonus plan or a profit sharing plan which was
otherwise required to make available to Participants
with respect to whom assets and liabilities were
transferred distribution in the form of a lifetime
annuity.
If this Plan is adopted as a money purchase pension plan, a
distribution from this plan shall be treated as a distribution
from an exempt profit sharing plan if the distribution is made
on or after the first day of the first plan Year beginning
after December 31, 1988, from the Participant's Deductible
Voluntary Account, and the Plan satisfies item (ii) above. The
Deductible Voluntary Account shall be adjusted for gains or
loses occurring after the Participant's death in accordance
with Section 4. The Participant's Deductible Voluntary
Account, as defined in Section 1.1.1(e), refers to an Account
attributed solely to accumulated deductible employee
contribution within the meaning of Section 72(o)(5)(B) of the
Internal Revenue Code.
(E) MARRIED PARTICIPANT. In the case of any distribution which is
to be made:
(i) if this Plan is not an exempt profit sharing plan,
and
(ii) when paragraph (a) above is not applicable, and
(iii) to a Participant who is married on the Valuation Date
as of which such distribution is to be made or
commenced to him, and
(iv) to a Participant who has not rejected distribution in
the form of a QJ&SA contract,
distribution shall be effected for such Participant by
applying the entire Vested Total Account to purchase and
distribute to such Participant a QJ&SA contract. A Participant
may reject distribution in the form of a QJ&SA contract by
filing with the Administrator's Representative an affirmative
written rejection of distribution in that form not more than
ninety (90) days before the Valuation Date as of which the
distribution is made or commenced. Such a rejection may be
made or revoked at any time and any number of times until the
Valuation Date as of which the distribution to the Participant
is made or commenced. A rejection shall not be effective
unless the Participant's spouse consents. To be valid, the
consent of the spouse must be in writing, must acknowledge the
effect of the distribution, must be witnessed by a notary
public, must be given during the ninety (90) day period before
the Valuation Date as of which the distribution is made or
commenced and must relate to that specific distribution. The
consent of the spouse must be to a specific form of
distribution (other than the QJ&SA contract) which may not be
changed without further spousal consent unless the Participant
elects a QJ&SA contract, or alternatively, the consent of the
spouse must expressly permit the Participant to elect and to
change the form of distribution (other than the QJ&SA
contract) without any requirement of further spousal consent.
The consent of the spouse shall be irrevocable and shall be
effective only with respect to that spouse. No less than
thirty (30) days and no more than ninety (90) days prior to
the date distribution is to be made or commenced to the
Participant, there shall be furnished to the Participant a
written explanation of the terms and conditions of the QJ&SA
contract, the Participant's right to reject, and the effect of
a rejection of distribution in the form of the QJ&SA contract,
the requirement for the consent of the Participant's spouse,
the right to revoke a prior rejection of distribution in the
form of a QJ&SA contract, and the right to make any number of
further revocations or rejections until the Valuation Date as
of which the distribution actually is made or commenced.
Notwithstanding the consent requirement described above, if
the Participant establishes to the satisfaction of the
Administrator's Representative that such written consent
cannot be obtained because there is no spouse, or the spouse
cannot be located, a Participant's rejection shall be deemed a
valid rejection.
(F) UNMARRIED PARTICIPANT. In the case of any distribution which
is to be made:
(i) if this Plan is not an exempt profit sharing plan,
and
(ii) when paragraph (a) above is not applicable, and
(iii) to a Participant who is not married on the Valuation
Date as of which such distribution is to be made or
commenced to him, and
(iv) to a Participant who has not rejected distribution in
the form of a Life Annuity contract,
distribution shall be effected for such Participant by
applying the entire Vested Total Account to purchase and
distribute to such Participant a Life Annuity contract. A
Participant may reject distribution in the form of a Life
Annuity contract by filing with the Administrator's
Representative an affirmative written rejection of
distribution in that form not more than ninety (90) days
before the Valuation Date as of which the distribution is made
or commenced. Such a rejection may be made or revoked at any
time and any number of times until the Valuation Date as of
which the distribution to the Participant is made or
commenced. No less than thirty (30) days and no more than
ninety (90) days prior to the date distribution is to be made
or commenced to the Participant, there shall be furnished to
the Participant a written explanation of the terms and
conditions of the Life Annuity contract, the Participant's
right to reject and the effect of a rejection of, distribution
in the form of the Life Annuity contract, the right to revoke
a prior rejection of distribution in the form of a Life
Annuity contract, and the right to make any number of further
revocations or rejections until the Valuation Date as of which
distribution actually is made or commenced.
(G) SURVIVING SPOUSE. In the case of a distribution which is made:
(i) if this Plan is not an exempt profit sharing plan,
and
(ii) when paragraph (a) above is not applicable, and
(iii) to the surviving spouse of a deceased Participant,
and
(iv) when such surviving spouse has not rejected
distribution in the form of a Life Annuity contract,
distribution shall be effected for such surviving spouse by
applying the entire Vested Total Account to purchase and
distribute to such surviving spouse a Life Annuity contract as
soon as administratively feasible after the Participant's
death; but in no event earlier than the date upon which the
surviving spouse makes application for the distribution, or,
if earlier, the date upon which the Participant (if he
continued to live) would have attained age seventy and one
half (70-1/2) years. A surviving spouse may reject
distribution in the form of a Life Annuity contract by filing
with the Administrator's Representative an affirmative written
rejection of distribution in that form not more than ninety
(90) days before the Valuation Date as of which the
distribution is made or commenced. Any number of rejections
and revocations of rejections may be made at any time until
the Valuation Date as of which the distributions are made or
commence to such surviving spouse. No less than thirty (30)
days and no more than ninety (90) days prior to the date
distribution is to be made or commenced to the surviving
spouse, there shall be furnished to the surviving spouse a
written explanation of the terms and conditions of the
contract, the surviving spouse's right to reject, and the
effect of a rejection of distribution in the form of the Life
Annuity contract, the right to revoke a prior rejection of
distribution in the form of the Life Annuity contract, and the
right to make any number of further revocations or rejections
until the Valuation Date as of which distribution actually is
made or commenced.
7.3.5. EFFECT OF REEMPLOYMENT. If a Participant is reemployed by the
Employer or an Affiliate after distribution has been made or commenced to him
but before his Normal Retirement Age, further distribution of his Vested Total
Account shall be suspended and the undistributed remainder of his Vested Total
Account shall continue to be held in the Fund until another Event of Maturity
effective as to him shall occur after his reemployment. It is the general intent
of this Plan that no distribution shall be made while a Participant is
maintaining an employment relationship with the Employer or an Affiliate.
7.3.6. TEFRA ss. 242(B) TRANSITIONAL RULES. Notwithstanding the other
provisions of this Section 7, distributions to or with respect to each
individual eligible to make a designation (before January 1, 1984) of a method
of distribution pursuant to section 242(b) of the Tax Equity and Fiscal
Responsibility Act of 1982 shall be made on and after the first day of the Plan
Year beginning in 1984 in accordance with the provisions set forth in the
Appendix E to this Plan Statement; provided, however, that if the Plan is not an
exempt profit sharing plan, the QJ&SA contract or Life Annuity contract has been
rejected as described in Section 7.3.4.
7.4. DESIGNATION OF BENEFICIARIES.
7.4.1. RIGHT TO DESIGNATE. Each Participant may designate, upon forms
to be furnished by and filed with the Administrator's Representative, one or
more primary Beneficiaries or alternative Beneficiaries to receive all or a
specified part of his Vested Total Account in the event of his death and may
change or revoke any such designation from time to time. No such designation,
change or revocation shall be effective unless executed by the Participant and
accepted by the Administrator's Representative during the Participant's
lifetime. If, however, the Plan is not an exempt profit sharing plan and such
designation is made to a nonspouse Beneficiary before the first day of the Plan
Year in which the Participant attains age thirty-five (35) years and the
Participant dies on or after that date while married, the beneficiary
designation is void.
7.4.2. SPOUSAL CONSENT. Notwithstanding the foregoing, a designation
will not be valid for the purpose of paying benefits from the Plan to anyone
other than a surviving spouse of the Participant (if there is a surviving
spouse) unless that surviving spouse consents in writing to the designation of
another person as Beneficiary. To be valid, the consent of such spouse must be
in writing, must acknowledge the effect of the designation of the Beneficiary
and must be witnessed by a notary public. The consent of the spouse must be to
the designation of a specific named Beneficiary which may not be changed without
further spousal consent, or alternatively, the consent of the spouse must
expressly permit the Participant to make and to change the designation of
Beneficiaries without any requirement of further spousal consent. The consent of
the spouse to a nonspouse Beneficiary is a waiver of the spouse's rights to
benefits under the Plan. In a plan that is not an exempt profit sharing plan,
these benefits are known as a qualified preretirement survivor annuity. The
consent of the surviving spouse need not be given at the time the designation is
made. The consent of the surviving spouse need not be given before the death of
the Participant. The consent of the surviving spouse will be required, however,
before benefits can be paid to any person other than the surviving spouse. The
consent of a spouse shall be irrevocable and shall be effective only with
respect to that spouse.
In the case of a distribution to which Section 7.3.4(g) applies, the
Administrator's Representative shall provide each Participant within the
applicable period for such Participant a written explanation of the Life Annuity
Contract in such terms and in such manner as would be comparable to the
explanation provided for meeting the requirements of Section 7.3.4(e) applicable
to a QJ & SA contract.
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 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age 35; (ii) a
reasonable period ending after the individual becomes a Participant; and (iii) a
reasonable period ending after this paragraph first applies to the Participant.
Notwithstanding the foregoing, notice must be provided within a reasonable
period ending after separation from service in the case of a Participant who
separates from service before attaining age 35.
For the purposes of applying the preceding paragraph, a reasonable period ending
after the enumerated events described in (ii) and (iii) is the end of the
two-year period beginning one year prior to the date the applicable event
occurs, and ending one year after that date. In the case of a Participant who
separates from service before the Plan Year in which age 35 is attained, notice
shall be provided within the two-year period beginning one year prior to
separation and ending one year after separation. If such a Participant
thereafter returns to employment with the employer, the applicable period for
such Participant shall be redetermined.
7.4.3. FAILURE OF DESIGNATION. If a Participant:
(a) fails to designate a Beneficiary,
(b) designates a Beneficiary and thereafter revokes such
designation without naming another Beneficiary, or
(c) designates one or more Beneficiaries and all such
Beneficiaries so designated fail to survive the Participant,
such Participant's Vested Total Account, or the part thereof as to which such
Participant's designation fails, as the case may be, shall be payable to the
first class of the following classes of automatic Beneficiaries with a member
surviving the Participant and (except in the case of his surviving issue) in
equal shares if there is more than one member in such class surviving the
Participant:
Participant's surviving spouse
Participant's surviving issue per stirpes and not per capita
Participant's surviving parents Participant's surviving
brothers and sisters Representative of Participant's estate.
7.4.4. DEFINITIONS. When used herein and, unless the Participant has
otherwise specified in his Beneficiary designation, when used in a Beneficiary
designation, "issue" means all persons who are lineal descendants of the person
whose issue are referred to, including legally adopted descendants and their
descendants but not including illegitimate descendants and their descendants;
"child" means an issue of the first generation; "per stirpes" means in equal
shares among living children of the person whose issue are referred to and the
issue (taken collectively) of each deceased child of such person, with such
issue taking by right of representation of such deceased child; and "survive"
and "surviving" mean living after the death of the Participant.
7.4.5. SPECIAL RULES. Unless the Participant has otherwise specified in
his Beneficiary designation, the following rules shall apply:
(a) if there is not sufficient evidence that a Beneficiary was
living after the death of the Participant, it shall be deemed
that the Beneficiary was not living after the death of the
Participant.
(b) The automatic Beneficiaries specified in Section 7.4.3 and the
Beneficiaries designated by the Participant shall become fixed
as of the Participant's death so that, if a Beneficiary
survives the Participant but dies before the receipt of all
payments due such Beneficiary hereunder, such remaining
payments shall be payable to the representative of such
Beneficiary's estate.
(c) If the Participant designates as a Beneficiary the person who
is the Participant's spouse on the date of the designation,
either by name or by relationship, or both, the dissolution,
annulment or other legal termination of the marriage between
the Participant and such person shall automatically revoke
such designation. (The foregoing shall not prevent the
Participant from designating a former spouse as a Beneficiary
on a form executed by the Participant and received by the
Committee after the date of the legal termination of the
marriage between the Participant and such former spouse, and
during the Participant's lifetime.)
(d) Any designation of a nonspouse Beneficiary by name that is
accompanied by a description of relationship to the
Participant shall be given effect without regard to whether
the relationship to the Participant exists either then or at
the Participant's death.
(e) Any designation of a Beneficiary only by statement of
relationship to the Participant shall be effective only to
designate the person or persons standing in such relationship
to the Participant at the Participant's death.
A Beneficiary designation is permanently void if it either is executed or is
filed by a Participant who, at the time of such execution or filing, is then a
minor under the law of the state of his legal residence. The Committee (and not
the Trustee) shall be the sole judge of the content, interpretation and validity
of a purported Beneficiary designation.
7.5. DEATH PRIOR TO FULL DISTRIBUTION. If a Participant dies after his Event of
Maturity but before distribution of his Vested Total Account has been completed,
the remainder of his undistributed Vested Total Account shall be distributed in
the same manner as hereinbefore provided in the Event of Maturity by reason of
death. If, at the death of the Participant, any payment to the Participant was
due or otherwise pending but not actually paid, the amount of such payment shall
be included in the Vested Total Account which is payable to the Beneficiary (and
shall not be paid to the Participant's estate).
7.6. DISTRIBUTION IN CASH. Subject to the requirements of Section 7.3 for a Plan
that is not an exempt profit sharing plan, distribution of a Participant's
Vested Total Account shall be made in cash. If, however, (i) the Vested Total
Account to be distributed consists in whole or in part of a Participant's unpaid
promissory note, the Trustee shall cause distribution of that portion of the
Vested Total Account to be made in the form of that unpaid promissory note, or
(ii) the Vested Total Account to be distributed consists in whole or in part of
a life insurance contract acquired pursuant to the Participant's direction under
Section 10.11, the Trustee shall cause distribution of that portion of the
Vested Total Account to be made in the form of the life insurance contract so
acquired, or (iii) the Vested Total Account to be distributed consists in whole
or in part of a Participant's individually directed Subfund established pursuant
to Section 4.1.2, the Trustee shall cause distribution of that portion of the
Vested Total Account to be made in the form of the assets held in the
individually directed Subfund.
7.7. (Deleted).
7.8. WITHDRAWALS FROM VOLUNTARY ACCOUNTS.
7.8.1. WHEN AVAILABLE. If the Adoption Agreement so provides, a
Participant (whether or not then employed by the Employer) may make withdrawals
from time to time from his Nondeductible Voluntary Account (if any) and his
Deductible Voluntary Account (if any), as the case may be. To receive such a
withdrawal, the Participant must submit a written application specifying the
dollar amount to be withdrawn. Such withdrawal application shall be approved by
the Administrator's Representative to be made as of the Valuation Date
coincident with or next following the approval of a completed application by the
Administrator's Representative and shall be made in a lump sum cash payment as
soon as practicable after such Valuation Date. No forfeitures will occur solely
as a result of a withdrawal from a Nondeductible Voluntary Account or Deductible
Voluntary Account.
7.8.2. SEQUENCE OF ACCOUNTS. The amount of such withdrawals by a
Participant shall be deemed to first come from the aggregate amount of voluntary
contributions theretofore made by him and only thereafter from the earnings or
gains in, or attributable to, either Voluntary Account. Notwithstanding the
foregoing, any such withdrawal shall be deemed to have been first taken from the
Participant's nondeductible voluntary contributions made prior to January 1,
1987, to the extent of the aggregate amount not previously withdrawn.
Thereafter, the withdrawal shall be deemed to have been taken from a combination
of (i) the Participant's nondeductible voluntary contributions made after
December 31, 1986, to the extent of the aggregate amount thereof not previously
withdrawn, and (ii) a portion of the earnings in the Nondeductible Voluntary
Account. The portion of each such withdrawal that is deemed to be earnings will
be in the same ratio as the total earnings of the Nondeductible Voluntary
Account bear to the total Nondeductible Voluntary Account. All withdrawals shall
be deemed to come first from the Nondeductible Voluntary Account, and only after
the amount which may be withdrawn from the Nondeductible Voluntary Account is
exhausted will a withdrawal come from the Deductible Voluntary Account.
7.8.3. LIMITATIONS. Notwithstanding the foregoing, no distribution
shall be made pursuant to this Section 7.8 unless this Plan is an exempt profit
sharing plan (as defined in Section 7.3.4) or the spouse of the Participant, if
any, consents in writing to the distribution. To be valid, the consent of such
spouse must be in writing, must acknowledge the effect of the withdrawal and
must be witnessed by a notary public. The consent of the spouse must be given
within ninety (90) days prior to the Valuation Date as of which the withdrawal
is made and must relate to that specific withdrawal. The consent given by one
spouse shall be effective only with respect to that spouse.
7.8.4. COORDINATION WITH SECTION 4.1. If a withdrawal is made from an
Account which is invested in more than one (1) investment Subfund authorized and
established under Section 4.1, the amount withdrawn shall be charged to each
such investment Subfund in the same proportions as the Account is invested in
such investment Subfunds, unless otherwise directed by the Administrator's
Representative.
7.9. IN-SERVICE DISTRIBUTIONS.
7.9.1. WHEN AVAILABLE. If the Adoption Agreement so provides, a
Participant (whether or not then employed by the Employer) may receive an
in-service distribution from the Vested portion of his Total Account (unless the
Adoption Agreement specifically prohibits in-service distributions from a
particular Account) if the Administrator's Representative determines that such
in-service distribution is for one of the purposes described in Section 7.9.2
and the conditions in Section 7.9.3 and Section 7.9.4 have been fulfilled. An
in-service distribution application is to be filed with the Administrator's
Representative. In his application, the Participant shall specify the dollar
amount to be distributed from his Account. Such in-service distribution shall be
approved by the Administrator's Representative to be made as of the Valuation
Date coincident with or next following the approval of a completed application
by the Administrator's Representative and such hardship distribution shall be
made in a lump sum cash payment as soon as practicable after such Valuation
Date; provided that, if the Adoption Agreement so provides, an advance
distribution of up to fifty percent (50%) of the amount approved may be made
before such Valuation Date.
7.9.2. PURPOSES. In-service distributions shall be allowed under
Section 7.9.1 for only such of the following purposes as are permitted in the
Adoption Agreement and only if the Participant establishes that the in-service
distribution is to be made for one of the permitted purposes:
(i) medical expenses described in section 213(d) of the
Internal Revenue Code incurred by the Participant,
the Participant's spouse or any dependents of the
Participant (as defined in section 152 of the
Internal Revenue Code);
(ii) the purchase (excluding mortgage payment) of a
principal residence of the Participant;
(iii) payment of tuition for the next semester or quarter
of post-secondary education for the Participant, his
spouse, children or dependents; or
(iv) the need to prevent the eviction of the Participant
from his principal residence or foreclosure on the
mortgage of the Participant's principal residence.
Such purposes shall be considered to be an immediate and heavy financial need of
the Participant.
7.9.3. LIMITATIONS. In no event, shall the cumulative amount of
hardship distributions withdrawn from a Participant's Retirement Savings Account
exceed the amount of contributions to that Account made pursuant to Section 3.2
(i.e., in-service distributions from that Account will not include any earnings
on such contributions or any curative allocations or earnings on curative
allocations made pursuant to Section 3.4.2). The amount of the in-service
distribution shall not exceed the amount of the Participant's immediate and
heavy financial need. In addition, an in-service distribution which includes a
portion of the Participant's Retirement Savings Account shall not be allowed
unless the Participant has obtained all distributions, other than hardship
distributions, and all nontaxable loans currently available under all plans
maintained by the Employer, and unless all Plans maintained by the Employer
include requirements substantially identical to the requirements contained in
Section 7.9.4.
Notwithstanding the foregoing, no distribution shall be made pursuant to this
Section 7.9 unless the Plan is an exempt profit sharing plan (as defined in
Section 7.3.4) or the spouse of the Participant, if any, consents in writing to
the distribution. To be valid, the consent of such spouse must be in writing,
must acknowledge the effect of the distribution and must be witnessed by a
notary public. The consent of the spouse must be given within ninety (90) days
prior to the Valuation Date as of which the distribution is made and must relate
to the specific distribution. The consent given by one spouse shall be effective
only with respect to that spouse.
7.9.4. COORDINATION WITH RETIREMENT SAVINGS AGREEMENT. The
Participant's Retirement Savings Agreement shall be cancelled for twelve (12)
months after receipt of an in-service distribution and shall not be
automatically reinstated. Thereafter, such Participant may, upon giving fifteen
(15) days' prior written notice to the Plan Administrator, enter into a new
Retirement Savings Agreement effective as of the payday on or after any
subsequent Enrollment Date following such twelve (12) month period, provided he
is in Recognized Employment on that date. Also, a Participant shall not be
allowed to make nondeductible voluntary contributions to this Plan for such
twelve (12) month period. In addition, such a Participant shall not be allowed
to make retirement savings contributions for the Participant's taxable year
immediately following the taxable year of the in-service distribution which
exceeds the adjusted Seven Thousand Dollar ($7,000) limit (as described in
Section 2.5) for such next taxable year less the amount of such Participant's
retirement savings contributions for the taxable year of the in-service
distribution. The rules described in this Section 7.9.4 only apply if the
hardship distribution includes a portion of the Participant's Retirement Savings
Account.
7.9.5. SEQUENCE OF ACCOUNTS. Each and every accelerated distribution
made pursuant to this Section 7.9 shall first be taken from and charged to the
Participant's Accounts (if the Adoption Agreement permits distribution from such
Account) in the following sequence:
(i) Nondeductible Voluntary Account
(ii) Rollover Account
(iii) Transfer Account
(iv) Employer Contributions Account
(v) Employer Matching Account
(vi) Deductible Voluntary Account
(vii) Retirement Savings Account.
Distributions from the Participant's Nondeductible Voluntary Account shall be
distributed in the sequence described in Section 7.8.
7.9.6. COORDINATION WITH SECTION 4.1. If a withdrawal is made from an
Account which is invested in more than one (1) investment Subfund authorized and
established under Section 4.1, the amount withdrawn shall be charged to each
such investment Subfund in the same proportions as the Account is invested in
such investment Subfunds, unless otherwise directed by the Administrator's
Representative.
7.10. TRANSITIONAL RULES. Participants or Beneficiaries who have actually
started receiving installment payments before January 1, 1989, shall continue to
receive such payments under the rules specified in the Plan Statement prior to
the adoption of the rules described in Appendix F to this Plan Statement to the
extent such rules are not inconsistent with the current Plan Statement and
current laws and regulations including, specifically, section 401(a)(9) and
section 411(d)(6) of the Internal Revenue Code. The rules in Section 7.1,
through and including, Section 7.9 to this Plan Statement are effective for Plan
Years beginning after December 31, 1988.
7.11. LOANS. Unless the Adoption Agreement precludes it, loans may be made to
Participants from this Plan who are not Owner-Employees or Shareholder-Employees
subject to this Section 7.11 and the loan rules set forth in Appendix G.
7.11.1. GENERAL RULES. The Trustee shall, at the direction of the
Administrator's Representative, make a loan or loans to a Participant or
Beneficiary (other than an Owner-Employee or a Shareholder-Employee). To receive
a loan from the Plan, a Participant or Beneficiary must submit a written request
to the Administrator's Representative. The written request must specify the
amount of the loan, term of loan and, if required, include spousal consent. The
amount of such loan to any Participant or Beneficiary, when added to the
outstanding balance of the other loans to the borrower from the Plan, shall not
exceed the lesser of: (i) fifty percent (50%) of the Vested amount of the
Participant's Total Account, or (ii) Fifty Thousand Dollars ($50,000). The Fifty
Thousand Dollar ($50,000) limitation shall be reduced by the excess (if any) of:
(i) the highest outstanding balance of loans from the Plan during the one-year
period ending on the day before the new loan is made, over (ii) the outstanding
balance of all loans from the Plan on the day the new loan is made (but not
including the new loan).
By acceptance of such loan, the Participant or Beneficiary automatically (by
operation of the rules of this Plan Statement) grants a lien upon such of his
Accounts from which monies were withdrawn to make up the loan in an amount not
less than the amount of such loans (including unpaid interest). The borrower may
grant a security interest in his or her "qualified residence" as defined in
section 163(h) of the Code if the borrower's unrestricted equity interest is
adequate to do so. No other security shall be required or permitted as a
condition of granting any such loans. Any such loan shall provide that it shall
be repaid within a definite period of time, which period shall not exceed five
(5) years unless such loan is used to acquire any dwelling unit which within a
reasonable time (determined at the time the loan is made) is to be used as a
principal residence of the Participant in which event such period shall not
exceed fifteen (15) years. Any such loan must be repaid in substantially level
amounts including principal and interest, over the term of the loan; provided,
however, that a loan may be prepaid or accelerated prior to the end of the term
of the loan. Loan payments must be made at least once each Plan Year quarter.
Notwithstanding the foregoing, no loan shall be made pursuant to this Section
7.11 unless this Plan is an exempt profit sharing plan (as defined in Section
7.3.4) or the spouse of the Participant, if any, consents to the loan. To be
valid, the consent of such spouse must be in writing, must acknowledge the
effect of the loan and the use of the Account as security for the loan and must
be witnessed by a notary public. The consent of the spouse must be given within
ninety (90) days prior to the date the loan is made and must relate to a
specific loan. The consent given by the spouse to whom the Participant was
married at the time the loan was made shall be effective with respect to that
spouse and each subsequent spouse of the Participant. A new consent shall be
required if the Account is used for renegotiation, extension, renewal or other
revision of the loan. If a valid spousal consent has been obtained as described
above or such consent is not required, then, notwithstanding any other
provisions of this Plan Statement, the portion of the Participant's Vested Total
Account used as a security interest held by the Plan by reason of a loan
outstanding to the Participant shall be taken into account for purposes of
determining the amount of the Vested Total Account 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 Total Account
(determined without regard to the preceding sentence) is payable to the
surviving spouse of the Participant, then the Vested Total Account shall be
adjusted by first reducing the Vested Total Account by the amount of the
security used as repayment of the loan, and then determining the benefit payable
to the surviving spouse.
7.11.2. INTEREST RATE. The interest rate on each loan shall be one (1)
percentage point over the Trustee's reference rate on the first business day of
the calendar month immediately preceding the date as of which the loan is
issued.
7.11.3. LOANS MADE FROM PARTICIPANT'S ACCOUNTS. If the Adoption
Agreement so provides, each loan will be made from the individual Accounts of
the Participant who receives the loan and the following rules will apply:
(A) ACCOUNTING FOR LOAN. For the purpose of determining the extent
to which such Participant's Total Account is entitled to share
in income, gains or losses of the Fund under Section 4, the
same shall be deemed to be reduced by the unpaid balance of
any outstanding loans to the Participant, and the interest
payments on such loans shall be credited to his Total Account.
(B) COORDINATION WITH SECTION 4.1. If a loan is made from an
Account which is invested in more than one investment Subfund
authorized and established under Section 4.1, the amount
withdrawn in order to make the loan shall be charged to each
investment Subfund as directed by the borrower in his loan
application, or, if the borrower does not so direct, then in
accordance with the uniform and nondiscriminatory rules of the
Administrator's Representative. All repayments of principal
and interest shall be reinvested in the investment Subfunds in
the same manner in which the loan was made.
(C) SEQUENCE OF ACCOUNTS. If a loan is made to a Participant who
has assets in more than one Account, such loan shall be deemed
to have been made from the Participant's Accounts in the
following sequence:
(i) Rollover Account
(ii) Transfer Account
(iii) Employer Contributions Account
(iv) Employer Matching Account
(v) Deductible Voluntary Account
(vi) Nondeductible Voluntary Account
(vii) Retirement Savings Account (but see the last sentence
of this subsection (c)).
Repayments of principal and payments of interest shall be
apportioned among the Accounts from which the loan was made in
proportion to the amounts by which the Accounts were initially
reduced in order to make the loan. If the borrower's
"qualified residence" as defined in section 163(h) of the Code
is given as security for the loan, then no portion of the
borrowed amount may come from the Participant's Retirement
Savings Account.
7.11.4. LOAN RULES. All loans must comply with the loan rules set forth
in Appendix G. If the Employer adopts any other loan rules inconsistent with the
rules of Appendix H, the Employer will have made an unauthorized amendment to
the Plan and be governed by the Provisions of Section 9.1.1.
7.12. DISTRIBUTIONS OF EXCESS ELECTIVE DEFERRALS, EXCESS CONTRIBUTIONS AND
EXCESS AGGREGATE CONTRIBUTIONS.
7.12.1. DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS.
(A) IN GENERAL. A Participant may assign to this Plan any Excess
Elective Deferrals made during a taxable year of the
Participant by notifying (in writing) the Administrator's
Representative not later than the March 1 following such
taxable year of the amount of the Excess Elective Deferral to
be assigned to the Plan. Notwithstanding any other provision
of the Plan Statement, a Participant's Excess Elective
Deferrals, plus any income and minus any loss allocable
thereto, shall be distributed to any Participant no later than
the first April 15 following the close of the Participant's
taxable year to whose Retirement Savings Account Excess
Elective Deferrals were assigned for the preceding taxable
year and who claims Excess Elective Deferrals for such taxable
year. Excess Elective Deferrals shall be treated as annual
additions as defined in Section 1.1 of Appendix A to this Plan
Statement.
(B) DEFINITIONS. For purposes of this Section, "Excess Elective
Deferrals" shall mean the amount of retirement savings
allocated to the Participant's Retirement Savings Account for
a Participant's taxable year and which the Participant
allocates to this Plan pursuant to the claim procedure
described below. Excess Elective Deferrals shall be treated as
annual additions under Appendix A.
(C) CLAIMS. The Participant's claim shall be in writing; shall be
submitted to the Administrator's Representative not later than
March 1 with respect to the immediately preceding taxable
year; shall specify the amount of the Participant's Excess
Elective Deferrals for the preceding taxable year; and shall
be accompanied by the Participant's written statement that if
such amounts are not distributed, such Excess Elective
Deferrals, when added to amounts deferred under other plans or
arrangements described in sections 401(k), 408(k) or 403(b) of
the Internal Revenue Code, will exceed the limit imposed on
the Participant by section 402(g) of the Internal Revenue Code
for the taxable year in which the deferral occurred.
(D) DETERMINATION OF INCOME OR LOss. The Excess Elective Deferral
shall be adjusted for income or loss. The income or loss
allocable to Excess Elective Deferrals shall be determined by
multiplying the income or loss allocable to the Participant's
retirement savings for the Plan Year ending within such
preceding taxable year by a fraction, the numerator of which
is the Excess Elective Deferral on behalf of the Participant
for such preceding taxable year and the denominator of which
is the Participant's Retirement Savings Account balance
attributable to retirement savings on the Valuation Date
coincident with or immediately before the last day of such
preceding taxable year without regard to any income or loss
occurring during such taxable year. The Excess Elective
Deferral shall also be adjusted for income or loss for the
period between the Valuation Date coincident with or
immediately before the last day of such preceding taxable year
and the date of distribution. The income or loss allocable for
such period shall be equal to ten percent (10%) of the income
or loss allocable to the distributable Excess Elective
Deferral for the applicable taxable year multiplied by the
number of whole calendar months that have elapsed since the
Valuation Date coincident with or immediately before the last
day of such taxable year, including the month of distribution
if distribution occurs after the fifteenth (15th) of such
month.
7.12.2. DISTRIBUTION OF EXCESS CONTRIBUTIONS.
(A) IN GENERAL. Notwithstanding any other provision of the Plan
Statement, Excess Contributions, plus any income and minus any
loss allocable thereto, shall be distributed no later than the
last day of each Plan Year, to Participants to whose accounts
retirement savings, and if used to determine the deferral
percentage under Section 2.7.1(c), matching contributions (as
defined in section 401(m)(4)(A) of the Internal Revenue Code
which meet the requirements of section 401(k)(2)(B) and (C) of
the Internal Revenue Code) or qualified nonelective
contributions (within the meaning of section 401(m)(4)(C) of
the Internal Revenue Code), or both, were allocated for the
preceding Plan Year. Such distributions shall be made to
highly compensated covered employees (as defined in Section
2.7) on the basis of the respective portions of the Excess
Contributions attributable to each of such employees. Excess
Contributions shall be treated as annual additions as defined
in Section 1.1 of Appendix A to this Plan Statement.
(B) EXCESS CONTRIBUTIONS. For purposes of this Section, "Excess
Contributions" shall mean, with respect to any Plan Year, the
excess of:
(i) the aggregate amount of Employer contributions
actually taken into account in computing the average
deferral percentage (as defined in Section 2.7) of
highly compensated covered employees (as defined in
Section 2.7) for such Plan Year, over
(ii) the maximum amount of such contribution permitted by
the 401(k) test described in Section 2.7 (determined
by reducing contributions made on behalf of such
highly compensated covered employees in order of the
deferral percentage, as defined in Section 2.7,
beginning with the highest of such percentages).
Excess Contributions shall be treated as annual additions
under Appendix A.
(C) DETERMINATION OF INCOME OR LOss. The Excess Contributions
shall be adjusted for income or loss. The income or loss
allocable to Excess Contributions shall be determined by
multiplying income or loss allocable to the Participant's
retirement savings, and if used to determine an Employee's
deferral percentage under Section 2.7.1(c), matching
contributions (as defined in section 401(m)(4) of the Internal
Revenue Code which meet the requirements of section
401(k)(2)(B) and (C) of the Internal Revenue Code) or
qualified nonelective contributions (within the meaning of
section 401(m)(4)(C) of the Internal Revenue Code), or both,
for the Plan Year by a fraction, the numerator of which is the
Excess Contribution on behalf of the Participant for the
preceding Plan Year and the denominator of which is the sum of
the Participant's account balances attributable to retirement
savings and such matching contributions or qualified
nonelective contributions, or both, on the last day of the
preceding Plan Year, without regard to any income or loss
occurring during such Plan Year. The Excess Contributions
shall also be adjusted for income or loss for the period
between the last day of the Plan Year and the date of
distribution. The income or loss allocable for such period
shall be equal to ten percent (10%) of the income or loss
allocable to the distributable Excess Contributions for the
applicable Plan Year multiplied by the number of whole
calendar months that have elapsed since the end of the
applicable Plan Year, including the month of distribution if
distribution occurs after the fifteenth (15th) of such month.
(D) ACCOUNTING FOR EXCESS CONTRIBUTIONS. Amounts distributed under
this Section 7.12.2 shall be treated as distributions from the
Participant's Retirement Savings Account and Employer Matching
Account (if applicable) in proportion to the Participant's
retirement savings and matching contributions (as defined in
section 401(m)(4) of the Internal Revenue Code which meet the
requirements of section 401(k)(2)(B) and (C) of the Internal
Revenue Code), if applicable, for the Plan Year. Excess
Contributions shall be distributed from the Participant's
Employer Contributions Account, if applicable (only applicable
if qualified nonelective contributions within the meaning of
section 401(m)(4)(C) of the Internal Revenue Code are held in
the Employer Contributions Account), only to the extent such
Excess Contributions exceed the balance in the Participant's
Retirement Savings Account and Employer Matching Account, if
applicable.
(E) SPECIAL FAMILY MEMBER RULE. If the deferral percentage of a
highly compensated covered employee is determined under
Section 2.7.2(b), the Excess Contributions for the family unit
shall be allocated among the family members in proportion to
the contributions of each family member that are combined to
determine the deferral percentage.
7.12.3. DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS.
(A) IN GENERAL. Notwithstanding any other provision of the Plan
Statement, Excess Aggregate Contributions, plus any income and
minus any loss allocable thereto, shall be distributed no
later than the last day of each Plan Year to Participants to
whose accounts nondeductible voluntary contributions or
Employer matching contributions, and if used to determine the
contribution percentage under Section 3.10.1(c), retirement
savings contributions or qualified nonelective contributions
(within the meaning of section 401(m)(4)(C) of the Internal
Revenue Code) or both, were allocated for the preceding Plan
Year. Excess Aggregate Contributions shall be treated as
annual additions as defined in Section 1.1 of Appendix A to
this Plan Statement.
(B) EXCESS AGGREGATE CONTRIBUTIONS. For purposes of this Section,
"Excess Aggregate Contributions" shall mean, with respect to
any Plan Year, the excess of:
(i) the aggregate amount of contributions taken into
account in computing the numerator of the
contribution percentage (as defined in Section 3.10)
actually made on behalf of highly compensated
eligible employees (as defined in Section 3.10) for
such Plan Year, over
(ii) the maximum amount of such contributions permitted by
the 401(m) test described in Section 3.10 (determined
by reducing contributions made on behalf of highly
compensated eligible employees in order of the
contribution percentage, beginning with the highest
such percentage).
Excess Aggregate Contributions shall be treated as annual
additions under Appendix A.
(C) DETERMINATION OF INCOME. The Excess Aggregate Contributions
shall be adjusted for income or loss. The income or loss
allocable to Excess Aggregate Contributions shall be
determined by multiplying the income or loss allocable to the
Participant's nondeductible voluntary contributions and
Employer matching contributions (to the extent used to
determine the eligible employee's contribution percentage
under Section 3.10.1(c)) for the Plan Year, and if used to
determine an eligible employee's contribution percentage under
Section 3.10.1(c), retirement savings contributions or
qualified nonelective contributions (within the meaning of
section 401(m)(4)(C) of the Internal Revenue Code) or both,
for the Plan Year by a fraction, the numerator of which is the
Excess Aggregate Contributions on behalf of the Participant
for the preceding Plan Year and the denominator of which is
the sum of the account balances attributable to nondeductible
voluntary contributions, Employer matching contributions and
such retirement savings contributions or qualified nonelective
contributions, or both, on the last day of the preceding Plan
Year without regard to any income or loss occurring during
such Plan Year. The Excess Aggregate Contributions shall also
be adjusted for income or loss for the period between the last
day of the Plan Year and the date of distribution. The income
or loss allocable for such period shall be equal to ten
percent (10%) of the income or loss allocable to the
distributable Excess Aggregate Contributions for the
applicable Plan Year multiplied by the number of whole
calendar months that have elapsed since the end of the
applicable Plan Year including the month of distribution if
distribution occurs after the fifteenth (15th) of such month.
(D) ACCOUNTING FOR EXCESS AGGREGATE CONTRIBUTIONS. Excess
Aggregate Contributions shall be distributed from the
Participant's Nondeductible Voluntary Account, the
Participant's Employer Matching Account (and, if applicable,
the Participant's Retirement Savings Account or Employer
Contributions Account, or both) in proportion to the
Participant's nondeductible voluntary contributions, Employer
matching contributions, and if used to determine the
contribution percentage under Section 3.10.1(c), retirement
savings contributions or qualified nonelective contributions
(within the meaning of section 401(m)(4)(C) of the Internal
Revenue Code), or both, for the Plan Year.
(E) SPECIAL FAMILY MEMBER RULE. If the contribution percentage of
a highly compensated eligible employee is determined under
Section 3.10.2, the Excess Aggregate Contributions for the
family unit shall be allocated among the family members in
proportion to the contributions of each family member that are
combined to determine the contribution percentage.
7.12.4. PRIORITY. The determination of the Excess Aggregate
Contributions shall be made after first determining the Excess Elective
Deferrals, and then determining the Excess Contributions. The amount of Excess
Contributions shall be reduced by Excess Deferrals previously distributed to
such Participant for the Participant's taxable year ending with or within such
Plan Year.
7.12.5. MATCHING CONTRIBUTIONS. If Excess Elective Deferrals, Excess
Contributions or retirement savings contributions treated as Excess Aggregate
Contributions are distributed pursuant to this Section 7.12, applicable matching
contributions under Section 3.3 shall not be distributed except as required by
Section 7.12.2 or 7.12.3.
SECTION 8
SPENDTHRIFT PROVISIONS
No Participant or Beneficiary shall have any transmissible interest in any
Account nor shall any Participant or Beneficiary have any power to anticipate,
alienate, dispose of, pledge or encumber the same while in the possession or
control of the Trustee, nor shall the Trustee, the Administrator's
Representative or the Employer recognize any assignment thereof, either in whole
or in part, nor shall any Account herein be subject to attachment, garnishment,
execution following judgment or other legal process while in the possession or
control of the Trustee.
The power to designate Beneficiaries to receive the Vested Total Account of a
Participant in the event of his death shall not permit or be construed to permit
such power or right to be exercised by the Participant so as thereby to
anticipate, pledge, mortgage or encumber his Account or any part thereof, and
any attempt of a Participant so to exercise said power in violation of this
provision shall be of no force and effect and shall be disregarded by the
Trustee, the Administrator's Representative and the Employer.
This section shall not prevent the Trustee, the Administrator's Representative
or the Employer from exercising, in their discretion, any of the applicable
powers and options granted to them upon the occurrence of an Event of Maturity,
as such powers may be conferred upon them by any applicable provision hereof,
nor prevent the Plan from foreclosing on the lien granted to secure any and all
loans made to him as a Participant from the Fund. (In the event of a default on
a Participant loan, foreclosure on the promissory note and the attachment of the
security interest in the Account will not occur until an Event of Maturity
occurs with respect to such Participant.) This section does not prevent the
Administrator's Representative or Trustee from observing the forms of a
qualified domestic relations order as provided in the Appendix C to this Plan
Statement.
SECTION 9
AMENDMENT AND TERMINATION
9.1. AMENDMENT.
9.1.1. AMENDMENT BY EMPLOYER. The Employer reserves the right to amend
the designations and elections made by it under the Adoption Agreement from time
to time by making and delivering a new Adoption Agreement to the Trustee, to add
overriding language in the Adoption Agreement when such language is necessary to
satisfy the requirements of section 415 of the Internal Revenue Code or to avoid
duplication of minimum benefits under section 416 of the Internal Revenue Code
because of the required aggregation of multiple plans, which amendment shall
become effective only if expressly accepted in writing by the Trustee, and to
add certain model amendments published by the Internal Revenue Service, which
specifically provide that their adoption will not cause the plan to be treated
as individually designed. An Employer that amends the Plan for any other reason,
will no longer participate in these Prototype Documents and will be considered
to have an individually designed plan. The Employer further reserves the right
to amend its plan in its entirety by the adoption of another master, prototype
or individually designed successor retirement plan document in place of this
Plan Statement, and by entering into such agreement with the Trustee or with a
successor trustee, or other successor funding medium selected by the Employer as
may be required for the purpose of carrying such successor retirement plan
document into effect. The Employer may not amend the Prototype Documents (as
distinguished from amending its elections in the Adoption Agreement). If an
Employer should take action to:
(i) remove and replace the Trustee originally designated
in this Plan Statement, or name a Trustee who is not
the Prototype Sponsor (or a Trustee approved by the
Prototype Sponsor), or
(ii) amend this Plan Statement by the adoption of another
document in lieu of this Plan Statement, or
(iii) attempt to amend the Prototype Documents, or
(iv) attempt to complete the Adoption Agreement in a
manner not permitted by the Adoption Agreement, or
(v) affirmatively refuse to consent to an amendment
effected by the Prototype Sponsor under Section
9.1.2,
such action shall not be considered a termination of the Plan adopted or
continued under this Plan Statement. Upon the occurrence of such action, the
Employer shall no longer be considered to be maintaining a Plan under these
Prototype Documents but rather under an individually designed document. No
amendment shall be effective so as to increase the duties of the Trustee without
its consent and provided, further, that the right of the Employer to designate a
successor retirement plan or funding medium shall be subject to the notice
requirements affecting the removal of the Trustee set forth in Section 10.3.
9.1.2. AMENDMENT BY PROTOTYPE SPONSOR. The Employer has delegated to
the Prototype Sponsor the right to amend this Plan Statement (either as to its
form or the elections specified in the Adoption Agreement). Although it is
intended that this power of amendment will be used principally to assure
compliance with applicable provisions of the Employee Retirement Income Security
Act of 1974 and the Internal Revenue Code as they may be now or hereafter
amended, this power of amendment may be exercised for any purpose deemed
appropriate by the Prototype Sponsor. Any such amendment shall be effective only
upon notice in writing to the Employer. The Employer shall be deemed to have
consented to such amendment unless prior to the expiration of thirty (30) days
after notice is sent to the Employer, the Employer exercises its reserved power
of amendment by adopting a successor retirement plan and funding medium, as
provided in Section 9.1.
9.1.3. LIMITATION ON AMENDMENTS. No amendment shall be effective to
reduce or divest the Account of any Participant unless the same shall have been
adopted with the consent of the Secretary of Labor pursuant to section 412(c)(8)
of the Internal Revenue Code. No amendment shall eliminate an optional form of
distribution with respect to benefits attributable to service before the
amendment was adopted, unless such amendment is adopted pursuant to regulations
issued by the Secretary of the Treasury.
9.1.4. RESIGNATION OF PROTOTYPE SPONSOR. By giving the Employer thirty
(30) days' written notice of its intention to do so, the Prototype Sponsor may
withdraw its consent to the Employer's use of the Prototype Documents. Upon the
occurrence of such action, the Employer shall no longer be considered to be
maintaining a Plan under these Prototype Documents but rather under an
individually designed document.
9.2. DISCONTINUANCE OF CONTRIBUTIONS AND TERMINATION OF PLAN. The Employer also
reserves the right to reduce, suspend or discontinue its contributions to this
Plan and to terminate the Plan herein embodied in its entirety. If the Plan is
terminated, the assets will be distributed as soon as administratively feasible.
9.3. MERGER, ETC., WITH ANOTHER PLAN. The Employer may cause all or a part of
this Plan to be merged with all or a part of any other plan and may cause all or
a part of the assets and liabilities to be transferred from this Plan to another
plan. In the case of merger or consolidation of this Plan with, or transfer of
assets and liabilities of this Plan to, any other plan, each Participant shall
(if such other plan were then terminated) receive a benefit immediately after
the merger, consolidation or transfer which is not less than the benefit he
would have been entitled to receive immediately before the merger, consolidation
or transfer (if this Plan had then terminated). If the Employer agrees to a
transfer of assets and liabilities to or from another plan, the agreement under
which such transfer is concluded shall specify the Accounts to which the
transferred amounts are to be credited.
In no event shall assets be transferred from any other plan to this Plan unless
this Plan complies (or has been amended to comply) with the optional form of
benefit requirements of section 411(d)(6)(B)(ii) of the Internal Revenue Code
(or, where applicable, the distribution rules of section 401(k) of the Internal
Revenue Code) with respect to such transferred assets.
In no event shall assets be transferred from this Plan to any other plan unless
such other plan complies (or has been amended to comply) with the optional form
of benefit requirements of section 411(d)(6)(B)(ii) of the Internal Revenue Code
and the distribution rules of section 401(k) of the Internal Revenue Code with
respect to such transferred assets.
9.4. ADOPTION BY AFFILIATES.
9.4.1. ADOPTION WITH CONSENT. The Employer executing the Adoption
Agreement (herein called the "principal employer") may consent to the adoption
of this Plan by any business entity affiliated in ownership with the principal
employer (subject to such conditions as the principal employer may impose).
9.4.2. PROCEDURE FOR ADOPTION. Any such adopting business entity shall
initiate its adoption of this Plan by delivery of a certified copy of the action
of its directors (if a corporation), general partner (if a partnership) or
proprietor (if a sole proprietorship), adopting this Plan Statement to the
principal employer. Upon the consent by said principal employer of the adoption
by the adopting business entity, and the delivery to the Trustee of written
evidence of the principal employer's consent, the adoption of this Plan by the
adopting business entity shall be effective as of the date specified by the
principal employer.
9.4.3. EFFECT OF ADOPTION. Upon the adoption of this Plan by an
adopting business entity as heretofore provided, the adopting business entity
shall be an Employer hereunder in all respects. Each adopting business entity
(and each other business entity joining the principal employer in the execution
of the Adoption Agreement), as a condition of continued participation in this
Plan, delegates to the principal employer the sole power and authority:
(a) to terminate the Plan (except that each adopting business
entity shall have the power to terminate this Plan as applied
to it); to amend the Plan Statement (except that each adopting
business entity shall have the power to amend the Plan
Statement as applied to it by establishing a successor plan to
which assets and liabilities may be transferred as provided in
Section 9.3),
(b) to appoint, remove and accept the resignation of a Trustee; to
appoint or remove the Administrator's Representative; to
appoint or remove an Investment Manager; to act as the plan
administrator,
(c) to direct the Trustee to return an Employer contribution that
was made by mistake or which is not deductible,
(d) to consent to the adoption of this Plan by affiliated
employers; to establish conditions and limitations upon such
adoption of this Plan by affiliated employers, and
(e) to cause this Plan to be merged with another plan and to
transfer assets and liabilities between this Plan and another.
Each reference herein to the Employer shall include the principal employer and
all adopting business entities unless the context clearly requires otherwise.
Employment with the principal employer and all adopting business entities shall
be credited with each other and all Affiliates of any of them for the purposes
of determining Eligibility Service, Vesting Service, One-Year Breaks in Service
and the minimum annual service requirement for allocation of contributions and
forfeited Suspense Accounts. Contributions of the principal employer and each
adopting business entity shall be identical, as a percentage of each
Participant's Recognized Compensation, as determined by the principal employer,
but shall be allocated only among those persons who were the Employees during
the Plan Year of the particular business entity making the contribution.
Notwithstanding Section 6.2 to the contrary, forfeited Suspense Accounts shall
only be used, first, to restore prior forfeitures for an Employee of the
particular business entity for which a current forfeiture occurs, second, to
reduce the required matching contribution, if any, for such business entity,
and, finally, to reduce the discretionary contributions of such business entity.
If necessary, the foregoing steps shall be followed in Plan Years subsequent to
the Plan Year in which the forfeiture occurs until such Suspense Accounts are
exhausted. Any unallocated Suspense Accounts remaining at the termination of the
Plan shall be allocated to the Employer Contributions Accounts of all
Participants then employed by the principal employer and all adopting business
entities, in proportion to the relative value of each such Account.
SECTION 10
CONCERNING THE TRUSTEE
10.1. DEALINGS WITH TRUSTEE.
10.1.1. NO DUTY TO INQUIRE. No person, firm or corporation dealing with
the Trustee shall be required to take cognizance of the provisions of this Plan
Statement or be required to make inquiry as to the authority of the Trustee to
do any act which the Trustee shall do hereunder. No person, firm or corporation
dealing with the Trustee shall be required to see either to the administration
of the Plan or Fund or to the faithful performance by the Trustee of its duties
hereunder (except to the extent otherwise provided by the Employee Retirement
Income Security Act of 1974). Any such person, firm or corporation shall be
entitled to assume conclusively that the Trustee is properly authorized to do
any act which it shall do hereunder. Any such person, firm or corporation shall
be under no liability to anyone whomsoever for any act done hereunder pursuant
to the written direction of the Trustee.
10.1.2. ASSUMED AUTHORITY. Any such person, firm or corporation may
conclusively assume that the Trustee has full power and authority to receive and
receipt for any money or property becoming due and payable to the Trustee. No
such person shall be bound to inquire as to the disposition or application of
any money or property paid to the Trustee or paid in accordance with the written
directions of the Trustee.
10.2. COMPENSATION OF TRUSTEE. The corporate Trustee shall be entitled to
receive compensation for its services as Trustee hereunder as may be agreed upon
from time to time by the Administrator's Representative and the Trustee. The
Trustee shall be entitled to receive reimbursement for reasonable expenses,
fees, costs and other charges incurred by it or payable by it on account of the
administration of the Plan and the Fund to the extent approved by the
Administrator's Representative, except to the extent that the Employer, in its
discretion, directly pays the Trustee, such items of expense and compensation
shall be payable out of:
(i) the annual Employer contribution to the Fund, or
(ii) the income of the Fund, or
(iii) the principal of the Fund, including any
accumulations of income that have been added thereto,
or
(iv) to or out of any combination of the foregoing sources
in the event the service in question has been for the
benefit, protection or administration of more than
one such source of payment.
The Trustee's determination in such respect made in good faith of the amount so
to be allocated and charged to each such source of payment shall be binding and
conclusive upon all persons interested or becoming interested in the Plan or the
Fund. Each such charge of the Trustee shall be a lien upon the Fund, and,
ratably, in accordance with the method of allocation used as aforesaid, shall be
a lien upon the interest of Participants in the source of payment to which the
same is charged until the same is paid and discharged in full.
10.3. RESIGNATION AND REMOVAL OF TRUSTEE.
10.3.1. RESIGNATION, REMOVAL AND APPOINTMENT. The Trustee may resign by
giving the Employer thirty (30) days' written notice of its intention so to do.
The Employer may agree in writing to a lesser period of notice. The notice
period shall begin on the date such notice is mailed. The Employer may remove
any Trustee or successor Trustee hereunder by giving such Trustee thirty (30)
days' written notice of removal. The Trustee may agree in writing to a lesser
period of notice. The notice period shall begin on the date such notice is
mailed. The Employer shall have the power to appoint one or more individual or
corporate Trustees, or both, as additional or successor Trustees. Such
appointments shall not be effective until a written acceptance of trusteeship is
filed with the then acting Trustee.
10.3.2. SURVIVING TRUSTEES. When any person or corporation appointed,
qualified and serving as a Trustee hereunder shall cease to be a Trustee of the
Fund, the remaining Trustee or Trustees then serving hereunder, or the successor
Trustee or Trustees appointed hereunder, as the case may be, shall thereupon be
and become vested with full title and right to possession of all assets and
records of the Plan and Fund in the possession or control of such prior Trustee,
and the prior Trustee shall forthwith account for and deliver the same to such
remaining or successor Trustee or Trustees.
10.3.3. SUCCESSOR ORGANIZATIONS. By designating a corporate Trustee,
original or successor, hereunder, there is included in such designation and as a
part thereof any other corporation possessing trust powers and authorized by law
to accept the Plan and Fund into which or with which the designated corporate
Trustee, original or successor, shall be converted, consolidated or merged, and
the corporation into which or with which any corporate Trustee hereunder shall
be so converted, consolidated or merged shall continue to be the corporate
Trustee of the Plan and Fund.
10.3.4. CO-TRUSTEE RESPONSIBILITY. No Trustee shall be or become liable
for any act or omission of a co-trustee serving hereunder with him or it (except
to the extent that liability is imposed under the Employee Retirement Income
Security Act of 1974) or of a prior Trustee hereunder, it being the purpose and
intent that each Trustee shall be liable only for his or its own acts or
omissions during his or its term of service as Trustee hereunder.
10.4. ACCOUNTINGS BY TRUSTEE.
10.4.1. PERIODIC REPORTS. The Trustee shall render to the Employer and
to the Administrator's Representative an account and report as soon as
practicable after the Annual Valuation Date in each year (and as soon as may be
practicable after each other Valuation Date) showing all transactions affecting
the administration of the Plan and the Fund, including, but not necessarily
limited to, such information concerning the Plan and the Fund and the
administration thereof by the Trustee as shall be requested in writing by the
Employer.
10.4.2. SPECIAL REPORTS. The Trustee shall also render such further
reports from time to time as may be requested by the Employer and shall submit
its final report and account to the Employer when it shall cease to be Trustee
hereunder, whether by resignation or other cause.
10.4.3. REVIEW OF REPORTS. After giving Participants and other persons
interested therein a reasonable opportunity to examine the annual account of the
Trustee to the Employer as provided in Section 10.4.1, provided that no
exceptions are asserted thereto by any person (including the Employer)
interested therein, the Employer may settle and allow such accounts by agreement
with the Trustee. Except as may be otherwise required by the Employee Retirement
Income Security Act of 1974 the Trustee shall upon such settlement and allowance
be released and relieved of all liability for all matters set forth therein.
10.5. TRUSTEE'S POWER TO PROTECT ITSELF ON ACCOUNT OF TAXES. The Trustee, as a
condition to the making of distribution of a Participant's Vested Total Account
during his lifetime, may require the Participant, or in the event of his death
may require the person or persons entitled to receive his Vested Total Account
in such event, to furnish the Trustee with proof of payment of all income,
inheritance, estate, transfer, legacy and/or succession taxes and all other
taxes of any different type or kind that may be imposed under or by virtue of
any state or federal statute or law upon the payment, transfer, descent or
distribution of such Vested Total Account and for the payment of which the
Trustee may, in its judgment, be directly or indirectly liable. In lieu of the
foregoing, the Trustee may deduct, withhold and transmit to the proper taxing
authorities any such tax which it may be permitted or required to deduct and
withhold and the Vested Total Account to be distributed in such case shall be
correspondingly reduced.
10.6. OTHER TRUST POWERS. Except to the extent that the Trustee is subject to
the authorized and properly given investment directions of a Participant,
Beneficiary or Investment Manager (and in extension, but not in limitation, of
the rights, powers and discretions conferred upon the Trustee herein), the
Trustee shall have and may exercise from time to time in the administration of
the Plan and the Fund, for the purpose of distribution after the termination
thereof, and for the purpose of distribution of Vested Total Accounts, without
order or license of any court, any one or more or all of the following rights,
powers and discretions:
(a) To invest and reinvest any investment Subfunds established
pursuant to Section 4.1 in accordance with the investment
characteristics and objectives determined therefor and to
invest and reinvest the assets of the Fund in any securities
or properties in which an individual could invest his own
funds and which it deems for the best interest of the Fund,
without limitation by any statute, rule of law or regulation
of any governmental body prescribing or limiting the
investment of trust assets by corporate or individual
trustees, in or to certain kinds, types or classes of
investments or prescribing or limiting the portion of the Fund
which may be invested in any one property or kind, type or
class of investment. Specifically and without limiting the
generality of the foregoing, the Trustee may invest and
reinvest principal and accumulated income of the Fund in any
real or personal property; preferred or common stocks of any
kind or class of any corporation, including but not limited to
investment and small business investment companies of all
types; voting trust certificates; interests in investment
trusts; shares of mutual funds; interests in any limited or
general partnership or other business enterprise, however
organized and for whatever purpose; group or individual
annuity contracts (which may involve investment in the
issuer's general account or any of its separate accounts);
interests in common or collective trusts, variable interest
notes or any other type of collective fund maintained by a
bank or similar institution (whether or not the Trustee
hereunder); bonds, notes and debentures, secured or unsecured;
mortgages, leases or other interests in real or personal
property; interests in mineral, gas, oil or timber properties
or other wasting assets; options; commodity or financial
futures contracts; foreign currency; insurance contracts on
the life of any "keyman" or shareholder of the Employer; or
conditional sales contracts. The Plan may not acquire or hold
any securities issued by an Employer or real estate leased to
an Employer except that the Trustee acting pursuant to the
express written directions of the Employer as provided in
Section 10.12 may acquire and hold Employer securities which
are "qualifying employer securities" (within the meaning of
section 407(d)(5) of the Employee Retirement Income Security
Act of 1974) and Employer real property which is "qualifying
employer real property" (within the meaning of section
407(d)(4) of the aforesaid Act); and, provided further, that
the Plan may acquire any such Employer securities or Employer
real property only if immediately after such acquisition the
aggregate fair market value of Employer securities and
Employer real property held by the Plan does not exceed the
lesser of (i) the percentage indicated in the Adoption
Agreement of the fair market value of the assets of the Plan,
or (ii) the then value of all Employer Matching Accounts and
Employer Contributions Accounts. If the Trustee determines to
invest in any "qualifying employer security," such securities
shall be held only in the Employer Matching Accounts or
Employer Contributions Accounts or in the Suspense Accounts
attributable to such Accounts. Investment of the entire Fund
in common stocks shall be deemed appropriate at any phase of
the economic business cycle, but it is not, however, the
purpose hereof to direct that the Fund shall be invested
either entirely or to any extent whatsoever in such common
stocks. Prior to maturity and distribution of the Vested Total
Accounts of Participants, the Trustee shall commingle the
Accounts of Participants and former Participants in each
investment Subfund and invest, reinvest, control and manage
each of the same as a common trust fund.
(b) To sell, exchange or otherwise dispose of any asset of
whatsoever character at any time held by the Trustee in trust
hereunder.
(c) To segregate any part or portion of the Fund for the purpose
of administration or distribution thereof and, in its sole
discretion, to hold the Fund uninvested whenever and for so
long as, in the Trustee's discretion, the same is likely to be
required for the payment in cash of Accounts normally expected
to mature in the near future, or whenever, and for as long as,
market conditions are uncertain, or for any other reason
which, in the Trustee's discretion, requires such action or
makes such action advisable.
(d) In connection with the Trustee's power to hold uninvested
reasonable amounts of cash whenever it is deemed advisable to
do so, to deposit the same, with or without interest, in the
commercial or savings departments of any corporate Trustee
serving hereunder or of any other bank, trust company or other
financial institution including those affiliated in ownership
with the Trustee named in the Adoption Agreement.
(e) To register any investment held in the Fund in the name of the
Trustee, without trust designation, or in the name of a
nominee or nominees, and to hold any investment in bearer
form, but the records of the Trustee shall at all times show
that all such investments are part of the Fund, and the
Trustee shall be as responsible for any act or default of any
such nominee as for its own.
(f) To retain and employ such attorneys, agents and servants as
may be necessary or desirable, in the opinion of the Trustee,
in the administration of the Fund, and to pay them such
reasonable compensation for their services as may be agreed
upon as an expense of administration of the Fund, including
power to employ and retain counsel upon any matter of doubt as
to the meaning of or interpretation to be placed upon this
Plan Statement or any provisions thereof with reference to any
question arising in the administration of the Fund or
pertaining to the rights and liabilities of the Trustee
hereunder. The Trustee, in any such event, may act in reliance
upon the advice, opinions, records, statements and
computations of any attorneys and agents and on the records,
statements and computations of any servants so selected by it
in good faith and shall be released and exonerated of and from
all liability to anyone in so doing (except to the extent that
liability is imposed under the Employee Retirement Income
Security Act of 1974).
(g) To institute, prosecute and maintain, or to defend, any
proceeding at law or in equity concerning the Plan or Fund or
the assets thereof or any claims thereto, or the interests of
Participants and Beneficiaries hereunder at the sole cost and
expense of the Fund or at the sole cost and expense of the
Total Account of the Participant that may be concerned therein
or that may be affected thereby as, in the Trustee's opinion,
shall be fair and equitable in each case, and to compromise,
settle and adjust all claims and liabilities asserted by or
against the Plan or Fund or asserted by or against the
Trustee, on such terms as the Trustee, in each such case,
shall deem reasonable and proper. The Trustee shall be under
no duty or obligation to institute, prosecute, maintain or
defend any suit, action or other legal proceeding unless it
shall be indemnified to its satisfaction against all expenses
and liabilities which it may sustain or anticipate by reason
thereof.
(h) To institute, participate and join in any plan of
reorganization, readjustment, merger or consolidation with
respect to the issuer of any securities held by the Trustee
hereunder, and to use any other means of protecting and
dealing with any of the assets of the Fund which it believes
reasonably necessary or proper and, in general, to exercise
each and every other power or right with respect to each asset
or investment held by it hereunder as individuals generally
have and enjoy with respect to their own assets and
investment, including power to vote upon any securities or
other assets having voting power which it may hold from time
to time, and to give proxies with respect thereto, with or
without power of substitution or revocation, and to deposit
assets or investments with any protective committee, or with
trustees or depositaries designated by any such committee or
by any such trustees or any court. Notwithstanding the
foregoing, an Investment Manager shall have any or all of such
powers and rights with respect to Plan assets for which it has
investment responsibility but only if (and only to the extent
that) such powers and rights are expressly given to such
Investment Manager in a written agreement signed by it and
acknowledged in writing by the Trustee. In all other cases,
such powers and rights shall be exercised solely by the
Trustee.
(i) In any matter of doubt affecting the meaning, purpose or
intent of any provision of this Plan Statement which directly
affects its duties, to determine such meaning, purpose or
intent; and the determination of the Trustee in any such
respect shall be binding and conclusive upon all persons
interested or who may become interested in the Plan or the
Fund.
(j) To require, as a condition to distribution of any Vested Total
Account, proof of identity or of authority of the person
entitled to receive the same, including power to require
reasonable indemnification on that account as a condition
precedent to its obligation to make distribution hereunder.
(k) To collect, receive, receipt and give quittance for all
payments that may be or become due and payable on account of
any asset in trust hereunder which has not, by act of the
Trustee taken pursuant thereto, been made payable to others;
and payment thereof by the company issuing the same, or by the
party obligated thereon, as the case may be, when made to the
Trustee hereunder or to any person or persons designated by
the Trustee, shall acquit, release and discharge such company
or obligated party from any and all liability on account
thereof.
(l) To determine from time to time, as required for the purpose of
distribution or for the purpose of allocating trust income or
for any other purpose of the Plan, the then value of the Fund
and the Accounts in the Fund, the Trustee, in each such case,
using and employing for that purpose the fair market value of
each of the assets constituting the Fund. Each such
determination so made by the Trustee in good faith shall be
binding and conclusive upon all persons interested or becoming
interested in the Plan or the Fund.
(m) To receive and retain contributions made in a form other than
cash in the form in which the same are received until such
time as the Trustee, in its sole discretion, deems it
advisable to sell or otherwise dispose of such assets.
(n) To commingle, for investment purposes, the assets of the Fund
with the assets of any other qualified retirement plan trust
fund of the Employer, provided that the records of the Trustee
shall reflect the relative interests of the separate trusts in
such commingled fund.
(o) To grant an option or options for the sale or other
disposition of a trust asset, including the issuance of
options for purchase of common stock held by the Trust in
return for the receipt of a premium from the optionee (it
being expressly intended that said options may be in such form
and terms as to permit their being freely traded on an option
exchange) and including the repurchase of any such option
granted, or in lieu thereof, the repurchase of an option
identical in terms to the one issued.
(p) To have and to exercise such other and additional powers as
may be advisable or proper in its opinion for the effective
and economical administration of the Fund.
(q) If so provided in the Adoption Agreement, one (1) or more
declarations of trust executed by the Trustee (or by banks or
trust companies affiliated in ownership with the Trustee)
shall be incorporated by reference into this Agreement and not
withstanding any other provision of the Agreement to the
contrary, the Trustee may cause all or any part of the Fund,
without limitation as to amount, to be commingled with the
money of trusts created by others by causing such money to be
invested as a part of any or all of the funds created by said
declarations of trust and the Fund so added to any of said
funds shall be subject to all of the provisions of said
declarations of trust as the same may be amended from time to
time.
10.7. INVESTMENT MANAGERS.
10.7.1. APPOINTMENT AND QUALIFICATIONS. The Employer shall have the
power to appoint from time to time one or more Investment Managers to direct the
Trustee in the investment of, or to assume complete investment responsibility
over, all or any portion of the Fund. An Investment Manager may be any person or
firm (a) which is either (1) registered as an investment adviser under the
Investment Advisers Act of 1940, (2) a bank, or (3) an insurance company which
is qualified to perform the services of an Investment Manager under the laws of
more than one state; and (b) which acknowledges in writing that it is a
fiduciary with respect to the Plan because it has been appointed as an
Investment Manager with respect to the Plan. The conditions prescribed in the
preceding sentence shall apply to the issuer of any group annuity contract
hereunder only if, and to the extent that, such issuer would otherwise be
considered a "fiduciary" with respect to the Plan, within the meaning of the
Employee Retirement Income Security Act of 1974.
10.7.2. REMOVAL. The Employer may remove any such Investment Manager
and shall have the power to appoint a successor or successors from time to time
in succession to any Investment Manager who shall be removed, shall resign or
shall otherwise cease to serve hereunder. The Employer shall furnish the Trustee
with such written evidence as the Trustee may require of the appointment,
removal and scope of the authority of the Investment Manager.
10.7.3. RELATION TO OTHER FIDUCIARIES. The Trustee shall comply with
all investment directions given to the Trustee with respect to the designated
portion of the Fund, and the Trustee shall be released and exonerated of and
from all liability for or on account of any action taken or not taken by it
pursuant to the directions of such Investment Manager, except to the extent that
liability is imposed under the Employee Retirement Income Security Act of 1974.
Neither the Employer, nor any officer, director or Employee thereof, nor any
member of the Administrator's Representative shall be liable for the acts or
omissions of the Trustee or of any Investment Manager appointed hereunder. The
fees and expenses of any Investment Manager, as agreed upon from time to time
between the Investment Manager and the Employer, shall be charged to and paid
from the Fund in a fair and equitable manner, except to the extent that the
Employer, in its discretion, may pay such directly to the Investment Manager.
10.8. FIDUCIARY PRINCIPLES. The Trustee and each other fiduciary hereunder, in
the exercise of each and every power or discretion vested in them by the
provisions of this Plan Statement shall (subject to the provisions of the
Employee Retirement Income Security Act of 1974) discharge their duties with
respect to the Plan solely in the interest of the Participants and Beneficiaries
and:
(a) for the exclusive purpose of:
(i) providing benefits to Participants and Beneficiaries,
and
(ii) defraying reasonable expenses of administering the
Plan,
(b) with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like
aims,
(c) by diversifying the investments of the Plan so as to minimize
the risk of large losses, unless under the circumstances it is
clearly prudent not to do so, and
(d) in accordance with the documents and instruments governing the
Plan, insofar as they are consistent with the provisions of
the Employee Retirement Income Security Act of 1974.
Notwithstanding anything in this Plan Statement to the contrary, any provision
hereof which purports to relieve a fiduciary from responsibility or liability
for any responsibility, obligation or duty under Part 4 of Subtitle B of Title I
of the Employee Retirement Income Security Act of 1974 shall, to the extent the
same is inconsistent with said Part 4, be deemed void.
10.9. PROHIBITED TRANSACTIONS. Except as may be permitted by law, no Trustee or
other fiduciary hereunder shall permit the Plan to engage, directly or
indirectly, in any of the following transactions with a person who is a
"disqualified person" (as defined in section 4975 of the Internal Revenue Code)
or a "party in interest" (as defined in section 3(14) of the Employee Retirement
Income Security Act of 1974):
(a) sale, exchange or leasing of any property between the Plan and
such person,
(b) lending of money or other extension of credit between the Plan
and such person,
(c) furnishing of goods, services or facilities between the Plan
and such person,
(d) transfer to, or use by or for the benefit of, such person of
the income or assets of the Plan,
(e) act by such person who is a fiduciary hereunder whereby he
deals with the income or assets of the Plan in his own
interest or for his own account, or
(f) receipt of any consideration for his own personal account by
such person who is a fiduciary from any party dealing with the
Plan in connection with a transaction involving the income or
assets of the Plan.
10.10. INDEMNITY. The Trustee, and directors, officers and employees of the
Employer shall, except as prohibited by law, be indemnified and held harmless by
the Employer from any and all liabilities, costs and expenses (including legal
fees), to the extent not covered by liability insurance, arising out of any
action taken by such Trustee or individuals as Trustee, fiduciary or in any
other capacity with respect to this Plan, whether imposed under the Employee
Retirement Income Security Act of 1974 or otherwise unless such liability arises
from the proven gross negligence, the bad faith or, if such Trustee or
individuals have reasonable cause to believe their conduct was unlawful, the
criminal misconduct of such Trustee, director, officer or employee. This
indemnification shall continue as to a Trustee, director, officer or employee
after such Trustee or individual ceases to be a Trustee, director, officer or
employee.
10.11. INVESTMENT IN INSURANCE. If the Employer shall so designate in the
Adoption Agreement, a Participant may, with the consent of the Administrator's
Representative and subject to such conditions as the Administrator's
Representative may impose, elect to have a portion of his Vested Total Account
(excluding any Deductible Voluntary Account) invested in life insurance
contracts issued by any insurance company licensed to do business in the State
of where the Trustee has its principal place of business (any such insurance
contract held for a Participant hereunder being herein referred to as a
"contract").
10.11.1. LIMITATION ON PAYMENT OF PREMIUMS. No more than fifty percent
(50%) of the aggregate Employer contributions allocated to a Participant's
Employer Matching Account and Employer Contributions Account may be used to
purchase ordinary life insurance contracts. Ordinary life insurance contracts
are contracts with both nondecreasing death benefits and nonincreasing premiums.
No more than twenty-five percent (25%) of the aggregate Employer contributions
allocated to the Participant's Employer Matching Account and Employer
Contributions Account may be used to purchase term life insurance contracts,
universal life insurance contracts and all other life insurance contracts which
are not ordinary life insurance contracts. If both ordinary life insurance
contracts and other insurance contracts are required, the sum of one-half (1/2)
of the premiums paid to acquire ordinary life insurance contracts plus one
hundred percent (100%) of all premiums paid to acquire other forms of life
insurance contracts shall not be permitted to exceed twenty-five percent (25%)
of the aggregate Employer contributions allocated to the Participant's Employer
Matching Account and Employer Contributions Account. All amounts used to
purchase term life insurance, to fund "P.S. 58" costs or to acquire any other
non-cash value benefits under this section shall be deemed to come from the
Employer Matching Account and then from the Employer Contributions Accounts
subject to the limits specified above. If the Participant's Employer Matching
Account and Employer Contributions Account are insufficient within the
limitations herein contained to pay any premium on a contract when the same
becomes due, the Trustee shall, unless the Participant directs the Trustee to
use his Nondeductible Voluntary Account, Rollover Account or Transfer Account
for this purpose or pays to the Trustee a sum sufficient to pay such premium
(any such payment being deemed a nondeductible voluntary contribution
hereunder), cause such contract to be rewritten for its then paid-up value, if
any, and retain the same for the Participant, in which event no further premium
payments shall thereafter be made thereon. All dividends on a contract shall be
used to reduce premiums.
10.11.2. MISCELLANEOUS RULES FOR PURCHASE OF CONTRACT. The Participant
shall take such physical examinations and furnish such information as may be
necessary to procure a contract. To the extent possible, all contracts shall
have a uniform premium due date. The Trustee shall be the owner of all
contracts, with full power to execute all insurance applications and to exercise
all available options, and shall be the death beneficiary thereunder.
10.11.3. PAYMENT OF EXPENSES. Any charge or expense of the Trustee in
handling a Participant's contract shall be paid from that Participant's Total
Account; provided, that the Employer may, in its discretion, directly pay such
charge or expense.
10.11.4. AUTHORITY FOR CONTRACT. Any insurance company issuing
contracts may deal with the Trustee alone and without the consent of any
Participant or Beneficiary and shall not be required to examine the provisions
of this Plan Statement or any amendment thereto, nor shall it be responsible for
the failure of the Trustee to perform its duties, nor shall it be obliged to see
to the application or disposition of any money paid by it to the Trustee, and
any such payment shall fully discharge such insurance company for the amount so
paid.
10.11.5. PAYMENT OF CONTRACT UPON DEATH. Upon the death of the
Participant, the proceeds of the contracts held for him hereunder shall be
deemed a death benefit under this Plan and shall be added to the Vested Total
Account and distributed to his Beneficiary or Beneficiaries in the manner
prescribed in Section 7.
10.11.6. PAYMENT OF CONTRACT -- NOT UPON DEATH. Upon the occurrence of
an Event of Maturity other than the death of the Participant, the Trustee shall,
as directed by the Administrator's Representative, either: (i) surrender the
contracts held for him hereunder for cash and distribute the proceeds in the
manner described in Section 7, (ii) distribute the contracts to the Participant
(provided, however, that the optional modes of settlement under any such
contract shall be limited to those available under this Plan), or (iii) convert
the contracts into an annuity contract or contracts of the type described in
Section 7.3 and distribute the same to the Participant, or (iv) any combination
of the foregoing. In no event, however, shall any such contract be distributed
in a manner which is inconsistent with the requirements in Section 7.3.
10.11.7. VALUE OF CONTRACT. For the purpose of determining the value of
a contract hereunder, such contract shall be valued at the greater of the
premiums theretofore paid thereon or its then cash value, but such contract
shall not be considered a part of the Fund for the purpose of allocating income,
market gains and losses of the Fund in accordance with Section 4.
10.11.8. INTERPRETATION. If any provision of any contract is
inconsistent with any provision of the Plan Statement, the provision of the Plan
Statement shall control.
10.12. EMPLOYER DIRECTED INVESTMENTS. If so indicated in the Adoption Agreement,
the Trustee shall be subject in the management and control of the Fund to the
directions (to the extent not inconsistent with law) of the person or committee
identified in the Adoption Agreement or certified to the Trustee by an officer
of the Employer. The Trustee in acting pursuant to and in reliance on such
directions shall be fully and completely indemnified and held harmless by the
Employer from any liability, loss or expense (including legal fees) arising out
of its actions so directed notwithstanding that such directions, and the
Trustee's conduct pursuant thereto, may constitute a breach of fiduciary
obligations to the Plan, the Participants and Beneficiaries.
SECTION 11
DETERMINATIONS -- RULES AND REGULATIONS
11.1. DETERMINATIONS. The Administrator's Representative shall make such
determinations as may be required from time to time in the administration of
this Plan. The Trustee and other interested parties may act and rely upon all
information reported to them hereunder and need not inquire into the accuracy
thereof, nor be charged with any notice to the contrary.
11.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with the
provisions hereof may be adopted by the Administrator's Representative.
11.3. METHOD OF EXECUTING INSTRUMENTS.
11.3.1. EMPLOYER OR ADMINISTRATOR'S REPRESENTATIVE. Information to be
supplied or written notices to be made or consents to be given by the Employer
or the Administrator's Representative pursuant to any provision of this Plan
Statement may be signed in the name of the Employer by any officer thereof who
has been authorized to make such certification or to give such notices or
consents or by the Administrator's Representative.
11.3.2. TRUSTEE. Any instrument or written notice required, necessary
or advisable to be made or given by the Trustee may be signed by any Trustee, if
all Trustees serving hereunder are individuals, or by any authorized officer or
Employee of the Trustee, if a corporate Trustee shall be acting hereunder as
sole Trustee, or by any such officer or Employee of the corporate Trustee or by
an individual Trustee acting hereunder, if corporate and individual Trustees
shall be serving as co-trustees hereunder.
11.4. CLAIMS PROCEDURE. The Administrator's Representative shall establish
procedures for the resolution of disputes and disposition of claims arising
under this Plan. An application for a distribution under Section 7 shall be
considered as a claim for the purposes of this Section 11.4. Until modified by
the Administrator's Representative, this claims procedure is as described below.
11.4.1. ORIGINAL CLAIM. Any Employee, former Employee or Beneficiary of
such Employee or former Employee may, if he so desires, file with the
Administrator's Representative a written claim for benefits under this Plan.
Within ninety (90) days after the filing of such a claim, the Administrator's
Representative shall notify the claimant in writing whether his claim is upheld
or denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred eighty days from the date the
claim was filed) to reach a decision on the claim. If the claim is denied in
whole or in part, the Administrator's Representative shall state in writing:
(a) the specific reasons for the denial,
(b) the specific references to the pertinent provisions of the
Plan Statement on which the denial is based,
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary,
and
(d) an explanation of the claims review procedure set forth in
this section.
11.4.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt
of notice that his claim has been denied in whole or in part, the claimant may
file with the Administrator's Representative a written request for a review and
may, in conjunction therewith, submit written issues and comments. Within sixty
(60) days after the filing of such a request for review, the Administrator's
Representative shall notify the claimant in writing whether, upon review, the
claim was upheld or denied in whole or in part or shall furnish the claimant a
written notice describing specific special circumstances requiring a specified
amount of additional time (but not more than one hundred twenty days from the
date the request for review was filed) to reach a decision on the request for
review.
11.4.3. GENERAL RULES.
(a) No inquiry or question shall be deemed to be a claim or a
request for a review of a denied claim unless made in
accordance with the claims procedure. The Administrator's
Representative may require that any claim for benefits and any
request for a review of a denied claim be filed on forms to be
furnished by the Administrator's Representative upon request.
(b) All decisions on claims and on requests for a review of denied
claims shall be made by the Administrator's Representative.
(c) The Administrator's Representative may, in its discretion,
hold one or more hearings on a claim or a request for a review
of a denied claim.
(d) Claimants may be represented by a lawyer or other
representative (at their own expense), but the Administrator's
Representative reserves the right to require the claimant to
furnish written authorization. A claimant's representative
shall be entitled to copies of all notices given to the
claimant.
(e) The decision of the Administrator's Representative on a claim
and on a request for a review of a denied claim shall be
served on the claimant in writing. If a decision or notice is
not received by a claimant within the time specified, the
claim or request for a review of a denied claim shall be
deemed to have been denied.
(f) Prior to filing a claim or a request for a review of a denied
claim, the claimant or his representative shall have a
reasonable opportunity to review a copy of the Plan Statement
and all other pertinent documents in the possession of the
Employer, the Administrator's Representative and the Trustee.
11.5. INFORMATION FURNISHED BY PARTICIPANTS. Neither the Employer nor the
Administrator's Representative nor the Trustee shall be liable or responsible
for any error in the computation of the Account of a Participant resulting from
any misstatement of fact made by the Participant, directly or indirectly, to the
Employer, the Administrator's Representative or the Trustee and used by them in
determining his Account. Neither the Employer nor the Administrator's
Representative nor the Trustee shall be obligated or required to increase the
Account of such Participant which, on discovery of the misstatement, is found to
be understated as a result of such misstatement of the Participant. However, the
Account of any Participant which is overstated by reason of any such
misstatement shall be reduced to the amount appropriate for him in view of the
truth. Any refund received upon reduction of an Account so made shall be used to
reduce the next succeeding contribution of the Employer to the Plan.
SECTION 12
OTHER ADMINISTRATIVE MATTERS
12.1. EMPLOYER.
12.1.1. OFFICERS. Except as hereinafter provided, functions generally
assigned to the Employer shall be discharged by its officers or delegated and
allocated as provided herein.
12.1.2. DELEGATION. Except as hereinafter provided, the Board of
Directors may delegate or redelegate and allocate and reallocate to one or more
persons or to a committee of persons jointly or severally, and whether or not
such persons are directors, officers or Employees, such fiduciary and other
functions assigned to it or to the Employer hereunder as it may from time to
time deem advisable.
12.1.3. BOARD OF DIRECTORS. The Board of Directors shall have the
exclusive authority, which authority may not be delegated, to act for the
Employer:
(a) to adopt the Plan, to terminate the Plan, and
(b) to appoint or remove a Trustee, to appoint or remove an
Investment Manager, to appoint or remove the Administrator's
Representative.
12.2. ADMINISTRATOR'S REPRESENTATIVE. The Employer shall designate an
Administrator's Representative to act for the Employer. The Administrator's
Representative may be one person or a committee of such members as may be
determined and appointed from time to time by the Employer and shall serve at
the pleasure of the Employer. The Administrator's Representative shall serve
without compensation, but its reasonable expenses shall be an expense of the
administration of the Fund and shall be paid by the Trustee from and out of the
Fund except to the extent the Employer, in its discretion, directly pays such
expenses. If it is a committee, the Administrator's Representative may elect
such officers as the Administrator's Representative may decide upon. The
Administrator's Representative shall:
(a) if a committee, establish rules for the functioning of the
Administrator's Representative, including the times and places
for holding meetings, the notices to be given in respect of
such meetings and the number of members who shall constitute a
quorum for the transaction of business,
(b) if a committee, organize and delegate to such of its members
as it shall select authority to execute or authenticate rules,
advisory opinions or instructions, and other instruments
adopted or authorized by the Administrator's Representative;
adopt such bylaws or regulations as it deems desirable for the
conduct of its affairs; appoint a secretary, who need not be a
member of the Administrator's Representative, to keep its
records and otherwise assist the Administrator's
Representative in the performance of its duties,
(c) keep a record of all its proceedings and acts and keep all
books of account, records and other data as may be necessary
for the proper administration of the Plan; notify the Trustee
and the Employer of any action taken by the Administrator's
Representative and, when required, notify any other interested
person or persons,
(d) determine from the records of the Employer the compensation,
service records, status and other facts regarding Participants
and other Employees,
(e) cause to be compiled at least annually, from the records of
the Administrator's Representative and the reports and
accountings of the Trustee, a report and accounting of the
status of the Plan and the Accounts of the Participants, and
make it available to each Participant who shall have the right
to examine that part or portion of such report and accounting
(or a true and correct copy of such part) which sets forth his
benefits and his ratable interest in the Fund,
(f) prescribe forms to be used for applications for participation,
distributions, withdrawals, notifications, etc., as may be
required in the administration of the Plan,
(g) set up such rules, applicable to all Participants similarly
situated, as are deemed necessary to carry out the terms of
the Plan Statement,
(h) perform all other acts reasonably necessary for administering
the Plan and carrying out the provisions of the Plan Statement
and performing the duties imposed on it by the Employer,
(i) interpret and construe the Plan Statement,
(j) resolve questions of eligibility and status under the Plan,
and the rights of Employees, Participants and Beneficiaries
and the amounts of their interests,
(k) resolve all questions of administration of the Plan not
specifically referred to in this section, and
(l) delegate or redelegate to one or more persons, jointly or
severally, and whether or not such persons are members of a
committee which is the Administrator's Representative or
Employees of the Employer, such functions assigned to the
Administrator's Representative hereunder as it may from time
to time deem advisable.
If the Administrator's Representative is a committee and there shall at any time
be three (3) or more members serving hereunder who are qualified to perform a
particular act, the same may be performed, on behalf of all, by a majority of
those qualified, with or without the concurrence of the minority. No person who
failed to join or concur in such act shall be held liable for the consequences
thereof, except to the extent that liability is imposed under the Employee
Retirement Income Security Act of 1974.
If the Employer does not designate an Administrator's Representative, the
President (or other chief executive officer) of the Employer shall be the
Administrator's Representative.
12.3. LIMITATION ON AUTHORITY. No action taken by any fiduciary, if authority to
take such action has been delegated or redelegated to it hereunder, shall be the
responsibility of any other fiduciary except as may be required by the
provisions of the Employee Retirement Income Security Act of 1974. Except to the
extent imposed by the Employee Retirement Income Security Act of 1974, no
fiduciary shall have the duty to question whether any other fiduciary is
fulfilling all of the responsibility imposed upon such other fiduciary by this
Plan Statement or by the Act or by any regulations or rulings issued thereunder.
The Trustee shall have no authority or duty to determine or enforce payment of
any Employer contribution under this Plan or to determine the existence, nature
or extent of any individual's rights in the Fund or under the Plan or question
any determination made by the Employer or the Administrator's Representative
regarding the same. The responsibilities and obligations of the Trustee shall be
strictly limited to those set forth in this Plan Statement.
12.4. CONFLICT OF INTEREST. If any Trustee, any Administrator's Representative,
any member of the Board of Directors or any officer or Employee of the Employer
to whom authority has been delegated or redelegated hereunder shall also be a
Participant in this Plan, he shall have no authority as such Trustee, member,
officer or Employee with respect to any matter specially affecting his
individual interest hereunder (as distinguished from the interests of all
Participants and Beneficiaries or a broad class of Participants and
Beneficiaries), all such authority being reserved exclusively to the other
Trustees, members, officers or Employees, as the case may be, to the exclusion
of such Participant, and such Participant shall act only in his individual
capacity in connection with any such matter.
12.5. DUAL CAPACITY. Individuals, firms, corporations or partnerships identified
herein or delegated or allocated authority or responsibility hereunder may serve
in more than one fiduciary capacity.
12.6. ADMINISTRATOR. The Employer shall be the administrator for purposes of
section 3(16)(A) of the Employee Retirement Income Security Act of 1974.
12.7. NAMED FIDUCIARIES. The Trustee, the Employer, the Board of Directors and
the Administrator's Representative shall be named fiduciaries for the purpose of
section 402(a) of the Employee Retirement Income Security Act of 1974.
12.8. SERVICE OF PROCEss. In the absence of any designation to the contrary by
the Employer, the President of the Employer is designated as the appropriate and
exclusive agent for the receipt of service of process directed to the Plan in
any legal proceeding, including arbitration, involving the Plan.
12.9. RESIDUAL AUTHORITY. In the event the Employer, Administrator's
Representative, Board of Directors, or other person designated as having the
authority to act or a duty to act on any matter hereunder, is prevented by
death, dissolution, incapacity or other similar cause from acting hereunder and
there is no other person then empowered to act on such matter, the Trustee shall
be empowered to act in its place.
12.10. ADMINISTRATIVE EXPENSES. The reasonable expenses of administering the
Plan shall be payable out of the Fund except to the extent that the Employer, in
its discretion, directly pays the expenses.
SECTION 13
IN GENERAL
13.1. DISCLAIMERS.
13.1.1. EFFECT ON EMPLOYMENT. Neither the terms of this Plan Statement
nor the benefits hereunder nor the continuance thereof shall be a term of the
employment of any Employee, and the Employer shall not be obliged to continue
this Plan. The terms of this Plan Statement shall not give any Employee the
right to be retained in the employment of the Employer.
13.1.2. SOLE SOURCE OF BENEFITS. Neither the Trustee nor the
Administrator's Representative nor the Employer or any of its officers or
members of its Board of Directors in any way guarantee the Fund against loss or
depreciation, nor do they guarantee the payment of any benefit or amount which
may become due and payable hereunder to any Participant or to any Beneficiary or
to any creditor of a Participant, a Beneficiary or the Trustee. Each
Participant, Beneficiary or other person entitled at any time to payments
hereunder shall look solely to the assets of the Fund for such payments or to
the Vested Total Account distributed to any Participant or Beneficiary, as the
case may be, for such payments. In each case where a Vested Total Account shall
have been distributed to a former Participant or a Beneficiary or to the person
or any one of a group of persons entitled jointly to the receipt thereof and
which purports to cover in full the benefit hereunder, such former Participant
or Beneficiary, or such person or persons, as the case may be, shall have no
further right or interest in the other assets of the Fund.
13.1.3. CO-FIDUCIARY MATTERS. Neither the Employer nor any of its
officers or members of its Board of Directors nor the Administrator's
Representative shall in any manner be liable to any Participant, Beneficiary or
other person for any act or omission of the Trustee (except to the extent that
liability is imposed under the Employee Retirement Income Security Act of 1974).
Neither the Trustee nor the Administrator's Representative nor the Employer or
any of its officers or members of its Board of Directors shall be under any
liability or responsibility (except to the extent that liability is imposed
under the Employee Retirement Income Security Act of 1974) for failure to effect
any of the objectives or purposes of this Plan by reason of loss or fluctuation
in the value of Fund or for the form, genuineness, validity, sufficiency or
effect of any Fund asset at any time held hereunder, or for the failure of any
person, firm or corporation indebted to the Fund to pay such indebtedness as and
when the same shall become due or for any delay occasioned by reason of any
applicable law, order or regulation or by reason of any restriction or provision
contained in any security or other asset held by the Fund. Except as is
otherwise provided in the Employee Retirement Income Security Act of 1974, the
Employer, its officers and the members of its Board of Directors, the Trustee,
the Administrator's Representative and other fiduciaries shall not be liable for
an act or omission of another person with regard to a fiduciary responsibility
that has been allocated to or delegated to such other person pursuant to the
terms of this Plan Statement or pursuant to procedures set forth in this Plan
Statement.
13.2. REVERSION OF FUND PROHIBITED. The Fund from time to time hereunder shall
at all times be a trust fund separate and apart from the assets of the Employer,
and no part thereof shall be or become available to the Employer or to creditors
of the Employer under any circumstances other than those specified in Section
1.3, Section 3.12, Section 11.5 and Appendix A hereof. It shall be impossible
for any part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of Participants and Beneficiaries
(except as provided in Section 1.3, Section 3.12, Section 11.5 and Appendix A).
13.3. EXECUTION IN COUNTERPARTS. This Plan Statement may be executed in any
number of counterparts, each of which, without production of the others, shall
be deemed to be an original.
13.4. CONTINUITY. If this Plan Statement is adopted as an amendment of a Prior
Plan Statement, the tenure and membership of the any committee previously
appointed, the rules of administration adopted and the Beneficiary designations
in effect under the Prior Plan Statement immediately before the Effective Date
shall, to the extent not inconsistent with this Plan Statement, continue in full
force and effect until altered as provided herein.
13.5. CONTINGENT TOP HEAVY PLAN RULES. The rules set forth in the Appendix B to
this Plan Statement (concerning additional provisions that apply if the Plan
becomes top heavy) are incorporated herein.
APPENDIX A
SECTION 415 LIMITATIONS ON ALLOCATIONS
SECTION 1
INTRODUCTION
Terms defined in the Plan Statement shall have the same meanings when
used in this Appendix. References to the "Code" shall mean the Internal Revenue
Code, as amended from time to time. In addition, when used in this Appendix, the
following terms shall have the following meanings:
1.1. ANNUAL ADDITION. Annual addition means, with respect to any Participant for
a limitation year, the sum of:
(i) all employer contributions (including employer
contributions of the Participant's earnings
reductions under section 401(k), section 403(b) and
section 408(k) of the Code) allocable as of a date
during such limitation year to the Participant under
all defined contribution plans,
(ii) all forfeitures allocable as of a date during such
limitation year to the Participant under all defined
contribution plans,
(iii) all Participant contributions made as of a date
during such limitation year to all defined
contribution plans,
(iv) all amounts allocated after March 31, 1984, to an
individual medical account which is part of a pension
or annuity plan maintained by the employer,
(v) all amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years
ending after such date, under a welfare benefit fund,
and
(vi) all amounts allocable as of a date during such
limitation year to the Participant under Section 2.4,
Section 3.6, Section 4 or Section 5 of this Appendix
A.
1.1.1. SPECIFIC INCLUSIONS. With regard to a plan which contains a
qualified cash or deferred arrangement or matching contributions or employee
contributions, excess deferrals and excess contributions and excess aggregate
contributions (whether or not distributed during or after the limitation year)
shall be considered annual additions in the year contributed.
1.1.2. SPECIFIC EXCLUSIONS. The annual addition shall not, however,
include any portion of a Participant's rollover contributions or any additions
to accounts attributable to a plan merger or a transfer of plan assets or
liabilities or any other amounts excludible under law.
1.1.3. ESOP RULE. In the case of an employee stock ownership plan
within the meaning of section 4975(e)(7) of the Code under which no more than
one-third (1/3rd) of the Employer contributions for a limitation year which are
deductible under section 404(a)(9) of the Code are allocated to highly
compensated employees (as defined in section 414(q) of the Code), annual
additions shall not include forfeitures of employer securities under the
employee stock ownership plan if such securities were acquired with the proceeds
of an exempt loan or employer contributions to the employee stock ownership plan
which are deductible by the Employer under section 404(a)(9)(B) of the Code and
charged against the Participant's account (i.e., interest payments).
1.2. CONTROLLED GROUP MEMBER. Controlled group member means the Employer and
each member of a controlled group of corporations (as defined in section 414(b)
and as modified by Code section 415(h) of the Code), all commonly controlled
trades or businesses (as defined in section 414(c) and as modified by Code
section 415(h) of the Code) and affiliated service groups (as defined in section
414(m) of the Code) of which the Employer is a part.
1.3. DEFINED BENEFIT AND DEFINED CONTRIBUTION PLANS. Defined benefit plan and
defined contribution plan have the meanings assigned to those terms by section
415(k)(1) of the Code. Whenever reference is made to defined benefit plans and
defined contribution plans in this Appendix, it shall include all such plans
maintained by the Employer and all controlled group members.
1.4. DEFINED BENEFIT FRACTION.
1.4.1. GENERAL RULE. Defined benefit fraction means a fraction the
numerator of which is the sum of the Participant's projected annual benefits
under all defined benefit plans (whether or not terminated) determined as of the
close of the limitation year, and the denominator of which is the lesser of:
(i) one hundred twenty-five percent (125%) of the dollar
limitation in effect under sections 415(b) and (d) of
the Code as of the close of such limitation year
(i.e., 125% of $90,000 as adjusted for cost of
living, commencement dates, length of service and
other factors), or
(ii) one hundred forty percent (140%) of the dollar amount
which may be taken into account under section
415(b)(l)(B) of the Code with respect to such
Participant as of the close of such limitation year
(i.e., 140% of the Participant's highest average
compensation as adjusted for cost of living, length
of service and other factors).
1.4.2. TRANSITION RULE. 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 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 Code section 415 for all limitation years
beginning before January 1, 1987.
1.5. DEFINED CONTRIBUTION FRACTION.
1.5.1. GENERAL RULE. Defined contribution fraction means a fraction,
the numerator of which is the sum of the Participant's annual additions
(including Employer contributions which are allocated to a separate account
established for the purpose of providing medical benefits or life insurance
benefits with respect to a key employee (as defined in Appendix B) under a
welfare benefit fund or individual medical account) as of the close of the
limitation year and for all prior limitation years, and the denominator of which
is the sum of the amounts determined under paragraph (i) or (ii) below,
whichever is the lesser, for such limitation year and for each prior limitation
year in which the Participant had any service with the employer (regardless of
whether that or any other defined contribution plan was in existence during
those years or continues in existence):
(i) one hundred twenty-five percent (125%) of the dollar
limitation determined under sections 415(b) and (d)
of the Code and in effect under section 415(c)(l)(A)
of the Code for such limitation year determined
without regard to section 415(c)(6) of the Code
(i.e., 125% of $30,000 as adjusted for cost of
living), or
(ii) one hundred forty percent (140%) of the dollar amount
which may be taken into account under section
415(c)(l)(B) of the Code with respect to such
individual under the Plan for such limitation year
(i.e., 140% of 25% of the Participant's ss. 415
compensation for such limitation year).
1.5.2. TEFRA TRANSITION RULE. The Employer may elect that the amount
taken into account for each Participant for all limitation years ending before
January 1, 1983 under paragraphs (i) and (ii) above shall be determined pursuant
to the special transition rule provided in section 415(e)(6) of the Code.
1.5.3. EMPLOYEE CONTRIBUTIONS. Notwithstanding the definition of
"annual additions," for the purpose of determining the defined contribution
fraction in limitation years beginning before January 1, 1987, employee
contributions shall not be taken into account to the extent that they were not
required to be taken into account under section 415 of the Code prior to the Tax
Reform Act of 1986.
1.5.4. ANNUAL DENOMINATOR. The amounts to be determined under
paragraphs (i) or (ii) above for the limitation year and for all prior
limitation years in which the Participant had any service with the employer
shall be determined separately for each such limitation year on the basis of
which amount is the lesser for each such limitation year.
1.5.5. RELEVANT LAW. For all limitation years ending before January 1,
1976, the dollar limitation under section 415(c)(1)(A) of the Code is
Twenty-five Thousand Dollars ($25,000). For limitation years ending after
December 31, 1975 and before January 1, 1990, the amount shall be:
For limitation years The ss. 415(c)(1)(A)
ending during: dollar amount is:
-------------- -----------------
1976 $ 26,825
1977 $ 28,175
1978 $ 30,050
1979 $ 32,700
1980 $ 36,875
1981 $ 41,500
1982 $ 45,475
1983 - 1989 $ 30,000
1.5.6. RELIEF RULE. 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 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 one (l.0) under
the terms of this Plan Statement. Under the adjustment, an amount equal to the
product of the excess of the sum of the fractions over one (l.0), times 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 limitations applicable to the
first limitation year beginning on or after January 1, 1987.
1.6. HIGHEST AVERAGE COMPENSATION. Highest average compensation means the
average ss. 415 compensation for the three (3) consecutive years of service with
the controlled group members that produce the highest average. A year of service
with the controlled group members is the Plan Year.
1.7. INDIVIDUAL MEDICAL ACCOUNT. Individual medical account means an account, as
defined in section 415(l)(2) of the Code, maintained by the Employer or an
Affiliate which provides an annual addition.
1.8. LIMITATION YEAR. The limitation year shall be the Plan Year, unless the
Adoption Agreement specifies a different limitation year. All qualified plans
maintained by the Employer must use the same limitation year. If the limitation
year is amended to a different 12-consecutive month period, the new limitation
year must begin on a date within the limitation year in which the amendment is
made.
1.9. MASTER OR PROTOTYPE PLAN. A plan the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
1.10. MAXIMUM PERMISSIBLE ADDITION.
1.10.1. GENERAL RULE. The maximum permissible addition (to defined
contribution plans) for any one (1) limitation year shall be the lesser of:
(i) Thirty Thousand Dollars ($30,000), or if greater,
one-fourth (1/4) of the defined benefit limitation
set forth in section 415(b)(1) of the Code as in
effect for the limitation year, or
(ii) Twenty-five percent (25%) of the Participant'sss. 415
compensation for such limitation year.
The compensation limitation referred to in (ii) shall not apply to any
contribution for medical benefits (within the meaning of section 401(h) or
section 419A(f)(2) of the Code) which is otherwise treated as an annual addition
under section 415(l)(1) or 419A(d)(2) of the Code.
1.10.2. ESOP RULE. In the case of an employee stock ownership plan
within the meaning of section 4975(e)(7) of the Code under which no more than
one third (1/3rd) of the Employer contributions for a limitation year are
allocated to highly compensated employees (as defined in section 414(q) of the
Code), the dollar limitation in (i) above (after adjustment for cost of living)
shall be increased to be equal to the sum of:
(i) the dollar limitation in (i) above (after adjustment
for cost of living), and
(ii) the lesser of the dollar limitation in (i) above
(after adjustment for cost of living) or the amount
of employer securities contributed or purchased with
cash contributed to the employee stock ownership
plan.
1.10.3. MEDICAL BENEFITS. The dollar limitation in (i) above (after
adjustment for cost of living) shall be reduced by the amount of Employer
contributions which are allocated to a separate account established for the
purpose of providing medical benefits or life insurance benefits with respect to
a key employee (as defined in Appendix B) under a welfare benefit fund or an
individual medical account.
1.10.4. SHORT YEAR. If a short limitation year is created because of an
amendment changing the limitation year to a different 12-consecutive month
period, the maximum permissible amount will not exceed the amount described in
Section 1.10.1(i) multiplied by the following fraction:
Number of months in the short limitation year
12
1.11. PROJECTED ANNUAL BENEFIT. Projected annual benefit means the annual
annuity benefit payable to the Participant at his normal retirement age (as
defined in the defined benefit plan) adjusted to an actuarially equivalent
straight life annuity form (or, if it would be a lesser amount, to any
actuarially equivalent qualified joint and survivor annuity form that is
available under the defined benefit plan) assuming that:
(i) the Participant continues employment and
participation under the defined benefit plan until
his normal retirement age (as defined in the defined
benefit plan) or until the current age if later, and
(ii) the Participant's ss. 415 compensation and all other
factors used to determine benefits under the defined
benefit plan remain unchanged for all future
limitation years.
1.12. ss. 415 COMPENSATION. Notwithstanding the definition of Recognized
Compensation used in the Plan Statement, ss. 415 compensation shall mean, with
respect to any limitation year, the Participant's wages, salaries, fees for
professional services and other amounts received for personal services actually
rendered in the course of employment with any employer maintaining any of such
defined contribution plans (including, but not limited to, commissions paid
salespersons, compensation for services on the basis of percentage of profits,
commissions on insurance premiums, tips and bonuses).
1.12.1. CASH BASIS. ss. 415 compensation shall be determined on a cash
basis.
1.12.2. SPECIFIC INCLUSIONS. Section 415 compensation includes: (i)
earned income from sources outside the United States, as defined in section
911(b) of the Code, whether or not excludible from gross income under section
911 of the Code or deductible under section 913 of the Code; (ii) amounts
described in sections 104(a)(3), 105(a) and 105(h) of the Code, but only to the
extent that these amounts are includable in the gross income of the Participant;
(iii) amounts described in section 105(d) of the Code, whether or not the
amounts are excludible from the gross income of the Participant under that
section; (iv) amounts paid or reimbursed by the Employer for moving expenses
incurred by the Participant, but only to the extent that these amounts are not
deductible by the Participant under section 217 of the Code; (v) the value of a
nonqualified stock option granted to a Participant by the employer, but only to
the extent that the value of the option is includable in the gross income of the
Participant for the taxable year in which it was granted; (vi) the amount
includable in the gross income of the Participant upon making the election
described in section 83(b) of the Code; and (vii) the amounts received by the
Participant pursuant to an unfunded nonqualified plan or contract providing for
deferred compensation when such amounts are includable in the gross income of
the Participant.
1.12.3. SPECIFIC EXCLUSIONS. Section 415 compensation does not include:
(i) contributions made by the employer to a plan of deferred compensation to the
extent that, before application of Code section 415 limitations to that plan,
the contributions are not includable in the gross income of the Participant for
the taxable year in which contributed; (ii) employer contributions made on
behalf of a Participant pursuant to a simplified employee pension arrangement to
the extent that such contributions are deductible by the Participant under
section 219(b)(7) of the Code; (iii) distributions from a plan of deferred
compensation (other than an unfunded, nonqualified plan), regardless of whether
such amounts are includable in the gross income of the Participant when
distributed; (iv) amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by a Participant either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture within the meaning of section 83 of the Code; (v) amounts realized
from the sale, exchange or other disposition of stock acquired under a qualified
stock option; (vi) other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent that the premiums
are not includable in the gross income of the Participant) or contributions made
by an employer (whether or not under salary reduction agreement) towards the
purchase of an annuity contract described in section 403(b) of the Code (whether
or not the contributions are excludible from the gross income of the
Participant).
1.12.4. EARNED INCOME. Section 415 compensation for a Self-Employed
Person shall be such Self-Employed Person's earned income. Earned income is a
Self-Employed Person's net earnings from self-employment in the trade or
business indicated in the Adoption Agreement as the trade or business of the
Employer with regard to which this Plan is established (but only if such trade
or business is one in which personal services of the Self-Employed Person is a
material income-producing factor) for a Plan Year during which the Self-Employed
Person is a Participant, reduced by the amount of the Employer contributions
made under the terms of this Plan for Common Law Employees. Earned income shall
include gains (other than any gain which is treated as gain from the sale or
exchange of a capital asset for the purpose of determining the self-employed
individual's federal income tax) and net earnings derived from the sale or other
disposition of, the transfer of any interest in, or the licensing of the use of
property (other than good will) by an individual whose personal efforts created
such property. Earned Income shall be determined without regard to items not
included in gross income and the deductions allocable to such items. Net
earnings shall be determined with regard to the deduction allowed to the
Self-Employed Person by section 164(f) of the Code for taxable years beginning
after December 31, 1989.
1.13. WELFARE BENEFIT FUND. Welfare benefit fund means a fund as defined in
section 419(e) of the Code which provides post-retirement medical benefits
allocated to separate accounts for key employees as defined in section
419A(d)(3).
SECTION 2
THIS PLAN ALONE
This Section 2 applies only if the Participant does not participate in
and has never participated in another qualified plan or a welfare benefit fund
or an individual medical account maintained by any controlled group member.
2.1. GENERAL RULE. The amount of annual additions which may be credited to the
Participant's Account under this Plan for any limitation year will not exceed
the maximum permissible amount. 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.
2.2. ESTIMATION. Prior to determining the Participant's actual total
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 total compensation for the limitation year, uniformly
determined for all Participants similarly situated.
2.3. FINAL DETERMINATION. As soon as is administratively feasible after the end
of the limitation year, the maximum permissible amount for the limitation year
will be determined by the Employer on the basis of the Participant's actual
total compensation for the limitation year.
2.4. REMEDIAL ACTION. If pursuant to Section 2.3 of the Appendix A or as a
result of the allocation of forfeitures there is an excess amount, the excess
will be disposed of as follows:
(a) Any nondeductible voluntary employee contributions, to the
extent they would reduce the excess amount, will be returned
to the Participant,
(b) If after the application of paragraph (a) an excess amount
still exists, and the Participant is covered by the Plan at
the end of the limitation year, the excess amount in the
Participant's Account will be used to reduce Employer
contributions (including any reallocation of forfeited
suspense accounts) for such Participant in the next limitation
year, and each succeeding limitation year if necessary,
(c) If after the application of paragraph (a) an excess amount
still exists, and the Participant is not covered by the Plan
at the end of the limitation year, the excess amount will be
held unallocated in a reserve account. The reserve account
will be applied to reduce future Employer contributions
(including any reallocation of forfeited suspense accounts)
for all remaining Participants in the next limitation year,
and each succeeding limitation year if necessary,
(d) If a reserve account is in existence at any time during the
limitation year pursuant to this Section 2, it will not
participate in the allocation of the Fund's investment gains
and losses. Also, all amounts in the reserve account must be
credited to Participant's Accounts before any Employer or
Employee contributions may be made to the Plan for that
limitation year. Excess amounts may not be distributed to
Participants or former Participants.
SECTION 3
THIS PLAN AND ANOTHER PROTOTYPE DEFINED CONTRIBUTION PLAN
This Section 3 applies only if, in addition to this Plan, the
Participant is covered under another master or prototype qualified defined
contribution plan, a welfare benefit fund or an individual medical account
maintained by any controlled group member.
3.1. GENERAL RULE. The annual additions which may be credited to a Participant's
Account under this Plan for any 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 any
controlled group member 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.
3.2. ESTIMATION. Prior to determining the Participant's actual total
compensation for the limitation year, the Employer may determine the maximum
permissible amount for a Participant on the basis of a reasonable estimation of
the Participant's compensation for the limitation year, uniformly determined for
all Participants similarly situated.
3.3. FINAL DETERMINATION. As soon as is administratively feasible after the end
of the limitation year, the maximum permissible amount for the limitation year
will be determined by the Employer on the basis of the Participant's actual
total compensation for the limitation year.
3.4. PRIORITY. If, pursuant to Section 3.3 of this Appendix 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 and
the allocations to accounts under such plans are made as of more than one (1)
date during the limitation year, the excess amount will be deemed to consist of
the annual additions last allocated during the limitation year, except that the
annual additions attributable to a welfare benefit fund or individual medial
account will be deemed to have been allocated first regardless of the actual
allocation date.
3.5. APPORTIONMENT. If an excess amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date of another
plan, the excess amount attributed to this Plan will be the product of,
(a) the total excess amount allocated as of such date, multiplied
by
(b) the ratio of (i) the annual additions allocated to the
Participant for the limitation year as of such date under this
Plan to (ii) the total annual additions allocated to the
Participant for the limitation year as of such date under this
Plan and all the other master or prototype qualified defined
contribution plans.
3.6. REMEDIAL ACTION. Any excess amount attributed to this Plan will be disposed
in the manner described in Section 2.4 of this Appendix.
SECTION 4
THIS PLAN AND A NON-PROTOTYPE DEFINED CONTRIBUTION PLAN
If the Participant is covered under another qualified defined
contribution plan maintained by any controlled group member 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 3.1 through 3.6 of this Appendix as though the other
plan was a master or prototype qualified defined contribution plan unless the
Employer provides other limitations in the Adoption Agreement.
SECTION 5
THIS PLAN AND A DEFINED BENEFIT PLAN
If any controlled group member maintains, or at any time maintained, a
qualified defined benefit plan covering any Participant in this Plan, the sum of
a Participant's defined benefit plan fraction and defined contribution plan
fraction will not exceed one (1.0) at the close of 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.
APPENDIX B
CONTINGENT TOP HEAVY PLAN RULES
Notwithstanding any of the foregoing provisions of the Plan Statement,
if, after applying the special definitions set forth in Section 1 of this
Appendix, this Plan is determined under Section 2 of this Appendix to be a Top
Heavy Plan for a Plan Year, then the special rules set forth in Section 3 of
this Appendix shall apply. For so long as this Plan is not determined to be a
Top Heavy Plan, the special rules in Section 3 of this Appendix shall be
inapplicable to this Plan.
SECTION 1
SPECIAL DEFINITIONS
Terms defined in the Plan Statement shall have the same meanings when used in
this Appendix. References to the "Code" shall mean the Internal Revenue Code, as
amended from time to time. In addition, when used in this Appendix, the
following terms shall have the following meanings:
1.1. AGGREGATED EMPLOYERS -- the Employer and each other corporation,
partnership or proprietorship which is a "predecessor" to the Employer, or is
under "common control" with the Employer, or is a member of an "affiliated
service group" that includes the Employer, as those terms are defined in section
414(b), (c), (m) or (o) of the Code.
1.2. AGGREGATION GROUP -- a grouping of this Plan and:
(a) if any Participant in the Plan is a Key Employee, each other
qualified pension, profit sharing or stock bonus plan of the
Aggregated Employers in which a Key Employee is a Participant
(and for this purpose, a Key Employee shall be considered a
Participant only during periods when he is actually accruing
benefits and not during periods when he has preserved accrued
benefits attributable to periods of participation when he was
not a Key Employee); and
(b) each other qualified pension, profit sharing or stock bonus
plan of the Aggregated Employers which is required to be taken
into account for this Plan or any plan described in paragraph
(a) above to satisfy the qualification requirement that this
Plan cover a nondiscriminatory group of employees (i.e.,
either the so-called "70% test," the "70%/80% test" or the
"nondiscriminatory classification test") or the requirement
that benefits be nondiscriminatory under section 401(a)(4) of
the Code; and
(c) each other qualified pension, profit sharing or stock bonus
plan of the Aggregated Employers which is not included in
paragraph (a) or (b) above, but which the Employer elects to
include in the Aggregation Group and which, when included,
would not cause the Aggregation Group to fail to satisfy the
qualification requirement that the Aggregation Group of plans
cover a nondiscriminatory group of employees (i.e., either the
so-called "70% test," the "70%/80% test" or the
"nondiscriminatory classification test") and the requirement
that benefits be nondiscriminatory under section 401(a)(4) of
the Code.
1.3. DETERMINATION DATE -- for the first (1st) plan year of a plan, the last day
of such first (1st) plan year, and for each subsequent plan year, the last day
of the immediately preceding plan year.
1.4. FIVE PERCENT OWNER -- for each Aggregated Employer that is a corporation,
any person who owns (or is considered to own within the meaning of the
Shareholder Attribution Rules) more than five percent (5%) of the value of the
outstanding stock of the corporation or stock possessing more than five percent
(5%) of the total combined voting power of the corporation, and, for each
Aggregated Employer that is not a corporation, any person who owns more than
five percent (5%) of the capital interest or the profits interest in such
Aggregated Employer. For the purposes of determining ownership percentages, each
corporation, partnership and proprietorship otherwise required to be aggregated
shall be viewed as a separate entity.
1.5. KEY EMPLOYEE -- each Participant (whether or not then an employee) who at
any time during a plan year (or any of the four preceding plan years) is:
(a) an officer of any Aggregated Employer (excluding persons who
have the title of an officer but not the authority and
including persons who have the authority of an officer but not
the title) having an annual compensation from all Aggregated
Employers for any such plan year in excess of fifty percent
(50%) of the amount in effect under section 415(b)(1)(A) of
the Internal Revenue Code for any such plan year, or
(b) one (l) of the ten (10) employees (not necessarily
Participants) owning (or considered to own within the meaning
of the Shareholder Attribution Rules) both more than one-half
of one percent (1/2%) ownership interest in value and the
largest percentage ownership interests in value of any of the
Aggregated Employers (which are owned by employees) and who
has an annual compensation from all the Aggregated Employers
in excess of the limitation in effect under section
415(c)(1)(A) of the Internal Revenue Code for any such plan
year, or
(c) a Five Percent Owner, or
(d) a One Percent Owner having an annual compensation from the
Aggregated Employers of more than One Hundred Fifty Thousand
Dollars ($150,000);
provided, however, that no more than fifty (50) employees (or, if lesser, the
greater of three of all the Aggregated Employers' employees or ten percent of
all the Aggregated Employers' employees) shall be treated as officers. The
determination of whether a Participant is a Key Employee will be made in
accordance with this definition and section 416(i)(l) of the Code and
regulations thereunder. For the purposes of determining ownership percentages,
each corporation, partnership and proprietorship otherwise required to be
aggregated shall be viewed as a separate entity. For purposes of paragraph (b)
above, if two (2) employees have the same interest in any of the Aggregated
Employers, the employee having the greatest annual compensation from that
Aggregated Employer shall be treated as having a larger interest. For the
purpose of determining compensation, however, all compensation received from all
Aggregated Employers shall be taken into account. The term "Key Employee" shall
include the beneficiaries of a deceased Key Employee. Annual compensation means
"ss. 415 compensation" as defined in Appendix A to this Plan Statement but
including amounts contributed by the Employer pursuant to a salary reduction
agreement which are excludible from the Participant's gross income under section
125, section 402(a)(8), section 402(h) or section 403(b) of the Internal Revenue
Code.
1.6. ONE PERCENT OWNER -- for each Aggregated Employer that is a corporation,
any person who owns (or is considered to own within the meaning of the
Shareholder Attribution Rules) more than one percent (l%) of the value of the
outstanding stock of the corporation or stock possessing more than one percent
(l%) of the total combined voting power of the corporation, and, for each
Aggregated Employer that is not a corporation, any person who owns more than one
percent (l%) of the capital or the profits interest in such Aggregated Employer.
For the purposes of determining ownership percentages, each corporation,
partnership and proprietorship otherwise required to be aggregated shall be
viewed as a separate entity.
1.7. SHAREHOLDER ATTRIBUTION RULES -- the rules of section 318 of the Code,
(except that subparagraph (C) of section 318(a)(2) of the Code shall be applied
by substituting "5 percent" for "50 percent") or, if the Employer is not a
corporation, the rules determining ownership in such Employer which shall be set
forth in regulations prescribed by the Secretary of the Treasury.
1.8. TOP HEAVY AGGREGATION GROUP -- any Aggregation Group for which, as of the
Determination Date, the sum of:
(i) the present value of the cumulative accrued benefits
for Key Employees under all defined benefit plans
included in such Aggregation Group; and
(ii) the aggregate of the accounts of Key Employees under
all defined contribution plans included in such
Aggregation Group,
exceed sixty percent (60%) of a similar sum determined for all employees. In
applying the foregoing, the following rules shall be observed:
(a) For the purpose of determining the present value of the
cumulative accrued benefit for any employee under a defined
benefit plan, or the amount of the account of any employee
under a defined contribution plan, such present value or
amount shall be increased by the aggregate distributions made
with respect to such employee under the plan during the five
(5) year period ending on the Determination Date.
(b) Any rollover contribution (or similar transfer) initiated by
the employee, made from a plan maintained by one employer to a
plan maintained by another employer and made after December
31, 1983 to a plan shall not be taken into account with
respect to the transferee plan for the purpose of determining
whether such transferee plan is a Top Heavy Plan (or whether
any Aggregation Group which includes such plan is a Top Heavy
Aggregation Group). Any rollover contribution (or similar
transfer) not described in the preceding sentence shall be
taken into account with respect to the transferee plan for the
purpose of determining whether such transferee plan is a Top
Heavy Plan (or whether any Aggregation Group which includes
such plan is a Top Heavy Aggregation Group).
(c) If any individual is not a Key Employee with respect to a plan
for any plan year, and was not a Key Employee for any of the
four preceding plan years, but such individual was a Key
Employee with respect to a plan for any prior plan year, the
cumulative accrued benefit of such employee and the account of
such employee shall not be taken into account.
(d) The determination of whether a plan is a Top Heavy Plan shall
be made once for each plan year of the plan as of the
Determination Date for that plan year.
(e) In determining the present value of the cumulative accrued
benefits of employees under a defined benefit plan, the
determination shall be made as of the actuarial valuation date
last occurring during the twelve (12) months preceding the
Determination Date and shall be determined on the assumption
that the employees terminated employment on the valuation date
except as provided in section 416 of the Code and the
regulations thereunder for the first and second plan years of
a defined benefit plan. The accrued benefit of any employee
(other than a Key Employee) shall be determined under the
method which is used for accrual purposes for all plans of the
employer or if there is no method which is used for accrual
purposes under all plans of the employer, as if such benefit
accrued not more rapidly than the slowest accrual rate
permitted under Code section 411(b)(1)(C). Unless otherwise
specified in the Adoption Agreement, in determining this
present value, the mortality and interest assumptions shall be
those which would be used by the Pension Benefit Guaranty
Corporation in valuing the defined benefit plan if it
terminated on such valuation date. The accrued benefit to be
valued shall be the benefit expressed as a single life
annuity.
(f) In determining the accounts of employees under a defined
contribution plan, the account values determined as of the
most recent asset valuation occurring within the twelve (12)
month period ending on the Determination Date shall be used.
In addition, amounts required to be contributed under either
the minimum funding standards or the plan's contribution
formula shall be included in determining the account. In the
first year of the plan, contributions made or to be made as of
the Determination Date shall be included even if such
contributions are not required.
(g) If any individual has not performed any services for any
employer maintaining the plan at any time during the five (5)
year period ending on the Determination Date, any accrued
benefit of the individual under a defined benefit plan and the
account of the individual under a defined contribution plan
shall not be taken into account.
(h) For this purpose, a terminated plan shall be treated like any
other plan and must be aggregated with other plans of the
employer if it was maintained within the last five (5) years
ending on the determination date for the plan year in question
and would, but for the fact that it terminated, be part of the
Aggregation Group for such plan year.
1.9. TOP HEAVY PLAN -- a qualified plan under which (as of the Determination
Date):
(i) if the plan is a defined benefit plan, the present
value of the cumulative accrued benefits for Key
Employees exceeds sixty percent (60%) of the present
value of the cumulative accrued benefits for all
employees; and
(ii) if the plan is a defined contribution plan, the
aggregate of the accounts of Key Employees exceeds
sixty percent (60%) of the aggregate of all of the
accounts of all employees.
In applying the foregoing, the following rules shall be observed:
(a) Each plan of an Employer required to be included in an
Aggregation Group shall be a Top Heavy Plan if such
Aggregation Group is a Top Heavy Aggregation Group.
(b) For the purpose of determining the present value of the
cumulative accrued benefit for any employee under a defined
benefit plan, or the amount of the account of any employee
under a defined contribution plan, such present value or
amount shall be increased by the aggregate distributions made
with respect to such employee under the plan during the five
(5) year period ending on the Determination Date.
(c) Any rollover contribution (or similar transfer) initiated by
the employee, made from a plan maintained by one employer to a
plan maintained by another employer and made after December
31, 1983 to a plan shall not be taken into account with
respect to the transferee plan for the purpose of determining
whether such transferee plan is a Top Heavy Plan (or whether
any Aggregation Group which includes such plan is a Top Heavy
Aggregation Group). Any rollover contribution (or similar
transfer) not described in the preceding sentence shall be
taken into account with respect to the transferee plan for the
purpose of determining whether such transferee plan is a Top
Heavy Plan (or whether any Aggregation Group which includes
such plan is a Top Heavy Aggregation Group).
(d) If any individual is not a Key Employee with respect to a plan
for any plan year, and was not a Key Employee for any of the
four preceding plan years, but such individual was a Key
Employee with respect to the plan for any prior plan year, the
cumulative accrued benefit of such employee and the account of
such employee shall not be taken into account.
(e) The determination of whether a plan is a Top Heavy Plan shall
be made once for each plan year of the plan as of the
Determination Date for that plan year.
(f) In determining the present value of the cumulative accrued
benefits of employees under a defined benefit plan, the
determination shall be made as of the actuarial valuation date
last occurring during the twelve (12) months preceding the
Determination Date and shall be determined on the assumption
that the employees terminated employment on the valuation date
except as provided in section 416 of the Code and the
regulations thereunder for the first and second plan years of
a defined benefit plan. The accrued benefit of any employee
(other than a Key Employee) shall be determined under the
method which is used for accrual purposes for all plans of the
employer or if there is no method which is used for accrual
purposes under all plans of the employer, as if such benefit
accrued not more rapidly than the slowest accrual rate
permitted under Code section 411(b)(1)(C). Unless otherwise
specified in the Adoption Agreement, in determining this
present value, the mortality and interest assumptions shall be
those which would be used by the Pension Benefit Guaranty
Corporation in valuing the defined benefit plan if it
terminated on such valuation date. The accrued benefit to be
valued shall be the benefit expressed as a single life
annuity.
(g) In determining the accounts of employees under a defined
contribution plan, the account values determined as of the
most recent asset valuation occurring within the twelve (12)
month period ending on the Determination Date shall be used.
In addition, amounts required to be contributed under either
the minimum funding standards or the plan's contribution
formula shall be included in determining the account. In the
first year of the plan, contributions made or to be made as of
the Determination Date shall be included even if such
contributions are not required.
(h) If any individual has not performed any services for any
employer maintaining the plan at any time during the five (5)
year period ending on the Determination Date, any accrued
benefit of the individual under a defined benefit plan and the
account of the individual under a defined contribution plan
shall not be taken into account.
(i) For this purpose, a terminated plan shall be treated like any
other plan and must be aggregated with other plans of the
employer if it was maintained within the last five (5) years
ending on the determination date for the plan year in question
and would, but for the fact that it terminated, be part of the
Aggregation Group for such plan year.
SECTION 2
DETERMINATION OF TOP HEAVINESS
Once each Plan Year, as of the Determination Date for that Plan Year, the
administrator of this Plan shall determine if this Plan is a Top Heavy Plan.
SECTION 3
CONTINGENT PROVISIONS
3.1. WHEN APPLICABLE. If this Plan is determined to be a Top Heavy Plan for any
Plan Year, the following provisions shall apply for that Plan Year (and, to the
extent hereinafter specified, for subsequent Plan Years), notwithstanding any
provisions to the contrary in the Plan Statement.
3.2. VESTING REQUIREMENT.
3.2.1. GENERAL RULE. During any Plan Year that the Plan is determined
to be a Top Heavy Plan, then all accounts of all Participants in a defined
contribution plan that is a Top Heavy Plan and the accrued benefits of all
Participants in a defined benefit plan that is a Top Heavy Plan shall be vested
and nonforfeitable in accordance with the following schedule if, and to the
extent, that it is more favorable than other provisions of the Plan Statement:
If the Participant Has His Vested
Completed the Following Percentage
Years of Vesting Service: Shall Be:
Less than 2 years 0%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years but less than 6 years 80%
6 years or more 100%
The above vesting schedule, if applicable, shall apply to all accounts and
benefits within the meaning of section 411(a)(7) of the Code except those
attributable to employee contributions including contributions made and benefits
accrued before the effective date of section 416 of the Code and before the Plan
was a Top Heavy Plan. However, this Section 3.2.1 does not apply to the accounts
of any Participant who does not have an Hour of Service after the Plan has
initially become a Top Heavy Plan, and such Participant's Vested interests shall
be determined without regard to this Section 3.2.1. The minimum allocation
required (to the extent required to be Vested under section 416(b) of the Code)
may not be forfeited under section 411(a)(3)(B) or 411(a)(3)(D) of the Code, and
will be determined without regard to any contribution by the Employer for the
Participant under the Federal Insurance Contribution Act.
3.2.2. SUBSEQUENT YEAR. In each subsequent Plan Year that the Plan is
determined not to be a Top Heavy Plan, the other nonforfeitability provisions of
the Plan Statement (and not this section) shall apply in determining the vested
and nonforfeitable rights of Participants who do not have five (5) or more years
of Vesting Service (three (3) or more years of Vesting Service for Participants
who have one (1) or more Hours of Service in any Plan Year beginning after
December 31, 1988) as of the beginning of such subsequent Plan Year; provided,
however, that they shall not be applied in a manner which would reduce the
vested and nonforfeitable percentage of any Participant. The accounts and
accrued benefits of all other Participants shall be vested and nonforfeitable in
accordance with the more favorable of the schedule in Section 3.2.1 above or
other provisions of the Plan Statement. If the Vesting Schedule under the Plan
shifts in or out of the schedule set forth in Section 3.2.1 for any Plan Year
(because of the Plan's status as a Top Heavy Plan), such shift is an amendment
to the Vesting schedule and the election described in Section 5.2 of the Plan
Statement shall apply.
3.3. DEFINED CONTRIBUTION PLAN MINIMUM BENEFIT REQUIREMENT.
3.3.1. GENERAL RULE. If this Plan is a defined contribution plan, then
for any Plan Year that this Plan is determined to be a Top Heavy Plan, the
Employer shall make a contribution for allocation to the account of each
employee who is a Participant for that Plan Year and who is not a Key Employee
in an amount (when combined with other Employer contributions and forfeited
accounts allocated to his account) which is at least equal to three percent (3%)
of such Participant's compensation attributable to Recognized Employment while a
Participant. This contribution shall be made for each Participant who has not
separated from service with the Employer at the end of the Plan Year (including
for this purpose any Participant who is then on temporary layoff or authorized
leave of absence or who, during such Plan Year, was inducted into the Armed
Forces of the United States from employment with the Employer) including, for
this purpose, each employee of the Employer who would have been a Participant if
he had:
(a) completed one thousand (1,000) Hours of Service (or the
equivalent) during the Plan Year, and
(b) made any mandatory contributions to the Plan, and
(c) earned compensation in excess of the stated amount required
for participation in the Plan.
The provision in this Section 3.3.1 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 Article XIV of the Adoption Agreement that the
minimum allocation or benefit requirement applicable to top-heavy plans will be
met in the other plan or plans.
3.3.2. SPECIAL RULE. Subject to the following rules, the percentage
referred to in Section 3.3.1 of this Appendix shall not exceed the percentage at
which contributions are made (or required to be made) under this Plan for the
Plan Year for that Key Employee for whom that percentage is the highest for the
Plan Year.
(a) The percentage referred to above shall be determined by
dividing the Employer contributions for such Key Employee for
such Plan Year by so much of his compensation for such Plan
Year as does not exceed Two Hundred Thousand Dollars
($200,000).
(b) For the purposes of this Section 3.3, all defined contribution
plans required to be included in an Aggregation Group shall be
treated as one (l) plan.
(c) The exception contained in this Section 3.3.2 shall not apply
to (be available to) this Plan if this Plan is required to be
included in an Aggregation Group if including this Plan in an
Aggregation Group enables a defined benefit plan to satisfy
the qualification requirement that the defined benefit plan
cover a nondiscriminatory group of employees (i.e., either the
so-called "70% test," the "70%/80% test" or the
"nondiscriminatory classification test").
3.3.3. SALARY REDUCTION AND MATCHING CONTRIBUTIONS. For the purpose of
this Section 3.3, all Employer contributions attributable to a salary reduction
or similar arrangement shall be taken into account both for the purpose of
determining the minimum percentage contribution required to be made for a
particular Plan Year for a Participant who is not a Key Employee and for the
purpose of determining whether that minimum contribution requirement has been
satisfied. Effective for Plan Years beginning after December 31, 1988, for the
purpose of this Section 3.3, all Employer contributions attributable to a salary
reduction or similar arrangement and all Employer matching contributions shall
be taken into account for the purpose of determining the minimum percentage
contribution required to be made for a particular Plan Year for a Participant
who is not a Key Employee but not for the purpose of determining whether that
minimum contribution requirement has been satisfied.
3.4. PRIORITIES AMONG PLANS. In applying the minimum benefit provisions of this
Appendix in any Plan Year that this Plan is determined to be a Top Heavy Plan,
the following rules shall apply:
(a) If an employee participates only in this Plan, the employee
shall receive the minimum benefit applicable to this Plan.
(b) If an employee participates in both a defined benefit plan and
a defined contribution plan and only one (l) of such plans is
a Top Heavy Plan for the Plan Year, the employee shall receive
the minimum benefit applicable to the plan which is a Top
Heavy Plan.
(c) If an employee participates in both a defined contribution
plan and a defined benefit plan and both are Top Heavy Plans,
then the employee, for that Plan Year, shall receive the
defined benefit plan minimum benefit unless for that Plan Year
the employee has received employer contributions and
forfeitures allocated to his account in the defined
contribution plan in an amount which is at least equal to five
percent (5%) of his compensation.
(d) If an employee participates in this Plan, and other defined
contribution plans that are Top Heavy, the minimum benefit
shall be made in the plan according to chronological order as
determined by the effective date of each plan (using the
original effective date of the plan) beginning with the most
recently established plan. Any contribution required under
this Section 3.5 for this Plan is reduced by any contribution
made to any other plan sponsored by the Employer.
3.5. ANNUAL CONTRIBUTION LIMITS.
3.5.1. GENERAL RULE. Notwithstanding anything apparently to the
contrary in the Appendix A to the Plan Statement, for any Plan Year that this
Plan is a Top Heavy Plan, the defined benefit fraction and defined contribution
fraction of the Appendix A to the Plan Statement shall be one hundred percent
(100%) and not one hundred twenty-five percent (125%).
3.5.2. SPECIAL RULE. Section 3.5.l of this Appendix shall not apply to
any Top Heavy Plan if such Top Heavy Plan satisfies the following requirements:
(A) MINIMUM BENEFIT REQUIREMENT. The Top Heavy Plan (and any plan
required to be included in an Aggregation Group with such
plan) satisfies the requirements of section 416(c)(1)(B) of
the Code is applied by substituting three percent (3%) for two
percent (2%) and by increasing (but by no more than ten
percentage points) twenty percent (20%) by one percentage
point for each year for which the plan was taken into account
under this Section 3.5. Section 3.3.1 of this Appendix shall
be applied by substituting "four percent (4%)" for "three
percent (3%)." Section 3.4(c) of this Appendix shall be
applied by substituting "seven and one-half percent (7-1/2%)"
for "five percent (5%)."
(B) NINETY PERCENT RULE. A Top Heavy Plan would not be a Top Heavy
Plan if "ninety percent (90%)" were substituted for "sixty
percent (60%)" each place that it appears in the definitions
of Top Heavy Plan and Top Heavy Aggregation Group.
3.5.3. TRANSITION RULE. If, but for this Section 3.5.3, Section 3.5.l
of this Appendix would begin to apply with respect to this Plan because it is a
Top Heavy Plan, the application of Section 3.5.l of this Appendix shall be
suspended with respect to any individual so long as there are no:
(a) employer contributions, forfeitures or voluntary nondeductible
contributions allocated to such individual (if this Plan is a
defined contribution plan), or
(b) accruals for such individual (if this Plan is a defined
benefit plan).
3.5.4. COORDINATING CHANGE. If this Plan is a Top Heavy Plan for any
Plan Year, then for purposes of the Appendix A to the Plan Statement, section
415(e)(6)(i) of the Code shall be applied by substituting "Forty-one Thousand
Five Hundred Dollars ($41,500)" for "Fifty-one Thousand Eight Hundred
Seventy-five Dollars ($51,875)."
APPENDIX C
QUALIFIED DOMESTIC RELATIONS ORDERS
SECTION 1
GENERAL MATTERS
Terms defined in the Plan Statement shall have the same meanings when used in
this Appendix.
1.1. GENERAL RULE. The Plan shall not honor the creation, assignment or
recognition of any right to any benefit payable with respect to a Participant
pursuant to a domestic relations order unless that domestic relations order is a
qualified domestic relations order.
1.2. ALTERNATE PAYEE DEFINED. The only persons eligible to be considered
alternate payees with respect to a Participant shall be that Participant's
spouse, former spouse, child or other dependent.
1.3. DRO DEFINED. A domestic relations order is any judgment, decree or order
(including an approval of a property settlement agreement) which relates to the
provision of child support, alimony payments, or marital property rights to a
spouse, former spouse, child or other dependent of a Participant and which is
made pursuant to a state domestic relations law (including a community property
law).
1.4. QDRO DEFINED. A qualified domestic relations order is a domestic relations
order which creates or recognizes the existence of an alternate payee's right to
(or assigns to an alternate payee the right to) receive all or a portion of the
Account of a Participant under the Plan and which satisfies all of the following
requirements.
1.4.1. NAMES AND ADDRESSES. The order must clearly specify the name and
the last known mailing address, if any, of the Participant and the name and
mailing address of each alternate payee covered by the order.
1.4.2. AMOUNT. The order must clearly specify the amount or percentage
of the Participant's Account to be paid by the Plan to each such alternate payee
or the manner in which such amount or percentage is to be determined.
1.4.3. PAYMENT METHOD. The order must clearly specify the number of
payments or period to which the order applies.
1.4.4. PLAN IDENTITY. The order must clearly specify that it applies to
this Plan.
1.4.5. SETTLEMENT OPTIONS. Except as provided in Section 1.4.8 of this
Appendix, the order may not require the Plan to provide any type or form of
benefits or any option not otherwise provided under the Plan.
1.4.6. INCREASED BENEFITS. The order may not require the Plan to
provide increased benefits.
1.4.7. PRIOR AWARDS. The order may not require the payment of benefits
to an alternate payee which are required to be paid to another alternate payee
under another order previously determined to be a qualified domestic relations
order.
1.4.8. EXCEPTIONS. Notwithstanding Section 1.4.5 of this Appendix:
(a) The order may require payment of benefits be made to an
alternate payee before the Participant has separated from
service:
(i) If the order requires payment as of a date that is on
or after the date on which the Participant attains
(or would have attained) the earliest payment date
described in Section 1.4.10 of this Appendix, or
(ii) If the order requires (A) that payment of benefits be
made to an alternate payee in a single lump sum as
soon as is administratively feasible after the order
is determined to be a qualified domestic relations
order, and (B) does not contain any of the provisions
described in Section 1.4.9 of this Appendix, and (C)
provides that the payment of such single lump sum
fully and permanently discharges all obligations of
the Plan to the alternate payee.
(b) The order may require that payment of benefits be made to an
alternate payee as if the Participant had retired on the date
on which payment is to begin under such order (but taking into
account only the present value of benefits actually accrued).
(c) The order may require payment of benefits to be made to an
alternate payee in any form in which benefits may be paid
under the plan to the Participant (other than in the form of a
joint and survivor annuity with respect to the alternate payee
and his or her subsequent spouse).
1.4.9. DEEMED SPOUSE. Notwithstanding the foregoing:
(a) The order may provide that the former spouse of a Participant
shall be treated as a surviving spouse of such Participant for
the purposes of Section 7 of the Plan Statement (and that any
subsequent or prior spouse of the Participant shall not be
treated as a spouse of the Participant for such purposes), and
(b) The order may provide that, if the former spouse has been
married to the Participant for at least one (1) year at any
time, the surviving former spouse shall be deemed to have been
married to the Participant for the one (1) year period ending
on the date of the Participant's death.
1.4.10. PAYMENT DATE DEFINED. For the purpose of Section 1.4.8 of this
Appendix, the earliest payment date means the earlier of:
(a) The date on which the Participant is entitled to a
distribution under the Plan, or
(b) The later of (i) the date the Participant attains age fifty
(50) years, or (ii) the earliest date on which the Participant
could begin receiving benefits under the plan if the
Participant separated from service.
SECTION 2
PROCEDURES
2.1. ACTIONS PENDING REVIEW. During any period when the issue of whether a
domestic relations order is a qualified domestic relations order is being
determined by the Administrator's Representative, the Administrator's
Representative shall cause the Plan to separately account for the amounts which
would be payable to the alternate payee during such period if the order were
determined to be a qualified domestic relations order.
2.2. REVIEWING DRO'S. Upon the receipt of a domestic relations order, the
Administrator's Representative shall determine whether such order is a qualified
domestic relations order.
2.2.1. RECEIPT. A domestic relations order shall be considered to have
been received only when the Administrator's Representative shall have received a
copy of a domestic relations order which is complete in all respects and is
originally signed, certified or otherwise officially authenticated.
2.2.2. NOTICE TO PARTIES. Upon receipt of a domestic relations order,
the Administrator's Representative shall notify the Participant and all persons
claiming to be alternate payees and all prior alternate payees with respect to
the Participant that such domestic relations order has been received. The
Administrator's Representative shall include with such notice a copy of this
Appendix.
2.2.3. COMMENT PERIOD. The Participant and all persons claiming to be
alternate payees and all prior alternate payees with respect to the Participant
shall be afforded a comment period of thirty (30) days from the date such notice
is mailed by the Administrator's Representative in which to make comments or
objections to the Administrator's Representative concerning whether the domestic
relations order is a qualified domestic relations order. By the unanimous
written consent of the Participant and all persons claiming to be alternate
payees and all prior alternate payees with respect to the Participant, the
thirty (30) day comment period may be shortened.
2.2.4. INITIAL DETERMINATION. Within a reasonable period of time after
the termination of the comment period, the Administrator's Representative shall
give written notice to the Participant and all persons claiming to be alternate
payees and all prior alternate payees with respect to the Participant of its
decision that the domestic relations order is or is not a qualified domestic
relations order. If the Administrator's Representative determines that the order
is not a qualified domestic relations order or if the Administrator's
Representative determines that the written objections of any party to the order
being found a qualified domestic relations order are not valid, the
Administrator's Representative shall include in its written notice:
(i) the specific reasons for its decision,
(ii) the specific reference to the pertinent provisions of
this Plan Statement upon which its decision is based,
(iii) a description of additional material or information,
if any, which would cause the Administrator's
Representative to reach a different conclusion, and
(iv) an explanation of the procedures for reviewing the
initial determination of the Administrator's
Representative.
2.2.5. APPEAL PERIOD. The Participant and all persons claiming to be
alternate payees and all prior alternate payees with respect to the Participant
shall be afforded an appeal period of sixty (60) days from the date such an
initial determination and explanation is mailed in which to make comments or
objections concerning whether the original determination of the Administrator's
Representative is correct. By the unanimous written consent of the Participant
and all persons claiming to be alternate payees and all prior alternate payees
with respect to the Participant, the sixty (60) day appeal period may be
shortened.
2.2.6. FINAL DETERMINATION. In all events, the final determination of
the Administrator's Representative shall be made not later than eighteen (18)
months after the date on which first payment would be required to be made under
the domestic relations order if it were a qualified domestic relations order.
The final determination shall be communicated in writing to the Participant and
all persons claiming to be alternate payees and all prior alternate payees with
respect to the Participant.
2.3. FINAL DISPOSITION. If the domestic relations order is finally determined to
be a qualified domestic relations order and all comment and appeal periods have
expired, the Plan shall pay all amounts required to be paid pursuant to the
domestic relations order to the alternate payee entitled thereto. If the
domestic relations order is finally determined not to be a qualified domestic
relations order and all comment and appeal periods have expired, benefits under
the Plan shall be paid to the person or persons who would have been entitled to
such amounts if there had been no domestic relations order.
2.4. ORDERS BEING SOUGHT. If the Administrator's Representative has notice that
a domestic relations order is being or may be sought but has not received the
order, the Administrator's Representative shall not (in the absence of a written
request from the Participant) delay payment of benefits to a Participant or
beneficiary which otherwise would be due. If the Administrator's Representative
has determined that a domestic relations order is not a qualified domestic
relations order and all comment and appeal periods have expired, the
Administrator's Representative shall not (in the absence of a written request
from the Participant) delay payment of benefits to a Participant or beneficiary
which otherwise would be due even if the Administrator's Representative has
notice that the party claiming to be an alternate payee or the Participant or
both are attempting to rectify any deficiencies in the domestic relations order.
SECTION 3
PROCESSING OF AWARD
3.1. GENERAL RULES. If a benefit is awarded to an alternate payee pursuant to an
order which has been finally determined to be a qualified domestic relations
order, the following rules shall apply.
3.1.1. SOURCE OF AWARD. If a Participant shall have a Vested interest
in more than one Account under the Plan, the benefit awarded to an alternate
payee shall be withdrawn from the Participant's Accounts in proportion to his
Vested interest in each of them.
3.1.2. EFFECT ON ACCOUNT. For all purposes of the Plan, the
Participant's Account (and all benefits payable under the Plan which are derived
in whole or in part by reference to the Participant's Account) shall be
permanently diminished by the portion of the Participant's Account which is
awarded to the alternate payee. The benefit awarded to an alternate payee shall
be considered to have been a distribution from the Participant's Account for the
limited purpose of applying the rules of Section 5.1.3 of the Plan Statement.
3.1.3. AFTER DEATH. After the death of an alternate payee, all amounts
awarded to the alternate payee which have not been distributed to the alternate
payee and which continue to be payable shall be paid in a single lump sum
distribution to the personal representative of the alternate payee's estate as
soon as administratively feasible unless the qualified domestic relations order
clearly provides otherwise. The Participant's beneficiary designation shall not
be effective to dispose of any portion of the benefit awarded to an alternate
payee unless the qualified domestic relations order clearly provides otherwise.
3.1.4. IN-SERVICE BENEFITS. The in-service distribution and the loan
provisions of Section 7 of this Plan Statement shall not be applicable to the
benefit awarded to an alternate payee.
3.2. SEGREGATED ACCOUNT. If the Administrator's Representative determines that
it would facilitate the administration or the distribution of the benefit
awarded to the alternate payee or if the qualified domestic relations order so
requires, the benefit awarded to the alternate payee shall be established on the
books and records of the Plan as a separate account belonging to the alternate
payee.
3.3. FORMER ALTERNATE PAYEES. If an alternate payee has received all benefits to
which the alternate payee is entitled under a qualified domestic relations
order, the alternate payee will not at any time thereafter be deemed to be an
alternate payee or prior alternate payee for any substantive or procedural
purpose of this Plan.
APPENDIX D
HIGHLY COMPENSATED EMPLOYEE
SECTION 1
GENERAL RULE
1.1. HIGHLY COMPENSATED EMPLOYEE. A "highly compensated employee" is any
employee who, during the "determination year" or the "look-back year":
(i) was at any time a five percent (5%) owner;
(ii) received compensation from the Employer in excess of
Seventy-Five Thousand Dollars ($75,000);
(iii) received compensation from the Employer in excess of
Fifty Thousand Dollars ($50,000) and was in the
top-paid group of employees for such year; or
(iv) was at any time an officer and received compensation
greater than 50 percent (50%) of the amount in effect
under section 415(b)(1)(A) of the Code for such year.
The group of employees (including former employees) who are highly compensated
employees consists of both highly compensated active employees and highly
compensated former employees. The determination of who is a highly compensated
employee will be made in accordance with this Appendix D and section 414(q) of
the Code and the regulations thereunder.
1.2. DETERMINATION YEAR. The determination year is the current Plan Year (that
is, the Plan Year for which the determination of which employees are highly
compensated employees is being made).
1.3. LOOK-BACK YEAR. The look-back year is the twelve-month period immediately
preceding the determination year (generally, the preceding Plan Year). The
Employer does not elect to make the look-back year calculation on the basis of
the calendar year ending with or within the determination year.
1.4. SPECIAL RULE FOR DETERMINATION YEAR. An employee not described in Section
1.1 (ii), (iii) or (iv) for the look-back year shall not be treated as described
in Section 1.1 (ii), (iii) or (iv) for the determination year unless such
employee is a member of the group consisting of the one hundred (100) employees
paid the greatest compensation during the determination year. If there is no
difference in compensation between the 100th employee and the 101st employee,
then those employees receiving the same compensation as the 100th employee shall
be ranked in descending order of seniority, with the employee with the greatest
seniority being ranked first.
1.5. HIGHLY COMPENSATED ACTIVE EMPLOYEE. A highly compensated active employee is
any highly compensated employee who performs services for the Employer during
the determination year.
1.6. HIGHLY COMPENSATED FORMER EMPLOYEE. A highly compensated former employee is
any former employee who had a "separation year" (as defined in Section 2.9)
prior to the determination year and was a highly compensated active employee for
either (1) such employee's separation year or (2) any determination year ending
on or after the employee's 55th birthday. An employee who performs no services
for the Employer during a determination year is treated as a former employee.
SECTION 2
SPECIAL RULES & DEFINITIONS
2.1. INCORPORATED DEFINITIONS. Terms defined in the Plan Statement shall have
the same meanings when used in this Appendix. References to the "Code" shall
mean the Internal Revenue Code, as amended from time to time.
2.2. FIVE PERCENT OWNER. An employee shall be treated as a five percent (5%)
owner for any determination year or look-back year if at any time during such
year such employee was a five percent (5%) owner (as defined in the Appendix B
to this Plan Statement) of the Employer.
2.3. TOP-PAID GROUP. An employee is in the top-paid group of employees for any
determination year or look-back year if such employee is in the group consisting
of the top twenty percent (20%) of the employees when ranked on the basis of
compensation paid during such year, excluding those employees described in
Section 2.10. For purposes of the preceding sentence, the top twenty percent
(20%) shall be determined by disregarding fractional numbers (i.e., the top 20%
of 118 employees shall be the top 23 employees). Employees who perform no
services for the Employer during the year are not included in determining the
top-paid group of employees for that year.
2.4. SPECIAL RULES FOR OFFICERS.
2.4.1. NOT MORE THAN 50 OFFICERS. For purposes of Section 1.1(iv) of
this Appendix, no more than fifty (50) employees (or, if lesser, the greater of
three employees or ten percent of the employees) shall be treated as officers.
If the actual number of officers exceeds this limit, then the officers who will
be considered as includible officers under Section 1.1(iv) are those who receive
the greatest compensation from the Employer during the determination year or the
look-back year.
2.4.2. AT LEAST 1 OFFICER. If for any determination year or look-back
year no officer of the Employer is described in Section 1.1(iv) of this
Appendix, the highest paid officer of the Employer for such year shall be
treated as described in such Section 1.1(iv). This is true whether or not such
employee is also a highly compensated employee on any other basis.
2.5. FORMER EMPLOYEES EXCLUDED FOR CERTAIN PURPOSES. Former employees are not
included in the top-paid group, the group consisting of the one hundred (100)
employees paid the greatest compensation or the group of includible officers for
purposes of determining who are highly compensated active employees. In
addition, former employees are not counted as employees for purposes of
determining the number of employees in the top-paid group.
2.6. EMPLOYEES DESCRIBED IN SEVERAL GROUPS. An employee who is a highly
compensated active employee for a determination year by reason of being
described in one group under Section 1.1 for either the determination year or
the look-back year, shall not be disregarded in determining whether another
employee is a highly compensated active employee by reason of being described in
another group under Section 1.1.
2.7. CERTAIN FAMILY MEMBERS.
2.7.1. IN GENERAL. If any individual is a member of the family of a
five percent (5%) owner or of a highly compensated employee in the group
consisting of the ten (10) highly compensated employees paid the greatest
compensation during the determination year or the look-back year, then:
(i) such individual shall not be considered a separate
employee; and
(ii) any compensation paid to such individual (and any
applicable contribution or benefit on behalf of such
individual) shall be treated as if it were paid to
(or on behalf of) the five percent (5%) owner or
highly compensated employee.
Family members are subject to this aggregation rule whether or not they may be
excluded under Section 2.10 for purposes of determining the top-paid group and
whether or not they are highly compensated employees when considered separately.
2.7.2. FAMILY. For purposes of Section 2.7.1 of this Appendix, the term
"family" means, with respect to any employee, such employee's spouse and lineal
ascendants or descendants and the spouses of such lineal ascendants or
descendants.
2.7.3. PRIORITY. The determination of which employees are highly
compensated employees and which highly compensated employees are among the ten
highly compensated employees paid the greatest compensation during the
determination year or the look-back year shall be made prior to the application
of the family aggregation rules. Similarly, the determination of the number and
identity of employees in the top-paid group for a determination year or a
look-back year and the identity of the group of employees consisting of the 100
employees paid the greatest compensation for a determination year shall be made
prior to the application of the family aggregation rules. The family aggregation
rules apply separately to the determination year and the look-back year.
2.7.4. CHANGE IN FAMILY RELATIONSHIP. An individual is a family member
with respect to an employee or former employee if such individual is a family
member on any day during the determination year or the look-back year, even
though such relationship changes during such year as a result of death or
divorce.
2.8. COMPENSATION. For purposes of this Appendix the term "compensation" means
"ss. 415 compensation" as defined in Appendix A to this Plan Statement but
including amounts contributed by the Employer pursuant to a salary reduction
agreement which are excludible from the Participant's gross income under section
125, section 402(a)(8), section 402(h) or section 403(b) of the Code.
Compensation for any employee who performed services for only part of a year is
not annualized for purposes of determining such employee's compensation for the
determination year or the look-back year.
2.9. SEPARATION YEAR. Generally the "separation year" is the determination year
during which the employee separates from service with the Employer. An employee
who performs no services for the Employer during a determination year will be
treated as having separated from service in the year in which that employee last
performed services for the Employer.
2.9.1. DEEMED SEPARATION. Solely for the purpose of determining whether
an employee is a highly compensated former employee after the employee actually
separates from service, an employee may be deemed to have separated from service
during a determination year in which the employee actually performs some
services for the Employer. An employee will be deemed to have a separation year
if, in a determination year prior to the employee's attaining the age of 55, the
employee receives compensation in an amount less than 50% of the employee's
average annual compensation for the three consecutive calendar years preceding
such determination year during which the employee received the greatest amount
of compensation from the Employer (or the total period of the employee's service
with the Employer, if less). This deemed separation from service may occur
without regard to whether the reduction in compensation occurs on account of the
employee's leave of absence from service with the Employer.
2.9.2. DEEMED RESUMPTION. An employee who is treated as having a deemed
separation year by reason of Section 2.9.1 will not be treated as a highly
compensated former employee after such employee actually separates from service
with the Employer if, after such deemed separation year, and before the year of
actual separation, such employee's compensation from the Employer for a
particular determination year increased significantly so that such employee is
treated as having a deemed resumption of employment. In order for a deemed
resumption of employment to occur, there must be an increase in compensation
from the Employer to the extent that such compensation would not result in a
deemed separation year under Section 2.9.1 using the same three-year period
taken into account for purposes of that Section.
2.10. EXCLUDED EMPLOYEES.
2.10.1. GENERAL EXCLUSIONS. For purposes of determining the number of
employees in the top-paid group for a determination year or a look-back year
under Section 2.3 of this Appendix, the following employees shall be excluded:
(i) employees who have not completed six (6) months of
service by the end of the year;
(ii) employees who normally work less than seventeen and
one-half (17-1/2) hours per week;
(iii) employees who normally work during less than six (6)
months during the year; and
(iv) employees who have not attained age twenty-one (21)
by the end of the year.
For purposes of computing months of service, an employee's service in the
immediately preceding year is added to service in the current year to determine
whether an employee is excluded in the current year.
2.10.2. EMPLOYEES COVERED BY COLLECTIVE BARGAINING AGREEMENTS. In
general, employees who are included in a unit of employees covered by a
collective bargaining agreement are included in determining the number of
employees in the top-paid group. However, if ninety percent (90%) or more of all
employees are covered under collective bargaining agreements and this Plan
covers only employees who are not covered under such agreements, then the
employees who are covered under such collective bargaining agreements shall not
be counted in determining the number of employees who will be included in the
top-paid group. In addition, the employees covered by such agreements will not
be included in the top-paid group.
2.10.3. MINIMUM HOUR RULE. An employee who works at least 17-1/2 hours
a week for 50% or more of the total weeks worked by such employee during a
determination year or look-back year is deemed to normally work more than 17-1/2
hours a week. An employee who works less than 17-1/2 hours a week for fifty
percent (50%) or more of the total weeks worked by such employee during a
determination year or look-back year is deemed to normally work less than 17-1/2
hours a week. The foregoing determinations may be made separately with respect
to each employee or on the basis of groups of employees who fall within
particular job categories as established by the Employer on a reasonable basis.
In general, eighty percent (80%) of the positions within a particular job
category must be filled by employees who normally work less than 17-1/2 hours a
week before any employees may be excluded under this rule on the basis of their
membership in that job category. Alternatively, an Employer may exclude
employees who are members of a particular job category if the median number of
hours credited to employees in that category during a determination year or
look-back year is 500 or less.
2.10.4. MINIMUM PERIOD OF TIME RULE. The determination of whether an
employee normally works during less than six months in any determination year or
look-back year is made on the basis of the facts and circumstances of the
Employer as evidenced by the Employer's customary experience in the years
preceding such year. An employee who works on one day during a month is deemed
to have worked during that month.
2.10.5. NONRESIDENT ALIENS. Employees who are nonresident aliens and
who receive no earned income (within the meaning of section 911(d)(2) of the
Code) from the employer which constitutes income from sources within the United
States (within the meaning of section 861(a)(3) of the Code) are excluded for
all purposes of this Appendix.
2.11. ADJUSTMENTS TO DOLLAR AMOUNTS. The dollar amounts described in Section 1.1
(ii) and (iii) shall be adjusted for cost-of-living increases as provided by
regulations or other rulings by the Secretary of the Treasury. The applicable
dollar amount for a particular determination year shall be the dollar amount for
the calendar year in which the determination year begins. For determination
years beginning before January 1, 1987, the dollar amounts in Section 1.1 (ii)
and (iii) shall be $75,000 and $50,000 respectively.
2.12. ELECTION TO INCLUDE LEASED EMPLOYEES. The term "employee" shall include
all leased employees of the Employer, whether or not such leased employees are
covered by a "safe-harbor plan" as described in section 414(n)(5) of the Code.
2.13. AGGREGATION. Subsections (b), (c), (m), (n), and (o) of section 414 of the
Code shall be applied before the application of the rules in this Appendix.
2.14. ELECTION OF SPECIAL RULE FOR EMPLOYEES WHO SEPARATED FROM SERVICE BEFORE
JANUARY 1, 1987. For purposes of determining who is a highly compensated former
employee for this Plan and for all plans of the Employer with respect to all
situations for which section 414(q) of the Code is applicable to the Employer, a
former employee who separated from service prior to January 1, 1987, shall be
considered a highly compensated former employee if, during the employee's
separation year (or the year preceding such separation year) or during any year
ending on or after such employee's 55th birthday (or the last year ending before
such employee's 55th birthday), the employee was a five percent (5%) owner of
the Employer at any time during such year, or the employee received compensation
in excess of $50,000 during such year. This determination may be made on the
basis of the calendar year, the Plan Year or any other twelve month period
selected by the Employer and applied on a reasonable and consistent basis.
APPENDIX E
TEFRA ss. 242(B) TRANSITIONAL RULES
SECTION 1. IN GENERAL. Prior to January 1, 1984, each individual who was either:
(a) an actively employed Participant having an Account (or a
contribution accrued to an Account) as of December 31, 1983,
(b) a Participant not actively employed but having an Account (or
a contribution accrued to an Account) as of December 31, 1983,
or
(c) a Beneficiary of a deceased Participant having an Account (or
a contribution accrued to an Account) as of December 31, 1983
was given the opportunity to make a designation (before January 1, 1984) of a
method of distribution, that would not have disqualified the Plan under section
401(a)(9) of the Code as in effect prior to amendment by the Deficit Reduction
Act of 1984, pursuant to ss. 242(b) of the Tax Equity and Fiscal Responsibility
Act of 1982 (hereinafter a "ss. 242(b) designation"). Some of those individuals
elected to make a ss. 242(b) designation and some did not. The distribution
rules set forth in this Appendix shall, notwithstanding any provisions of
Section 7 of the Plan Statement to the contrary, determine the distributions
made with respect to all individuals entitled to make a ss. 242(b) designation,
provided that if the Plan is not an exempt profit sharing plan, the QJ&SA
contract or Life Annuity contract has been rejected as described in Section 7 of
the Plan Statement. Distributions made with respect to individuals not entitled
to make a ss. 242(b) designation shall be governed solely by Section 7 of the
Plan Statement.
SECTION 2. NO DESIGNATION. In the case of distributions to an individual where
no ss. 242(b) designation was made, distributions after December 31, 1983 shall
be made as follows:
(a) If such individual is a Participant whose benefits were in pay
status on December 31, 1983, and the method of distribution in
effect for such Participant was consistent with the provisions
of the Plan Statement at the time such distribution commenced,
then distribution shall continue to be made to such
Participant in accordance with the method of distribution in
effect on December 31, 1983, notwithstanding that distribution
could not have commenced under such method after December 31,
1983.
(b) If such individual is a Beneficiary whose benefits were in pay
status on December 31, 1983, and the method of distribution in
effect for such Beneficiary was consistent with the provisions
of the Plan Statement at the time such distribution commenced,
then distribution shall continue to be made to such
Beneficiary in accordance with the method of distribution in
effect on December 31, 1983, notwithstanding that distribution
could not have commenced under such method after December 31,
1983.
(c) If such individual is a Participant or a Beneficiary whose
benefits were not in pay status on December 31, 1983,
distribution shall be made in accordance with Section 7 of the
Plan Statement and, to the extent distribution cannot then be
made upon terms which are consistent with the provisions of
Section 7 of the Plan Statement, distribution shall be made as
soon as practicable after December 31, 1983 in a single lump
sum.
(d) For the purpose of the foregoing, benefits shall be considered
to have been in pay status on December 31, 1983 if
distribution had commenced on or prior to that date and was
being made under a written instrument signed by the
Participant or Beneficiary which fixed the person to whom such
benefits were payable, the time or times at which
distributions would be made and the amount (or formula
pursuant to which the amount would be determined) of each
distribution and was not subject to variation at the
discretion of the Participant or the Administrator's
Representative unless such variation would cause the
acceleration of distributions.
(e) Examples of circumstances in which distribution could not be
made upon terms consistent with the provisions of Section 7 of
the Plan Statement (and therefore would have to be made in a
single lump sum) include, but are not be limited to,
distribution to a Participant who was a key employee in a top
heavy plan and who had attained age seventy and one-half
(70-1/2) years before 1984, distribution to a Beneficiary who
was not the surviving spouse of the Participant if the
Participant died prior to 1979, and distribution to a
Beneficiary who is the surviving spouse of a Participant who
dies after December 31, 1983 at a time when distributions were
being made to such Participant for a term certain which
extended beyond the life expectancy of such Participant and
surviving spouse.
SECTION 3. DESIGNATION MADE. In the case of distributions to an individual where
a ss. 242(b) designation was made before January 1, 1984, the Administrator's
Representative shall honor such ss. 242(b) designation in making distributions
hereunder to all individuals identified in such ss. 242(b) designation. For this
purpose:
(a) A ss. 242(b) designation shall, to the extent necessary, be
deemed to incorporate by reference either the written
beneficiary designation filed by the Participant prior to or
coincident with the filing of a ss. 242(b) designation or, if
no such written beneficiary designation has been filed, the
automatic sequence of Beneficiaries provided under the Plan
document in effect on December 31, 1983.
(b) An individual who made a ss. 242(b) designation shall have the
right to revoke any ss. 242(b) designation filed by him at any
time by a written instrument delivered to the Employer. Upon
such revocation, distribution shall be made in accordance with
the provisions of Section 7 of the Plan Statement. To the
extent that distribution cannot then be made upon terms
consistent with the provisions of Section 7 of the Plan
Statement, distribution shall be made, as soon as practicable
after such revocation, in a single lump sum.
(c) A Beneficiary entitled to distribution under this Plan shall
have the right to revoke the ss. 242(b) designation insofar as
it applies to such Beneficiary. Upon such revocation,
distribution shall be made in accordance with the provisions
of Section 7 of the Plan Statement. If a designation is
revoked subsequent to the date distributions are required to
begin under Section 7 of the Plan Statement, 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 7 of the Plan Statement,
but for the ss. 242(b) election. For calendar years beginning
after December 31, 1988, such distributions must meet the
minimum distribution incidental benefit requirements in Treas.
Reg. 1.401(a)(9)-2 (proposed). Any changes in the ss. 242(b)
designation will be considered to be a revocation of the
ss. 242(b) designation. However, the mere substitution or
addition of another beneficiary (one not named in the
ss. 242(b) designation) under the ss. 242(b) designation will
not be considered to be a revocation of the ss. 242(b)
designation, so long as such substitution or addition does not
alter the period over which distribution are to be made under
the ss. 242(b) 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 of Treas.
Reg. 1.401(a)(9)-1 (proposed) shall apply.
(d) If a Participant shall have filed a ss. 242(b) designation and
shall subsequently file (or amend) a written beneficiary
designation under the Plan, the ss. 242(b) designation shall
not be deemed to be revoked and the relevant measuring life or
lives for purposes of the ss. 242(b) designation shall
continue to be determined as described in paragraph (a) above,
without regard to any subsequent filing (or amendment) of a
written beneficiary designation or any subsequent amendment of
the automatic sequence of Beneficiaries under the Plan
Statement.
(e) A distribution to a Beneficiary will be governed by Section 7
of the Plan Statement, unless the ss. 242(b) designation
identifies the Beneficiary, specifies the time at which
distribution will commence and the period over which
distribution will be made with respect to the distribution to
be made upon the death of the Participant.
(f) For any distribution which commences before January 1, 1984,
but continues after December 31, 1983, the Participant 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
satisfied the requirements in Section 1 and Section 3(e) of
this Appendix.
APPENDIX F
TRANSITIONAL DISTRIBUTION RULES
The Prototype Sponsor adopted the following memorandum and amendment:
MEMORANDUM AND AMENDMENT
TO: Sponsoring Employers of 401(k) Prototype
FROM: First Trust National Association ("Prototype Sponsor")
RE: Distributions from Plan
DATE: December 23, 1988
The Internal Revenue Service recently issued regulations which limit
the existence or the use of any Employer, Trustee, Administrator's
Representative or other similar discretion over the benefit forms under
qualified plans. In response to those regulations, the Prototype Sponsor decided
to amend the 401(k) Prototype pursuant to its reserved power of amendment. This
amendment is being adopted to protect and preserve the sponsoring Employer's
ability to design its own distribution rules for its Plan. If the Prototype
Sponsor did not take this action, all the options and decisions would be
surrendered to Participants or Beneficiaries. Accordingly, the Prototype
Sponsor's decision to amend the 401(k) Prototype gives sponsoring Employers time
to decide how to respond to these regulations.
Pursuant to Section 9.1.2 of the Basic Plan Document, the Prototype
Sponsor hereby amends the Basic Plan Document (and corresponding Adoption
Agreement) effective as of January 1, 1989, as follows:
SMALL AMOUNT DISTRIBUTIONS. A Vested Total Account which does not exceed Three
Thousand Five Hundred Dollars ($3,500) on the Annual Valuation Date immediately
following a Participant's Event of Maturity shall be automatically distributed
to the Participant in a lump sum as of that Annual Valuation Date without a
written application. The sponsoring Employer may in a written agreement with the
Prototype Sponsor modify this rule to increase the number of times each year
that a small amount distribution can be made (within limitations established by
the Prototype Sponsor).
TIME OF DISTRIBUTION. Distributions from the Plan may only be made as of an
Annual Valuation Date coincident with or following a Participant's Event of
Maturity. Thus, distributions shall only be made once a Plan Year. The
sponsoring Employer may in a written agreement with the Prototype Sponsor modify
this rule to increase the number of times each year that distributions can be
made (within limitations established by the Prototype Sponsor).
FORM OF DISTRIBUTION. Distributions from the Plan shall only be made in a lump
sum payment. This rule shall not apply to Participants and Beneficiaries
currently receiving payments under a specified plan of installment payments or
to Participants who have made a valid designation of a method of distribution
pursuant to section 242(b) of the Tax Equity and Fiscal Responsibility Act of
1982. The sponsoring Employer may in a written agreement with the Prototype
Sponsor modify this rule to increase the distribution options (within
limitations established by the Prototype Sponsor).
ELECTION TO DEFER. The election to defer described in Section 7.2.3 of the Basic
Plan Document and all references to that Section are deleted.
DISTRIBUTION IN CASH. All distributions from the Plan shall be made in cash. If,
however, the Vested Total Account to be distributed consists in whole or in part
of a Participant's unpaid promissory note, the distribution of that portion of
the Vested Total Account shall be made in the form of that promissory note. If
the Vested Total Account to be distributed consists in whole or in part of a
Participant's individually directed investments, the distribution of that
portion of the Vested Total Account shall be made in the form of the assets held
pursuant to that individual direction.
WITHDRAWALS FROM VOLUNTARY ACCOUNTS. If the Adoption Agreement allows
Participants to withdraw their nondeductible voluntary contributions and
deductible voluntary contributions, a Participant must submit a written
application specifying the amount of the withdrawal. The withdrawal will be made
as of the Annual Valuation Date coincident with or next following the approval
of a completed application and such withdrawal shall be made in a lump sum cash
payment as soon as practicable after such Annual Valuation Date. The sponsoring
Employer may in a written agreement with the Prototype Sponsor modify this rule
to increase the number of times each year that withdrawals can be made (within
limitations established by the Prototype Sponsor).
WITHDRAWALS FROM RETIREMENT SAVINGS ACCOUNT (401(K)). Notwithstanding the
elections made in the previously completed Adoption Agreement, distributions
from the Retirement Savings Account during employment shall not be allowed. The
sponsoring Employer may in a written agreement with the Prototype Sponsor modify
this rule to allow in-service distributions in limited circumstances (within
limitations established by the Prototype Sponsor).
WITHDRAWALS FROM OTHER ACCOUNTS. Notwithstanding the elections made in the
previously completed Adoption Agreement, distributions from accounts (other than
from the Retirement Savings Account) during employment shall not be allowed. The
sponsoring Employer may in a written agreement with the Prototype Sponsor modify
this rule to allow in-service distributions in limited circumstances (within
limitations established by the Prototype Sponsor).
Section 9.1.2 of the Basic Plan Document provides that an Employer
shall be deemed to have consented to the amendment described in this memorandum
unless prior to thirty (30) days after the date this memorandum is sent, the
Employer exercises its reserved power of amendment by adopting a successor
retirement plan. You will note that a number of the rules described in this
memorandum allow the sponsoring Employer and the Prototype Sponsor to agree to
modifications. If you want to modify those rules, please contact your Trust
Officer to discuss possible modifications.
The following Supplemental Adoption Agreement may have been completed by the
Employer:
SUPPLEMENTAL ADOPTION AGREEMENT
FOR USE WITH
ss. 401(K) PROTOTYPE
By execution of this Supplemental Adoption Agreement, the Employer and
the Trustee agree that the ss. 401(k) Prototype and previously executed Adoption
Agreement are modified as follows:
A. EFFECTIVE DATE. The date upon which this Supplemental Adoption
Agreement is to be effective is: _______________, 19____.1/
B. VALUATION DATES. The Valuation Dates for the Plan shall be (check only
one):2/
____ the Annual Valuation Date.
____ the last day of the 6th month and the last month of the Plan
Year.
____ the last day of the 3rd, 6th, 9th and the last month of the
Plan Year.
____ the last day of each month of the Plan Year.
[ss. 1.1.32]
C. TIME OF DISTRIBUTION.3/
C.1. VALUATION DATES. Distribution will occur (check only one):
____ As of any Valuation Date specified in writing by the
Participant or Beneficiary which is coincident with or
following a Participant's Event of Maturity and following the
filing of any required application for distribution.
____ As of a date specified in writing by the Participant or
Beneficiary which is the Valuation Date coincident with or
immediately preceding the Participant's Event of Maturity or
any following Valuation Date preceding the filing of any
required application for distribution.4/
____ As of a date specified in writing by the Participant or
Beneficiary which is the Valuation Date immediately preceding
or coincident with the Participant's Event of Maturity or any
Valuation Date following a Participant's Event of Maturity and
the filing of any required application for distribution.4/
C.2. RESTRICTIONS. (Complete if want restrictions, if do not want a
restriction enter NA):
No distribution will be made until ____ years have elapsed
since the Participant's Event of Maturity and until the
Participant has attained ___ age. After those events have
occurred, distribution will be made as of the Valuation Date
(as selected in C.1.) specified in writing by the Participant.
If the Participant dies, becomes Disabled or attains Normal
Retirement Age, however, distribution will occur as of the
Valuation Date (as selected in C.1.) specified in writing by
the Participant (or, if applicable, the Beneficiary) following
such event.
[ss. 7.2]
D. FORM OF DISTRIBUTION. Participants will be allowed to receive
distributions in one of the following form or forms (check one or
more):
____ Lump Sum - (check only one of the lump sum options):
____ Lump sum - single payment as of the Valuation Date
specified by the Participant and allowed in C.1.
____ Lump sum - including if the Participant requests, a
partial advance payment not to exceed the value of
the Vested Total Account on the Valuation Date
immediately preceding the Participant's Event of
Maturity.5/
____ Term Certain Installments - substantially equal annual
installments, the number of such installments to be specified
by the Participant before the first payment is made, but not
to exceed the Participant's life expectancy and to commence as
required by section 401(a)(9) of the Internal Revenue Code.6/
Beneficiaries will be allowed to receive distributions in one of the following
form or forms (check one or more):
____ Lump Sum - (check only one of the lump sum options):
____ Lump sum - single payment as of the Valuation Date
specified by the Beneficiary and allowed in C.1.
____ Lump sum - including if the Beneficiary requests, a
partial advance payment not to exceed the value of
the Vested Total Account on the Valuation Date
immediately preceding the Participant's death.5/
____ Term Certain Installments7/
____ 5 years of substantially equal annual installments
commencing within one year of the Participant's
death.
____ Substantially equal annual installments based on the
Beneficiary's life expectancy commencing within one
year of the Participant's death.
____ Substantially equal annual installments payable to
the Participant's spouse (if such spouse is a
Beneficiary) based on the spouse's life expectancy
commencing not later than when the Participant would
have attained age 70-1/2 years.
[ss. 7.3]
E. ACCELERATED DISTRIBUTIONS. Distributions from Accounts during employment are
available to Participants for the following purposes:8/
____ medical expenses described in section 213(d) of the Internal
Revenue Code incurred by the Participant, the Participant's
spouse or any dependents of the Participant (as defined in
section 152 of the Internal Revenue Code).9/
____ the purchase (excluding mortgage payments) of a principal
residence of the Participant.9/
____ payment of tuition for the next semester or quarter of
post-secondary education for the Participant, his or her
spouse, children or dependents.9/
____ the need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence.9/
____ attainment of age 59-1/2 years.
Accelerated distributions during employment, however, will NOT be allowed from
the following Accounts (one or more may be checked):
____ Retirement Savings Account
____ Employer Contributions Account
____ Employer Matching Account
____ Nondeductible Voluntary Account
____ Rollover Account
____ Transfer Account
____ Deductible Voluntary Account
[ss. 7.9 and ss. 7.10]
FOR THE EMPLOYER
_____________, 19___ ____________________________________
(Signature and official capacity)
FOR THE TRUSTEE
_____________, 19___ By _________________________________
Its _____________________________
And ________________________________
Its ____________________________
FOOTNOTES
1/ The date must be on or after January 1, 1989.
2/ Valuation Dates shall also determine the number of times distributions
from the Plan shall be allowed. This includes small amount
distributions, distributions after an Event of Maturity and all
in-service distributions. Thus, in selecting the number of Valuation
Dates, the Employer is also selecting the number of distribution dates.
Decreasing the number of distribution dates shall be limited in certain
situations. Notwithstanding Section 1.1.32 of the Basic Plan Document,
the Administrator's Representative cannot designate Valuation Dates
other than the Valuation Dates designated in this Supplemental Adoption
Agreement.
3/ This rule only applies if a written application for distribution is
required. Thus, the rule does not apply to small amount distributions
and to required beginning date distributions.
4/ The selection of this option carries with it the risk of adverse
selection for investment performance that will be borne by the
remaining Participants and Beneficiaries and not the Distributee.
5/ This option can only be selected if the Plan provides Annual
Valuations. If the Distributee requests a partial payment, the
Distributee may limit the possible tax treatment of the distribution
unless the partial payment is received in the same taxable year as the
remaining payment. The selection of this option carries with it the
risk of adverse selection for investment performance that will be borne
by the remaining Participants and Beneficiaries and not the
Distributee.
6/ Substantially equal and life expectancy are defined in the Basic Plan
Document.
7/ This can only be selected if Term Certain Installments to Participants
are allowed. Substantially equal and life expectancy are defined in the
Basic Plan Document.
8/ More than one may be checked. A Participant must submit a written
application specifying the amount of the distribution. The application
shall require a Participant to establish his or her entitlement to the
distribution. The distribution shall be made as of the Valuation Date
coincident with or next following the approval of a completed
application and such distribution shall be made in a lump sum cash
payment as soon as practicable after such Valuation Date.
9/ If this purpose is selected, the following conditions must be satisfied
to receive a distribution from the Retirement Savings Account during
employment:
(i) the distribution shall not exceed the amount of the
Participant's immediate and heavy financial need;
(ii) the Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans currently
available under all plans maintained by the Employer;
(iii) the Plan, and all other plans maintained by the Employer,
provide that the Participant's elective contributions and
employee contributions (as defined in regulations issued by
the Secretary of the Treasury) will be suspended until the
first Entry Date 12 months after receipt of the hardship
distribution; and
(iv) the Plan, and all other plans maintained by the Employer,
provide that the Participant may not make elective
contributions (as defined in regulations issued by the
Secretary of the Treasury) for the Participant's taxable year
immediately following the taxable year of the hardship
distribution in excess of the applicable limit under section
402(g) of the Internal Revenue Code for such next taxable year
less the amount of such Participant's elective contributions
for the taxable year of the hardship distribution.
These conditions do not apply unless part of the distribution comes from a
Retirement Savings Account.
APPENDIX G
PLAN LOAN RULES
Until the Employer adopts rules for the administration of Plan loans,
this Appendix G shall apply to all loans from the Plan.
(l) All Plan loans shall be administered by the Administrator's
Representative. Applications for loans shall be made to the
Administrator's Representative on forms available from the
Administrator's Representative.
(2) Loans shall be made available to all Participants and
Beneficiaries on a reasonably equivalent basis. Loans may be
made for any purpose, and all applications for loans that
comply with Section 7.11 of the Plan Statement will be
granted. For this purpose, Participant shall include only
Participants who are active employees, a person shall be a
Beneficiary only after the death of the Participant who
designated such person as a Beneficiary, and an alternate
payee shall be considered a Beneficiary after the domestic
relations order has been finally determined to be a qualified
domestic relations order.
(3) Loans shall not be made available to highly compensated
employees (as defined in Appendix D) in an amount (expressed
as a percentage of Vested Total Account) greater than the
amount made available to other Employees.
(4) No loans will be made to any Shareholder-Employee or
Owner-Employee.
(5) All loans shall be secured by that portion of the
Participant's Vested Total Account equal to the lesser of (i)
the amount of the loan, or (ii) 50% of the Vested Total
Account determined immediately before the loan and reduced by
the amount of any unpaid principal and interest on any other
loans secured by the Vested Total Account. The borrower may
grant a security interest in his or her "qualified residence"
as defined in section 163(h) of the Code if the borrower's
unrestricted equity interest is adequate to do so. No other
security will be permitted.
(6) All loans shall bear an interest rate equal to one (l)
percentage point over the reference rate in effect for the
Trustee on the first business day of the calendar month
immediately preceding the date as of which the loan is issued.
(7) Loans shall be for any term not to exceed 5 years except that
loans to acquire a dwelling unit which within a reasonable
time (determined at the time the loan is made) is to be used
as the principal residence of the Participant may be for any
term that does not exceed 15 years.
(8) Loans shall be issued effective as of the first business day
following each Valuation Date for the Plan as selected by the
Employer in the Adoption Agreement.
(9) Applications for loans must be received at least fifteen (15)
days before the date as of which the loan is issued.
(10) Loans will be made only in multiples of $100.
(11) All loans must be repaid no less frequently than quarterly.
The Administrator's Representative may establish uniform and
nondiscriminatory rules governing the frequency and method of
loan payments.
(12) All loans must be repaid in substantially level amounts
including principal and interest over the term of the loan.
(13) Loans may be prepaid in their entirety (and not otherwise) on
any regular payment date.
(14) No loan shall be made to a married Participant without the
consent of the Participant's spouse, unless the Plan is an
exempt profit sharing plan as defined in Section 7.3.4 of the
Plan Statement. To be valid, the spouse's consent must be in
writing, must acknowledge the effect of the loan and the use
of the Account as security, must be witnessed by a notary
public and must be given within ninety (90) days of the date
the loan is made. Spousal consent shall never be required for
a loan to a Beneficiary.
(15) Loans will be in default upon the occurrence of one of the
following "events of default": (a) the death of the borrower,
and (b) the failure to make any payment when it is due.
(16) Upon an event of default, the following procedures shall be
followed:
(a) The Administrator's Representative shall notify the
borrower of the event of default as soon as
reasonably possible after it has occurred.
(b) If, but only if, this is the borrower's first default
for this particular loan, the borrower shall have ten
(10) days after receipt of notice or twenty (20) days
after notice is mailed, whichever occurs first, to
cure the default.
(c) If this is the second default for the loan, there
shall be no opportunity to cure.
(d) If the default is not or cannot be cured, the entire
outstanding principal and accrued interest shall be
immediately due and payable. If not paid within five
(5) days after demand for payment is made, the loan
shall be in actual default. (17) If the actual
default of a loan occurs after an Event of Maturity
has occurred for the Participant, the trustee shall
foreclose on the promissory note and attach the
security therefor. If an Event of Maturity has not
then occurred, the trustee shall foreclose on the
promissory note and attach the security therefor as
soon as the first Event of Maturity occurs for the
Participant.
(18) While any loan is outstanding, no distribution shall be made
from the Participant's Account which would result in the
remaining assets (exclusive of a borrower's promissory notes)
having a value less than one hundred percent (100%) of the
outstanding principal and accrued but unpaid interest on all
outstanding loans.
(19) Loans in default which have not been foreclosed shall continue
to accrue interest until paid or foreclosed.
(20) No loan shall be made to a borrower who has any loan in
default.
(21) If required by applicable law, the Trustee shall file reports
with the taxing authorities regarding loans in default, treat
such loans as taxable distributions to the Participant or
Beneficiary and withhold tax payments from the Participant's
Accounts.
(22) If a loan is made from the individual Account of a Participant
and the Account is invested in more than one investment
Subfund authorized and established under Section 4.1 of the
Plan Statement, the borrower may specify the Subfunds from
which the loan shall be taken, and the amount from each. If
the borrower does not specify, the amount withdrawn to make
the loan shall be charged to each investment Subfund in
accordance with the priority rules established by the
Administrator's Representative to be applied in a uniform and
nondiscriminatory manner.
FIRST AMENDMENT
OF
ss. 401(K) PROTOTYPE
BASIC PLAN DOCUMENT #02
(1989 RESTATEMENT)
FIRST TRUST NATIONAL ASSOCIATION ("First Trust") completely amended and
restated its ss. 401(k) Prototype in a document entitled "ss. 401(k) PROTOTYPE
BASIC PLAN DOCUMENT #02 (1989 RESTATEMENT)" (hereinafter referred to as the
"Basic Plan Document"). Under Section 9.1.2 of the Basic Plan Document, First
Trust is authorized to amend the Basic Plan Document to assure compliance with
the applicable provisions of the Employee Retirement Income Security Act of 1974
and the Internal Revenue Code of 1986, and also for any other purpose that is
appropriate. Because of regulations issued by the Internal Revenue Service
clarifying changes made by the Tax Reform Act of 1986, and to otherwise modify
certain provisions of the Basic Plan Document, First Trust hereby amends the
Basic Plan Document in the following respects first effective for Plan Years
beginning on or after January 1, 1993 for all adopting Employers.
1. RECOGNIZED COMPENSATION. Section 1.1.26 of the Basic Plan Document is
amended to read in full as follows:
1.1.26. RECOGNIZED COMPENSATION - an amount determined for a
Participant for a Plan Year which is the Participant's "ss. 415
compensation" as defined in the Appendix A to this Plan Statement,
subject, however, to the following:
(a) INCLUDED ITEMS. In determining a Participant's Recognized
Compensation there shall be included elective contributions
made by the Employer on behalf of the Participant that are not
includible in gross income under sections 125, 402(a)(8),
402(h), 403(b), 414(h)(2) and 457 of the Internal Revenue Code
including elective contributions authorized by the Participant
under a Retirement Savings Agreement, a cafeteria plan or any
other qualified cash or deferred arrangement under section
401(k) of the Internal Revenue Code.
(b) EXCLUDED ITEMS. For purposes of allocating the Employer's
discretionary profit sharing contribution, if any, under
Section 3.4.5. and forfeited Suspense Accounts, if any,
Recognized Compensation shall not include remuneration
excluded by the Employer in the Adoption Agreement.
(c) PRE-PARTICIPATION EMPLOYMENT. Remuneration paid by the
Employer attributable to periods prior to the date the
Participant became a Participant in the Plan shall not be
taken into account in determining the Participant's Recognized
Compensation.
(d) NON-RECOGNIZED EMPLOYMENT. Remuneration paid by the Employer
for employment that is not Recognized Employment shall not be
taken into account in determining a Participant's Recognized
Compensation.
(e) ATTRIBUTION TO PERIODS. A Participant's Recognized
Compensation shall be considered attributable to the period in
which it is actually paid and not when earned or accrued.
(f) ANNUAL MAXIMUM. A Participant's Recognized Compensation for a
Plan Year shall not exceed Two Hundred Thousand Dollars
($200,000), as adjusted under the Internal Revenue Code for
cost of living increases. In determining a Participant's
Recognized Compensation, the rules of section 414(q)(6) of the
Internal Revenue Code apply, except that in applying such
rules, the term "family" shall include only the spouse of the
Participant and lineal descendants of the Participant who have
not attained age nineteen (19) years before the close of the
Plan Year; provided, however, that the rule in this sentence
shall not apply to the Seven Thousand Dollar ($7,000) limit
specified in Section 2.5. If Participants are aggregated as
such family members (and do not otherwise agree in writing),
the Recognized Compensation of each family member shall equal
Two Hundred Thousand Dollars ($200,000) (as so adjusted)
multiplied by a fraction, the numerator of which is such
family member's Recognized Compensation (before application of
the $200,000 limit as adjusted) and the denominator of which
is the total Recognized Compensation (before application of
the $200,000 limit as adjusted) of all such family members.
2. SECTION 401(k) COMPLIANCE. Sections 2.7.1 (b), 2.7.1 (d) and 2.7.2 (b)
of the Basic Plan Document are amended to read in full as follows:
2.7.1. SECTION 401(k) COMPLIANCE.
. . . .
(b) "Deferral percentage" means the ratio (calculated separately
for each covered employee) of:
(i) the total amount, for the Plan Year, of Employer
contributions credited to the covered employee's
Retirement Savings Account (excluding Employer
contributions to the Retirement Savings Account taken
into account in determining the contribution
percentage in Section 3.10, provided the 401(k) test
in this Section 2.7 is satisfied both with and
without exclusion of such Employer contributions, and
excluding Employer contributions to the Retirement
Savings Account returned to the covered employee
pursuant to Appendix A to this Plan Statement as an
excess annual addition), and if the Administrator's
Representative elects, all or a portion of the
amount, for the Plan Year, of Employer contributions
credited to the covered employee's Employer Matching
Account or Employer Profit Sharing Account, or both,
to
(ii) the covered employee's compensation, as defined
below, for the portion of such Plan Year that the
employee is a covered employee.
For this purpose, Employer contributions will be considered
made in the Plan Year if they are allocated as of a date
during such Plan Year and are delivered to the Trustee within
twelve (12) months after the end of such Plan Year. A covered
employee who did not enter into a Retirement Savings Agreement
shall be treated as having elected a deferred percentage of
zero.
. . . .
(d) "Compensation" means compensation for services performed for
the Employer defined as "ss. 415 compensation" in Appendix A
to this Plan Statement. The Administrator's Representative may
elect to include as compensation any elective contributions
made by the Employer on behalf of the covered employee that
are not includible in gross income under sections 125,
402(a)(8), 402(h), 403(b), 414(h)(2) and 457 of the Internal
Revenue Code. Notwithstanding the definition of "ss. 415
compensation" in Appendix A to this Plan Statement
compensation shall always be determined on a cash (and not on
an accrual) basis and compensation shall be determined on a
Plan Year basis (which is not necessarily the same as the
limitation year). A covered employee's compensation for a Plan
Year shall not exceed Two Hundred Thousand Dollars ($200,000),
as adjusted under the Internal Revenue Code for cost of living
increases.
. . . .
2.7.2. SPECIAL RULES.
. . . .
(b) FAMILY MEMBER. If a highly compensated covered employee is
subject to the family aggregation rules of section 414(q)(6)
of the Internal Revenue Code because such employee is either a
five percent (5%) owner or one of the ten (10) most highly
compensated employees (as defined in Appendix D), the combined
deferral percentage for the family group (which is treated as
one highly compensated covered employee) shall be the greater
of:
(i) the deferral percentage determined by combining the
amounts described in Section 2.7.1(c) and by
combining the compensation described in Section
2.7.1(d) of all the covered family members who are
highly compensated covered employees without regard
to family aggregation, or
(ii) the deferral percentage determined by combining the
amounts described in Section 2.7.1(c) and by
combining the compensation described in Section
2.7.1(d) of all family members who are covered
employees.
With respect to any highly compensated employee, "family"
shall mean the employee's spouse and lineal ascendants and
descendants and the spouses of such lineal ascendants and
descendants. The family members who are aggregated with
respect to a highly compensated covered employee shall be
disregarded as separate, covered employees in determining the
average deferral percentage of highly compensated covered
employees and the average deferral percentage of all other
covered employees. The Two Hundred Thousand Dollars ($200,000)
limit specified in Section 2.7.1(d), as adjusted under the
Internal Revenue Code for cost of living increases, applies to
the above deferral percentage determination except that for
purposes of that limit, the term "family" shall include only
the spouse of the covered employee and lineal descendants of
the covered employee who have not attained age nineteen (19)
years before the close of the Plan Year. If a covered employee
is required to be aggregated as a member of more than one
family group in the Plan, all covered employees who are
members of those family groups that include that covered
employee are aggregated as one family group.
. . . .
3. ROLLOVER CONTRIBUTIONS. Section 3.7.1 of the Basic Plan Document is
amended to read in full as follows:
3.7.1. ELIGIBLE CONTRIBUTIONS. Unless the Adoption Agreement precludes
it, Employees (whether or not they are Participants) in Recognized
Employment may contribute to this Plan, within such time and in such
form and manner as may be prescribed by the Administrator's
Representative in accordance with those provisions of federal law
relating to rollover contributions, property acceptable to the Trustee
(or cash proceeds thereof) received by them in eligible rollover
distributions from certain types of qualified plan or trusts, employee
annuities and individual retirement accounts or annuities. The
provisions of this Section shall be subject to such conditions and
limitations as the Administrator's Representative may prescribe from
time to time for administrative convenience and to preserve the
tax-qualified status of this Plan. Also, the Administrator's
Representative may establish rules and conditions regarding the
acceptance of direct rollovers under section 401(a)(31) of the Internal
Revenue Code from trustees or custodians of other qualified pension,
profit sharing or stock bonus plans.
4. SECTION 401(m) COMPLIANCE. Sections 3.10.1 (c), 3.10.1 (d) and 3.10.2
(b) of the Basic Plan Document are amended to read in full as follows:
3.10.1. SPECIAL DEFINITIONS.
. . . .
(c) "Contribution percentage" means, the ratio (calculated
separately for each eligible employee in such group) of:
(i) the total amount, for the Plan Year, of nondeductible
voluntary contributions credited to the eligible
employee's Nondeductible Voluntary Account and the
total amount, for the Plan Year, of Employer matching
contributions credited to the eligible employee's
Employer Matching Account (but if the Administrator's
Representative elects to include the Employer
matching contributions in the section 401(k) test in
Section 2, the Administrator's Representative may
elect to not include the Employer matching
contributions in this section 401(m) test), and if
the Administrator's Representative elects all or a
portion of the amount, for the Plan Year, of Employer
contributions credited to the eligible employee's
Retirement Savings Account or Employer Profit Sharing
Account, or both, to
(ii) the eligible employee's compensation, as defined
below, for the portion of such Plan Year that the
employee is an eligible employee.
For this purpose, nondeductible voluntary contributions are
considered to have been made in the Plan Year in which
contributed to the Fund. Also, for this purpose, Employer
contributions will be considered made in the Plan Year if they
are allocated as of a date during such Plan Year and are
delivered to the Trustee within twelve (12) months after the
end of such Plan Year. Such "contribution percentage" shall
not include Employer matching contributions that are forfeited
either to correct excess aggregate contributions or because
the contributions to which they relate are excess deferrals,
excess contributions or excess aggregate contributions
pursuant to Section 7.12.
(d) "Compensation" means compensation for services performed for
the Employer defined as "ss. 415 compensation" in Appendix A
to this Plan Statement. The Administrator's Representative may
elect to include as compensation any elective contributions
made by the Employer on behalf of the eligible employee that
are not includible in gross income under sections 125,
402(a)(8), 402(h), 403(b), 414(h)(2) and 457 of the Internal
Revenue Code. Notwithstanding the definition of "ss. 415
compensation" in Appendix A to this Plan Statement,
compensation shall always be determined on a cash (and not on
an accrual) basis and compensation shall be determined on a
Plan Year basis (which is not necessarily the same as the
limitation year). An eligible employee's compensation for a
Plan Year shall not exceed Two Hundred Thousand Dollars
($200,000), as adjusted under the Internal Revenue Code for
cost of living increases.
. . . .
3.10.2. SPECIAL RULES.
. . . .
(b) FAMILY MEMBER. If a highly compensated eligible employee is
subject to the family aggregation rules of section 414(q)(6)
of the Internal Revenue Code because such employee is either a
five percent (5%) owner or one of the ten (10) most highly
compensated employees (as defined in Appendix D), the combined
contribution percentage for the family group (which is treated
as one highly compensated eligible employee) shall be the
greater of:
(i) the contribution percentage determined by combining
the amounts described in Section 3.10.1(c) and by
combining the compensation described in Section
3.10.1(d) of all family members who are highly
compensated eligible employees without regard to
family aggregation, or
(ii) the contribution percentage determined by combining
the amount described in Section 3.10.1(c) and by
combining the compensation described in Section
3.10.1(d) of all family members who are eligible
employees.
With respect to any highly compensated eligible employee,
"family" shall mean the employee's spouse and lineal
ascendants and descendants and the spouses of such lineal
ascendants and descendants. The family members who are
aggregated with respect to a highly compensated eligible
employee shall be disregarded as separate eligible employees
in determining the average contribution percentage of highly
compensated eligible employees and the average contribution
percentage of all other employees. Effective for Plan Years
beginning after December 31, 1988, the Two Hundred Thousand
Dollar ($200,000) limit specified in Section 3.10.1(d), as
adjusted under the Internal Revenue Code for cost of living
increases, applies to the above contribution percentage
determination except that for purposes of that limit, the term
"family" shall include only the spouse of the eligible
employee and lineal descendants of the eligible employee who
have not attained age nineteen (19) years before the close of
that Plan Year. If an eligible employee is required to be
aggregated as a member of more than one family group in the
Plan, all eligible employees who are members of those family
groups that include that eligible employee are aggregated as
one family group.
5. ESTABLISHMENT OF SUBFUNDS. Section 4.1 of the Basic Plan Document is
amended by the addition of new subsection 4.1.5 to read in full as
follows:
. . . .
4.1.5. ERISA SECTION 404(c) COMPLIANCE. If the Administrator's
Representative and the Trustee agree, the Administrator's
Representative may establish investment subfunds and operational rules
which are intended to satisfy section 404(c) of the Employee Retirement
Income Security Act of 1974 and the regulations thereunder. Such
investment subfunds shall permit Participants and Beneficiaries the
opportunity to choose from at least three investment alternatives, each
of which is diversified, each of which present materially different
risk and return characteristics, and which, in the aggregate, enable
Participants and Beneficiaries to achieve a portfolio with appropriate
risk and return characteristics consistent with minimizing risk through
diversification. Such operational rules shall provide the following,
and shall otherwise comply with section 404(c) of the Employee
Retirement Income Security Act of 1974 and the regulations and rules
promulgated thereunder from time to time:
(a) Participants and Beneficiaries may give investment
instructions to the Trustee at least once every three months;
(b) the Trustee must follow the investment instructions of
Participants and Beneficiaries that comply with the Plan's
operational rules, provided that the Trustee may in any event
decline to follow any investment instructions that:
(i) would result in a prohibited transaction described in
section 406 of the Employee Retirement Income
Security Act of 1974 or section 4975 of the Internal
Revenue Code;
(ii) would result in the acquisition of an asset that
might generate income which is taxable to the Plan;
(iii) would not be in accordance with the documents and
instruments governing the Plan insofar as they are
consistent with Title I of the Employee Retirement
Income Security Act of 1974;
(iv) would cause a fiduciary to maintain indicia of
ownership of any assets of the Plan outside of the
jurisdiction of the district courts of the United
States other than as permitted by section 404(b) of
the Employee Retirement Income Security Act of 1974
and Department of Labor regulation section
2050.404b-1;
(v) would jeopardize the Plan's tax status under the
Internal Revenue Code;
(vi) could result in a loss in excess of a Participant's
or Beneficiary's Account balance;
(vii) would result in the acquisition or sale of any
employer real property or any employer security
unless such employer security acquisition satisfies
the conditions of section 408(e) of the Employee
Retirement Income Security Act of 1974 and Department
of Labor regulation section 2550.404c-1.
(c) Participants and Beneficiaries shall be periodically informed
of actual expenses to their Accounts which are imposed by the
Plan and which are related to their Plan investment decisions;
(d) with respect to any subfund consisting of Employer securities
and intended to satisfy the requirements of section 404(c) of
the Employee Retirement Income Security Act of 1974, (i)
Participants and Beneficiaries shall be entitled to all
voting, tender and other rights appurtenant to the ownership
of such securities, (ii) procedures shall be established to
ensure the confidential exercise of such rights, except to the
extent necessary to comply with federal and state laws not
preempted by the Employee Retirement Income Security Act of
1974, and (iii) the Trustee shall ensure the sufficiency of
and compliance with such confidentiality procedures.
6. VALUATION AND ADJUSTMENT OF ACCOUNTS. Section 4.2 of the Basic Plan
Document is amended by the addition of new subsection (e) to read in
full as follows:
(e) OTHER RULES. Notwithstanding the foregoing, the
Administrator's Representative and the Trustee may agree in
writing to revised rules or additional rules for the
adjustment of Accounts including, without limiting the
generality of the foregoing, the times when contributions
shall be credited under Section 3 for the purposes of
allocating gains or losses under this Section 4.
7. SPECIAL RULE FOR PARTIAL DISTRIBUTIONS. Section 5.1.3 of the Basic Plan
Document is amended to read in full as follows:
5.1.3. SPECIAL RULE FOR PARTIAL DISTRIBUTIONS. If a distribution is
made of less than the entire Employer Contributions Account of a
Participant who is not then fully (100%) Vested, then until the
Participant becomes fully Vested in his Employer Contributions Account
or until he incurs five (5) or more consecutive One-Year Breaks in
Service, whichever first occurs, his Vested interest in such account at
any relevant time shall not be less than an amount ("X") determined by
the formula: X=P (B + D) - D. For the purpose of applying the formula,
"P" is the Vested percentage at the relevant time (determined pursuant
to Section 5); "B" is the account balance at the relevant time; and "D"
is the amount of the distribution.
8. FORFEITURES IF BREAK IN SERVICE. Section 6.2.2 of the Basic Plan
Document is amended to read in full as follows:
6.2.2. A BREAK. If, however, such former Participant is not reemployed
by the Employer or an Affiliate on or before the Annual Valuation Date
coincident with or immediately following his forfeiture date, the
entire portion of his Employer Matching Account or his Employer
Contributions Account which was not Vested in him upon his Event of
Maturity (and therefore became his Suspense Account) shall be forfeited
as of such Annual Valuation Date and shall be used to restore any
forfeited Suspense Accounts as required in Section 6.3, to reduce
administrative expenses due on that Annual Valuation Date and not paid
by the Employer and to reduce any Employer contribution to be made as
of that Annual Valuation Date. Any remaining portion of the forfeiture
shall be used to reduce administrative expenses or any Employer
contribution to be made as of any Valuation Date in the succeeding Plan
Year until disposed of. In all events, any forfeitures otherwise not
disposed of in the preceding sentences, shall be allocated as of the
Annual Valuation Date of the succeeding Plan Year as provided in
Section 3.4.
9. DIRECT ROLLOVER. Effective January 1, 1993, Section 7.1 of the Basic
Plan Document is amended by the addition of new subsection 7.1.4 to
read in full as follows:
7.1.4. DIRECT ROLLOVER. Effective for distributions made on or after
January 1, 1993, a Distributee who is eligible to elect a direct
rollover may elect, at the time and in the manner prescribed by the
Administrator's Representative, to have all or any portion of an
eligible rollover distribution paid directly to an eligible retirement
plan specified by the Distributee in a direct rollover. A Distributee
who is eligible to elect a direct rollover includes only a Participant,
a Beneficiary who is the surviving spouse of a Participant and a
Participant's spouse or former spouse who is the alternate payee under
a qualified domestic relations order, as defined in Appendix C.
(a) ELIGIBLE ROLLOVER DISTRIBUTION means any distribution of all
or any portion of a Total Account to a Distributee who is
eligible to elect a direct rollover except (i) any
distribution that is one of a series of substantially equal
installments payable not less frequently than annually over
the life expectancy of such Distributee or the joint and last
survivor life expectancy of such Distributee and such
Distributee's designated Beneficiary, and (ii) any
distribution that is one of a series of substantially equal
installments payable not less frequently than annually over a
specified period of ten (10) years or more, and (iii) any
distribution to the extent such distribution is required under
section 401(a)(9) of the Code, and (iv) the portion of any
distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(b) ELIGIBLE RETIREMENT PLAN means (i) an individual retirement
account described in section 408(a) of the Code, or (ii) an
individual retirement annuity described in section 408(b) of
the Code, or (iii) an annuity plan described in section 403(a)
of the Code, or (iv) a qualified trust described in section
401(a) of the Code that accepts the eligible rollover
distribution. However, in the case of an eligible rollover
distribution to a Beneficiary who is the surviving spouse of a
Participant, an eligible retirement plan is only an individual
retirement account or individual retirement annuity as
described in section 408 of the Code.
(c) DIRECT ROLLOVER means the payment of an eligible rollover
distribution by the Plan to the eligible retirement plan
specified by the Distributee who is eligible to elect a direct
rollover.
10. IN-SERVICE DISTRIBUTIONS PURPOSES. Section 7.9.2 of the Basic Plan
Document is amended to read in full as follows:
7.9.2. PURPOSES. In-service distributions shall be allowed under
Section 7.9.1 for only such of the following purposes as are permitted
in the Adoption Agreement and only if the Participant establishes that
the in-service distribution is to be made for one of the following
permitted purposes:
(a) expenses for medical care described in section 213(d) of the
Internal Revenue Code previously incurred by the Participant,
the Participant's spouse or any dependents of the Participant
(as defined in section 152 of the Internal Revenue Code) or
necessary for these persons to obtain medical care described
in section 213(d) of the Internal Revenue Code,
(b) costs directly related to the purchase of a principal
residence for the Participant (excluding mortgage payments),
(c) payment of tuition and related educational fees for the next
twelve (12) months of post-secondary education for the
Participant, or the Participant's spouse, children or
dependents (as defined in section 152 of the Internal Revenue
Code), or
(d) payments necessary to prevent the eviction of the Participant
from the Participant's principal residence or foreclosure on
the mortgage of that principal residence.
Such purposes shall be considered to be an immediate and heavy financial need of
the Participant.
11. IN-SERVICE DISTRIBUTIONS LIMITATIONS. Section 7.9.3 of the Basic Plan
Document is amended to read in full as follows:
7.9.3. LIMITATIONS. In no event shall the cumulative amount of
in-service distributions withdrawn from a Participant's Retirement
Savings Account exceed the amount of contributions to that Account made
pursuant to Section 3.2 (i.e., in-service distributions from that
Account shall not include any earnings on such contributions or any
curative allocations or earnings on curative allocations made pursuant
to Section 3.4.2). The amount of the in-service distribution shall not
exceed the amount of the Participant's immediate and heavy financial
need; provided, however, that the amount of the immediate and heavy
financial need may include amounts necessary to pay any federal, state,
or local income taxes or penalties reasonably anticipated to result
from the distribution. In addition, a hardship distribution which
includes a portion of the Participant's Retirement Savings Account
shall not be allowed unless the Participant has obtained all
distributions, other than hardship distributions, and all nontaxable
loans (at the time of the loan) currently available under all plans
maintained by the Employer and Affiliates. Other funds are not
currently available unless the funds are available prior to or
coincidently with the date the hardship distribution is available.
Notwithstanding the foregoing, no distribution shall be made pursuant
to this Section 7.9 unless the Plan is an exempt profit sharing plan
(as defined in Section 7.3.4) or the spouse of the Participant, if any,
consents in writing to the distribution. To be valid, the consent of
the spouse must be in writing, must acknowledge the effect of the
distribution and must be witnessed by a notary public. The consent of
the spouse must be given within ninety (90) days prior to the date as
of which the distribution is made and must relate to the specific
distribution. The consent of the spouse shall be irrevocable and shall
be effective only with respect to that spouse.
12. LOANS. The introductory paragraph of Section 7.11, Section 7.11.3 (b)
and Section 7.11.4 of the Basic Plan Document are amended to read in
full as follows:
7.11. LOANS. Unless the Adoption Agreement precludes it, loans may be made to
Participants from this Plan who are not Owner-Employees or
Shareholder-Employees subject to this Section 7.11.
. . . .
7.11.3.
. . . .
(b) COORDINATION WITH SECTION 4.1. If a loan is made from an Account
which is invested in more than one investment Subfund authorized and
established under Section 4.1, the amount withdrawn in order to make
the loan shall be charged pro rata to each investment Subfund. All
repayments of principal and interest shall be allocated among the
investment Subfunds that the borrower has elected for investment at the
time repayment is received.
. . . .
7.11.4. LOAN RULES. All loans must comply with the loan rules
established by the Trustee from time to time. If the Employer adopts
other loan rules inconsistent with the rules established by the
Trustee, the Employer will have made an unauthorized amendment to the
Plan and will be governed by the provisions of Section 9.1.1.
13. DISTRIBUTION OF EXCESS CONTRIBUTIONS. Section 7.12 is amended to read
in full as follows:
7.12. CORRECTIVE DISTRIBUTIONS.
7.12.1. EXCESS DEFERRALS ($7,000 LIMIT).
(a) IN GENERAL. A Participant may assign to this Plan any excess
deferrals made during a taxable year of the Participant by
notifying the Administrator's Representative in writing not
later than the March 1 following such taxable year of the
amount of the excess deferral to be assigned to the Plan. A
Participant shall be deemed to have notified the Plan of
excess deferrals to the extent the Participant has excess
deferrals for the taxable year calculated by taking into
account only the amount of elective contributions allocated to
the Participant's Retirement Savings Account and to any other
plan of the Employer and Affiliates. Notwithstanding any other
provision of the Plan Statement, a Participant's excess
deferrals, plus any income and minus any loss allocable
thereto, shall be distributed to the Participant no later than
the first April 15 following the close of the Participant's
taxable year.
(b) DEFINITIONS. For purposes of this Section, "excess deferrals"
shall mean the amount of elective contributions allocated to
the Participant's Retirement Savings Account for a
Participant's taxable year and which the Participant or the
Employer, where applicable, allocates to this Plan pursuant to
the claim procedure described below.
(c) CLAIMS. The Participant's claim shall be in writing; shall be
submitted to the Administrator's Representative not later than
March 1 with respect to the immediately preceding taxable
year; shall specify the amount of the Participant's excess
deferrals for the preceding taxable year; and shall be
accompanied by the Participant's written statement that if
such amounts are not distributed, such excess deferrals, when
added to amounts deferred under other plans or arrangements
described in sections 401(k), 408(k), 457, 501(c)(18) or
403(b) of the Internal Revenue Code, will exceed the limit
imposed on the Participant by section 402(g) of the Internal
Revenue Code for the taxable year in which the deferral
occurred. The Employer shall notify the Plan on behalf of the
Participant where the excess deferrals occur in the Plan or
the combined plans of the Employer and Affiliates.
(d) DETERMINATION OF INCOME OR LOSS. The excess deferrals shall be
adjusted for income or loss. Unless the Administrator's
Representative and the Trustee agree otherwise in writing, the
income or loss allocable to excess deferrals shall be
determined by multiplying the income or loss allocable to the
Participant's elective contributions for the Plan Year ending
within such preceding taxable year by a fraction, the
numerator of which is the excess deferrals on behalf of the
Participant for such preceding taxable year and the
denominator of which is the Participant's Retirement Savings
Account balance attributable to elective contributions on the
Valuation Date coincident with or immediately before the last
day of such preceding taxable year without regard to any
income or loss occurring during such taxable year. Also,
unless the Administrator's Representative and the Trustee
agree otherwise in writing, the excess deferral shall not be
adjusted for income or loss for the period between the
Valuation Date coincident with or immediately before the last
day of such preceding taxable year and the date of
distribution of the excess deferral. If the Administrator's
Representative and the Trustee agree in writing to adjust for
income or loss for the period between the Valuation Date
coincident with or immediately before the last day of such
preceding taxable year and the date of distribution of the
excess deferral, the income or loss allocable for such period
shall be equal to ten percent (10%) of the income or loss
allocable to the distributable excess deferral for the
applicable taxable year multiplied by the number of whole
calendar months that have elapsed since the Valuation Date
coincident with or immediately before the last day of such
taxable year, including the month of distribution if
distribution occurs after the fifteenth (15th) of such month.
(e) ACCOUNTING FOR EXCESS DEFERRALS. Excess deferrals shall be
distributed from the Participant's Retirement Savings Account.
7.12.2. EXCESS CONTRIBUTIONS (SECTION 401(k) TEST).
(a) IN GENERAL. Notwithstanding any other provision of the Plan
Statement, excess contributions for a Plan Year, plus any
income and minus any loss allocable thereto, shall be
distributed no later than the last day of the following Plan
Year, to Participants to whose accounts elective
contributions, and if used to determine the deferral
percentage under Section 2, matching contributions (as defined
in section 401(m)(4)(A) of the Internal Revenue Code which
meet the requirements of sections 401(k)(2)(B) and
401(k)(2)(C) of the Internal Revenue Code) or qualified
nonelective contributions (within the meaning of section
401(m)(4)(C) of the Internal Revenue Code), or both, were
allocated. If such excess contributions are distributed more
than two and one half (2 1/2) months after the last day of the
Plan Year in which such excess contributions arose, a ten
percent (10%) excise tax will be imposed on the Employer
maintaining the Plan with respect to such excess
contributions. Such distributions shall be made to highly
compensated eligible employees (as defined in Section 2) on
the basis of the respective portions of the excess
contributions attributable to each of such employees.
(b) EXCESS CONTRIBUTIONS. For purposes of this Section, "excess
contributions" shall mean, with respect to any Plan Year, the
excess of:
(i) the aggregate amount of Employer contributions taken
into account in computing the average deferral
percentage (as defined in Section 2) of highly
compensated covered employees (as defined in Section
2) for such Plan Year, over
(ii) the maximum amount of such contributions permitted by
the section 401(k) test described in Section 2
(determined by reducing contributions made on behalf
of the highly compensated covered employees in order
of the deferral percentage, as defined in Section 2,
beginning with the highest such percentage).
(c) DETERMINATION OF INCOME OR LOSS. The excess contributions
shall be adjusted for income or loss. Unless the
Administrator's Representative and the Trustee agree otherwise
in writing, the income or loss allocable to excess
contributions shall be determined by multiplying income or
loss allocable to the Participant's elective contributions,
and if used to determine an eligible employee's deferral
percentage under Section 2, matching contributions (as defined
in section 401(m)(4) of the Internal Revenue Code which meet
the requirements of sections 401(k)(2)(B) and 401(k)(2)(C) of
the Internal Revenue Code) or qualified nonelective
contributions (within the meaning of section 401(m)(4)(C) of
the Internal Revenue Code), or both, for the Plan Year by a
fraction, the numerator of which is the excess contributions
on behalf of the Participant for the Plan Year and the
denominator of which is the sum of the Participant's account
balances attributable to elective contributions and such
matching contributions or qualified nonelective contributions,
or both, on the last day of the Plan Year, without regard to
any income or loss occurring during such Plan Year. Also,
unless the Administrator's Representative and the Trustee
agree otherwise in writing, excess contributions shall not be
adjusted for income or loss for the period between the
Valuation Date coincident with or immediately before the last
day of such preceding taxable year and the date of
distribution of the excess contributions. If the
Administrator's Representative and the Trustee agree in
writing to adjust for income or loss for the period between
the Valuation Date coincident with or immediately before the
last day of such preceding taxable year and the date of
distribution of the excess contributions, the income or loss
allocable for such period shall be equal to ten percent (10%)
of the income or loss allocable to the distributable excess
contributions for the applicable taxable year multiplied by
the number of whole calendar months that have elapsed since
the Valuation Date coincident with or immediately before the
last day of such taxable year, including the month of
distribution if distribution occurs after the fifteenth (15th)
of such month.
(d) ACCOUNTING FOR EXCESS CONTRIBUTIONS. Excess contributions
shall be distributed from the Participant's Retirement Savings
Account and Employer Matching Account, if applicable, in
proportion to the Participant's elective contributions and
matching contributions, if applicable, (as defined in section
401(m)(4)(A) of the Internal Revenue Code which meet the
requirements of sections 401(k)(2)(B) and 401(k)(2)(C) of the
Internal Revenue Code) for the Plan Year. Excess contributions
shall be distributed from the Participant's Employer
Contributions Account, if applicable (but only applicable if
qualified nonelective contributions within the meaning of
section 401(m)(4)(C) of the Internal Revenue Code are held in
the Employer Contributions Account), only to the extent such
excess contributions exceed the balance in the Participant's
Retirement Savings Account and Employer Matching Account.
(e) SPECIAL FAMILY MEMBER RULE. If the deferral percentage of a
highly compensated covered employee is determined under
Section 2.7.2(b), then the deferral percentage is reduced as
required under this Section and the excess contributions for
the family group shall be allocated among the family members
in proportion to the elective contributions of each family
member that are combined to determine the deferral percentage.
7.12.3. EXCESS AGGREGATE CONTRIBUTIONS (SECTION 401(m) TEST).
(a) IN GENERAL. Subject to Section 7.12.3(f), but otherwise
notwithstanding any other provision of the Plan Statement,
excess aggregate contributions, plus any income and minus any
loss allocable thereto, shall be distributed no later than the
last day of the following Plan Year to Participants to whose
accounts nondeductible voluntary contributions or Employer
matching contributions, and if used to determine the
contribution percentage under Section 3, elective
contributions or qualified nonelective contributions (within
the meaning of section 401(m)(4)(C) of the Internal Revenue
Code), or both, were allocated. Such distributions shall be
made to highly compensated eligible employees (as defined in
Section 3) on the basis of the respective portions of the
excess aggregate contributions attributable to each of such
employees.
(b) EXCESS AGGREGATE CONTRIBUTIONS. For purposes of this Section,
"excess aggregate contributions" shall mean, with respect to
any Plan Year, the excess of:
(i) the aggregate amount of contributions taken into
account in computing the average contribution
percentage (as defined in Section 3) of highly
compensated eligible employees (as defined in Section
3) for such Plan Year, over
(ii) the maximum amount of such contributions permitted by
the section 401(m) test described in Section 3
(determined by reducing contributions made on behalf
of the highly compensated eligible employees in order
of the contribution percentage, as defined in Section
3, beginning with the highest such percentage).
(c) DETERMINATION OF INCOME. The excess aggregate contributions
shall be adjusted for income or loss. Unless the
Administrator's Representative and the Trustee agree otherwise
in writing, the income or loss allocable to excess aggregate
contributions shall be determined by multiplying the income or
loss allocable to the Participant's nondeductible voluntary
contributions and Employer matching contributions (to the
extent used to determine the eligible employee's contribution
percentage under Section 3), and if used to determine an
eligible employee's contribution percentage under Section 3,
elective contributions or qualified nonelective contributions
(within the meaning of section 401(m)(4)(C) of the Internal
Revenue Code), or both, for the Plan Year by a fraction, the
numerator of which is the excess aggregate contributions on
behalf of the Participant for the Plan Year and the
denominator of which is the sum of the account balances
attributable to nondeductible voluntary contributions,
Employer matching contributions and such elective
contributions or qualified nonelective contributions, or both,
on the last day of the Plan Year without regard to any income
or loss occurring during such Plan Year. Also, unless the
Administrator's Representative and the Trustee agree otherwise
in writing, excess aggregate contributions shall not be
adjusted for income or loss for the period between the
Valuation Date coincident with or immediately before the last
day of such preceding taxable year and the date of
distribution of the excess aggregate contributions. If the
Administrator's Representative and the Trustee agree in
writing to adjust for income or loss for the period between
the Valuation Date coincident with or immediately before the
last day of such preceding taxable year and the date of
distribution of the excess aggregate contributions, the income
or loss allocable for such period shall be equal to ten
percent (10%) of the income or loss allocable to the
distributable excess aggregate contributions for the
applicable taxable year multiplied by the number of whole
calendar months that have elapsed since the Valuation Date
coincident with or immediately before the last day of such
taxable year, including the month of distribution if
distribution occurs after the fifteenth (15th) of such
month.
(d) ACCOUNTING FOR EXCESS AGGREGATE CONTRIBUTIONS. Excess
aggregate contributions shall be distributed from the
Participant's Voluntary Account, the Participant's Employer
Matching Account (and, if applicable, the Participant's
Retirement Savings Account or Employer Contributions Account,
or both) in proportion to the Participant's nondeductible
voluntary contributions, Employer matching contributions, and
if used to determine the contribution percentage under Section
3, elective contributions or qualified nonelective
contributions (within the meaning of section 401(m)(4)(C) of
the Internal Revenue Code), or both, for the Plan Year.
(e) SPECIAL FAMILY MEMBER RULE. If the contribution percentage of
a highly compensated eligible employee is determined under
Section 3.10.2(b), then the contribution percentage is reduced
as required under this Section and the excess aggregate
contributions for the family group shall be allocated among
the family members in proportion to the nondeductible
voluntary contributions and Employer matching contributions of
each family member that are combined to determine the
contribution percentage.
(f) SPECIAL RULE FOR PARTIAL VESTING. If the Participant is not
fully (100%) Vested in the Employer Matching Account as of the
last day of the Plan Year to which the excess aggregate
contributions relate, then the distribution of the
Participant's excess aggregate contributions under this
Section shall be deemed to have been distributed from the
Vested portion of the Employer Matching Account and such
Account shall become Vested in accordance with the special
rule for partial distributions in Section 5.1.3. To the extent
the excess aggregate contributions exceed the Vested portion
of the Participant's Employer Matching Account, the excess
aggregate contributions shall be forfeited and reallocated as
provided in Section 6.2.
7.12.4. PRIORITY. The determination of the excess aggregate
contributions shall be made after first determining the excess
deferrals, and then determining the excess contributions. The amount of
excess contributions shall be reduced by excess deferrals previously
distributed to such Participant for the Participant's taxable year
ending with or within such Plan Year.
7.12.5. MATCHING CONTRIBUTIONS. If excess deferrals, excess
contributions or elective contributions treated as excess aggregate
contributions are distributed pursuant to this Section 7.12, applicable
matching contributions under Section 3.3 or 3.4 shall be treated as
forfeitures and reallocated as provided in Section 6.2.
14. OTHER TRUST POWERS. Section 10.6 (a) of the Basic Plan Document is
amended to read in full as follows:
(a) To invest and reinvest any investment Subfunds established pursuant
to Section 4.1 in accordance with the investment characteristics and
objectives determined therefor and to invest and reinvest the assets of
the Fund in any securities or properties in which an individual could
invest his own funds and which it deems for the best interest of the
Fund, without limitation by any statute, rule of law or regulation of
any governmental body prescribing or limiting the investment of trust
assets by corporate or individual trustees, in or to certain kinds,
types or classes of investments or prescribing or limiting the portion
of the Fund which may be invested in any one property or kind, type or
class of investment. Specifically and without limiting the generality
of the foregoing, the Trustee may invest and reinvest principal and
accumulated income of the Fund in any real or personal property;
preferred or common stocks of any kind or class of any corporation,
including but not limited to investment and small business investment
companies of all types; voting trust certificates; interests in
investment trusts; interests in any limited or general partnership or
other business enterprise, however organized and for whatever purpose;
group or individual annuity contracts (which may involve investment in
the issuer's general account or any of its separate accounts);
interests in common or collective trusts, variable interest notes or
any other type of collective fund maintained by a bank or similar
institution (whether or not the Trustee hereunder); shares of any
regulated investment company (mutual fund) provided, however, if the
Trustee or any of its affiliates acts as investment advisor or other
service provider for such mutual fund (including the First American
Funds, Inc. and the First American Investment Funds, Inc.), then the
Employer (or other fiduciary independent of the Trustee) must first
acknowledge that it has received the current prospectus for the mutual
fund and a detailed written disclosure of the investment advisory and
other fees charged or to be paid by the Plan or the mutual fund and the
Employer (or such other fiduciary) must approve the investment advisory
fee and other fees paid by the Plan directly or through the mutual fund
and the investment of Plan assets in the mutual funds; any
interest-bearing certificates, accounts or similar interest-bearing
instruments in a bank or similar financial institution, including the
Trustee or an affiliate of the Trustee, provided such certificates,
accounts or instruments bear a reasonable rate of interest; bonds,
notes and debentures, secured or unsecured; mortgages, leases or other
interests in real or personal property; interests in mineral, gas, oil
or timber properties or other wasting assets; options; commodity or
financial futures contracts; foreign currency; insurance contracts on
the life of any "keyman" or shareholder of the Employer; or conditional
sales contracts. The Plan may not acquire or hold any securities issued
by an Employer or real estate leased to an Employer except that the
Trustee acting pursuant to the express written directions of the
Employer as provided in Section 10.12 may acquire and hold Employer
securities which are "qualifying employer securities" (within the
meaning of section 407(d)(5) of the Employee Retirement Income Security
Act of 1974) and Employer real property which is "qualifying employer
real property" (within the meaning of section 407(d)(4) of the
aforesaid Act); and, provided further, that the Plan may acquire any
such Employer securities or Employer real property only if immediately
after such acquisition the aggregate fair market value of Employer
securities and Employer real property held by the Plan does not exceed
the lesser of (i) the percentage indicated in the Adoption Agreement of
the fair market value of the assets of the Plan, or (ii) the then value
of all Employer Matching Accounts and Employer Contributions Accounts.
If the Trustee determines to invest in any "qualifying employer
security," such securities shall be held only in the Employer Matching
Accounts or Employer Contributions Accounts or in the Suspense Accounts
attributable to such Accounts. Investment of the entire Fund in common
stocks shall be deemed appropriate at any phase of the economic
business cycle, but it is not, however, the purpose hereof to direct
that the Fund shall be invested either entirely or to any extent
whatsoever in such common stocks. Prior to maturity and distribution of
the Vested Total Accounts of Participants, the Trustee shall commingle
the Accounts of Participants and former Participants in each investment
Subfund and invest, reinvest, control and manage each of the same as a
common trust fund.
15. EMPLOYER DIRECTED INVESTMENTS. Section 10.12 of the Basic Plan Document
is amended by the addition of a new sentence to the end thereof to read
in full as follows:
The Employer may direct the Trustee to purchase shares of any regulated
investment company (mutual fund) for which the Trustee or any of its
affiliates acts as investment advisor or other service provider,
provided, however, that the Employer (or other fiduciary independent of
the Trustee) must first acknowledge it has received the current
prospectus for the mutual fund (including the First American Funds,
Inc. and the First American Investment Funds, Inc.) and a detailed
disclosure of the investment advisory and other fees charged or to be
paid by the Plan and the Employer must approve the investment advisory
fee and other fees paid by the Plan directly or through the mutual
funds and the investment of Plan assets in the mutual fund.
16. APPENDIX A - SECTION 415 LIMITATIONS. Section 1.12 and Section 2.4 of
Appendix A to the Basic Plan Document is amended in full to read as
follows:
1.12. ss. 415 COMPENSATION. Section 415 compensation (sometimes, "ss.
415 compensation") shall mean, with respect to any limitation year, the
wages, tips and other compensation paid to the Participant by the
Employer and reportable in the box designated "wages, tips, other
compensation" on Treasury Form W-2 (or any comparable successor box or
form) for the limitation year but determined without regard to any
rules that limit the remuneration included in wages based on the nature
or location of the employment or the services performed (such as the
exception for agricultural labor in section 3401(a)(2) of the Internal
Revenue Code). For limitation years beginning after December 31, 1991,
ss. 415 compensation shall be determined on a cash basis.
. . . .
2.4. REMEDIAL ACTION. If the Participant's annual additions for a
limitation year would exceed the maximum permissible additions
applicable to defined contribution plans alone, the Employer shall, to
the extent they cause such excess to occur, cause the following to
occur until such excess is eliminated:
(i) return any unmatched employee contributions made by the
Participant for the limitation year to the Participant
(adjusted for their proportionate share of gains but not
losses while held in the Plan), and
(ii) distribute unmatched elective deferrals (within the meaning of
section 402(g)(3) of the Code) made for the limitation year to
the Participant (adjusted for their proportionate share of
gains but not losses while held in the Plan), and
(iii) return any matched employee contributions made by the
Participant for the limitation year to the Participant
(adjusted for their proportionate share of gains but not
losses while held in the Plan), and
(iv) distribute matched elective deferrals (within the meaning of
section 402(g)(3) of the Code) made for the limitation year to
the Participant (adjusted for their proportionate share of
gains but not losses while held in the Plan).
To the extent either matched employee contributions are returned or matched
elective deferrals are distributed, any matching contribution made with respect
thereto shall be forfeited and reallocated to Participants as provided in the
Plan Statement.
If, after returning such employee contributions to the Participant and
distributing elective deferrals to the Participant, an excess still
exists, the Employer shall cause such excess to be used to reduce
Employer contributions for the next limitation year ("second limitation
year") (and succeeding limitation years, as necessary) for that
Participant if that Participant is covered by the Plan at the end of
the second limitation year (or succeeding limitation years). If the
Participant is not covered by the Plan at the end of the second
limitation year (or succeeding limitation years), however, then the
excess amounts must be held unallocated in an "excess account" for the
second limitation year (or succeeding limitation years) and allocated
and reallocated in the second limitation year (or succeeding limitation
year) to all the remaining Participants in the Plan as if an employer
contribution for the second limitation year (or succeeding limitation
year). However, if the allocation or reallocation of the excess amounts
pursuant to the provisions of the Plan causes the limitations of this
Appendix to be exceeded with respect to each Participant for the second
limitation year (or succeeding limitation years), then these amounts
must be held unallocated in an excess account. If an excess account is
in existence at any time during the second limitation year (or any
succeeding limitation year), all amounts in the excess account must be
allocated and reallocated to Participants' accounts (subject to the
limitations of this Appendix) as if they were additional Employer
contributions before any employer contribution and any Participant
contributions which would constitute annual additions may be made to
the Plan for that limitation year. Furthermore, the excess amounts must
be used to reduce Employer contributions for the second limitation year
(and succeeding limitation years, as necessary) for all of the
remaining Participants. Excess amounts may not be distributed from the
Plan to Participants or former Participants. If an excess account is in
existence at any time during a limitation year, the gains and losses
and other income attributable to the excess account shall be allocated
to such excess account. To the extent that investment gains or other
income or investment losses are allocated to the excess account, the
entire amount allocated to Participants from the excess account,
including any such gains or other income or less any losses, shall be
considered as an annual addition. If the Plan should be terminated
prior to the date any such temporarily held, unallocated excess can be
allocated to the Accounts of Participants, the date of termination
shall be deemed to be an Annual Valuation Date for the purpose of
allocating such excess and, if any portion of such excess cannot be
allocated as of such deemed Annual Valuation Date by reason of the
limitations of this Appendix, such remaining excess shall be returned
to the Employer.
17. MISCELLANEOUS CHANGES. The following changes are also made to the Basic
Plan Document:
a. Section 1.1.5 of the Basic Plan Document is amended by
adding to the end thereof the following sentence: "A person so
designated shall not be considered a Beneficiary until the death of the
Participant."
b. Section 1.1.6 of the Basic Plan Document is amended by
substituting the words "principal employer" for "principal sponsor" in
the last sentence thereof.
c. Section 1.1.11 of the Basic Plan Document is amended by
inserting before the parenthetical the following sentence: "If any such
business entity adopts this Plan, the business entity that executed the
Adoption Agreement (the "principal employer") retains the sole
authority to amend the Adoption Agreement, terminate the Plan, act as
Plan Administrator and take other actions as are described in Section
9.4."
d. Section 3.3.1 of the Basic Plan Document is amended by
deleting the sentence that begins "Also, for this purpose,..." in its
entirety without replacement.
e. Section 3.4.3 of the Basic Plan Document is amended by
deleting the sentence that begins "Also, for this purpose,..." in its
entirety without replacement.
f. Section 3.12 of the Basic Plan Document is amended by
adding at the beginning thereof a new sentence to read in full as
follows: "All Employer contributions to the Plan are conditioned on
their qualification for deduction for federal income tax purposes under
section 404 of the Internal Revenue Code."
g. Section 7.1.2 of the Basic Plan Document is amended by
inserting after the words "as to a Participant" the following language:
"and has never exceeded Three Thousand Five Hundred Dollars ($3,500) at
the time of any prior distribution,"
h. Section 7.1.3 of the Basic Plan Document is amended by
inserting after the reference to Section 7.2.2 the following language:
"or, subject to Section 9.2, following termination of the Plan,"
i. The last paragraph of Section 7.2.2 (c) of the Basic Plan
Document is amended by substituting "Section 7.2.2" for "Section
2.2.2."
j. Section 7.3.4 (d) of the Basic Plan Document is amended by
deleting subsection (i) and the last paragraph beginning "If this Plan
is adopted as a money purchase...." in their entirety without
replacement.
k. Sections 12.6, 12.8, 12.9 and 12.10 of the Basic Plan
Document are amended by substituting the words "principal employer" for
the word "Employer."
18. SAVINGS CLAUSE. Save and except as hereinabove expressly amended, the
Basic Plan Document shall continue in full force and effect.
SECOND AMENDMENT
OF
ss. 401(K) PROTOTYPE
BASIC PLAN DOCUMENT #02
(1989 RESTATEMENT)
FIRST TRUST NATIONAL ASSOCIATION ("First Trust") is the prototype
sponsor of a ss. 401(k) prototype which in its most recent amended and restated
form is embodied in a document entitled "ss. 401(k) PROTOTYPE BASIC PLAN
DOCUMENT #02 (1989 RESTATEMENT)" as amended by a First Amendment (collectively
the "Basic Plan Document"). Under Section 9.1.2 of the Basic Plan Document,
First Trust is authorized to amend the Basic Plan Document to assure compliance
with the applicable provisions of the Employee Retirement Income Security Act of
1974 and the Internal Revenue Internal Revenue Code of 1986, and also for any
other purpose that is appropriate. Because of regulations and revenue procedures
issued by the Internal Revenue Service clarifying changes made by the Omnibus
Budget Reconciliation Act of 1993 and the Unemployment Compensation Amendments
of 1992, First Trust hereby amends the Basic Plan Document in the following
respects for all adopting Employers.
1. RECOGNIZED COMPENSATION. Effective for determining the amount of
Recognized Compensation during Plan Years beginning on or after January
1, 1994, Section 1.1.26 (f) of the Basic Plan Document is amended to
read in full as follows:
(f) ANNUAL MAXIMUM. A Participant's Recognized Compensation for a
Plan Year shall not exceed the annual compensation limit under
section 401(a)(17) of the Internal Revenue Code. In
determining a Participant's Recognized Compensation, the rules
of section 414(q)(6) of the Internal Revenue Code apply,
except that in applying such rules, the term "family" shall
include only the spouse of the Participant and lineal
descendants of the Participant who have not attained age
nineteen (19) years before the close of the Plan Year;
provided, however, that the rule in this sentence shall not
apply to the Seven Thousand Dollar ($7,000) limit specified in
Section 2.5. If Participants are aggregated as such family
members (and do not otherwise agree in writing), the
Recognized Compensation of each family member shall equal the
annual compensation limit under section 401(a)(17) of the
Internal Revenue Code multiplied by a fraction, the numerator
of which is such family member's Recognized Compensation
(before application of such annual compensation limit) and the
denominator of which is the total Recognized Compensation
(before application of such annual compensation limit) of all
such family members. For purposes of the foregoing, the annual
compensation limit under section 401(a)(17) of the Internal
Revenue Code shall be Two Hundred Thousand Dollars ($200,000)
(as adjusted under the Internal Revenue Code for cost of
living increases) for Plan Years beginning before January 1,
1994, and shall be One Hundred and Fifty Thousand Dollars
($150,000) (as so adjusted) for Plan Years beginning on or
after January 1, 1994.
2. COMPENSATION SECTION 401(K) COMPLIANCE. Effective for determining the
amount of compensation for section 401(k) compliance purposes for Plan
Years beginning on or after January 1, 1994, Section 2.7.1 (d) of the
Basic Plan Document is amended to read in full as follows:
(d) "COMPENSATION" means compensation for services performed for
the Employer defined as "ss. 415 compensation" in Appendix A
to this Plan Statement. The Administrator's Representative may
elect to include as compensation any elective contributions
made by the Employer on behalf of the covered employee that
are not includible in gross income under sections 125,
402(a)(8), 402(h), 403(b), 414(h)(2) and 457 of the Internal
Revenue Code. Notwithstanding the definition of "ss. 415
compensation" in Appendix A to this Plan Statement,
compensation shall always be determined on a cash (and not on
an accrual) basis and compensation shall be determined on a
Plan Year basis (which is not necessarily the same as the
limitation year). A covered employee's compensation for a Plan
Year shall not exceed the annual compensation limit under
section 401(a)(17) of the Internal Revenue Code. For purposes
of the foregoing, the annual compensation limit under section
401(a)(17) of the Internal Revenue Code shall be Two Hundred
Thousand Dollars ($200,000) (as adjusted under the Internal
Revenue Code for cost of living increases) for Plan Years
beginning before January 1, 1994, and shall be One Hundred and
Fifty Thousand Dollars ($150,000) (as so adjusted) for Plan
Years beginning on or after January 1, 1994.
3. FAMILY MEMBER. Effective for applying the family aggregation rules to
section 401(k) compliance for Plan Years beginning on or after January
1, 1994, Section 2.7.2 (b) of the Basic Plan Document is amended to
read in full as follows:
(b) FAMILY MEMBER. If a highly compensated covered employee is
subject to the family aggregation rules of section 414(q)(6)
of the Internal Revenue Code because such employee is either a
five percent (5%) owner or one of the ten (10) most highly
compensated employees (as defined in Appendix D to this Plan
Statement), the combined deferral percentage for the family
group (which is treated as one highly compensated covered
employee) shall be determined by combining the amounts
described in Section 2.7.1(c)(i) and by combining the
compensation described in Section 2.7.1(d) of all family
members who are covered employees. The family members who are
aggregated with respect to a highly compensated covered
employee shall be disregarded as separate covered employees in
determining the average deferral percentage of highly
compensated covered employees and the average deferral
percentage of all other covered employees. If a covered
employee is required to be aggregated as a member of more than
one family group in the Plan, all covered employees who are
members of those family groups that include that covered
employee are aggregated as one family group. With respect to
any highly compensated covered employee, "family" shall mean
the employee's spouse and lineal ascendants and descendants
and the spouses of such lineal ascendants and descendants. The
annual compensation limit under section 401(a)(17) of the
Internal Revenue Code applies to the above deferral percentage
determination except that for purposes of that limit, the term
"family" shall include only the spouse of the covered employee
and lineal descendants of the covered employee who have not
attained age nineteen (19) years before the close of that Plan
Year. For purposes of the foregoing, the annual compensation
limit under section 401(a)(17) of the Internal Revenue Code
shall be Two Hundred Thousand Dollars ($200,000) (as adjusted
under the Internal Revenue Code for cost of living increases)
for Plan Years beginning before January 1, 1994, and shall be
One Hundred and Fifty Thousand Dollars ($150,000) (as so
adjusted) for Plan Years beginning on or after January 1,
1994.
4. SECTION 401(M) COMPLIANCE. Effective for determining the amount of
compensation for section 401(m) compliance purposes for Plan Years
beginning on or after January 1, 1994, Section 3.10.1 (d) of the Basic
Plan Document is amended to read in full as follows:
(d) "COMPENSATION" means compensation for services performed for
the Employer defined as "ss. 415 compensation" in Appendix A
to this Plan Statement. The Administrator's Representative may
elect to include as compensation any elective contributions
made by the Employer on behalf of the eligible employee that
are not includible in gross income under sections 125,
402(a)(8), 402(h), 403(b), 414(h)(2) and 457 of the Internal
Revenue Code. Notwithstanding the definition of "ss. 415
compensation" in Appendix A to this Plan Statement
compensation shall always be determined on a cash (and not on
an accrual) basis and compensation shall be determined on a
Plan Year basis (which is not necessarily the same as the
limitation year). An eligible employee's compensation for a
Plan Year shall not exceed the annual compensation limit under
section 401(a)(17) of the Internal Revenue Code. For purposes
of the foregoing, the annual compensation limit under section
401(a)(17) of the Internal Revenue Code shall be Two Hundred
Thousand Dollars ($200,000) (as adjusted under the Internal
Revenue Code for cost of living increases) for Plan Years
beginning before January 1, 1994, and shall be One Hundred and
Fifty Thousand Dollars ($150,000) (as so adjusted) for Plan
Years beginning on or after January 1, 1994.
5. FAMILY MEMBER. Effective for applying the family aggregation rules to
section 401(m) compliance for Plan Years beginning on or after January
1, 1994, Section 3.10.2 (b) of the Basic Plan Document is amended to
read in full as follows:
(b) FAMILY MEMBER. If a highly compensated eligible employee is
subject to the family aggregation rules of section 414(q)(6)
of the Internal Revenue Code because such employee is either a
five percent (5%) owner or one of the ten (10) most highly
compensated employees (as defined in Appendix D), the combined
contribution percentage for the family group (which is treated
as one highly compensated eligible employee) shall be
determined by combining the amounts described in Section
3.10.1(c)(i) and by combining the compensation described in
Section 3.10.1(d) of all family members who are eligible
employees. The family members who are aggregated with respect
to a highly compensated eligible employee shall be disregarded
as separate eligible employees in determining the average
contribution percentage of highly compensated eligible
employees and the average contribution percentage of all other
eligible employees. If an eligible employee is required to be
aggregated as a member of more than one family group in the
Plan, all eligible employees who are members of those family
groups that include that eligible employee are aggregated as
one family group. With respect to any highly compensated
eligible employee, "family" shall mean the employee's spouse
and lineal ascendants and descendants and the spouses of such
lineal ascendants and descendants. The limit on annual
compensation under section 401(a)(17) of the Internal Revenue
Code applies to the above contribution percentage
determination except that for purposes of that limit, the term
"family" shall include only the spouse of the eligible
employee and lineal descendants of the eligible employee who
have not attained age nineteen (19) years before the close of
that Plan Year. For purposes of the foregoing, the annual
compensation limit under section 401(a)(17) of the Internal
Revenue Code shall be Two Hundred Thousand Dollars ($200,000)
(as adjusted under the Internal Revenue Code for cost of
living increases) for Plan Years beginning before January 1,
1994, and shall be One Hundred and Fifty Thousand Dollars
($150,000) (as so adjusted) for Plan Years beginning on or
after January 1, 1994.
6. NOTICES. Effective for distributions payable on or after January 1,
1993, Section 7.1 of the Basic Plan Document is amended by adding
thereto new Section 7.1.5 which shall read in full as follows:
7.1.5. NOTICES. The Administrator's Representative will issue such
notices as may be required under sections 402(f), 411(a)(11), 417(a)(3)
and other sections of the Internal Revenue Code in connection with
distributions from the Plan. No distribution will be made unless it is
consistent with such notice requirements. If the Plan is an exempt
profit sharing plan as defined in Section 7.3.4 (d), distribution may
commence less than thirty (30) days after the notice required under
section 1.411(a)-11(c) of the Income Tax Regulations or the notice
required under section 1.402(f)-2T of the Income Tax Regulations is
given, provided that:
(a) The Administrator's Representative informs the Distributee
that the Distributee has a right to a period of at least
thirty (30) days after receiving the notice to consider the
decision of whether or not to elect distribution (and, if
applicable, a particular distribution option); and
(b) The Distributee, after receiving the notice, affirmatively
elects in the manner prescribed by the Administrator's
Representative a distribution.
7. APPENDIX B TOP HEAVY RULES. Effective for determining the minimum
required top heavy contribution percentage under a defined contribution
plan for Plan Years beginning on or after January 1, 1994, Section
3.3.2 (a) of Appendix B to the Basic Plan Document is amended to read
in full as follows:
(a) The percentage referred to above shall be determined by
dividing the Employer contributions for such Key Employee for
such Plan Year by so much of his compensation for such Plan
Year as does not exceed One Hundred and Fifty Thousand Dollars
($150,000) (as adjusted for cost of living in accordance with
section 401(a)(17)(B) of the Internal Revenue Code).
8. SAVINGS CLAUSE. Save and except as hereinabove expressly amended, the
Basic Plan Document shall continue in full force and effect.
THIRD AMENDMENT
OF
ss. 401(K) PROTOTYPE
BASIC PLAN DOCUMENT #02
(1989 RESTATEMENT)
FIRST TRUST NATIONAL ASSOCIATION ("First Trust") is the prototype
sponsor of a ss. 401(k) prototype which in its most recent amended and restated
form is embodied in a document entitled "ss. 401(k) PROTOTYPE BASIC PLAN
DOCUMENT #02 (1989 RESTATEMENT)" as amended by a First Amendment and Second
Amendment (collectively the "Basic Plan Document") and Adoption Agreement #001.
Under Section 9.1.2 of the Basic Plan Document, First Trust is authorized to
amend the Basic Plan Document and Adoption Agreement #001 to assure compliance
with the applicable provisions of the Employee Retirement Income Security Act of
1974 and the Internal Revenue Internal Revenue Code of 1986, and also for any
other purpose that is appropriate. First Trust hereby amends the Basic Plan
Document and Adoption Agreement #001 in the following respects for all adopting
Employers.
1. EMPLOYERS. EFFECTIVE FOR PLAN YEARS BEGINNING ON OR AFTER JANUARY 1,
1994, SECTION 1.1.11 OF THE BASIC PLAN DOCUMENT SHALL BE AMENDED TO
READ IN FULL AS FOLLOWS:
1.1.11. EMPLOYERS -- the business entity which establishes a Plan by
executing the Adoption Agreement and any Affiliate of any such business
entity that adopts this Plan with the consent of the Employer as
provided in Section 9.4. If any such business entity adopts this Plan,
the business entity that executed the Adoption Agreement (the
"principal employer") retains the sole authority to amend the Adoption
Agreement, terminate the Plan, act as the Plan Administrator and take
other actions as are described in Section 9.4. A sole proprietor shall
be treated as his or her own Employer. A partnership shall be treated
as the Employer of each partner.
2. RECOGNIZED EMPLOYMENT. EFFECTIVE FOR PLAN YEARS BEGINNING ON OR AFTER
JANUARY 1, 1994, SECTION 1.1.27 OF THE BASIC PLAN DOCUMENT SHALL BE
AMENDED TO READ IN FULL AS FOLLOWS:
1.1.27. RECOGNIZED EMPLOYMENT -- all employment with the Employer
excluding, however, employment classified by the Employer as:
(a) employment in a unit of Employees whose terms and conditions
of employment are subject to a collective bargaining agreement
between the Employer and employee representatives (for this
purposed, the term "employee representatives" does not include
any organization where more than half of its members are
Employees who are owners, officers or executives of the
Employer), if retirement benefits were the subject of good
faith bargaining and if two percent or less of the Employees
who are covered pursuant to such collective bargaining
agreement are professionals as defined in Treas. Reg. section
1.410(b)-9 unless (and to the extent) such collective
bargaining agreement provides for the inclusion of those
Employees in the Plan,
(b) employment of a nonresident alien (within the meaning of
section 7701(b)(1)(B) of the Internal Revenue Code) who is not
receiving any earned income (within the meaning of section
911(d)(2) of the Internal Revenue Code) from the Employer
which constitutes income from sources within the United States
(within the meaning of section 861(a)(3) of the Internal
Revenue Code) unless and until the Administrator's
Representative shall declare such employment to be Recognized
Employment,
(c) employment in a division or facility of the Employer which is
not in existence on the Effective Date (that is, was acquired,
established, founded or produced by the liquidation or similar
discontinuation of a separate subsidiary after the Effective
Date) unless and until the Administrator's Representative
shall declare such employment to be Recognized Employment,
(d) employment of a United States citizen or a United States
resident alien outside the United States unless and until the
Administrator's Representative shall declare such employment
to be Recognized Employment,
(e) services of a person who is not a Common Law Employee of the
Employer including, without limiting the generality of the
foregoing, services of a Leased Employee, leased owner, leased
manager, shared employee, shared leased employee or other
similar classification unless and until the Administrator's
Representative shall declare such employment to be Recognized
Employment,
(f) employment of a highly compensated Employee (as defined in
Appendix D to the Plan Statement) to the extent agreed to in
writing by the Employee, and
(g) employment described as excluded in the Adoption Agreement.
3. VALUATION DATE. EFFECTIVE FOR PLAN YEARS BEGINNING ON OR AFTER JANUARY
1, 1994, SECTION 1.1.30 OF THE BASIC PLAN DOCUMENT SHALL BE AMENDED TO
READ IN FULL AS FOLLOWS:
1.1.30. VALUATION DATE -- the Annual Valuation Date and each other
date, if any, specified in the Adoption Agreement. If so permitted in
the Adoption Agreement, Valuation Date for accounting purposes may be
different than Valuation Date for distribution purposes.
4. INITIAL ENTRY INTO PLAN. EFFECTIVE FOR DETERMINING PARTICIPATION FOR
PLAN YEARS BEGINNING ON OR AFTER JANUARY 1, 1994, SECTION 2.1 OF THE
BASIC PLAN DOCUMENT SHALL BE AMENDED BY ADDING TO THE END THEREOF THE
FOLLOWING SENTENCE:
In the Adoption Agreement, the Employer may elect different service
requirements for eligibility to enroll for retirement savings
contributions under Section 3.2 and to share in the Employer required
matching contributions and Employer discretionary contributions under
Sections 3.3 and 3.4.
5. RETIREMENT SAVINGS CONTRIBUTIONS ALLOCATION. EFFECTIVE FOR ALLOCATING
THE PARTICIPANT'S RETIREMENT SAVINGS CONTRIBUTIONS FOR PLAN YEARS
BEGINNING ON OR AFTER JANUARY 1, 1994, SECTION 3.2.2 OF THE BASIC PLAN
DOCUMENT SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
3.2.2. ALLOCATION. The portion of this contribution made with respect
to each Participant shall be allocated to that Participant's Retirement
Savings Account for the Plan Year with respect to which it is made and,
for the purposes of Section 4, shall be credited as of the Valuation
Date coincident with or immediately following the date such
contribution is received by the Trustee or, if the Employer has
selected daily Valuation Dates for accounting purposes in the Adoption
Agreement, as soon as practicable after such contribution is received
by the Trustee.
6. REQUIRED MATCHING CONTRIBUTION ALLOCATION. EFFECTIVE FOR ALLOCATING THE
EMPLOYER'S REQUIRED MATCHING CONTRIBUTION FOR PLAN YEARS BEGINNING ON
OR AFTER JANUARY 1, 1994, SECTION 3.3.2 OF THE BASIC PLAN DOCUMENT
SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
3.3.2. ALLOCATION. The Employer matching contribution (including
forfeited Suspense Accounts, if any) which is made with respect to an
eligible Participant shall be allocated to that Participant's Employer
Matching Account for the Plan Year with respect to which it is made
and, for the purposes of Section 4, shall be credited as of the
Valuation Date coincident with or immediately following the date such
contribution is received by the Trustee or, if the Employer has
selected daily Valuation Dates for accounting purposes in the Adoption
Agreement, as soon as practicable after such contribution is received
by the Trustee.
7. CURATIVE ss. 401(k) ALLOCATION. EFFECTIVE FOR ALLOCATING THE CURATIVE
ss. 401(k) ALLOCATION FOR PLAN YEARS BEGINNING ON OR AFTER JANUARY 1,
1994, THE LAST SENTENCE OF SECTION 3.4.2 OF THE BASIC PLAN DOCUMENT
SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
The Employer discretionary contribution so made under this Section 3.4.2
shall be allocated to that Participant's Retirement Savings Account for
the Plan Year with respect to which the contribution is made and, for
the purposes of Section 4, shall be credited as of the Valuation Date
coincident with or immediately following the date such contribution is
received by the Trustee or, if the Employer has selected daily
Valuation Dates for accounting purposes in the Adoption Agreement, as
soon as practicable after such contribution is received by the Trustee.
8. DISCRETIONARY MATCHING CONTRIBUTION. EFFECTIVE FOR ALLOCATING THE
EMPLOYER'S DISCRETIONARY MATCHING CONTRIBUTION FOR PLAN YEARS BEGINNING
ON OR AFTER JANUARY 1, 1994, THE LAST SENTENCE OF SECTION 3.4.3 OF THE
BASIC PLAN DOCUMENT SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
The Employer matching contribution which is made with respect to an
eligible Participant shall be allocated to that Participant's Employer
Matching Account for the Plan Year with respect to which it is made
and, for the purposes of Section 4, shall be credited as of the
Valuation Date coincident with or immediately following the date such
contribution is received by the Trustee or, if the Employer has
selected daily Valuation Dates for accounting purposes in the Adoption
Agreement, as soon as practicable after such contribution is received
by the Trustee.
9. CURATIVE ss. 401(m) ALLOCATION. EFFECTIVE FOR ALLOCATING THE CURATIVE
ss. 401(m) ALLOCATION FOR PLAN YEARS BEGINNING ON OR AFTER JANUARY 1,
1994, THE LAST SENTENCE OF SECTION 3.4.4 OF THE BASIC PLAN DOCUMENT
SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
The Employer discretionary contribution so made under this Section 3.4.4
shall be allocated to that Participant's Employer Matching Account for
the Plan Year with respect to which the contribution is made and, for
the purposes of Section 4, shall be credited as of the Valuation Date
coincident with or immediately following the date such contribution is
received by the Trustee or, if the Employer has selected daily
Valuation Dates for accounting purposes in the Adoption Agreement, as
soon as practicable after such contribution is received by the Trustee.
10. DISCRETIONARY PROFIT SHARING CONTRIBUTIONS. EFFECTIVE FOR ALLOCATING
THE EMPLOYER DISCRETIONARY PROFIT SHARING CONTRIBUTIONS FOR PLAN YEARS
BEGINNING ON OR AFTER JANUARY 1, 1994, SECTION 3.4.5 OF THE BASIC PLAN
DOCUMENT SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
3.4.5. DISCRETIONARY PROFIT SHARING CONTRIBUTIONS. If the Adoption
Agreement so provides, any portion of the Employer's discretionary
contribution not allocated under Section 3.4.2, Section 3.4.3 and
Section 3.4.4 shall be allocated to the Employer Contributions Accounts
of eligible Participants under Section 3.5. The discretionary
contribution for a Plan Year shall be allocated to the Employer
Contributions Accounts of eligible Participants under the formula set
forth in Section 3.4.5(a) or Section 3.4.5(b) as indicated in the
Adoption Agreement.
(a) STRAIGHT PERCENT OF PAY PROFIT SHARING ALLOCATION. If the
discretionary profit sharing contribution is adopted as a non-
integrated straight percent of pay profit sharing
contribution, the contribution, if any, made by the Employer
for a given Plan Year shall be allocated to the Employer
Contributions Accounts of eligible Participants in the ratio
which the Recognized Compensation of each such eligible
Participant for the Plan Year bears to the Recognized
Compensation for such Plan Year of all such eligible
Participants.
(b) INTEGRATED PROFIT SHARING ALLOCATION. If the discretionary
profit sharing contribution is adopted as an integrated profit
sharing contribution, the contribution, if any, made by the
Employer for a given Plan Year shall be determined and
allocated under the following rules:
(i) BASE CONTRIBUTION PERCENTAGE. Subject to the rules in
Section 3.4.5(b)(iii) and (iv), the Employer shall
determine a uniform base contribution percentage for
the Plan Year and shall contribute to each eligible
Participant's Employer Profit Sharing Account an
amount equal to that base contribution percentage
multiplied by each such eligible Participant's
Recognized Compensation up to the Integration Level
(as defined in the Adoption Agreement) for that Plan
Year.
(ii) EXCESS CONTRIBUTION PERCENTAGE. Subject to the rules
in Section 3.4.5(b)(iii) and (iv), the Employer shall
determine a uniform excess contribution percentage
for the Plan Year and shall contribute to each
eligible Participant's Employer Profit Sharing
Account an amount equal to that excess contribution
percentage multiplied by each such eligible
Participant's Recognized Compensation in excess of
the Integration Level (as defined in the Adoption
Agreement) for that Plan Year.
(iii) RULES FOR NON-TOP HEAVY PLAN. The base contribution
percentage and the excess contribution percentage for
a Plan Year in which the Plan is not top heavy as
defined in Appendix B to this Plan Statement shall be
determined as follows:
* TWO TIMES RULE. If the base contribution
percentage is equal to or less than the
integration rate (as determined in the
Adoption Agreement), the excess contribution
percentage shall not exceed the product of
the base contribution percentage multiplied
by two (2).
* INTEGRATION LIMITATION. If the base
contribution percentage is greater than the
integration rate (as determined in the
Adoption Agreement), the excess contribution
percentage shall not exceed the sum of the
base contribution percentage plus the
integration rate.
(iv) RULES FOR TOP HEAVY PLAN. The base contribution
percentage and the excess contribution percentage for
a Plan Year in which the Plan is top heavy as defined
in Appendix B to this Plan Statement shall be
determined in accordance with the following rules:
* LESS THAN THREE PERCENT RULE. If the base
contribution percentage is less than three
percent (3%), the excess contribution
percentage shall not exceed the base
contribution percentage.
* THREE PERCENT RULE. If the base contribution
percentage is three percent (3%), the excess
contribution percentage may be a percentage
between three percent (3%) and six percent
(6%).
* TWO TIMES RULE. If the base contribution
percentage is greater than three percent
(3%) but not greater than the integration
rate (as determined in the Adoption
Agreement), the excess contribution
percentage shall not exceed the product of
the base contribution percentage multiplied
by two (2).
* INTEGRATION LIMITATION. If the base
contribution percentage is greater than the
integration rate (as determined in the
Adoption Agreement), the excess contribution
percentage shall not exceed the sum of the
base contribution percentage plus the
integration rate.
The Employer discretionary profit sharing contribution which is made with
respect to an eligible Participant shall be allocated to that
Participant's Employer Contributions Account for the Plan Year with
respect to which it is made and, for the purposes of Section 4, shall
be credited as of the Valuation Date coincident with or immediately
following the date such contribution is received by the Trustee or, if
the Employer has selected daily Valuation Dates for accounting purposes
in the Adoption Agreement, as soon as practicable after such
contribution is received by the Trustee.
11. ROLLOVER CONTRIBUTIONS. EFFECTIVE FOR ROLLOVER CONTRIBUTIONS MADE
DURING PLAN YEARS BEGINNING ON OR AFTER JANUARY 1, 1994, SECTION 3.7.3
OF THE BASIC PLAN DOCUMENT SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
3.7.3. ALLOCATION. All rollover contributions made by an Employee to
this Plan shall be allocated to a Rollover Account established for such
Employee except that any portion thereof which represents deductible
voluntary employee contributions shall be allocated to a Deductible
Voluntary Account for such Employee. For the purposes of Section 4,
rollover contributions shall be credited to such Employee's Rollover
Account or Deductible Voluntary Account as of the Valuation Date
coincident with or immediately following the date such contribution is
received by the Trustee or, if the Employer has selected daily
Valuation Dates for accounting purposes in the Adoption Agreement, as
soon as practicable after such contribution is received by the Trustee.
12. NONDEDUCTIBLE VOLUNTARY CONTRIBUTIONS. EFFECTIVE FOR NONDEDUCTIBLE
VOLUNTARY CONTRIBUTIONS MADE FOR PLAN YEARS BEGINNING ON OR AFTER
JANUARY 1, 1994, SECTION 3.8.3 OF THE BASIC PLAN DOCUMENT SHALL BE
AMENDED TO READ IN FULL AS FOLLOWS:
3.8.3. ALLOCATION. A nondeductible voluntary contribution made by a
Participant to this Plan shall be allocated to that Participant's
Nondeductible Voluntary Account for the Plan Year with respect to which
it is made and, for the purposes of Section 4, shall be credited as of
the Valuation Date coincident with or immediately following the date
such contribution is received by the Trustee or, if the Employer has
selected daily Valuation Dates for accounting purposes in the Adoption
Agreement, as soon as practicable after such contribution is received
by the Trustee.
13. ERISA SECTION 404(c). EFFECTIVE FOR COMPLIANCE WITH ERISA SECTION
404(c) FOR PLAN YEARS BEGINNING ON OR AFTER JANUARY 1, 1994, SECTION
4.1.5(c) OF THE BASIC PLAN DOCUMENT SHALL BE AMENDED TO READ IN FULL AS
FOLLOWS:
(c) Participants and Beneficiaries shall be periodically informed
of transactional fees and expenses (e.g., commissions, sales
loads, deferred sales charges, redemption or exchange fees)
that affect their Accounts and are related to their Plan
investment decisions;
14. VALUATION OF ACCOUNTS. EFFECTIVE FOR PLAN YEARS BEGINNING ON OR AFTER
JANUARY 1, 1994, THE INTRODUCTORY PARAGRAPH OF SECTION 4.2 OF THE PLAN
DOCUMENT SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
The Trustee shall value each investment Subfund as of each Valuation Date
(which for purposes of this Section 4.2 shall include any Valuation
Date which a distribution is to be made pursuant to Section 7), which
valuation shall reflect, as nearly as possible, the then fair market
value of the assets comprising such Subfund (including income
accumulations therein). In making such valuations, the Trustee may rely
upon information supplied by an Investment Manager having investment
responsibility over the particular Subfund.
15. CONTRIBUTION ADJUSTMENT. EFFECTIVE FOR PLAN YEARS BEGINNING ON OR AFTER
JANUARY 1, 1994, SECTION 4.2(c) OF THE BASIC PLAN DOCUMENT SHALL BE
AMENDED TO READ IN FULL AS FOLLOWS:
(c) CONTRIBUTION ADJUSTMENT. The initial Account value (as
adjusted above) shall be increased by the total amount
credited to such Account under Section 3 as of a date
subsequent to the last preceding Valuation Date but not later
than the current Valuation Date.
16. DAILY VALUATION RULES. EFFECTIVE FOR PLAN YEARS BEGINNING ON OR AFTER
JANUARY 1, 1994, SECTION 4.2 OF THE BASIC PLAN DOCUMENT IS AMENDED BY
THE ADDITION OF NEW SUBPARAGRAPH (f) TO READ IN FULL AS FOLLOWS:
(f) DAILY VALUATION RULES. Notwithstanding the foregoing, if the
Employer has selected daily Valuation Dates in the Adoption
Agreement, the following accounting rules will apply:
(i) VALUATION OF THE FUND. The Trustee shall value each
Subfund from time to time (but not less frequently
than each Annual Valuation Date), which valuation
shall reflect, as nearly as possible, the then fair
market value of the assets comprising such Subfund
(including income accumulations therein). In making
such valuations, the Trustee may rely upon
information supplied by any Investment Manager having
investment responsibility over the particular
Subfund.
(ii) ADJUSTMENT OF ACCOUNTS. The Employer shall cause the
value of each Account or portion of an Account
invested in a particular Subfund (including
undistributed Total Accounts) to be increased (or
decreased) from time to time for distributions,
contributions, investment gains (or losses) and
expenses charged to the Account.
17. MANAGEMENT AND INVESTMENT OF FUND. EFFECTIVE FOR PLAN YEARS BEGINNING
ON OR AFTER JANUARY 1, 1994, SECTION 4.3 OF THE BASIC PLAN DOCUMENT IS
AMENDED TO READ IN FULL AS FOLLOWS:
4.3. MANAGEMENT AND INVESTMENT OF FUND. The Fund in the hands of the
Trustee, together with all additional contributions made thereto and
together with all net income thereof, shall be controlled, managed,
invested, reinvested and ultimately paid and distributed to
Participants and Beneficiaries by the Trustee with all the powers,
rights and discretions generally possessed by trustees, and with all
the additional powers, rights and discretions conferred upon the
Trustee under the Plan Statement, except to the extent that the Trustee
is subject to the authorized and properly given investment directions
of the Employer, Participants, Beneficiaries or Investment Manager.
Except to the extent that the Trustee is subject to the authorized and
properly given investment directions of the Employer, Participants,
Beneficiaries or Investment Manager, and subject to the directions of
the Administrator's Representative with respect to the payment of
benefits hereunder, the Trustee shall have the exclusive authority to
manage and control the assets of the Fund in its custody and shall not
be subject to the direction of any person in the discharge of its
duties, nor shall its authority be subject to delegation or
modification except by formal amendment of the Plan Statement.
If the Trustee is subject to the investment directions of the Employer,
Participants, Beneficiaries or Investment Manager, the Trustee shall
not make any investment or dispose of any investment in the Fund except
upon the express verbal or written direction of the Employer,
Participants, Beneficiaries or Investment Manager. Also, the Trustee
shall be under no duty to question any investment directions of the
Employer, Participants, Beneficiaries or Investment Manager, to review
or monitor any securities or property held in the Fund or the
Participant's Accounts, or to give any advice to the Employer,
Participants, Beneficiaries or Investment Manager with respect to the
investment, retention or disposition of any assets held in the Fund or
the Participants' Accounts.
18. EVENTS OF MATURITY. EFFECTIVE FOR EVENTS OF MATURITY OCCURRING ON OR
AFTER JANUARY 1, 1994, SECTIONS 6.1(g) AND (h) OF THE BASIC PLAN
DOCUMENT SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
(g) the disposition by the Employer to an unrelated organization
of substantially all the assets (within the meaning of section
409(d)(2) of the Internal Revenue Code) used by the Employer
in a trade or business of the Employer, but only with respect
to employees who continue employment with the organization
acquiring such assets and only if the purchase and sale
agreement specifically authorizes distribution of this Plan's
assets in connection with such disposition and the Employer
continues to maintain the Plan after the disposition,
(h) the disposition by the Employer to an unrelated organization
of the Employer's interest in a subsidiary (within the meaning
of section 409(d)(3) of the Internal Revenue Code), but only
with respect to employees who continue employment with such
subsidiary and only if the purchase and sale agreement
specifically authorizes distribution of this Plan's assets in
connection with such disposition and the Employer continues to
maintain the Plan after the disposition, or
19. EXCEPTION FOR SMALL AMOUNTS. EFFECTIVE FOR DISTRIBUTIONS PAYABLE AS OF
A DATE ON OR AFTER JANUARY 1, 1994, SECTION 7.1.2 OF THE BASIC PLAN
DOCUMENT SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
7.1.2. EXCEPTION FOR SMALL AMOUNTS. A Vested Total Account which does
not exceed (and has never exceeded) Three Thousand Five Hundred Dollars
($3,500) as of the Valuation Date permitted in Article X of the
Adoption Agreement that is coincident with or next following the
occurrence of an Event of Maturity effective as to a Participant, shall
be distributed automatically in a single lump sum as soon as
administratively practicable after that Valuation Date without a
written application for distribution. A Participant who has no Vested
interest in the Participant's Total Account as of the Participant's
Event of Maturity shall be deemed to have received an immediate
distribution of the Participant's entire interest in the Plan as of
such Event of Maturity.
20. EXCEPTION FOR REQUIRED DISTRIBUTIONS. EFFECTIVE FOR DISTRIBUTIONS
PAYABLE AS OF A DATE ON OR AFTER JANUARY 1, 1994, SECTION 7.1.3 OF THE
BASIC PLAN DOCUMENT SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
7.1.3. EXCEPTION FOR REQUIRED DISTRIBUTIONS. Any Vested Total Account
for which no application for distribution has been received prior to
the required beginning date effective as to the Distributee under
Section 7.2.2, or, subject to Section 9.2, following termination of the
Plan, shall be distributed automatically in a lump sum (if the Plan is
not an exempt profit sharing plan, however, the Vested Total Account
shall be distributed in a form provided under Section 7.3.4) on the
required beginning date without a written application for distribution.
21. LOST DISTRIBUTEE. EFFECTIVE FOR PLAN YEARS BEGINNING ON OR AFTER
JANUARY 1, 1994, SECTION 7.1 OF THE BASIC PLAN DOCUMENT SHALL BE
AMENDED BY THE ADDITION OF NEW SECTION 7.1.6 TO READ IN FULL AS
FOLLOWS:
7.1.6. LOST DISTRIBUTEES. In the event of Plan termination or a
distribution permitted under Section 7.1.2, if a Distributee cannot be
found after two (2) first class return receipt mailings to the
Distributee's last known address, then such Distributee's Vested Total
Account shall be either deposited into an interest-bearing savings
account in the name of the Distributee with a bank or similar financial
institution, including the Trustee or an affiliate of the Trustee or
shall be treated as unclaimed property pursuant to the laws of the
State in which the Trustee is domiciled and shall be turned over to
such State in accordance with that State's unclaimed property laws.
After a lost Distributee's Vested Total Account has been deposited into
either a savings account or turned over to the State, the Distributee
is no longer a Participant in the Plan and has no right to a claim of
benefits against the Plan and has no claim whatsoever against the
Trustee with respect to the Plan. A Distributee whose Vested Total
Account has been turned over to a State because the Distributee could
not be found may request distribution from the State in accordance with
the State's unclaimed property laws. A Distributee whose Vested Total
Account has been deposited with a bank or financial institution because
the Distributee could not be found may request distribution from such
bank or financial institution.
22. TIME OF DISTRIBUTION. EFFECTIVE FOR DISTRIBUTIONS PAYABLE AS OF A DATE
ON OR AFTER JANUARY 1, 1994, SECTION 7.2 OF THE BASIC PLAN DOCUMENT
SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
7.2. TIME OF DISTRIBUTION. Upon the receipt of a proper application for
distribution from the Distributee, and after the occurrence of an Event
of Maturity effective as to a Participant, and after the Participant's
Vested Total Account has been determined and the right of the
Distributee to receive a distribution has been established, the
Administrator's Representative shall cause the Trustee to make or
commence distribution of such Vested Total Account as soon as
administratively feasible after the Valuation Date specified by the
Distributee which is permitted in Article X of the Adoption Agreement
and which is not earlier than nor later than the dates specified below.
7.2.1. EARLIEST BEGINNING DATE. Distribution to a Distributee shall not
be made or commenced earlier than the earliest beginning date.
(a) PARTICIPANT. If the Distributee is a Participant, the earliest
beginning date is the Valuation Date permitted in Article X of
the Adoption Agreement that is coincident with or next
following the date of the Participant's Event of Maturity;
provided, however, that if daily Valuation Dates have been
selected in Article X of the Adoption Agreement, the earliest
beginning date is the Participant's Event of Maturity.
(b) BENEFICIARY. If the Distributee is a Beneficiary of a
Participant, the earliest beginning date is the Valuation Date
permitted in Article X of the Adoption Agreement that is
coincident with or next following the date of such
Participant's death; provided, however, that if daily
Valuation Dates have been selected in Article X of the
Adoption Agreement, the earliest beginning date is the date of
such Participant's death.
In no event, however, shall distribution be made or commenced to a
Distributee earlier than the date the Administrator's Representative
receives any required application for distribution and the notice
requirements identified in Section 7.1.5 have been satisfied.
7.2.2. REQUIRED BEGINNING DATE. Distribution shall be made or commenced
as soon as administratively feasible after the last Valuation Date
permitted in Article X of the Adoption Agreement occurring in the
calendar year immediately preceding the required beginning date
effective as to the Distributee. In all events, however, distribution
shall be made or commenced not later than the required beginning date.
(a) PARTICIPANT. If the Distributee is a Participant, the required
beginning date is the April 1 following the calendar year in
which the Participant attains age seventy and one-half
(70-1/2) years.
(b) BENEFICIARY. If the Distributee is the Beneficiary of a
Participant who died on or after the April 1 following the
calendar year in which the Participant attained age seventy
and one-half (70-1/2) years, the required beginning date is
the date or dates which provide for distribution to such
Beneficiary at a rate (considering both time and amount) that
is cumulatively at least as rapid as the rate of distribution
scheduled and commenced prior to the death of the Participant.
(c) BENEFICIARY. If the Distributee is a Beneficiary of a
Participant who died before the April 1 following the calendar
year in which the Participant attained age seventy and
one-half (70-1/2) years, the required beginning date is the
date or dates that allow distribution of the entire amount to
be completed not later than December 31 of the calendar year
in which occurs the fifth (5th) anniversary of the
Participant's death; provided, however, that:
(i) if the Beneficiary is an individual who is not the
surviving spouse of the Participant (or a trust for
such individual's benefit which satisfies the
requirements of Treas. Reg. 1.401(a)(9)-1(b), Q & A
D-5) and if distributions will be made to such
individual Beneficiary (or such trust) in
substantially equal annual amounts over a period of
time not extending beyond the life expectancy of such
Beneficiary, distributions must commence not later
than December 31 of the year following the year of
the Participant's death, or
(ii) if the Beneficiary is the surviving spouse of the
Participant (or a trust for such spouse's benefit
which satisfies the requirements of Treas. Reg.
1.401(a)(9)-1(b), Q & A D-5)and if distributions will
be made to such surviving spouse in substantially
equal annual amounts over a period of time not
extending beyond the life expectancy of the surviving
spouse (or such trust), distributions must commence
not later than the date specified in paragraph (i)
above or, if later, the December 31 of the calendar
year in which the Participant would have attained age
seventy and one-half (70-1/2) years.
If distributions are made to a Beneficiary in installments,
the second and all subsequent distributions must be made on or
before December 31 of the year for which the distribution is
made. A Beneficiary must elect the method of distribution no
later than the earlier of (a) December 31 of the calendar year
in which distributions would be required to begin under this
Section 7.2.2, or (b) December 31 of the calendar year in
which occurs the fifth (5th) anniversary of the Participant's
death. If a Beneficiary makes no election, distribution of the
Beneficiary's entire interest must be completed by December 31
of the calendar year containing the fifth (5th) anniversary of
the Participant's death.
23. WITHDRAWALS FROM VOLUNTARY ACCOUNTS. EFFECTIVE FOR WITHDRAWALS FROM
VOLUNTARY ACCOUNTS PAYABLE ON OR AFTER JANUARY 1, 1994, SECTION 7.8.1
OF THE BASIC PLAN DOCUMENT SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
7.8.1. WHEN AVAILABLE. If the Adoption Agreement so provides, a
Participant (whether or not then employed by the Employer) may make
withdrawals from time to time from the Participant's Nondeductible
Voluntary Account (if any) and the Participant's Deductible Voluntary
Account (if any). To receive such a withdrawal, the Participant must
file a written application specifying the dollar amount to be
withdrawn. Such withdrawal application shall be approved by the
Administrator's Representative to be made in a lump sum cash payment as
soon as administratively practicable after the Valuation Date permitted
in Article X of the Adoption Agreement that is coincident with or next
following approval of the completed application by the Administrator's
Representative.
24. IN-SERVICE DISTRIBUTIONS. EFFECTIVE FOR IN-SERVICE DISTRIBUTIONS
PAYABLE ON OR AFTER JANUARY 1, 1994, SECTION 7.9.1 OF THE BASIC PLAN
DOCUMENT SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
7.9.1. WHEN AVAILABLE. If the Adoption Agreement so provides, a
Participant (whether or not then employed by the Employer) may receive
an in- service distribution from the Vested portion of the
Participant's Total Account (unless the Adoption Agreement specifically
prohibits in-service distributions from a particular Account) if the
Administrator's Representative determines that such in-service
distribution is for one of the purposes described in Section 7.9.2 and
the conditions in Sections 7.9.3 and 7.9.4 have been fulfilled. To
receive an in-service distribution, the Participant must file an
in-service distribution application with the Administrator's
Representative. In the application, the participant shall specify the
dollar amount to be distributed. Such in-service distribution
application shall be approved by the Administrator's Representative to
be made in a lump sum cash payment as soon as administratively
practicable after the Valuation Date permitted in Article X of the
Adoption Agreement that is coincident with or next following approval
of the completed application by the Administrator's Representative.
25. IN-SERVICE DISTRIBUTIONS PURPOSES. EFFECTIVE FOR IN-SERVICE
DISTRIBUTIONS APPLIED FOR ON OR AFTER JANUARY 1, 1995, SECTION 7.9.2(c)
OF THE BASIC PLAN DOCUMENT SHALL BE AMENDED TO READ IN FULL AS FOLLOWS:
(c) payment of tuition, room and board and related educational
fees for the next twelve (12) months of post-secondary
education for the Participant, or the Participant's spouse,
children or dependents (as defined in section 152 of the
Internal Revenue Code), or
26. LOANS INTEREST RATE. EFFECTIVE FOR PARTICIPANT LOANS MADE ON OR AFTER
JANUARY 1, 1995, SECTION 7.11.2 OF THE BASIC PLAN DOCUMENT SHALL BE
AMENDED TO READ IN FULL AS FOLLOWS:
7.11.2. INTEREST RATE. The interest rate on each loan must be a
reasonable interest rate determined on the first business day of the
calendar month immediately preceding the date as of which the loan is
issued.
27. OTHER TRUST POWERS. EFFECTIVE FOR PLAN YEARS BEGINNING ON OR AFTER
JANUARY 1, 1994, THE LAST SENTENCE IN SECTION 10.(6)(h) OF THE BASIC
PLAN DOCUMENT IS DELETED IN ITS ENTIRETY AND THE SECOND TO THE LAST
SENTENCE IN SECTION 10.6(h) OF THE BASIC PLAN DOCUMENT SHALL BE AMENDED
TO READ IN FULL AS FOLLOWS:
Notwithstanding the foregoing, an Investment Manager shall have any or all of
such powers and rights with respect to Plan assets for which it has
investment responsibility but only if (and only to the extent that)
such powers and rights are expressly given to such Investment Manager
in a written agreement signed by it with a copy delivered to the
Trustee.
28. EMPLOYER DIRECTED INVESTMENTS. EFFECTIVE FOR PLAN YEARS BEGINNING ON OR
AFTER JANUARY 1, 1994, SECTION 10.12 OF THE BASIC PLAN DOCUMENT SHALL
BE AMENDED TO READ IN FULL AS FOLLOWS:
10.12. EMPLOYER DIRECTED INVESTMENTS. If so indicated in the Adoption
Agreement, the Trustee shall be subject in the investment, management
and control of the Fund to the properly given directions of the person,
persons or committee identified in the Adoption Agreement or certified
to the Trustee by an officer of the Employer. The Trustee shall not
make any investment or dispose of any investments in the Fund except
upon the express verbal or written direction of the Employer. The
Trustee shall be under no duty to question any investment direction of
the Employer, to review or monitor any securities or property held in
the Fund, or to advice the Employer with respect to the investment,
retention or disposition of any assets in the Fund. The Trustee is
acting pursuant to and in reliance on such directions shall be fully
and completely indemnified and held harmless by the Employer from any
liability, loss or expense (including legal fees) arising out of its
actions so directed notwithstanding that such directions, and the
Trustee's conduct pursuant thereto, may constitute a breach of
fiduciary obligations to the Plan, the Participants and Beneficiaries.
The Employer may direct the Trustee to purchase shares of any regulated
investment company (mutual fund) for which the Trustee or any of its
affiliates acts as investment advisor or other service provider,
provided, however, that the Employer (or other fiduciary independent of
the Trustee) must first acknowledge it has received the current
prospectus for the mutual fund (including the First American Funds,
Inc. and the First American Investment Funds, Inc.) and a detailed
disclosure of the investment advisory and other fees charged or to be
paid by the Plan and the Employer must approve the investment advisory
fee and other fees paid by the Plan directly or through the mutual
funds and the investment of Plan assets in the mutual fund.
29. APPENDIX G. EFFECTIVE FOR PARTICIPANT LOANS MADE ON OR AFTER JANUARY 1,
1995, PARAGRAPH (6) OF APPENDIX G OF THE BASIC PLAN DOCUMENT SHALL BE
AMENDED TO READ IN FULL AS FOLLOWS:
(6) All loans shall bear a reasonable rate of interest determined
on the first business day of the calendar month immediately
preceding the date as of which the loan is issued.
30. ADOPTION AGREEMENT. ADOPTION AGREEMENT #001 ATTACHED TO THIS AMENDMENT
IS EFFECTIVE FOR USE BY EMPLOYERS WHO ESTABLISH ss. 401(k) PLANS BY
ADOPTION OF THIS ss. 401(k) PROTOTYPE OR AMEND THEIR EXISTING DEFINED
CONTRIBUTION PLANS BY ADOPTION OF THIS ss. 401(k) PROTOTYPE ON OR AFTER
THE DATE THIS AMENDMENT IS SUBMITTED TO THE IRS.
31. SAVINGS CLAUSE. SAVE AND EXCEPT AS HEREINABOVE EXPRESSLY AMENDED, THE
BASIC PLAN DOCUMENT AND ADOPTION AGREEMENT #001 SHALL CONTINUE IN FULL
FORCE AND EFFECT.
ADOPTION AGREEMENT #002
(STANDARDIZED)
FOR USE WITH
401(k) PROTOTYPE
BASIC PLAN DOCUMENT #02
1989 RESTATEMENT
----------
ARTICLE I. PLAN ADOPTED
By execution of this Adoption Agreement, the Employer and the Trustee
agree that this Adoption Agreement #002 and the related document
entitled "ss. 401(k) Prototype Basic Plan Document #02 1989
Restatement" as amended, are adopted as the formal written instrument
under which the Employer will maintain a standardized defined
contribution profit sharing plan (the "Plan") for the benefit of its
Employees who are eligible to participate. The Plan, which the Employer
maintains, is intended to qualify under Internal Revenue Code section
401(a) and to be funded through a fund exempt from federal income taxes
under Internal Revenue Code section 501(a).
(i) The Prototype Sponsor will furnish the Employer a copy of the opinion
letter issued by the Internal Revenue Service with respect to the form
of the Prototype Documents.
(ii) If the Prototype Sponsor amends the Prototype Documents, the Prototype
Sponsor will furnish the Employer a copy of the amendment and a copy of
any opinion letter issued by the Internal Revenue Service with respect
to the form of such amendment.
(iii) If the Employer desires a determination letter from the IRS on the
qualification of the Plan, the Employer (and not the Trustee or the
Prototype Sponsor) is responsible for obtaining the determination
letter.
(iv) The Employer will furnish the Trustee with a copy of any determination
letter it receives on the Plan created by the Employer under the
Prototype Documents.
(v) The Employer (and not the Trustee or the Prototype Sponsor) is
responsible for the compliance with all laws regarding the filing of
the Annual Report/Return with the government and distributing the
Summary Plan Description, Summary Annual Report and Summary of Material
Modifications to Participants and Beneficiaries.
(vi) The Employer hereby directs the Trustee to withhold federal income
taxes from distributions from the Plan subject to the Employer's
obligation to furnish the Trustee with all information necessary for
the Trustee to properly withhold federal income taxes from
distributions.
(vii) The Employer understands that failure to properly fill out or amend
this Adoption Agreement may result in disqualification of the Plan.
(viii) If the Prototype Sponsor discontinues or abandons the Prototype
Documents, the Prototype Sponsor will inform the Employer.
(ix) This Adoption Agreement is not effective unless the Prototype Sponsor
(or its authorized representative) has consented, in writing, to the
use of this Adoption Agreement and the Prototype Documents.
(x) The Employer understands that this is a legal document with significant
tax and other legal effects and represents that this document has been
reviewed by the Employer's own legal counsel.
ARTICLE II. THE EMPLOYER
A. The Principal Employer's (1) name and address is:
____________________________________________
____________________________________________
____________________________________________
____________________________________________
[ss. 1.1.11]
B. The Principal Employer is organized under the laws of the state of
_____________________________ as a (check one):
____ C corporation.
____ S corporation.
____ partnership.
____ proprietorship.
____ other (specify)__________________ .
[ss. 1.1.11]
C. The Principal Employer's trade or business with respect to which this
Plan is established: ____________________________. (2)
(1) The Principal Employer is the Employer that will sign this Adoption
Agreement. All Affiliates of the Principal Employer will automatically
be considered participating Employers in this Plan (see ss. 1.1.3 of
Basic Plan Document #02 for the definition of "Affiliate").
(2) Describe the business and insert the proper business code from the
current instructions to IRS Form 5500.
D. The Principal Employer's annual accounting period (federal income tax
year) ends: .
E. The Principal Employer's federal taxpayer identification number is: .
F. The Principal Employer designates the following person(s) as the
Administrator's Representative.
____________________________________________
____________________________________________
____________________________________________
[ss. 1.1.2]
G. The names, addresses, phone numbers and EINs of the Affiliates that are
automatically participating Employers in the Plan on the Effective Date
of the Adoption Agreement are:(3)
1. _____________________________
_____________________________
_____________________________
(__) ____ - _____
EIN: ____________
2. _____________________________
_____________________________
_____________________________
(__) ____ - _____
EIN: ____________
(ADDITIONAL AFFILIATES SHOULD BE IDENTIFIED ON A SEPARATE ATTACHMENT TO
THE ADOPTION AGREEMENT CALLED "ATTACHMENT TO ARTICLE II.G.")
[ss. 1.1.3, ss. 1.1.11]
(3) All Affiliates of the Principal Employer will automatically be
considered participating Employers in this Plan. A business entity that
becomes an Affiliate after the Effective Date of this Adoption
Agreement and is not identified on this Adoption Agreement will be
considered a participating Employer as of the expiration of the
transitional period in section 410(b) of the Internal Revenue Code, or
if earlier, the date the Principal Employer approves the business
entity as a participating Employer pursuant to ss. 9.4 of the Basic
Plan Document. The Principal Employer should identify any new Affiliate
on an attachment to the Adoption Agreement. The attachment should
include the Affiliate's name, address, phone number, EIN, date of
affiliation and date it became a participating Employer.
ARTICLE III. THE TRUSTEE
A. The name and address of the Trustee to be used for reporting and
disclosure purposes is:
________________________________
________________________________
________________________________
________________________________
[ss. 1.1.29]
B. Effective date of appointment of the Trustee listed above: ___________.
C. The Prototype Sponsor's Authorized Representative for inquiries
regarding the adoption of the Prototype Documents, intended meaning of
the Prototype Documents and effect of the opinion letter is:
________________________________
________________________________
________________________________
________________________________
(____) ____-________
ARTICLE IV. HISTORY OF THE PLAN
A. The execution of this Adoption Agreement is intended to (check one):
___ create a new Plan.
___ amend an existing Plan (complete the following).
The existing Plan which is being amended was (check one):
___ maintained under this prototype or another prototype
also sponsored by the same Trustee as this Plan.
___ maintained under some other master, prototype or
individually designed document.
The name of the Plan under the earlier Plan document
was:_______________________ (4)
The original effective date of the Plan was: _______________,
19__ .
The Trustee under the earlier Plan document
was:_____________________ .
The date that the earlier Plan document was executed (or most
recently amended) was: ______________________________, 19__.
[ss. 1.1.23]
B. Upon the execution of this Adoption Agreement, the Plan name for
reporting 4Do not insert the name of an earlier prototype document but
rather the name of the Planand disclosure purposes will be:____. (5)
[ss. 1.1.20]
C. The three digit Plan serial number ("PN") which will be used by the
Employer for reporting and disclosure purposes is: ________________.(6)
D. The Effective Date (the date upon which this Adoption Agreement is to
be effective) is:____________________, 19__. (7)
[ss. 1.1.8]
E. The last day of the Plan Year (the fiscal year of the Plan)
is:_________________________.(8)
[ss. 1.1.22]
F. Is this Plan an exempt profit sharing plan as defined in ss. 7.3.4(d)
of the Basic Plan Document and, therefore, exempt from the qualified
joint and survivor annuity rules?
____ Yes
____ No
(4) Do not insert the name of an earlier prototype document but rather the
name of the Plan.
(5) Use a name that combines the Employer's name and words like "Retirement
Savings Plan" or "Savings Plan" or "401(k) Plan." Do not use
"Prototype" in the Plan name. Whatever name is chosen must be
consistently used for reporting and disclosure purposes.
(6) Select a number such as "001", "002", "003", etc. This number must
never have been previously used by the Employer to identify any plan
but this Plan. The number must be used consistently to identify only
this Plan.
(7) If this is a new Plan, enter the first day of the Plan Year in which
the Adoption Agreement is signed (or any later date). The Effective
Date should be no earlier than the first day of the first Plan Year
beginning after December 31, 1988, or the first day of the Plan Year in
which the Plan is adopted if this is a new Plan or if the Plan has been
previously amended for the Tax Reform Act of 1986; provided, however,
certain provisions specified in the Plan Statement shall be applicable
prior to that date for any Employer maintaining a Plan prior to January
1, 1989.
(8) It is generally recommended that the Plan Year coincide with the
Employer's tax year, but this is not required. If the Employer's tax
year is changed, the Plan Year does not automatically change.
[ss. 7.3.4(d)]
ARTICLE V. ELIGIBILITY REQUIREMENTS
A. AGE. The minimum age which each Employee must satisfy before becoming a
Participant in the Plan is (check one and complete):
___ No minimum age requirement.
___ Minimum age years (not greater than 21).
[ss. 2.1, ss. 1.2]
B. SERVICE FOR 401(K) PARTICIPATION. To become a Participant in the Plan
for the purpose of enrolling for retirement savings 401(k)
participation, each Employee must complete at least (check one): (9)
___ No years of Eligibility Service.
___ One year of Eligibility Service with at least 1,000 Hours of
Service.
___ One year of Eligibility Service with at least 1,000 Hours of
Service or ___ months (less than 12) of continuous service
without regard to Hours of Service credited.
[ss. 2.1, ss. 1.1.9]
C. SERVICE FOR EMPLOYER CONTRIBUTIONS. To become a Participant in the Plan
for purposes of receiving Employer matching contributions and Employer
profit sharing contributions each Employee must complete at least
(check one): (10)
___ No years of Eligibility Service.
___ One year of Eligibility Service with at least 1,000 Hours of
Service.
___ One year of Eligibility Service with at least 1,000 Hours of
Service or ___ months (less than 12) of continuous service
without regard to Hours of Service credited.
___ Two years of Eligibility Service without an intervening
One-Year Break in Service.
[ss. 2.1, ss. 1.1.9]
(9) Each Employee eligible to enroll for retirement savings 401(k)
contributions prior to completing the necessary Eligibility Service for
Employer contributions shall be treated as a Participant solely with
respect to such retirement savings 401(k) contributions during the
period prior to an Employee completing such Eligibility Service.
(10) Unless the Adoption Agreement provides that the Employer Contributions
Accounts and Employer Matching Accounts are fully (100%) Vested and
nonforfeitable at all times, no more than one year of Eligibility
Service may be required.
D. COMPUTATION PERIOD. The computation period for Eligibility Service will
be:
___ The year beginning with the date the Employee first performs
an Hour of Service and then Plan Years. (11)
___ Successive years beginning on the date the Employee first
performs an Hour of Service and annual anniversaries of that
date.
[ss. 2.1, ss. 1.1.9]
E. ENTRY DATE(S). The Entry Date(s) shall be (check one):
___ the first day of the Plan Year.(12)
___ the first day of the Plan Year and the first day of the 7th
calendar month of the Plan Year.
___ the first day of the Plan Year and the first day of the 4th,
7th and 10th calendar months of the Plan Year.
___ the first day of the Plan Year and the first day of the 2nd
through the 12th calendar months of the Plan Year.
[ss. 1.1.12]
F. VALUATION DATE(S). The Valuation Date(s) for accounting and valuation
purposes shall be (check only one):(13)
___ the Annual Valuation Date.
___ the Annual Valuation Date and the last day of the 6th month of
the Plan Year.
___ the Annual Valuation Date and the last day of the 3rd, 6th and
9th months of the Plan Year.
___ the Annual Valuation Date and the last day of the 1st through
the 11th months of the Plan Year.
___ the Annual Valuation Date and each other business day of the
Plan Year.
[ss. 1.1.30]
(11) This is the easier rule to administer but it does result in counting
some of the same Hours of Service in both "the year beginning on the
date the Employee first performs an Hour of Service" and the
overlapping next "Plan Year." Accordingly, the other rule may be more
appropriate when more than one year of Eligibility Service is required.
(12) If an age or service requirement must be satisfied before becoming a
Participant in the Plan, this Entry Date cannot be used.
(13) The Valuation Date(s) selected here will be used whenever the term
"Valuation Date" is used in the Basic Plan Document except in Sections
7.1.2, 7.1.3, 7.2, 7.3.4, 7.8 and 7.9 and Article X of the Adoption
Agreement. For the definition of Valuation Date for those Sections and
Article X, see Article X item A of this Adoption Agreement.
G. RECOGNIZED EMPLOYMENT. Recognized Employment is all service in the
employment of the Employer as defined in Section 1.1.27 of Basic Plan
Document #02; provided, however, that exclusions (c), (e) and (g) of
Section 1.1.27 shall not apply.
ARTICLE VI. RETIREMENT SAVINGS (401(k)) CONTRIBUTIONS (14)
A Participant may enter into a Retirement Savings Agreement with the
Employer to reduce his or her Recognized Compensation by any amount the
Participant chooses between __________________% and __________________
% of such Participant's Recognized Compensation.(15)
[ss. 3.2]
ARTICLE VII. EMPLOYER CONTRIBUTIONS AND FORFEITURES (16)
A. REQUIRED MATCHING CONTRIBUTIONS. Will Employer required matching
contributions be allowed?
___ No
___ Yes (check only one and complete):
___ FIXED MATCH WITH % LIMIT. An amount equal to ____% of
each Participant's retirement savings contributions,
ignoring, however, retirement savings contributions
in excess of _____% of the Participant's Recognized
Compensation.
____ FIXED MATCH WITH DOLLAR LIMIT. An amount equal to
____% of each Participant's retirement savings
contributions, ignoring, however, retirement savings
in excess of $__________.
(14) Federal law limits the amount which may be contributed to a
Participant's Retirement Savings Account per taxable year of the
Participant (the adjusted limit for 1995 is $9,240). This limit also
includes any similar contributions made by the Participant to any other
retirement plan sponsored by the Employer or any other employer.
(15) The amount of such reduction will be considered the contribution of the
Employer. The Plan must meet the nondiscrimination requirements of
Internal Revenue Code section 401(k) (see ss. 2.7 of the Basic Plan
Document). The Employer (and not the Trustee) is responsible for
testing and complying with those requirements unless the Employer and
the Trustee agree otherwise. Any amounts contributed by a Participant
through pay reduction shall be 100% Vested at all times and shall be
held in a separate Retirement Savings Account. Under no circumstances
may pay reduction elections be made retroactively.
(16) If Employer matching contributions and/or nondeductible voluntary
employee contributions are permitted, the Plan must meet the
nondiscrimination requirements of Internal Revenue Code section 401(m)
(see ss. 3.10 of the Basic Plan Document). The Employer (and not the
Trustee) is responsible for testing and complying with those
requirements unless the Employer and the Trustee agree otherwise.
___ GRADED MATCH. An amount determined as follows: (17)
If the Participant has The Employer will contribute
contributed this percentage this percentage of the
of Recognized Compensation: Participant's contribution:
Up to ___% _____% (50 to 100)
From ___% to ___% _____% (25 to 50)
From ___% to ___% _____% (1 to 25)
[ss. 3.3]
B. DISCRETIONARY CONTRIBUTIONS. Will Employer discretionary contributions
be allowed? (18)
___ No
___ Yes (check one or both and complete):
____ DISCRETIONARY MATCHING CONTRIBUTIONS. Employer
discretionary matching contributions will be
allocated to the Employer Matching Accounts of
eligible Participants to match a percentage,
determined by the Employer, of each eligible
Participant's retirement savings contribution,
ignoring, however, retirement savings contributions
in excess of _____% of the Participant's Recognized
Compensation.
___ DISCRETIONARY PROFIT SHARING CONTRIBUTIONS. (check
only one)(19)
_____ STRAIGHT PERCENT OF PAY. Employer
discretionary profit sharing contributions
are not integrated with Social Security
contributions. Employer discretionary profit
sharing contributions will be allocated to
the Employer Contributions Accounts of
eligible Participants (whether or not they
are making retirement savings contributions)
pursuant to ss. 3.4.5(a) of the Basic Plan
Document.
_____ INTEGRATED WITH SOCIAL SECURITY. Employer
discretionary profit sharing contributions
are integrated with Social Security
contributions. Employer discretionary profit
sharing contributions will be allocated to
the Employer Contributions Accounts of
eligible Participants (whether or not they
are making retirement savings contributions)
pursuant toss. 3.4.5(b) of the Basic Plan
Document.
(17) The percentages in the left column should be increasing. Each
percentage in the right column must be within the range indicated in
the parenthesis, but these percentages do not have to total 100%. The
third line is optional; it does not have to be completed.
(18) The allocation described here is the allocation which would follow the
curative allocations described in ss. 3.4.2 and ss. 3.4.4 of the Basic
Plan Document. Normally, if the Plan is carefully administered and the
requirements of ss. 2.7 and ss. 3.10 of the Basic Plan Document are
closely observed during the year, there will be no curative allocations
under ss. 3.4.2 or ss. 3.4.4. Either discretionary matching
contributions or discretionary profit sharing contributions, or both,
may be elected.
(19) Minimum contribution and allocation requirements apply in any Plan Year
that the Plan is "top heavy" as defined in Appendix B to the Basic Plan
Document.
The Integration Level will be equal to (check one): (20)
_____ The Taxable Wage Base ("TWB")
_____ $__________ (a dollar amount not greater than the
TWB)
[ss. 3.4.3 and ss. 3.4.5]
C. CONTRIBUTION ELIGIBILITY RULE. Will Participants who terminate
employment during the Plan Year with not more than 500 Hours of Service
and who are not employed on the last day of the Plan year share in the
Employer matching and profit sharing contributions (and forfeited
Suspense Accounts, if any) to be allocated for that Plan Year? (21)
EMPLOYER DISCRETIONARY
EMPLOYER REQUIRED EMPLOYER DISCRETIONARY PROFIT SHARING
MATCHING CONTRIBUTIONS MATCHING CONTRIBUTIONS CONTRIBUTIONS
___ Yes ___ Yes ___ Yes
___ No ___ No ___ No
___ Not Applicable ___ Not Applicable ___ Not Applicable
[ss. 3.5]
(20) The integration rate is determined as follows:
If the Integration then the integration
Level is more than but not greater than rate is:
$ 0 X * 5.7%
X * 80% of TWB 4.3%
80% of TWB Y ** 5.4%
* X = the greater of $10,000 or 20% of the TWB.
** Y = any amount more than 80% of the TWB but
less than 100% of the TWB.
If the Integration Level is the TWB, then the excess contribution
percentage cannot exceed the base contribution percentage by more than
the lesser of the base contribution percentage or 5.7%.
If the Integration Level is less than the TWB, then the excess
contribution percentage cannot exceed the base contribution percentage
by more than the lesser of the base contribution percentage or the
integration rate determined by the chart above.
(21) An Employee who left employment during the Plan Year and who performed
more than 500 Hours of Service before leaving, must receive an
allocation of an Employer matching and/or profit sharing contributions
if the Employer makes such contributions to other Participants for the
Plan Year.
D. EARNINGS ON ADVANCE CONTRIBUTIONS. If the Employer makes a required or
discretionary contribution in advance of the Valuation Date as of which
the contribution is allocated to Participant's Accounts, then the
earnings on such advance contribution will be (check only one):
____ Added to the Employer's contribution and allocated as part of
the contribution (which may serve to reduce the Employer's
total contribution for the Plan Year).
____ Added to the general earnings of the fund and allocated as
part of such earnings.
This does not affect the treatment of earnings on advance
retirement savings (401(k)) contributions, which are always
allocated to the electing Participant's Retirement Savings
Account.
[ss. 4.2]
E. RECOGNIZED COMPENSATION. For purposes of allocating the Employer's
required or discretionary matching contributions and discretionary
profit sharing contributions, if any, will a Participant's Recognized
Compensation exclude reimbursements or other expense allowances,
welfare and fringe benefits, moving expenses and deferred compensation
(both when deferred and when received)?
EMPLOYER DISCRETIONARY
EMPLOYER DISCRETIONARY EMPLOYER DISCRETIONARY PROFIT SHARING
MATCHING CONTRIBUTIONS PROFIT SHARING CONTRIBUTIONS CONTRIBUTIONS
___ Yes ___ Yes ___ Yes
___ No ___ No ___ No
___ Not Applicable ___ Not Applicable ___ Not Applicable
[ss. 1.1.26]
ARTICLE VIII. PARTICIPANT CONTRIBUTIONS
A. NONDEDUCTIBLE VOLUNTARY CONTRIBUTIONS. Will Participants be allowed to
make nondeductible voluntary contributions?
___ Yes
___ No
[ss. 3.8]
B. WITHDRAWALS FROM VOLUNTARY ACCOUNT. Will Participants be allowed to
withdraw their nondeductible voluntary contributions and deductible
voluntary contributions (and earnings thereon) before an Event of
Maturity?
___ Yes
___ No
___ Not Applicable
[ss. 7.8]
C. ROLLOVER CONTRIBUTIONS. Will Employees in Recognized Employment be
allowed to make rollover contributions before they satisfy any age and
Eligibility Service requirements?
___ Yes
___ No
[ss. 3.7]
ARTICLE IX. VESTING OF EMPLOYER MATCHING ACCOUNTS
AND EMPLOYER CONTRIBUTIONS ACCOUNTS
A. EMPLOYER MATCHING ACCOUNT. Effective for Participants who perform one
or more Hours of Service on or after the Effective Date, each
Participant's Employer Matching Account shall become Vested as follows
(check one): (22)
___ NOT APPLICABLE.
___ FULL VESTING. Each Participant's Employer Matching Account
shall be fully (100%) Vested at all times.
___ GRADUATED OR CLIFF VESTING. (23) Each Participant's Employer
Matching Account shall be Vested in accordance with the
following schedule:
(22) If contributions allocated to the Employer Matching Account are to be
used in the 401(k) test (pursuant to Section 2.7 of the Basic Plan
Document), the Employer Matching Account must be fully (100%) Vested at
all times and not be subject to any in-service distributions.
(23) This Vesting provision can be elected only if the Adoption Agreement
provides for an Eligibility Service requirement of 1 year or no years.
The Vested Portion of the
When the Participant has Completed Participant's Employer
the Following Vesting Service: Matching Account will be:
------------------------------ -------------------------
2 to 6 3 year
------ ------
Less than 1 year % ---------% (0%) (0%)
1 year but less than 2 years % ---------% (0%) (0%)
2 years but less than 3 years % ---------% (20%) (0%)
3 years but less than 4 years % ---------% (40%) (100%)
4 years but less than 5 years % ---------% (60%)
5 years but less than 6 years % ---------% (80%)
6 years or more % ---------% (100%)
[ss. 5.1.1]
B. EMPLOYER CONTRIBUTIONS ACCOUNT. Effective for Participants who perform
one or more Hours of Service on or after the Effective Date, each
Participant's Employer Contributions Account shall become Vested as
follows (check one):
___ NOT APPLICABLE.
___ FULL VESTING. Each Participant's Employer Contributions
Account shall be fully (100%) Vested at all times.
___ GRADUATED OR CLIFF VESTING. (23) Each Participant's Employer
Contributions Account shall be Vested in him in accordance
with the following schedule:
The Vested Portion of the
When the Participant has Completed Participant's Employer
the Following Vesting Service: Matching Account will be:
------------------------------ -------------------------
2 to 6 3 year
------ ------
Less than 1 year % ---------% (0%) (0%)
1 year but less than 2 years % ---------% (0%) (0%)
2 years but less than 3 years % ---------% (20%) (0%)
3 years but less than 4 years % ---------% (40%) (100%)
4 years but less than 5 years % ---------% (60%)
5 years but less than 6 years % ---------% (80%)
6 years or more % ---------% (100%)
[ss. 5.1.1]
C. FULL VESTING SERVICE. Notwithstanding any of the foregoing, each
Participant's Employer Matching Account and Employer Contributions
Account shall become 100% Vested upon the Participant's death,
disability or attainment of Normal Retirement Age or, if earlier,
attainment of age years while in the employment of the Employer.
[ss. 5.1.2]
D. NORMAL RETIREMENT AGE. The Normal Retirement Age for each Participant
is:
___ The Participant's ___ birthday (not greater than 65th).
___ The Participant's ___ birthday (not greater than 65th) or, if
later, the ___ anniversary (not greater than 5th) of the first
day of the Plan Year in which the Participant first became a
Participant.
[ss. 1.1.17]
E. VESTING SERVICE EXCLUSION. Will Vesting Service earned before the
Employer established this Plan be counted to determine the Vested
portion of the Participant's Employer Matching Account and Employer
Contributions Account?
_____ Yes
_____ No (24)
[ss. 1.1.32, ss. 5.1.1]
ARTICLE X. DISTRIBUTIONS
A. VALUATION DATES. For distribution purposes, the Valuation Dates for the
Plan shall be (check only one): (25)
___ the Annual Valuation Date.
___ the Annual Valuation Date and the last day of the 6th month of
the Plan Year.
___ the Annual Valuation Date and the last day of the 3rd, 6th,
9th months of the Plan Year.
___ the Annual Valuation Date and the last day of the 1st through
11th months of the Plan Year.
___ the Annual Valuation Date and each other business day of the
Plan Year.
[ss. 1.1.30]
(24) If this is an amendment of an existing Plan, the Employer (i) may not
reduce the Vested percentage of any Participant's Employer Matching
Account or Employer Contributions Account, and (ii) the Plan must
comply with the rules contained in Section 5.2 of the Basic Plan
Document.
(25) The Valuation Date(s) selected here will only be used for purposes of
Sections 7.1.2, 7.1.3, 7.2, 7.3.4, 7.8 and 7.9 of the Basic Plan
Document and this Article X of the Adoption Agreement. The term
Valuation Date used throughout the remaining Sections of the Basic Plan
Document will be used in reference to the Valuation Dates selected in
Article V item F of this Adoption Agreement.
B. EVENT OF MATURITY. Will the Participant's attainment of age 59-1/2 be
an Event of Maturity (in addition to the other Events of Maturity
listed in Section 6.1 of the Plan Statement)?
___ Yes
___ No
[ss. 6.1]
C. TIME OF DISTRIBUTION. Distribution will occur (check only one): (26)
___ As of any Valuation Date specified in writing by the
Participant or Beneficiary which is coincident with or
following a Participant's Event of Maturity and following the
filing of any required application for distribution.
___ As of a date specified in writing by the Participant or
Beneficiary which is the Valuation Date coincident with or
immediately preceding the Participant's Event of Maturity or
any following Valuation Date preceding the filing of any
required application for distribution. (27)
___ As of a date specified in writing by the Participant or
Beneficiary which is the Valuation Date immediately preceding
or coincident with the Participant's Event of Maturity or any
Valuation Date following a Participant's Event of Maturity and
the filing of any required application for distribution. (27)
[ss. 7.2]
D. FORM OF DISTRIBUTION. Participants will be allowed to receive
distributions in the following forms (check one or more):
___ LUMP SUM - (check only one of the lump sum options):
___ Lump sum - single payment as of the Valuation Date
specified by the Participant and allowed in item C.
___ Lump sum - including if the Participant requests, a
partial advance payment not to exceed the value of
the Vested Total Account on the Valuation Date
immediately preceding the Participant's Event of
Maturity. (28)
(26) These rules only applies if a written application for distribution is
required. See Sections 7.1.2 and 7.1.3 of the Basic Plan Document for
the rules that apply to small amount distributions and required
beginning date distributions.
(27) The selection of this option carries with it the risk of adverse
selection for investment performance that will be borne by the
remaining Participants and Beneficiaries and not the Distributee. This
option cannot be selected if the Plan is subject to the qualified joint
and survivor annuity rules. (See Article IV, item F of this Adoption
Agreement.)
(28) This option can only be selected if the Plan provides Annual Valuations
and the Plan is not subject to the qualified joint and survivor annuity
rules (see Article IV, item F of this Adoption Agreement). If the
Distributee requests a partial payment, the Distributee may limit the
possible tax treatment of the distribution unless the partial payment
is received in the same taxable year as the remaining payment. The
selection of this option carries with it the risk of adverse selection
for investment performance that will be borne by the remaining
Participants and Beneficiaries and not the Distributee.
___ FIXED INSTALLMENTS - substantially equal annual installments,
the number of such installments to be specified by the
Participant before the first payment is made, but not to
exceed the Participant's life expectancy. (29)
___ MINIMUM INSTALLMENTS - substantially equal annual
installments, the number of such installments to be determined
by the Participant's life expectancy or the joint and last
survivor life expectancy of the Participant and his or her
Beneficiary.
Beneficiaries will be allowed to receive distributions in one
of the following forms (check one or more):
___ LUMP SUM - (check only one of the lump sum options):
___ Lump sum - single payment as of the Valuation Date
specified by the Beneficiary and allowed in item C.
___ Lump sum - including if the Beneficiary requests, a
partial advance payment not to exceed the value of
the Vested Total Account on the Valuation Date
immediately preceding the Participant's death.
___ INSTALLMENTS (30)
___ 5 years of substantially equal annual installments
commencing within one year of the Participant's
death.
___ Substantially equal annual installments based on the
Beneficiary's life expectancy commencing within one
year of the Participant's death.
___ Substantially equal annual installments payable to
the Participant's spouse (if such spouse is a
Beneficiary) based on the spouse's life expectancy
commencing not later than when the Participant would
have attained age 70-1/2 years.
[ss. 7.3]
(29) "Substantially equal" and "life expectancy" are defined in Section
7.3.2 of the Basic Plan Document.
(30) This can only be selected if installments to Participants are allowed.
If the Participant died on or after the April 1 following the calendar
year in which the Participant attained age seventy and one-half
(70-1/2) years, the only installment payments that will be allowed to
such a Beneficiary are a continuation of installment payments scheduled
(or commenced) prior to the death of the Participant. No other form of
installment payments shall be allowed to such a Beneficiary.
"Substantially equal" and "life expectancy" are defined in Section
7.3.2 of the Basic Plan Document.
E. HARDSHIP DISTRIBUTIONS. Hardship distributions during employment are
available to Participants for the following purposes (one or more may
be checked): (31)
___ medical expenses described in section 213(d) of the Internal
Revenue Code incurred by the Participant, the Participant's
spouse or any dependents of the Participant (as defined in
section 152 of the Internal Revenue Code).
___ the purchase (excluding mortgage payments) of a principal
residence of the Participant.
___ payment of tuition, room and board and related educational
fees for the next 12 months of post-secondary education for
the Participant, his or her spouse, children or dependents.
___ the need to prevent the eviction of the Participant from his
principal residence or foreclosure on the mortgage of the
Participant's principal residence.
[ss. 7.9]
F. SOURCE OF HARDSHIP DISTRIBUTIONS. Hardship distributions during
employment WILL NOT be allowed from the following Accounts (one or more
may be checked):
___ Retirement Savings Account
___ Employer Contributions Account
___ Employer Matching Account
(31) More than one may be checked. A Participant must submit a written
application specifying the amount of the hardship distribution. The
application shall require a Participant to establish his or her
entitlement to the distribution. The distribution shall be made as soon
as administratively feasible after the Valuation Date coincident with
or next following the approval of a completed application. The
following conditions must be satisfied to receive a hardship
distribution from the Retirement Savings Account during employment:
(i) the distribution shall not exceed the amount of the
Participant's immediate and heavy financial need;
(ii) the Participant has obtained all distributions, other
than hardship distributions, and all nontaxable loans
currently available under all plans maintained by the
Employer;
(iii) the Plan, and all other plans maintained by the
Employer, provide that the Participant's elective
contributions and employee contributions (as defined
in regulations issued by the Secretary of the
Treasury) will be suspended until the first Entry
Date 12 months after receipt of the hardship
distribution; and
(iv) the Plan, and all other plans maintained by the
Employer, provide that the Participant may not make
elective contributions (as defined in regulations
issued by the Secretary of the Treasury) for the
Participant's taxable year immediately following the
taxable year of the hardship distribution in excess
of the applicable limit under section 402(g) of the
Internal Revenue Code for such next taxable year less
the amount of such Participant's elective
contributions for the taxable year of the hardship
distribution.
These conditions do not apply unless part of the distribution comes
from a Retirement Savings Account.
___ Nondeductible Voluntary Account
___ Rollover Account
___ Transfer Account
___ Deductible Voluntary Account
[ss. 7.9]
G. ADVANCE HARDSHIP DISTRIBUTIONS. May the Participant request a partial
advance of up to fifty percent (50%) of the amount approved as a
hardship distribution?32
___ Yes
___ No
[ss. 7.9]
ARTICLE XI. INVESTMENT OPTIONS
A. LIFE INSURANCE. Will Participants be permitted to direct the investment
of a part of their Accounts into life insurance contracts?
___ Yes
___ No
[ss. 4.1, ss. 10.11]
B. COMMINGLED INVESTMENT SUBFUNDS. Can commingled investment Subfunds be
created so that Participants can control the investment of their
Accounts?
___ Yes (33)
___ No
[ss. 4.1.1]
C. INDIVIDUALLY DIRECTED ACCOUNTS. Will individual investment Subfunds be
created so that all Participants can control the investment of their
Accounts?
___ Yes (33)
___ No
(32) If advances are not allowed, the entire hardship distribution shall be
made as soon as administratively feasible after the Valuation Date
coincident with or next following the approval of a completed
application.
(33) If commingled investment Subfunds or individual investment Subfunds are
created, the Employer must agree with the Trustee, in writing, on the
operational rules for the Subfunds.
[ss. 4.1.2]
D. EMPLOYER DIRECTION. Will the Employer have the authority to direct the
Trustee in the investment of the Fund?
___ Yes
___ No
If yes, enter name and title of the person(s) who is (or are)
authorized to communicate such directions to the Trustee in
writing:______________________-
[ss. 10.12]
E. EMPLOYER SECURITIES OR REAL ESTATE. Will the Trustee be subject to the
directions of the above-named person(s) to purchase qualifying employer
securities or qualifying employer real estate?
___ Yes
___ No
If yes, the maximum percentage of the Fund which may be invested in
qualifying employer securities and qualifying employer real estate is:
___ percent
[ss. 10.12, ss. 10.6(a)]
F. ERISA ss. 404(c). Does the Plan intend to comply with ERISA ss. 404(c)?
___ Yes
___ No
[ss. 4.1.5]
G. MUTUAL FUNDS. By execution of this Adoption Agreement, the Employer
authorizes the Trustee to invest the Plan's assets in mutual funds
affiliated with the Trustee (First American Funds, Inc. and First
American Investment Funds, Inc.) and approves the investment advisory
and other fees to be paid by such mutual funds in relation to the fees
paid by the Plan, as set forth in the prospectuses and written
disclosure described in ss. 10.6(a) and ss. 10.12 of the Basic Plan
Document.
ARTICLE XII. LOANS
A. Will loans from the Plan be available to Participants and Beneficiaries
(other than Owner-Employees and Shareholder-Employees)?
___ Yes
___ No
[ss. 7.11]
B. Will each loan be made from the individual Accounts of the recipient
(as opposed to the general trust assets)?
___ Yes
___ No
[ss. 7.11]
ARTICLE XIII. INTERNAL REVENUE CODE ss. 415 LIMITATIONS
A. Does the Employer or any controlled group member now maintain or has
the Employer or any controlled group member ever maintained another
qualified plan in which any Participant in this Plan is (or was) a
participant or could possibly become a participant or does the Employer
or any controlled group member maintain a welfare benefit fund or an
individual medical account (as defined in Appendix A) under which
amounts are treated as annual additions with respect to any Participant
in this Plan?
___ No [complete only E below]
___ Yes [complete the rest of this Article XIII]
[Appendix A]
B. Such other qualified plan was or is a [select one or more as
appropriate]:
___ Master or prototype defined contribution plan [complete E
below]
___ Master or prototype defined benefit plan [complete D and E
below]
___ Individually designed defined contribution plan [complete C
and E below]
___ Individually designed defined benefit plan [complete D and E
below]
___ Welfare benefit fund [complete C and E below]
___ Individual medical account [complete C and E below]
C. To the extent that any Participant in this Plan is, may become or ever
has been a participant in another qualified defined contribution plan,
welfare benefit fund or individual medical account maintained by any
controlled group member, other than a master or prototype qualified
defined contribution plan (check one):
___ The provisions of Section 3 of Appendix A will apply, as if
the other plan was a master or prototype plan.
___ The method under which the plans will limit total annual
additions to the maximum permissible amount, and will properly
reduce any excess amounts, in a manner that precludes Employer
discretion is set forth in an attachment to this Adoption
Agreement.
D. To the extent that any Participant is, may become or ever has been a
participant in another qualified defined benefit plan maintained by any
controlled group member (check one):
___ In any limitation year, the annual additions credited to the
Participant under this Plan may not cause the sum of the
defined benefit plan fraction and the defined contribution
plan fraction to exceed 1.0. If the Employer contributions
that would otherwise be allocated to the Participant's Account
under the Plan during such year would cause the 1.0 limitation
to be exceeded, the allocation will be reduced so that the sum
of the fractions equals 1.0. Any contributions not allocated
because of the preceding sentence will be allocated to the
remaining Participants in this plan under the allocation
formula under this Plan. If the 1.0 limitation is exceeded
because of an excess amount, such excess amount will be
reduced in accordance with Section 2.4 of Appendix A.
___ The method under which the plans involved will satisfy the 1.0
limitation in a manner that precludes Employer discretion is
set forth in an attachment to this Adoption Agreement.
E. The limitation year is the following 12-consecutive month period (check
one):
___ the Plan Year
___ the calendar year
___ other (specify): ___________________________________.
ARTICLE XIV. INTERNAL REVENUE CODE ss. 416 LIMITATIONS
A. Does the Employer maintain another qualified plan in which any
Participant in this Plan is a participant or could possibly become a
participant?
___ No (skip the rest of this Article XIV)
___ Yes (complete the rest of this Article XIV)
B. To avoid duplication of minimum benefits under section 416 of the
Internal Revenue Code because of the required aggregation of multiple
plans, the 401(k) Prototype Basic Plan Document #02 is amended as
follows:
[ss. 9.1.1 and Appendix B]
C. For purposes of establishing the present value to compute the top heavy
ratio, any benefit under a defined benefit plan shall be discounted
only for mortality and interest based on the following:
Interest rate (select only one): ___ PBGC Interest Assumption as if
Plan terminated on valuation date.
___ Other ___________________________.
Mortality table (select only one): ___ PBGC Mortality Assumption as if
Plan terminated on valuation
date.
___ Other ___________________________.
[Appendix B]
ARTICLE XV. HOURS OF SERVICE
For the purpose of determining an Employee's One-Year Breaks in Service,
Vesting Service, Eligibility Service and minimum annual service
requirement to share in the Employer contribution made for a Plan Year,
Hours of Service for Employees shall be determined on the following:
___ On the basis of actual recorded hours for which an Employee is
paid or entitled to payment.
___ On the basis that, without regard to his actual recorded
hours, an Employee shall be credited with 10 Hours of Service
for a day if under Section 1.1.15 such Employee would be
credited with at least 1 Hour of Service during that day.
___ On the basis that, without regard to his actual recorded
hours, an Employee shall be credited with 45 Hours of Service
for a calendar week if under Section 1.1.15 such Employee
would be credited with at least 1 Hour of Service during that
calendar week.
___ On the basis that, without regard to his actual recorded
hours, an Employee shall be credited with 95 Hours of Service
for a semi-monthly pay period if under Section 1.1.15 such
Employee would be credited with at least 1 Hour of Service
during that semi-monthly pay period.
___ On the basis that, without regard to his actual recorded
hours, an Employee shall be credited with 190 Hours of Service
for a calendar month if under Section 1.1.15 such Employee
would be credited with at least 1 Hour of Service during that
calendar month.
[ss. 1.1.15]
ARTICLE XVI. COLLECTIVE INVESTMENTS
The Trustee's collective investment fund or funds incorporated by reference
into this Plan Statement are:
[ss. 10.6(q)]
An Employer who has ever maintained or who later adopts any plan
(including a welfare benefit fund, as defined in section 419(e) of the
Internal Revenue Code, which provides post-retirement medical benefits
allocated to separate accounts for key employees, as defined in section
419A(d)(3) of the Internal Revenue Code, or an individual medical
account, (as defined in section 415(1)(2) of the Internal Revenue Code)
in addition to this Plan may not rely on the opinion letter issued by
the National Office of the Internal Revenue Service as evidence that
this Plan is qualified under section 401 of the Internal Revenue Code.
If the Employer who adopts or maintains multiple plans wishes to obtain
reliance that its plan(s) (including this Plan) are qualified,
application for a determination letter should be made to the
appropriate Key District Director of the Internal Revenue Service.
The Employer may not rely on the opinion letter issued by the National
Office of the Internal Revenue Service as evidence that this Plan is
qualified under section 401 of the Internal Revenue Code unless the
terms of the Plan, as herein adopted or amended, that pertain to the
requirements of sections 401(a)(4), 401(a)(17), 401(1), 401(a)(5),
410(b) and 414(s) of the Internal Revenue Code as amended by the Tax
Reform act of 1986 or later laws, are (i) made effective retroactively
to the first day of the first Plan Year beginning after December 31,
1988 (or such other date on which these requirements first become
effective with respect to this Plan), or (ii) made effective no later
than the first day on which the Employer is no longer entitled, under
regulations, to rely on a reasonable, good faith interpretation of
these requirements, and the prior provisions of the Plan constitute
such an interpretation.
IN WITNESS WHEREOF, this Adoption Agreement is hereby approved.
Dated: _______________, 19___. FOR THE EMPLOYER
By __________________________
Its ________________________
Dated: _______________, 19___. FOR THE TRUSTEE
By __________________________
Its ________________________
And _________________________
Its ________________________
Dated: _______________, 19___. PROTOTYPE SPONSOR OR PROTOTYPE
SPONSOR'S AUTHORIZED
REPRESENTATIVE
By __________________________
Its ________________________
Prototype Sponsor
First Trust National Association
First Trust Center
180 East Fifth Street
St. Paul, Minnesota 55164
(612) 244-1082
EXHIBIT 14(b)
DEFINED CONTRIBUTION PROTOTYPE
BASIC PLAN DOCUMENT #01
1989 RESTATEMENT
DEFINED CONTRIBUTION PROTOTYPE
BASIC PLAN DOCUMENT #01
1989 RESTATEMENT
TABLE OF CONTENTS
Page
SECTION 1. Introduction ................................................. 1
1.1. Definitions
1.1.1. Accounts
(a) Total Account
(b) Employer Contributions Account
(c) Rollover Account
(d) Nondeductible Voluntary Account
(e) Deductible Voluntary Account
(f) Transfer Account
(g) Suspense Account
1.1.2. Administrator's Representative
1.1.3. Affiliate
1.1.4. Annual Valuation Date
1.1.5. Beneficiary
1.1.6. Board of Directors
1.1.7. Disability
1.1.8. Effective Date
1.1.9. Eligibility Service
1.1.10. Employee
1.1.11. Employer
1.1.12. Entry Date
1.1.13. Event of Maturity
1.1.14. Fund
1.1.15. Hours of Service
1.1.16. Integration Level
1.1.17. Investment Manager
1.1.18. Normal Retirement Age
1.1.19. One-Year Break in Service
1.1.20. Participant
1.1.21. Plan
1.1.22. Plan Statement
1.1.23. Plan Year
1.1.24. Prior Plan Statement
1.1.25. Prototype Documents
1.1.26. Prototype Sponsor
1.1.27. Recognized Compensation
1.1.28. Recognized Employment
1.1.29. Trustee
1.1.30. Valuation Date
1.1.31. Vested
1.1.32. Vesting Service
1.2. Rules Of Interpretation
1.3. Establishment Of New Plan
1.4. Amendment And Change Of Trustee
1.5. Amendment And Continuation
1.6. Automatic Exclusion From Prototype Plan
1.7. Special Requirements
1.7.1. Discriminatory Benefits
1.7.2. Discriminatory Coverage
1.7.3. Control Defined
SECTION 2. Eligibility And Participation................................ 12
2.1. Initial Entry Into Plan
2.2. Entry Upon Reemployment
2.3. Annual Certification
SECTION 3. Contributions And Allocation Thereof......................... 13
3.1. Employer Contributions
3.1.1. Source Of Employer Contributions
3.1.2. Amount
3.1.3. Limitation
3.1.4. Form Of Payment
3.2. Allocating Employer Contributions
3.2.1. Eligible Participants
3.2.2. Non-Integrated Profit Sharing Allocation
3.2.3. Integrated Profit Sharing Contribution
3.2.4. Non-Integrated Money Purchase Contribution
3.2.5. Integrated Money Purchase Contribution
3.2.6. Forfeited Suspense Accounts
3.2.7. Waiver Of Minimum Funding Standards
3.3. Make-Up Contributions For Omitted Participants
3.4. Rollover Contributions
3.4.1. Eligible Contributions
3.4.2. Specific Review
3.4.3. Allocation
3.5. Nondeductible Voluntary Contributions
3.6. Deductible Voluntary Contributions
3.7 Section 401(m) Compliance
3.7.1. Special Definitions
3.7.2. Special Rules
3.7.3. The Tests
3.7.4. Remedial Action
3.8. Limitation On Allocations
3.9. Effect Of Disallowance Of Deduction Or Mistake Of Fact
SECTION 4. Investment And Adjustment Of Accounts........................ 20
4.1. Establishment Of Subfunds
4.1.1. Establishing Commingled Subfunds
4.1.2. Individual Subfunds
4.1.3. Operational Rules
4.1.4. Revising Subfunds
4.2. Valuation And Adjustment Of Accounts
4.3. Management And Investment Of Fund
SECTION 5. Vesting...................................................... 23
5.1. Employer Contributions Account
5.1.1. Progressive Vesting
5.1.2. Full Vesting
5.1.3. Special Rule For Partial Distributions
5.1.4. Effect Of Break On Vesting
5.2. Optional Vesting Schedule
5.2.1. Election
5.2.2. Qualifying Participant
5.2.3. Procedure For Election
5.2.4. Conclusive Election
5.3. Other Accounts
SECTION 6. Maturity..................................................... 25
6.1. Events Of Maturity
6.2. Disposition Of Nonvested Portion Of Account
6.2.1. No Break
6.2.2. A Break
6.2.3. Forfeiture Date
6.3. Restoration Of Forfeited Accounts
SECTION 7. Distribution................................................. 27
7.1. Application For Distribution
7.1.1. Application Required
7.1.2. Exception For Small Amounts
7.1.3. Exception For Required Distributions
7.2. Time Of Distribution
7.2.1. Earliest Beginning Date
7.2.2. Required Beginning Date
7.3. Forms Of Distribution
7.3.1. Forms Available
7.3.2. Substantially Equal
7.3.3. Life Expectancy
7.3.4. Presumptive Forms
7.3.5. Effect Of Reemployment
7.3.6. TEFRA ss. 242(b) Transitional Rules
7.4. Designation Of Beneficiaries
7.4.1. Right To Designate
7.4.2. Spousal Consent
7.4.3. Failure Of Designation
7.4.4. Definitions
7.4.5. Special Rules
7.5. Death Prior To Full Distribution
7.6. Distribution In Cash
7.7. (Deleted)
7.8. Withdrawals From Voluntary Accounts
7.8.1. When Available
7.8.2. Sequence Of Accounts
7.8.3. Limitations
7.8.4. Coordination With Section 4.1
7.9. Accelerated Distributions
7.9.1. When Available
7.9.2. Purposes
7.9.3. Limitations
7.9.4. Sequence Of Accounts
7.9.5. Coordination With Section 4.1
7.10. Transitional Rules
7.11. Loans
7.11.1. General Rules
7.11.2. Interest Rate
7.11.3. Loans Made From Participant's Accounts
7.11.4. Loan Rules
7.12. Distribution Of Excess Aggregate Contributions
7.12.1. In General
7.12.2. Excess Aggregate Contributions
7.12.3. Determination Of Income
7.12.4. Accounting For Excess Aggregate Contributions
7.12.5. Special Family Member Rule
SECTION 8. Spendthrift Provisions....................................... 42
SECTION 9. Amendment And Termination.................................... 43
9.1. Amendment
9.1.1. Amendment By Employer
9.1.2. Amendment By Prototype Sponsor
9.1.3. Limitation On Amendments
9.1.4. Resignation Of Prototype Sponsor
9.2. Discontinuance Of Contributions And Termination Of Plan
9.3. Merger, Etc., With Another Plan
9.4. Adoption By Affiliates
9.4.1. Adoption With Consent
9.4.2. Procedure For Adoption
9.4.3. Effect Of Adoption
SECTION 10. Concerning the Trustee....................................... 46
10.1. Dealings With Trustee
10.1.1. No Duty To Inquire
10.1.2. Assumed Authority
10.2. Compensation Of Trustee
10.3. Resignation And Removal Of Trustee
10.3.1. Resignation, Removal And Appointment
10.3.2. Surviving Trustees
10.3.3. Successor Organizations
10.3.4. Co-Trustee Responsibility
10.4. Accountings By Trustee
10.4.1. Periodic Reports
10.4.2. Special Reports
10.4.3. Review Of Reports
10.5. Trustee's Power To Protect Itself On Account Of Taxes
10.6. Other Trust Powers
10.7. Investment Managers
10.7.1. Appointment And Qualifications
10.7.2. Removal
10.7.3. Relation To Other Fiduciaries
10.8. Fiduciary Principles
10.9. Prohibited Transactions
10.10. Indemnity
10.11. Investment In Insurance
10.11.1. Limitation On Payment Of Premiums
10.11.2. Miscellaneous Rules For Purchase Of
Contract
10.11.3. Payment Of Expenses
10.11.4. Authority For Contract
10.11.5. Payment Of Contract Upon Death
10.11.6. Payment Of Contract - Not Upon Death
10.11.7. Value Of Contract
10.11.8. Interpretation
10.12. Employer Directed Investments
SECTION 11. Determinations -- Rules And Regulations....................... 55
11.1. Determinations
11.2. Rules And Regulations
11.3. Method Of Executing Instruments
11.3.1. Employer Or Administrator's Representative
11.3.2. Trustee
11.4. Claims Procedure
11.4.1. Original Claim
11.4.2. Claims Review Procedure
11.4.3. General Rules
11.5. Information Furnished By Participants
SECTION 12. Other Administrative Matters................................. 57
12.1. Employer
12.1.1. Officers
12.1.2. Delegation
12.1.3. Board Of Directors
12.2. Administrator's Representative
12.3. Limitation On Authority
12.4. Conflict Of Interest
12.5. Dual Capacity
12.6. Administrator
12.7. Named Fiduciaries
12.8. Service Of Process
12.9. Residual Authority
12.10. Administrative Expenses
SECTION 13. In General................................................... 60
13.1. Disclaimers
13.1.1. Effect On Employment
13.1.2. Sole Source Of Benefits
13.1.3. Co-Fiduciary Matters
13.2. Reversion Of Fund Prohibited
13.3. Execution In Counterparts
13.4. Continuity
13.5. Contingent Top Heavy Plan Rules
Appendix A --Section 415 Limitations on Annual Additions................... A-1
Appendix B --Contingent Top Heavy Plan Rules............................... B-1
Appendix C --Qualified Domestic Relations Orders .......................... C-1
Appendix D --Highly Compensated Employee .................................. D-1
Appendix E --TEFRA ss. 242(b) Transitional Rules............................ E-1
Appendix F --Transitional Distribution Rules............................... F-1
Appendix G --Plan Loan Rules .............................................. G-1
DEFINED CONTRIBUTION PROTOTYPE
BASIC PLAN DOCUMENT #01
1989 RESTATEMENT
SECTION 1
INTRODUCTION
1.1. DEFINITIONS. When the following terms are used herein with initial capital
letters, they shall have the following meanings:
1.1.1. ACCOUNTS -- the following Accounts will be maintained under this
Plan for Participants:
(A) TOTAL ACCOUNT -- a Participant's entire interest in the Fund,
including his Employer Contributions Account, his Rollover
Account, his Nondeductible Voluntary Account, his Deductible
Voluntary Account, and his Transfer Account, if any, (but
excluding his interest in a Suspense Account).
(B) EMPLOYER CONTRIBUTIONS ACCOUNT -- the Account maintained for
each Participant to which is credited his allocable share of
the Employer contributions and his allocable share of
forfeited Suspense Accounts made pursuant to Section 3.2 (or
comparable provisions of the Prior Plan Statement, if any),
together with any increase or decrease thereon.
(C) ROLLOVER ACCOUNT -- the Account maintained for each
Participant to which are credited his rollover contributions
made pursuant to Section 3.4 (or comparable provisions of the
Prior Plan Statement, if any), together with any increase or
decrease thereon.
(D) NONDEDUCTIBLE VOLUNTARY ACCOUNT -- the Account maintained for
each Participant to which are credited his nondeductible
voluntary contributions made pursuant to Section 3.5 of the
Prior Plan Statement (or other comparable provisions of the
Prior Plan Statement, if any), together with any increase or
decrease thereon.
(E) DEDUCTIBLE VOLUNTARY ACCOUNT -- the Account maintained for
each Participant to which are credited his deductible
voluntary contributions made pursuant to Section 3.6 of the
Prior Plan Statement (or other comparable provisions of the
Prior Plan Statement, if any), together with any increase or
decrease thereon.
(F) TRANSFER ACCOUNT -- the Account maintained on behalf of a
Participant to which is credited the amount transferred to the
Trustee pursuant to Section 9.3, and not allocated to any
other Account pursuant to that section (or comparable
provisions of the Prior Plan Statement, if any), together with
any increase or decrease thereon.
(G) SUSPENSE ACCOUNT -- the Account maintained for each
Participant to which is credited the portion of his Employer
Contributions Account which is not Vested in him upon the
occurrence of an Event of Maturity (pending reemployment or
forfeiture pursuant to Section 6.2), together with any
increase or decrease thereon.
1.1.2. ADMINISTRATOR'S REPRESENTATIVE -- the person or committee
appointed to make administrative decisions and rules, to communicate on behalf
of the Employer and to take other actions specified in this Plan Statement and
which is selected pursuant to Section 12.2.
1.1.3. AFFILIATE -- a business entity which is under "common control"
with the Employer or which is a member of an "affiliated service group" that
includes the Employer, as those terms are defined in section 414(b), (c) and (m)
of the Internal Revenue Code. A business entity which is a predecessor to the
Employer shall be treated as an Affiliate if the Employer maintains a plan of
such predecessor business entity or if, and to the extent that, such treatment
is otherwise required by regulations prescribed by the Secretary of the Treasury
under section 414(a) of the Internal Revenue Code. A business entity shall also
be treated as an Affiliate if, and to the extent that, such treatment is
required by regulations prescribed by said Secretary under section 414(o) of
said Code. In addition to such required treatment, the Employer may, in its
discretion, designate as an Affiliate any business entity which is not such a
"common control," "affiliated service group" or "predecessor" business entity
but which is otherwise affiliated with the Employer, subject to such
nondiscriminatory limitations as the Employer may impose.
1.1.4. ANNUAL VALUATION DATE -- unless indicated otherwise in the
Adoption Agreement, the last day of the Employer's fiscal year for federal
income tax purposes.
1.1.5. BENEFICIARY -- a person designated by a Participant (or
automatically by operation of this Plan) to receive all or a part of the
Participant's Vested Total Account in the event of the Participant's death prior
to full distribution thereof.
1.1.6. BOARD OF DIRECTORS -- the Board of Directors if the Employer is
a corporation, any general partner if the Employer is a partnership, or the
proprietor if the Employer is a sole proprietor. If the Employer is a
corporation, the Board of Directors shall also mean and refer to any properly
authorized committee of the directors. If there is more than one Employer under
this Plan, the Board of Directors shall be the Board of Directors of the
Employer which is the principal sponsor of this Plan.
1.1.7. DISABILITY -- a medically determinable physical or mental
impairment which is of such a nature that it (i) renders the individual
incapable of performing any substantial gainful employment, (ii) can be expected
to be of long-continued and indefinite duration or result in death, and (iii) is
evidenced by a determination to this effect by a doctor of medicine approved by
the Administrator's Representative. The Administrator's Representative shall
determine the date on which the Disability shall have occurred if such
determination is necessary. In lieu of such a certification, the Employer may
accept, as proof of Disability, the official written determination that the
individual will be eligible for disability benefits under the federal Social
Security Act as now enacted or hereinafter amended (when any waiting period
expires).
1.1.8. EFFECTIVE DATE -- the date set forth in the Adoption Agreement
as of which this Plan Statement is effective; provided, however, certain
provisions specified in this Plan Statement shall be applicable prior to that
date for any Employer maintaining a Plan prior to the first day of the Plan Year
beginning after December 31, 1988.
1.1.9. ELIGIBILITY SERVICE -- a measure of an Employee's service with
the Employer and all Affiliates (stated as a number of years) which is equal to
the number of computation periods for which the Employee is credited with one
thousand (1,000) or more Hours of Service; subject, however, to such of the
following rules as are applicable under the Adoption Agreement:
(A) COMPUTATION PERIODS. The computation periods for determining
the Employee's Eligibility Service (and One-Year Breaks in
Service as applied to his Eligibility Service) shall be (i)
unless (ii) is indicated in the Adoption Agreement:
(i) the twelve (12) consecutive month period beginning
with the date the Employee first performs an Hour of
Service plus all Plan Years beginning after the date
the Employee first performs an Hour of Service
(irrespective of any termination of employment and
subsequent reemployment), or
(ii) the twelve (12) consecutive month period beginning
with the date the Employee first performs an Hour of
Service plus all twelve (12) consecutive month
periods commencing on annual anniversaries of such
date (irrespective of any termination of employment
and subsequent reemployment).
An employee who is credited with 1,000 Hours of Service in
both the initial eligibility period described in (i) above and
the first Plan Year commencing prior to the end of such
initial eligibility period shall be credited with two years of
Eligibility Service.
(B) COMPLETION. A year of Eligibility Service shall be deemed
completed only as of the last day of the computation period
(irrespective of the date in such period that the Employee
completed one thousand Hours of Service). Fractional years of
Eligibility Service shall not be credited.
(C) PRE-EFFECTIVE DATE SERVICE. Eligibility Service shall be
credited for Hours of Service earned and computation periods
completed before the Effective Date as if the rules of this
Plan Statement were then in effect.
(D) BREAKS IN SERVICE - BEFORE EFFECTIVE DATE. Eligibility Service
cancelled before the Effective Date by operation of the Plan's
break in service rules as they existed before the Effective
Date shall continue to be cancelled on and after the Effective
Date.
(E) ELIGIBILITY RULE OF PARITY. Except as provided in the
following sentences and subject to Section 1.1.9(d), if the
Employee has any break in service occurring before or after
the Effective Date, his service both before and after such
break in service shall be taken into account in computing his
Eligibility Service for the purpose of determining his
entitlement to become a Participant in this Plan. If the
Employee does not have any Vested right to any portion of his
Employer Contributions Account, however, Eligibility Service
completed before any One-Year Break in Service shall be
disregarded in determining his Eligibility Service (upon a
subsequent return to employment) if the number of consecutive
One-Year Breaks in Service equals or exceeds the greater of
five (5) or the aggregate number of his years of Eligibility
Service (whether or not consecutive) completed before such
One-Year Breaks in Service. Such aggregate number of his years
of Eligibility Service completed before such One-Year Breaks
in Service shall not include any of his years of Eligibility
Service not required to be taken into account under this
paragraph by reason of any of his prior One-Year Breaks in
Service.
(F) PREDECESSOR EMPLOYER. If the Employer maintains a plan
previously maintained by a business entity that is merged with
or becomes an Affiliate of the Employer, then Eligibility
Service that would have been earned by persons employed by
such predecessor employer had the rules of this Plan been in
effect, shall be counted as Eligibility Service under this
Plan.
1.1.10. EMPLOYEE -- each individual who is, with respect to the
Employer, or an Affiliate, or both, a Common Law Employee (including
Shareholder- Employee) or a Self-Employed Person (including an Owner-Employee)
or a Leased Employee, which shall be further defined as follows:
(A) COMMON LAW EMPLOYEE -- an individual who performs services as
an employee of the Employer or an Affiliate (including,
without limiting the generality of the foregoing, a
Shareholder-Employee) but who is not a Self-Employed Person
with respect to the Employer.
(B) SHAREHOLDER-EMPLOYEE -- an individual who owns, or is deemed
with attribution to own, more than five percent (5%) of the
outstanding stock of the Employer on any one day of the
taxable year of the Employer with respect to which the Plan is
established; provided, however, that during any taxable year
that the Employer is not an electing small business
corporation (S corporation) there shall be no
Shareholder-Employees. All Shareholder-Employees are Common
Law Employees.
(C) SELF-EMPLOYED PERSON -- an individual who owns either a
capital interest or a profits interest in the Employer with
respect to which the Plan is maintained at a time when such
Employer is either a partnership or a proprietorship or an
individual who has earned income from such Employer (or would
have had earned income if the Employer had had net profits). A
proprietor shall be deemed to be an Employee of a
proprietorship which is the Employer and each partner shall be
deemed to be an Employee of a partnership which is the
Employer.
(D) OWNER-EMPLOYEE -- an individual who is a Self-Employed Person
and who is either the proprietor of the Employer (when it is a
proprietorship) or a partner owning more than ten percent
(10%) either of the capital interests or profits interest of
the Employer (when it is a partnership). All Owner-Employees
are Self-Employed Persons.
(E) LEASED EMPLOYEE -- an individual (other than an employee) who,
pursuant to an agreement with a leasing organization has
performed services for the Employer, or for the Employer and
related persons (determined in accordance with Section
414(n)(6) of the Internal Revenue Code) on a substantially
full-time basis for a period of at least one (1) year and has
performed services which are of a type historically performed
by employees of the Employer or an Affiliate. For services
performed prior to January 1, 1987, such an individual shall
not be considered a Leased Employee (with respect to the
Employer or an Affiliate) if such individual is covered by a
money purchase pension plan which provides for: (i) a
nonintegrated employer contribution rate of at least seven and
one-half percent (7- 1/2%) of compensation; and (ii) immediate
participation; and (iii) full and immediate vesting. For
services performed after December 31, 1986, such an individual
shall not be considered a Leased Employee (with respect to the
Employer or an Affiliate) if such individual is covered by a
money purchase pension plan which provides for: (i) a
nonintegrated employer contribution rate of at least ten
percent (10%) of "ss. 415 compensation" as defined in Appendix
A to this Plan Statement, but including amounts contributed by
the Employer pursuant to a salary reduction agreement which
are excludible from the individual's gross income under
section 125, section 402(a)(8), section 402(h) or section
403(b) of the Internal Revenue Code; and (ii) immediate
participation (except for those individuals whose compensation
from the leasing organization in each plan year during the
four-year period ending with the plan year is less than one
thousand dollars); and (iii) full and immediate vesting;
provided, however, that such an individual will be considered
a Leased Employee (with respect to the Employer or an
Affiliate) if Leased Employees constitute more than twenty
percent (20%) of the recipient's nonhighly compensated work
force as determined in accordance with section
414(n)(5)(C)(ii) of the Internal Revenue Code. An individual
shall also be treated as a Leased Employee of the Employer or
an Affiliate if, and to the extent that, such treatment is
required by regulations prescribed by the Secretary of the
Treasury under section 414(o) of said Code. Contributions or
benefits provided by the leasing organization to a Leased
Employee which are attributable to services performed for the
recipient Employer shall be treated as provided by the
recipient Employer.
1.1.11. EMPLOYER -- the business entity which establishes a Plan by
executing the Adoption Agreement and any Affiliate that adopts this Plan by
completing the Adoption Agreement with the consent of the Employer or becomes an
adopting employer as provided in Section 9.4. (A sole proprietor shall be
treated as his own Employer. A partnership shall be treated as the Employer of
each partner.)
1.1.12. ENTRY DATE -- the dates (as indicated in the Adoption
Agreement) which shall be either:
(i) the first day of the Plan Year, or
(ii) the first day of the Plan Year and the first day of
the seventh month of the Plan Year, or
(iii) the first day of the Plan Year and the first day of
the fourth, seventh and tenth months of the Plan
Year, or
(iv) the first day of the Plan Year and the first day of
the second through the twelfth months of the Plan
Year.
1.1.13. EVENT OF MATURITY -- any of the occurrences described in
Section 6 by reason of which a Participant or Beneficiary may become entitled to
a distribution from the Plan.
1.1.14. FUND -- the assets of the Plan held by the Trustee from time to
time, including all contributions and the investments and reinvestments,
earnings, profits and losses thereon, whether invested under the general
investment authority of the Trustee or under the terms applicable to any
investment Subfund established pursuant to Section 4.1.
1.1.15. HOURS OF SERVICE -- a measure of an Employee's service with the
Employer and all Affiliates, determined for a given computation period and equal
to the number of hours credited to the Employee according to the following
rules:
(A) PAID DUTY. An Hour of Service shall be credited for each hour
for which the Employee is paid, or entitled to payment, for
the performance of duties for the Employer or an Affiliate.
These hours shall be credited to the Employee for the
computation period or periods in which the duties are
performed.
(B) PAID NONDUTY. An Hour of Service shall be credited for each
hour for which the Employee is paid, or entitled to payment,
by the Employer or an Affiliate 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; provided,
however, that:
(i) no more than five hundred one (501) Hours of Service
shall be credited on account of a single continuous
period during which the Employee performs no duties
(whether or not such period occurs in a single
computation period),
(ii) no Hours of Service shall be credited on account of
payments made under a plan maintained solely for the
purpose of complying with applicable worker's
compensation, unemployment compensation or disability
insurance laws,
(iii) no Hours of Service shall be credited on account of
payments which solely reimburse the Employee for
medical or medically related expenses incurred by the
Employee, and
(iv) payments shall be deemed made by or due from the
Employer or an Affiliate whether made directly or
indirectly from a trust fund or an insurer to which
the Employer or an Affiliate contributes or pays
premiums.
These hours shall be credited to the Employee for the
computation period for which payment is made or, if the
payment is not computed by reference to units of time, the
hours shall be credited to the first computation period in
which the event, for which any part of the payment is made,
occurred.
(C) BACK PAY. An Hour of Service shall be credited for each hour
for which back pay, irrespective of mitigation of damages, has
been either awarded or agreed to by the Employer or an
Affiliate. The same Hours of Service credited under paragraph
(a) or (b) shall not be credited under this paragraph (c). The
crediting of Hours of Service under this paragraph (c) for
periods and payments described in paragraph (b) shall be
subject to all the limitations of that paragraph. 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) UNPAID ABSENCES.
(I) LEAVES OF ABSENCE. If (and to the extent that) the
Employer so provides in written rules of
nondiscriminatory application which are in writing
and approved by the Employer before the date upon
which they are effective, an assumed eight (8) hour
day and forty (40) hour week shall be credited during
each unpaid leave of absence authorized by the
Employer or an Affiliate for Plan purposes under such
rules; provided, however, that if the Employee does
not return to employment for any reason other than
death, Disability or attainment of Normal Retirement
Age at the expiration of the leave of absence, such
Hours of Service shall not be credited.
(II) MILITARY LEAVES. If an Employee returns to employment
with the Employer or an Affiliate within the time
prescribed by law for the retention of veteran's
reemployment rights, an assumed eight (8) hour day
and forty (40) hour week shall be credited during
service in the Armed Forces of the United States if
the Employee both entered such service and returned
to employment with the Employer or an Affiliate from
such service under circumstances entitling him to
reemployment rights granted veterans under federal
law.
(III) PARENTING LEAVES. To the extent not otherwise
credited and solely for the purpose of determining
whether a One-Year Break in Service has occurred,
Hours of Service shall be credited to an Employee for
any period of absence from work beginning after
December 31, 1984, due to pregnancy of the Employee,
the birth of a child of the Employee, the placement
of a child with the Employee in connection with the
adoption of such child by the Employee, or for the
purpose of caring for such child for a period
beginning immediately following such birth or
placement. The Employee shall be credited with the
number of Hours of Service which otherwise would
normally have been credited to such Employee but for
such absence. If it is impossible to determine the
number of Hours of Service which would otherwise
normally have been so credited, the Employee shall be
credited with eight (8) Hours of Service for each day
of such absence. In no event, however, shall the
number of Hours of Service credited for any such
absence exceed five hundred one (501) Hours of
Service. Such Hours of Service shall be credited to
the computation period in which such absence from
work begins if crediting all or any portion of such
Hours is necessary to prevent the Employee from
incurring a One-Year Break in Service in such
computation period. If the crediting of such Hours of
Service is not necessary to prevent the occurrence of
a One-Year Break in Service in that computation
period, such Hours of Service shall be credited in
the immediately following computation period (even
though no part of such absence may have occurred in
such subsequent computation period). These Hours of
Service shall not be credited until the Employee
furnishes timely information which may reasonably be
required by the Administrator's Representative to
establish that the absence from work is for a reason
for which these Hours of Service may be credited.
(E) SPECIAL RULES. To the extent not inconsistent with other
provisions hereof, Department of Labor regulations 29
C.F.R. ss. 2530.200b-2(b) and (c) are hereby incorporated by
reference herein. For periods prior to the first day of the
Plan Year beginning after 1975, Hours of Service may be
determined using whatever records are reasonably accessible
and by making whatever calculations are necessary to determine
the approximate number of Hours of Service completed during
such prior period.
(F) EQUIVALENCY FOR EMPLOYEES. Notwithstanding anything to the
contrary in the foregoing, if the Adoption Agreement shall so
provide, Hours of Service for an Employee shall be credited on
the basis that, without regard to actual hours, such Employee
shall be credited with ten (10) Hours of Service for a
calendar day, forty-five (45) Hours of Service for a calendar
week, ninety-five (95) Hours of Service for each semi-monthly
pay period, or one hundred ninety (190) Hours of Service for a
calendar month if, under the provisions of this section (other
than this paragraph), such Employee would be credited with at
least one (1) Hour of Service during such day, week,
semi-monthly pay period or month.
1.1.16. INTEGRATION LEVEL -- the dollar amount selected by the Employer
in the Adoption Agreement below which Employer contributions will be integrated
with Social Security contributions. The Integration Level cannot exceed the
maximum annual dollar amount of earnings in effect on the first day of the Plan
Year which may be considered to be wages for the purposes of computing Social
Security payroll taxes under Section 3121(a)(1) of the Internal Revenue Code, as
amended (the "Taxable Wage Base").
1.1.17. INVESTMENT MANAGER -- that person other than the Trustee
appointed pursuant to Section 10.7 to manage all or a portion of the Fund.
1.1.18. NORMAL RETIREMENT AGE -- the date a Participant attains the age
specified in the Adoption Agreement or, if none is specified in the Adoption
Agreement, age sixty-five (65) years. If the Employer enforces a mandatory
retirement age, the Normal Retirement Age is the lesser of that mandatory
retirement age or the age specified in the Adoption Agreement. WARNING:
Generally, federal and state laws prohibit enforcement of a mandatory retirement
age for Common Law Employees.
1.1.19. ONE-YEAR BREAK IN SERVICE -- a computation period for which an
Employee is not credited with more than five hundred (500) Hours of Service. (A
One-Year Break in Service shall be deemed to occur only on the last day of such
computation period.)
1.1.20. PARTICIPANT -- an Employee who becomes a Participant in this
Plan in accordance with the provisions of Section 2. An Employee who has become
a Participant shall be considered to continue as a Participant in the Plan until
the date of his death or, if earlier, the date when he is no longer employed in
Recognized Employment and upon which the Participant no longer has any Account
under the Plan (that is, if he has both received a distribution of all of his
Vested Total Account, if any, and his Suspense Account, if any, has been
forfeited and disposed of as provided in Section 6.2).
1.1.21. PLAN -- the tax-qualified defined contribution plan of the
Employer established for the benefit of Employees eligible to participate
therein, as set forth in the Prior Plan Statement and this Plan Statement. (As
used herein, "Plan" refers to the legal entity established by the Employer and
not to the instruments or documents pursuant to which the Plan is maintained.
Those instruments and documents are referred to herein as the "Prior Plan
Statement" and the "Plan Statement.") The Plan shall be referred to by the name
indicated in the Adoption Agreement.
1.1.22. PLAN STATEMENT -- the Prototype Documents as completed and
adopted by the Employer and pursuant to which this Plan is maintained on and
after the Effective Date.
1.1.23. PLAN YEAR -- the twelve (12) consecutive month period ending on
any Annual Valuation Date.
1.1.24. PRIOR PLAN STATEMENT -- the written instrument or instruments
or the series of written instruments under which this Plan was established and
maintained from time to time prior to the Effective Date. (If this Plan was
first established by the Employer's adoption of this Plan Statement, there will
have been no Prior Plan Statement and all references thereto shall be
disregarded.)
1.1.25. PROTOTYPE DOCUMENTS -- the unexecuted form of document entitled
"Defined Contribution Prototype Basic Plan Document #01 1989 Restatement",
including all Appendices thereto, and the unexecuted and uncompleted form of
Adoption Agreement (#001 through #008) used in connection with it.
1.1.26. PROTOTYPE SPONSOR -- First Trust National Association, a
national trust association of St. Paul, Minnesota (which has submitted the
Prototype Documents to the National Office of the Internal Revenue Service for
an opinion as to the acceptability of the form of the Prototype Documents under
the Internal Revenue Code and has retained the right to amend as provided in
Section 9).
1.1.27. RECOGNIZED COMPENSATION -- an amount determined for a
Participant for a Plan Year which is the Participant's "ss. 415 compensation" as
defined in the Appendix A to this Plan Statement; subject, however, to the
following rules:
(A) ADOPTION AGREEMENT EXCLUSIONS. For purposes of allocating the
Employer's contribution and forfeited Suspense Accounts, if
any, under Section 3.2, Recognized Compensation shall not
include any items of earned income (as defined in Appendix A
to this Plan Statement) or compensation excluded by the
Employer in the Adoption Agreement.
(B) PRE-PARTICIPATION. Recognized Compensation shall not include
any earned income (as defined in Appendix A to this Plan
Statement) or compensation received by a Participant on
account of a period of time when he was not a Participant in
the Plan or which is earned income (as defined in Appendix A
to this Plan Statement) or compensation paid for employment in
a capacity that is not Recognized Employment.
(C) EARNINGS REDUCTION PLANS. Recognized Compensation shall be
determined before any reduction authorized by the Participant
under a qualified cash or deferral arrangement under section
401(k) of the Internal Revenue Code, or a cafeteria plan under
section 125 of the Internal Revenue Code, or a simplified
employee pension under section 408(k)(6) of the Internal
Revenue Code or an annuity under section 403(b) of the
Internal Revenue Code.
(D) $200,000 LIMIT. If the Plan is "top heavy" as defined in
Appendix B or if the Plan Year begins after December 31, 1988,
a Participant's Recognized Compensation shall not exceed Two
Hundred Thousand Dollars ($200,000) or such higher limit as
the Secretary of the Treasury may establish. In determining a
Participant's Recognized Compensation, the rules of section
414(q)(6) of the Internal Revenue Code apply, except that in
applying such rules, the term "family" shall include only the
spouse of the Participant and lineal descendants of the
Participant who have not attained age nineteen (19) years
before the close of the Plan Year; provided, however, that for
purposes of determining the Employer contribution (described
in Section 3.2.3 or in Section 3.2.5) attributable to
Recognized Compensation below the Integration Level, the rule
in this sentence shall not apply. If Participants are
aggregated as such family members (and do not otherwise agree
in writing), the Recognized Compensation of each family member
shall equal Two Hundred Thousand Dollars ($200,000) (as so
adjusted) multiplied by a fraction, the numerator of which is
such family member's Recognized Compensation (before
application of this Section) and the denominator of which is
the total Recognized Compensation (before application of this
Section) of all such family members.
(E) NO ACCRUED COMPENSATION. Recognized Compensation shall include
only amounts that are actually paid to the Participant during
the Plan Year.
(F) SPECIAL EFFECTIVE DATE. If the Employer maintained the Plan
prior to January 1, 1989, this definition of Recognized
Compensation shall not become effective until the first day of
the first Plan Year beginning after December 31, 1989;
provided, however, the provisions of Section 1.1.27(d) shall
apply as so specified. Until this definition of Recognized
Compensation becomes effective, the comparable provisions of
the Prior Plan Statement shall apply.
1.1.28. RECOGNIZED EMPLOYMENT -- all employment by an Employee
excluding, however:
(i) employment in a unit of Employees whose terms and
conditions of employment are subject to a collective
bargaining agreement between the Employer and
employee representatives if there is evidence that
retirement benefits were the subject of good faith
bargaining between such employee representatives and
Employer, unless such collective bargaining agreement
provides for the inclusion of those Employees in this
Plan, and
(ii) employment by a nonresident alien who is not
receiving any earned income from the Employer which
constitutes income from sources within the United
States unless such alien is formally designated by
the Administrator's Representative as eligible for
participation in this Plan, and
(iii) employment described as excluded in the Adoption
Agreement.
For the purposes of (i), an organization will not be considered to consist of
employee representatives if more than one-half (1/2) of its members are
Employees who are owners, officers or executives of the Employer.
1.1.29. TRUSTEE -- the Trustee originally named in the Adoption
Agreement and its successor or successors in trust.
1.1.30. VALUATION DATE -- the Annual Valuation Date and each other
date, if any, specified in the Adoption Agreement.
1.1.31. VESTED -- nonforfeitable, i.e., a claim obtained by a
Participant or his Beneficiary to that part of an immediate or deferred benefit
hereunder which arises from the Participant's service, which is unconditional
and which is legally enforceable against the Plan.
1.1.32. VESTING SERVICE -- a measure of an Employee's service with the
Employer and all Affiliates (stated as a number of years) which is equal to the
number of computation periods for which the Employee is credited with one
thousand (1,000) or more Hours of Service; subject, however, to such of the
following rules as are applicable under the Adoption Agreement:
(A) COMPUTATION PERIODS. The computation periods for determining
the Employee's Vesting Service (and One-Year Breaks in Service
as applied to his Vesting Service) shall be Plan Years.
(B) COMPLETION. A year of Vesting Service shall be deemed
completed as of the date in the computation period that the
Employee completes one thousand (1,000) Hours of Service.
Fractional years of Vesting Service shall not be credited.
(C) PRE-EFFECTIVE DATE SERVICE. Vesting Service shall be credited
for Hours of Service earned and computation periods completed
prior to the Effective Date as if the rules of this Plan
Statement were then in effect.
(D) BREAK IN SERVICE - BEFORE EFFECTIVE DATE. Vesting Service
cancelled before the Effective Date by operation of the Plan's
break in service rules as they existed before the Effective
Date shall continue to be cancelled on and after the Effective
Date.
(E) VESTING IN PRE-BREAK ACCOUNTS. If the Employee has five (5) or
more consecutive One-Year Breaks in Service, his service after
such ONE-Year Breaks in Service shall not be counted as years
of Vesting Service for the purpose of determining the Vested
percentage of that portion of his Employer contributions
allocated with respect to his service before such One-Year
Breaks in Service and separately accounted for under Section
5.1.4.
(F) VESTING IN POST-BREAK ACCOUNTS (VESTING RULE OF PARITY).
Except as provided in the following sentences and subject to
Section 1.1.32(d), if the Employee has any break in service
occurring before or after the Effective Date, his service both
before and after such break in service shall be taken into
account in computing his Vesting Service for the purpose of
determining the Vested percentage of that portion of his
Employer Contributions Account derived from Employer
contributions allocated with respect to his service after such
break in service and separately accounted for under Section
5.1.4. If the Employee does not have any Vested right to any
portion of an Employer Contributions Account, however, when he
incurs a One- Year Break in Service, Vesting Service completed
before any One-Year Break in Service shall be disregarded in
determining his Vesting Service (upon a subsequent return to
employment) if the number of his consecutive One-Year Breaks
in Service equals or exceeds the greater of five (5) or the
aggregate number of his years of Vesting Service (whether or
not consecutive) completed before such One-Year Breaks in
Service. Such aggregate number of his years of Vesting Service
completed before such One-Year Breaks in Service shall not
include any years of Vesting Service which have been
disregarded under the preceding sentence by reason of any
prior One-Year Break in Service.
1.2. RULES OF INTERPRETATION. An individual shall be considered to have attained
a given age on his birthday for that age (and not on the day before). The
birthday of any individual born on a February 29 shall be deemed to be February
28 in any year that is not a leap year. Notwithstanding any other provision of
the Plan Statement or any election or designation made under the Plan, any
individual who feloniously and intentionally kills a Participant or Beneficiary
shall be deemed for all purposes of this Plan and all elections and designations
made under this Plan to have died before such Participant or Beneficiary. A
final judgment of conviction of felonious and intentional killing is conclusive
for the purposes of this section. In the absence of a conviction of felonious
and intentional killing, the Administrator's Representative shall determine
whether the killing was felonious and intentional for purposes of this section.
Whenever appropriate, words used herein in the singular may be read in the
plural, or words used herein in the plural may be read in the singular; the
masculine may include the feminine; and the words "hereof," "herein" or
"hereunder" or other similar compounds of the word "here" shall mean and refer
to the entire Plan Statement and not to any particular paragraph or section of
this Plan Statement unless the context clearly indicates to the contrary. The
titles given to the various sections of this Plan Statement are inserted for
convenience of reference only and are not part of this Plan Statement, and they
shall not be considered in determining the purpose, meaning or intent of any
provision hereof. Any reference in this Plan Statement to a statute or
regulation shall be considered also to mean and refer to any subsequent
amendment or replacement of that statute or regulation. This instrument has been
executed and delivered in the State where the Trustee has its principal place of
business and has been drawn in conformity to the laws of that State and shall,
except to the extent that federal law is controlling, be construed and enforced
in accordance with the laws of that State.
1.3. ESTABLISHMENT OF NEW PLAN. If the Employer's execution of the Adoption
Agreement is an establishment of a new Plan by the Employer, such approval and
adoption is conditioned upon the qualification of the Plan under the pertinent
provisions of the Internal Revenue Code. If this Plan is found not to so
qualify, the Employer may, at its election, amend the Plan Statement, terminate
the Plan in its entirety, or both. If the denial of qualification was in
response to an application for advance determination on the establishment of a
new Plan which was made by the time prescribed by law for filing the Employer's
tax return for the taxable year in which the Plan is adopted (or effective, if
later), the Trustee may be directed by the Employer to return all contributions
made under this Plan to the Participants or to the Employer, as the case may be,
adjusted for their pro rata share of earnings and market gains or losses which
accrued while they were held in the Fund. Such a return of the contributions
shall not be made, however, unless it is made within one (1) year after the date
the initial qualification of the Plan is denied.
1.4. AMENDMENT AND CHANGE OF TRUSTEE. If the Employer's execution of the
Adoption Agreement is an amendment of a Prior Plan Statement of which the
Trustee was not the trustee, such execution shall not be considered to be a
termination of one plan and the establishment of another but, on the contrary,
shall be considered to be the express continuation of the Plan under new
documents. The Employer has caused, or will forthwith cause, the transfer of the
existing trust fund to the Trustee to be held in trust under this Plan
Statement.
1.5. AMENDMENT AND CONTINUATION. If the Employer's execution of the Adoption
Agreement is an amendment and a Prior Plan Statement of which the Trustee was
the trustee, such execution shall not be considered to be a termination of one
plan and the establishment of another but, on the contrary, shall be considered
to be the express continuation of the Plan under new documents.
1.6. AUTOMATIC EXCLUSION FROM PROTOTYPE PLAN. In the event an Employer adopting
these Prototype Documents fails to obtain (if a nonstandard plan) or fails to
retain qualified status under sections 401(a) and 501(a) of the Internal Revenue
Code, such Employer shall immediately cease participation under these Prototype
Documents and, when applicable, will be deemed to maintain its Plan under an
individually designed successor retirement plan document.
1.7. SPECIAL REQUIREMENTS.
1.7.1. DISCRIMINATORY BENEFITS. If this Plan provides contributions or
benefits for one or more Owner-Employees who control both the business with
respect to which this Plan is established and one or more other trades or
businesses, this Plan and any plan established for such other trades or
businesses must, when looked at as a single plan, satisfy sections 401(a) and
(d) of the Internal Revenue Code for the employees of this and all other trades
or businesses.
1.7.2. DISCRIMINATORY COVERAGE. If this Plan provides contributions or
benefits for one or more Owner-Employees who control one or more other trades or
businesses, the employees of the other trades or businesses must be included in
a plan which satisfies sections 401(a) and (d) of the Internal Revenue Code and
which provides contributions and benefits not less favorable than provided for
Owner-Employees under this Plan. If an individual is covered as an Owner-
Employee under the plans of two (2) or more trades or businesses which are not
controlled and the individual controls a trade or business, the contributions or
benefits for the employees under the plan of the trades or businesses which are
controlled must be as favorable as those provided for the Owner-Employee under
the most favorable plan of the trade or business which is not controlled.
1.7.3. CONTROL DEFINED. For purposes of this Section 1.7, 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 50
percent of either the capital interest or the profits
interest in the partnership.
An Owner-Employee, or two or more Owner-Employees, shall be treated as owning
any interest in a partnership which is owned, directly or indirectly, by a
partnership which such Owner-Employee, or such two or more Owner-Employees, are
considered to control within the meaning of the preceding sentence.
SECTION 2
ELIGIBILITY AND PARTICIPATION
2.1. INITIAL ENTRY INTO PLAN. If this Plan Statement is adopted as an amendment
of a Prior Plan Statement, each Employee who immediately before the Effective
Date was a Participant in the Plan prior to the Effective Date and who continues
in Recognized Employment on the Effective Date shall continue as a Participant
in this Plan.
On and after the Effective Date (without regard to whether this Plan Statement
is an amendment of a Prior Plan Statement or the establishment of a new Plan)
each other Employee shall become a Participant on the first Entry Date:
(i) that such Employee has satisfied the age requirement
set forth in the Adoption Agreement, and
(ii) that such Employee has satisfied the service
requirement set forth in the Adoption Agreement,
if he is then employed in Recognized Employment. If he is not then employed in
Recognized Employment, he shall become a Participant on the first date
thereafter upon which he is employed in Recognized Employment.
2.2. ENTRY UPON REEMPLOYMENT. Except as provided in the following sentence, a
Participant whose employment with the Employer terminates and who subsequently
is reemployed by the Employer shall immediately reenter the Plan as a
Participant upon the date of his return to Recognized Employment. If the
Eligibility Rule of Parity set forth in Section 1.1.9(e) applies so that all his
prior years of Eligibility Service are to be disregarded by the operation of
such rule, however, he shall reenter the Plan as a Participant in accordance
with Section 2.1.
2.3. ANNUAL CERTIFICATION. As of each Annual Valuation Date during the
continuance of the Plan, the Administrator's Representative shall certify in
writing the names of all Participants who are entitled to participate in the
Employer contribution for the Plan Year ending on that date and all other facts
that may be required to properly administer the provisions of this Plan.
SECTION 3
CONTRIBUTIONS AND ALLOCATION THEREOF/1
3.1. EMPLOYER CONTRIBUTIONS.
3.1.1. SOURCE OF EMPLOYER CONTRIBUTIONS. All Employer contributions to
the Plan may be made without regard to profits.
3.1.2. AMOUNT. The Employer shall make contributions from year to year
during the continuance of the Plan to the Trustee in such amounts as shall be
specified in the Adoption Agreement.
3.1.3. LIMITATION. The contribution of the Employer to this Plan for
any year, when considered in light of its contribution for that year to all
other tax-qualified plans it maintains, shall, in no event, exceed the maximum
amount deductible by it for federal income tax purposes as a contribution to a
tax-qualified plan under section 404 of the Internal Revenue Code. Each Employer
contribution to this Plan is conditioned upon its deductibility for such
purpose.
3.1.4. FORM OF PAYMENT. The appropriate contribution of the Employer to
this Plan, determined as herein provided, shall be paid to the Trustee and may
be paid either in cash or in other assets of any character acceptable to the
Trustee of a value equal to the amount of the contribution or in any combination
of the foregoing ways.
3.2. ALLOCATING EMPLOYER CONTRIBUTIONS. The Employer contribution for a Plan
Year, including forfeited Suspense Accounts, if any, to be reallocated as of the
Annual Valuation Date in such Plan Year, shall be allocated to Employer
Contributions Accounts of Participants eligible to share in the allocation in
accordance with Section 3.2.1 either under the formula set forth in Section
3.2.2, Section 3.2.3, Section 3.2.4 or Section 3.2.5 as indicated in the
Adoption Agreement.
3.2.1. ELIGIBLE PARTICIPANTS. A Participant shall be considered
eligible to share in the allocation of Employer contributions, if any, and
forfeited Suspense Accounts to be reallocated as of the Annual Valuation Date in
such Plan Year, if any, only if such Participant satisfies all of the following
requirements:
(A) PARTICIPANT. The Participant was a Participant at some time
during the Plan Year.
(B) COMPENSATION. The Participant has Recognized Compensation for
such Plan Year.
(C) LAST DAY RULE. If the Adoption Agreement so provides, the
Participant was an Employee on the last day of the Plan Year
(including, for this purpose, individuals temporarily absent
due to illness, vacation or layoff and individuals inducted
into the Armed Forces of the United States during such Plan
Year) or the Participant died, became Disabled or retired at
or after his Normal Retirement Age during such Plan Year.
(D) HOURS OF SERVICE RULE. If the Adoption Agreement so provides,
the Participant has that number of Hours of Service in the
Plan Year required by the Adoption Agreement, or the
Participant died, became Disabled or retired at or after his
Normal Retirement Age during such Plan Year.
No other Participant shall be considered an eligible Participant for such Plan
Year.
1/ Minimum contribution and allocation requirements apply in any Plan Year
that this Plan is top heavy. (See Appendix B, ss. 3.3.)
3.2.2. NON-INTEGRATED PROFIT SHARING ALLOCATION. If this Plan is
adopted as a non- integrated profit sharing plan, the contribution, if any, made
by the Employer for a given Plan Year shall be an amount determined annually in
the discretion of the Employer and expressed as a uniform percentage of each
eligible Participant's Recognized Compensation for that Plan Year which shall be
contributed for each eligible Participant and allocated to the Employer
Contributions Account of each eligible Participant as of the Annual Valuation
Date in the Plan Year for which such contribution is made, or if earlier, the
Valuation Date coincident with or next following the date as of which such
contribution is received by the Trustee. For this purpose, Recognized
Compensation shall not include the items, if any, excluded by the Employer in
the Adoption Agreement.
3.2.3. INTEGRATED PROFIT SHARING ALLOCATION. If this Plan is adopted as
an integrated profit sharing plan, the contribution, if any, made by the
Employer for a given Plan Year shall be determined under the following rules:
(A) BASIC CONTRIBUTION. The Employer shall determine a uniform
percentage rate for the Plan Year (the "base contribution
percentage") and shall contribute to each eligible
Participant's Employer Contributions Account an amount equal
to that base contribution percentage multiplied by each such
eligible Participant's Recognized Compensation up to the
Integration Level for that Plan Year.
(B) INTEGRATED CONTRIBUTION. Subject to paragraph (c) below, the
Employer shall determine a uniform percentage rate for the
Plan Year (the "excess contribution percentage") and shall
contribute to each eligible Participant's Employer
Contributions Account an amount equal to that excess
contribution percentage multiplied by each such eligible
Participant's Recognized Compensation over the Integration
Level for that Plan Year.
(C) LIMITATION. The excess contribution percentage cannot exceed
the base contribution percentage by more than the lesser of
(i) the base contribution percentage, or (ii) the "integration
rate" provided for in the Adoption Agreement.
The amount so allocated to a Participant shall be credited to such Participant's
Employer Contributions Account as of the Annual Valuation Date in the Plan Year
for which such contribution is made or, if earlier, the Valuation Date
coincident with or next following the date on which such contribution is
received by the Trustee. The foregoing shall be subject to the top heavy rules
of Appendix B.
3.2.4. NON-INTEGRATED MONEY PURCHASE CONTRIBUTION. If this Plan is
adopted as a non- integrated money purchase pension plan, the contribution, if
any, made by the Employer to this Plan for a given Plan Year shall be an amount
specified in the Adoption Agreement as a percentage (not in excess of 25%) of
Recognized Compensation for the Plan Year which shall be contributed for each
eligible Participant and allocated to the Employer Contributions Account of each
eligible Participant as of the Annual Valuation Date in the Plan Year for which
such contribution is made, or, if earlier, the Valuation Date coincident with or
next following the date as of which such contribution is received by the
Trustee. For this purpose, Recognized Compensation shall not include the items,
if any, excluded by the Employer in the Adoption Agreement.
3.2.5. INTEGRATED MONEY PURCHASE CONTRIBUTION. If this Plan is adopted
as an integrated money purchase pension plan, the contribution, if any, made by
the Employer to this Plan for a given Plan Year shall be determined as follows:
(A) BASIC CONTRIBUTION. An amount specified in the Adoption
Agreement as a percentage of Recognized Compensation up to the
Integration Level for the Plan Year (the "base contribution
percentage") shall be contributed for each eligible
Participant and allocated to the Employer Contributions
Account of each eligible Participant as of the Annual
Valuation Date in the Plan Year for which such contribution is
made, or, if earlier, the Valuation Date coincident with or
next following the date as of which such contribution is
received by the Trustee.
(B) INTEGRATED CONTRIBUTION. An amount specified in the Adoption
Agreement as a percentage of each eligible Participant's
Recognized Compensation over the Integration Level for the
Plan Year (the "excess contribution percentage") shall be
contributed for each eligible Participant and allocated to the
Employer Contributions Account of each eligible Participant as
of the Annual Valuation Date in the Plan Year for which such
contribution is made, or, if earlier, the Valuation Date
coincident with or next following the date as of which such
contribution is received by the Trustee.
The amount so allocated to a Participant shall be credited to such Participant's
Employer Contributions Account as of the Annual Valuation Date in the Plan Year
for which such contribution is made or, if earlier, the Valuation Date
coincident with or next following the date on which such contribution is
received by the Trustee.
3.2.6. FORFEITED SUSPENSE ACCOUNTS. If the Adoption Agreement provides
that forfeited Suspense Accounts shall be reallocated among Participants as
additional Employer contributions, the forfeited Suspense Accounts, if any,
which remain after the restoration required under Section 6.3, shall be
allocated as of the Annual Valuation Date described in Section 6.2.2 to the
Employer Contributions Account of those Participants employed by the same
Employer eligible to share in the Employer contributions for such Plan Year
pursuant to this Section 3.2 in the ratio which the Recognized Compensation of
each such Participant for such Plan Year bears to the Recognized Compensation
for such Plan Year of all such Participants. For this purpose, Recognized
Compensation shall not include the items, if any, excluded by the Employer in
the Adoption Agreement. If the Adoption Agreement provides that forfeited
Suspense Accounts shall be used to reduce Employer contributions, the forfeited
Suspense Accounts, if any, which remain after the restoration required under
Section 6.3, shall be retained in the Fund and used to reduce the amount of the
next succeeding contribution of the Employer to the Plan due for the Plan Year
described in Section 6.2.2.
3.2.7. WAIVER OF MINIMUM FUNDING STANDARDS. If this Plan is adopted as
a money purchase pension plan, this Plan is subject to minimum funding
standards. Upon application to the Internal Revenue Service those standards may,
in an appropriate case, be waived. If they are waived, the provisions of
Appendix G apply without regard to the foregoing provisions.
3.3. MAKE-UP CONTRIBUTIONS FOR OMITTED PARTICIPANTS. If, after the Employer's
annual contribution for a Plan Year has been made and allocated, it should
appear that, through oversight or a mistake of fact or law, a Participant (or an
Employee who should have been considered a Participant) who should have been
entitled to share in such contribution received no allocation or received an
allocation which was less than he should have received, the Employer may, at its
election, and in lieu of reallocating such contribution, make a special make-up
contribution for the Account of such Participant in an amount adequate to
provide for him the same addition to his Account for such Plan Year as he should
have received.
3.4. ROLLOVER CONTRIBUTIONS.
3.4.1. ELIGIBLE CONTRIBUTIONS. Unless the Adoption Agreement precludes
it, Employees (whether or not they are Participants) in Recognized Employment
may contribute to this Plan, within such time and in such form and manner as may
be prescribed by the Administrator's Representative in accordance with those
provisions of federal law relating to rollover contributions, property (or the
cash proceeds thereof) received by them in qualifying distributions from certain
types of qualified plans or trusts, employee annuities, individual retirement
accounts or annuities, and retirement bonds. The provisions of this Section
shall be subject to such nondiscriminatory conditions and limitations as the
Administrator's Representative may prescribe from time to time for
administrative convenience and to preserve the tax-qualified status of this
Plan.
3.4.2. SPECIFIC REVIEW. The Administrator's Representative shall have
the right to reject or return any such rollover contribution if, in its opinion,
the acceptance thereof might jeopardize the tax-qualified status of this Plan or
unduly complicate its administration, but the acceptance of any such rollover
contribution shall not be regarded as an opinion or guarantee on the part of the
Employer, the Trustee, the Administrator's Representative or the Plan as to the
tax consequences which may result to the contributing Participant thereby.
3.4.3. ALLOCATION. All rollover contributions made by an Employee to
this Plan shall be allocated to a Rollover Account established for such Employee
except that any portion thereof which represents deductible voluntary employee
contributions shall be allocated to a Deductible Voluntary Account for such
Participant. The amount so allocated to an Employee shall be credited to such
Employee's Account as of the Valuation Date coincident with or next following
the date as of which such contribution is received by the Trustee.
3.5. NONDEDUCTIBLE VOLUNTARY CONTRIBUTIONS. The Plan shall not accept
nondeductible voluntary contributions for Plan Years beginning after December
31, 1989. Prior to the first day of the Plan Year beginning after December 31,
1989, the Plan accepted nondeductible voluntary contributions only if the Prior
Plan Statement permitted such contributions. Nondeductible voluntary
contributions accepted for Plan Years beginning after December 31, 1986, and
prior to Plan Years beginning after December 31, 1989 shall be limited so as to
comply with the nondiscrimination test of section 401(m) of the Internal Revenue
Code specified in Section 3.7 of the Plan Statement. All nondeductible voluntary
contributions held in the Nondeductible Voluntary Account shall continue to
share in any trust earnings or losses, and be distributed in accordance with the
provisions of Section 7.
3.6. DEDUCTIBLE VOLUNTARY CONTRIBUTIONS. Prior to January 1, 1987, the Plan
accepted deductible voluntary contributions made in accordance with Section 3.6
of the Prior Plan Statement. All such contributions held in the Deductible
Voluntary Account shall continue to share in any trust earnings or losses, and
be distributed in accordance with the provisions of Section 7. Effective January
1, 1987, however, the Plan shall not accept deductible voluntary contributions
for a taxable year of the Participant beginning after December 31, 1986.
3.7. SECTION 401(M) COMPLIANCE./2
3.7.1. SPECIAL DEFINITIONS. For purposes of this Section 3.7, the
following special definitions shall apply:
(A) "ELIGIBLE EMPLOYEE" means an individual who is eligible to
make nondeductible voluntary contributions to this Plan for
any portion of the Plan Year (whether or not he does so).
(B) "HIGHLY COMPENSATED ELIGIBLE EMPLOYEES" means those eligible
employees defined as highly compensated employees in Appendix
D to this Plan Statement.
(C) "CONTRIBUTION PERCENTAGE" means, the ratio (calculated
separately for each eligible employee in such group) of:
2/ Except as otherwise specifically provided in this Section, the
provisions of this Section apply for Plan Years beginning after
December 31, 1986.
(i) the total amount, for the Plan Year, of nondeductible
voluntary contributions credited to the eligible
employee's Nondeductible Voluntary Account, and if
the Administrator's Representative elects, under such
rules as the Secretary of the Treasury may prescribe,
all or a portion of the amount, for the Plan Year, of
qualified nonelective contributions (within the
meaning of section 401(m)(4)(C) of the Internal
Revenue Code), to
(ii) the eligible employee's compensation, as defined
below, for such Plan Year.
For this purpose, nondeductible voluntary contributions are
considered to have been made in the Plan Year in which
contributed to the Fund. Also, for this purpose, qualified
nonelective contributions will be considered made in the Plan
Year with respect to which they are made if they are allocated
as of a date during such Plan Year and are delivered to the
Trustee within twelve (12) months after the end of such Plan
Year. Forfeitures credited to the eligible employee's
Nondeductible Voluntary Account shall be included in the
"total amount" described in item (i) in the Plan Year for
which such forfeitures are credited to the Account.
(D) "COMPENSATION" means compensation for services performed for
the Employer defined as "ss. 415 compensation" in the Appendix
A to this Plan Statement. The Administrator's Representative
may elect to include as compensation any amount which is
contributed by the Employer pursuant to a salary reduction
agreement which is not includible in the gross income of an
eligible employee under sections 125, 402(a)(8), 402(h) or
403(b) of the Internal Revenue Code. Notwithstanding the
definition of "ss. 415 compensation" in the Appendix A to this
Plan Statement: (i) compensation shall always be determined on
a cash (and not on an accrual) basis, (ii) there shall not be
included in compensation amounts received while the eligible
employee is not a Participant, and (iii) compensation shall be
determined on a Plan Year basis (which is not necessarily the
same as the limitation year). Effective for Plan Years
beginning after December 31, 1988, an eligible employee's
compensation for a Plan Year shall not exceed Two Hundred
Thousand Dollars ($200,000), as adjusted, under the Internal
Revenue Code, for cost of living increases.
(E) "AVERAGE CONTRIBUTION PERCENTAGE" means, for a specified group
of eligible employees for the Plan Year, the average of the
contribution percentage for all eligible employees in such
group.
3.7.2 SPECIAL RULES. For purposes of this Section 3.7, the following
special rules apply:
(A) ROUNDING. Effective for Plan Years beginning after December
31, 1988, the contribution percentages and average
contribution percentage for each group of eligible employees
shall be calculated to the nearest one-hundredth of one
percent of the eligible employee's compensation.
(B) FAMILY MEMBER. If a highly compensated eligible employee is
subject to the family aggregation rules of section 414(q)(6)
of the Internal Revenue Code because such employee is either a
five percent (5%) owner or one of the ten (10) most highly
compensated employees (as defined in Appendix D), the combined
contribution percentage for the family group (which is treated
as one highly compensated eligible employee) shall be the
greater of (i) the contribution percentage determined by
combining the amounts described in Section 3.7.1(c) and by
combining the compensation described in Section 3.7.1(d) of
all family members who are highly compensated eligible
employees without regard to family aggregation, and (ii) the
contribution percentage determined by combining the amounts
described in Section 3.7.1(c) and by combining the
compensation described in Section 3.7.1(d) of all the family
members who are eligible employees. Such family members with
respect to such highly compensated eligible employees shall be
disregarded as separate eligible employees in determining the
average contribution percentage of highly compensated eligible
employees and the average contribution percentage of all other
eligible employees. Effective for Plan Years beginning after
December 31, 1988, the Two Hundred Thousand Dollars
($200,000), as adjusted, under the Internal Revenue Code, for
cost of living increases, limit specified in Section 3.7.1(d)
applies to the above contribution percentage determination
except that for purposes of the limit, the term "family" shall
include only the spouse of the Participant and lineal
descendants of the Participant who have not attained age
nineteen (19) years before the close of that Plan Year. If an
eligible employee is required to be aggregated as a member of
more than one family group in the Plan, all eligible employees
who are members of those family groups that include that
eligible employee are aggregated as one family group.
(C) MULTIPLE PLANS. For purposes of this Section 3.7, the
contribution percentage for any highly compensated eligible
employee who participates in two or more arrangements
described in section 401(k) of the Internal Revenue Code that
are maintained by the Employer, shall be determined as if the
total of the amounts described in Section 3.7.1(c)(i) above
was made under each such plan. If a highly compensated
eligible employee participates in two or more such
arrangements that have different plan years, all such
arrangements ending with or within the same calendar year
shall be treated as a single arrangement. In the event that
this Plan satisfies the requirements of sections 401(m),
401(a)(4) or 410(b) of the Internal Revenue Code only if
aggregated with one or more other plans, or if one or more
other plans satisfy the requirements of such sections of the
Internal Revenue Code only if aggregated with this Plan, then
this Section 3.7 shall be applied by determining the
contribution percentage of eligible employees as if all such
plans were a single plan. For plan years beginning after
December 31, 1989, plans may be aggregated in order to satisfy
section 401(m) of the Internal Revenue Code only if they have
the same Plan Year.
(D) RECORDS. The Employer shall maintain records sufficient to
demonstrate satisfaction of one of the tests describe in
Section 3.7.3 and the amount of matching contributions (as
defined in section 401(m)(4)(A) of the Internal Revenue Code
which meet the requirements of section 401(k)(2)(B) and (C) of
the Internal Revenue Code) or qualified nonelective
contributions (within the meaning of section 401(m)(4)(C) of
the Internal Revenue Code).
3.7.3. THE TESTS. Notwithstanding the provisions of Section 3.5, the
nondeductible voluntary contributions made for each Plan Year shall be limited
and modified under uniform and nondiscriminatory rules established by the
Administrator's Representative and by the rules hereinafter provided in order
that one of the following two (2) tests is satisfied for that Plan Year:
TEST 1: The average contribution percentage for the group of highly
compensated eligible employees is not more than the average
contribution percentage of all other eligible employees
multiplied by one and twenty-five hundredths (1.25).
TEST 2: The excess of the average contribution percentage for the
group of highly compensated eligible employees over that of
all other eligible employees is not more than two (2)
percentage points, and the average contribution percentage for
the group of highly compensated eligible employees is not more
than the average contribution percentage of all other eligible
employees multiplied by two (2).
The Administrator's Representative shall maintain records to demonstrate
compliance with one of the two (2) tests described above, including the extent
to which qualified nonelective contributions (as defined in Section 3.7.1(c))
are used in determining the contribution percentage.
3.7.4. REMEDIAL ACTION. If the Administrator's Representative
determines that neither of the tests will be satisfied (or may not be satisfied)
for a Plan Year, then during such Plan Year, the following actions may be taken
so that one of the tests will be satisfied for such Plan Year:
(a) The nondeductible voluntary contributions of the highly
compensated eligible employees who have the highest
contribution percentage shall be reduced to the extent
necessary to reduce their contribution percentage to the next
lower percentage.
(b) If neither of the tests is satisfied after such adjustment,
the nondeductible voluntary contributions of the highly
compensated eligible employees who then have the highest
contribution percentage (including those reduced under (a)
above) shall be reduced to the extent necessary to reduce
their contribution percentage to the next lower percentage.
(c) If neither of the tests is satisfied after such adjustment,
this method of adjustment shall be repeated one or more
additional times until one of the tests is satisfied or until
no further adjustments can be made in the nondeductible
voluntary contributions of the highly compensated eligible
employees.
The Administrator's Representative shall prescribe rules concerning such
adjustments, including the frequency of applying the tests and the commencement
and termination dates for any adjustments. Any amounts required to be
distributed as provided above which are distributed more than 2-1/2 months after
the close of the Plan Year being tested, will result in a ten percent (10%)
penalty tax on the Employer as provided in Section 4979 of the Internal Revenue
Code.
3.8. LIMITATION ON ALLOCATIONS. In no event shall any amount be allocated to the
Account of any Participant if, or to the extent, such amounts would exceed the
limitations set forth in the Appendix A to this Plan Statement./3
3.9. EFFECT OF DISALLOWANCE OF DEDUCTION OR MISTAKE OF FACT. If the deduction
for federal income tax purposes under section 404 of the Internal Revenue Code
should be disallowed, in whole or in part, for any Employer contribution to this
Plan for any year, or if any Employer contribution to this Plan is made by
reason of a mistake of fact, then there shall be calculated the excess of the
amount contributed over the amount that would have been contributed had there
not occurred a mistake in determining the deduction or a mistake of fact. The
Employer, at its election, may direct the Trustee to return such excess,
adjusted for its pro rata share of any net loss (but not any net gain) in the
value of the Fund which accrued while such excess was held therein, to the
Employer within one (1) year of the disallowance of the deduction or the
mistaken payment of the contribution, as the case may be. If the return of such
amount would cause the balance of any Account of any Participant to be reduced
to less than the balance which would have been in such Account had the mistaken
amount not been contributed, however, the amount to be returned to the Employer
shall be limited so as to avoid such reduction.
3/ The provisions of Appendix A apply to Plan Years beginning after
December 31, 1986.
SECTION 4
INVESTMENT AND ADJUSTMENT OF ACCOUNTS
4.1. ESTABLISHMENT OF SUBFUNDS.
4.1.1. ESTABLISHING COMMINGLED SUBFUNDS. The Administrator's
Representative may (but is not required to) direct the Trustee in writing to
divide the Fund into two (2) or more investment Subfunds, which shall serve as
vehicles for the investment of Participants' Accounts and which shall be managed
either by the Trustee or by one or more Investment Managers, as the
Administrator's Representative shall determine. The Administrator's
Representative shall determine the general investment characteristics and
objectives of each investment Subfund. The Trustee or Investment Manager, as the
case may be, shall have complete investment discretion over each investment
Subfund assigned to it, subject only to the general investment characteristics
and objectives established for the particular investment Subfund. The Account of
each investing Participant shall have a ratable interest in the Subfund.
4.1.2. INDIVIDUAL SUBFUNDS. The Administrator's Representative may (but
is not required to) direct the Trustee in writing to establish investment
Subfunds that consist solely of all or a part of the assets of a single
Participant's Total Account, whose assets the Participant controls by investment
directives to the Trustee and which may not be commingled with the assets of any
other Participant's Accounts. If any Participant is permitted to direct the
Trustee with regard to the investment of his individual investment Subfund, then
all Participants shall be permitted to direct the Trustee with respect to their
individual investment Subfunds. In no event, however, shall the Participant be
allowed to direct the investment of assets in such individual investment Subfund
in any work of art, rug or antique, metal or gem, stamp or coin, alcoholic
beverage or other similar tangible personal property if the investment in such
property shall have been prohibited by the Secretary of the Treasury.
Notwithstanding anything apparently to the contrary in Section 10.6, all voting
or similar rights exercisable with respect to assets held in an individually
directed subfund shall be exercisable solely by the Participant or Beneficiary
whose Account is invested in such individually directed subfund.
4.1.3. OPERATIONAL RULES. In accordance with uniform rules, the
Administrator's Representative shall determine the circumstances under which a
particular investment Subfund may be elected, or shall be automatically
utilized, the minimum or maximum amount or percentage of an Account which may be
invested in a particular investment Subfund, the procedures for making or
changing investment elections and the effect of a Participant's or Beneficiary's
failure to make an effective election with respect to all or any portion of an
Account.
4.1.4. REVISING SUBFUNDS. The Administrator's Representative shall have
the power, from time to time, to dissolve investment Subfunds, to direct that
additional investment Subfunds be established, to change Investment Managers for
any one or more of the investment Subfunds, and, under uniform rules, to
withdraw or limit participation in a particular investment Subfund. In
connection with the power to commingle reserved to the Trustee under Section
10.6, the Administrator's Representative shall also have the power to direct the
Trustee to consolidate any separate investment Subfunds hereunder with any other
separate investment Subfunds having the same investment objectives which are
established under any other retirement plan trust fund of the Employer or any
corporation affiliated in ownership or management with the Employer of which the
Trustee is trustee and which are managed by the Trustee or the same Investment
Manager.
4.2. VALUATION AND ADJUSTMENT OF ACCOUNTS. The Trustee shall value each
investment Subfund as of each Valuation Date, which valuation shall reflect, as
nearly as possible, the then fair market value of the assets comprising such
investment Subfund (including income accumulations therein). In making such
valuations the Trustee may rely upon information supplied by any Investment
Manager having investment responsibility over the particular investment Subfund.
As of each Valuation Date (the "current Valuation Date"), the value of each
Account or portion of an Account invested in a particular investment Subfund,
including Suspense Accounts, determined as of the last preceding Valuation Date
(the "initial Account value") shall be increased (or decreased) by the following
adjustments made in the following sequence:
(A) INTERMEDIATE DISTRIBUTIONS ADJUSTMENT. The initial Account
value shall be adjusted by the total amount:
(i) distributed in fact to (or with respect to) the
Participant from such Account, and
(ii) loaned to the Participant, whether the loan was made
before or after the date on which the initial Account
value is determined, if the Adoption Agreement
provides that loans shall be made from the individual
Account of the Participant who received the loan, and
(iii) transferred from such Account to another Account of
that Participant (or any other Participant) within
this Plan (including amounts transferred to other
investment Subfunds) or to the trustee of another
plan pursuant to an arrangement contemplated under
Section 9.3, and
(iv) transferred into such Account from another Account of
that Participant (or any other Participant) within
this Plan (including amounts transferred from other
investment Subfunds), or from the trustee of another
plan pursuant to an arrangement contemplated under
Section 9.3, and
(v) paid as expenses incurred by the Plan which were
charged specifically against that Account (as
distinguished from being a general charge against the
assets of the Fund),
as of a date subsequent to the last preceding Valuation Date
but prior to the current Valuation Date.
(B) INVESTMENT ADJUSTMENT. The initial Account value (as adjusted
above) shall be increased (or decreased), in the ratio that
such Account value bears to all Account values, for the:
(i) realized and unrealized gains and losses on the
assets of the Fund, and
(ii) income earned by the Fund (including, if the Adoption
Agreement so provides, income earned on contributions
made in advance of the Valuation Date as of which
such contributions are allocated to Participant's
Accounts), and
(iii) expenses incurred by the Plan and paid generally from
the Fund (rather than charged specifically against a
particular Account),
as of a date subsequent to the last preceding Valuation Date
but not later than the current Valuation Date.
(C) CONTRIBUTION ADJUSTMENT. The initial Account value (as
adjusted above) shall be increased by the total amount
allocated to such Account under Section 3 as of a date
subsequent to the last preceding Valuation Date but not later
than the current Valuation Date (including, if the Adoption
Agreement so provides, income earned on contributions made in
advance of the Valuation Date as of which such contributions
are allocated to Participant's Accounts).
(D) FINAL DISTRIBUTIONS ADJUSTMENT. The initial Account value (as
adjusted above) shall be adjusted by the total amount:
(i) distributed in fact to (or with respect to) the
Participant from such Account, and
(ii) transferred from such Account to another Account of
that Participant (or any other Participant) within
this Plan (including amounts transferred to other
investment Subfunds), or to the trustee of another
plan pursuant to an arrangement contemplated under
Section 9.3, and
(iii) paid as expenses incurred by the Plan which were
charged specifically against that Account (as
distinguished from being a general charge against the
assets of the Fund),
as of the current Valuation Date.
4.3. MANAGEMENT AND INVESTMENT OF FUND. The Fund in the hands of the Trustee,
together with all additional contributions made thereto and together with all
net income thereof, shall be controlled, managed, invested, reinvested and
ultimately paid and distributed to Participants and Beneficiaries by the Trustee
with all the powers, rights and discretions generally possessed by trustees, and
with all the additional powers, rights and discretions conferred upon the
Trustee under this Plan Statement. Except to the extent that the Trustee is
subject to the authorized and properly given investment directions of an
Employer, Participant, Beneficiary or Investment Manager, and subject to the
directions of the Administrator's Representative with respect to the payment of
benefits hereunder, the Trustee shall have the exclusive authority to manage and
control the assets of the Fund in its custody and shall not be subject to the
direction of any person in the discharge of its duties, nor shall its authority
be subject to delegation or modification except by formal amendment of this Plan
Statement.
SECTION 5
VESTING
5.1. EMPLOYER CONTRIBUTIONS ACCOUNT.
5.1.1. PROGRESSIVE VESTING./4 The Employer Contributions Account of
each Participant shall become Vested in him in accordance with the schedule set
forth in the Adoption Agreement; provided, however, that the Vested percentage
of a Participant's Employer Contributions Account determined as of the Effective
Date (or the date of the execution of the Adoption Agreement by the Employer, if
later) shall be not less than such Vested percentage computed under the Prior
Plan Statement, if any, as of that date.
5.1.2. FULL VESTING. Notwithstanding any of the foregoing provisions
for vesting of Employer Contributions Accounts of Participants, the entire
Employer Contributions Account of each Participant shall be fully Vested in him
upon the earliest occurrence of any of the following events while in the
employment of the Employer or an Affiliate:
(a) his death,
(b) his attainment of his Normal Retirement Age or his attainment
of any earlier age specified in the Adoption Agreement,
(c) the occurrence of his Disability,
(d) a partial termination of the Plan which is effective as to
him, or
(e) a complete termination of the Plan or a complete
discontinuance of Employer contributions hereto.
In addition, a Participant who is not in the employment of the Employer or an
Affiliate upon a complete termination of the Plan or a complete discontinuance
of Employer contributions hereto, shall be so fully Vested if, on the date of
such termination or discontinuance, such Participant has not had a "forfeiture
date" as described in Section 6.2.3.
4/ If Adoption Agreement #005, #006, #007 or #008 is used, the vesting
schedule in the Adoption Agreement may be superseded for a Plan Year if
the Plan becomes top heavy for that Plan Year. (See Appendix B,
ss. 3.2.1.) The effect of this may continue for several years after the
Plan ceases to be top heavy. (See Appendix B, ss. 3.2.2.)
5.1.3. SPECIAL RULE FOR PARTIAL DISTRIBUTIONS. If a distribution is
made of less than the entire Employer Contributions Account of a Participant who
is not then fully (100%) Vested, then until the Participant becomes fully Vested
in his Employer Contributions Account or until he incurs five (5) or more
consecutive One-Year Breaks in Service, whichever first occurs, (i) a separate
account shall be established for the portion of the Employer Contributions
Account not so distributed and (ii) his Vested interest in such account at any
relevant time shall not be less than an amount ("X") determined by the formula:
X = P[B (R x D)] - (R x D). For the purpose of applying the formula, "P" is the
Vested percentage at the relevant time (determined pursuant to Section 5); "B"
is the separate account balance at the relevant time; "D" is the amount of the
distribution; and "R" is the ratio of the separate account balance at the
relevant time to the Employer Contributions Account balance immediately after
distribution.
5.1.4. EFFECT OF BREAK ON VESTING. If a Participant who is not fully
(100%) Vested incurs five (5) or more consecutive One-Year Breaks in Service,
returns to Recognized Employment and is thereafter eligible for any additional
allocation of Employer contributions, his undistributed Employer Contributions
Account, if any, attributable to Employer contributions allocated as of a date
before such five (5) consecutive One-Year Breaks in Service, and in which he has
a Vested interest by reason of such prior service, and his new Employer
Contributions Account, in which he may become Vested by reason of future
service, shall be separately maintained for vesting purposes until he is fully
(100%) vested under the rules of Section 1.1.32 and this Section 5.
5.2. OPTIONAL VESTING SCHEDULE.
5.2.1. ELECTION. If an amendment of this Plan's vesting schedule should
be adopted or the Plan is amended in any way that directly or indirectly affects
the computation of the Participant's Vested percentage, a qualifying Participant
may elect to have the Vested portion of his Employer Contributions Account
determined under the vesting schedule as it existed immediately before the
adoption of such amendment. (In no event shall an amendment of this Plan's
vesting schedule reduce a Participant's Vested percentage as of the date such
amendment is adopted or, if later, the date such amendment is effective.)
5.2.2. QUALIFYING PARTICIPANT. A Participant in this Plan qualifies for
the election described in this Section 5.2 only if, as of the expiration of the
period described in Section 5.2.3, he has five (5) or more years of Vesting
Service; provided, however, effective for Plan Years beginning after December
31, 1988, a Participant who has one (1) or more Hours of Service in any Plan
Year beginning after December 31, 1988, qualifies for the election described in
this Section 5.2, only if, as of the expiration of the period described in
Section 5.2.3, he has three (3) or more years of Vesting Service.
5.2.3. PROCEDURE FOR ELECTION. The election described in Section 5.2.1
shall be effective only if it is executed in writing upon forms to be prepared
by the Administrator's Representative and delivered to the Administrator's
Representative after the date upon which the amendment is formally adopted and
before the latest of:
(a) the date sixty (60) days after such formal adoption,
(b) the date sixty (60) days after the date such amendment becomes
effective, or
(c) the date sixty (60) days after the date the Participant is
issued written notice of the adoption of the amendment.
5.2.4. CONCLUSIVE ELECTION. Failure to file an election will be deemed
an irrevocable waiver of the election. An election filed in accordance with this
provision will be irrevocable from the date it is filed.
5.3. OTHER ACCOUNTS. The Rollover Account, Nondeductible Voluntary Account,
Deductible Voluntary Account and Transfer Account of each Participant shall be
fully (100%) Vested in him at all times. Each Account will be credited with
applicable contributions, forfeitures, earnings and losses as provided in
Section 4.
SECTION 6
MATURITY
6.1. EVENTS OF MATURITY. A Participant's Total Account shall mature and the
Vested portion shall become distributable in accordance with Section 7 upon the
earliest occurrence of any of the following events while in the employment of
the Employer or an Affiliate:
(a) his death,
(b) his termination of his employment, whether voluntary or
involuntary,
(c) his attainment of age seventy and one-half (70-1/2) years,
(d) crediting of any amount to his Account after his attainment of
age seventy and one- half (70-1/2) years,
(e) his Disability,
(f) termination of the Plan or a partial termination of the Plan
effective as to him, or
(g) if the Adoption Agreement so provides, his attainment of age
fifty-nine and one-half (59-1/2) years.
provided, however, that a transfer from Recognized Employment to employment with
the Employer that is other than Recognized Employment or a transfer from the
employment of one Employer participating in this Plan to another such Employer
or to any Affiliate shall not constitute an Event of Maturity.
6.2. DISPOSITION OF NONVESTED PORTION OF ACCOUNT. Upon the occurrence of a
Participant's Event of Maturity, if any portion of his Employer Contributions
Account is not Vested in him, such portion shall be transferred to his Suspense
Account as of the Valuation Date coincident with or next following such Event of
Maturity.
6.2.1. NO BREAK. If such former Participant is reemployed by the
Employer on or before the Annual Valuation Date coincident with or immediately
following his forfeiture date, the portion of his Employer Contributions Account
which was not Vested in him upon his Event of Maturity (and therefore became his
Suspense Account) shall be transferred back to and held in his Employer
Contributions Account under the Plan as of the Valuation Date coincident with or
next following the reemployment date and it shall be held there pending the
occurrence of another Event of Maturity effective as to him, during which period
of subsequent employment he may earn a Vested interest in some or all of such
portion in accordance with the provisions of Section 5.
6.2.2. A BREAK. If, however, such former Participant is not reemployed
by the Employer on or before the Annual Valuation Date coincident with or
immediately following his forfeiture date, the entire portion of his Employer
Contributions Account which was not Vested in him upon his Event of Maturity
(and therefore became his Suspense Account) shall be forfeited as of such Annual
Valuation Date and shall first be used to restore any forfeited Suspense
Accounts as required in Section 6.3. As provided in the Adoption Agreement, any
remaining portion shall be either (i) added to the Employer contribution, if
any, to be allocated, as of such Annual Valuation Date to the Employer
Contributions Accounts of those Participants employed by the same Employer
during the Plan Year, as provided in Section 3.2, or (ii) retained in the Fund
and used to reduce the amount of the next succeeding contribution of the
Employer to the Plan due for such Plan Year.
6.2.3. FORFEITURE DATE. For the purpose of the foregoing, a
Participant's forfeiture date shall be the date (following his Event of
Maturity) as of which occurred the earliest of:
(i) his fifth (5th) consecutive One-Year Break in Service
following his Event of Maturity,
(ii) the distribution of his entire Vested Total Account,
or
(iii) his Event of Maturity if he has no Vested interest in
his Total Account (that is, his Vested interest,
consisting of zero, will be deemed to be
distributed).
6.3. RESTORATION OF FORFEITED ACCOUNTS. If a Participant:
(a) incurs an Event of Maturity at a time when he was not fully
(100%) Vested in his Employer Contributions Account, and
(b) has had his Suspense Account (which was established on account
of that Event of Maturity) forfeited and disposed of as
provided in Section 6.2, and
(c) becomes an employee of the Employer or an Affiliate before he
has five (5) consecutive One-Year Breaks in Service following
the Event of Maturity,
then there shall be restored to his Employer Contributions Account an amount
equal to the amount which was forfeited from his Suspense Account (without any
adjustment for income, gains or losses). This restoration shall occur as of the
Annual Valuation Date next following his return to participation in the Plan,
and shall be conditioned upon his remaining in employment with the Employer or
Affiliate until that Annual Valuation Date. The amount so restored shall be held
in a separate account and shall become Vested in accordance with the rules of
Section 5.1.3. The amount necessary to make the restoration shall come first
from Suspense Accounts to be forfeited on the Annual Valuation Date on which the
restoration is to occur. If Suspense Accounts to be forfeited as of that Annual
Valuation Date are not adequate for this purpose, the Employer shall make a
contribution adequate to make the restoration as of that Annual Valuation Date
(in addition to any contributions required to be made under Section 3).
SECTION 7
DISTRIBUTION
7.1. APPLICATION FOR DISTRIBUTION.
7.1.1. APPLICATION REQUIRED. No distribution shall be made from the
Plan until the Administrator's Representative has received a written application
for distribution from the Participant or the Beneficiary entitled to receive
distribution (the "Distributee"). The Administrator's Representative may
prescribe rules regarding the form of such application, the manner of filing
such application and the information required to be furnished in connection with
such application.
Unless the Participant elects otherwise, distribution of the Participant's
Vested Total Account will begin no later than the 60th day after the latest of
the close of the Plan Year in which:
(a) the Participant attains age 65 (or Normal Retirement Age, if
earlier);
(b) occurs the tenth anniversary of the year in which the
Participant commenced participation in the Plan; or
(c) the Participant separates from service with the Employer.
Notwithstanding the foregoing, the failure of the Participant (and, if
necessary, the Participant's spouse) to apply for a distribution after the
Participant has had an Event of Maturity shall be an election to defer payment
in satisfaction of the previous sentence.
Subject to Section 7.3.4, the requirements of Section 7.1 and 7.2 shall apply to
any distribution of a Participant's interest and will take precedence over any
inconsistent provisions of the Plan Statement. Unless otherwise specified, these
provisions apply to calendar years beginning after December 31, 1984. All
distributions required under the plan shall be made in accordance with the
provisions of this Section 7 and the regulations under Section 401(a)(9) of the
Internal Revenue Code, including the minimum distribution incidental benefit
requirement of Treas. Reg. 1.401(a)(9)-2 (proposed).
7.1.2. EXCEPTION FOR SMALL AMOUNTS. A Vested Total Account which does
not exceed Three Thousand Five Hundred Dollars ($3,500) on the Valuation Date
immediately after the occurrence of an Event of Maturity effective as to a
Participant, shall be automatically distributed in a lump sum as of that date
without a written application for distribution. (If the Participant has no
vested interest in his Total Account, the "deemed distribution" rule of Section
6.2.3(iii) may apply.)
7.1.3. EXCEPTION FOR REQUIRED DISTRIBUTIONS. Any Vested Total Account
for which no application has been received on the required beginning date
effective as to a Distributee under Section 7.2.2, shall be automatically
distributed in a lump sum (if the Plan is not an exempt profit sharing plan,
however, the Vested Total Account shall be distributed pursuant to Section
7.3.4), without a written application for distribution.
7.2. TIME OF DISTRIBUTION. Upon the receipt of a proper application for
distribution from the Distributee after the occurrence of an Event of Maturity
effective as to a Participant, and after the Participant's Vested Total Account
has been determined and the right of the Distributee to receive a distribution
has been established, the Administrator's Representative (and not the
Distributee) shall cause the Trustee to make or commence distribution as of (and
as soon as may be administratively feasible after but in all events within the
time period required by Section 7.1.1) a Valuation Date specified by the
Distributee which is not earlier than nor later than the dates specified below.
7.2.1. EARLIEST BEGINNING DATE. Distribution to a Distributee shall not
be made or commenced as of a Valuation Date which is earlier than provided for
in the Adoption Agreement. Distribution shall not be made or commenced earlier
than the date (i) the Administrator's Representative receives any required
application for distribution, and (ii) as of a Valuation Date which is earlier
than allowed in the Adoption Agreement.
7.2.2. REQUIRED BEGINNING DATE. Distribution shall be made or commenced
as of the last Valuation Date occurring in the calendar year immediately
preceding the calendar year in which the required beginning date effective as to
the Distributee occurs, and actual distribution shall be made or commenced as
soon thereafter as is feasible, but in all events distribution shall be made or
commenced not later than the following required beginning date:
(a) if the Distributee is a Participant, the April 1 following the
calendar year in which the Distributee attains age seventy and
one-half (70-1/2) years, or
(b) if the Distributee is the Beneficiary of a Participant who
died on or after the April 1 following the calendar year in
which the Participant attained age seventy and one-half
(70-1/2) years, the date or dates which provide for
distribution to such Beneficiary at a rate (considering both
time and amount) that is cumulatively at least as rapid as the
rate of distribution scheduled and commenced prior to the
death of the Participant, or
(c) if the Distributee is a Beneficiary of a Participant who died
before the April 1 following the calendar year in which the
Participant attained age seventy and one-half (70-1/2) years,
the date or dates that allow distribution of the entire amount
to be completed not later than December 31 of the calendar
year in which occurs the fifth (5th) anniversary of the
Participant's death; provided, however, that if the Adoption
Agreement permits and:
(i) if the Beneficiary is an individual who is not the
surviving spouse of the Participant and if in a
written application, timely filed, such individual
Beneficiary requests that distributions be made to
such individual Beneficiary in substantially equal
annual amounts over a period of time not extending
beyond the life expectancy of such Beneficiary,
distributions must commence not later than December
31 of the year following the year of the
Participant's death, or
(ii) if the Beneficiary is the surviving spouse of the
Participant and if in a written application, timely
filed, such spouse Beneficiary requests that
distributions be made to such surviving spouse in
substantially equal annual amounts over a period of
time not extending beyond the life expectancy of the
surviving spouse, distributions may be deferred until
the later of (A) the date specified in paragraph (i)
above or, (B) the December 31 of the calendar year in
which the Participant would have attained age seventy
and one-half (70-1/2) years.
If the distributions are made in installments, the second and all subsequent
distributions must be made on or before December 31 of the year for which the
distribution is made. A Beneficiary must elect the method of distribution no
later than the earlier of (i) December 31 of the calendar year in which
distribution would be required to begin under this Section 7.2.2, or (ii)
December 31 of the calendar year in which occurs the fifth (5th) anniversary of
the Participant's death. If a Beneficiary makes no election, distribution of the
Beneficiary's entire interest must be completed by December 31 of the calendar
year containing the fifth (5th) anniversary of the Participant's death.
7.3. FORMS OF DISTRIBUTION.
7.3.1. FORMS AVAILABLE. At the direction of the Administrator's
Representative (subject to Section 7.3.4), the Trustee shall make distribution
of the Participant's Vested Total Account to the Distributee in one of the
following optional forms of benefit as permitted in the Adoption Agreement and
as designated by the Distributee in writing:
(A) LUMP SUM. If the Distributee is either a Participant or a
Beneficiary, in a lump sum as described in the Adoption
Agreement.
(B) FIXED INSTALLMENTS TO PARTICIPANT. If the Distributee is a
Participant, in a series of substantially equal installments
payable annually over a fixed period selected by the
Participant before the first payment which does not exceed the
life expectancy of the Participant. The election to
recalculate life expectancy described in Section 7.3.3 does
not apply to this form of distribution.
(C) MINIMUM INSTALLMENTS TO PARTICIPANTS. If the Distributee is a
Participant, in a series of substantially equal installments
payable annually over the life expectancy of the Participant
or the joint and last survivor life expectancy of the
Participant and his Beneficiary determined as of the date of
the first such installment payment; provided, however, that
the amount of such installments shall automatically be
increased if the series of substantially equal installments
payable annually over the life expectancy of the Participant
or the joint and last survivor life expectancy of the
Participant and his Beneficiary determined again as of the
Participant's required beginning date (see Section 7.2.2(a))
and based on the facts then in existence is greater than the
amount determined as of the first such installment payment.
For calendar years beginning before January 1,1989, if the
Participant's spouse is not the Beneficiary, then the method
of distribution selected must assure that at least fifty
percent (50%) of the Vested Total Account is paid within the
life expectancy of the Participant.
(D) INSTALLMENTS TO BENEFICIARY. If the Distributee is an
individual who is a Beneficiary of a deceased Participant who
died before the April 1 following the calendar year in which
the Participant would have attained age seventy and one-half
(70-1/2) years, in a series of substantially equal
installments payable annually over a period selected by the
Beneficiary which does not exceed the period permitted by the
Adoption Agreement. If the Distributee is an individual who is
a Beneficiary of a deceased Participant who died on or after
the April 1 following the calendar year in which the
Participant attained age seventy and one-half (70-1/2) years,
in a series of substantially equal installments which are a
continuation of the payments commenced (or scheduled) prior to
the date of the Participant's death (or in a lump sum if the
Adoption Agreement permits such a payment to the Beneficiary).
7.3.2. SUBSTANTIALLY EQUAL. Distributions shall be considered to be
substantially equal if the distributions are determined in whichever of the
following manners is applicable:
(A) FIXED INSTALLMENTS. If distributions are in the form of
installments payable over a fixed period, the amount of the
distribution required to be made for each calendar year (the
"distribution year") shall be determined by dividing the
amount of the Vested Total Account as of the last Valuation
Date in the calendar year immediately preceding the
distribution year (such preceding calendar year being the
"valuation year") by the number of remaining installment
payments to be made (including the distribution being
determined). The amount of the Vested Total Account as of such
Valuation Date shall be increased by the amount of any
contributions and forfeitures allocated to the Vested Total
Account during the valuation year and after such Valuation
Date (including contributions and forfeitures, if any, made
after the end of the valuation year which are allocated as of
dates in the valuation year). The amount of the Vested Total
Account shall be decreased by the amount of any distributions
made in the valuation year and after such Valuation Date.
(B) LIFETIME INSTALLMENTS. If distributions are in the form of
installments over the life expectancy of the recipient or the
joint and last survivor life expectancy of the Participant and
his Beneficiary, the amount of the distribution required to be
made for each calendar year (the "distribution year") shall be
determined by dividing the amount of the Vested Total Account
as of the last Valuation Date in the calendar year immediately
preceding the distribution year (such preceding calendar year
being the "valuation year") by the remaining life expectancy
as of the distribution year. The amount of the Vested Total
Account as of the last Valuation Date in the valuation year
shall be increased by the amount of any contributions and
forfeitures allocated to the Vested Total Account during the
valuation year and after such Valuation Date (including
contributions and forfeitures, if any, made after the end of
the valuation year which are allocated as of dates in the
valuation year). The amount of the Vested Total Account shall
be decreased by distributions made in the valuation year and
after such Valuation Date.
7.3.3. LIFE EXPECTANCY. Life expectancy and joint and last survivor
expectancy shall be determined by use of the expected return multiples in Tables
V and VI of Treas. Reg. 1.72-9. An individual's life expectancy shall be based
upon the individual's attained age on his birthday in the calendar year for
which life expectancy is first being determined and, in the absence of an
election as provided below, shall be reduced by one (1) year in each succeeding
calendar year.
(A) ELECTION TO RECALCULATE LIFE EXPECTANCY. In the case of a
Participant or a Beneficiary who is the surviving spouse of a
Participant (but not in the case of any other individual), the
Participant or such Beneficiary may elect to have life
expectancy redetermined for each succeeding calendar year that
a distribution is required to be made. The election must be
made no later than the time of the first required
distribution. The election is irrevocable and must apply to
all subsequent years.
(B) JOINT AND LAST SURVIVOR. Joint and last survivor life
expectancy shall be determined for the Participant and the
individual who is the Participant's Beneficiary in accordance
with the rules of section 401(a)(9) of the Internal Revenue
Code and the regulations thereunder.
(C) MINIMUM DISTRIBUTION INCIDENTAL BENEFIT REQUIREMENT. In the
case of a Participant and a Beneficiary who is not a spouse of
the Participant, the life expectancy factor used to compute
the amount of the substantially equal payment during the
Participant's lifetime shall not be greater than the factor
determined under Treas. Reg. 1.401(a)(9)-2 (the minimum
distribution incidental benefit requirement).
7.3.4. PRESUMPTIVE FORMS. The selection of a form of distribution shall
be subject, however, to the following rules:
(A) REQUIRED LUMP SUM. As provided in Section 7.1.2, if the value
of the Participant's Vested Total Account is not greater than
Three Thousand Five Hundred Dollars ($3,500) when distributed,
the distribution shall be made in a single lump sum.
(B) QJ&SA CONTRACT. A QJ&SA contract is an immediate
nontransferable annuity contract issued as an individual
policy or under a master or group contract which provides for
an annual or more frequent annuity payable to and for the
lifetime of the Participant beginning as of a date designated
by the Participant which is not later than the dates specified
in Section 7.2.2, with a survivor annuity payable on an annual
or more frequent basis after the death of the Participant to
and for the lifetime of the surviving spouse of the
Participant (to whom the Participant was married on the
Valuation Date as of which such contract is issued) in an
amount equal to fifty percent (50%) of the amount payable
during the joint lives of the Participant and the surviving
spouse. If payments had started to the Participant prior to
his death, payments of the survivor annuity shall commence
immediately after death. If payments had not started prior to
the Participant's death, the surviving spouse shall designate
the commencement date which shall not be later than the date
the Participant would have attained age seventy and one-half
(70-1/2) years. The contract shall be a QJ&SA contract only if
it is issued on a premium basis which does not discriminate on
the basis of the sex of the Participant or the surviving
spouse and if it complies with the requirements of this Plan
and section 401(a)(9) of the Internal Revenue Code and the
regulations thereunder.
(C) LIFE ANNUITY CONTRACT. A Life Annuity contract is an
immediate, nontransferable annuity contract issued as an
individual policy or under a group or master contract which
provides for an annual or more frequent annuity payable to and
for (i) the lifetime of an unmarried Participant beginning as
of a date designated by the Participant which is not later
than the dates specified in Section 7.2.2, or (ii) the
lifetime of the surviving spouse of a Participant beginning as
of the first day of the month following the Participant's
death or any later date designated by the surviving spouse
which is not later than the date the Participant would have
attained age seventy and one-half (70-1/2) years. The contract
shall be a Life Annuity contract only if it is issued on a
premium basis which does not discriminate on the basis of the
sex of the Participant or the surviving spouse and if it
complies with the requirements of this Plan and section
401(a)(9) of the Internal Revenue Code and the regulations
thereunder.
(D) EXEMPT PROFIT SHARING PLAN. This Plan is an exempt profit
sharing plan if the following conditions are satisfied:
(i) this Plan is adopted as a profit sharing plan and not
as a money purchase pension plan, and
(ii) no Participant under this Plan can elect to receive
payments in the form of a lifetime annuity, and
(iii) this Plan is not a direct or indirect transferee of
assets from a defined benefit pension plan, money
purchase pension plan or target benefit money
purchase pension plan, and
(iv) this Plan is not a direct or indirect transferee from
a stock bonus plan or a profit sharing plan which was
otherwise required to make available to Participants
with respect to whom assets and liabilities were
transferred distribution in the form of a lifetime
annuity.
If this Plan is adopted as a money purchase pension plan, a
distribution from this plan shall be treated as a distribution
form an exempt profit sharing plan if the distribution is made
on or after the first day of the first plan Year beginning
after December 31, 1988, from the Participant's Deductible
Voluntary Account, and the Plan satisfies item (ii) above. The
Deductible Voluntary Account shall be adjusted for gains or
losses occurring after the Participant's death in accordance
with Section 4. The Participant's Deductible Voluntary
Account, as defined in Section 1.1.1(e), refers to an Account
attributable solely to accumulated deductible employee
contributions within the meaning of Section 72(o)(5)(B) of the
Internal Revenue Code.
(E) MARRIED PARTICIPANT. In the case of any distribution which is
to be made:
(i) if this Plan is not an exempt profit sharing plan,
and
(ii) when paragraph (a) above is not applicable, and
(iii) to a Participant who is married on the Valuation Date
as of which such distribution is to be made or
commenced to him, and
(iv) to a Participant who has not rejected distribution in
the form of a QJ&SA contract,
distribution shall be effected for such Participant by
applying the entire Vested Total Account to purchase and
distribute to such Participant a QJ&SA contract. A Participant
may reject distribution in the form of a QJ&SA contract by
filing with the Administrator's Representative an affirmative
written rejection of distribution in that form not more than
ninety (90) days before the Valuation Date as of which the
distribution is made or commenced. Such a rejection may be
made or revoked at any time and any number of times until the
Valuation Date as of which the distribution to the Participant
is made or commenced. A rejection shall not be effective
unless the Participant's spouse consents. To be valid, the
consent of the spouse must be in writing, must acknowledge the
effect of the distribution, must be witnessed by a notary
public, must be given during the ninety (90) day period before
the Valuation Date as of which the distribution is made or
commenced and must relate to that specific distribution. The
consent of the spouse must be to a specific form of
distribution (other than the QJ&SA contract) which may not be
changed without further spousal consent unless the Participant
elects a QJ&SA contract, or alternatively, the consent of the
spouse must expressly permit the Participant to elect and to
change the form of distribution (other than the QJ&SA
contract) without any requirement of further spousal consent.
The consent of the spouse shall be irrevocable and shall be
effective only with respect to that spouse. No less than
thirty (30) days and no more than ninety (90) days prior to
the date distribution is to be made or commenced to the
Participant, there shall be furnished to the Participant a
written explanation of the terms and conditions of the QJ&SA
contract, the Participant's right to reject, and the effect of
a rejection of distribution in the form of the QJ&SA contract,
the requirement for the consent of the Participant's spouse,
the right to revoke a prior rejection of distribution in the
form of a QJ&SA contract, and the right to make any number of
further revocations or rejections until the Valuation Date as
of which the distribution actually is made or commenced.
Notwithstanding the consent requirement described above, if
the Participant establishes to the satisfaction of the
Administrator's Representative that such written consent
cannot be obtained because there is no spouse, or the spouse
cannot be located, a Participant's rejection shall be deemed a
valid rejection.
(F) UNMARRIED PARTICIPANT. In the case of any distribution which
is to be made:
(i) if this Plan is not an exempt profit sharing plan,
and
(ii) when paragraph (a) above is not applicable, and
(iii) to a Participant who is not married on the Valuation
Date as of which such distribution is to be made or
commenced to him, and
(iv) to a Participant who has not rejected distribution in
the form of a Life Annuity contract,
distribution shall be effected for such Participant by
applying the entire Vested Total Account to purchase and
distribute to such Participant a Life Annuity contract. A
Participant may reject distribution in the form of a Life
Annuity contract by filing with the Administrator's
Representative an affirmative written rejection of
distribution in that form not more than ninety (90) days
before the Valuation Date as of which the distribution is made
or commenced. Such a rejection may be made or revoked at any
time and any number of times until the Valuation Date as of
which the distribution to the Participant is made or
commenced. No less than thirty (30) days and no more than
ninety (90) days prior to the date distribution is to be made
or commenced to the Participant, there shall be furnished to
the Participant a written explanation of the terms and
conditions of the Life Annuity contract, the Participant's
right to reject and the effect of a rejection of, distribution
in the form of the Life Annuity contract, the right to revoke
a prior rejection of distribution in the form of a Life
Annuity contract, and the right to make any number of further
revocations or rejections until the Valuation Date as of which
distribution actually is made or commenced.
(G) SURVIVING SPOUSE. In the case of a distribution which is made:
(i) if this Plan is not an exempt profit sharing plan,
and
(ii) when paragraph (a) above is not applicable, and
(iii) to the surviving spouse of a deceased Participant,
and
(iv) when such surviving spouse has not rejected
distribution in the form of a Life Annuity contract,
distribution shall be effected for such surviving spouse by
applying the entire Vested Total Account to purchase and
distribute to such surviving spouse a Life Annuity contract as
soon as administratively feasible after the Participant's
death; but in no event earlier than the date upon which the
surviving spouse makes application for the distribution, or,
if earlier, the date upon which the Participant (if he
continued to live) would have attained age seventy and one
half (70-1/2) years. A surviving spouse may reject
distribution in the form of a Life Annuity contract by filing
with the Administrator's Representative an affirmative written
rejection of distribution in that form not more than ninety
(90) days before the Valuation Date as of which the
distribution is made or commenced. Any number of rejections
and revocations of rejections may be made at any time until
the Valuation Date as of which the distributions are made or
commence to such surviving spouse. No less than thirty (30)
days and no more than ninety (90) days prior to the date
distribution is to be made or commenced to the surviving
spouse, there shall be furnished to the surviving spouse a
written explanation of the terms and conditions of the
contract, the surviving spouse's right to reject, and the
effect of a rejection of distribution in the form of the Life
Annuity contract, the right to revoke a prior rejection of
distribution in the form of the Life Annuity contract, and the
right to make any number of further revocations or rejections
until the Valuation Date as of which distribution actually is
made or commenced.
7.3.5. EFFECT OF REEMPLOYMENT. If a Participant is reemployed by the
Employer or an Affiliate after distribution has been made or commenced to him
but before his Normal Retirement Age, further distribution of his Vested Total
Account shall be suspended and the undistributed remainder of his Vested Total
Account shall continue to be held in the Fund until another Event of Maturity
effective as to him shall occur after his reemployment. It is the general intent
of this Plan that no distribution shall be made while a Participant is
maintaining an employment relationship with the Employer or an Affiliate.
7.3.6. TEFRA SS. 242(B) TRANSITIONAL RULES. Notwithstanding the other
provisions of this Section 7, distributions to or with respect to each
individual eligible to make a designation (before January 1, 1984) of a method
of distribution pursuant to section 242(b) of the Tax Equity and Fiscal
Responsibility Act of 1982 shall be made on and after the first day of the Plan
Year beginning in 1984 in accordance with the provisions set forth in the
Appendix E to this Plan Statement; provided, however, that if the Plan is not an
exempt profit sharing plan, the QJ&SA contract or Life Annuity contract has been
rejected as described in Section 7.3.4.
7.4. DESIGNATION OF BENEFICIARIES.
7.4.1. RIGHT TO DESIGNATE. Each Participant may designate, upon forms
to be furnished by and filed with the Administrator's Representative, one or
more primary Beneficiaries or alternative Beneficiaries to receive all or a
specified part of his Vested Total Account in the event of his death and may
change or revoke any such designation from time to time. No such designation,
change or revocation shall be effective unless executed by the Participant and
accepted by the Administrator's Representative during the Participant's
lifetime. If, however, the Plan is not an exempt profit sharing plan and such
designation is made to a nonspouse Beneficiary before the first day of the Plan
Year in which the Participant attains age thirty-five (35) years and the
Participant dies on or after that date while married, the beneficiary
designation is void.
7.4.2. SPOUSAL CONSENT. Notwithstanding the foregoing, a designation
will not be valid for the purpose of paying benefits from the Plan to anyone
other than a surviving spouse of the Participant (if there is a surviving
spouse) unless that surviving spouse consents in writing to the designation of
another person as Beneficiary. To be valid, the consent of such spouse must be
in writing, must acknowledge the effect of the designation of the Beneficiary
and must be witnessed by a notary public. The consent of the spouse must be to
the designation of a specific named Beneficiary which may not be changed without
further spousal consent, or alternatively, the consent of the spouse must
expressly permit the Participant to make and to change the designation of
Beneficiaries without any requirement of further spousal consent. The consent of
the spouse to a nonspouse Beneficiary is a waiver of the spouse's rights to
benefits under the Plan. In a plan that is not an exempt profit sharing plan,
these benefits are known as a qualified preretirement survivor annuity. The
consent of the surviving spouse need not be given at the time the designation is
made. The consent of the surviving spouse need not be given before the death of
the Participant. The consent of the surviving spouse will be required, however,
before benefits can be paid to any person other than the surviving spouse. The
consent of a spouse shall be irrevocable and shall be effective only with
respect to that spouse.
In the case of a distribution to which Section 7.3.4(g) applies, the
Administrator's Representative shall provide each Participant within the
applicable period for such Participant a written explanation of the Life Annuity
Contract in such terms and in such manner as would be comparable to the
explanation provided for meeting the requirement of Section 7.3.4(e) applicable
to a QJ & SA contract.
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 32 and ending with the close of the Plan Year
preceding the plan Year in which the Participant attains age 35; (ii) a
reasonable period ending after the individual becomes a Participant; and (iii) a
reasonable period ending after this paragraph first applies to the Participant.
Notwithstanding the foregoing, notice must be provided within a reasonable
period ending after separation from service in the case of a Participant who
separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable period ending
after the enumerated events described in (ii) and (iii) is the end of the
two-year period beginning one year prior to the date the applicable event
occurs, and ending one year after that date. In the case of a Participant who
separates from service before the Plan Year in which age 35 is attained, notice
shall be provided within the two-year period beginning one year prior to
separation and ending one year after separation. If such a Participant
thereafter returns to employment with the employer, the applicable period for
such Participant shall be redetermined.
7.4.3. FAILURE OF DESIGNATION. If a Participant:
(a) fails to designate a Beneficiary,
(b) designates a Beneficiary and thereafter revokes such
designation without naming another Beneficiary, or
(c) designates one or more Beneficiaries and all such
Beneficiaries so designated fail to survive the Participant,
such Participant's Vested Total Account, or the part thereof as to which such
Participant's designation fails, as the case may be, shall be payable to the
first class of the following classes of automatic Beneficiaries with a member
surviving the Participant and (except in the case of his surviving issue) in
equal shares if there is more than one member in such class surviving the
Participant:
Participant's surviving spouse
Participant's surviving issue per stirpes and not per capita
Participant's surviving parents Participant's surviving
brothers and sisters Representative of Participant's estate.
7.4.4. DEFINITIONS. When used herein and, unless the Participant has
otherwise specified in his Beneficiary designation, when used in a Beneficiary
designation, "issue" means all persons who are lineal descendants of the person
whose issue are referred to, including legally adopted descendants and their
descendants but not including illegitimate descendants and their descendants;
"child" means an issue of the first generation; "per stirpes" means in equal
shares among living children of the person whose issue are referred to and the
issue (taken collectively) of each deceased child of such person, with such
issue taking by right of representation of such deceased child; and "survive"
and "surviving" mean living after the death of the Participant.
7.4.5. SPECIAL RULES. Unless the Participant has otherwise specified in
his Beneficiary designation, the following rules shall apply:
(a) if there is not sufficient evidence that a Beneficiary was
living after the death of the Participant, it shall be deemed
that the Beneficiary was not living after the death of the
Participant.
(b) The automatic Beneficiaries specified in Section 7.4.3 and the
Beneficiaries designated by the Participant shall become fixed
as of the Participant's death so that, if a Beneficiary
survives the Participant but dies before the receipt of all
payments due such Beneficiary hereunder, such remaining
payments shall be payable to the representative of such
Beneficiary's estate.
(c) If the Participant designates as a Beneficiary the person who
is the Participant's spouse on the date of the designation,
either by name or by relationship, or both, the dissolution,
annulment or other legal termination of the marriage between
the Participant and such person shall automatically revoke
such designation. (The foregoing shall not prevent the
Participant from designating a former spouse as a Beneficiary
on a form executed by the Participant and received by the
Committee after the date of the legal termination of the
marriage between the Participant and such former spouse, and
during the Participant's lifetime.)
(d) Any designation of a nonspouse Beneficiary by name that is
accompanied by a description of relationship to the
Participant shall be given effect without regard to whether
the relationship to the Participant exists either then or at
the Participant's death.
(e) Any designation of a Beneficiary only by statement of
relationship to the Participant shall be effective only to
designate the person or persons standing in such relationship
to the Participant at the Participant's death.
A Beneficiary designation is permanently void if it either is executed or is
filed by a Participant who, at the time of such execution or filing, is then a
minor under the law of the state of his legal residence. The Committee (and not
the Trustee) shall be the sole judge of the content, interpretation and validity
of a purported Beneficiary designation.
7.5. DEATH PRIOR TO FULL DISTRIBUTION. If a Participant dies after his Event of
Maturity but before distribution of his Vested Total Account has been completed,
the remainder of his undistributed Vested Total Account shall be distributed in
the same manner as hereinbefore provided in the Event of Maturity by reason of
death. If, at the death of the Participant, any payment to the Participant was
due or otherwise pending but not actually paid, the amount of such payment shall
be included in the Vested Total Account which is payable to the Beneficiary (and
shall not be paid to the Participant's estate).
7.6. DISTRIBUTION IN CASH. Subject to the requirements of Section 7.3 for a Plan
that is not an exempt profit sharing plan, distribution of a Participant's
Vested Total Account shall be made in cash. If, however, (i) the Vested Total
Account to be distributed consists in whole or in part of a Participant's unpaid
promissory note, the Trustee shall cause distribution of that portion of the
Vested Total Account to be made in the form of that unpaid promissory note, or
(ii) the Vested Total Account to be distributed consists in whole or in part of
a life insurance contract acquired pursuant to the Participant's direction under
Section 10.11, the Trustee shall cause distribution of that portion of the
Vested Total Account to be made in the form of the life insurance contract so
acquired, or (iii) the Vested Total Account to be distributed consists in whole
or in part of a Participant's individually directed Subfund established pursuant
to Section 4.1.2, the Trustee shall cause distribution of that portion of the
Vested Total Account to be made in the form of the assets held in the
individually directed Subfund.
7.7. (Deleted.)
7.8. WITHDRAWALS FROM VOLUNTARY ACCOUNTS.
7.8.1. WHEN AVAILABLE. If the Adoption Agreement so provides, a
Participant (whether or not then employed by the Employer) may make withdrawals
from time to time from his Nondeductible Voluntary Account (if any) and his
Deductible Voluntary Account (if any), as the case may be. To receive such a
withdrawal, the Participant must submit a written application specifying the
dollar amount to be withdrawn. Such withdrawal application shall be approved by
the Administrator's Representative to be made as of the Valuation Date
coincident with or next following the approval of a completed application by the
Administrator's Representative and shall be made in a lump sum cash payment as
soon as practicable after such Valuation Date. No forfeitures will occur solely
as a result of a withdrawal from a Nondeductible Voluntary Account or Deductible
Voluntary Account.
7.8.2. SEQUENCE OF ACCOUNTS. The amount of such withdrawals by a
Participant shall be deemed to first come from the aggregate amount of voluntary
contributions theretofore made by him and only thereafter from the earnings or
gains in, or attributable to, either Voluntary Account. Notwithstanding the
foregoing, any such withdrawal shall be deemed to have been first taken from the
Participant's nondeductible voluntary contributions made prior to January 1,
1987, to the extent of the aggregate amount not previously withdrawn.
Thereafter, the withdrawal shall be deemed to have been taken from a combination
of (i) the Participant's nondeductible voluntary contributions made after
December 31, 1986, to the extent of the aggregate amount thereof not previously
withdrawn, and (ii) a portion of the earnings in the Nondeductible Voluntary
Account. The portion of each such withdrawal that is deemed to be earnings will
be in the same ratio as the total earnings of the Nondeductible Voluntary
Account bear to the total Nondeductible Voluntary Account. All withdrawals shall
be deemed to come first from the Nondeductible Voluntary Account, and only after
the amount which may be withdrawn from the Nondeductible Voluntary Account is
exhausted will a withdrawal come from the Deductible Voluntary Account.
7.8.3. LIMITATIONS. Notwithstanding the foregoing, no distribution
shall be made pursuant to this Section 7.8 unless this Plan is an exempt profit
sharing plan (as defined in Section 7.3.4) or the spouse of the Participant, if
any, consents in writing to the distribution. To be valid, the consent of such
spouse must be in writing, must acknowledge the effect of the withdrawal and
must be witnessed by a notary public. The consent of the spouse must be given
within ninety (90) days prior to the Valuation Date as of which the withdrawal
is made and must relate to that specific withdrawal. The consent given by one
spouse shall be effective only with respect to that spouse.
7.8.4. COORDINATION WITH SECTION 4.1. If a withdrawal is made from an
Account which is invested in more than one (1) investment Subfund authorized and
established under Section 4.1, the amount withdrawn shall be charged to each
such investment Subfund in the same proportions as the Account is invested in
such investment Subfunds, unless otherwise directed by the Administrator's
Representative.
7.9. ACCELERATED DISTRIBUTIONS.
7.9.1. WHEN AVAILABLE. If the Adoption Agreement so provides, a
Participant (whether or not then employed by the Employer) may receive an
in-service distribution from the Vested portion of his Total Account (unless the
Adoption Agreement specifically prohibits in-service distributions from a
particular Account) if the Administrator's Representative determines that such
in-service distribution is for one of the purposes described in Section 7.9.2
and the conditions in Section 7.9.3 and Section 7.9.4 have been fulfilled. An
in-service distribution application is to be filed with the Administrator's
Representative. In his application, the Participant shall specify the dollar
amount to be distributed from his Account. Such in-service distribution shall be
approved by the Administrator's Representative to be made as of the Valuation
Date coincident with or next following the approval of a completed application
by the Administrator's Representative and such hardship distribution shall be
made in a lump sum cash payment as soon as practicable after such Valuation
Date, provided that, if the Adoption Agreement so provides, an advance
distribution of up to fifty percent (50%) of the amount approved may be made
before such Valuation Date.
7.9.2. PURPOSES. Accelerated distributions shall be allowed under
Section 7.9.1 for only such of the following reasons as are permitted in the
Adoption Agreement and only if the Participant establishes that the in-service
distribution is to be made for one of the permitted purposes:
(i) to reimburse the Participant for the expenses of
medical or hospital care attributable to the
sickness, accident or other disabling cause affecting
him or a member of his family who is dependent upon
him for care and support,
(ii) to defray the costs of the education of any member of
the Participant's family who is dependent upon him
for care and support, or
(iii) to pay, in whole or in part, for the construction,
purchase or improvement of a home or homesite for the
Participant and his family or to discharge, in whole
or in part, a mortgage or other security interest
therein.
7.9.3. LIMITATIONS. With respect to accelerated distributions, other
than distributions for medical or hospital care expenses pursuant to Section
7.9.2(i) above, from an Employer Contributions Account made with respect to a
Participant who has been a Participant for less than five (5) years, the amount
of such accelerated distribution may not exceed the lesser of:
(i) the value of the then Vested portion of his Employer
Contributions Account, or
(ii) the amount by which the value of his Employer
Contributions Account exceeds the aggregate amount of
Employer contributions credited to his Employer
Contributions Account during the two (2) year period
preceding such distribution.
Notwithstanding the foregoing, no distribution shall be made pursuant to this
Section 7.9 unless this Plan is an exempt profit sharing plan (as defined in
Section 7.3.4) or the spouse of the Participant, if any, consents in writing to
the distribution. To be valid, the consent of such spouse must be in writing,
must acknowledge the effect of the withdrawal and must be witnessed by a notary
public. The consent of the spouse must be given within ninety (90) days prior to
the Valuation Date as of which the distribution is made and must relate to a
specific distribution. The consent given by one spouse shall be effective only
with respect to that spouse.
7.9.4. SEQUENCE OF ACCOUNTS. Each and every accelerated distribution
made pursuant to this Section 7.9, shall first be taken from and charged to the
Participant's Accounts in the following sequence:
(i) Nondeductible Voluntary Account
(ii) Rollover Account
(iii) Transfer Account
(iv) Employer Contributions Account
(v) Deductible Voluntary Account.
7.9.5. COORDINATION WITH SECTION 4.1. If a withdrawal is made from an
Account which is invested in more than one (1) investment Subfund authorized and
established under Section 4.1, the amount withdrawn shall be charged to each
such investment Subfund in the same proportions as the Account is invested in
such investment Subfunds, unless otherwise directed by the Plan Administrator's
Representative.
7.10. TRANSITIONAL RULES. Participants or Beneficiaries who have actually
started receiving installment payments before January 1, 1989, shall continue to
receive such payments under the rules specified in the Plan Statement prior to
the adoption of the rules described in Appendix F to this Plan Statement to the
extent such rules are not inconsistent with the current Plan Statement and
current laws and regulations including, specifically, section 401(a)(9) and
section 411(d)(6) of the Internal Revenue Code. The rules in Section 7.1,
through and including, Section 7.9 to this Plan Statement are effective for Plan
Years beginning after December 31, 1988.
7.11. LOANS. Unless the Adoption Agreement precludes it, loans may be made to
Participants from this Plan who are not Owner-Employees or Shareholder-Employees
subject to this Section 7.11 and the loan rules set forth in Appendix G.
7.11.1. GENERAL RULES. The Trustee shall, at the direction of the
Administrator's Representative, make a loan or loans to a Participant or
Beneficiary (other than an Owner-Employee or a Shareholder-Employee). To receive
a loan from the Plan, a Participant or Beneficiary must submit a written request
to the Administrator's Representative. The written request must specify the
amount of the loan, term of loan and, if required, include spousal consent. The
amount of such loan to any Participant or Beneficiary, when added to the
outstanding balance of the other loans to the borrower from the Plan, shall not
exceed the lesser of: (i) fifty percent (50%) of the Vested amount of the
Participant's Total Account, or (ii) Fifty Thousand Dollars ($50,000). The Fifty
Thousand Dollar ($50,000) limitation shall be reduced by the excess (if any) of:
(i) the highest outstanding balance of loans from the Plan during the one-year
period ending on the day before the new loan is made, over (ii) the outstanding
balance of all loans from the Plan on the day the new loan is made (but not
including the new loan).
By acceptance of such loan, the Participant or Beneficiary automatically (by
operation of the rules of this Plan Statement) grants a lien upon such of his
Accounts from which monies were withdrawn to make up the loan in an amount not
less than the amount of such loans (including unpaid interest). The borrower may
grant a security interest in his or her "qualified residence" as defined in
section 163(h) of the Code if the borrower's unrestricted equity interest is
adequate to do so. No other security shall be required or permitted as a
condition of granting any such loans. Any such loan shall provide that it shall
be repaid within a definite period of time, which period shall not exceed five
(5) years unless such loan is used to acquire any dwelling unit which within a
reasonable time (determined at the time the loan is made) is to be used as a
principal residence of the Participant in which event such period shall not
exceed fifteen (15) years. Any such loan must be repaid in substantially level
amounts including principal and interest, over the term of the loan; provided,
however, that a loan may be prepaid or accelerated prior to the end of the term
of the loan. Loan payments must be made at least once each Plan Year quarter.
Notwithstanding the foregoing, no loan shall be made pursuant to this Section
7.11 unless this Plan is an exempt profit sharing plan (as defined in Section
7.3.4) or the spouse of the Participant, if any, consents to the loan. To be
valid, the consent of such spouse must be in writing, must acknowledge the
effect of the loan and the use of the Account as security for the loan and must
be witnessed by a notary public. The consent of the spouse must be given within
ninety (90) days prior to the date the loan is made and must relate to a
specific loan. The consent given by the spouse to whom the Participant was
married at the time the loan was made shall be effective with respect to that
spouse and each subsequent spouse of the Participant. A new consent shall be
required if the Account is used for renegotiation, extension, renewal or other
revision of the loan. If a valid spousal consent has been obtained as described
above or such consent is not required, then, notwithstanding any other
provisions of this Plan Statement, the portion of the Participant's Vested Total
Account used as a security interest held by the Plan by reason of a loan
outstanding to the Participant shall be taken into account for purposes of
determining the amount of the Vested Total Account 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 Total Account
(determined without regard to the preceding sentence) is payable to the
surviving spouse of the Participant, then the Vested Total Account shall be
adjusted by first reducing the Vested Total Account by the amount of the
security used as repayment of the loan, and then determining the benefit payable
to the surviving spouse.
7.11.2. INTEREST RATE. The interest rate on each loan shall be one (1)
percentage point over the Trustee's reference rate on the first business day of
the calendar month immediately preceding the date as of which the loan is
issued.
7.11.3. LOANS MADE FROM PARTICIPANT'S ACCOUNTS. If the Adoption
Agreement so provides, each loan will be made from the individual Accounts of
the Participant who receives the loan and the following rules will apply:
(A) ACCOUNTING FOR LOAN. For the purpose of determining the extent
to which such Participant's Total Account is entitled to share
in income, gains or losses of the Fund under Section 4, the
same shall be deemed to be reduced by the unpaid balance of
any outstanding loans to the Participant, and the interest
payments on such loans shall be credited to his Total Account.
(B) COORDINATION WITH SECTION 4.1. If a loan is made from an
Account which is invested in more than one investment Subfund
authorized and established under Section 4.1, the amount
withdrawn in order to make the loan shall be charged to each
investment Subfund as directed by the borrower in his loan
application, or, if the borrower does not so direct, then in
accordance with the uniform and nondiscriminatory rules of the
Administrator's Representative. All repayments of principal
and interest shall be reinvested in the investment Subfunds in
the same manner in which the loan was made.
(C) SEQUENCE OF ACCOUNTS. If a loan is made to a Participant who
has assets in more than one Account, such loan shall be deemed
to have been made from the Participant's Accounts in the
following sequence:
(i) Rollover Account
(ii) Transfer Account
(iii) Employer Contributions Account
(iv) Employer Matching Account
(v) Deductible Voluntary Account
(vi) Nondeductible Voluntary Account
(vii) Retirement Savings Account.
Repayments of principal and payments of interest shall be
apportioned among the Accounts from which the loan was made in
proportion to the amounts by which the Accounts were initially
reduced in order to make the loan.
7.11.4. LOAN RULES. All loans must comply with the loan rules set forth
in Appendix G. If the Employer adopts any other loan rules inconsistent with the
rules of Appendix G, the Employer will have made an unauthorized amendment to
the Plan and be governed by the provisions of Section 9.1.1.
7.12. DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS./5
7.12.1. IN GENERAL. Notwithstanding any other provision of the Plan
Statement, Excess Aggregate Contributions, plus any income and minus any loss
allocable thereto, shall be distributed no later than the last day of each Plan
Year to Participants to whose accounts nondeductible voluntary contributions,
and if used to determine the contribution percentage under Section 3.7.1(c),
qualified nonelective contributions (within the meaning of Section 401(m)(4)(C)
of the Internal Revenue Code), were allocated for the preceding Plan Year.
Excess Aggregate Contributions shall be treated as annual additions as defined
in Section 1.1 of Appendix A to this Plan Statement.
7.12.2. EXCESS AGGREGATE CONTRIBUTIONS. For purposes of this Section,
"Excess Aggregate Contributions" shall mean, with respect to any Plan Year, the
excess of:
(i) the aggregate amount of contributions taken into
account in computing the numerator of the
contribution percentage (as defined in Section 3.7)
actually made on behalf of highly compensated
eligible employees (as defined in Section 3.7) for
such Plan Year, over
(ii) the maximum amount of such contributions permitted by
the 401(m) test described in Section 3.7 (determined
by reducing contributions made on behalf of highly
compensated eligible employees in order of the
contribution percentage, beginning with the highest
such percentage).
Excess Aggregate Contributions shall be treated as annual additions under
Appendix A.
7.12.3. DETERMINATION OF INCOME. The Excess Aggregate Contributions
shall be adjusted for income or loss. The income or loss allocable to Excess
Aggregate Contributions shall be determined by multiplying the income or loss
allocable to the Participant's nondeductible voluntary contributions for the
Plan Year, and if used to determine an Employee's contribution percentage under
Section 3.7.1(c), qualified nonelective contributions (within the meaning of
Section 401(m)(4)(C) of the Internal Revenue Code), for the Plan Year by a
fraction, the numerator of which is the Excess Aggregate Contributions on behalf
of the Participant for the preceding Plan Year and the denominator of which is
the sum of the account balance attributable to nondeductible voluntary
contributions, and such qualified nonelective contributions, on the last day of
the preceding Plan Year without regard to any income or loss occurring during
such Plan Year. The Excess Aggregate Contributions shall also be adjusted for
income or loss for the period between the last day of the Plan Year and the date
of distribution. The income or loss allocable for such period shall be equal to
ten percent (10%) of the income or loss allocable to the distributable Excess
Aggregate Contributions for the applicable Plan Year multiplied by the number of
whole calendar months that have elapsed since the end of the applicable Plan
Year including the month of distribution if distribution occurs after the
fifteenth (15th) of such month.
- --------
5/ If Excess Aggregate Contributions, plus any income and minus any loss
allocable thereto, are distributed more than two and one-half (2-1/2)
months after the last day of the Plan Year in which such excess amount
arose, then section 4979 of the Internal Revenue Code imposes a ten
percent (10%) excise tax on the employer maintaining the plan with
respect to such amounts. The provisions of this Section apply for Plan
Years beginning after December 31, 1986.
7.12.4. ACCOUNTING FOR EXCESS AGGREGATE CONTRIBUTIONS. Excess Aggregate
Contributions shall be distributed from the Participant's Nondeductible
Voluntary Account (and, if applicable, the Participant's Employer Contributions
Account) in proportion to the Participant's nondeductible voluntary
contributions, and if used to determine the contribution percentage under
Section 3.7.1(c), qualified nonelective contributions (within the meaning of
Section 401(m)(4)(C) of the Internal Revenue Code), for the Plan Year.
7.12.5. SPECIAL FAMILY MEMBER RULE. If the contribution percentage of a
highly compensated eligible employee is determined under Section 3.7.2, the
Excess Aggregate Contributions for the family unit shall be allocated among the
family members in proportion to the contributions of each family member that are
combined to determine the contribution percentage.
SECTION 8
SPENDTHRIFT PROVISIONS
No Participant or Beneficiary shall have any transmissible interest in any
Account nor shall any Participant or Beneficiary have any power to anticipate,
alienate, dispose of, pledge or encumber the same while in the possession or
control of the Trustee, nor shall the Trustee, the Administrator's
Representative or the Employer recognize any assignment thereof, either in whole
or in part, nor shall any Account herein be subject to attachment, garnishment,
execution following judgment or other legal process while in the possession or
control of the Trustee.
The power to designate Beneficiaries to receive the Vested Total Account of a
Participant in the event of his death shall not permit or be construed to permit
such power or right to be exercised by the Participant so as thereby to
anticipate, pledge, mortgage or encumber his Account or any part thereof, and
any attempt of a Participant so to exercise said power in violation of this
provision shall be of no force and effect and shall be disregarded by the
Trustee, the Administrator's Representative and the Employer.
This section shall not prevent the Trustee, the Administrator's Representative
or the Employer from exercising, in their discretion, any of the applicable
powers and options granted to them upon the occurrence of an Event of Maturity,
as such powers may be conferred upon them by any applicable provision hereof,
nor prevent the Plan from foreclosing on the lien granted to secure any and all
loans made to him as a Participant from the Fund. (In the event of a default on
a Participant loan, foreclosure on the promissory note and the attachment of the
security interest in the Account will not occur until an Event of Maturity
occurs with respect to such Participant.) This section shall not prevent the
Administrator's Representative or Trustee from observing the terms of a
qualified domestic relations order as provided in the Appendix C to this Plan
Statement.
SECTION 9
AMENDMENT AND TERMINATION
9.1. AMENDMENT.
9.1.1. AMENDMENT BY EMPLOYER. The Employer reserves the right to amend
the designations and elections made by it under the Adoption Agreement from time
to time by making and delivering a new Adoption Agreement to the Trustee, to add
overriding language in the Adoption Agreement when such language is necessary to
satisfy the requirements of section 415 of the Internal Revenue Code or to avoid
duplication of minimum benefits under section 416 of the Internal Revenue Code
because of the required aggregation of multiple plans, which amendment shall
become effective only if expressly accepted in writing by the Trustee, and to
add certain model amendments published by the Internal Revenue Service, which
specifically provide that their adoption will not cause the plan to be treated
as individually designed. An Employer that amends the Plan for any other reason,
including a waiver of the minimum funding requirement under section 412(d) of
the Internal Revenue Code, will no longer participate in these Prototype
Documents and will be considered to have an individually designed plan. The
Employer further reserves the right to amend its plan in its entirety by the
adoption of another master, prototype or individually designed successor
retirement plan document in place of this Plan Statement, and by entering into
such agreement with the Trustee or with a successor trustee, or other successor
funding medium selected by the Employer as may be required for the purpose of
carrying such successor retirement plan document into effect. The Employer may
not amend the Prototype Documents (as distinguished from amending its elections
in the Adoption Agreement). If an Employer should take action to:
(i) remove and replace the Trustee originally designated
in this Plan Statement, or name a Trustee who is not
the Prototype Sponsor (or a Trustee approved by the
Prototype Sponsor), or
(ii) amend this Plan Statement by the adoption of another
document in lieu of this Plan Statement, or
(iii) amend this Plan Statement pursuant to a waiver of the
minimum funding requirement under section 412(d) of
the Internal Revenue Code, or
(iv) attempt to amend the Prototype Documents, or
(v) attempt to complete the Adoption Agreement in a
manner not permitted by the Adoption Agreement, or
(vi) affirmatively refuse to consent to an amendment
effected by the Prototype Sponsor under Section
9.1.2,
such action shall not be considered a termination of the Plan adopted or
continued under this Plan Statement. Upon the occurrence of such action, the
Employer shall no longer be considered to be maintaining a Plan under these
Prototype Documents but rather under an individually designed document. No
amendment shall be effective so as to increase the duties of the Trustee without
its consent and provided, further, that the right of the Employer to designate a
successor retirement plan or funding medium shall be subject to the notice
requirements affecting the removal of the Trustee set forth in Section 10.3.
9.1.2. AMENDMENT BY PROTOTYPE SPONSOR. The Employer has delegated to
the Prototype Sponsor the right to amend this Plan Statement (either as to its
form or the elections specified in the Adoption Agreement). Although it is
intended that this power of amendment will be used principally to assure
compliance with applicable provisions of the Employee Retirement Income Security
Act of 1974 and the Internal Revenue Code as they may be now or hereafter
amended, this power of amendment may be exercised for any purpose deemed
appropriate by the Prototype Sponsor. Any such amendment shall be effective only
upon notice in writing to the Employer. The Employer shall be deemed to have
consented to such amendment unless prior to the expiration of thirty (30) days
after notice is sent to the Employer, the Employer exercises its reserved power
of amendment by adopting a successor retirement plan and funding medium, as
provided in Section 9.1.
9.1.3. LIMITATION ON AMENDMENTS. No amendment shall be effective to
reduce or divest the Account of any Participant unless the same shall have been
adopted with the consent of the Secretary of Labor pursuant to section 412(c)(8)
of the Internal Revenue Code. No amendment shall eliminate an optional form of
distribution with respect to benefits attributable to service before the
amendment was adopted, unless such amendment is adopted pursuant to regulations
issued by the Secretary of the Treasury.
9.1.4. RESIGNATION OF PROTOTYPE SPONSOR. By giving the Employer thirty
(30) days' written notice of its intention to do so, the Prototype Sponsor may
withdraw its consent to the Employer's use of the Prototype Documents. Upon the
occurrence of such action, the Employer shall no longer be considered to be
maintaining a Plan under these Prototype Documents but rather under an
individually designed document.
9.2. DISCONTINUANCE OF CONTRIBUTIONS AND TERMINATION OF PLAN. The Employer also
reserves the right to reduce, suspend or discontinue its contributions to this
Plan and to terminate the Plan herein embodied in its entirety. If the Plan is a
fixed contribution (money purchase pension) plan (Adoption Agreement #003, #004,
#007 or #008), then no amendment reducing the Employer contributions or
terminating the Plan shall be effective unless the fifteen (15) day prior notice
required by section 204(h) of the Employee Retirement Income Security Act of
1974 is provided (unless the Plan is not subject to such Act). If the Plan is
terminated, the assets will be distributed as soon as administratively feasible.
9.3. MERGER, ETC., WITH ANOTHER PLAN. The Employer may cause all or a part of
this Plan to be merged with all or a part of any other plan and may cause all or
a part of the assets and liabilities to be transferred from this Plan to another
plan. In the case of merger or consolidation of this Plan with, or transfer of
assets and liabilities of this Plan to, any other plan, each Participant shall
(if such other plan were then terminated) receive a benefit immediately after
the merger, consolidation or transfer which is not less than the benefit he
would have been entitled to receive immediately before the merger, consolidation
or transfer (if this Plan had then terminated). If the Employer agrees to a
transfer of assets and liabilities to or from another plan, the agreement under
which such transfer is concluded shall specify the Accounts to which the
transferred amounts are to be credited.
In no event shall assets be transferred from any other plan to this Plan unless
this Plan complies (or has been amended to comply) with the optional form of
benefit requirements of section 411(d)(6)(B)(ii) of the Internal Revenue Code
(or, where applicable, the distribution rules of section 401(k) of the Internal
Revenue Code) with respect to such transferred assets.
In no event shall assets be transferred from this Plan to any other plan unless
such other plan complies (or has been amended to comply) with the optional form
of benefit requirements of section 411(d)(6)(B)(ii) of the Internal Revenue Code
with respect to such transferred assets.
9.4. ADOPTION BY AFFILIATES.
9.4.1. ADOPTION WITH CONSENT. The Employer executing the Adoption
Agreement (herein called the "principal employer") may consent to the adoption
of this Plan by any business entity affiliated in ownership with the principal
employer (subject to such conditions as the principal employer may impose).
9.4.2. PROCEDURE FOR ADOPTION. Any such adopting business entity shall
initiate its adoption of this Plan by delivery of a certified copy of the action
of its directors (if a corporation), general partner (if a partnership) or
proprietor (if a sole proprietorship), adopting this Plan Statement to the
principal employer. Upon the consent by said principal employer of the adoption
by the adopting business entity, and the delivery to the Trustee of written
evidence of the principal employer's consent, the adoption of this Plan by the
adopting business entity shall be effective as of the date specified by the
principal employer.
9.4.3. EFFECT OF ADOPTION. Upon the adoption of this Plan by an
adopting business entity as heretofore provided, the adopting business entity
shall be an Employer hereunder in all respects. Each adopting business entity
(and each other business entity joining the principal employer in the execution
of the Adoption Agreement), as a condition of continued participation in this
Plan, delegates to the principal employer the sole power and authority:
(a) to terminate the Plan (except that each adopting business
entity shall have the power to terminate this Plan as applied
to it); to amend the Plan Statement (except that each adopting
business entity shall have the power to amend the Plan
Statement as applied to it by establishing a successor plan to
which assets and liabilities may be transferred as provided in
Section 9.3),
(b) to appoint, remove and accept the resignation of a Trustee; to
appoint or remove the Administrator's Representative; to
appoint or remove an Investment Manager; to act as the plan
administrator,
(c) to direct the Trustee to return an Employer contribution that
was made by mistake or which is not deductible,
(d) to consent to the adoption of this Plan by affiliated
employers; to establish conditions and limitations upon such
adoption of this Plan by affiliated employers, and
(e) to cause this Plan to be merged with another plan and to
transfer assets and liabilities between this Plan and another.
Each reference herein to the Employer shall include the principal employer and
all adopting business entities unless the context clearly requires otherwise.
Employment with the principal employer and all adopting business entities shall
be credited with each other and all Affiliates of any of them for the purposes
of determining Eligibility Service, Vesting Service, One-Year Breaks in Service
and the minimum annual service requirement for allocation of contributions and
forfeited Suspense Accounts. Contributions of the principal employer and each
adopting business entity shall be identical, as a percentage of each
Participant's Recognized Compensation, as determined by the principal employer,
but shall be allocated only among those persons who were the Employees during
the Plan Year of the particular business entity making the contribution.
Notwithstanding any election to the contrary in the Adoption Agreement,
forfeited Suspense Accounts shall only be used, first, to restore prior
forfeitures for an Employee of the particular business entity for which a
current forfeiture occurs and, second, to reduce the current and future
contributions of such business entity. Any unallocated Suspense Accounts
remaining at the termination of the Plan shall be allocated to the Employer
Contributions Accounts of all Participants then employed by the principal
employer and all adopting business entities, in proportion to the relative value
of each such Account.
SECTION 10
CONCERNING THE TRUSTEE
10.1. DEALINGS WITH TRUSTEE.
10.1.1. NO DUTY TO INQUIRE. No person, firm or corporation dealing with
the Trustee shall be required to take cognizance of the provisions of this Plan
Statement or be required to make inquiry as to the authority of the Trustee to
do any act which the Trustee shall do hereunder. No person, firm or corporation
dealing with the Trustee shall be required to see either to the administration
of the Plan or Fund or to the faithful performance by the Trustee of its duties
hereunder (except to the extent otherwise provided by the Employee Retirement
Income Security Act of 1974). Any such person, firm or corporation shall be
entitled to assume conclusively that the Trustee is properly authorized to do
any act which it shall do hereunder. Any such person, firm or corporation shall
be under no liability to anyone whomsoever for any act done hereunder pursuant
to the written direction of the Trustee.
10.1.2. ASSUMED AUTHORITY. Any such person, firm or corporation may
conclusively assume that the Trustee has full power and authority to receive and
receipt for any money or property becoming due and payable to the Trustee. No
such person shall be bound to inquire as to the disposition or application of
any money or property paid to the Trustee or paid in accordance with the written
directions of the Trustee.
10.2. COMPENSATION OF TRUSTEE. The corporate Trustee shall be entitled to
receive compensation for its services as Trustee hereunder as may be agreed upon
from time to time by the Administrator's Representative and the Trustee. The
Trustee shall be entitled to receive reimbursement for reasonable expenses,
fees, costs and other charges incurred by it or payable by it on account of the
administration of the Plan and the Fund to the extent approved by the
Administrator's Representative, except to the extent that the Employer, in its
discretion, directly pays the Trustee, such items of expense and compensation
shall be payable out of:
(i) the annual Employer contribution to the Fund, or
(ii) the income of the Fund, or
(iii) the principal of the Fund, including any
accumulations of income that have been added thereto,
or
(iv) to or out of any combination of the foregoing sources
in the event the service in question has been for the
benefit, protection or administration of more than
one such source of payment.
The Trustee's determination in such respect made in good faith of the amount so
to be allocated and charged to each such source of payment shall be binding and
conclusive upon all persons interested or becoming interested in the Plan or the
Fund. Each such charge of the Trustee shall be a lien upon the Fund, and,
ratably, in accordance with the method of allocation used as aforesaid, shall be
a lien upon the interest of Participants in the source of payment to which the
same is charged until the same is paid and discharged in full.
10.3. RESIGNATION AND REMOVAL OF TRUSTEE.
10.3.1. RESIGNATION, REMOVAL AND APPOINTMENT. The Trustee may resign by
giving the Employer thirty (30) days' written notice of its intention so to do.
The Employer may agree in writing to a lesser period of notice. The notice
period shall begin on the date such notice is mailed. The Employer may remove
any Trustee or successor Trustee hereunder by giving such Trustee thirty (30)
days' written notice of removal. The Trustee may agree in writing to a lesser
period of notice. The notice period shall begin on the date such notice is
mailed. The Employer shall have the power to appoint one or more individual or
corporate Trustees, or both, as additional or successor Trustees. Such
appointments shall not be effective until a written acceptance of trusteeship is
filed with the then acting Trustee.
10.3.2. SURVIVING TRUSTEES. When any person or corporation appointed,
qualified and serving as a Trustee hereunder shall cease to be a Trustee of the
Fund, the remaining Trustee or Trustees then serving hereunder, or the successor
Trustee or Trustees appointed hereunder, as the case may be, shall thereupon be
and become vested with full title and right to possession of all assets and
records of the Plan and Fund in the possession or control of such prior Trustee,
and the prior Trustee shall forthwith account for and deliver the same to such
remaining or successor Trustee or Trustees.
10.3.3. SUCCESSOR ORGANIZATIONS. By designating a corporate Trustee,
original or successor, hereunder, there is included in such designation and as a
part thereof any other corporation possessing trust powers and authorized by law
to accept the Plan and Fund into which or with which the designated corporate
Trustee, original or successor, shall be converted, consolidated or merged, and
the corporation into which or with which any corporate Trustee hereunder shall
be so converted, consolidated or merged shall continue to be the corporate
Trustee of the Plan and Fund.
10.3.4. CO-TRUSTEE RESPONSIBILITY. No Trustee shall be or become liable
for any act or omission of a co-trustee serving hereunder with him or it (except
to the extent that liability is imposed under the Employee Retirement Income
Security Act of 1974) or of a prior Trustee hereunder, it being the purpose and
intent that each Trustee shall be liable only for his or its own acts or
omissions during his or its term of service as Trustee hereunder.
10.4. ACCOUNTINGS BY TRUSTEE.
10.4.1. PERIODIC REPORTS. The Trustee shall render to the Employer and
to the Administrator's Representative an account and report as soon as
practicable after the Annual Valuation Date in each year (and as soon as may be
practicable after each other Valuation Date) showing all transactions affecting
the administration of the Plan and the Fund, including, but not necessarily
limited to, such information concerning the Plan and the Fund and the
administration thereof by the Trustee as shall be requested in writing by the
Employer.
10.4.2. SPECIAL REPORTS. The Trustee shall also render such further
reports from time to time as may be requested by the Employer and shall submit
its final report and account to the Employer when it shall cease to be Trustee
hereunder, whether by resignation or other cause.
10.4.3. REVIEW OF REPORTS. After giving Participants and other persons
interested therein a reasonable opportunity to examine the annual account of the
Trustee to the Employer as provided in Section 10.4.1, provided that no
exceptions are asserted thereto by any person (including the Employer)
interested therein, the Employer may settle and allow such accounts by agreement
with the Trustee. Except as may be otherwise required by the Employee Retirement
Income Security Act of 1974 the Trustee shall upon such settlement and allowance
be released and relieved of all liability for all matters set forth therein.
10.5. TRUSTEE'S POWER TO PROTECT ITSELF ON ACCOUNT OF TAXES. The Trustee, as a
condition to the making of distribution of a Participant's Vested Total Account
during his lifetime, may require the Participant, or in the event of his death
may require the person or persons entitled to receive his Vested Total Account
in such event, to furnish the Trustee with proof of payment of all income,
inheritance, estate, transfer, legacy and/or succession taxes and all other
taxes of any different type or kind that may be imposed under or by virtue of
any state or federal statute or law upon the payment, transfer, descent or
distribution of such Vested Total Account and for the payment of which the
Trustee may, in its judgment, be directly or indirectly liable. In lieu of the
foregoing, the Trustee may deduct, withhold and transmit to the proper taxing
authorities any such tax which it may be permitted or required to deduct and
withhold and the Vested Total Account to be distributed in such case shall be
correspondingly reduced.
10.6. OTHER TRUST POWERS. Except to the extent that the Trustee is subject to
the authorized and properly given investment directions of a Participant,
Beneficiary or Investment Manager (and in extension, but not in limitation, of
the rights, powers and discretions conferred upon the Trustee herein), the
Trustee shall have and may exercise from time to time in the administration of
the Plan and the Fund, for the purpose of distribution after the termination
thereof, and for the purpose of distribution of Vested Total Accounts, without
order or license of any court, any one or more or all of the following rights,
powers and discretions:
(a) To invest and reinvest any investment Subfunds established
pursuant to Section 4.1 in accordance with the investment
characteristics and objectives determined therefor and to
invest and reinvest the assets of the Fund in any securities
or properties in which an individual could invest his own
funds and which it deems for the best interest of the Fund,
without limitation by any statute, rule of law or regulation
of any governmental body prescribing or limiting the
investment of trust assets by corporate or individual
trustees, in or to certain kinds, types or classes of
investments or prescribing or limiting the portion of the Fund
which may be invested in any one property or kind, type or
class of investment. Specifically and without limiting the
generality of the foregoing, the Trustee may invest and
reinvest principal and accumulated income of the Fund in any
real or personal property; preferred or common stocks of any
kind or class of any corporation, including but not limited to
investment and small business investment companies of all
types; voting trust certificates; interests in investment
trusts; shares of mutual funds; interests in any limited or
general partnership or other business enterprise, however
organized and for whatever purpose; group or individual
annuity contracts (which may involve investment in the
issuer's general account or any of its separate accounts);
interests in common or collective trusts, variable interest
notes or any other type of collective fund maintained by a
bank or similar institution (whether or not the Trustee
hereunder); bonds, notes and debentures, secured or unsecured;
mortgages, leases or other interests in real or personal
property; interests in mineral, gas, oil or timber properties
or other wasting assets; options; commodity or financial
futures contracts; foreign currency; insurance contracts on
the life of any "keyman" or shareholder of the Employer; or
conditional sales contracts. The Plan may not acquire or hold
any securities issued by an Employer or real estate leased to
an Employer except that the Trustee acting pursuant to the
express written directions of the Employer as provided in
Section 10.12 may acquire and hold Employer securities which
are "qualifying employer securities" (within the meaning of
section 407(d)(5) of the Employee Retirement Income Security
Act of 1974) and Employer real property which is "qualifying
employer real property" (within the meaning of section
407(d)(4) of the aforesaid Act); and, provided further, that
the Plan may acquire any such Employer securities or Employer
real property only if immediately after such acquisition the
aggregate fair market value of Employer securities and
Employer real property held by the Plan does not exceed the
lesser of (i) the percentage indicated in the Adoption
Agreement of the fair market value of the assets of the Plan,
or (ii) the then value of all Employer Contributions Accounts.
Investment of the entire Fund in common stocks shall be deemed
appropriate at any phase of the economic business cycle, but
it is not, however, the purpose hereof to direct that the Fund
shall be invested either entirely or to any extent whatsoever
in such common stocks. Prior to maturity and distribution of
the Vested Total Accounts of Participants, the Trustee shall
commingle the Accounts of Participants and former Participants
in each investment Subfund and invest, reinvest, control and
manage each of the same as a common trust fund.
(b) To sell, exchange or otherwise dispose of any asset of
whatsoever character at any time held by the Trustee in trust
hereunder.
(c) To segregate any part or portion of the Fund for the purpose
of administration or distribution thereof and, in its sole
discretion, to hold the Fund uninvested whenever and for so
long as, in the Trustee's discretion, the same is likely to be
required for the payment in cash of Accounts normally expected
to mature in the near future, or whenever, and for as long as,
market conditions are uncertain, or for any other reason
which, in the Trustee's discretion, requires such action or
makes such action advisable.
(d) In connection with the Trustee's power to hold uninvested
reasonable amounts of cash whenever it is deemed advisable to
do so, to deposit the same, with or without interest, in the
commercial or savings departments of any corporate Trustee
serving hereunder or of any other bank, trust company or other
financial institution including those affiliated in ownership
with the Trustee named in the Adoption Agreement.
(e) To register any investment held in the Fund in the name of the
Trustee, without trust designation, or in the name of a
nominee or nominees, and to hold any investment in bearer
form, but the records of the Trustee shall at all times show
that all such investments are part of the Fund, and the
Trustee shall be as responsible for any act or default of any
such nominee as for its own.
(f) To retain and employ such attorneys, agents and servants as
may be necessary or desirable, in the opinion of the Trustee,
in the administration of the Fund, and to pay them such
reasonable compensation for their services as may be agreed
upon as an expense of administration of the Fund, including
power to employ and retain counsel upon any matter of doubt as
to the meaning of or interpretation to be placed upon this
Plan Statement or any provisions thereof with reference to any
question arising in the administration of the Fund or
pertaining to the rights and liabilities of the Trustee
hereunder. The Trustee, in any such event, may act in reliance
upon the advice, opinions, records, statements and
computations of any attorneys and agents and on the records,
statements and computations of any servants so selected by it
in good faith and shall be released and exonerated of and from
all liability to anyone in so doing (except to the extent that
liability is imposed under the Employee Retirement Income
Security Act of 1974).
(g) To institute, prosecute and maintain, or to defend, any
proceeding at law or in equity concerning the Plan or Fund or
the assets thereof or any claims thereto, or the interests of
Participants and Beneficiaries hereunder at the sole cost and
expense of the Fund or at the sole cost and expense of the
Total Account of the Participant that may be concerned therein
or that may be affected thereby as, in the Trustee's opinion,
shall be fair and equitable in each case, and to compromise,
settle and adjust all claims and liabilities asserted by or
against the Plan or Fund or asserted by or against the
Trustee, on such terms as the Trustee, in each such case,
shall deem reasonable and proper. The Trustee shall be under
no duty or obligation to institute, prosecute, maintain or
defend any suit, action or other legal proceeding unless it
shall be indemnified to its satisfaction against all expenses
and liabilities which it may sustain or anticipate by reason
thereof.
(h) To institute, participate and join in any plan of
reorganization, readjustment, merger or consolidation with
respect to the issuer of any securities held by the Trustee
hereunder, and to use any other means of protecting and
dealing with any of the assets of the Fund which it believes
reasonably necessary or proper and, in general, to exercise
each and every other power or right with respect to each asset
or investment held by it hereunder as individuals generally
have and enjoy with respect to their own assets and
investment, including power to vote upon any securities or
other assets having voting power which it may hold from time
to time, and to give proxies with respect thereto, with or
without power of substitution or revocation, and to deposit
assets or investments with any protective committee, or with
trustees or depositaries designated by any such committee or
by any such trustees or any court. Notwithstanding the
foregoing, an Investment Manager shall have any or all of such
powers and rights with respect to Plan assets for which it has
investment responsibility but only if (and only to the extent
that) such powers and rights are expressly given to such
Investment Manager in a written agreement signed by it and
acknowledged in writing by the Trustee. In all other cases,
such powers and rights shall be exercised solely by the
Trustee.
(i) In any matter of doubt affecting the meaning, purpose or
intent of any provision of this Plan Statement which directly
affects its duties, to determine such meaning, purpose or
intent; and the determination of the Trustee in any such
respect shall be binding and conclusive upon all persons
interested or who may become interested in the Plan or the
Fund.
(j) To require, as a condition to distribution of any Vested Total
Account, proof of identity or of authority of the person
entitled to receive the same, including power to require
reasonable indemnification on that account as a condition
precedent to its obligation to make distribution hereunder.
(k) To collect, receive, receipt and give quittance for all
payments that may be or become due and payable on account of
any asset in trust hereunder which has not, by act of the
Trustee taken pursuant thereto, been made payable to others;
and payment thereof by the company issuing the same, or by the
party obligated thereon, as the case may be, when made to the
Trustee hereunder or to any person or persons designated by
the Trustee, shall acquit, release and discharge such company
or obligated party from any and all liability on account
thereof.
(l) To determine from time to time, as required for the purpose of
distribution or for the purpose of allocating trust income or
for any other purpose of the Plan, the then value of the Fund
and the Accounts in the Fund, the Trustee, in each such case,
using and employing for that purpose the fair market value of
each of the assets constituting the Fund. Each such
determination so made by the Trustee in good faith shall be
binding and conclusive upon all persons interested or becoming
interested in the Plan or the Fund.
(m) To receive and retain contributions made in a form other than
cash in the form in which the same are received until such
time as the Trustee, in its sole discretion, deems it
advisable to sell or otherwise dispose of such assets.
(n) To commingle, for investment purposes, the assets of the Fund
with the assets of any other qualified retirement plan trust
fund of the Employer, provided that the records of the Trustee
shall reflect the relative interests of the separate trusts in
such commingled fund.
(o) To grant an option or options for the sale or other
disposition of a trust asset, including the issuance of
options for purchase of common stock held by the Trust in
return for the receipt of a premium from the optionee (it
being expressly intended that said options may be in such form
and terms as to permit their being freely traded on an option
exchange) and including the repurchase of any such option
granted, or in lieu thereof, the repurchase of an option
identical in terms to the one issued.
(p) To have and to exercise such other and additional powers as
may be advisable or proper in its opinion for the effective
and economical administration of the Fund.
(q) If so provided in the Adoption Agreement, one (1) or more
declarations of trust executed by the Trustee (or by banks or
trust companies affiliated in ownership with the Trustee)
shall be incorporated by reference into this Agreement and not
withstanding any other provision of the Agreement to the
contrary, the Trustee may cause all or any part of the Fund,
without limitation as to amount, to be commingled with the
money of trusts created by others by causing such money to be
invested as a part of any or all of the funds created by said
declarations of trust and the Fund so added to any of said
funds shall be subject to all of the provisions of said
declarations of trust as the same may be amended from time to
time.
10.7. INVESTMENT MANAGERS.
10.7.1. APPOINTMENT AND QUALIFICATIONS. The Employer shall have the
power to appoint from time to time one or more Investment Managers to direct the
Trustee in the investment of, or to assume complete investment responsibility
over, all or any portion of the Fund. An Investment Manager may be any person or
firm (a) which is either (1) registered as an investment adviser under the
Investment Advisers Act of 1940, (2) a bank, or (3) an insurance company which
is qualified to perform the services of an Investment Manager under the laws of
more than one state; and (b) which acknowledges in writing that it is a
fiduciary with respect to the Plan because it has been appointed as an
Investment Manager with respect to the Plan. The conditions prescribed in the
preceding sentence shall apply to the issuer of any group annuity contract
hereunder only if, and to the extent that, such issuer would otherwise be
considered a "fiduciary" with respect to the Plan, within the meaning of the
Employee Retirement Income Security Act of 1974.
10.7.2. REMOVAL. The Employer may remove any such Investment Manager
and shall have the power to appoint a successor or successors from time to time
in succession to any Investment Manager who shall be removed, shall resign or
shall otherwise cease to serve hereunder. The Employer shall furnish the Trustee
with such written evidence as the Trustee may require of the appointment,
removal and scope of the authority of the Investment Manager.
10.7.3. RELATION TO OTHER FIDUCIARIES. The Trustee shall comply with
all investment directions given to the Trustee with respect to the designated
portion of the Fund, and the Trustee shall be released and exonerated of and
from all liability for or on account of any action taken or not taken by it
pursuant to the directions of such Investment Manager, except to the extent that
liability is imposed under the Employee Retirement Income Security Act of 1974.
Neither the Employer, nor any officer, director or Employee thereof, nor any
member of the Administrator's Representative shall be liable for the acts or
omissions of the Trustee or of any Investment Manager appointed hereunder. The
fees and expenses of any Investment Manager, as agreed upon from time to time
between the Investment Manager and the Employer, shall be charged to and paid
from the Fund in a fair and equitable manner, except to the extent that the
Employer, in its discretion, may pay such directly to the Investment Manager.
10.8. FIDUCIARY PRINCIPLES. The Trustee and each other fiduciary hereunder, in
the exercise of each and every power or discretion vested in them by the
provisions of this Plan Statement shall (subject to the provisions of the
Employee Retirement Income Security Act of 1974) discharge their duties with
respect to the Plan solely in the interest of the Participants and Beneficiaries
and:
(a) for the exclusive purpose of:
(i) providing benefits to Participants and Beneficiaries,
and
(ii) defraying reasonable expenses of administering the
Plan,
(b) with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent man acting in a
like capacity and familiar with such matters would use in the
conduct of an enterprise of a like character and with like
aims,
(c) by diversifying the investments of the Plan so as to minimize
the risk of large losses, unless under the circumstances it is
clearly prudent not to do so, and
(d) in accordance with the documents and instruments governing the
Plan, insofar as they are consistent with the provisions of
the Employee Retirement Income Security Act of 1974.
Notwithstanding anything in this Plan Statement to the contrary, any provision
hereof which purports to relieve a fiduciary from responsibility or liability
for any responsibility, obligation or duty under Part 4 of Subtitle B of Title I
of the Employee Retirement Income Security Act of 1974 shall, to the extent the
same is inconsistent with said Part 4, be deemed void.
10.9. PROHIBITED TRANSACTIONS. Except as may be permitted by law, no Trustee or
other fiduciary hereunder shall permit the Plan to engage, directly or
indirectly, in any of the following transactions with a person who is a
"disqualified person" (as defined in section 4975 of the Internal Revenue Code)
or a "party in interest" (as defined in section 3(14) of the Employee Retirement
Income Security Act of 1974):
(a) sale, exchange or leasing of any property between the Plan and
such person,
(b) lending of money or other extension of credit between the Plan
and such person,
(c) furnishing of goods, services or facilities between the Plan
and such person,
(d) transfer to, or use by or for the benefit of, such person of
the income or assets of the Plan,
(e) act by such person who is a fiduciary hereunder whereby he
deals with the income or assets of the Plan in his own
interest or for his own account, or
(f) receipt of any consideration for his own personal account by
such person who is a fiduciary from any party dealing with the
Plan in connection with a transaction involving the income or
assets of the Plan.
10.10. INDEMNITY. The Trustee, and directors, officers and employees of the
Employer shall, except as prohibited by law, be indemnified and held harmless by
the Employer from any and all liabilities, costs and expenses (including legal
fees), arising out of any action taken by such Trustee or individuals as
Trustee, fiduciary or in any other capacity with respect to this Plan, whether
imposed under the Employee Retirement Income Security Act of 1974 or otherwise
unless such liability arises from the proven gross negligence, the bad faith or,
if such Trustee or individuals have reasonable cause to believe their conduct
was unlawful, the criminal misconduct of such Trustee, director, officer or
employee. This indemnification shall continue as to a Trustee, director, officer
or employee after such Trustee or individual ceases to be a Trustee, director,
officer or employee.
10.11. INVESTMENT IN INSURANCE. If the Employer shall so designate in the
Adoption Agreement, a Participant may, with the consent of the Administrator's
Representative and subject to such conditions as the Administrator's
Representative may impose, elect to have a portion of his Vested Total Account
(excluding any Deductible Voluntary Account) invested in life insurance
contracts issued by any insurance company licensed to do business in the State
of where the Trustee has its principal place of business (any such insurance
contract held for a Participant hereunder being herein referred to as a
"contract").
10.11.1. LIMITATION ON PAYMENT OF PREMIUMS. No more than fifty percent
(50%) of the aggregate Employer contributions allocated to a Participant's
Employer Contributions Account may be used to purchase ordinary life insurance
contracts. Ordinary life insurance contracts are contracts with both
nondecreasing death benefits and nonincreasing premiums. No more than
twenty-five percent (25%) of the aggregate Employer contributions allocated to
the Participant's Employer Contributions Account may be used to purchase term
life insurance contracts, universal life insurance contracts and all other life
insurance contracts which are not ordinary life insurance contracts. If both
ordinary life insurance contracts and other insurance contracts are required,
the sum of one-half (1/2) of the premiums paid to acquire ordinary life
insurance contracts plus one hundred percent (100%) of all premiums paid to
acquire other forms of life insurance contracts shall not be permitted to exceed
twenty-five percent (25%) of the aggregate Employer contributions allocated to
the Participant's Employer Contributions Account. All amounts used to purchase
term life insurance, to fund "P.S. 58" costs or to acquire any other non-cash
value benefits under this section shall be deemed to come from Employer
Contributions Accounts subject to the limits specified above. If the
Participant's Employer Contributions Account is insufficient within the
limitations herein contained to pay any premium on a contract when the same
becomes due, the Trustee shall, unless the Participant directs the Trustee to
use his Nondeductible Voluntary Account, Rollover Account or Transfer Account
for this purpose or pays to the Trustee a sum sufficient to pay such premium
(any such payment being deemed a nondeductible voluntary contribution
hereunder), cause such contract to be rewritten for its then paid-up value, if
any, and retain the same for the Participant, in which event no further premium
payments shall thereafter be made thereon; provided, however, that effective for
Plan Years beginning after December 31, 1989, the Participant shall not be
allowed to pay such premiums by making nondeductible voluntary contributions.
All dividends on a contract shall be used to reduce premiums.
10.11.2. MISCELLANEOUS RULES FOR PURCHASE OF CONTRACT. The Participant
shall take such physical examinations and furnish such information as may be
necessary to procure a contract. To the extent possible, all contracts shall
have a uniform premium due date. The Trustee shall be the owner of all
contracts, with full power to execute all insurance applications and to exercise
all available options, and shall be the death beneficiary thereunder.
10.11.3. PAYMENT OF EXPENSES. Any charge or expense of the Trustee in
handling a Participant's contract shall be paid from that Participant's Total
Account; provided, that the Employer may, in its discretion, directly pay such
charge or expense.
10.11.4. AUTHORITY FOR CONTRACT. Any insurance company issuing
contracts may deal with the Trustee alone and without the consent of any
Participant or Beneficiary and shall not be required to examine the provisions
of this Plan Statement or any amendment thereto, nor shall it be responsible for
the failure of the Trustee to perform its duties, nor shall it be obliged to see
to the application or disposition of any money paid by it to the Trustee, and
any such payment shall fully discharge such insurance company for the amount so
paid.
10.11.5. PAYMENT OF CONTRACT UPON DEATH. Upon the death of the
Participant, the proceeds of the contracts held for him hereunder shall be
deemed a death benefit under this Plan and shall be added to the Vested Total
Account and distributed to his Beneficiary or Beneficiaries in the manner
prescribed in Section 7 hereof.
10.11.6. PAYMENT OF CONTRACT - NOT UPON DEATH. Upon the occurrence of
an Event of Maturity other than the death of the Participant, the Trustee shall,
as directed by the Administrator's Representative, either: (i) surrender the
contracts held for him hereunder for cash and distribute the proceeds in the
manner described in Section 7 hereof, (ii) distribute the contracts to the
Participant (provided, however, that the optional modes of settlement under any
such contract shall be limited to those available under this Plan), or (iii)
convert the contracts into an annuity contract or contracts of the type
described in Section 7.3 and distribute the same to the Participant, or (iv) any
combination of the foregoing. In no event, however, shall any such contract be
distributed in a manner which is inconsistent with the requirements of Section
7.3.
10.11.7. VALUE OF CONTRACT. For the purpose of determining the value of
a contract hereunder, such contract shall be valued at the greater of the
premiums theretofore paid thereon or its then cash value, but such contract
shall not be considered a part of the Fund for the purpose of allocating income,
market gains and losses of the Fund in accordance with Section 4.
10.11.8. INTERPRETATION. If any provision of any contract is
inconsistent with any provision of the Plan Statement, the provision of the Plan
Statement shall control.
10.12. EMPLOYER DIRECTED INVESTMENTS. If so indicated in the Adoption Agreement,
the Trustee shall be subject in the management and control of the Fund to the
directions (to the extent not inconsistent with law) of the person or committee
identified in the Adoption Agreement or certified to the Trustee by an officer
of the Employer. The Trustees in acting pursuant to and in reliance on such
directions shall be fully and completely indemnified and held harmless by the
Employer from any liability, loss or expense (including legal fees) arising out
of its actions so directed notwithstanding that such directions, and the
Trustee's conduct pursuant thereto, may constitute a breach of fiduciary
obligations to the Plan, the Participants and Beneficiaries.
SECTION 11
DETERMINATIONS -- RULES AND REGULATIONS
11.1. DETERMINATIONS. The Administrator's Representative shall make such
determinations as may be required from time to time in the administration of
this Plan. The Trustee and other interested parties may act and rely upon all
information reported to them hereunder and need not inquire into the accuracy
thereof, nor be charged with any notice to the contrary.
11.2. RULES AND REGULATIONS. Any rule not in conflict or at variance with the
provisions hereof may be adopted by the Administrator's Representative.
11.3. METHOD OF EXECUTING INSTRUMENTS.
11.3.1. EMPLOYER OR ADMINISTRATOR'S REPRESENTATIVE. Information to be
supplied or written notices to be made or consents to be given by the Employer
or the Administrator's Representative pursuant to any provision of this Plan
Statement may be signed in the name of the Employer by any officer thereof who
has been authorized to make such certification or to give such notices or
consents or by the Administrator's Representative.
11.3.2. TRUSTEE. Any instrument or written notice required, necessary
or advisable to be made or given by the Trustee may be signed by any Trustee, if
all Trustees serving hereunder are individuals, or by any authorized officer or
Employee of the Trustee, if a corporate Trustee shall be acting hereunder as
sole Trustee, or by any such officer or Employee of the corporate Trustee or by
an individual Trustee acting hereunder, if corporate and individual Trustees
shall be serving as co-trustees hereunder.
11.4. CLAIMS PROCEDURE. The Administrator's Representative shall establish
procedures for the resolution of disputes and disposition of claims arising
under this Plan. An application for a distribution under Section 7 shall be
considered as a claim for the purposes of this Section 11.4. Until modified by
the Administrator's Representative, this claims procedure is as described below.
11.4.1. ORIGINAL CLAIM. Any Employee, former Employee or Beneficiary of
such Employee or former Employee may, if he so desires, file with the
Administrator's Representative a written claim for benefits under this Plan.
Within ninety (90) days after the filing of such a claim, the Administrator's
Representative shall notify the claimant in writing whether his claim is upheld
or denied in whole or in part or shall furnish the claimant a written notice
describing specific special circumstances requiring a specified amount of
additional time (but not more than one hundred eighty days from the date the
claim was filed) to reach a decision on the claim. If the claim is denied in
whole or in part, the Administrator's Representative shall state in writing:
(a) the specific reasons for the denial,
(b) the specific references to the pertinent provisions of the
Plan Statement on which the denial is based,
(c) a description of any additional material or information
necessary for the claimant to perfect the claim and an
explanation of why such material or information is necessary,
and
(d) an explanation of the claims review procedure set forth in
this section.
11.4.2. CLAIMS REVIEW PROCEDURE. Within sixty (60) days after receipt
of notice that his claim has been denied in whole or in part, the claimant may
file with the Administrator's Representative a written request for a review and
may, in conjunction therewith, submit written issues and comments. Within sixty
(60) days after the filing of such a request for review, the Administrator's
Representative shall notify the claimant in writing whether, upon review, the
claim was upheld or denied in whole or in part or shall furnish the claimant a
written notice describing specific special circumstances requiring a specified
amount of additional time (but not more than one hundred twenty (120) days from
the date the request for review was filed) to reach a decision on the request
for review.
11.4.3. GENERAL RULES.
(a) No inquiry or question shall be deemed to be a claim or a
request for a review of a denied claim unless made in
accordance with the claims procedure. The Administrator's
Representative may require that any claim for benefits and any
request for a review of a denied claim be filed on forms to be
furnished by the Administrator's Representative upon request.
(b) All decisions on claims and on requests for a review of denied
claims shall be made by the Administrator's Representative.
(c) The Administrator's Representative may, in its discretion,
hold one or more hearings on a claim or a request for a review
of a denied claim.
(d) Claimants may be represented by a lawyer or other
representative (at their own expense), but the Administrator's
Representative reserves the right to require the claimant to
furnish written authorization. A claimant's representative
shall be entitled to copies of all notices given to the
claimant.
(e) The decision of the Administrator's Representative on a claim
and on a request for a review of a denied claim shall be
served on the claimant in writing. If a decision or notice is
not received by a claimant within the time specified, the
claim or request for a review of a denied claim shall be
deemed to have been denied.
(f) Prior to filing a claim or a request for a review of a denied
claim, the claimant or his representative shall have a
reasonable opportunity to review a copy of the Plan Statement
and all other pertinent documents in the possession of the
Employer, the Administrator's Representative and the Trustee.
11.5. INFORMATION FURNISHED BY PARTICIPANTS. Neither the Employer nor the
Administrator's Representative nor the Trustee shall be liable or responsible
for any error in the computation of the Account of a Participant resulting from
any misstatement of fact made by the Participant, directly or indirectly, to the
Employer, the Administrator's Representative or the Trustee and used by them in
determining his Account. Neither the Employer nor the Administrator's
Representative nor the Trustee shall be obligated or required to increase the
Account of such Participant which, on discovery of the misstatement, is found to
be understated as a result of such misstatement of the Participant. However, the
Account of any Participant which is overstated by reason of any such
misstatement shall be reduced to the amount appropriate for him in view of the
truth. Any refund received upon reduction of an Account so made shall be used to
reduce the next succeeding contribution of the Employer to the Plan.
SECTION 12
OTHER ADMINISTRATIVE MATTERS
12.1. EMPLOYER.
12.1.1. OFFICERS. Except as hereinafter provided, functions generally
assigned to the Employer shall be discharged by its officers or delegated and
allocated as provided herein.
12.1.2. DELEGATION. Except as hereinafter provided, the Board of
Directors may delegate or redelegate and allocate and reallocate to one or more
persons or to a committee of persons jointly or severally, and whether or not
such persons are directors, officers or Employees, such fiduciary and other
functions assigned to it or to the Employer hereunder as it may from time to
time deem advisable.
12.1.3. BOARD OF DIRECTORS. The Board of Directors shall have the
exclusive authority, which authority may not be delegated, to act for the
Employer:
(a) to adopt the Plan, to terminate the Plan,
(b) to appoint or remove a Trustee, to appoint or remove an
Investment Manager, to appoint or remove the Administrator's
Representative, and
(c) to amend the Adoption Agreement to reduce contributions to the
Plan if the Plan is adopted as a money purchase pension plan.
12.2. ADMINISTRATOR'S REPRESENTATIVE. The Employer shall designate an
Administrator's Representative to act for the Employer. The Administrator's
Representative may be one person or a committee of such members as may be
determined and appointed from time to time by the Employer and shall serve at
the pleasure of the Employer. The Administrator's Representative shall serve
without compensation, but its reasonable expenses shall be an expense of the
administration of the Fund and shall be paid by the Trustee from and out of the
Fund except to the extent the Employer, in its discretion, directly pays such
expenses. If it is a committee, the Administrator's Representative may elect
such officers as the Administrator's Representative may decide upon. The
Administrator's Representative shall:
(a) if a committee, establish rules for the functioning of the
Administrator's Representative, including the times and places
for holding meetings, the notices to be given in respect of
such meetings and the number of members who shall constitute a
quorum for the transaction of business,
(b) if a committee, organize and delegate to such of its members
as it shall select authority to execute or authenticate rules,
advisory opinions or instructions, and other instruments
adopted or authorized by the Administrator's Representative;
adopt such bylaws or regulations as it deems desirable for the
conduct of its affairs; appoint a secretary, who need not be a
member of the Administrator's Representative, to keep its
records and otherwise assist the Administrator's
Representative in the performance of its duties,
(c) keep a record of all its proceedings and acts and keep all
books of account, records and other data as may be necessary
for the proper administration of the Plan; notify the Trustee
and the Employer of any action taken by the Administrator's
Representative and, when required, notify any other interested
person or persons,
(d) determine from the records of the Employer the compensation,
service records, status and other facts regarding Participants
and other Employees,
(e) cause to be compiled at least annually, from the records of
the Administrator's Representative and the reports and
accountings of the Trustee, a report and accounting of the
status of the Plan and the Accounts of the Participants, and
make it available to each Participant who shall have the right
to examine that part or portion of such report and accounting
(or a true and correct copy of such part) which sets forth his
benefits and his ratable interest in the Fund,
(f) prescribe forms to be used for applications for participation,
distributions, withdrawals, notifications, etc., as may be
required in the administration of the Plan,
(g) set up such rules, applicable to all Participants similarly
situated, as are deemed necessary to carry out the terms of
the Plan Statement,
(h) perform all other acts reasonably necessary for administering
the Plan and carrying out the provisions of the Plan Statement
and performing the duties imposed on it by the Employer,
(i) interpret and construe the Plan Statement,
(j) resolve questions of eligibility and status under the Plan,
and the rights of Employees, Participants and Beneficiaries
and the amounts of their interests,
(k) resolve all questions of administration of the Plan not
specifically referred to in this section, and
(l) delegate or redelegate to one or more persons, jointly or
severally, and whether or not such persons are members of a
committee which is the Administrator's Representative or
Employees of the Employer, such functions assigned to the
Administrator's Representative hereunder as it may from time
to time deem advisable.
If the Administrator's Representative is a committee and there shall at any time
be three (3) or more members serving hereunder who are qualified to perform a
particular act, the same may be performed, on behalf of all, by a majority of
those qualified, with or without the concurrence of the minority. No person who
failed to join or concur in such act shall be held liable for the consequences
thereof, except to the extent that liability is imposed under the Employee
Retirement Income Security Act of 1974.
If the Employer does not designate an Administrator's Representative, the
President (or other chief executive officer) of the Employer shall be the
Administrator's Representative.
12.3. LIMITATION ON AUTHORITY. No action taken by any fiduciary, if authority to
take such action has been delegated or redelegated to it hereunder, shall be the
responsibility of any other fiduciary except as may be required by the
provisions of the Employee Retirement Income Security Act of 1974. Except to the
extent imposed by the Employee Retirement Income Security Act of 1974, no
fiduciary shall have the duty to question whether any other fiduciary is
fulfilling all of the responsibility imposed upon such other fiduciary by this
Plan Statement or by the Act or by any regulations or rulings issued thereunder.
The Trustee shall have no authority or duty to determine or enforce payment of
any Employer contribution under this Plan or to determine the existence, nature
or extent of any individual's rights in the Fund or under the Plan or question
any determination made by the Employer or the Administrator's Representative
regarding the same. The responsibilities and obligations of the Trustee shall be
strictly limited to those set forth in this Plan Statement.
12.4. CONFLICT OF INTEREST. If any Trustee, any Administrator's Representative,
any member of the Board of Directors or any officer or Employee of the Employer
to whom authority has been delegated or redelegated hereunder shall also be a
Participant in this Plan, he shall have no authority as such Trustee, member,
officer or Employee with respect to any matter specially affecting his
individual interest hereunder (as distinguished from the interests of all
Participants and Beneficiaries or a broad class of Participants and
Beneficiaries), all such authority being reserved exclusively to the other
Trustees, members, officers or Employees, as the case may be, to the exclusion
of such Participant, and such Participant shall act only in his individual
capacity in connection with any such matter.
12.5. DUAL CAPACITY. Individuals, firms, corporations or partnerships identified
herein or delegated or allocated authority or responsibility hereunder may serve
in more than one fiduciary capacity.
12.6. ADMINISTRATOR. The Employer shall be the administrator for purposes of
section 3(16)(A) of the Employee Retirement Income Security Act of 1974.
12.7. NAMED FIDUCIARIES. The Trustee, the Employer, the Board of Directors and
the Administrator's Representative shall be named fiduciaries for the purpose of
section 402(a) of the Employee Retirement Income Security Act of 1974.
12.8. SERVICE OF PROCESS. In the absence of any designation to the contrary by
the Employer, the President of the Employer is designated as the appropriate and
exclusive agent for the receipt of service of process directed to the Plan in
any legal proceeding, including arbitration, involving the Plan.
12.9. RESIDUAL AUTHORITY. In the event the Employer, Administrator's
Representative, Board of Directors, or other person designated as having the
authority to act or a duty to act on any matter hereunder, is prevented by
death, dissolution, incapacity or other similar cause from acting hereunder and
there is no other person then empowered to act on such matter, the Trustee shall
be empowered to act in its place.
12.10. ADMINISTRATIVE EXPENSES. The reasonable expenses of administering the
Plan shall be payable out of the Fund except to the extent that the Employer, in
its discretion, directly pays the expenses.
SECTION 13
IN GENERAL
13.1. DISCLAIMERS.
13.1.1. EFFECT ON EMPLOYMENT. Neither the terms of this Plan Statement
nor the benefits hereunder nor the continuance thereof shall be a term of the
employment of any Employee, and the Employer shall not be obliged to continue
this Plan. The terms of this Plan Statement shall not give any Employee the
right to be retained in the employment of the Employer.
13.1.2. SOLE SOURCE OF BENEFITS. Neither the Trustee nor the
Administrator's Representative nor the Employer or any of its officers or
members of its Board of Directors in any way guarantee the Fund against loss or
depreciation, nor do they guarantee the payment of any benefit or amount which
may become due and payable hereunder to any Participant or to any Beneficiary or
to any creditor of a Participant, a Beneficiary or the Trustee. Each
Participant, Beneficiary or other person entitled at any time to payments
hereunder shall look solely to the assets of the Fund for such payments or to
the Vested Total Account distributed to any Participant or Beneficiary, as the
case may be, for such payments. In each case where a Vested Total Account shall
have been distributed to a former Participant or a Beneficiary or to the person
or any one of a group of persons entitled jointly to the receipt thereof and
which purports to cover in full the benefit hereunder, such former Participant
or Beneficiary, or such person or persons, as the case may be, shall have no
further right or interest in the other assets of the Fund.
13.1.3. CO-FIDUCIARY MATTERS. Neither the Employer nor any of its
officers or members of its Board of Directors nor the Administrator's
Representative shall in any manner be liable to any Participant, Beneficiary or
other person for any act or omission of the Trustee (except to the extent that
liability is imposed under the Employee Retirement Income Security Act of 1974).
Neither the Trustee nor the Administrator's Representative nor the Employer or
any of its officers or members of its Board of Directors shall be under any
liability or responsibility (except to the extent that liability is imposed
under the Employee Retirement Income Security Act of 1974) for failure to effect
any of the objectives or purposes of this Plan by reason of loss or fluctuation
in the value of the Fund or for the form, genuineness, validity, sufficiency or
effect of any Fund asset at any time held hereunder, or for the failure of any
person, firm or corporation indebted to the Fund to pay such indebtedness as and
when the same shall become due or for any delay occasioned by reason of any
applicable law, order or regulation or by reason of any restriction or provision
contained in any security or other asset held by the Fund. Except as is
otherwise provided in the Employee Retirement Income Security Act of 1974, the
Employer, its officers and the members of its Board of Directors, the Trustee,
the Administrator's Representative and other fiduciaries shall not be liable for
an act or omission of another person with regard to a fiduciary responsibility
that has been allocated to or delegated to such other person pursuant to the
terms of this Plan Statement or pursuant to procedures set forth in this Plan
Statement.
13.2. REVERSION OF FUND PROHIBITED. The Fund from time to time hereunder shall
at all times be a trust fund separate and apart from the assets of the Employer,
and no part thereof shall be or become available to the Employer or to creditors
of the Employer under any circumstances other than those specified in Section
1.3, Section 3.9, Section 11.5 and Appendix A hereof. It shall be impossible for
any part of the corpus or income of the Fund to be used for, or diverted to,
purposes other than for the exclusive benefit of Participants and Beneficiaries
(except as provided in Section 1.3, Section 3.9, Section 11.5 and Appendix A).
13.3. EXECUTION IN COUNTERPARTS. This Plan Statement may be executed in any
number of counterparts, each of which, without production of the others, shall
be deemed to be an original.
13.4. CONTINUITY. If this Plan Statement is adopted as an amendment of a Prior
Plan Statement, the tenure and membership of any committee previously appointed,
the rules of administration adopted and the Beneficiary designations in effect
under the Prior Plan Statement immediately before the Effective Date shall, to
the extent not inconsistent with this Plan Statement, continue in full force and
effect until altered as provided herein.
13.5. CONTINGENT TOP HEAVY PLAN RULES. The rules set forth in the Appendix B to
this Plan Statement (concerning additional provisions that apply if the Plan
becomes top heavy) are incorporated herein./6
- ---------
6/ Except as otherwise specifically provided in Appendix B, the provisions
of Appendix B apply for Plan Years beginning after December 31, 1986.
APPENDIX A
SECTION 415 LIMITATIONS ON ANNUAL ADDITIONS
SECTION 1
INTRODUCTION
Terms defined in the Plan Statement shall have the same meanings when
used in this Appendix. References to the "Code" shall mean the Internal Revenue
Code, as amended from time to time. In addition, when used in this Appendix, the
following terms shall have the following meanings:
1.1. ANNUAL ADDITION. Annual addition means, with respect to any Participant for
a limitation year, the sum of:
(i) all employer contributions (including employer
contributions of the Participant's earnings
reductions under section 401(k), section 403(b) and
section 408(k) of the Code) allocable as of a date
during such limitation year to the Participant under
all defined contribution plans,
(ii) all forfeitures allocable as of a date during such
limitation year to the Participant under all defined
contribution plans,
(iii) all Participant contributions made as of a date
during such limitation year to all defined
contribution plans,
(iv) all amounts allocated after March 31, 1984, to an
individual medical account which is part of a pension
or annuity plan maintained by the employer,
(v) all amounts derived from contributions paid or
accrued after December 31, 1985, in taxable years
ending after such date, under a welfare benefit fund,
and
(vi) all amounts allocable as of a date during such
limitation year to the Participant under Section 2.4,
Section 3.6, Section 4 or Section 5 of this Appendix
A.
1.1.1. SPECIFIC INCLUSIONS. With regard to a plan which contains a
qualified cash or deferred arrangement or matching contributions or employee
contributions, excess deferrals and excess contributions and excess aggregate
contributions (whether or not distributed during or after the limitation year)
shall be considered annual additions in the year contributed.
1.1.2. SPECIFIC EXCLUSIONS. The annual addition shall not, however,
include any portion of a Participant's rollover contributions or any additions
to accounts attributable to a plan merger or a transfer of plan assets or
liabilities or any other amounts excludible under law.
1.1.3. ESOP RULE. In the case of an employee stock ownership plan
within the meaning of section 4975(e)(7) of the Code under which no more than
one-third (1/3rd) of the Employer contributions for a limitation year which are
deductible under section 404(a)(9) of the Code are allocated to highly
compensated employees (as defined in section 414(q) of the Code), annual
additions shall not include forfeitures of employer securities under the
employee stock ownership plan if such securities were acquired with the proceeds
of an exempt loan or employer contributions to the employee stock ownership plan
which are deductible by the Employer under section 404(a)(9)(B) of the Code and
charged against the Participant's account (i.e., interest payments).
1.2. CONTROLLED GROUP MEMBER. Controlled group member means the Employer and
each member of a controlled group of corporations (as defined in section 414(b)
and as modified by Code section 415(h) of the Code), all commonly controlled
trades or businesses (as defined in section 414(c) and as modified by Code
section 415(h) of the Code) and affiliated service groups (as defined in section
414(m) of the Code) of which the Employer is a part.
1.3. DEFINED BENEFIT AND DEFINED CONTRIBUTION PLANS. Defined benefit plan and
defined contribution plan have the meanings assigned to those terms by section
415(k)(1) of the Code. Whenever reference is made to defined benefit plans and
defined contribution plans in this Appendix, it shall include all such plans
maintained by the Employer and all controlled group members.
1.4. DEFINED BENEFIT FRACTION.
1.4.1. GENERAL RULE. Defined benefit fraction means a fraction the
numerator of which is the sum of the Participant's projected annual benefits
under all defined benefit plans (whether or not terminated) determined as of the
close of the limitation year, and the denominator of which is the lesser of:
(i) one hundred twenty-five percent (125%)/7 of the
dollar limitation in effect under sections 415(b) and
(d) of the Code as of the close of such limitation
year (i.e., 125% of $90,000 as adjusted for cost of
living, commencement dates, length of service and
other factors), or
(ii) one hundred forty percent (140%) of the dollar amount
which may be taken into account under section
415(b)(l)(B) of the Code with respect to such
Participant as of the close of such limitation year
(i.e., 140% of the Participant's highest average
compensation as adjusted for cost of living, length
of service and other factors).
1.4.2. TRANSITION RULE. 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 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 Code section 415 for all limitation years
beginning before January 1, 1987.
1.5. DEFINED CONTRIBUTION FRACTION.
1.5.1. GENERAL RULE. Defined contribution fraction means a fraction,
the numerator of which is the sum of the Participant's annual additions
(including Employer contributions which are allocated to a separate account
established for the purpose of providing medical benefits or life insurance
benefits with respect to a key employee (as defined in Appendix B) under a
welfare benefit fund or individual medical account) as of the close of the
limitation year and for all prior limitation years, and the denominator of which
is the sum of the amounts determined under paragraph (i) or (ii) below,
whichever is the lesser, for such limitation year and for each prior limitation
year in which the Participant had any service with the employer (regardless of
whether that or any other defined contribution plan was in existence during
those years or continues in existence):
- ---------
7/ Lower limitations may apply in any Plan Year that this Plan is super
top heavy. (See Appendix B, ss. 3.5.)
(i) one hundred twenty-five percent (125%)/8 of the
dollar limitation determined under sections 415(b)
and (d) of the Code and in effect under section
415(c)(l)(A) of the Code for such limitation year
determined without regard to section 415(c)(6) of the
Code (i.e., 125% of $30,000 as adjusted for cost of
living), or
(ii) one hundred forty percent (140%) of the dollar amount
which may be taken into account under section
415(c)(l)(B) of the Code with respect to such
individual under the Plan for such limitation year
(i.e., 140% of 25% of the Participant's ss. 415
compensation for such limitation year).
1.5.2. TEFRA TRANSITION RULE. The Employer may elect that the amount
taken into account for each Participant for all limitation years ending before
January 1, 1983 under paragraphs (i) and (ii) above shall be determined pursuant
to the special transition rule provided in section 415(e)(6) of the Code.
1.5.3. EMPLOYEE CONTRIBUTIONS. Notwithstanding the definition of
"annual additions," for the purpose of determining the defined contribution
fraction in limitation years beginning before January 1, 1987, employee
contributions shall not be taken into account to the extent that they were not
required to be taken into account under section 415 of the Code prior to the Tax
Reform Act of 1986.
1.5.4. ANNUAL DENOMINATOR. The amounts to be determined under
paragraphs (i) or (ii) above for the limitation year and for all prior
limitation years in which the Participant had any service with the employer
shall be determined separately for each such limitation year on the basis of
which amount is the lesser for each such limitation year.
1.5.5. RELEVANT LAW. For all limitation years ending before January 1,
1976, the dollar limitation under section 415(c)(1)(A) of the Code is
Twenty-five Thousand Dollars ($25,000). For limitation years ending after
December 31, 1975 and before January 1, 1990, the amount shall be:
For limitation years The ss. 415(c)(1)(A)
ending during: dollar amount is:
1976 $ 26,825
1977 $ 28,175
1978 $ 30,050
1979 $ 32,700
1980 $ 36,875
1981 $ 41,500
1982 $ 45,475
1983 - 1989 $ 30,000
- ---------
8/ Lower limitations may apply in any Plan Year that this Plan is super
top heavy. (See Appendix B, ss. 3.5.)
1.5.6. RELIEF RULE. 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 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 one (l.0) under
the terms of this Plan Statement. Under the adjustment, an amount equal to the
product of the excess of the sum of the fractions over one (l.0), times 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 limitations applicable to the
first limitation year beginning on or after January 1, 1987.
1.6. HIGHEST AVERAGE COMPENSATION. Highest average compensation means the
average ss. 415 compensation for the three (3) consecutive years of service with
the controlled group members that produce the highest average. A year of service
with the controlled group members is the Plan Year.
1.7. INDIVIDUAL MEDICAL ACCOUNT. Individual medical account means an account, as
defined in section 415(l)(2) of the Code, maintained by the Employer or an
Affiliate which provides an annual addition.
1.8. LIMITATION YEAR. The limitation year shall be the Plan Year, unless the
Adoption Agreement specifies a different limitation year. All qualified plans
maintained by the Employer must use the same limitation year. If the limitation
year is amended to a different 12-consecutive month period, the new limitation
year must begin on a date within the limitation year in which the amendment is
made.
1.9. MASTER OR PROTOTYPE PLAN. A plan the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
1.10. MAXIMUM PERMISSIBLE ADDITION.
1.10.1. GENERAL RULE. The maximum permissible addition (to defined
contribution plans) for any one (1) limitation year shall be the lesser of:
(i) Thirty Thousand Dollars ($30,000), or if greater,
one-fourth (1/4) of the defined benefit limitation
set forth in section 415(b)(1) of the Code as in
effect for the limitation year, or
(ii) Twenty-five percent (25%) of the Participant's ss.
415 compensation for such limitation year.
The compensation limitation referred to in (ii) shall not apply to any
contribution for medical benefits (within the meaning of section 401(h) or
section 419A(f)(2) of the Code) which is otherwise treated as an annual addition
under section 415(l)(1) or 419A(d)(2) of the Code.
1.10.2. ESOP RULE. In the case of an employee stock ownership plan
within the meaning of section 4975(e)(7) of the Code under which no more than
one third (1/3rd) of the Employer contributions for a limitation year are
allocated to highly compensated employees (as defined in section 414(q) of the
Code), the dollar limitation in (i) above (after adjustment for cost of living)
shall be increased to be equal to the sum of:
(i) the dollar limitation in (i) above (after adjustment
for cost of living), and
(ii) the lesser of the dollar limitation in (i) above
(after adjustment for cost of living) or the amount
of employer securities contributed or purchased with
cash contributed to the employee stock ownership
plan.
1.10.3. MEDICAL BENEFITS. The dollar limitation in (i) above (after
adjustment for cost of living) shall be reduced by the amount of Employer
contributions which are allocated to a separate account established for the
purpose of providing medical benefits or life insurance benefits with respect to
a key employee (as defined in Appendix B) under a welfare benefit fund or an
individual medical account.
1.10.4. SHORT YEAR. If a short limitation year is created because of an
amendment changing the limitation year to a different 12-consecutive month
period, the maximum permissible amount will not exceed the amount described in
Section 1.10.1(i) multiplied by the following fraction:
Number of months in the short limitation year
12
1.11. PROJECTED ANNUAL BENEFIT. Projected annual benefit means the annual
annuity benefit payable to the Participant at his normal retirement age (as
defined in the defined benefit plan) adjusted to an actuarially equivalent
straight life annuity form (or, if it would be a lesser amount, to any
actuarially equivalent qualified joint and survivor annuity form that is
available under the defined benefit plan) assuming that:
(i) the Participant continues employment and
participation under the defined benefit plan until
his normal retirement age (as defined in the defined
benefit plan) or until the current age if later, and
(ii) the Participant's ss. 415 compensation and all other
factors used to determine benefits under the defined
benefit plan remain unchanged for all future
limitation years.
1.12. SS. 415 COMPENSATION. Notwithstanding the definition of Recognized
Compensation used in the Plan Statement, ss. 415 compensation shall mean, with
respect to any limitation year, the Participant's wages, salaries, fees for
professional services and other amounts received for personal services actually
rendered in the course of employment with any employer maintaining any of such
defined contribution plans (including, but not limited to, commissions paid
salespersons, compensation for services on the basis of percentage of profits,
commissions on insurance premiums, tips and bonuses).
1.12.1. CASH BASIS. ss. 415 compensation shall be determined on a cash
basis.
1.12.2. SPECIFIC INCLUSIONS. Section 415 compensation includes: (i)
earned income from sources outside the United States, as defined in section
911(b) of the Code, whether or not excludible from gross income under section
911 of the Code or deductible under section 913 of the Code; (ii) amounts
described in sections 104(a)(3), 105(a) and 105(h) of the Code, but only to the
extent that these amounts are includable in the gross income of the Participant;
(iii) amounts described in section 105(d) of the Code, whether or not the
amounts are excludible from the gross income of the Participant under that
section; (iv) amounts paid or reimbursed by the Employer for moving expenses
incurred by the Participant, but only to the extent that these amounts are not
deductible by the Participant under section 217 of the Code; (v) the value of a
nonqualified stock option granted to a Participant by the employer, but only to
the extent that the value of the option is includable in the gross income of the
Participant for the taxable year in which it was granted; (vi) the amount
includable in the gross income of the Participant upon making the election
described in section 83(b) of the Code; and (vii) the amounts received by the
Participant pursuant to an unfunded nonqualified plan or contract providing for
deferred compensation when such amounts are includable in the gross income of
the Participant.
1.12.3. SPECIFIC EXCLUSIONS. Section 415 compensation does not include:
(i) contributions made by the employer to a plan of deferred compensation to the
extent that, before application of Code section 415 limitations to that plan,
the contributions are not includable in the gross income of the Participant for
the taxable year in which contributed; (ii) employer contributions made on
behalf of a Participant pursuant to a simplified employee pension arrangement to
the extent that such contributions are deductible by the Participant under
section 219(b)(7) of the Code; (iii) distributions from a plan of deferred
compensation (other than an unfunded, nonqualified plan), regardless of whether
such amounts are includable in the gross income of the Participant when
distributed; (iv) amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by a Participant either
becomes freely transferable or is no longer subject to a substantial risk of
forfeiture within the meaning of section 83 of the Code; (v) amounts realized
from the sale, exchange or other disposition of stock acquired under a qualified
stock option; (vi) other amounts which receive special tax benefits, such as
premiums for group term life insurance (but only to the extent that the premiums
are not includable in the gross income of the Participant) or contributions made
by an employer (whether or not under salary reduction agreement) towards the
purchase of an annuity contract described in section 403(b) of the Code (whether
or not the contributions are excludible from the gross income of the
Participant).
1.12.4. EARNED INCOME. Section 415 compensation for a Self-Employed
Person shall be such Self-Employed Person's earned income. Earned income is a
Self-Employed Person's net earnings from self-employment in the trade or
business indicated in the Adoption Agreement as the trade or business of the
Employer with regard to which this Plan is established (but only if such trade
or business is one in which personal services of the Self-Employed Person is a
material income-producing factor) for a Plan Year during which the Self-Employed
Person is a Participant, reduced by the amount of the Employer contributions
made under the terms of this Plan for Common Law Employees. Earned income shall
include gains (other than any gain which is treated as gain from the sale or
exchange of a capital asset for the purpose of determining the self-employed
individual's federal income tax) and net earnings derived from the sale or other
disposition of, the transfer of any interest in, or the licensing of the use of
property (other than good will) by an individual whose personal efforts created
such property. Earned Income shall be determined without regard to items not
included in gross income and the deductions allocable to such items. Net
earnings shall be determined with regard to the deduction allowed to the
Self-Employed Person by section 164(f) of the Code for taxable years beginning
after December 31, 1989.
1.13. WELFARE BENEFIT FUND. Welfare benefit fund means a fund as defined in
section 419(e) of the Code which provides post-retirement medical benefits
allocated to separate accounts for key employees as defined in section
419A(d)(3).
SECTION 2
THIS PLAN ALONE
This Section 2 applies only if the Participant does not participate in
and has never participated in another qualified plan or a welfare benefit fund
or an individual medical account maintained by any controlled group member.
2.1. GENERAL RULE. The amount of annual additions which may be credited to the
Participant's Account under this Plan for any limitation year will not exceed
the maximum permissible amount. 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.
2.2. ESTIMATION. Prior to determining the Participant's actual total
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 total compensation for the limitation year, uniformly
determined for all Participants similarly situated.
2.3. FINAL DETERMINATION. As soon as is administratively feasible after the end
of the limitation year, the maximum permissible amount for the limitation year
will be determined by the Employer on the basis of the Participant's actual
total compensation for the limitation year.
2.4. REMEDIAL ACTION. If pursuant to Section 2.3 of the Appendix A or as a
result of the allocation of forfeitures there is an excess amount, the excess
will be disposed of as follows:
(a) Any nondeductible voluntary employee contributions, to the
extent they would reduce the excess amount, will be returned
to the Participant,
(b) If after the application of paragraph (a) an excess amount
still exists, and the Participant is covered by the Plan at
the end of the limitation year, the excess amount in the
Participant's Account will be used to reduce Employer
contributions (including any reallocation of forfeited
suspense accounts) for such Participant in the next limitation
year, and each succeeding limitation year if necessary,
(c) If after the application of paragraph (a) an excess amount
still exists, and the Participant is not covered by the Plan
at the end of the limitation year, the excess amount will be
held unallocated in a reserve account. The reserve account
will be applied to reduce future Employer contributions
(including any reallocation of forfeited suspense accounts)
for all remaining Participants in the next limitation year,
and each succeeding limitation year if necessary,
(d) If a reserve account is in existence at any time during the
limitation year pursuant to this Section 2, it will not
participate in the allocation of the Fund's investment gains
and losses. Also, all amounts in the reserve account must be
credited to Participant's Accounts before any Employer or
Employee contributions may be made to the Plan for that
limitation year. Excess amounts may not be distributed to
Participants or former Participants.
SECTION 3
THIS PLAN AND ANOTHER PROTOTYPE DEFINED CONTRIBUTION PLAN
This Section 3 applies only if, in addition to this Plan, the
Participant is covered under another master or prototype qualified defined
contribution plan, a welfare benefit fund or an individual medical account
maintained by any controlled group member.
3.1. GENERAL RULE. The annual additions which may be credited to a Participant's
Account under this Plan for any 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 any
controlled group member 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.
3.2. ESTIMATION. Prior to determining the Participant's actual total
compensation for the limitation year, the Employer may determine the maximum
permissible amount for a Participant on the basis of a reasonable estimation of
the Participant's compensation for the limitation year, uniformly determined for
all Participants similarly situated.
3.3. FINAL DETERMINATION. As soon as is administratively feasible after the end
of the limitation year, the maximum permissible amount for the limitation year
will be determined by the Employer on the basis of the Participant's actual
total compensation for the limitation year.
3.4. PRIORITY. If, pursuant to Section 3.3 of this Appendix 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 and
the allocations to accounts under such plans are made as of more than one (1)
date during the limitation year, the excess amount will be deemed to consist of
the annual additions last allocated during the limitation year, except that the
annual additions attributable to a welfare benefit fund or individual medial
account will be deemed to have been allocated first regardless of the actual
allocation date.
3.5. APPORTIONMENT. If an excess amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date of another
plan, the excess amount attributed to this Plan will be the product of,
(a) the total excess amount allocated as of such date, multiplied
by
(b) the ratio of (i) the annual additions allocated to the
Participant for the limitation year as of such date under this
Plan to (ii) the total annual additions allocated to the
Participant for the limitation year as of such date under this
Plan and all the other master or prototype qualified defined
contribution plans.
3.6. REMEDIAL ACTION. Any excess amount attributed to this Plan will be disposed
in the manner described in Section 2.4 of this Appendix.
SECTION 4
THIS PLAN AND A NON-PROTOTYPE DEFINED CONTRIBUTION PLAN
If the Participant is covered under another qualified defined
contribution plan maintained by any controlled group member 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 3.1 through 3.6 of this Appendix as though the other
plan was a master or prototype qualified defined contribution plan unless the
Employer provides other limitations in the Adoption Agreement.
SECTION 5
THIS PLAN AND A DEFINED BENEFIT PLAN
If any controlled group member maintains, or at any time maintained, a
qualified defined benefit plan covering any Participant in this Plan, the sum of
a Participant's defined benefit plan fraction and defined contribution plan
fraction will not exceed one (1.0) at the close of 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.
APPENDIX B
CONTINGENT TOP HEAVY PLAN RULES
Notwithstanding any of the foregoing provisions of the Plan Statement,
if, after applying the special definitions set forth in Section 1 of this
Appendix, this Plan is determined under Section 2 of this Appendix to be a Top
Heavy Plan for a Plan Year, then the special rules set forth in Section 3 of
this Appendix shall apply. For so long as this Plan is not determined to be a
Top Heavy Plan, the special rules in Section 3 of this Appendix shall be
inapplicable to this Plan.
SECTION 1
SPECIAL DEFINITIONS
Terms defined in the Plan Statement shall have the same meanings when used in
this Appendix. References to the "Code" shall mean the Internal Revenue Code, as
amended from time to time. In addition, when used in this Appendix, the
following terms shall have the following meanings:
1.1. AGGREGATED EMPLOYERS -- the Employer and each other corporation,
partnership or proprietorship which is a "predecessor" to the Employer, or is
under "common control" with the Employer, or is a member of an "affiliated
service group" that includes the Employer, as those terms are defined in section
414(b), (c), (m) or (o) of the Code.
1.2. AGGREGATION GROUP -- a grouping of this Plan and:
(a) if any Participant in the Plan is a Key Employee, each other
qualified pension, profit sharing or stock bonus plan of the
Aggregated Employers in which a Key Employee is a Participant
(and for this purpose, a Key Employee shall be considered a
Participant only during periods when he is actually accruing
benefits and not during periods when he has preserved accrued
benefits attributable to periods of participation when he was
not a Key Employee); and
(b) each other qualified pension, profit sharing or stock bonus
plan of the Aggregated Employers which is required to be taken
into account for this Plan or any plan described in paragraph
(a) above to satisfy the qualification requirement that this
Plan cover a nondiscriminatory group of employees (i.e.,
either the so-called "70% test," the "70%/80% test" or the
"nondiscriminatory classification test") or the requirement
that benefits be nondiscriminatory under section 401(a)(4) of
the Code; and
(c) each other qualified pension, profit sharing or stock bonus
plan of the Aggregated Employers which is not included in
paragraph (a) or (b) above, but which the Employer elects to
include in the Aggregation Group and which, when included,
would not cause the Aggregation Group to fail to satisfy the
qualification requirement that the Aggregation Group of plans
cover a nondiscriminatory group of employees (i.e., either the
so-called "70% test," the "70%/80% test" or the
"nondiscriminatory classification test") and the requirement
that benefits be nondiscriminatory under section 401(a)(4) of
the Code.
1.3. DETERMINATION DATE -- for the first (1st) plan year of a plan, the last day
of such first (1st) plan year, and for each subsequent plan year, the last day
of the immediately preceding plan year.
1.4. FIVE PERCENT OWNER -- for each Aggregated Employer that is a corporation,
any person who owns (or is considered to own within the meaning of the
Shareholder Attribution Rules) more than five percent (5%) of the value of the
outstanding stock of the corporation or stock possessing more than five percent
(5%) of the total combined voting power of the corporation, and, for each
Aggregated Employer that is not a corporation, any person who owns more than
five percent (5%) of the capital interest or the profits interest in such
Aggregated Employer. For the purposes of determining ownership percentages, each
corporation, partnership and proprietorship otherwise required to be aggregated
shall be viewed as a separate entity.
1.5. KEY EMPLOYEE -- each Participant (whether or not then an employee) who at
any time during a plan year (or any of the four preceding plan years) is:
(a) an officer of any Aggregated Employer (excluding persons who
have the title of an officer but not the authority and
including persons who have the authority of an officer but not
the title) having an annual compensation from all Aggregated
Employers for any such plan year in excess of fifty percent
(50%) of the amount in effect under section 415(b)(1)(A) of
the Internal Revenue Code for any such plan year, or
(b) one (l) of the ten (10) employees (not necessarily
Participants) owning (or considered to own within the meaning
of the Shareholder Attribution Rules) both more than one-half
of one percent (1/2%) ownership interest in value and the
largest percentage ownership interests in value of any of the
Aggregated Employers (which are owned by employees) and who
has an annual compensation from all the Aggregated Employers
in excess of the limitation in effect under section
415(c)(1)(A) of the Internal Revenue Code for any such plan
year, or
(c) a Five Percent Owner, or
(d) a One Percent Owner having an annual compensation from the
Aggregated Employers of more than One Hundred Fifty Thousand
Dollars ($150,000);
provided, however, that no more than fifty (50) employees (or, if lesser, the
greater of three of all the Aggregated Employers' employees or ten percent of
all the Aggregated Employers' employees) shall be treated as officers. The
determination of whether a Participant is a Key Employee will be made in
accordance with this definition and section 416(i)(1) of the Code and the
regulations thereunder. For the purposes of determining ownership percentages,
each corporation, partnership and proprietorship otherwise required to be
aggregated shall be viewed as a separate entity. For purposes of paragraph (b)
above, if two (2) employees have the same interest in any of the Aggregated
Employers, the employee having the greatest annual compensation from that
Aggregated Employer shall be treated as having a larger interest. For the
purpose of determining compensation, however, all compensation received from all
Aggregated Employers shall be taken into account. The term "Key Employee" shall
include the beneficiaries of a deceased Key Employee. Annual compensation means
"ss. 415 compensation" as defined in Appendix A to this Plan Statement but
including amounts contributed by the Employer pursuant to a salary reduction
agreement which are excludible from the Participant's gross income under section
125, section 402(a)(8), section 402(h) or section 403(b) of the Internal Revenue
Code.
1.6. ONE PERCENT OWNER -- for each Aggregated Employer that is a corporation,
any person who owns (or is considered to own within the meaning of the
Shareholder Attribution Rules) more than one percent (l%) of the value of the
outstanding stock of the corporation or stock possessing more than one percent
(l%) of the total combined voting power of the corporation, and, for each
Aggregated Employer that is not a corporation, any person who owns more than one
percent (l%) of the capital or the profits interest in such Aggregated Employer.
For the purposes of determining ownership percentages, each corporation,
partnership and proprietorship otherwise required to be aggregated shall be
viewed as a separate entity.
1.7. SHAREHOLDER ATTRIBUTION RULES -- the rules of section 318 of the Code,
(except that subparagraph (C) of section 318(a)(2) of the Code shall be applied
by substituting "5 percent" for "50 percent") or, if the Employer is not a
corporation, the rules determining ownership in such Employer which shall be set
forth in regulations prescribed by the Secretary of the Treasury.
1.8. TOP HEAVY AGGREGATION GROUP -- any Aggregation Group for which, as of the
Determination Date, the sum of:
(i) the present value of the cumulative accrued benefits
for Key Employees under all defined benefit plans
included in such Aggregation Group; and
(ii) the aggregate of the accounts of Key Employees under
all defined contribution plans included in such
Aggregation Group,
exceed sixty percent (60%) of a similar sum determined for all employees. In
applying the foregoing, the following rules shall be observed:
(a) For the purpose of determining the present value of the
cumulative accrued benefit for any employee under a defined
benefit plan, or the amount of the account of any employee
under a defined contribution plan, such present value or
amount shall be increased by the aggregate distributions made
with respect to such employee under the plan during the five
(5) year period ending on the Determination Date.
(b) Any rollover contribution (or similar transfer) initiated by
the employee, made from a plan maintained by one employer to a
plan maintained by another employer and made after December
31, 1983 to a plan shall not be taken into account with
respect to the transferee plan for the purpose of determining
whether such transferee plan is a Top Heavy Plan (or whether
any Aggregation Group which includes such plan is a Top Heavy
Aggregation Group). Any rollover contribution (or similar
transfer) not described in the preceding sentence shall be
taken into account with respect to the transferee plan for the
purpose of determining whether such transferee plan is a Top
Heavy Plan (or whether any Aggregation Group which includes
such plan is a Top Heavy Aggregation Group).
(c) If any individual is not a Key Employee with respect to a plan
for any plan year, and was not a Key Employee for any of the
four preceding plan years, but such individual was a Key
Employee with respect to a plan for any prior plan year, the
cumulative accrued benefit of such employee and the account of
such employee shall not be taken into account.
(d) The determination of whether a plan is a Top Heavy Plan shall
be made once for each plan year of the plan as of the
Determination Date for that plan year.
(e) In determining the present value of the cumulative accrued
benefits of employees under a defined benefit plan, the
determination shall be made as of the actuarial valuation date
last occurring during the twelve (12) months preceding the
Determination Date and shall be determined on the assumption
that the employees terminated employment on the valuation date
except as provided in section 416 of the Code and the
regulations thereunder for the first and second plan years of
a defined benefit plan. The accrued benefit of any employee
(other than a Key Employee) shall be determined under the
method which is used for accrual purposes for all plans of the
employer or if there is no method which is used for accrual
purposes under all plans of the employer, as if such benefit
accrued not more rapidly than the slowest accrual rate
permitted under Code section 411(b)(1)(C). Unless otherwise
specified in the Adoption Agreement, in determining this
present value, the mortality and interest assumptions shall be
those which would be used by the Pension Benefit Guaranty
Corporation in valuing the defined benefit plan if it
terminated on such valuation date. The accrued benefit to be
valued shall be the benefit expressed as a single life
annuity.
(f) In determining the accounts of employees under a defined
contribution plan, the account values determined as of the
most recent asset valuation occurring within the twelve (12)
month period ending on the Determination Date shall be used.
In addition, amounts required to be contributed under either
the minimum funding standards or the plan's contribution
formula shall be included in determining the account. In the
first year of the plan, contributions made or to be made as of
the Determination Date shall be included even if such
contributions are not required.
(g) If any individual has not performed any services for any
employer maintaining the plan at any time during the five (5)
year period ending on the Determination Date, any accrued
benefit of the individual under a defined benefit plan and the
account of the individual under a defined contribution plan
shall not be taken into account.
(h) For this purpose, a terminated plan shall be treated like any
other plan and must be aggregated with other plans of the
employer if it was maintained within the last five (5) years
ending on the determination date for the plan year in question
and would, but for the fact that it terminated, be part of the
Aggregation Group for such plan year.
1.9. TOP HEAVY PLAN -- a qualified plan under which (as of the Determination
Date):
(i) if the plan is a defined benefit plan, the present
value of the cumulative accrued benefits for Key
Employees exceeds sixty percent (60%) of the present
value of the cumulative accrued benefits for all
employees; and
(ii) if the plan is a defined contribution plan, the
aggregate of the accounts of Key Employees exceeds
sixty percent (60%) of the aggregate of all of the
accounts of all employees.
In applying the foregoing, the following rules shall be observed:
(a) Each plan of an Employer required to be included in an
Aggregation Group shall be a Top Heavy Plan if such
Aggregation Group is a Top Heavy Aggregation Group.
(b) For the purpose of determining the present value of the
cumulative accrued benefit for any employee under a defined
benefit plan, or the amount of the account of any employee
under a defined contribution plan, such present value or
amount shall be increased by the aggregate distributions made
with respect to such employee under the plan during the five
(5) year period ending on the Determination Date.
(c) Any rollover contribution (or similar transfer) initiated by
the employee, made from a plan maintained by one employer to a
plan maintained by another employer and made after December
31, 1983 to a plan shall not be taken into account with
respect to the transferee plan for the purpose of determining
whether such transferee plan is a Top Heavy Plan (or whether
any Aggregation Group which includes such plan is a Top Heavy
Aggregation Group). Any rollover contribution (or similar
transfer) not described in the preceding sentence shall be
taken into account with respect to the transferee plan for the
purpose of determining whether such transferee plan is a Top
Heavy Plan (or whether any Aggregation Group which includes
such plan is a Top Heavy Aggregation Group).
(d) If any individual is not a Key Employee with respect to a plan
for any plan year, and was not a Key Employee for any of the
four preceding plan years, but such individual was a Key
Employee with respect to the plan for any prior plan year, the
cumulative accrued benefit of such employee and the account of
such employee shall not be taken into account.
(e) The determination of whether a plan is a Top Heavy Plan shall
be made once for each plan year of the plan as of the
Determination Date for that plan year.
(f) In determining the present value of the cumulative accrued
benefits of employees under a defined benefit plan, the
determination shall be made as of the actuarial valuation date
last occurring during the twelve (12) months preceding the
Determination Date and shall be determined on the assumption
that the employees terminated employment on the valuation date
except as provided in section 416 of the Code and the
regulations thereunder for the first and second plan years of
a defined benefit plan. The accrued benefit of any employee
(other than a Key Employee) shall be determined under the
method which is used for accrual purposes for all plans of the
employer or if there is no method which is used for accrual
purposes under all plans of the employer, as if such benefit
accrued not more rapidly than the slowest accrual rate
permitted under Code section 411(b)(1)(C). Unless otherwise
specified in the Adoption Agreement, in determining this
present value, the mortality and interest assumptions shall be
those which would be used by the Pension Benefit Guaranty
Corporation in valuing the defined benefit plan if it
terminated on such valuation date. The accrued benefit to be
valued shall be the benefit expressed as a single life
annuity.
(g) In determining the accounts of employees under a defined
contribution plan, the account values determined as of the
most recent asset valuation occurring within the twelve (12)
month period ending on the Determination Date shall be used.
In addition, amounts required to be contributed under either
the minimum funding standards or the plan's contribution
formula shall be included in determining the account. In the
first year of the plan, contributions made or to be made as of
the Determination Date shall be included even if such
contributions are not required.
(h) If any individual has not performed any services for any
employer maintaining the plan at any time during the five (5)
year period ending on the Determination Date, any accrued
benefit of the individual under a defined benefit plan and the
account of the individual under a defined contribution plan
shall not be taken into account.
(i) For this purpose, a terminated plan shall be treated like any
other plan and must be aggregated with other plans of the
employer if it was maintained within the last five (5) years
ending on the determination date for the plan year in question
and would, but for the fact that it terminated, be part of the
Aggregation Group for such plan year.
SECTION 2
DETERMINATION OF TOP HEAVINESS
Once each Plan Year, as of the Determination Date for that Plan Year, the
administrator of this Plan shall determine if this Plan is a Top Heavy Plan.
SECTION 3
CONTINGENT PROVISIONS
3.1. WHEN APPLICABLE. If this Plan is determined to be a Top Heavy Plan for any
Plan Year, the following provisions shall apply for that Plan Year (and, to the
extent hereinafter specified, for subsequent Plan Years), notwithstanding any
provisions to the contrary in the Plan Statement.
3.2. VESTING REQUIREMENT.
3.2.1. GENERAL RULE. During any Plan Year that the Plan is determined
to be a Top Heavy Plan, then all accounts of all Participants in a defined
contribution plan that is a Top Heavy Plan and the accrued benefits of all
Participants in a defined benefit plan that is a Top Heavy Plan shall be vested
and nonforfeitable in accordance with the following schedule if, and to the
extent, that it is more favorable than other provisions of the Plan Statement:
If the Participant Has His Vested
Completed the Following Percentage
Years of Vesting Service: Shall Be:
Less than 2 years 0%
2 years but less than 3 years 20%
3 years but less than 4 years 40%
4 years but less than 5 years 60%
5 years but less than 6 years 80%
6 years or more 100%
The above vesting schedule, if applicable, shall apply to all accounts and
benefits within the meaning of section 411(a)(7) of the Code except those
attributable to employee contributions, including contributions made and
benefits accrued before the effective date of section 416 of the Code and before
the Plan became a Top Heavy Plan. However, this Section 3.2.1 does not apply to
the accounts of any Participant who does not have an Hour of Service after the
Plan has initially become a Top Heavy Plan, and such Participant's Vested
interests shall be determined without regard to this Section 3.2.1. The minimum
allocation required (to the extent required to be Vested under section 416(b) of
the Code) may not be forfeited under sections 411(a)(3)(B) or 411(a)(3)(D) of
the Code, and will be determined without regard to any contribution by the
Employer for the Participant under the Federal Insurance Contributions Act.
3.2.2. SUBSEQUENT YEAR. In each subsequent Plan Year that the Plan is
determined not to be a Top Heavy Plan, the other nonforfeitability provisions of
the Plan Statement (and not this section) shall apply in determining the vested
and nonforfeitable rights of Participants who do not have five (5) or more years
of Vesting Service (three (3) or more years of Vesting Service for Participants
who have one (1) or more Hours of Service in any Plan Year beginning after
December 31, 1988) as of the beginning of such subsequent Plan Year; provided,
however, that they shall not be applied in a manner which would reduce the
vested and nonforfeitable percentage of any Participant. The accounts and
accrued benefits of all other Participants shall be vested and nonforfeitable in
accordance with the more favorable of the schedule in Section 3.2.1 above or
other provisions of the Plan Statement. If the Vesting Schedule under the Plan
shifts in or out of the schedule set forth in Section 3.2.1 for any Plan Year
(because of the Plan's status as a Top Heavy Plan), such shift is an amendment
to the Vesting schedule and the election described in Section 5.2 of the Plan
Statement shall apply.
3.3. DEFINED CONTRIBUTION PLAN MINIMUM BENEFIT REQUIREMENT.
3.3.1. GENERAL RULE. If this Plan is a defined contribution plan, then
for any Plan Year that this Plan is determined to be a Top Heavy Plan, the
Employer shall make a contribution for allocation to the account of each
employee who is a Participant for that Plan Year and who is not a Key Employee
in an amount (when combined with other Employer contributions and forfeited
accounts allocated to his account) which is at least equal to three percent (3%)
of such Participant's compensation attributable to Recognized Employment while a
Participant. This contribution shall be made for each Participant who has not
separated from service with the Employer at the end of the Plan Year (including
for this purpose any Participant who is then on temporary layoff or authorized
leave of absence or who, during such Plan Year, was inducted into the Armed
Forces of the United States from employment with the Employer) including, for
this purpose, each employee of the Employer who would have been a Participant if
he had:
(a) completed one thousand (1,000) Hours of Service (or the
equivalent) during the Plan Year, and
(b) made any mandatory contributions to the Plan, and
(c) earned compensation in excess of the stated amount required
for participation in the Plan.
The provision in this Section 3.3.1 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 Article XIII of the Adoption Agreement that the
minimum allocation or benefit requirement applicable to top-heavy plans will be
met in the other plan or plans.
3.3.2. SPECIAL RULE. Subject to the following rules, the percentage
referred to in Section 3.3.1 of this Appendix shall not exceed the percentage at
which contributions are made (or required to be made) under this Plan for the
Plan Year for that Key Employee for whom that percentage is the highest for the
Plan Year.
(a) The percentage referred to above shall be determined by
dividing the Employer contributions for such Key Employee for
such Plan Year by so much of his compensation for such Plan
Year as does not exceed Two Hundred Thousand Dollars
($200,000).
(b) For the purposes of this Section 3.3, all defined contribution
plans required to be included in an Aggregation Group shall be
treated as one (l) plan.
(c) The exception contained in this Section 3.3.2 shall not apply
to (be available to) this Plan if this Plan is required to be
included in an Aggregation Group if including this Plan in an
Aggregation Group enables a defined benefit plan to satisfy
the qualification requirement that the defined benefit plan
cover a nondiscriminatory group of employees (i.e., either the
so-called "70% test," the "70%/80% test" or the
"nondiscriminatory classification test").
3.3.3. SALARY REDUCTION AND MATCHING CONTRIBUTIONS. For the purpose of
this Section 3.3, all Employer contributions attributable to a salary reduction
or similar arrangement shall be taken into account both for the purpose of
determining the minimum percentage contribution required to be made for a
particular Plan Year for a Participant who is not a Key Employee and for the
purpose of determining whether that minimum contribution requirement has been
satisfied. Effective for Plan Years beginning after December 31, 1988, for the
purpose of this Section 3.3, all Employer contributions attributable to a salary
reduction or similar arrangement and all Employer matching contributions shall
be taken into account for the purpose of determining the minimum percentage
contribution required to be made for a particular Plan Year for a Participant
who is not a Key Employee but not for the purpose of determining whether that
minimum contribution requirement has been satisfied.
3.4. PRIORITIES AMONG PLANS. In applying the minimum benefit provisions of this
Appendix in any Plan Year that this Plan is determined to be a Top Heavy Plan,
the following rules shall apply:
(a) If an employee participates only in this Plan, the employee
shall receive the minimum benefit applicable to this Plan.
(b) If an employee participates in both a defined benefit plan and
a defined contribution plan and only one (l) of such plans is
a Top Heavy Plan for the Plan Year, the employee shall receive
the minimum benefit applicable to the plan which is a Top
Heavy Plan.
(c) If an employee participates in both a defined contribution
plan and a defined benefit plan and both are Top Heavy Plans,
then the employee, for that Plan Year, shall receive the
defined benefit plan minimum benefit unless for that Plan Year
the employee has received employer contributions and
forfeitures allocated to his account in the defined
contribution plan in an amount which is at least equal to five
percent (5%) of his compensation.
(d) If an employee participates in this Plan, and other defined
contribution plans that are Top Heavy, the minimum benefit
shall be made in the plan according to chronological order as
determined by the effective date of each plan (using the
original effective date of the plan) beginning with the most
recently established plan. Any contribution required under
this Section 3.5 for this Plan is reduced by any contribution
made to any other plan sponsored by the Employer.
3.5. ANNUAL CONTRIBUTION LIMITS.
3.5.1. GENERAL RULE. Notwithstanding anything apparently to the
contrary in the Appendix A to the Plan Statement, for any Plan Year that this
Plan is a Top Heavy Plan, the defined benefit fraction and defined contribution
fraction of the Appendix A to the Plan Statement shall be one hundred percent
(100%) and not one hundred twenty-five percent (125%).
3.5.2. SPECIAL RULE. Section 3.5.l of this Appendix shall not apply to
any Top Heavy Plan if such Top Heavy Plan satisfies the following requirements:
(A) MINIMUM BENEFIT REQUIREMENT. The Top Heavy Plan (and any plan
required to be included in an Aggregation Group with such
plan) satisfies the requirements of section 416(c)(1)(B) of
the Code is applied by substituting three percent (3%) for two
percent (2%) and by increasing (but by no more than ten
percentage points) twenty percent (20%) by one percentage
point for each year for which the plan was taken into account
under this Section 3.5. Section 3.3.1 of this Appendix shall
be applied by substituting "four percent (4%)" for "three
percent (3%)." Section 3.4(c) of this Appendix shall be
applied by substituting "seven and one-half percent (7-1/2%)"
for "five percent (5%)."
(B) NINETY PERCENT RULE. A Top Heavy Plan would not be a Top Heavy
Plan if "ninety percent (90%)" were substituted for "sixty
percent (60%)" each place that it appears in the definitions
of Top Heavy Plan and Top Heavy Aggregation Group.
3.5.3. TRANSITION RULE. If, but for this Section 3.5.3, Section 3.5.l
of this Appendix would begin to apply with respect to this Plan because it is a
Top Heavy Plan, the application of Section 3.5.l of this Appendix shall be
suspended with respect to any individual so long as there are no:
(a) employer contributions, forfeitures or voluntary nondeductible
contributions allocated to such individual (if this Plan is a
defined contribution plan), or
(b) accruals for such individual (if this Plan is a defined
benefit plan).
3.5.4. COORDINATING CHANGE. If this Plan is a Top Heavy Plan for any
Plan Year, then for purposes of the Appendix A to the Plan Statement, section
415(e)(6)(i) of the Code shall be applied by substituting "Forty-one Thousand
Five Hundred Dollars ($41,500)" for "Fifty-one Thousand Eight Hundred
Seventy-five Dollars
($51,875)."
APPENDIX C
QUALIFIED DOMESTIC RELATIONS ORDERS
DEFINED CONTRIBUTION PLAN
SECTION 1
GENERAL MATTERS
Terms defined in the Plan Statement shall have the same meanings when used in
this Appendix.
1.1. GENERAL RULE. The Plan shall not honor the creation, assignment or
recognition of any right to any benefit payable with respect to a Participant
pursuant to a domestic relations order unless that domestic relations order is a
qualified domestic relations order.
1.2. ALTERNATE PAYEE DEFINED. The only persons eligible to be considered
alternate payees with respect to a Participant shall be that Participant's
spouse, former spouse, child or other dependent.
1.3. DRO DEFINED. A domestic relations order is any judgment, decree or order
(including an approval of a property settlement agreement) which relates to the
provision of child support, alimony payments, or marital property rights to a
spouse, former spouse, child or other dependent of a Participant and which is
made pursuant to a state domestic relations law (including a community property
law).
1.4. QDRO DEFINED. A qualified domestic relations order is a domestic relations
order which creates or recognizes the existence of an alternate payee's right to
(or assigns to an alternate payee the right to) receive all or a portion of the
Account of a Participant under the Plan and which satisfies all of the following
requirements.
1.4.1. NAMES AND ADDRESSES. The order must clearly specify the name and
the last known mailing address, if any, of the Participant and the name and
mailing address of each alternate payee covered by the order.
1.4.2. AMOUNT. The order must clearly specify the amount or percentage
of the Participant's Account to be paid by the Plan to each such alternate payee
or the manner in which such amount or percentage is to be determined.
1.4.3. PAYMENT METHOD. The order must clearly specify the number of
payments or period to which the order applies.
1.4.4. PLAN IDENTITY. The order must clearly specify that it applies to
this Plan.
1.4.5. SETTLEMENT OPTIONS. Except as provided in Section 1.4.8 of this
Appendix, the order may not require the Plan to provide any type or form of
benefits or any option not otherwise provided under the Plan.
1.4.6. INCREASED BENEFITS. The order may not require the Plan to
provide increased benefits.
1.4.7. PRIOR AWARDS. The order may not require the payment of benefits
to an alternate payee which are required to be paid to another alternate payee
under another order previously determined to be a qualified domestic relations
order.
1.4.8. EXCEPTIONS. Notwithstanding Section 1.4.5 of this Appendix:
(a) The order may require payment of benefits be made to an
alternate payee before the Participant has separated from
service:
(i) If the order requires payment as of a date that is on
or after the date on which the Participant attains
(or would have attained) the earliest payment date
described in Section 1.4.10 of this Appendix, or
(ii) If the order requires (A) that payment of benefits be
made to an alternate payee in a single lump sum as
soon as is administratively feasible after the order
is determined to be a qualified domestic relations
order, and (B) does not contain any of the provisions
described in Section 1.4.9 of this Appendix, and (C)
provides that the payment of such single lump sum
fully and permanently discharges all obligations of
the Plan to the alternate payee.
(b) The order may require that payment of benefits be made to an
alternate payee as if the Participant had retired on the date
on which payment is to begin under such order (but taking into
account only the present value of benefits actually accrued).
(c) The order may require payment of benefits to be made to an
alternate payee in any form in which benefits may be paid
under the plan to the Participant (other than in the form of a
joint and survivor annuity with respect to the alternate payee
and his or her subsequent spouse).
1.4.9. DEEMED SPOUSE. Notwithstanding the foregoing:
(a) The order may provide that the former spouse of a Participant
shall be treated as a surviving spouse of such Participant for
the purposes of Section 7 of the Plan Statement (and that any
subsequent or prior spouse of the Participant shall not be
treated as a spouse of the Participant for such purposes), and
(b) The order may provide that, if the former spouse has been
married to the Participant for at least one (1) year at any
time, the surviving former spouse shall be deemed to have been
married to the Participant for the one (1) year period ending
on the date of the Participant's death.
1.4.10. PAYMENT DATE DEFINED. For the purpose of Section 1.4.8 of this
Appendix, the earliest payment date means the earlier of:
(a) The date on which the Participant is entitled to a
distribution under the Plan, or
(b) The later of (i) the date the Participant attains age fifty
(50) years, or (ii) the earliest date on which the Participant
could begin receiving benefits under the plan if the
Participant separated from service.
SECTION 2
PROCEDURES
2.1. ACTIONS PENDING REVIEW. During any period when the issue of whether a
domestic relations order is a qualified domestic relations order is being
determined by the Administrator's Representative, the Administrator's
Representative shall cause the Plan to separately account for the amounts which
would be payable to the alternate payee during such period if the order were
determined to be a qualified domestic relations order.
2.2. REVIEWING DRO'S. Upon the receipt of a domestic relations order, the
Administrator's Representative shall determine whether such order is a qualified
domestic relations order.
2.2.1. RECEIPT. A domestic relations order shall be considered to have
been received only when the Administrator's Representative shall have received a
copy of a domestic relations order which is complete in all respects and is
originally signed, certified or otherwise officially authenticated.
2.2.2. NOTICE TO PARTIES. Upon receipt of a domestic relations order,
the Administrator's Representative shall notify the Participant and all persons
claiming to be alternate payees and all prior alternate payees with respect to
the Participant that such domestic relations order has been received. The
Administrator's Representative shall include with such notice a copy of this
Appendix.
2.2.3. COMMENT PERIOD. The Participant and all persons claiming to be
alternate payees and all prior alternate payees with respect to the Participant
shall be afforded a comment period of thirty (30) days from the date such notice
is mailed by the Administrator's Representative in which to make comments or
objections to the Administrator's Representative concerning whether the domestic
relations order is a qualified domestic relations order. By the unanimous
written consent of the Participant and all persons claiming to be alternate
payees and all prior alternate payees with respect to the Participant, the
thirty (30) day comment period may be shortened.
2.2.4. INITIAL DETERMINATION. Within a reasonable period of time after
the termination of the comment period, the Administrator's Representative shall
give written notice to the Participant and all persons claiming to be alternate
payees and all prior alternate payees with respect to the Participant of its
decision that the domestic relations order is or is not a qualified domestic
relations order. If the Administrator's Representative determines that the order
is not a qualified domestic relations order or if the Administrator's
Representative determines that the written objections of any party to the order
being found a qualified domestic relations order are not valid, the
Administrator's Representative shall include in its written notice:
(i) the specific reasons for its decision,
(ii) the specific reference to the pertinent provisions of
this Plan Statement upon which its decision is based,
(iii) a description of additional material or information,
if any, which would cause the Administrator's
Representative to reach a different conclusion, and
(iv) an explanation of the procedures for reviewing the
initial determination of the Administrator's
Representative.
2.2.5. APPEAL PERIOD. The Participant and all persons claiming to be
alternate payees and all prior alternate payees with respect to the Participant
shall be afforded an appeal period of sixty (60) days from the date such an
initial determination and explanation is mailed in which to make comments or
objections concerning whether the original determination of the Administrator's
Representative is correct. By the unanimous written consent of the Participant
and all persons claiming to be alternate payees and all prior alternate payees
with respect to the Participant, the sixty (60) day appeal period may be
shortened.
2.2.6. FINAL DETERMINATION. In all events, the final determination of
the Administrator's Representative shall be made not later than eighteen (18)
months after the date on which first payment would be required to be made under
the domestic relations order if it were a qualified domestic relations order.
The final determination shall be communicated in writing to the Participant and
all persons claiming to be alternate payees and all prior alternate payees with
respect to the Participant.
2.3. FINAL DISPOSITION. If the domestic relations order is finally determined to
be a qualified domestic relations order and all comment and appeal periods have
expired, the Plan shall pay all amounts required to be paid pursuant to the
domestic relations order to the alternate payee entitled thereto. If the
domestic relations order is finally determined not to be a qualified domestic
relations order and all comment and appeal periods have expired, benefits under
the Plan shall be paid to the person or persons who would have been entitled to
such amounts if there had been no domestic relations order.
2.4. ORDERS BEING SOUGHT. If the Administrator's Representative has notice that
a domestic relations order is being or may be sought but has not received the
order, the Administrator's Representative shall not (in the absence of a written
request from the Participant) delay payment of benefits to a Participant or
beneficiary which otherwise would be due. If the Administrator's Representative
has determined that a domestic relations order is not a qualified domestic
relations order and all comment and appeal periods have expired, the
Administrator's Representative shall not (in the absence of a written request
from the Participant) delay payment of benefits to a Participant or beneficiary
which otherwise would be due even if the Administrator's Representative has
notice that the party claiming to be an alternate payee or the Participant or
both are attempting to rectify any deficiencies in the domestic relations order.
SECTION 3
PROCESSING OF AWARD
3.1. GENERAL RULES. If a benefit is awarded to an alternate payee pursuant to an
order which has been finally determined to be a qualified domestic relations
order, the following rules shall apply.
3.1.1. SOURCE OF AWARD. If a Participant shall have a Vested interest
in more than one Account under the Plan, the benefit awarded to an alternate
payee shall be withdrawn from the Participant's Accounts in proportion to his
Vested interest in each of them.
3.1.2. EFFECT ON ACCOUNT. For all purposes of the Plan, the
Participant's Account (and all benefits payable under the Plan which are derived
in whole or in part by reference to the Participant's Account) shall be
permanently diminished by the portion of the Participant's Account which is
awarded to the alternate payee. The benefit awarded to an alternate payee shall
be considered to have been a distribution from the Participant's Account for the
limited purpose of applying the rules of Section 5.1.3 of the Plan Statement.
3.1.3. AFTER DEATH. After the death of an alternate payee, all amounts
awarded to the alternate payee which have not been distributed to the alternate
payee and which continue to be payable shall be paid in a single lump sum
distribution to the personal representative of the alternate payee's estate as
soon as administratively feasible unless the qualified domestic relations order
clearly provides otherwise. The Participant's beneficiary designation shall not
be effective to dispose of any portion of the benefit awarded to an alternate
payee unless the qualified domestic relations order clearly provides otherwise.
3.1.4. IN-SERVICE BENEFITS. The in-service distribution and the loan
provisions of Section 7 of this Plan Statement shall not be applicable to the
benefit awarded to an alternate payee.
3.2. SEGREGATED ACCOUNT. If the Administrator's Representative determines that
it would facilitate the administration or the distribution of the benefit
awarded to the alternate payee or if the qualified domestic relations order so
requires, the benefit awarded to the alternate payee shall be established on the
books and records of the Plan as a separate account belonging to the alternate
payee.
3.3. FORMER ALTERNATE PAYEES. If an alternate payee has received all benefits to
which the alternate payee is entitled under a qualified domestic relations
order, the alternate payee will not at any time thereafter be deemed to be an
alternate payee or prior alternate payee for any substantive or procedural
purpose of this Plan.
APPENDIX D
HIGHLY COMPENSATED EMPLOYEE
SECTION 1
GENERAL RULE
1.1. HIGHLY COMPENSATED EMPLOYEE. A "highly compensated employee" is any
employee who, during the "determination year" or the "look-back year":
(i) was at any time a five percent (5%) owner;
(ii) received compensation from the Employer in excess of
Seventy-Five Thousand Dollars ($75,000);
(iii) received compensation from the Employer in excess of
Fifty Thousand Dollars ($50,000) and was in the
top-paid group of employees for such year; or
(iv) was at any time an officer and received compensation
greater than 50 percent (50%) of the amount in effect
under section 415(b)(1)(A) of the Code for such year.
The group of employees (including former employees) who are highly compensated
employees consists of both highly compensated active employees and highly
compensated former employees. The determination of who is a highly compensated
employee will be made in accordance with this Appendix D and section 414 (q) of
the Code and the regulations thereunder.
1.2. DETERMINATION YEAR. The determination year is the current Plan Year (that
is, the Plan Year for which the determination of which employees are highly
compensated employees is being made).
1.3. LOOK-BACK YEAR. The look-back year is the twelve-month period immediately
preceding the determination year (generally, the preceding Plan Year). The
Employer does not elect to make the look-back year calculation on the basis of
the calendar year ending with or within the determination year.
1.4. SPECIAL RULE FOR DETERMINATION YEAR. An employee not described in Section
1.1 (ii), (iii) or (iv) for the look-back year shall not be treated as described
in Section 1.1 (ii), (iii) or (iv) for the determination year unless such
employee is a member of the group consisting of the one hundred (100) employees
paid the greatest compensation during the determination year. If there is no
difference in compensation between the 100th employee and the 101st employee,
then those employees receiving the same compensation as the 100th employee shall
be ranked in descending order of seniority, with the employee with the greatest
seniority being ranked first.
1.5. HIGHLY COMPENSATED ACTIVE EMPLOYEE. A highly compensated active employee is
any highly compensated employee who performs services for the Employer during
the determination year.
1.6. HIGHLY COMPENSATED FORMER EMPLOYEE. A highly compensated former employee is
any former employee who had a "separation year" (as defined in Section 2.9)
prior to the determination year and was a highly compensated active employee for
either (1) such employee's separation year or (2) any determination year ending
on or after the employee's 55th birthday. An employee who performs no services
for the Employer during a determination year is treated as a former employee.
SECTION 2
SPECIAL RULES & DEFINITIONS
2.1. INCORPORATED DEFINITIONS. Terms defined in the Plan Statement shall have
the same meanings when used in this Appendix. References to the "Code" shall
mean the Internal Revenue Code, as amended from time to time.
2.2. FIVE PERCENT OWNER. An employee shall be treated as a five percent (5%)
owner for any determination year or look-back year if at any time during such
year such employee was a five percent (5%) owner (as defined in the Appendix B
to this Plan Statement) of the Employer.
2.3. TOP-PAID GROUP. An employee is in the top-paid group of employees for any
determination year or look-back year if such employee is in the group consisting
of the top twenty percent (20%) of the employees when ranked on the basis of
compensation paid during such year, excluding those employees described in
Section 2.10. For purposes of the preceding sentence, the top twenty percent
(20%) shall be determined by disregarding fractional numbers (i.e., the top 20%
of 118 employees shall be the top 23 employees). Employees who perform no
services for the Employer during the year are not included in determining the
top-paid group of employees for that year.
2.4. SPECIAL RULES FOR OFFICERS.
2.4.1. NOT MORE THAN 50 OFFICERS. For purposes of Section 1.1(iv) of
this Appendix, no more than fifty (50) employees (or, if lesser, the greater of
three employees or ten percent of the employees) shall be treated as officers.
If the actual number of officers exceeds this limit, then the officers who will
be considered as includible officers under Section 1.1(iv) are those who receive
the greatest compensation from the Employer during the determination year or the
look-back year.
2.4.2. AT LEAST 1 OFFICER. If for any determination year or look-back
year no officer of the Employer is described in Section 1.1(iv) of this
Appendix, the highest paid officer of the Employer for such year shall be
treated as described in such Section 1.1(iv). This is true whether or not such
employee is also a highly compensated employee on any other basis.
2.5. FORMER EMPLOYEES EXCLUDED FOR CERTAIN PURPOSES. Former employees are not
included in the top-paid group, the group consisting of the one hundred (100)
employees paid the greatest compensation or the group of includible officers for
purposes of determining who are highly compensated active employees. In
addition, former employees are not counted as employees for purposes of
determining the number of employees in the top-paid group.
2.6. EMPLOYEES DESCRIBED IN SEVERAL GROUPS. An employee who is a highly
compensated active employee for a determination year by reason of being
described in one group under Section 1.1 for either the determination year or
the look-back year, shall not be disregarded in determining whether another
employee is a highly compensated active employee by reason of being described in
another group under Section 1.1.
2.7. CERTAIN FAMILY MEMBERS.
2.7.1. IN GENERAL. If any individual is a member of the family of a
five percent (5%) owner or of a highly compensated employee in the group
consisting of the ten (10) highly compensated employees paid the greatest
compensation during the determination year or the look-back year, then:
(i) such individual shall not be considered a separate
employee; and
(ii) any compensation paid to such individual (and any
applicable contribution or benefit on behalf of such
individual) shall be treated as if it were paid to
(or on behalf of) the five percent (5%) owner or
highly compensated employee.
Family members are subject to this aggregation rule whether or not they may be
excluded under Section 2.10 for purposes of determining the top-paid group and
whether or not they are highly compensated employees when considered separately.
2.7.2. FAMILY. For purposes of Section 2.7.1 of this Appendix, the term
"family" means, with respect to any employee, such employee's spouse and lineal
ascendants or descendants and the spouses of such lineal ascendants or
descendants.
2.7.3. PRIORITY. The determination of which employees are highly
compensated employees and which highly compensated employees are among the ten
highly compensated employees paid the greatest compensation during the
determination year or the look-back year shall be made prior to the application
of the family aggregation rules. Similarly, the determination of the number and
identity of employees in the top-paid group for a determination year or a
look-back year and the identity of the group of employees consisting of the 100
employees paid the greatest compensation for a determination year shall be made
prior to the application of the family aggregation rules. The family aggregation
rules apply separately to the determination year and the look-back year.
2.7.4. CHANGE IN FAMILY RELATIONSHIP. An individual is a family member
with respect to an employee or former employee if such individual is a family
member on any day during the determination year or the look-back year, even
though such relationship changes during such year as a result of death or
divorce.
2.8. COMPENSATION. For purposes of this Appendix the term "compensation" means
"ss. 415 compensation" as defined in Appendix A to this Plan Statement but
including amounts contributed by the Employer pursuant to a salary reduction
agreement which are excludible from the Participant's gross income under section
125, section 402(a)(8), section 402(h) or section 403(b) of the Code.
Compensation for any employee who performed services for only part of a year is
not annualized for purposes of determining such employee's compensation for the
determination year or the look-back year.
2.9. SEPARATION YEAR. Generally the "separation year" is the determination year
during which the employee separates from service with the Employer. An employee
who performs no services for the Employer during a determination year will be
treated as having separated from service in the year in which that employee last
performed services for the Employer.
2.9.1. DEEMED SEPARATION. Solely for the purpose of determining whether
an employee is a highly compensated former employee after the employee actually
separates from service, an employee may be deemed to have separated from service
during a determination year in which the employee actually performs some
services for the Employer. An employee will be deemed to have a separation year
if, in a determination year prior to the employee's attaining the age of 55, the
employee receives compensation in an amount less than 50% of the employee's
average annual compensation for the three consecutive calendar years preceding
such determination year during which the employee received the greatest amount
of compensation from the Employer (or the total period of the employee's service
with the Employer, if less). This deemed separation from service may occur
without regard to whether the reduction in compensation occurs on account of the
employee's leave of absence from service with the Employer.
2.9.2. DEEMED RESUMPTION. An employee who is treated as having a deemed
separation year by reason of Section 2.9.1 will not be treated as a highly
compensated former employee after such employee actually separates from service
with the Employer if, after such deemed separation year, and before the year of
actual separation, such employee's compensation from the Employer for a
particular determination year increased significantly so that such employee is
treated as having a deemed resumption of employment. In order for a deemed
resumption of employment to occur, there must be an increase in compensation
from the Employer to the extent that such compensation would not result in a
deemed separation year under Section 2.9.1 using the same three-year period
taken into account for purposes of that Section.
2.10. EXCLUDED EMPLOYEES.
2.10.1. GENERAL EXCLUSIONS. For purposes of determining the number of
employees in the top-paid group for a determination year or a look-back year
under Section 2.3 of this Appendix, the following employees shall be excluded:
(i) employees who have not completed six (6) months of
service by the end of the year;
(ii) employees who normally work less than seventeen and
one-half (17-1/2) hours per week;
(iii) employees who normally work during less than six (6)
months during the year; and
(iv) employees who have not attained age twenty-one (21)
by the end of the year.
For purposes of computing months of service, an employee's service in the
immediately preceding year is added to service in the current year to determine
whether an employee is excluded in the current year.
2.10.2. EMPLOYEES COVERED BY COLLECTIVE BARGAINING AGREEMENTS. In
general, employees who are included in a unit of employees covered by a
collective bargaining agreement are included in determining the number of
employees in the top-paid group. However, if ninety percent (90%) or more of all
employees are covered under collective bargaining agreements and this Plan
covers only employees who are not covered under such agreements, then the
employees who are covered under such collective bargaining agreements shall not
be counted in determining the number of employees who will be included in the
top-paid group. In addition, the employees covered by such agreements will not
be included in the top-paid group.
2.10.3. MINIMUM HOUR RULE. An employee who works at least 17-1/2 hours
a week for 50% or more of the total weeks worked by such employee during a
determination year or look-back year is deemed to normally work more than 17-1/2
hours a week. An employee who works less than 17-1/2 hours a week for fifty
percent (50%) or more of the total weeks worked by such employee during a
determination year or look-back year is deemed to normally work less than 17-1/2
hours a week. The foregoing determinations may be made separately with respect
to each employee or on the basis of groups of employees who fall within
particular job categories as established by the Employer on a reasonable basis.
In general, eighty percent (80%) of the positions within a particular job
category must be filled by employees who normally work less than 17-1/2 hours a
week before any employees may be excluded under this rule on the basis of their
membership in that job category. Alternatively, an Employer may exclude
employees who are members of a particular job category if the median number of
hours credited to employees in that category during a determination year or
look-back year is 500 or less.
2.10.4. MINIMUM PERIOD OF TIME RULE. The determination of whether an
employee normally works during less than six months in any determination year or
look-back year is made on the basis of the facts and circumstances of the
Employer as evidenced by the Employer's customary experience in the years
preceding such year. An employee who works on one day during a month is deemed
to have worked during that month.
2.10.5. NONRESIDENT ALIENS. Employees who are nonresident aliens and
who receive no earned income (within the meaning of section 911(d)(2) of the
Code) from the employer which constitutes income from sources within the United
States (within the meaning of section 861(a)(3) of the Code) are excluded for
all purposes of this Appendix.
2.11. ADJUSTMENTS TO DOLLAR AMOUNTS. The dollar amounts described in Section 1.1
(ii) and (iii) shall be adjusted for cost-of-living increases as provided by
regulations or other rulings by the Secretary of the Treasury. The applicable
dollar amount for a particular determination year shall be the dollar amount for
the calendar year in which the determination year begins. For determination
years beginning before January 1, 1987, the dollar amounts in Section 1.1 (ii)
and (iii) shall be $75,000 and $50,000 respectively.
2.12. ELECTION TO INCLUDE LEASED EMPLOYEES. The term "employee" shall include
all leased employees of the Employer, whether or not such leased employees are
covered by a "safe-harbor plan" as described in Section 414(n)(5) of the Code.
2.13. AGGREGATION. Subsections (b), (c), (m), (n), and (o) of section 414 of the
Code shall be applied before the application of the rules in this Appendix.
2.14. ELECTION OF SPECIAL RULE FOR EMPLOYEES WHO SEPARATED FROM SERVICE BEFORE
JANUARY 1, 1987. For purposes of determining who is a highly compensated former
employee for this Plan and for all plans of the Employer with respect to all
situations for which Section 414(q) of the Code is applicable to the Employer, a
former employee who separated from service prior to January 1, 1987, shall be
considered a highly compensated former employee if, during the employee's
separation year (or the year preceding such separation year) or during any year
ending on or after such employee's 55th birthday (or the last year ending before
such employee's 55th birthday), the employee was a five percent (5%) owner of
the Employer at any time during such year, or the employee received compensation
in excess of $50,000 during such year. This determination may be made on the
basis of the calendar year, the Plan Year or any other twelve month period
selected by the Employer and applied on a reasonable and consistent basis.
APPENDIX E
TEFRA SS. 242(B) TRANSITIONAL RULES
SECTION 1. IN GENERAL. Prior to January 1, 1984, each individual who was either:
(a) an actively employed Participant having an Account (or a
contribution accrued to an Account) as of December 31, 1983,
(b) a Participant not actively employed but having an Account (or
a contribution accrued to an Account) as of December 31, 1983,
or
(c) a Beneficiary of a deceased Participant having an Account (or
a contribution accrued to an Account) as of December 31, 1983
was given the opportunity to make a designation (before January 1, 1984) of a
method of distribution, that would not have disqualified the Plan under section
401(a)(9) of the Code as in effect prior to amendment by the Deficit Reduction
Act of 1984, pursuant to ss. 242(b) of the Tax Equity and Fiscal Responsibility
Act of 1982 (hereinafter a "ss. 242(b) designation"). Some of those individuals
elected to make a ss. 242(b) designation and some did not. The distribution
rules set forth in this Appendix shall, notwithstanding any provisions of
Section 7 of the Plan Statement to the contrary, determine the distributions
made with respect to all individuals entitled to make a ss. 242(b) designation,
provided that if the Plan is not an exempt profit sharing plan, the QJ&SA
contract or Life Annuity contract has been rejected as described in Section 7 of
the Plan Statement. Distributions made with respect to individuals not entitled
to make a ss. 242(b) designation shall be governed solely by Section 7 of the
Plan Statement.
SECTION 2. NO DESIGNATION. In the case of distributions to an individual where
no ss. 242(b) designation was made, distributions after December 31, 1983 shall
be made as follows:
(a) If such individual is a Participant whose benefits were in pay
status on December 31, 1983, and the method of distribution in
effect for such Participant was consistent with the provisions
of the Plan Statement at the time such distribution commenced,
then distribution shall continue to be made to such
Participant in accordance with the method of distribution in
effect on December 31, 1983, notwithstanding that distribution
could not have commenced under such method after December 31,
1983.
(b) If such individual is a Beneficiary whose benefits were in pay
status on December 31, 1983, and the method of distribution in
effect for such Beneficiary was consistent with the provisions
of the Plan Statement at the time such distribution commenced,
then distribution shall continue to be made to such
Beneficiary in accordance with the method of distribution in
effect on December 31, 1983, notwithstanding that distribution
could not have commenced under such method after December 31,
1983.
(c) If such individual is a Participant or a Beneficiary whose
benefits were not in pay status on December 31, 1983,
distribution shall be made in accordance with Section 7 of the
Plan Statement and, to the extent distribution cannot then be
made upon terms which are consistent with the provisions of
Section 7 of the Plan Statement, distribution shall be made as
soon as practicable after December 31, 1983 in a single lump
sum.
(d) For the purpose of the foregoing, benefits shall be considered
to have been in pay status on December 31, 1983 if
distribution had commenced on or prior to that date and was
being made under a written instrument signed by the
Participant or Beneficiary which fixed the person to whom such
benefits were payable, the time or times at which
distributions would be made and the amount (or formula
pursuant to which the amount would be determined) of each
distribution and was not subject to variation at the
discretion of the Participant or the Administrator's
Representative unless such variation would cause the
acceleration of distributions.
(e) Examples of circumstances in which distribution could not be
made upon terms consistent with the provisions of Section 7 of
the Plan Statement (and therefore would have to be made in a
single lump sum) include, but are not be limited to,
distribution to a Participant who was a key employee in a top
heavy plan and who had attained age seventy and one-half
(70-1/2) years before 1984, distribution to a Beneficiary who
was not the surviving spouse of the Participant if the
Participant died prior to 1979, and distribution to a
Beneficiary who is the surviving spouse of a Participant who
dies after December 31, 1983 at a time when distributions were
being made to such Participant for a term certain which
extended beyond the life expectancy of such Participant and
surviving spouse.
SECTION 3. DESIGNATION MADE. In the case of distributions to an individual where
a ss. 242(b) designation was made before January 1, 1984, the Administrator's
Representative shall honor such ss. 242(b) designation in making distributions
hereunder to all individuals identified in such ss. 242(b) designation. For this
purpose:
(a) A ss. 242(b) designation shall, to the extent necessary, be
deemed to incorporate by reference either the written
beneficiary designation filed by the Participant prior to or
coincident with the filing of a ss. 242(b) designation or, if
no such written beneficiary designation has been filed, the
automatic sequence of Beneficiaries provided under the Plan
document in effect on December 31, 1983.
(b) An individual who made a ss. 242(b) designation shall have the
right to revoke any ss. 242(b) designation filed by him at any
time by a written instrument delivered to the Employer. Upon
such revocation, distribution shall be made in accordance with
the provisions of Section 7 of the Plan Statement. To the
extent that distribution cannot then be made upon terms
consistent with the provisions of Section 7 of the Plan
Statement, distribution shall be made, as soon as practicable
after such revocation, in a single lump sum.
(c) A Beneficiary entitled to distribution under this Plan shall
have the right to revoke the ss. 242(b) designation insofar as
it applies to such Beneficiary. Upon such revocation,
distribution shall be made in accordance with the provisions
of Section 7 of the Plan Statement. If a designation is
revoked subsequent to the date distributions are required to
begin under Section 7 of the Plan Statement, 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 distribution to satisfy Section 7 of the Plan Statement,
but for the ss. 242(b) election. For calendar years beginning
after December 31, 1988, such distributions must meet the
minimum distribution incidental benefit requirements in Treas.
Reg. 1.401(a)(9)-2 (proposed). Any changes in the ss. 242
designation will be considered to be a revocation of the ss.
242 (b) designation. However, the mere substitution or
addition of another beneficiary (one not named in the ss. 242
(b) designation) under the ss. 242 (b) designation will not be
considered to be a revocation of the ss. 242 (b) designation,
so long as such substitution or addition does not alter the
period over which distribution are to be made under the ss.
242 (b) 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 of Treas. Reg.
1.401(a)(9)-1 (proposed) shall apply.
(d) If a Participant shall have filed a ss. 242(b) designation and
shall subsequently file (or amend) a written beneficiary
designation under the Plan, the ss. 242(b) designation shall
not be deemed to be revoked and the relevant measuring life or
lives for purposes of the ss. 242(b) designation shall
continue to be determined as described in paragraph (a) above,
without regard to any subsequent filing (or amendment) of a
written beneficiary designation or any subsequent amendment of
the automatic sequence of Beneficiaries under the Plan
Statement.
(e) A distribution to a Beneficiary will be governed by Section 7
of the plan Statement, unless the ss. 242 (b) designation
identifies the Beneficiary, specifies the time at which
distribution will commence and the period over which
distributions will be made, with respect to the distribution
to be made upon the death of the Participant.
(f) For any distribution which commences before January 1, 1984,
but continues after December 31, 1983, the Participant 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
satisfied the requirements in Section 1 and Section 3(e) of
this Appendix.
APPENDIX F
TRANSITIONAL DISTRIBUTION RULES
The Prototype Sponsor adopted the following memorandum and amendment:
MEMORANDUM AND AMENDMENT
TO: Sponsoring Employers of Defined Contribution Prototype
FROM: First Trust National Association ("Prototype Sponsor")
RE: Distributions from Plan
DATE: December 23, 1988
The Internal Revenue Service recently issued regulations which limit
the existence or the use of any Employer, Trustee, Administrator's
Representative or other similar discretion over the benefit forms under
qualified plans. In response to those regulations, the Prototype Sponsor decided
to amend the Defined Contribution Prototype pursuant to its reserved power of
amendment. This amendment is being adopted to protect and preserve the
sponsoring Employer's ability to design its own distribution rules for its Plan.
If the Prototype Sponsor did not take this action, all the options and decisions
would be surrendered to Participants or Beneficiaries. Accordingly, the
Prototype Sponsor's decision to amend the Defined Contribution Prototype gives
sponsoring Employers time to decide how to respond to these regulations.
Pursuant to Section 9.1.2 of the Basic Plan Document, the Prototype
Sponsor hereby amends the Basic Plan Document (and corresponding Adoption
Agreements) effective as of January 1, 1989, as follows:
SMALL AMOUNT DISTRIBUTIONS. A Vested Total Account which does not exceed Three
Thousand Five Hundred Dollars ($3,500) on the Annual Valuation Date immediately
following a Participant's Event of Maturity shall be automatically distributed
to the Participant in a lump sum as of that Annual Valuation Date without a
written application. The sponsoring Employer may in a written agreement with the
Prototype Sponsor modify this rule to increase the number of times each year
that a small amount distribution can be made (within limitations established by
the Prototype Sponsor).
TIME OF DISTRIBUTION. Distributions from the Plan may only be made as of an
Annual Valuation Date coincident with or following a Participant's Event of
Maturity. Thus, distributions shall only be made once a Plan Year. The
sponsoring Employer may in a written agreement with the Prototype Sponsor modify
this rule to increase the number of times each year that distributions can be
made (within limitations established by the Prototype Sponsor).
FORM OF DISTRIBUTION. Distributions from the Plan shall only be made in a lump
sum payment. This rule shall not apply to Participants and Beneficiaries
currently receiving payments under a specified plan of installment payments and
to Participants who have made a valid designation of a method of distribution
pursuant to section 242(b) of the Tax Equity and Fiscal Responsibility Act of
1982. In addition, a Plan that is not an exempt profit sharing plan (as defined
in the Basic Plan Document), shall provide that distribution may also be made by
purchasing a single life annuity contract for an unmarried participant or a
surviving spouse or by purchasing a qualified joint and survivor annuity
contract for a married participant. The sponsoring Employer may in a written
agreement with the Prototype Sponsor modify this rule to increase the
distribution options (within limitations established by the Prototype Sponsor).
ELECTION TO DEFER. The election to defer described in Section 7.2.3 of the Basic
Plan Document and all references to that Section are deleted.
DISTRIBUTION IN CASH. Subject to the annuity rules applicable to a plan that is
not an exempt profit sharing plan, all distributions from the Plan shall be made
in cash. If, however, the Vested Total Account to be distributed consists in
whole or in part of a Participant's unpaid promissory note, the distribution of
that portion of the Vested Total Account shall be made in the form of that
promissory note. If the Vested Total Account to be distributed consists in whole
or in part of a Participant's individually directed investments, the
distribution of that portion of the Vested Total Account shall be made in the
form of the assets held pursuant to that individual direction.
WITHDRAWALS FROM VOLUNTARY ACCOUNTS. If the Adoption Agreement allows
Participants to withdraw their nondeductible voluntary contributions and
deductible voluntary contributions, a Participant must submit a written
application specifying the amount of the withdrawal. The withdrawal will be made
as of the Annual Valuation Date coincident with or next following the approval
of a completed application and such withdrawal shall be made in a lump sum cash
payment as soon as practicable after such Annual Valuation Date. The sponsoring
Employer may in a written agreement with the Prototype Sponsor modify this rule
to increase the number of times each year that withdrawals can be made (within
limitations established by the Prototype Sponsor).
ACCELERATED DISTRIBUTIONS. Notwithstanding the elections made in the previously
completed Adoption Agreement, distributions during employment shall not be
allowed. The sponsoring Employer may in a written agreement with the Prototype
Sponsor modify this rule to allow in-service distributions in limited
circumstances (within limitations established by the Prototype Sponsor).
Section 9.1.2 of the Basic Plan Document provides that an Employer
shall be deemed to have consented to the amendment described in this memorandum
unless prior to thirty (30) days after the date this memorandum is sent, the
Employer exercises its reserved power of amendment by adopting a successor
retirement plan. You will note that a number of the rules described in this
memorandum allow the sponsoring Employer and the Prototype Sponsor to agree to
modifications. If you want to modify those rules, please contact your Trust
Officer to discuss possible modifications.
SUPPLEMENTAL ADOPTION AGREEMENT
FOR USE WITH
DEFINED CONTRIBUTION PROTOTYPE
By execution of this Supplemental Adoption Agreement, the Employer and
the Trustee agree that the Defined Contribution Prototype and previously
executed Adoption Agreement #___ are modified as follows:
A. EFFECTIVE DATE. The date upon which this Supplemental Adoption
Agreement is to be effective is: _______________, 19____.1/
B. VALUATION DATES. The Valuation Dates for the Plan shall be (check only
one):2/
____ the Annual Valuation Date.
____ the last day of the 6th month and the last month of the Plan
Year.
____ the last day of the 3rd, 6th, 9th and the last month of the
Plan Year.
____ the last day of each month of the Plan Year.
[ss. 1.1.34]
C. TIME OF DISTRIBUTION.3/
C.1. VALUATION DATES. Distribution will occur (check only one):
____ As of any Valuation Date specified in writing by the
Participant or Beneficiary which is coincident with or
following a Participant's Event of Maturity and following the
filing of any required application for distribution.
____ As of a date specified in writing by the Participant or
Beneficiary which is the Valuation Date coincident with or
immediately preceding the Participant's Event of Maturity or
any following Valuation Date preceding the filing of any
required application for distribution.4/
____ As of a date specified in writing by the Participant or
Beneficiary which is the Valuation Date immediately preceding
or coincident with the Participant's Event of Maturity or any
Valuation Date following a Participant's Event of Maturity and
the filing of any required application for distribution.4/
C.2. RESTRICTIONS. (Complete if want restrictions, if do not want a
restriction enter NA):
No distribution will be made until ____ years have elapsed
since the Participant's Event of Maturity and until the
Participant has attained ___ age. After those events have
occurred, distribution will be made as of the Valuation Date
(as selected in C.1.) specified in writing by the Participant.
If the Participant dies, becomes Disabled or attains Normal
Retirement Age, however, distribution will occur as of the
Valuation Date (as selected in C.1.) specified in writing by
the Participant (or, if applicable, the Beneficiary) following
such event.
[ss. 7.2]
D. FORM OF DISTRIBUTION.5/ Participants will be allowed to receive
distributions in one of the following form or forms (check one or
more):
____ Lump Sum - (check only one of the lump sum options):
____ Lump sum - single payment as of the Valuation Date
specified by the Participant and allowed in C.1.
____ Lump sum - including if the Participant requests, a
partial advance payment not to exceed the value of
the Vested Total Account on the Valuation Date
immediately preceding the Participant's Event of
Maturity.6/
____ Term Certain Installments - substantially equal annual
installments, the number of such installments to be specified
by the Participant before the first payment is made, but not
to exceed the Participant's life expectancy and to commence as
required by section 401(a)(9) of the Internal Revenue Code.7/
Beneficiaries will be allowed to receive distributions in one of the
following form or forms (check one or more):
____ Lump Sum - (check only one of the lump sum options):
____ Lump sum - single payment as of the Valuation Date
specified by the Beneficiary and allowed in C.1.
____ Lump sum - including if the Beneficiary requests, a
partial advance payment not to exceed the value of
the Vested Total Account on the Valuation Date
immediately preceding the Participant's death.6/
____ Term Certain Installments8/
____ 5 years of substantially equal annual installments
commencing within one year of the Participant's
death.
____ Substantially equal annual installments based on the
Beneficiary's life expectancy commencing within one
year of the Participant's death.
____ Substantially equal annual installments payable to
the Participant's spouse (if such spouse is a
Beneficiary) based on the spouse's life expectancy
commencing not later than when the Participant would
have attained age 70-1/2 years.
[ss. 7.3]
E. ACCELERATED DISTRIBUTIONS. Distributions during employment are
available to Participants for the following purposes:9/
____ unreimbursed medical expenses
____ educational expenses
____ purchase of home
[ss. 7.9]
FOR THE EMPLOYER
_____________, 19___ ____________________________________
(Signature and official capacity)
FOR THE TRUSTEE
_____________, 19___ By ________________________________
Its ____________________________
And _______________________________
Its ___________________________
FOOTNOTES
1/ The date must be on or after January 1, 1989.
2/ Valuation Dates shall also determine the number of times distributions
from the Plan shall be allowed. This includes small amount
distributions, distributions after an Event of Maturity and all
in-service distributions. Thus, in selecting the number of Valuation
Dates, the Employer is also selecting the number of distribution dates.
Decreasing the number of distribution dates shall be limited in certain
situations. Notwithstanding Section 1.1.34 of the Basic Plan Document,
the Administrator's Representative cannot designate Valuation Dates
other than the Valuation Dates designated in this Supplemental Adoption
Agreement.
3/ This rule only applies if a written application for distribution is
required. Thus, the rule does not apply to small amount distributions
and to required beginning date distributions.
4/ The selection of this option carries with it the risk of adverse
selection for investment performance that will be borne by the
remaining Participants and Beneficiaries and not the Distributee.
5/ If the Plan is not an exempt profit sharing plan, life annuities will
be available in addition to other forms selected in this Supplemental
Adoption Agreement.
6/ This option can only be selected if the Plan provides Annual
Valuations. If the Distributee requests a partial payment, the
Distributee may limit the possible tax treatment of the distribution
unless the partial payment is received in the same taxable year as the
remaining payment. The selection of this option carries with it the
risk of adverse selection for investment performance that will be borne
by the remaining Participants and Beneficiaries and not the
Distributee.
7/ Substantially equal and life expectancy are defined in the Basic Plan
Document.
8/ This can only be selected if Term Certain Installments to Participants
are allowed. Substantially equal and life expectancy are defined in the
Basic Plan Document.
9/ More than one may be checked. This may only be completed if using
Adoption Agreement #001 or Adoption Agreement #005. A Participant must
submit a written application specifying the amount of the distribution.
The application shall require a Participant to establish his or her
entitlement to the distribution. The distribution will be made as of
the Valuation Date coincident with or next following the approval of a
completed application and such distribution shall be made in a lump sum
cash payment as soon as practicable after such Valuation Date.
APPENDIX G
PLAN LOAN RULES
This Appendix G shall apply to all loans from the Plan.
(1) All Plan loans shall be administered by the Administrator's
Representative. Applications for loans shall be made to the
Administrator's Representative on forms available from the
Administrator's Representative.
(2) Loans shall be made available to all Participants and Beneficiaries on
a reasonably equivalent basis. Loans may be made for any purpose, and
all applications for loans that comply with Section 7.11 of the Plan
Statement will be granted. For this purpose, Participant shall include
only Participants who are active employees, a person shall be a
Beneficiary only after the death of the Participant who designated such
person as a Beneficiary, and an alternate payee shall be considered a
Beneficiary after the domestic relations order has been finally
determined to be a qualified domestic relations order.
(3) Loans shall not be made available to highly compensated employees (as
defined in Appendix D) in an amount (expressed as a percentage of
Vested Total Account) greater than the amount made available to other
Employees.
(4) No loans will be made to any Shareholder-Employee or Owner-Employee.
(5) All loans shall be secured by that portion of the Participant's Vested
Total Account equal to the lesser of (i) the amount of the loan, or
(ii) 50% of the Vested Total Account determined immediately before the
loan and reduced by the amount of any unpaid principal and interest on
any other loans secured by the Vested Total Account. The borrower may
grant a security interest in his or her "qualified residence" as
defined in section 163(h) of the Code if the borrower's unrestricted
equity interest is adequate to do so. No other security will be
permitted.
(6) All loans shall bear an interest rate equal to one (l) percentage point
over the reference rate in effect for the Trustee on the first business
day of the calendar month immediately preceding the date as of which
the loan is issued.
(7) Loans shall be for any term not to exceed 5 years except that loans to
acquire a dwelling unit which within a reasonable time (determined at
the time the loan is made) is to be used as the principal residence of
the Participant may be for any term that does not exceed 15 years.
(8) Loans shall be issued effective as of the first business day following
each Valuation Date for the Plan as selected by the Employer in the
Adoption Agreement.
(9) Applications for loans must be received at least fifteen (15) days
before the date as of which the loan is issued.
(10) Loans will be made only in multiples of $100.
(11) All loans must be repaid no less frequently than quarterly. The
Administrator's Representative may establish uniform and
nondiscriminatory rules governing the frequency and method of loan
payments.
(12) All loans must be repaid in substantially level amounts including
principal and interest over the term of the loan.
(13) Loans may be prepaid in their entirety (and not otherwise) on any
regular payment date.
(14) No loan shall be made to a married Participant without the consent of
the Participant's spouse, unless the Plan is an exempt profit sharing
plan as defined in Section 7.3.4 of the Plan Statement. To be valid,
the spouse's consent must be in writing, must acknowledge the effect of
the loan and the use of the Account as security, must be witnessed by a
notary public and must be given within ninety (90) days of the date the
loan is made. Spousal consent shall never be required for a loan to a
Beneficiary.
(15) Loans will be in default upon the occurrence of one of the following
"events of default": (a) the death of the borrower, and (b) the failure
to make any payment when it is due.
(16) Upon an event of default, the following procedures shall be followed:
(a) The Administrator's Representative shall notify the borrower
of the event of default as soon as reasonably possible after
it has occurred.
(b) If, but only if, this is the borrower's first default for this
particular loan, the borrower shall have ten (10) days after
receipt of notice or twenty (20) days after notice is mailed,
whichever occurs first, to cure the default.
(c) If this is the second default for the loan, there shall be no
opportunity to cure.
(d) If the default is not or cannot be cured, the entire
outstanding principal and accrued interest shall be
immediately due and payable. If not paid within five (5) days
after demand for payment is made, the loan shall be in actual
default.
(17) If the actual default of a loan occurs after an Event of Maturity has
occurred for the Participant, the trustee shall foreclose on the
promissory note and attach the security therefor. If an Event of
Maturity has not then occurred, the trustee shall foreclose on the
promissory note and attach the security therefor as soon as the first
Event of Maturity occurs for the Participant.
(18) While any loan is outstanding, no distribution shall be made from the
Participant's Account which would result in the remaining assets
(exclusive of a borrower's promissory notes) having a value less than
one hundred percent (100%) of the outstanding principal and accrued but
unpaid interest on all outstanding loans.
(19) Loans in default which have not been foreclosed shall continue to
accrue interest until paid or foreclosed.
(20) No loan shall be made to a borrower who has any loan in default.
(21) If required by applicable law, the Trustee shall file reports with the
taxing authorities regarding loans in default, treat such loans as
taxable distributions to the Participant or Beneficiary and withhold
tax payments from the Participant's Accounts.
(22) If a loan is made from the individual Account of a Participant and the
Account is invested in more than one investment Subfund authorized and
established under Section 4.1 of the Plan Statement, the borrower may
specify the Subfunds from which the loan shall be taken, and the amount
from each. If the borrower does not specify, the amount withdrawn to
make the loan shall be charged to each investment Subfund in accordance
with the priority rules established by the Administrator's
Representative to be applied in a uniform and nondiscriminatory manner.
FIRST AMENDMENT
OF
DEFINED CONTRIBUTION PROTOTYPE
BASIC PLAN DOCUMENT #01
(1989 RESTATEMENT)
FIRST TRUST NATIONAL ASSOCIATION ("First Trust") completely amended and
restated its Defined Contribution Prototype in a document entitled "DEFINED
CONTRIBUTION PROTOTYPE BASIC PLAN DOCUMENT #01 (1989 RESTATEMENT)" (hereinafter
referred to as the "Basic Plan Document"). Under Section 9.1.2 of the Basic Plan
Document, First Trust is authorized to amend the Basic Plan Document to assure
compliance with the applicable provisions of the Employee Retirement Income
Security Act of 1974 and the Internal Revenue Code of 1986, and also for any
other purpose that is appropriate. Because of regulations issued by the Internal
Revenue Service clarifying changes made by the Tax Reform Act of 1986, and to
otherwise modify certain provisions of the Basic Plan Document, First Trust
hereby amends the Basic Plan Document in the following respects first effective
for Plan Years beginning on or after January 1, 1993 for all adopting Employers.
1. RECOGNIZED COMPENSATION. Section 1.1.27 of the Basic Plan
Document is amended to read in full as follows:
1.1.27. RECOGNIZED COMPENSATION - an amount determined for a
Participant for a Plan Year which is the Participant's "ss. 415
compensation" as defined in the Appendix A to this Plan Statement,
subject, however, to the following:
(a) INCLUDED ITEMS. In determining a Participant's Recognized
Compensation there shall be included elective contributions
made by the Employer on behalf of the Participant that are not
includible in gross income under sections 125, 402(a)(8),
402(h), 403(b), 414(h)(2) and 457 of the Internal Revenue Code
including elective contributions authorized by the Participant
under a cafeteria plan or any other qualified cash or deferred
arrangement under section 401(k) of the Internal Revenue Code.
(b) EXCLUDED ITEMS. For purposes of allocating the Employer's
contribution and forfeited Suspense Accounts, if any, under
Section 3.2, Recognized Compensation shall not include
remuneration excluded by the Employer in the Adoption
Agreement.
(c) PRE-PARTICIPATION EMPLOYMENT. Remuneration paid by the
Employer attributable to periods prior to the date the
Participant became a Participant in the Plan shall not be
taken into account in determining the Participant's Recognized
Compensation.
(d) NON-RECOGNIZED EMPLOYMENT. Remuneration paid by the Employer
for employment that is not Recognized Employment shall not be
taken into account in determining a Participant's Recognized
Compensation.
(e) ATTRIBUTION TO PERIODS. A Participant's Recognized
Compensation shall be considered attributable to the period in
which it is actually paid and not when earned or accrued.
(f) ANNUAL MAXIMUM. A Participant's Recognized Compensation for a
Plan Year shall not exceed Two Hundred Thousand Dollars
($200,000), as adjusted under the Internal Revenue Code for
cost of living increases. In determining a Participant's
Recognized Compensation, the rules of section 414(q)(6) of the
Internal Revenue Code apply, except that in applying such
rules, the term "family" shall include only the spouse of the
Participant and lineal descendants of the Participant who have
not attained age nineteen (19) years before the close of the
Plan Year. If Participants are aggregated as such family
members (and do not otherwise agree in writing), the
Recognized Compensation of each family member shall equal Two
Hundred Thousand Dollars ($200,000) (as so adjusted)
multiplied by a fraction, the numerator of which is such
family member's Recognized Compensation (before application of
the $200,000 limit as adjusted) and the denominator of which
is the total Recognized Compensation (before application of
the $200,000 limit as adjusted) of all such family members.
2. ROLLOVER CONTRIBUTIONS. Section 3.4.1 of the Basic Plan Document is amended
by the addition of the following sentence to the end thereof:
3.4.1. ELIGIBLE CONTRIBUTIONS. Unless the Adoption Agreement precludes
it, Employees (whether or not they are Participants) in Recognized Employment
may contribute to this Plan, within such time and in such form and manner as may
be prescribed by the Administrator's Representative in accordance with those
provisions of federal law relating to rollover contributions, property
acceptable to the Trustee (or cash proceeds thereof) received by them in
eligible rollover distributions from certain types of qualified plan or trusts,
employee annuities and individual retirement accounts or annuities. The
provisions of this Section shall be subject to such conditions and limitations
as the Administrator's Representative may prescribe from time to time for
administrative convenience and to preserve the tax-qualified status of this
Plan. Also, the Administrator's Representative may establish rules and
conditions regarding the acceptance of direct rollovers under section 401(a)(31)
of the Internal Revenue Code from trustees or custodians of other qualified
pension, profit sharing or stock bonus plans.
3. ESTABLISHMENT OF SUBFUNDS. Section 4.1 of the Basic Plan Document is amended
by the addition of new subsection 4.1.5 to read in full as follows:
4.1.5. ERISA SECTION 404(C) COMPLIANCE. If the Administrator's
Representative and the Trustee agree, the Administrator's Representative may
establish investment subfunds and operational rules which are intended to
satisfy section 404(c) of the Employee Retirement Income Security Act of 1974
and the regulations thereunder. Such investment subfunds shall permit
Participants and Beneficiaries the opportunity to choose from at least three
investment alternatives, each of which is diversified, each of which present
materially different risk and return characteristics, and which, in the
aggregate, enable Participants and Beneficiaries to achieve a portfolio with
appropriate risk and return characteristics consistent with minimizing risk
through diversification. Such operational rules shall provide the following, and
shall otherwise comply with section 404(c) of the Employee Retirement Income
Security Act of 1974 and the regulations and rules promulgated thereunder from
time to time:
(a) Participants and Beneficiaries may give investment
instructions to the Trustee at least once every three months;
(b) the Trustee must follow the investment instructions of
Participants and Beneficiaries that comply with the Plan's
operational rules, provided that the Trustee may in any event
decline to follow any investment instructions that:
(i) would result in a prohibited transaction described in
section 406 of the Employee Retirement Income
Security Act of 1974 or section 4975 of the Internal
Revenue Code;
(ii) would result in the acquisition of an asset that
might generate income which is taxable to the Plan;
(iii) would not be in accordance with the documents and
instruments governing the Plan insofar as they are
consistent with Title I of the Employee Retirement
Income Security Act of 1974;
(iv) would cause a fiduciary to maintain indicia of
ownership of any assets of the Plan outside of the
jurisdiction of the district courts of the United
States other than as permitted by section 404(b) of
the Employee Retirement Income Security Act of 1974
and Department of Labor regulation section
2050.404b-1;
(v) would jeopardize the Plan's tax status under the
Internal Revenue Code;
(vi) could result in a loss in excess of a Participant's
or Beneficiary's Account balance;
(vii) would result in the acquisition or sale of any
employer real property or any employer security
unless such employer security acquisition satisfies
the conditions of section 408(e) of the Employee
Retirement Income Security Act of 1974 and Department
of Labor regulation section 2550.404c-1.
(c) Participants and Beneficiaries shall be periodically informed
of actual expenses to their accounts which are imposed by the
Plan and which are related to their Plan investment decisions;
(d) with respect to any subfund consisting of employer securities
and intended to satisfy the requirements of section 404(c) of
the Employee Retirement Income Security Act of 1974, (i)
Participants and Beneficiaries shall be entitled to all
voting, tender and other rights appurtenant to the ownership
of such securities, (ii) procedures shall be established to
ensure the confidential exercise of such rights, except to the
extent necessary to comply with Federal and state laws not
preempted by the Employee Retirement Income Security Act of
1974, and (iii) the Trustee shall ensure the sufficiency of
and compliance with such confidentiality procedures.
4. VALUATION AND ADJUSTMENT OF ACCOUNTS. Section 4.2 of the Basic Plan Document
is amended by the addition of new subsection (e) to read in full as follows:
(e) OTHER RULES. Notwithstanding the foregoing, the
Administrator's Representative and the Trustee may agree in
writing to revised rules or additional rules for the
adjustment of Accounts including, without limiting the
generality of the foregoing, the times when contributions
shall be credited under Section 3 for the purposes of
allocating gains or losses under this Section 4.
5. SPECIAL RULE FOR PARTIAL DISTRIBUTIONS. Section 5.1.3 of the Basic Plan
Document is amended to read in full as follows:
5.1.3. SPECIAL RULE FOR PARTIAL DISTRIBUTIONS. If a distribution is
made of less than the entire Employer Contributions Account of a Participant who
is not then fully (100%) Vested, then until the Participant becomes fully Vested
in his Employer Contributions Account or until he incurs five (5) or more
consecutive One-Year Breaks in Service, whichever first occurs, his Vested
interest in such account at any relevant time shall not be less than an amount
("X") determined by the formula: X=P (B + D) - D. For the purpose of applying
the formula, "P" is the Vested percentage at the relevant time (determined
pursuant to Section 5); "B" is the account balance at the relevant time; and "D"
is the amount of the distribution.
6. DIRECT ROLLOVERS. Effective January 1, 1993, Section 7.1 of the Basic Plan
Document is amended by the addition of new subsection 7.1.4 to read in full as
follows:
7.1.4. DIRECT ROLLOVER. Effective for distributions made on or after
January 1, 1993, a Distributee who is eligible to elect a direct rollover may
elect, at the time and in the manner prescribed by the Administrator's
Representative, to have all or any portion of an eligible rollover distribution
paid directly to an eligible retirement plan specified by the Distributee in a
direct rollover. A Distributee who is eligible to elect a direct rollover
includes only a Participant, a Beneficiary who is the surviving spouse of a
Participant and a Participant's spouse or former spouse who is the alternate
payee under a qualified domestic relations order, as defined in Appendix C.
(a) ELIGIBLE ROLLOVER DISTRIBUTION means any distribution of all
or any portion of a Total Account to a Distributee who is
eligible to elect a direct rollover except (i) any
distribution that is one of a series of substantially equal
installments payable not less frequently than annually over
the life expectancy of such Distributee or the joint and last
survivor life expectancy of such Distributee and such
Distributee's designated Beneficiary, and (ii) any
distribution that is one of a series of substantially equal
installments payable not less frequently than annually over a
specified period of ten (10) years or more, and (iii) any
distribution to the extent such distribution is required under
section 401(a)(9) of the Code, and (iv) the portion of any
distribution that is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
(b) ELIGIBLE RETIREMENT PLAN means (i) an individual retirement
account described in section 408(a) of the Code, or (ii) an
individual retirement annuity described in section 408(b) of
the Code, or (iii) an annuity plan described in section 403(a)
of the Code, or (iv) a qualified trust described in section
401(a) of the Code that accepts the eligible rollover
distribution. However, in the case of an eligible rollover
distribution to a Beneficiary who is the surviving spouse of a
Participant, an eligible retirement plan is only an individual
retirement account or individual retirement annuity as
described in section 408 of the Code.
(c) DIRECT ROLLOVER means the payment of an eligible rollover
distribution by the Plan to the eligible retirement plan
specified by the Distributee who is eligible to elect a direct
rollover.
7. LOANS. The introductory paragraph of Section 7.11, Section 7.11.3 (b) and
Section 7.11.4 of the Basic Plan Document are amended to read in full as
follows:
7.11. LOANS. Unless the Adoption Agreement precludes it, loans may be made to
Participants from this Plan who are not Owner-Employees or Shareholder-
Employees subject to this Section 7.11.
. . . .
7.11.3.
. . . .
(b) COORDINATION WITH SECTION 4.1. If a loan is made from an Account
which is invested in more than one investment Subfund authorized and established
under Section 4.1, the amount withdrawn in order to make the loan shall be
charged pro rata to each investment Subfund. All repayments of principal and
interest shall be allocated among the investment Subfunds that the borrower has
elected for investment at the time repayment is received.
. . . .
7.11.4. LOAN RULES. All loans must comply with the loan rules
established by the Trustee from time to time. If the Employer adopts other loan
rules inconsistent with the rules established by the Trustee, the Employer will
have made an unauthorized amendment to the Plan and will be governed by the
provisions of Section 9.1.1.
8. OTHER TRUST POWERS. Section 10.6 (a) of the Basic Plan Document is amended to
read in full as follows:
(a) To invest and reinvest any investment Subfunds established
pursuant to Section 4.1 in accordance with the investment
characteristics and objectives determined therefor and to
invest and reinvest the assets of the Fund in any securities
or properties in which an individual could invest his own
funds and which it deems for the best interest of the Fund,
without limitation by any statute, rule of law or regulation
of any governmental body prescribing or limiting the
investment of trust assets by corporate or individual
trustees, in or to certain kinds, types or classes of
investments or prescribing or limiting the portion of the Fund
which may be invested in any one property or kind, type or
class of investment. Specifically and without limiting the
generality of the foregoing, the Trustee may invest and
reinvest principal and accumulated income of the Fund in any
real or personal property; preferred or common stocks of any
kind or class of any corporation, including but not limited to
investment and small business investment companies of all
types; voting trust certificates; interests in investment
trusts; interests in any limited or general partnership or
other business enterprise, however organized and for whatever
purpose; group or individual annuity contracts (which may
involve investment in the issuer's general account or any of
its separate accounts); interests in common or collective
trusts, variable interest notes or any other type of
collective fund maintained by a bank or similar institution
(whether or not the Trustee hereunder); shares of any
regulated investment company (mutual fund) provided, however,
if the Trustee or any of its affiliates acts as investment
advisor or other service provider for such mutual fund
(including the First American Funds, Inc. and the First
American Investment Funds, Inc.), then the Employer (or other
fiduciary independent of the Trustee) must first acknowledge
that it has received the current prospectus for the mutual
fund and a detailed written disclosure of the investment
advisory and other fees charged or to be paid by the Plan or
the mutual fund and the Employer (or such other fiduciary)
must approve the investment advisory fee and other fees paid
by the Plan directly or through the mutual fund and the
investment of Plan assets in the mutual funds; any
interest-bearing certificates, accounts or similar
interest-bearing instruments in a bank or similar financial
institution, including the Trustee or an affiliate of the
Trustee, provided such certificates, accounts or instruments
bear a reasonable rate of interest; bonds, notes and
debentures, secured or unsecured; mortgages, leases or other
interests in real or personal property; interests in mineral,
gas, oil or timber properties or other wasting assets;
options; commodity or financial futures contracts; foreign
currency; insurance contracts on the life of any "keyman" or
shareholder of the Employer; or conditional sales contracts.
The Plan may not acquire or hold any securities issued by an
Employer or real estate leased to an Employer except that the
Trustee acting pursuant to the express written directions of
the Employer as provided in Section 10.12 may acquire and hold
Employer securities which are "qualifying employer securities"
(within the meaning of section 407(d)(5) of the Employee
Retirement Income Security Act of 1974) and Employer real
property which is "qualifying employer real property" (within
the meaning of section 407(d)(4) of the aforesaid Act); and,
provided further, that the Plan may acquire any such Employer
securities or Employer real property only if immediately after
such acquisition the aggregate fair market value of Employer
securities and Employer real property held by the Plan does
not exceed the lesser of (i) the percentage indicated in the
Adoption Agreement of the fair market value of the assets of
the Plan, or (ii) the then value of all Employer Matching
Accounts and Employer Contributions Accounts. If the Trustee
determines to invest in any "qualifying employer security,"
such securities shall be held only in the Employer Matching
Accounts or Employer Contributions Accounts or in the Suspense
Accounts attributable to such Accounts. Investment of the
entire Fund in common stocks shall be deemed appropriate at
any phase of the economic business cycle, but it is not,
however, the purpose hereof to direct that the Fund shall be
invested either entirely or to any extent whatsoever in such
common stocks. Prior to maturity and distribution of the
Vested Total Accounts of Participants, the Trustee shall
commingle the Accounts of Participants and former Participants
in each investment Subfund and invest, reinvest, control and
manage each of the same as a common trust fund.
9. EMPLOYER DIRECTED INVESTMENTS. Section 10.12 of the Basic Plan Document is
amended by the addition of the a new sentence to the end thereof to read in full
as follows:
The Employer may direct the Trustee to purchase shares of any regulated
investment company (mutual fund) for which the Trustee or any of its
affiliates acts as investment advisor or other service provider,
provided, however, that the Employer (or other fiduciary independent of
the Trustee) must first acknowledge it has received the current
prospectus for the mutual fund (including the First American Funds,
Inc. and the First American Investment Funds, Inc.) and a detailed
disclosure of the investment advisory and other fees charged or to be
paid by the Plan and the Employer must approve the investment advisory
fee and other fees paid by the Plan directly or through the mutual
funds and the investment of Plan assets in the mutual fund.
10. APPENDIX A - SECTION 415 LIMITATIONS. Section 1.12 of Appendix A to the
Basic Plan Document is amended to read in full as follows:
1.12. SS.415 COMPENSATION. Section 415 compensation (sometimes, "ss.
415 compensation") shall mean, with respect to any limitation year, the
wages, tips and other compensation paid to the Participant by the
Employer and reportable in the box designated "wages, tips, other
compensation" on Treasury Form W-2 (or any comparable successor box or
form) for the limitation year but determined without regard to any
rules that limit the remuneration included in wages based on the nature
or location of the employment or the services performed (such as the
exception for agricultural labor in section 3401(a)(2) of the Internal
Revenue Code). For limitation years beginning after December 31, 1991,
ss. 415 compensation shall be determined on a cash basis.
11. MISCELLANEOUS CHANGES. The following changes are also made to the Basic Plan
Document:
a. Section 1.1.27(f) of the Basic Plan Document is amended by changing
the reference to Section 1.1.27(c) to 1.1.27(d).
b. Section 7.2 of the Basic Plan Document is amended by changing the
reference to Section 7.7.1 to 7.1.1.
c. The last paragraph of Section 7.2.2 of the Basic Plan Document is
amended by changing the reference to Section 2.2.2 to 7.2.2.
12. SAVINGS CLAUSE. Save and except as hereinabove expressly amended, the Basic
Plan Document shall continue in full force and effect.
SECOND AMENDMENT
OF
DEFINED CONTRIBUTION PROTOTYPE
BASIC PLAN DOCUMENT #01
(1989 RESTATEMENT)
FIRST TRUST NATIONAL ASSOCIATION ("First Trust") is the prototype
sponsor of a defined contribution prototype which in its most recent amended and
restated form is embodied in a document entitled "DEFINED CONTRIBUTION PROTOTYPE
BASIC PLAN DOCUMENT #01 (1989 RESTATEMENT)" as amended by a First Amendment
(collectively the "Basic Plan Document"). Under Section 9.1.2 of the Basic Plan
Document, First Trust is authorized to amend the Basic Plan Document to assure
compliance with the applicable provisions of the Employee Retirement Income
Security Act of 1974 and the Internal Revenue Internal Revenue Code of 1986, and
also for any other purpose that is appropriate. Because of regulations and
revenue procedures issued by the Internal Revenue Service clarifying changes
made by the Omnibus Budget Reconciliation Act of 1993 and the Unemployment
Compensation Amendments of 1992, First Trust hereby amends the Basic Plan
Document in the following respects for all adopting Employers.
1. RECOGNIZED COMPENSATION. Effective for determining the amount of Recognized
Compensation during Plan Years beginning on or after January 1, 1994, Section
1.1.27 (f) of the Basic Plan Document is amended to read in full as follows:
(f) ANNUAL MAXIMUM. A Participant's Recognized Compensation for a
Plan Year shall not exceed the annual compensation limit under
section 401(a)(17) of the Internal Revenue Code. In
determining a Participant's Recognized Compensation, the rules
of section 414(q)(6) of the Internal Revenue Code apply,
except that in applying such rules, the term "family" shall
include only the spouse of the Participant and lineal
descendants of the Participant who have not attained age
nineteen (19) years before the close of the Plan Year. If
Participants are aggregated as such family members (and do not
otherwise agree in writing), the Recognized Compensation of
each family member shall equal the annual compensation limit
under section 401(a)(17) of the Internal Revenue Code
multiplied by a fraction, the numerator of which is such
family member's Recognized Compensation (before application of
such annual compensation limit) and the denominator of which
is the total Recognized Compensation (before application of
such annual compensation limit) of all such family members.
For purposes of the foregoing, the annual compensation limit
under section 401(a)(17) of the Internal Revenue Code shall be
Two Hundred Thousand Dollars ($200,000) (as adjusted under the
Internal Revenue Code for cost of living increases) for Plan
Years beginning before January 1, 1994, and shall be One
Hundred and Fifty Thousand Dollars ($150,000) (as so adjusted)
for Plan Years beginning on or after January 1, 1994.
2. NOTICES. Effective for distributions payable on or after January 1, 1993,
Section 7.1 of the Basic Plan Document is amended by adding thereto new Section
7.1.5 which shall read in full as follows:
7.1.5. NOTICES. The Administrator's Representative will issue such
notices as may be required under sections 402(f), 411(a)(11), 417(a)(3) and
other sections of the Internal Revenue Code in connection with distributions
from the Plan. No distribution will be made unless it is consistent with such
notice requirements. If the Plan is an exempt profit sharing plan as defined in
Section 7.3.4 (d), distribution may commence less than thirty (30) days after
the notice required under section 1.411(a)-11(c) of the Income Tax Regulations
or the notice required under section 1.402(f)-2T of the Income Tax Regulations
is given, provided that:
(a) The Administrator's Representative informs the Distributee
that the Distributee has a right to a period of at least
thirty (30) days after receiving the notice to consider the
decision of whether or not to elect distribution (and, if
applicable, a particular distribution option); and
(b) The Distributee, after receiving the notice, affirmatively
elects in the manner prescribed by the Administrator's
Representative a distribution.
3. APPENDIX B TOP HEAVY RULES. Effective for determining the minimum required
top heavy contribution percentage under a defined contribution plan for Plan
Years beginning on or after January 1, 1994, Section 3.3.2 (a) of Appendix B to
the Basic Plan Document is amended to read in full as follows:
(a) The percentage referred to above shall be determined by
dividing the Employer contributions for such Key Employee for
such Plan Year by so much of his compensation for such Plan
Year as does not exceed One Hundred and Fifty Thousand Dollars
($150,000) (as adjusted for cost of living in accordance with
section 401(a)(17)(B) of the Internal Revenue Code).
4. SAVINGS CLAUSE. Save and except as hereinabove expressly amended, the Basic
Plan Document shall continue in full force and effect.
ADOPTION AGREEMENT #001
STD - PS - NINT
FOR USE WITH
DEFINED CONTRIBUTION PROTOTYPE
BASIC PLAN DOCUMENT #01
1989 RESTATEMENT
-----------
PROFIT SHARING - NOT INTEGRATED WITH SOCIAL SECURITY
-----------
ARTICLE I. PLAN ADOPTED
By execution of this Adoption Agreement, the Employer and the Trustee
agree that this Adoption Agreement and the related document entitled "Defined
Contribution Prototype Basic Plan Document #01 1989 Restatement" are adopted as
the formal written instrument under which the Employer will maintain a defined
contribution profit sharing plan for the benefit of its Employees which are
eligible to participate. The Plan which the Employer maintains is intended to
qualify under Internal Revenue Code section 401(a) and to be funded through a
fund exempt from federal income taxes under Internal Revenue Code section
501(a).
(i) The Prototype Sponsor will furnish the Employer a copy of the
opinion letter issued by the Internal Revenue Service with
respect to the form of the Prototype Documents.
(ii) If the Prototype Sponsor amends the Prototype Documents, the
Prototype Sponsor will furnish the Employer a copy of the
amendment and a copy of any opinion letter issued by the
Internal Revenue Service with respect to the form of such
amendment.
(iii) If the Employer desires a determination letter from the IRS on
the qualification of the Plan, the Employer (and not the
Trustee or the Prototype Sponsor) is responsible for obtaining
the determination letter.
(iv) The Employer will furnish the Trustee with a copy of any
determination letter it receives on the Plan created by the
Employer under the Prototype Documents.
(v) The Employer (and not the Trustee or the Prototype Sponsor) is
responsible for the compliance with all laws regarding the
filing of the Annual Report/Return with the government and
distributing the Summary Plan Description, Summary Annual
Report and Summary of Material Modifications to Participants
and Beneficiaries.
(vi) The Employer hereby directs the Trustee to withhold federal
income taxes from distributions from the Plan subject to the
Employer's obligation to furnish the Trustee with all
information necessary for the Trustee to properly withhold
federal income taxes from distributions.
(vii) The Employer understands that failure to properly fill out or
amend this Adoption Agreement may result in disqualification
of the Plan.
(viii) If the Prototype Sponsor discontinues or abandons the
Prototype Documents, the Prototype Sponsor will inform the
Employer.
(ix) This Adoption Agreement is not effective unless the Prototype
Sponsor (or its authorized representative) has consented, in
writing, to the use of this Adoption Agreement and the
Prototype Documents.
(x) The Employer understands that this is a legal document with
significant tax and other legal effects and represents that
this document has been reviewed by the Employer's own legal
counsel.
ARTICLE II. THE EMPLOYER
A. The Employer's/9 name and address is:
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
[ss. 1.1.11]
B. The Employer is organized under the laws of the state of _____________
as a:
______ corporation.
______ partnership.
______ proprietorship.
______ other (specify).
[ss. 1.1.11]
C. The Employer's principal trade or business with respect to which this
Plan is established is: ___________________________________________/10
D. The Employer's annual accounting period (federal income tax year) ends:
_______________________________________
[ss. 1.1.4]
E. The Employer's federal taxpayer identification number is: ____________
- ---------
9/ The Internal Revenue Service requires that all corporations,
partnerships and proprietorships which are under common control must
join in the creation of a Plan under this Adoption Agreement. If one or
more members of such controlled group of corporations, partnerships or
proprietorships fails to join in the Adoption Agreement, the Employer
who does execute the Adoption Agreement must nevertheless contribute
for the employees of the non-adopting members. Those contributions for
employees of non-adopting members may not be deductible.
10/ Describe the business and insert the proper business code from the
current instructions to IRS Form 5500.
ARTICLE III. THE TRUSTEE
A. The name and address of the Trustee to be used for reporting and
disclosure purposes is:
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
B. The federal taxpayer identification number assigned to the Trustee is:
______________________________________________________________
C. The Prototype Sponsor's authorized representative for inquiries
regarding the adoption of the Prototype Documents, intended meaning of
the Prototype Documents and effect of the opinion letter is:
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
( ) -
_________ ______ _______________
ARTICLE IV. HISTORY OF THE PLAN
A. The execution of this Adoption Agreement is intended to:
_____ create a new Plan (do not complete items B and C)./11
_____ amend an existing Plan.
[ss. 1.1.21]
B. The existing Plan which is being amended was:
______ maintained under this prototype or another prototype also
sponsored by the same Trustee as this Plan.
______ maintained under some other master, prototype or individually
designed document.
[ss. 1.1.24]
C. The name of the Plan under the earlier Plan document was: _____________
_________________./12 The trustee under the earlier Plan document was:
____________________________. The date that the earlier Plan document
was executed (or most recently amended) was: _______________, 19__.
[ss. 1.1.24]
- ---------
11/ The Employer's execution of a new Adoption Agreement, changing of
Trustee, amending of plan documents, or doing all of these things at
the same time does not necessarily mean that a new plan is being
created.
12/ Do not insert the name of an earlier prototype document but rather the
name of the plan.
D. Upon the execution of this Adoption Agreement, the Plan name for
reporting and disclosure purposes will be: ________________________./13
[ss. 1.1.21]
E. The three digit Plan serial number ("PN") which will be used by the
Employer for reporting and disclosure purposes is:_________________/14
F. The Effective Date (the date upon which this Adoption Agreement is to
be effective) is: ___________________, 19___./15
[ss. 1.1.8]
G. The last day of the Plan Year (the fiscal year of the Plan) is:
_____________________________./16
[ss. 1.1.23]
ARTICLE V. ELIGIBILITY REQUIREMENTS/17
A. The minimum age which each Employee must satisfy before becoming a
Participant in the Plan is the attainment of at least _____ years (not
greater than 21).
[ss. 2.1, ss. 1.2]
B. To become a Participant in the Plan each Employee must complete at
least:/18
_______ No years of Eligibility Service.
_______ One year of Eligibility Service.
_______ Two years of Eligibility Service without an intervening One-
Year Break in Service.
[ss. 2.1, ss. 1.1.9]
- ---------
13/ Use a name that combines the Employer's name and words like "Retirement
Plan" or "Pension Plan" or "Profit Sharing Plan." Do not use
"Prototype" in the plan name. Whatever name is chosen must be
consistently used for reporting and disclosure purposes.
14/ Select a number such as "001", "002", "003", etc. This number must
never have been previously used by the Employer to identify any plan
but this Plan.
15/ If this is a new plan, enter the first day of the Plan Year in which
the Adoption Agreement is signed (or any later date). The Effective
Date should be no earlier than the later of the first day of the first
Plan Year beginning after December 31, 1988, or the first day of the
Plan Year in which the Plan is adopted; provided, however, certain
provisions specified in the Plan Statement shall be applicable prior to
that date for any Employer maintaining a Plan prior to January 1, 1989.
16/ It is generally recommended that the Plan Year coincide with the
Employer's tax year, but this is not required. If the Employer's tax
year is changed, the Plan Year does not automatically change.
17/ If the eligibility requirements in this Article are not completed or
marked not applicable, Employees will not be required to satisfy any
minimum age requirement or any length of service requirement before
becoming a Participant in the Plan. Each such Employee will become a
Participant in the Plan on the date he is first employed by the
Employer. See footnote 1.
18/ Unless the Adoption Agreement provides that the Employer Contributions
Accounts are fully (100%) Vested and nonforfeitable at all times, no
more than one year of Eligibility Service may be required.
C. The computation period for Eligibility Service will be:
_______ As set forth in Section 1.1.9(a)(i), the year beginning with
the date the Employee first performs an Hour of Service and
then Plan Years./19
_______ As set forth in Section 1.1.9(a)(ii), successive years
beginning on the date the Employee first performs an Hour of
Service and annual anniversaries of the date the Employee
first performs an Hour of Service.
[ss. 1.1.9]
D. Each Employee who is then in Recognized Employment will become a
Participant in the Plan:
_______ On the Entry Date immediately preceding the date the age and
service requirements are satisfied.
_______ On the Entry Date immediately following the date the age and
service requirements are satisfied./20
_______ On the Entry Date nearest (either preceding or following) the
date the age and service requirements are satisfied.
[ss. 2.1, ss. 1.1.12]
E. The Entry Dates shall be:
_______ the first day of each Plan Year.12/
_______ the first day of the Plan Year and the first day of the 7th
calendar month of each Plan Year.
_______ the first day of the Plan Year and the first day of the 4th,
7th and 10th calendar months of each Plan Year.
_______ the first day of the Plan Year and the first day of the 2nd
through the 12th calendar months of the Plan Year.
[ss. 1.1.12]
ARTICLE VI. EMPLOYER CONTRIBUTIONS
A. The Employer shall contribute from time to time during the continuance
of this Plan the amount, if any, as the Employer shall determine in its
discretion./21
[ss. 3.1.1]
- ---------
19/ This is the easier rule to administer but it does result in counting
some of the same Hours of Service in both "the year beginning on the
date he first performs an Hour of Service" and the overlapping next
"plan year." Accordingly, the other rule may be more appropriate when
more than one year of Eligibility Service is required.
20/ If a Participant is to commence "on the Entry Date immediately
following the date the age and service requirements are satisfied" then
the Entry Date cannot be the "first day of each Plan Year."
21/ If the Plan is or becomes "top heavy" as defined in Appendix B, a
minimum contribution will be required for Participants who are not Key
Employees. See Appendix B.
B. Employer contributions under this Plan are not integrated with Social
Security contributions. Employer contributions shall be allocated to
the Employer Contributions Accounts of eligible Participants in
accordance with Section 3.2.2.
[ss. 3.2.2]
C. Will Participants who terminate employment during the Plan Year with
not more than 500 Hours of Service, and who are not employed on the
last day of a Plan Year share in the Employer contribution (and
forfeited Suspense Accounts, if any) to be allocated for that Plan
Year?/22
_______ yes
_______ no
[ss. 3.2.1]
D. Forfeited Suspense Accounts shall be:/23
_______ Reallocated among Participants as additional Employer
contributions
_______ Used to reduce Employer contributions
[ss. 6.2]
E. If the Employer makes a contribution in advance of the Valuation Date
as of which the contribution is allocated to Participant's Accounts,
then the earnings on such advance contribution will be (check only
one):
_______ Added to the Employer's contribution and allocated as part of
the contribution (which may serve to reduce the Employer's
total contribution for the Plan Year).
_______ Added to the general earnings of the fund and allocated as
part of such earnings.
ARTICLE VII. PARTICIPANT CONTRIBUTIONS
A. Will Participants be allowed to withdraw their nondeductible voluntary
contributions and deductible voluntary contributions (and earnings
thereon) before an Event of Maturity?
_______ yes
_______ no
[ss. 7.8]
B. Will Employees in Recognized Employment be allowed to make rollover
contributions?
_______ yes
_______ no
[ss. 3.4]
- ---------
22/ An Employee who left your employment during the Plan Year AND who
performed more than 500 Hours of Service before leaving, must be
included for testing compliance with the Internal Revenue Code
ss. 410(b) coverage requirements.
23/ If the Plan provides for full (100%) Vesting at all times, this does
not need to be completed. If a business entity related to the Employer
adopts this Plan, forfeitures must be used to reduce Employer
contributions as provided in Section 9.4.3 of the Plan Statement.
ARTICLE VIII. VESTING OF EMPLOYER CONTRIBUTIONS
ACCOUNTS
A. Effective for Participants who perform one or more Hours of Service on
or after the Effective Date, each Participant's Employer Contributions
Account shall become Vested in him as follows:
_______ FULL VESTING. Each Participant's Employer Contributions
Account shall be fully (100%) Vested at all times.
_______ GRADUATED OR CLIFF VESTING./24 Each Participant's Employer
Contributions Account shall be Vested in him in accordance
with the following schedule:
The Vested Portion of His
When the Participant Has Completed Employer Contributions
the Following Vesting Service: Account Will Be: /25
--------------------------------- ----------------------------
2 to 6 3 year cliff
------ -------------
Less than 1 year _____% (0%) (0%)
1 year but less than 2 years _____% (0%) (0%)
2 years but less than 3 years _____% (20%) (0%)
3 years but less than 4 years _____% (40%) (100%)
4 years but less than 5 years _____% (60%)
5 years but less than 6 years _____% (80%)
6 years or more 100%
[ss. 5.1.1]
B. Notwithstanding any of the foregoing, each Participant's Employer
Contributions Account shall be 100% Vested in him upon his attainment
of his Normal Retirement Age or, if earlier, his attainment of age
_____ years while in the employment of the Employer.
[ss. 5.1.2]
C. The Normal Retirement Age for each Participant is:
_______ The Participant's _________ birthday (not greater than 65th).
_______ The Participant's _________ birthday (not greater than 65th)
or, if later, the anniversary (not greater than 5th) of the
first day of the Plan Year in which the Participant first
became a Participant.
[ss. 1.1.18]
- ---------
24/ This Vesting provision can be elected only if the Adoption Agreement
provides for a service requirement of 1 year of Eligibility Service or
no years of Eligibility Service.
25/ The percentage at every level must not be less than the percentage in
the first set of parenthesis if using 2 to 6 year vesting or less than
the percentage in the second set of parenthesis if using 3 year "cliff"
vesting.
ARTICLE IX. DISTRIBUTIONS
A. VALUATION DATES. The Valuation Dates for the Plan shall be (check only
one):/26
_______ the Annual Valuation Date.
_______ the last day of the 6th month and the last month of the Plan
Year.
_______ the last day of the 3rd, 6th, 9th and the last month of the
Plan Year.
_______ the last day of each month of the Plan Year.
[ss. 1.1.30]
B. EVENTS OF MATURITY.
Will the Participant's attainment of age 59-1/2 be an Event of Maturity
(in addition to the other Events of Maturity listed in Section 6.1 of
the Plan Statement)?
_______ Yes
_______ No
[ss. 6.1]
C. TIME OF DISTRIBUTION. Distribution will occur (check only one):/27
_______ As of any Valuation Date specified in writing by the
Participant or Beneficiary which is coincident with or
following a Participant's Event of Maturity and following the
filing of any required application for distribution.
_______ As of a date specified in writing by the Participant or
Beneficiary which is the Valuation Date coincident with or
immediately preceding the Participant's Event of Maturity or
any following Valuation Date preceding the filing of any
required application for distribution./28
_______ As of a date specified in writing by the Participant or
Beneficiary which is the Valuation Date immediately preceding
or coincident with the Participant's Event of Maturity or any
Valuation Date following a Participant's Event of Maturity and
the filing of any required application for distribution.20/
[ss. 7.2]
D. FORM OF DISTRIBUTION. Participants will be allowed to receive
distributions in one of the following form or forms (check one or
more):
_______ LUMP SUM - (check only one of the lump sum options):
- ---------
26/ Valuation Dates shall also determine the number of times distributions
from the Plan shall be allowed. This includes small amount
distributions, distributions after an Event of Maturity and all
in-service distributions. Thus, in selecting the number of Valuation
Dates, the Employer is also selecting the number of distribution dates.
Decreasing the number of distribution dates shall be limited in certain
situations. The Administrator's Representative cannot designate
Valuation Dates other than the Valuation Dates designated in this
Adoption Agreement.
27/ This rule only applies if a written application for distribution is
required. Thus, the rule does not apply to small amount distributions
and to required beginning date distributions.
28/ The selection of this option carries with it the risk of adverse
selection for investment performance that will be borne by the
remaining Participants and Beneficiaries and not the Distributee.
_______ Lump sum - single payment as of the Valuation Date
specified by the Participant and allowed in C.
_______ Lump sum - including if the Participant requests, a
partial advance payment not to exceed the value of
the Vested Total Account on the Valuation Date
immediately preceding the Participant's Event of
Maturity./29
_______ FIXED INSTALLMENTS - substantially equal annual installments,
the number of such installments to be specified by the
Participant before the first payment is made, but not to
exceed the Participant's life expectancy./30
_______ MINIMUM INSTALLMENTS - substantially equal annual
installments, the number of such installments to be determined
by the Participant's life expectancy or the joint and last
survivor life expectancy of the Participant and his or her
Beneficiary.22/
Beneficiaries will be allowed to receive distributions in one of the
following form or forms (check one or more):
_______ LUMP SUM - (check only one of the lump sum options):
_______ Lump sum - single payment as of the Valuation Date
specified by the Beneficiary and allowed in C.
_______ Lump sum - including if the Beneficiary requests, a
partial advance payment not to exceed the value of
the Vested Total Account on the Valuation Date
immediately preceding the Participant's death.21/
_______ INSTALLMENTS/31
_______ 5 years of substantially equal annual installments
commencing within one year of the Participant's
death.
_______ Substantially equal annual installments based on the
Beneficiary's life expectancy commencing within one
year of the Participant's death.
_______ Substantially equal annual installments payable to
the Participant's spouse (if such spouse is a
Beneficiary) based on the spouse's life expectancy
commencing not later than when the Participant would
have attained age 70-1/2 years.
[ss. 7.3]
- ---------
29/ This option can only be selected if the Plan provides Annual
Valuations. If the Distributee requests a partial payment, the
Distributee may limit the possible tax treatment of the distribution
unless the partial payment is received in the same taxable year as the
remaining payment. The selection of this option carries with it the
risk of adverse selection for investment performance that will be borne
by the remaining Participants and Beneficiaries and not the
Distributee.
30/ Substantially equal and life expectancy are defined in the Basic Plan
Document.
31/ This can only be selected if Installments to Participants are allowed.
If the Participant died on or after the April 1 following the calendar
year in which the Participant attained age seventy and one-half
(70-1/2) years, the only installment payments that will be allowed to
such a Beneficiary are a continuation of installment payments scheduled
(or commenced) prior to the death of the Participant. No other form of
installment payments shall be allowed to such a Beneficiary.
Substantially equal and life expectancy are defined in the Basic Plan
Document.
E. ACCELERATED DISTRIBUTIONS. Distributions from Accounts during
employment are available to Participants for the following purposes:/32
_______ unreimbursed medical expenses
_______ educational expenses
_______ purchase of home
[ss. 7.9]
F. ADVANCE. May the Participant request a partial advance of up to fifty
percent (50%) of the amount approved as an accelerated distribution?/33
_______ yes
_______ no
[ss. 7.9]
ARTICLE X. INVESTMENT OPTIONS
A. Will all Participants be permitted to direct the investment of a part
of their Accounts into life insurance contracts?
_______ yes
_______ no
[ss. 4.1, ss. 10.11]
B. Will commingled investment Subfunds be created so that all Participants
can control the investment of their Accounts?
_______ yes/34
_______ no
[ss. 4.1.1]
C. Will individual investment Subfunds be created so that all Participants
can control the investment of their Accounts?
_______ yes26/
_______ no
[ss. 4.1.2]
- ---------
32/ More than one may be checked. A Participant must submit a written
application specifying the amount of the distribution. The application
shall require a Participant to establish his or her entitlement to the
distribution. The distribution shall be made as of the Valuation Date
coincident with or next following the approval of a completed
application and such distribution shall be made in a lump sum cash
payment as soon as practicable after such Valuation Date.
33/ If advances are not allowed, the entire distribution shall be made as
of the Valuation Date coincident with or next following the approval of
a completed application and such distribution shall be made in a lump
sum cash payment as soon as practicable after such Valuation Date.
34/ If collective investment Subfunds or individual investment Subfunds are
created, the Employer must agree with the Trustee, in writing, on the
operational rules for the Subfunds.
D. Will the Employer have the authority to direct the Trustee in the
investment of the Fund?
_______ yes
_______ no
If yes, enter name and title of the one individual who is authorized to
communicate such directions to the Trustee in writing: ________________
[ss. 10.12]
E. Will the Trustee be subject to the directions of the above-named person
to purchase qualifying employer securities or qualifying employer real
estate?
_______ yes
_______ no
If yes, the maximum percentage of the Fund which may be invested in
qualifying employer securities and qualifying employer real estate is:
_______ percent
[ss. 10.12, ss. 10.6(a)]
ARTICLE XI. LOANS
Will loans from the Plan be available to Participants and Beneficiaries (other
than Owner-Employees and Shareholder-Employees)?
_______ yes
_______ no
[ss. 7.11]
Will each loan be made from the individual Accounts of the recipient (as opposed
to the general trust assets)?
_______ yes
_______ no
[ss. 7.11]
ARTICLE XII. INTERNAL REVENUE CODE SS.415 LIMITATIONS/35
- ---------
35/ If the Plan is (or becomes) "top heavy" as defined in Appendix B, this
rule will be subject to the special provisions in Appendix B.
A. Does any controlled group member now maintain or has any controlled
group member ever maintained another qualified plan (other than the
paired plan adopted using Adoption Agreement #004) in which any
Participant in this Plan is (or was) a participant or could possibly
become a participant or does the Employer maintain a welfare benefit
fund or an individual medical account (as defined in Appendix A) under
which amounts are treated as annual additions with respect to any
Participant in this Plan?
_______ no [complete only E below]
_______ yes [complete the rest of this Article XII]
[Appendix A]
B. Such other qualified plan was or is a [select one or more as
appropriate]:
_______ Master or prototype defined contribution plan/36 [complete E
below]
_______ Master or prototype defined benefit plan [complete D and E
below]
_______ Individually designed defined contribution plan28/ [complete C
and E below]
_______ Individually designed defined benefit plan [complete D and E
below]
_______ Welfare benefit fund [complete C and E below]
_______ Individual medical account [complete C and E below]
C. To the extent that any Participant in this Plan is, may become or ever
has been a participant in another qualified defined contribution plan,
welfare benefit fund or individual medical account maintained by any
controlled group member, other than a master or prototype qualified
defined contribution plan [select only one]:
_______ The provisions of Section 3 of Appendix A will apply, as if
the other plan was a master or prototype plan.
_______ The method under which the plans will limit total annual
additions to the maximum permissible amount, and will properly
reduce any excess amounts, in a manner that precludes Employer
discretion is set forth in an attachment to this Adoption
Agreement.
D. To the extent that any Participant is, may become or ever has been a
participant in another qualified defined benefit plan maintained by any
controlled group member [select only one]:
_______ In any limitation year, the annual additions credited to the
Participant under this Plan may not cause the sum of the
defined benefit plan fraction and the defined contribution
plan fraction to exceed 1.0. If the Employer contributions
that would otherwise be allocated to the Participant's Account
under the Plan during such year would cause the 1.0 limitation
to be exceeded, the allocation will be reduced so that the sum
of the fractions equals 1.0. Any contributions not allocated
because of the preceding sentence will be allocated to the
remaining Participants in this plan under the allocation
formula under this Plan. If the 1.0 limitation is exceeded
because of an excess amount, such excess amount will be
reduced in accordance with Section 2.4 of Appendix A.
- ---------
36/ For purposes of Appendix A, nondeductible employee contributions to a
qualified defined benefit plan are treated as a separate defined
contribution plan.
_______ The method under which the plans involved will satisfy the 1.0
limitation in a manner that precludes Employer discretion is
set forth in an attachment to this Adoption Agreement.
E. The limitation year is the following 12-consecutive month period
[select only one]:
_______ the Plan Year
_______ the calendar year
_______ other (specify): ____________________________________________
ARTICLE XIII. INTERNAL REVENUE CODE SS.416 LIMITATIONS
A. To avoid duplication of minimum benefits under section 416 of the
Internal Revenue Code because of the required aggregation of multiple
plans, Defined Contribution Prototype Basic Plan Document #01 is
amended as follows:/37
[ss. 9.1.1 and Appendix B]
B. For purposes of establishing the present value to compute the top heavy
ratio, any benefit under a defined benefit plan shall be discounted
only for mortality and interest based on the following:29/
Interest rate (select only one): _____ PBGC Interest Assumption as
if Plan terminated on
valuation date.
37/If the Employer only sponsors this Plan, it is unnecessary to complete this
section. Also, if the Employer maintains other plans, it may be unnecessary to
complete this section.
_____ Other ____________________.
Mortality table (select only one): _____ PBGC Mortality
Assumption as if Plan
terminated on valuation
date.
_____ Other _____________________
[Appendix B]
ARTICLE XIV. HOURS OF SERVICE
For the purpose of determining the Employee's One-Year Breaks in Service,
Vesting Service, Eligibility Service and minimum annual service requirement to
share in the Employer contribution made for a Plan Year, Hours of Service shall
be determined on the following basis:
_______ On the basis of actual recorded hours for which an Employee is
paid or entitled to payment.
_______ On the basis that, without regard to his actual recorded
hours, an Employee shall be credited with 10 Hours of Service
for a day if under Section 1.1.15 such Employee would be
credited with at least 1 Hour of Service during that day.
_______ On the basis that, without regard to his actual recorded
hours, an Employee shall be credited with 45 Hours of Service
for a calendar week if under Section 1.1.15 such Employee
would be credited with at least 1 Hour of Service during that
calendar week.
_______ On the basis that, without regard to his actual recorded
hours, an Employee shall be credited with 95 Hours of Service
for a semi-monthly pay period if under Section 1.1.15 such
Employee would be credited with at least 1 Hour of Service
during that semi-monthly pay period.
_______ On the basis that, without regard to his actual recorded
hours, an Employee shall be credited with 190 Hours of Service
for a calendar month if under Section 1.1.15 such Employee
would be credited with at least 1 Hour of Service during that
calendar month.
[ss. 1.1.15]
ARTICLE XV. COLLECTIVE INVESTMENTS
The Trustee's collective investment fund or funds incorporated by reference into
this Agreement are:
[ss. 10.6(q)]
IN WITNESS WHEREOF, I have hereunto subscribed my name this ___ day of ________,
19__.
FOR THE EMPLOYER
_________________________________________
(Signature and official capacity)
An Employer who has ever maintained or who later adopts any plan (including
after December 31, 1985, a welfare benefit fund or an individual medical account
as defined in Appendix A) in addition to this Plan (other than a paired
integrated money purchase pension plan under Defined Contribution Prototype
Basic Plan Document #01 1989 Restatement and Adoption Agreement #004) may NOT
rely on the opinion letter issued by the National Office of the Internal Revenue
Service as evidence that this Plan is qualified under section 401 of the
Internal Revenue Code. If the Employer who adopts or maintains multiple plans
wishes to obtain reliance that its plans are qualified, application for a
determination letter should be made to the appropriate key district director of
the IRS. This Adoption Agreement may be used only in conjunction with Defined
Contribution Prototype Basic Plan Document #01 1989 Restatement.
ACCEPTED this _____ day of ______________, 19___.
FOR THE PROTOTYPE SPONSOR FOR THE TRUSTEE
By ___________________________ By ___________________________
Its _______________________ Its _______________________
And _________________________
Its _____________________
First Trust National Association
First Trust Center
P.O. Box 64367
St. Paul, Minnesota 55164
Prototype Sponsor
(612) 223-7559
EXHIBIT 14(c)
THE FIRST AMERICAN
INDIVIDUAL RETIREMENT
ACCOUNT
IRA
APPLICATIONS + DOCUMENTATION
[LOGO] FIRST AMERICAN FUNDS
The power of disciplined investing
COMMONLY ASKED QUESTIONS:
Q Who is eligible to make IRA contributions?
A An individual is eligible to make contributions to an IRA for each year
in which compensation is earned up to, but not including, the year in
which he or she attains age 70 1/2.
Q How much and how frequently may I contribute to my IRA?
A A maximum of $2,000 or 100% of annual compensation, whichever is less,
may be contributed to an IRA each year. The limit applies regardless of
the tax deductibility of your contribution. Contributions can be made
to an IRA at any time up to the due date for filing federal income tax
returns for a given tax year.
Q How can I determine whether my IRA contributions will be deductible for
federal income tax purposes?
A Your contribution may be deductible, subject to certain limits, if:
* neither you nor your spouse is an active participant in an
employer retirement plan, OR
* if your adjusted gross income for the year does not exceed
certain dollar limits while either you or your spouse is an
active participant in an employer-maintained plan.
Talk with your financial advisor for more information on deductibility of your
contributions.
Some Useful Definitions
IRA -- Individual Retirement Account.
Tax-deferred -- Term describing an investment whose accumulated earnings are
free from taxation until the investor takes possession of them. Holders of IRAs
postpone paying taxes on interest, dividends or capital appreciation on
investments if they wait until age 59 1/2 to cash in on those gains.
Defined Benefit Plan -- A qualified plan that promises to pay a specified amount
to each participant upon retirement (certain vesting rules may apply).
Defined Contribution Plan -- A qualified plan that accepts pre-tax contribution
from eligible participants earnings, allowing these contributions to accumulate
tax-deferred until withdrawal by the participants (certain rules apply).
TransferMoving assets directly from one institution to another between like
retirement plans.
Rollover -- Moving assets from another qualified plan to an IRA.
[LOGO] FIRST AMERICAN FUNDS
[LOGO] First American Funds, Inc.
First American Investment Funds, Inc.
First American Funds, Inc.
IRA ADOPTION AND
NEW ACCOUNT AGREEMENT
MAIL TO: First American Funds
P.O. Box 419382, Kansas City, MO 64141-6382
FOR INFORMATION, CALL:
First American Funds 1-800-637-2548
Please Print Clearly
1. IRA REGISTRATION
- -------------------------------------------------------------------------------
FIRST NAME MIDDLE INITIAL LAST NAME (IRA ACCOUNT HOLDER)
- -------------------------------------------------------------------------------
DATE OF BIRTH SOCIAL SECURITY NUMBER
- -------------------------------------------------------------------------------
ADDRESS OR P.O. BOX
- -------------------------------------------------------------------------------
CITY STATE ZIP
( ) ( )
- -------------------------------------------------------------------------------
DAYTIME PHONE EVENING PHONE
- -------------------------------------------------------------------------------
ACCOUNT NUMBER (COMPLETE ONLY IF EXISTING ACCOUNT)
[ ] U.S. Citizen [ ] Other ---------------------------------------
SPECIFY
2. IRA CONTRIBUTION SELECTION
Date of Contribution Amount $
---------------- ----------------
Contribution for tax year 19
----
Check all boxes appropriate for initial deposit:
[ ] Contributory [ ] Spousal [ ] Rollover* [ ] Transfer*
Transfer/Rollover From:
-----------------------------------------
SPECIFY NAME OF PRESENT TRUSTEE/CUSTODIAN
[ ] SEP/IRA
Employer:
-----------------------------------------------------
* Complete Direct Transfer/Rollover Form as needed.
3. IRA FEE SCHEDULE
The IRA fee per account is $20 per year. This fee is not prorated and is subject
to change at any time.
4. RIGHTS OF ACCUMULATION
YES, I am a First American Fund shareholder of Class A and/or B Shares. List all
of your accounts, joint accounts with your spouse, and accounts you and your
spouse hold for the benefit of your minor children.
- -------------------------------------------------------------------------------
ACCOUNT NAME ACCOUNT NUMBER
- -------------------------------------------------------------------------------
ACCOUNT NAME ACCOUNT NUMBER
- -------------------------------------------------------------------------------
ACCOUNT NAME ACCOUNT NUMBER
5. FIRST AMERICAN FUND SELECTION
CHECK THE FUND(S) AND INDICATE THE AMOUNT OF INVESTMENT FOR EACH
FUND. ENCLOSE ONE CHECK FOR THE TOTAL AMOUNT OF YOUR INVESTMENT.
Fund Amount Class of Shares
MONEY MARKET FUNDS
- ------------------
Prime Obligations $ [ ] A(766) [ ] B(767)
-----------
INCOME FUNDS
- ------------
Limited Term Income $ [ ] A(778)
-----------
Intermediate Term Income $ [ ] A(776)
-----------
Intermediate Government Bond $ [ ] A(769)
-----------
Fixed Income $ [ ] A(773) [ ] B(774)
-----------
DIVERSIFIED FUNDS
- -----------------
Asset Allocation $ [ ] A(795) [ ] B(796)
-----------
Balanced $ [ ] A(798) [ ] B(799)
-----------
GROWTH AND INCOME FUNDS
- -----------------------
Real Estate Securities $ [ ] A(817) [ ] B(820)
-----------
Equity Index $ [ ] A(789) [ ] B(790)
-----------
Equity Income $ [ ] A(759) [ ] B(764)
-----------
Stock $ [ ] A(783) [ ] B(784)
-----------
Diversified Growth $ [ ] A(760) [ ] B(765)
-----------
GROWTH FUNDS
- ------------
Special Equity $ [ ] A(786) [ ] B(787)
-----------
Regional Equity $ [ ] A(792) [ ] B(793)
-----------
Emerging Growth $ [ ] A(808) [ ] B(809)
-----------
International $ [ ] A(814) [ ] B(815)
-----------
Technology $ [ ] A(811) [ ] B(812)
-----------
Health Sciences $ [ ] A(821) [ ] B(822)
-----------
Other $ [ ] A(000) [ ] B(000)
-----------
TOTAL INVESTMENT $
-----------
6. DIVIDEND INCOME & CAPITAL GAINS
CHECK YOUR CHOICE OF DIVIDEND/CAPITAL GAIN DISTRIBUTION AND CHOOSE YOUR PAYMENT
METHOD, IF APPLICABLE.
Check one only; if none is checked, all dividend income and capital gains, if
any, will be reinvested automatically.
[ ] Reinvest all dividend income and capital gains
[ ] Pay all dividend income and/or capital gains in cash
METHOD OF PAYMENT: If dividend income or capital gains are to be distributed in
cash, select one of the following. A SEPARATE FORM MUST BE COMPLETED REQUESTING
THESE PERIODIC IRA DISTRIBUTIONS.
[ ] Check sent to the address of record
[ ] Cash via Automated Clearing House (ACH)
Please be sure to fill in Section 10 or attach a voided check or deposit slip to
this form.
7. WAIVER OF TELEPHONE TRANSFER
The Fund(s) currently offer telephone transfer privileges to its shareholders,
whereby a shareholder can make wire transfers or telephone exchanges over the
telephone.
Neither the Transfer Agent nor the Fund(s) will be responsible for the
authenticity of redemption instructions received by telephone if it reasonably
believes those instructions to be genuine. The Fund(s) and its Transfer Agent
will each employ reasonable procedures to confirm that telephone instructions
are genuine, and may be liable for losses resulting from unauthorized or
fraudulent telephone instructions if it does not employ these procedures. Such
procedures may include taping of telephone conversations.
[ ] I choose to waive the telephone transfer feature indicated above.
8. SYSTEMATIC EXCHANGE PLAN (OPTIONAL)
COMPLETE EITHER SECTION A OR B BELOW.
A. FOR SYSTEMATIC EXCHANGES FROM FIRST AMERICAN PRIME OBLIGATIONS CLASS A TO
ALL OTHER CLASS A FUNDS.* Exchanges will take place on the 20th of each Month.
Total Investment Amount to be exchanged: $
-----------------------
From: Prime Obligations Account No. (if known)
----------------------------
To: Fund Name and Account Number (if known)Monthly $ Amount ($25 min.)
$ /month
- ---------------------------------------- --------------
$ /month
- ---------------------------------------- --------------
$ /month
- ---------------------------------------- --------------
*Please note that if anticipated investment over the next 13 months is greater
than $50,000, you may complete Section 9 for Letter of Intent breakpoints.
B. FOR SYSTEMATIC EXCHANGES FROM FIRST AMERICAN PRIME OBLIGATIONS CLASS B TO ALL
OTHER CLASS B FUNDS.
Entire investment must be exchanged within: (MUST choose one)
[ ] Six months from date of purchase
[ ] Twelve months from date of purchase
Exchanges will take place on the 20th of each Month.
**Total Investment Amount $
-----------------------------------
From: Prime Obligations Account No. (if known)
------------------------------
To: Fund Name and Account Number (if known)Amount Total per Fund***
$
- ---------------------------------------- --------------------
$
- ---------------------------------------- --------------------
$
- ---------------------------------------- --------------------
(Must equal initial total investment above) **Total $__________
***Each fund investment amount must total at least $250. The monthly investment
amount will be calculated automatically by dividing the total amount per fund by
the time period chosen above. The exchange each month must equal at least $25
per fund.
9. LETTER OF INTENT (OPTIONAL)
LETTER OF INTENT ALLOWS YOU TO AGGREGATE ANTICIPATED PURCHASES OVER A 13-MONTH
PERIOD TO OBTAIN A REDUCED SALES CHARGE. THIS IS AVAILABLE ONLY IN THE CASE OF A
ROLLOVER OR TRANSFER.
[ ] Check box if you want this service.
Although I am not obligated to do so, I intend to purchase shares of First
American Funds (as enumerated in the prospectus) over the next 13-month period
which will equal or exceed:
[ ] $50,000 [ ] $250,000 [ ] $1 Million
[ ] $100,000 [ ] $500,000
The Letter of Intent may include all purchases up to 90 days preceding
the date the letter was signed. Each purchase will be made at the then reduced
offering price applicable to the amount checked above, as described in the
prospectus. By completing this Letter of Intent and signing this Application, I
agree to the terms and conditions of the Letter of Intent. I hereby irrevocably
constitute and appoint SEI Financial Services Company, my attorney, with full
power of substitution, to surrender for redemption any or all shares of First
American Funds held as security as described in the prospectus.
10. BANK & WIRE INSTRUCTIONS
If you wish to make use of the Systematic Investment Plan (See Section 11), you
must attach a voided check for the bank account you wish to use, OR provide full
bank account information as shown below. Any change in these instructions must
be made in writing to First American Funds.
- -------------------------------------------------------------------------------
BANK NAME BRANCH OFFICE (IF APPLICABLE)
- -------------------------------------------------------------------------------
BANK ADDRESS (DO NOT USE P.O. BOX)
- -------------------------------------------------------------------------------
CITY STATE ZIP
- -------------------------------------------------------------------------------
NAME(S) ON YOUR BANK ACCOUNT
- -------------------------------------------------------------------------------
BANK ACCOUNT NUMBER BANK ABA NUMBER
Account Type (check one): [ ] Checking [ ] Savings
11. SYSTEMATIC INVESTMENT PLAN (OPTIONAL)
IF YOU CHOOSE THIS OPTION, YOU MUST ATTACH A VOIDED CHECK OF THE BANK ACCOUNT
YOU WISH TO USE OR PROVIDE FULL BANK INFORMATION IN SECTION 10. ANY
CONTRIBUTIONS MADE UNDER THIS METHOD SHALL BE TREATED AS REGULAR CONTRIBUTIONS
FOR THE YEAR DEPOSITED.
[ ] Check box if you want this service.*
I authorize the Fund Distributor, SEI Financial Services Company, to draw on my
bank account on a periodic basis as indicated below, for investments in my First
American Funds account. I understand that if there are insufficient funds in my
account, finance charges may apply.
[ ] I have attached a voided check, OR
[ ] I have provided bank information in Section 10
[ ] Periodic investment amount $
------------------------------------------
($25 MINIMUM)
Name of Fund
---------------------------------------------------------------
*To specify additional SIPinvestments, please attach a separate sheet. See your
IRA Disclosure Statement for yearly contribution limits.
PREFERRED INVESTMENT SCHEDULE:
Monthly, on the (check one):
[ ] 5th day of each month beginning
-----------------------------------
(MONTH)
[ ] 20th day of each month beginning
-----------------------------------
(MONTH)
12. BENEFICIARY DESIGNATION
I may change my Beneficiary(ies) at any time, but only by filing a new
Designation of Beneficiary with the Custodian.
PRIMARY BENEFICIARY:
- -------------------------------------------------------------------------------
NAME
- -------------------------------------------------------------------------------
RELATIONSHIP DATE OF BIRTH % OF SHARES
- -------------------------------------------------------------------------------
ADDRESS
- -------------------------------------------------------------------------------
CITY STATE ZIP
SECONDARY BENEFICIARY:
- -------------------------------------------------------------------------------
NAME
- -------------------------------------------------------------------------------
RELATIONSHIP DATE OF BIRTH % OF SHARES
- -------------------------------------------------------------------------------
ADDRESS
- -------------------------------------------------------------------------------
CITY STATE ZIP
13. PLAN ADOPTION AND SIGNATURES
* I have received and read the prospectus for each of the Funds in which
I am investing, and believe each investment is suitable for me. I
understand that the prospectus terms are incorporated into this IRA
Adoption and New Account Agreement by reference.
* I authorize the Fund, their affiliates and agents to act on any
instructions believed genuine for any service authorized on this form.
I agree they will not be liable for any resulting loss or expense.
* I am of legal age in my state and have the authority and legal capacity
to purchase mutual fund shares.
* I understand that the authorization(s) with respect to Exchange Between
Funds, and Redemption via Wire Transfer are subject to the conditions
and limitations set forth in the current prospectus(es). I ratify any
instructions given, pursuant to the above authorization(s) and agree
that SEI Financial Services Company, the Transfer Agent, First American
Funds or any affiliate or their officers, directors or employees will
not be liable for any loss, expense or cost for acting upon any
instructions or inquiries believed to be genuine.
* I understand that First Bank National Association serves as investment
advisor to the Funds but that neither the Fund(s) nor the distributor,
SEI Financial Services Company, is a bank and that fund shares are not
backed or guaranteed by any bank or insured by the FDIC.
* I understand and agree that any telephone conversation with SEI
Financial Services Company or any of its affiliates will be recorded
for accuracy.
* I understand and agree that I will receive monthly statements
disclosing all activity in my account(s).
* This Agreement shall be governed by the laws of the Commonwealth of
Pennsylvania.
* I certify that the Social Security or Taxpayer I.D. Number shown on
this form is correct. (If I fail to give the correct number or sign
this form, the Funds may reject, restrict, or redeem my investment.
Imay also be subject to IRS Backup Withholding of 31% of all
distributions and redemptions.)
* I am not currently subject to back-up withholding either because I have
not been notified that I am subject to back-up withholding as a result
of a failure to report all interest and dividends, or the Internal
Revenue Service has notified me that I am no longer subject to back-up
withholding, or I am exempt from back-up withholding.
* The undersigned has read, understands and agrees to be bound by the
terms of the Shareholder Agreement above.
* I have read, understood and agree to be bound by the terms set forth on
this IRA Adoption and New Account Agreement, the Individual Retirement
Custodial Account Plan (Form 5305-A) and the Disclosure Statement. I
choose to establish this IRA at the Depository named on the reverse
side.
* I direct that the only investments to be made by the IRA are shares of
investments into one or more of the First American Investment Funds,
Inc. or First American Funds, Inc. family of mutual funds (the
"Funds"). I acknowledge that I have received the prospectus(es) for the
Funds describing the particular fund(s) into which I am directing my
IRA assets, that I have read and I understand the prospectus(es)
disclosures, and have noted fee disclosures and disclosures of
affiliations between the First Bank System, Inc. subsidiaries, First
Bank National Association (the Funds' investment adviser and the IRA
Custodian) and First Trust National Association (the Funds Custodian),
that I hereby authorize the purchase of one or more of the Funds in my
IRA, and that my specific direction of the particular fund(s) to be
purchased now or in the future will take place under the normal
procedures for my IRA.
* I understand and acknowledge that this IRA is a self-directed IRA and
that I control the investment of my funds as provided in the IRA Plan.
I agree to follow any terms or conditions required for me to complete
any investment direction into any investment available through the IRA.
I further acknowledge that the Depository and/or Custodian has no
investment discretion with regard to my IRA and no investment advice
with regard to my IRAis provided by the Custodian and/or the
Depository. I understand that upon my death, my beneficiary(ies) will
be solely responsible for the investment of my IRA funds.
* I have received a copy of the Individual Retirement Custodial Account
Plan (Form 5305-A and custodial provisions), the Disclosure Statement
and this IRA Adoption Agreement. I have read and understand their
contents.
* If my account is being established to hold employer contributions to a
simplified employee pension (SEP) plan, my IRA is also controlled by
the terms and conditions described in the SEP adoption agreement
adopted by my employer, a copy of which I have received from my
employer. I will provide the Custodian and/or the Depository (as
required) a copy of my employer SEP governing documents.
* This IRA may be amended as provided in the IRA Plan.
* I have full responsibility for determining that I am eligible for an
IRA contribution each year I make a contribution, for the tax
consequences of any contribution I may make to my IRA and any
distributions I may take from my IRA under Section 408 of the Internal
Revenue Code.
* I understand that my IRA may be charged an annual fee of $20 by the
Custodian and the Depository and that this and other administrative
fees or charges such as distribution fees, rollover fees, termination
fees, etc., may be deducted from my IRA. I have been informed of the
current fee schedule of the Custodian and the Depository and I
acknowledge that these fees are subject to change at any time.
* I understand that the Plan is approved as to form by the Internal
Revenue Service. I understand, however, that the Custodian and the
Depository make no warranty that I will qualify or continue to qualify
for the retirement savings deduction for income tax purposes or the
earnings will continue to be deferred from income tax. Internal Revenue
Service approval does not represent a determination of the investment
merits of the Plan.
* I understand the alternatives selected by me with regard to the
designation of beneficiary may have varying and significant tax and
probate consequences. I have not received advice from the Custodian
and/or the Depository about the tax or probate consequences that may
result from these alternatives. I understand that if I have attained
age 70 1/2 and am receiving distributions from my IRA, the designation
of beneficiary may affect the amount of the required payouts.
* By my signature on the IRA Adoption and New Account Agreement, I apply
to establish and participate in the Plan subject to the terms of the
Plan, which are incorporated into this IRA Adoption and New Account
Agreement by reference, and subject to the rules applicable to the
investments I choose for my IRA funds.
X
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SIGNATURE OF IRA ACCOUNT HOLDER DATE
X
- -------------------------------------------------------------------------------
CUSTODIAN ACCEPTANCE DATE
For a Depositor's spouse in a community or marital property state when he or she
is not designated as the sole primary beneficiary by the Depositor: I as the
undersigned spouse of the Depositor understand the consequences of and hereby
consent to the designation of Beneficiary made by the Depositor on this IRA
Adoption and New Account Agreement.
X
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SIGNATURE OF SPOUSE DATE
[ ] Check box if you have received IRS notification that you are subject to
back-up withholding.
METHOD OF PAYMENT:
[ ] Enclosed is my check for the total amount of my investment made payable to
First American Funds.
[ ] Bank wire sent
-----------------------------------------------------------
CONTROL NUMBER DATE
NOTE: To purchase shares by federal funds or bank wire, call 1-800-637-2548.
THANK YOU FOR YOUR INVESTMENT. YOU WILL RECEIVE WRITTEN CONFIRMATION SHORTLY.
DEALER INFORMATION:
- -------------------------------------------------------------------------------
(Dealer must have approved agreement with Fund Distributor, SEI Financial
Services Company.)
- -------------------------------------------------------------------------------
FIRM
- -------------------------------------------------------------------------------
ADDRESS
- -------------------------------------------------------------------------------
CITY STATE ZIP
- -------------------------------------------------------------------------------
PHONE OFFICE NUMBER
- -------------------------------------------------------------------------------
NAME OF REPRESENTATIVE NUMBER
- -------------------------------------------------------------------------------
SIGNATURE OF REPRESENTATIVE
- -------------------------------------------------------------------------------
SIGNATURE OF DEALER/SALES MANAGER
[LOGO]
First American Investment Funds, Inc.
First American Funds, Inc.
IRA TRANSFER/
DIRECT ROLLOVER REQUEST
MAIL TO: First American Funds
P.O. Box 419382, Kansas City, MO 64141-6382
FOR INFORMATION, CALL:
First American Funds 1-800-637-2548
Please Print Clearly
1. IRA Registration
- --------------------------------------------------------------------------------
FIRST NAME MIDDLE INITIAL LAST NAME (IRA ACCOUNT HOLDER)
- --------------------------------------------------------------------------------
ADDRESS
- --------------------------------------------------------------------------------
CITY STATE ZIP
- --------------------------------------------------------------------------------
SOCIAL SECURITY OR TAX I.D. NUMBER
- --------------------------------------------------------------------------------
FIRST AMERICAN FUNDS ACCOUNT NUMBER IF APPLICABLE
2. PRESENT TRUSTEE/CUSTODIAN
- --------------------------------------------------------------------------------
NAME OF PRESENT TRUSTEE/CUSTODIAN
- --------------------------------------------------------------------------------
ADDRESS
- --------------------------------------------------------------------------------
CITY STATE ZIP
- --------------------------------------------------------------------------------
DEPOSITORY INSTITUTION (IF OTHER THAN TRUSTEE/CUSTODIAN)
3. TRANSFER/DIRECT ROLLOVER INSTRUCTIONS
I have established an Individual Retirement Account (IRA) with the new custodian
listed below. Please transfer my assets in accordance with the following
instructions:
( ) Liquidate all assets in my IRA Account Number
and transfer the entire proceeds
---------------------
( ) Liquidate only part of my assets in Account Number
and transfer $
--------------------- ---------------------
( ) Liquidate ONLY the assets listed below (for CDs):
Account Number
---------------------
( ) Immediately ( ) At maturity on
---------------------
Account Number
---------------------
( ) Immediately ( ) At maturity on
---------------------
( ) Directly roll over my qualified plan distribution to my IRA
Name of Plan:
---------------------
Name of Employer:
---------------------
NEW CUSTODIAN:
First Bank National Association
DEPOSITORY:
First American Investment Funds, Inc.
First American Funds, Inc.
P.O. Box 426
Wayne, PA 19087-0426
Please make check payable to:
First American Funds
FBO , IRA
---------------------------------
NAME OF IRA ACCOUNT HOLDER
4. SIGNATURE & AUTHORIZATION
* If the transfer of the above assets is being done during or after the year
in which I reach age 70 1/2, I understand that the amount required to be
distributed from my previous plan may have to be paid to me before the
transfer can be completed. I understand that I must contact my present
trustee/custodian to arrange for this payment.
* Also, if the designated beneficiary under the new plan is someone other
than the designated beneficiary under my present plan, I will supply the
above Depository with that persons name, date of birth, and relationship to
me. If using this persons age in calculating the joint life expectancy
would result in a shorter period of time, I am aware that this shorter
schedule must continue to be used to determine the amount of my required
distribution for these funds.
X
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SIGNATURE OF IRA ACCOUNT HOLDER DATE
[LOGO] FIRST AMERICAN FUNDS
First American Investment Funds, Inc.
First American Funds, Inc.
IRA DISTRIBUTION REQUEST
MAIL TO: First American Funds
P.O. Box 419382, Kansas City, MO 64141-6382
FOR INFORMATION, CALL:
First American Funds 1-800-637-2548
Please Print Clearly
1. IRA REGISTRATION
- --------------------------------------------------------------------------------
FIRST NAME MIDDLE INITIAL LAST NAME (IRA ACCOUNT HOLDER)
- --------------------------------------------------------------------------------
DATE OF BIRTH SOCIAL SECURITY NUMBER
- --------------------------------------------------------------------------------
ADDRESS
- --------------------------------------------------------------------------------
CITY STATE ZIP
( ) ( )
- --------------------------------------------------------------------------------
DAYTIME PHONE EVENING PHONE
- --------------------------------------------------------------------------------
ACCOUNT NUMBER
2. REASON FOR REQUEST
PLEASE CHECK ONE OF THE BOXES LISTED BELOW.
( ) Original Request
( ) Change of Request
( ) Change of Withholding Election Only
3. TYPE OF DISTRIBUTION
PLEASE CHECK ONE OF THE BOXES LISTED BELOW.
( ) Normal (age 59 1/2 or older)
( ) Premature (under age 59 1/2)
( ) Rollover (see Section 7 for Rollover Rules)
( ) Transfer (transfer funds directly to):
- --------------------------------------------------------------------------------
NAME OF TRUSTEE/CUSTODIAN
- --------------------------------------------------------------------------------
ADDRESS
- --------------------------------------------------------------------------------
CITY STATE ZIP
( ) Excess: Withdraw $ (plus earnings,
-----------------
if applicable) for tax year 19
----
( ) Revocation (must be within seven days of establishing plan)
( ) Divorce (attach copy of divorce decree)
4. METHOD OF DISTRIBUTION
PLEASE CHECK ONE OF THE BOXES LISTED BELOW.
( ) LUMP SUM DISTRIBUTION: To close my IRA account
( ) PARTIAL DISTRIBUTION: In the amount of $
------------------
5. METHOD OF PAYMENT
SCHEDULED PAYMENTS OVER A PERIOD OF YEARS
Beginning Date:
-----------------
Payment Frequency: ( ) Monthly ( ) Quarterly ( ) Annually
( ) Dividend Income and Capital Gains only
( ) $ per period
----------------
( ) Installment payments, which will close my plan within
year(s)
-----------------
( ) Single Life Expectancy years
------------
( ) Joint Life Expectancy years
------------
Beneficiary's Birth Date:
------------------------
Beneficiary's Relationship:
----------------------
( ) Recalculate my life expectancy each year
( ) Reduce my life expectancy each year by one
6. WITHHOLDING ELECTION
( ) NO -- Do not withhold Federal Income Tax from my payments
( ) YES -- Please withhold 10% of my distribution(s) for Federal Income Tax
( ) I also wish to have an additional $ withheld from my payment(s)
------------
7. SIGNATURE & CERTIFICATION
I understand that certain types of distributions may be subject to tax and/or
penalties under the Internal Revenue Code and regulations and that I will obtain
any necessary tax and legal advice to make this determination. I also may be
subject to a penalty for early withdrawal on any unmatured certificate(s) in
which my IRA funds are invested.
ROLLOVER RULES
I am aware that if my plan has had rollover activity in the last 12 months, this
distribution may be subject to additional taxes. The funds must be made payable
and given to me directly.
WITHHOLDING NOTICE
* If you are receiving a distribution from an IRA and elect to have taxes
withheld (or do not make an election), federal income taxes will
automatically be withheld from your distribution at the rate of ten percent
(10%). If you want to increase the amount being withheld, you may specify a
dollar amount on the Election Form in addition to the 10%. You have the
right to make or revoke an election anytime prior to the distribution. No
taxes are required to be withheld if your distribution is less than $200
for the year. If you are receiving distribution outside the United States
or its possessions, the withholding requirement cannot be waived unless you
certify that you are neither a United States citizen nor a resident alien.
* If you elect not to have withholding apply to your payments, or if you do
not have enough federal income taxes withheld from your payments, you may
be responsible for payments of estimated tax. You may incur penalties under
the estimated tax rules, if your withholding and estimated tax payments are
not sufficient.
* This Notice of Withholding of federal income taxes and Election Form is a
substitute for the current IRS Form WP-4P, OMB No. 1545-0415 and it
includes all information required by the IRS.
X
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SIGNATURE OF IRA ACCOUNT HOLDER DATE
DISCLOSURE STATEMENT
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT PLAN
A. INTRODUCTION
This Disclosure Statement is designed to describe the plan by answering those
questions which may be of greatest interest to individuals desiring to establish
an Individual Retirement Account (IRA). The documents that establish your IRA
are the Plan and the IRA Adoption Agreement, copies of which you have received.
The terms of the Plan, the IRA Adoption Agreement and the Designation of
Beneficiary control in case of differences between them and this Disclosure
Statement. You should read all documents carefully prior to or within the
seven-day revocation period.
B. REVOKING YOUR ACCOUNT
Internal Revenue Service regulations provide that you may revoke your IRA within
seven days from the date you establish it. The date you establish your IRA is
the date you sign the IRA Adoption Agreement and make an initial contribution. A
revocation treats the IRA as if it never existed and entitles you to a full
refund of your contributions without interest and without adjustment for
administrative expenses or commissions. To revoke your IRA, you must give
written notice, mailed or delivered, to the Custodian. You must mail or
personally deliver the written notice of revocation to the attention of the IRA
Department at the Custodian whose name, address and telephone number appear on
the IRA Adoption Agreement. The written notice of revocation must be received by
the Custodian by the close of the seven-day revocation period or it must be
postmarked by the close of that period.
C. FINANCIAL DISCLOSURE
1. SELF-DIRECTED INVESTMENTS You may direct the investment of your funds in your
IRA into any investment instrument available under this IRA. Neither the
Custodian nor the Depository will exercise any investment discretion regarding
your IRA as it is solely your responsibility. No projection of the growth in
value of your IRA can reasonably be made or guaranteed. The value of your IRA
and the growth in value of the IRA is solely dependent on the performance of the
investments chosen by you to fund your IRA. In addition, there are certain
additional fees that may be connected with the investments that you may select
for your IRA. These fees and charges may include sales commissions, investment
management fees, distribution fees, setup fees, annual maintenance fees,
termination fees, etc. The prospectus or investment contract that describes the
terms of your selected investment will set forth what fees apply to that
investment. The method for computing and allocating annual earnings, interest
and dividends on your investment will vary with the nature of the investment you
have chosen. You will need to refer to the prospectus or investment contract in
connection with your investment to determine the method of allocating earnings.
2. FEES AND CHARGES The Custodian and/or the Depository may impose reasonable
charges for administering the account, preparing reports, keeping records and
such other services as may be required to administer your IRA. The Custodian
and/or the Depository may also charge your IRA the reasonable cost of fiduciary
insurance, legal fees, and reasonable compensation for their services. Such
fees, if any, will be charged directly to and deducted from your IRA unless paid
separately, and will reduce the accumulated balances shown in the tables. A
termination fee may be charged at the time you close your IRA. This fee may be
waived if you are deceased, disabled or have attained age 59 1/2. You have been
informed of the current fees applicable to your IRA in effect at the time you
established your IRA. These fees and charges are subject to change at any time.
D. CONTRIBUTIONS TO YOUR IRA
1. IN GENERAL Your IRA is a custodial account which permits you to accumulate
funds for retirement under favorable tax conditions. The agreement under which
your IRA is established is approved as to form by the Internal Revenue Service.
If the IRA is qualified under the Internal Revenue Code, contributions may be
deductible from your gross income, subject to the limitations described in
Paragraph 2 of this Section. Your IRA (including earnings) is exempt from
taxation until distribution, unless it ceases to be an IRA because you have
engaged in a prohibited transaction described in Section I of this Disclosure
Statement.
2. CONTRIBUTION LIMIT The Internal Revenue Code permits you to make
contributions to your IRA for a taxable year from your gross income for that
taxable year in an amount equal to 100% of your compensation for the taxable
year or $2,000, whichever is less. The contribution must be made no later than
the deadline for filing your Federal income tax return, typically April 15 of
the year following the taxable year for which you are making the contribution.
See the paragraph below for the Spousal IRA contribution limit.
3. SPOUSAL IRA If your spouse receives no compensation for the taxable year, you
may contribute to your own IRA and also contribute to an IRA established by or
for your spouse. You may make a contribution to an IRA for your spouse based on
your own compensation if: (i) you and your spouse file a joint return; (ii) your
spouse does not receive (or elects to be treated as not receiving) compensation
for the taxable year; (iii) your spouse has not attained age 70 1/2 during the
taxable year; and (iv) the aggregate amount contributed to your IRA and your
spouses IRA does not exceed $2,250 or your compensation for the year, whichever
is less. You need not make equal contributions to the two IRAs, but no more than
$2,000 may be contributed to either IRA. Contributions may not be made to your
spouses IRA for or after the taxable year in which your spouse attains the age
of 70 1/2. The IRA for your non-compensated spouse is known as a spousal IRA.
This spousal IRA and all contributions to it are the property of your
non-compensated spouse. A spousal IRA must be established under a separate IRA
agreement for your spouse. Except for the different contribution limits, spousal
IRAs are treated the same as other IRAs.
4. COMPENSATION For purposes of calculating contributions, compensation includes
salaries, wages, bonuses, professional fees, self-employment income and other
income for personal services included in gross income. Alimony payments that are
received under a divorce decree or a decree of separate maintenance and that are
included in your gross income for income tax purposes are considered
compensation for IRA purposes. Income from property such as dividends, interest
and rent does not qualify as compensation.
5. ELIGIBILITY You are not permitted to contribute to your own IRA for the year
you attain age 70 1/2. However, you may contribute to an IRA established by or
for your non-compensated spouse within the limits described above for any year
that your spouse has not yet attained age 70 1/2. If a husband and wife each
receive compensation during the year and are otherwise eligible, each may
establish his or her own IRA. You may not establish an IRA after age 70 1/2,
unless the IRA is established solely for the purpose of accepting a rollover or
transfer contribution, as described in Section H of this Disclosure Statement.
6. CONTRIBUTIONS IN CASH All contributions to your IRA must be made in cash,
except for rollover or transfer contributions which may, in the discretion of
the Custodian and/or the Depository, be in a form other than cash.
7. DEDUCTIBILITY OF CONTRIBUTIONS You may or may not be able to deduct all or a
portion of your IRA contribution. The determination of deductibility depends on
various factors described in Section E of this Disclosure Statement.
8. SEP/IRA If your IRA is established as a part of a Simplified Employee Pension
Plan (SEP) adopted by your employer, your employer may make contributions to
your IRA in amounts up to the lesser of 15% of your compensation or $30,000, or
whatever limits may then be in effect under applicable provisions of the
Internal Revenue Code. If your employer has established a SEP, your employer
will provide you with information concerning eligibility, contributions,
deductions and other matters concerning the SEP. If SEP contributions are made
for you by your employer (or if you make salary reduction contributions under a
SEP which permits such contributions) the deductibility of any IRA contributions
you make for yourself will be limited on the same basis as regular IRA
contributions discussed in Section E of this Disclosure Statement.
E. Deductions for Contributions
1. ELIGIBILITY FOR DEDUCTIONS If neither you nor your spouse is an active
participant in a retirement plan you may make a contribution of up to the lesser
of $2,000 ($2,250 in the case of a spousal IRA) or 100% of your compensation and
take a deduction for the entire amount contributed. If you are an active
participant but have adjusted gross income (AGI) below a certain level (see
Paragraph 3 of this Section), the entire amount contributed will be deductible.
If, however, you or your spouse is an active participant and your combined AGI
is above the specified level, the amount of the deductible contribution you may
make to your IRA is phased out and eventually eliminated.
2. ACTIVE PARTICIPANT You are considered an active participant for a year if you
are covered by a retirement plan for that year. You are covered by a retirement
plan for a year if your employer or union has a retirement plan under which
money is added to your account or you are eligible to earn retirement credits.
For example, if you are covered under a profit sharing plan, certain government
plans, a salary reduction arrangement (such as a tax-sheltered annuity or a
401(k) plan), a SEP or a plan which promises you a retirement benefit which is
based upon the number of years of service you have with the employer, you are
likely to be an active participant. Your Form W-2 for the year should indicate
your participation status. You are an active participant for a year even if you
are not yet vested in your retirement benefit. Also, if you make required
contributions or voluntary employee contributions to a retirement plan, you are
an active participant. In certain plans you may be an active participant even if
you were only with the employer for part of the year. If you are married but
file a separate tax return, see Paragraph 5 below. If you are not certain
whether you are covered by your employers retirement plan, you should ask your
employer.
3. ADJUSTED GROSS INCOME
If you are an active participant, you must look at your AGI for the year (if you
and your spouse file a joint tax return, you look at your combined AGI) to
determine whether you can make a deductible IRA contribution. If you are at or
below a certain AGI level (called the Threshold AGI Level) you are treated as if
you are not an active participant and can make a deductible contribution under
the same rules as a person who is not an active participant. If you are single,
your Threshold AGI Level is $25,000. If you are married and file a joint tax
return your Threshold AGI Level is $40,000. If you are married but file a
separate return, your Threshold AGI Level is $0. If your AGI is equal to or less
than your Threshold AGI Level, you will be able to deduct your entire IRA
contribution. If your AGI is less than $10,000 above your Threshold AGI Level,
you will be able to deduct a portion of your contribution to your IRA. If your
AGI exceeds your Threshold AGI Level by $10,000 or more, you will not be able to
deduct any portion of your IRA contribution.
4. CALCULATION OF DEDUCTIBLE AMOUNT The amount by which your AGI
exceeds your Threshold Level is called your Excess AGI. The Maximum Allowable
Deduction is $2,000 (or $2,250 for a spousal IRA). You can calculate the
deduction limit for your IRA contribution by using the following formula:
$10,000 - Excess AGI
- --------------------
10,000
x Maximum Allowable Deduction
= Deduction Limit
You must round up the result to the next highest $10 level. For example, if the
result is $1,525, you must round it up to $1,530.
If the final result is below $200 but above $0, your deduction limit will be
$200. Your deduction limit cannot, in any event, exceed 100% of your
compensation or $2,000 ($2,250 for a spousal IRA).
EXAMPLE You and your spouse file a joint tax return. Both you and your spouse
earn more than $2,000 and one of you is an active participant in a retirement
plan. You have a combined AGI of $44,255. You may each contribute to an IRA and
calculate your deductible contributions to each IRA as follows:
Your AGI is $44,255.
Your Threshold Level is $40,000.
Your Excess AGI is $4,255:
(AGI - Threshold Level).
$44,255 - $40,000 = $4,255.
The Maximum Allowable Deduction for both of you is $2,000.
The IRA deduction limit for each of you is $1,149.
$10,000 - 4,255 X $2,000 = $1,149.
This is rounded up to $1,150.
The IRA deduction limit for both you and your spouse would be $1,150 each.
5. DEDUCTIBILIT--MARRIED INDIVIDUALS FILING SEPARATELY If you are married but
file a separate tax return, your spouses active participation does not affect
your ability to make deductible contributions only if you lived apart during the
entire year. For married individuals who file separate returns, the active
participation status of both spouses is taken into account for purposes of
calculating the IRA deduction limit. The applicable dollar amount for spouses
who file separately is zero and only the adjusted gross income of the spouse
making the IRA contribution is taken into account. However, if a married
taxpayer files a separate return and did not live together with his or her
spouse at any time during the tax year, such taxpayer is considered as a single
taxpayer for purposes of calculating the IRA deduction limit and the applicable
dollar amount is $25,000. Thus the active participation status of your spouse
will always be considered in determining whether you are eligible for deductible
IRA contributions (and the amount of such deductible contribution) unless you
file a separate return and live apart from your spouse at all times during the
tax year. In the latter case, you will be treated as a single person for
purposes of calculating deductible IRA contributions.
6. NONDEDUCTIBLE CONTRIBUTIONS TO YOUR IRA Even if you are above the Threshold
AGI Level and thus may not make a deductible contribution of $2,000 ($2,250 for
a spousal IRA), you may still contribute up to the lesser of 100% of your
compensation or $2,000 to an IRA ($2,250 for a spousal IRA). The amount of your
contribution which is not deductible will be a nondeductible contribution. You
may also choose to make a contribution nondeductible even if you could have
deducted part or all of the contribution. Interest or other earnings on your IRA
contribution, whether from deductible or nondeductible contributions, will not
be taxed until taken out of your IRA and distributed to you. If you make a
nondeductible contribution to an IRA you must report the nondeductible
contribution to the Internal Revenue Service as a part of your tax return. You
may make a $2,000 contribution at any time during the year if your compensation
for the year will be at least $2,000, without having to know how much will be
deductible. When you fill out your tax return you may then figure out how much
is deductible. Any contribution to an IRA may be withdrawn before the April 15
tax return due date (including extensions) for the year of the contribution.
This withdrawal will not be treated as a distribution if you do not take a
deduction for the contribution and if you also withdraw the earnings
attributable to the contribution. These earnings will be included in your income
for the year in which the contribution was made and will be subject to the 10%
penalty tax if you are not at least age 59 1/2 or disabled. This allows you to
make a contribution early in a tax year before you know what portion of the
contribution will be deductible and then modify it at a later date by
withdrawing all or a portion of the contribution and the earnings attributable
to it.
7. ALTERNATIVE CALCULATION METHOD There is an alternative method for
calculating the portion of your IRA contribution that is deductible. This method
is that you will lose $10 of the total available IRA deduction for each $50 of
AGI which exceeds your Threshold AGI Level.
8. SUMMARY OF DEDUCTIBILITY The following chart summarizes the deductibility of
your IRA contributions if you or your spouse is an active participant in a
retirement plan:
Fully Partly Not
Filing Deductible Deductible Deductible
Status if AGI is if AGI is if AGI is
Single $25,000 $25,001- $35,001
or less $35,000 or more
Married $40,000 $40,001- $50,001
Filing or less $50,000 or more
Jointly
Married, $0 $10,000 $10,001
Filing or less or more
Separately
(See Paragraph 5 above)
F. INVESTMENT OF YOUR IRA
1. INVESTMENT DIRECTION You are responsible for directing the investment of your
account in such savings accounts, certificates of deposit or any other
investments which are or may become available for the investment of this IRA.
You are solely responsible for directing the investment of the funds in your
IRA. The Custodian and/or the Depository will carry out their administrative
responsibilities only in response to your specific investment instructions. Your
IRA funds will not be commingled with other property except in a common
investment fund or mutual fund to the extent permitted by law. Upon your death,
your beneficiary(ies) will be responsible for investments.
2. CERTAIN RESTRICTED INVESTMENTS Your IRA may not be invested in life insurance
contracts or commingled with other property except in a common trust fund or
common investment fund. Your IRA may not be invested in collectibles except as
specifically permitted (under the Internal Revenue Code) into certain gold and
silver coins issued by the United States government or under the laws of any
state. See also the Penalties and Prohibited Transactions Section (Section I of
this Disclosure Statement).
G. DISTRIBUTIONS FROM YOUR IRA
1. PERMISSIVE DISTRIBUTIONS You may begin taking distributions from your IRA
without penalty at any time after you attain age 59 1/2 or become disabled.
Distributions prior to either of these events may result in a premature
distribution penalty tax (see Section I of this Disclosure Statement).
2. REQUIRED DISTRIBUTIONS You must begin receiving distributions from your IRA
no later than April 1 of the calendar year following the calendar year in which
you reach age 70 1/2. This date is referred to as your required beginning date.
If you elect to take distribution in the form of a single lump sum payment, the
payment must be made by your required beginning date. If you elect to take
distribution in the form of periodic payments and not in a single lump sum, the
first payment must be made by your required beginning date, the second payment
must be made by December 31 of the year in which your required beginning date
occurs, and subsequent distributions must be made by December 31 of each
following year. Article IV of the Plan sets forth various optional methods for
distributing the funds in your IRA. You may elect any of these methods of
distribution.
3. MINIMUM DISTRIBUTIONS A minimum distribution is required to be made each year
beginning with the year in which you attain age 70 1/2 (the distribution for
this year must be taken by your required beginning date). This minimum required
distribution is generally determined by dividing the balance in your account at
the end of the preceding year by your life expectancy (or the joint life
expectancy of you and your designated beneficiary) determined as described in
Paragraph 9 of this Section. If you fail to elect a method of distribution by
your required beginning date, distribution of the entire balance in your IRA
will be made to you in a single lump sum payment on your required beginning date
if the amount in your IRA is less than or equal to $5,000 (or a lesser
designated amount) or in a series of annual payments based on your life
expectancy if the balance is greater than $5,000 (or the lesser designated
amount). You always retain the right to accelerate distributions from your IRA
and withdraw more than required by the minimum distribution regulations. A
penalty tax may be applicable for failure to meet the minimum distribution
requirements. This penalty tax is described in Section I of this Disclosure
Statement. The due date of your required election and the designated amount
discussed in this Paragraph may be otherwise set as permissible under the law in
a written notice provided to you.
4. TAXATION OF DISTRIBUTIONS All distributions, other than refunds of some
excess contributions and rollovers, must be included in your gross income (or
the gross income of your beneficiary) for federal income tax purposes in the
year you receive the distribution. See Paragraph 5 of this Section for
information regarding the taxation of non-deductible contributions. If you have
not attained age 59 1/2 at the time of the distribution (and are not disabled) a
10% premature withdrawal penalty tax is imposed on the amount distributed. In
addition, if applicable, penalties on early withdrawals from certificates of
deposits may apply, but these penalties may be waived for distributions in the
event of your death or permanent disability.
5. TAX TREATMENT OF DISTRIBUTIONS OF DEDUCTIBLE AND NONDEDUCTIBLE CONTRIBUTIONS
Because nondeductible IRA contributions are made using income which has already
been taxed, the portion of your IRA contributions consisting of nondeductible
contributions will not be taxed again when received by you. If you make any
nondeductible IRA contributions, each distribution from your IRA will consist of
a non-taxable portion (return of nondeductible contributions) and a taxable
portion (return of deductible contributions, if any, and earnings). Thus, you
may not take a distribution which is entirely tax-free. The Internal Revenue
Service forms you file with your income taxes will provide worksheets for you to
determine what portion of each distribution is taxable and what portion is not
taxable.
6. DISTRIBUTIONS ON ACCOUNT OF DEATH If you die after beginning to receive
distributions from your IRA, and funds still remain in your IRA on the date of
your death, your beneficiary must take distribution of the remaining funds in
your IRA at least as rapidly as under the distribution method in effect on the
date of your death. However, if your beneficiary is your surviving spouse, your
spouse may maintain the IRA as his or her own IRA as further described in
Paragraph 7 of this Section. If you die before you are required to begin
distributions from your IRA to your beneficiary(ies), the distribution of the
funds in your IRA must be completed within five years from the end of the year
in which your death occurs. A longer payment period may be allowed if you have
designated a beneficiary and distribution begins to that beneficiary within one
year from the end of the year in which your death occurs. In such a situation,
the distributions may be made over a period not exceeding the beneficiarys life
expectancy. Again, if your surviving spouse is your designated beneficiary see
Paragraph 7 of this Section with regard to options available to your surviving
spouse.
7. OPTIONS AVAILABLE TO SURVIVING SPOUSE If you have designated your surviving
spouse as your beneficiary, the date on which distribution to your spouse must
begin will not be until the date on which you would have attained age 70 1/2. If
your spouse dies before such date, then the provisions of Paragraph 5 of this
Section will apply to your surviving spouses designated beneficiary. In addition
to this option, your surviving spouse may roll over the funds in your IRA to the
surviving spouses own IRA or elect to treat your IRA as his or her own IRA. This
election to treat your IRA as your spouses IRA may be made by giving written
notice of your spouses intent to do so, by making additional contributions to
the IRA, by transferring your IRA into your spouses IRA, or by taking no
distributions from the IRA by December 31 of the year following the year of your
death, at which time your surviving spouse will be deemed to have elected to
treat your IRA as the spouses IRA.
8. DIVORCE If all or any part of your IRA is awarded to your spouse in a divorce
proceeding, the amount so awarded will be transferred to an IRA for your spouse
and will not be considered a taxable distribution.
9. LIFE EXPECTANCY CALCULATIONS Your life expectancy, or the joint life
expectancy of you and your designated beneficiary, or the life expectancy of
your designated beneficiary in the case of distributions made after your death,
is determined as of the year in which the age of 70 1/2 is attained, reduced by
the number of years elapsed since that date. Internal Revenue Service
regulations provide that your life expectancy and, if your spouse is your
designated beneficiary, the joint life expectancy of you and your spouse (or the
single life expectancy of your surviving spouse if she is your designated
beneficiary after your death) may be recalculated for each distribution. The
Plan provides that this recalculation will be done if you (or your surviving
spouse) so elect in writing no later than your (or your surviving spouses)
required beginning date. The Depository may, in its discretion, charge an
additional fee if you or your surviving spouse elect recalculation. If life
expectancy is not recalculated, payments will continue on the same schedule
after your death. If life expectancy is recalculated, then upon the death of you
or your designated beneficiary, the payment schedule will be based solely on the
life of the survivor. The life expectancy of a designated beneficiary who is not
your surviving spouse may not be recalculated. Recalculation means that the life
expectancy or the joint life expectancy will be recalculated each year in
connection with the distribution for that year based on Internal Revenue Service
life expectancy tables rather than taking the life expectancies at age 70 1/2
and reducing them by one for each year which has elapsed that is known as the
Reduce-by-One Method.
10. DESIGNATED BENEFICIARY For purposes of calculating life expectancies and the
required distribution period, your designated beneficiaries must be individuals.
If not, only your life expectancy will be used to calculate distributions. In
certain circumstances, however, individual beneficiaries of an irrevocable trust
may be treated as individual beneficiaries of your IRA if the trust is named as
a beneficiary. You should consult your legal or tax advisor for further guidance
concerning designation of a beneficiary.
11. MINIMUM DISTRIBUTION INCIDENTAL BENEFIT RULE Internal Revenue Service
regulations provide for a minimum distribution incidental benefit rule for
annual required minimum distributions. The purpose of this rule is to make
certain that your IRA is used to provide retirement benefits for you and your
beneficiaries. Under this rule, if you use a joint life expectancy calculation
involving a designated beneficiary who is not your spouse and that designated
beneficiary is more than ten years younger than you are, then, during your
lifetime, you must take minimum distributions of at least an amount determined
by using a joint life expectancy based on an age differential of ten years.
12. FEDERAL INCOME TAX Amounts distributed to you from your IRA are includable
in your taxable income when received. However, rollover amounts, excess
contributions being returned to you on a timely basis, and distributions of
amounts you have contributed as nondeductible contributions are not taxable.
Taxable distributions are taxed to you at ordinary income tax rates.
13. PREMATURE DISTRIBUTION TAX Funds in your IRA generally cannot be withdrawn
prior to the year you attain age 59 1/2 without adverse tax consequences. This
rule does not apply to rollovers, returns of excess contributions on a timely
basis and payments on account of your death, disability or an IRA transfer due
to divorce. Any other distributions prior to your attaining age 59 1/2 are
considered premature distributions. In addition to being fully taxable to you as
ordinary income, such premature distributions are subject to a penalty tax of
10%. See Section I of this Disclosure Statement.
14. STATE INCOME TAXATION The treatment of IRA contributions and distributions
for state income tax purposes differs from state to state. You should carefully
review the instructions applicable to your state income tax return regarding
treatment of the deductibility of IRA contributions and the taxation of IRA
withdrawals, since the rules for your states income taxes may not be the same as
the rules for federal income taxes outlined in this Disclosure Statement.
15. ESTATE AND GIFT TAXES Your beneficiaries cannot claim a death benefit
exclusion for any part of a distribution from your IRA. Funds in your IRA at the
time of your death will be included as part of your estate for federal estate
tax purposes. Distributions to your beneficiaries are not subject to federal
gift taxes.
16. WITHHOLDING ON DISTRIBUTIONS Federal income tax is withheld from IRA
distributions unless you choose not to have tax withheld. Generally, tax will be
withheld at a 10% rate. Once an election to not have withholding apply is made,
the election will apply to all distributions until all funds are distributed
from your IRA or you change the election by filing a written notice.
17. COMPLEXITY OF DISTRIBUTION RULES Income and estate taxation of distributions
involve a number of complex legal and tax considerations to be taken into
account in determining the method of distribution. You should consult with your
own tax advisor on these matters.
H. ROLLOVERS AND TRANSFERS
1. IN GENERAL A rollover contribution is a distribution from a qualified plan
(such as a pension or profit sharing plan maintained by your current or former
employer), another IRA, or a tax sheltered annuity which is contributed to an
IRA within 60 days of the date of distribution. Non-deductible employee
contributions made to any such plan or annuity may not be rolled over to an IRA.
Taxation of a distribution which is rolled over to an IRA is deferred if all of
the statutory restrictions and limitations are met with respect to the rollover.
No tax deduction is permitted with respect to a rollover contribution. Rollover
contributions are not subject to the contribution limits described in Section D
of this Disclosure Statement.
2. ROLLOVERS FROM QUALIFIED PLANS TO IRAS A qualified plan is a retirement plan
established by an employer that satisfies Internal Revenue Code Section 401(a)
or the annuity rules of Section 403(b). Typical qualified plans include 401(k),
profit sharing, pension, and employee stock ownership plans. To roll over a
distribution from a qualified plan, the amount received must consist solely of
employer contributions and qualified deductible voluntary employee
contributions, and interest earned on such contributions. Non-deductible
contributions may not be rolled over. If you retain a part of the distribution,
the portion retained (except for non-deductible contributions) will be subject
to income tax. Amounts rolled over will not be subject to tax and will only be
taxed when distributed from the rollover IRA. You may roll over or directly roll
over any eligible rollover distribution from an employer qualified retirement
plan. In general, any distribution from an employer qualified plan that is not
one of a series of substantially equal periodic payments (including annuities)
that extend over ten years or that are based on your life expectancy (including
a joint life expectancy of you and your beneficiary), including required minimum
distributions, is an eligible rollover distribution. Before you receive an
eligible rollover distribution your employer will ask whether you wish to
directly roll over the distribution to an IRA of yours or another employer
qualified plan that accepts rollovers. If you do not directly roll over an
eligible rollover distribution, 20% of the distribution will be applied to
Federal income tax withholding. Therefore, you will receive 80% of the
distribution. However, the full amount of an eligible rollover distribution may
be rolled over to an IRA or employer qualified plan that accepts rollovers if
you make up the 20% withheld from other sources (such as a savings account) and
complete the rollover within 60 days of your receipt of the distribution. To
find out more about eligible rollover distributions, ask your employer for a
summary or see IRS Publication 590, Individual Retirement Arrangements, or IRS
Publication 505, Tax Withholding and Established Tax.
3. ROLLOVERS FROM IRAS TO QUALIFIED PLANS If your IRA consists solely of a
qualified plan to IRA rollover contribution (and earnings), the law allows you
to roll over the amount from your rollover IRA back to a qualified plan. If you
plan to use an IRA in this manner, then the IRA should not be combined with
other IRAs and no regular or other IRA contributions can be made to the IRA.
This type of IRA holding account is referred to as a conduit IRA because it is
the conduit holding account for your funds between qualified plans.
4. ROLLOVERS FROM AN IRA TO ANOTHER IRA You may withdraw all or any portion of
the funds in an IRA and roll over all or any part of those funds into another
IRA. Any portion of the distributed amount that you retain will be subject to
ordinary income tax and, if you are under age 59 1/2, this amount may be subject
to a premature distribution penalty tax of 10%. Amounts rolled over into the
other IRA are not taxed until distributed from the rollover IRA. You may only
make one tax-free rollover from an IRA to another IRA within a 12-month period.
This limitation does not apply to rollovers of funds between a qualified plan
and an IRA and it does not apply to direct transfers between IRA custodians or
trustees where no distribution is made to you.
5. ROLLOVERS BY SURVIVING SPOUSE If you are the surviving spouse of a deceased
participant in a qualified plan and you receive a qualifying distribution on
account of the death of the participant, you may make a rollover contribution to
your IRA of all or part of the amount received. You will not be able to roll
over the IRA later to a qualified plan in which you are a participant.
6. ROLLOVER AFTER AGE 70 1/2 Amounts that are required to be distributed from a
qualified plan, qualified annuity or IRA during a particular year under the
required distribution rules are not eligible for rollover treatment. See Section
G of this Disclosure Statement for information about required distributions.
7. ROLLOVERS OTHER THAN CASH The Custodian may, in its discretion, accept as a
rollover contribution certain assets other than cash. However, in no
circumstances may the Custodian accept a life insurance contract as a rollover
contribution.
8. ROLLOVER ADVICE Because of the complexity of the rollover rules and the tax
implications of any distribution, an individual who desires to make a rollover
contribution should consult with his or her counsel or tax advisor as soon as
possible after he or she is aware that distribution will be made and before any
action is taken. The Depository/Custodian may not offer such tax advice. Neither
the Custodian nor the Depository may offer such tax advice.
9. TRANSFER FROM AN IRA TO ANOTHER IRA A transfer of funds in your IRA from one
custodian or trustee directly to another, either at your request or at the
custodian or trustees request, is not a rollover. Because there is no
distribution to you, the transfer is tax-free. Since it is not a rollover, it is
not affected by the one-year waiting period that is required between rollovers,
discussed above in Paragraph 4 of this Section.
10. TRANSFERS INCIDENT TO DIVORCE If an IRA is transferred from your spouse or
former spouse to you by a divorce or separate maintenance decree or a written
document related to such a decree, starting from the date of the transfer, the
IRA is treated as your IRA. The transfer is tax-free and treated as a transfer
described in Paragraph 9 of this Section.
I. PENALITIES AND PROHIBITED TRANSACTIONS
1. PREMATURE DISTRIBUTION PENALTY TAX Distributions made (or deemed to be made
on account of a prohibited transaction) from your IRA before you reach age 59
1/2 will be subject to a premature distribution penalty tax of 10%. This penalty
tax does not apply to distributions on account of disability, death, rollovers
or distributions of nondeductible contributions. The penalty tax also does not
apply if distribution begins before you attain age 59 1/2 and is made in a
series of substantially equal payments over your life expectancy or the life
expectancy of you and your designated beneficiary. Such substantially equal
payments must extend over the longer of five years or until you attain age 59
1/2.
2. TAX ON INSUFFICIENT DISTRIBUTIONS
If the required minimum distributions described in
Paragraph 3 of Section G of this Disclosure Statement do not occur as required
by law, the Internal Revenue Service may impose a penalty tax equal to 50% of
the difference between the amount required to be distributed and the amount
actually distributed. The Internal Revenue Service may waive the penalty if the
failure to comply with the minimum distribution requirement is due to reasonable
error and steps are being taken to correct the situation.
3. TAX ON EXCESS CONTRIBUTIONS If you contribute an amount for any taxable year
which exceeds the applicable limit described in Section D of this Disclosure
Statement, a 6% excise tax will be imposed with respect to such excess. This 6%
tax may be avoided on an excess contribution for such year if you withdraw the
excess contribution and the earnings thereon before the date for filing your
federal income tax return for such year. An excess contribution is a
contribution to an IRA in any year that is in excess of the amount you are
allowed to contribute to the IRA (the sum of the deductible amounts and the
amounts that are nondeductible). This penalty tax of 6% also applies to amounts
rolled over that exceed the amounts permitted to be rolled over to your IRA.
If you do not withdraw the excess contribution, and no deduction has been
claimed, the excess contribution may be corrected for future years by applying
it against the contribution limit in those future years. If an excess
contribution is not corrected either by removal or by under-contributing in
future years as explained above, the 6% penalty tax continues to apply each year
that the excess remains in your IRA.
If the due date for filing your federal income tax return has passed, an excess
contribution can still be withdrawn without incurring the 10% premature
withdrawal penalty (if you are under age 59 1/2) or being subject to income tax
if your contributions for the year did not exceed $2,000 and if you did not take
a deduction for the excess contribution. In this situation, the 6% excise tax
would be payable, but you are not required to withdraw the earnings on the
excess contribution.
4. EXCESS DISTRIBUTION TAX You may have to pay a 15% excess distribution tax on
IRA distributions you receive that exceed $112,500 per year (as indexed for cost
of living adjustments, for example, the 1993 amount is $144,551). This tax is
reduced by the tax on premature distributions, if any, that applies to the
excess distributions. The excess distribution tax does not apply to
distributions after your death or to rollover distributions. If distributions
from your IRA are made both to you and to others, the distributions must be
combined for figuring the amount of excess distributions for the year. The
excess distribution tax will apply to that part of the annual distribution that
exceeds the greater of $112,500 (as indexed for cost of living adjustments) or
$150,000. If you think this rule may apply to you, it is important that you
discuss it with your legal or tax advisor.
5. EXCESS RETIREMENT ACCUMULATION TAX The excess distribution tax does not apply
to payments made after your death, but your estate may be subject to an increase
in your estate tax equal to 15% of the excess retirement accumulation. Your
excess retirement accumulation, if any, is the value of your interests in all
qualified employee plans, tax-sheltered annuities, qualified annuity plans,
IRAs, and any other plans that the Internal Revenue Service may include, over
the present value of an annuity for a term certain with payments equal to the
annual ceiling ($112,500, as indexed for cost of living adjustments) and payable
for a period equal to your life expectancy immediately before your death.
6. PROHIBITED TRANSACTIONS The Plan prohibits you, your spouse or beneficiaries
from engaging in any prohibited transactions (as described in Section 4975 of
the Internal Revenue Code) with respect to your IRA. If you engage in such
transactions, the IRA will generally cease to be qualified and will lose its tax
exemption and the full IRA balance will be treated as having been distributed to
you and will be subject to income taxes and applicable penalty taxes. If your
IRA does not cease to be qualified, a 5% IRS penalty tax is applied against the
amount involved in a prohibited transaction and paid by you and any other
disqualified person involved with the transaction. A disqualified person is
defined under Code Section 4975. For example, you, your spouse and your lineal
descendents and their spouses are disqualified persons. If the transaction
remains uncorrected, an additional tax equal to 100% of the amount involved will
apply. Prohibited transactions include such matters as borrowing from your IRA
or selling property to your IRA. Prohibited transactions include any direct or
indirect: (a) sale, exchange or leasing of any property between your IRA and
yourself or your beneficiaries; (b) lending of money or other extension of
credit between your IRA and yourself or your beneficiaries; (c) furnishing of
goods, services or facilities between your IRA and yourself or your
beneficiaries; and (d) transfer to, use by, or for the benefit of yourself or
your beneficiaries of the income of assets of your IRA.
7. PLEDGING YOUR IRA AS SECURITY If you pledge all or part of your IRA as
security for a loan, the portion pledged will be considered distributed to you
and will be included in your gross income in the year of the pledge. If you have
not attained age 59 1/2 or are not disabled, the 10% premature distribution
penalty tax will be applied. The Plan prohibits pledging your IRA as security
for a loan.
8. EARLY WITHDRAWAL AND OTHER PENALTIES Neither the Custodian nor the Depository
shall be responsible for any penalties imposed for premature withdrawal or
redemption of time deposit cerificates or other investments or for any tax or
other penalty resulting from any contribution, investment, withdrawal or other
distribution (including a required minimum distribution) selected by you or
required under the terms of the Plan.
J. MISCELLANEOUS
1. NON-FORFEITABLE Your interest in your IRA is at all times fully vested and
nonforfeitable.
2. REPORTING REQUIREMENTS If you make a nondeductible contribution to your IRA,
you must report the contribution on Form 8606 attached to your tax return for
the year the contribution is made. If a trans-action has occurred for which a
tax is imposed, such as an excess contribution (as described in Section I), a
premature distribution, a failure to make a minimum distribution, or if you have
an excess accumulation in your IRA, you are required to file Form 5329 with your
income tax return to report the transaction and calculate the tax due. Form 5329
must be filed with your federal income tax return on the due date, generally
April 15, of the following tax year. These filings are not required if there is
no activity in the IRA other than the addition of deductible contributions, the
crediting of earnings, or the taking of allowable distributions.
3. Additional Information If you need guidance as to the applicability of any of
the rules described in this Disclosure Statement, you should consult your legal
or tax advisor. Additional information about the rules concerning your IRA is
provided by the free Internal Revenue Service Publication 590, Individual
Retirement Arrangements, available from any Internal Revenue Service District
Office.
4. QUALIFIED IRA Your IRA utilizes the language of Internal Revenue Service Form
5305-A Individual Retirement Custodial Account (including additional language
permitted by the Internal Revenue Service) and is a pre-approved and qualified
IRA. Internal Revenue Service approval represents a determination as to the form
of the Plan and not as to the investment merits of the Plan. An IRA created or
organized in the United States for the exclusive use of an IRA account holder or
his or her beneficiaries qualifies as an IRA if the written instrument creating
the IRA contains the statutory and regulatory requirements described in this
Disclosure Statement.
5. QUALIFIED CUSTODIANT he Custodian of an IRA plan must be a bank, savings and
loan association, or other qualified person permitted by the Internal Revenue
Service to act as a custodian of IRA plans. The Custodian of your IRA is a
qualified Custodian.
6. REQUIREMENTS FOR AN INDIVIDUAL RETIREMENT ACCOUNT An individual retirement
account is a trust or custodial account set up in the United States for your
exclusive benefit or for the benefit of your beneficiaries. The account is
created by a written document. The document must show that the account meets all
of the following requirements:
A. The Trustee or Custodian must be a bank, a federally insured credit union, a
savings and loan association, or an entity approved by the IRS to act as trustee
or custodian.
B. The Trustee or Custodian generally cannot accept contributions of more than
$2,000 a year. However, rollover contributions and employer contributions to a
simplified employee pension (SEP), as explained later, can be more than $2,000.
C. Your contributions must be in cash, except that rollover contributions can be
property other than cash.
D. The amount in your account must be fully vested (you must have a
nonforfeitable right to the amount) at all times.
E. Money in your account cannot be used to buy a life insurance policy.
F. Assets in your account cannot be combined with other property, except in a
common trust fund or common investment fund.
G. You must start receiving distributions from your account by April 1 of the
year following the year in which you reach age 70 1/2.
Form 5305-A
INDIVIDUAL RETIREMENT CUSTODIAL ACCOUNT
(REV. OCTOBER 1992)
(UNDER SECTION 408(A) OF THE INTERNAL REVENUE CODE)
DO NOT FILE WITH INTERNAL REVENUE SERVICE
The Depositor who completes and signs the IRA Adoption Agreement is establishing
an Individual Retirement Account (under Section 408(a) of the Internal Revenue
Code) to provide for his or her retirement and for the support of his or her
beneficiaries after death.
The Custodian named in the IRA Adoption Agreement has given the Depositor the
Disclosure Statement required under Regulations Section 1.408-6.
The Depositor has deposited with the Custodian a sum in cash (or other assets as
a rollover or transfer contribution) with which to open the account.
The Depositor and the Custodian make the following agreement:
ARTICLE I
The Custodian may accept additional cash contributions on behalf of the
Depositor for a tax year of the Depositor. The total cash contributions are
limited to $2,000 for the tax year unless the contribution is a rollover
contribution described in Section 402(c) (but only after December 1, 1992),
403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified
employee pension plan as described in Section 408(k). Rollover contributions
before January 1, 1993, include rollovers described in Section 402(a)(5),
402(a)(6), 402(a)(7), 403(a)(4), 403(b)(8), 408(d)(3), or an employer
contribution to a simplified employee pension plan as described in Section
408(k).
ARTICLE II
The Depositors interest in the balance in the custodial account is
nonforfeitable.
ARTICLE III
1. No part of the custodial funds may be invested in life insurance contracts,
nor may the assets of the custodial account be commingled with other property
except in a common trust fund or common investment fund (within the meaning of
Section 408(a)(5) of the Code). 2. No part of the custodial funds may be
invested in collectibles (within the meaning of Section 408(m) of the Code)
except as otherwise permitted under Section 408(m)(3) relating to certain gold
and silver coins issued by the U.S. Government or under the laws of any state.
ARTICLE IV
1. Notwithstanding any provision of this agreement to the contrary, the
distribution of the Depositors interest in the custodial account shall be made
in accordance with the following requirements and shall otherwise comply with
Section 408(a)(6) and Proposed Regulations Section 1.408-8, including the
incidental death benefit provisions of Proposed Regulations Section
1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to
the Depositor under Paragraph 3, or to the surviving spouse under Paragraph 4,
other than in the case of a life annuity, life expectancies shall be
recalculated annually. Such election shall be irrevocable as to the Depositor
and the surviving spouse and shall apply to all subsequent years. The life
expectancy of a nonspouse beneficiary may not be recalculated.
3. The Depositors entire interest in the custodial account must be or begin to
be, distributed by the Depositors required beginning date, the April 1 following
the calendar year end in which the Depositor reaches age 70 1/2. By that date,
the Depositor may elect, in a manner acceptable to the Custodian, to have the
balance in the custodial account distributed in:
A. A single sum payment.
B. An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Depositor.
C. An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Depositor and his or her designated beneficiary.
D. Equal or substantially equal annual payments over a specified period that may
not be longer than the Depositors life expectancy.
E. Equal or substantially equal annual payments over a specified period that may
not be longer than the joint life and last survivor expectancy of the Depositor
and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to him
or her, the entire remaining interest will be distributed as follows:
A. If the Depositor dies on or after the Depositors required beginning date,
distribution must continue to be made in accordance with Paragraph 3.
B. If the Depositor dies before the Depositors required beginning date, the
entire remaining interest will, at the election of the Depositor or, if the
Depositor has not so elected, at the election of the beneficiary or
beneficiaries, either
(i) Be distributed by the December 31 of
the year containing the fifth anniversary of the Depositors death, or
(ii) Be distributed in equal or substantially equal payments over the life or
life expectancy of the designated beneficiary or beneficiaries starting by
December 31 of the year following the year of the Depositors death. If, however,
the beneficiary is the Depositors surviving spouse, then this distribution is
not required to begin before December 31 of the year in which the Depositor
would have turned 70 1/2.
C. Except where distribution in the form of an annuity meeting the requirements
of Section 408(b)(3) and its related regulations has irrevocably commenced,
distributions are treated as having begun on the Depositors required beginning
date, even though payments may actually have been made before that date.
D. If the Depositor dies before his or her entire interest has been distributed
and if the beneficiary is other than the surviving spouse, no additional cash
contributions or rollover contributions may be accepted in the account.
5. In the case of distribution over life expectancy in equal or substantially
equal annual payments, to determine the minimum annual payment for each year,
divide the Depositors entire interest in the Custodial account as of the close
of business on December 31 of the preceding year by the life expectancy of the
Depositor (or the joint life and last survivor expectancy of the Depositor and
the Depositors designated beneficiary, or the life expectancy of the designated
beneficiary, whichever applies). In the case of distributions under Paragraph 3,
determine the initial life expectancy (or joint life and last survivor
expectancy) using the attained ages of the Depositor and designated beneficiary
as of their birthdays in the year the Depositor reaches age 70 1/2. In the case
of a distribution in accordance with Paragraph 4(b)(ii), determine life
expectancy using the attained age of the designated beneficiary as of the
beneficiarys birthday in the year distributions are required to commence.
6. The owner of two or more Individual Retirement Accounts may use the
alternative method described in Notice 88-38, 1988-1 C.B. 524, to satisfy the
minimum distribution requirements described above. This method permits an
individual to satisfy these requirements by taking from one Individual
Retirement Account the amount required to satisfy the requirement for another.
ARTICLE V
1. The Depositor agrees to provide the Custodian with information necessary for
the Custodian to prepare any reports required under Section 408(i) and
Regulations Sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor as prescribed by the Internal Revenue Service.
ARTICLE VI
Notwithstanding any other Articles which may be added or incorporated, the
provisions of Articles I through III and this sentence will be controlling. Any
additional Articles that are not consistent with Section 408(a) and the related
regulations will be invalid.
ARTICLE VII
This agreement will be amended from time to time to comply with the provisions
of the Code and related regulations. Other amendments may be made with the
consent of the persons whose signatures appear on the IRA Adoption Agreement.
ARTICLE VIII
8.1. DEFINITIONS As used herein, the following terms have the following
meanings, unless a different meaning is clearly required by the context:
A. ACCOUNT, INDIVIDUAL RETIREMENT ACCOUNT, OR IRA The Individual Retirement
Account under Section 408(a) of the Code established by the Depositor under this
Agreement.
B. IRA ADOPTION AGREEMENT The IRA Adoption Agreement by which the Depositor
adopts this Plan.
C. BENEFICIARY The person or persons designated by the Depositor in writing,
filed with the Custodian, to receive benefits under this Agreement upon his or
her death, or the persons described in Paragraph 8.13 who receive benefits if no
such designation is made.
D. CODE The Internal Revenue Code of 1986, as amended.
E. DEPOSITOR The individual who establishes and owns the Individual Retirement
Account and becomes a party to this Agreement by executing the IRA Adoption
Agreement. The Depositor may be referred to as Depositor, Account holder or
Participant in the IRA Adoption Agreement and related administrative forms.
F. DEPOSITORY The financial institution or other entity where the IRA is
established, including any successor(s) under this Plan. The Depository is
designated on the IRA Adoption Agreement.
G. CUSTODIAN The Custodian is the Depository unless otherwise designated on the
IRA Adoption Agreement (including any successor(s) under this Plan).
H. IRA PLAN OR PLAN This agreement including the IRA Adoption Agreement used to
establish this IRA.
8.2 INVESTMENT DIRECTION BY DEPOSITOR The Depositor will be solely responsible
for the direction and management of all investments of the funds in his or her
IRA. The IRA may be invested in such investments as are made available for the
investment of the IRA funds from time to time. In addition, funds in the IRA may
be invested and re-invested in such investments as the Depositor may direct, as
are legally authorized and available. Investment direction shall be given by the
Depositor in a reasonable and timely manner acceptable to the Custodian and the
Depository. Upon the Depositors death, the Depositors Beneficiary(ies) shall be
solely responsible for investment directions and the investment provisions of
this Paragraph 8.2, and Paragraph 8.3 if applicable, shall be applied to such
Beneficiary(ies) as if he, she, or they were the Depositor.
8.3 INVESTMENTS OTHER THAN SAVINGS AND TIME DEPOSITS
A. If IRA investments are offered by the Custodian and/or the Depository in
investments other than savings and time deposit accounts in the Depository, the
Depositor may direct investment of the IRA funds in investments which the
Depository makes available to the IRA. The provisions of this Paragraph 8.3 will
apply if the Depositor elects to self-direct his or her IRA into investment
vehicles other than savings and time deposits of the Depository.
B. The Depositor may be required to open a savings transaction account for the
IRA with the Custodian or the Depository (or any affiliate of the Custodian or
the Depository) to initially receive all contributions to the IRA. If required,
the balance from time to time in such account will be used to transact the
Depositors self-directed IRA investments. The Depository reserves the right to
require a minimum balance in the savings transaction account. The savings
transaction account will earn interest at the rate in effect at the Depository
from time to time on such accounts. All funds in the IRA, the investment of
which is not otherwise directed by the Depositor, will remain in such account.
C. The Custodian and the Depository shall have no responsibility, liability or
obligation to review, select or approve a self-directed investment. However, the
Custodian and/or the Depository may object to and refuse to purchase a
particular self-directed investment if sound administration or custody of the
investment is not feasible, the investment presents burdensome valuation
problems, or is otherwise prohibited by law, as determined by the Custodian
and/or the Depository in their sole discretion. The Custodian and the Depository
shall be fully protected and will have no liability in acting upon the
Depositors direction.
D. FUNDS INVESTED IN INVESTMENTS OTHER THAN SAVINGS OR TIME DEPOSIT ACCOUNTS ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION (FDIC), SECURITIES
INVESTOR PROTECTION CORPORATION (SIPC) OR NATIONAL CREDIT UNION SHARE INSURANCE
FUND (NCUSIF) MERELY BECAUSE THE CUSTODIAN OR DEPOSITORY IS AN INSTITUTION, THE
ACCOUNTS OF WHICH ARE COVERED BY SUCH INSURANCE. ONLY INVESTMENTS IN SUCH
ACCOUNTS OF SUCH AN INSTITUTION ARE INSURED BY FDIC, SIPC OR NCUSIF, SUBJECT TO
THE APPROPRIATE RULES AND REGULATIONS.
E. If permitted by the Custodian, the Depositor may, if desired, have the funds
in his or her IRA invested at the direction of a broker or other investment
manager. The Depositor must execute and deliver to the Custodian an investment
authorization in a form acceptable to the Custodian which will require the
Custodian to accept direction regarding the investment of the funds in the IRA
from such broker or investment manager. The Depositor agrees to indemnify and
hold the Custodian and the Depository harmless in their reliance upon any
certificate, notice, confirmation, instruction or other communication, written
or oral, purported to have been delivered by the Depositor or at the Depositors
direction or on the Depositors behalf for the investment of the IRA. Neither the
Custodian nor the Depository will be responsible for any loss or breach of trust
of any kind which may result from any action that they take in good faith in
accordance with such certificate, notice, confirmation, instruction or other
communication, whether written or oral. Any investment authorization shall
remain in effect until specifically revoked by the Depositor in writing and such
notification is received by the Custodian.
F. Neither the Custodian nor the Depository will be responsible in any manner
for the performance, earnings, gain or loss on any investments directed by the
Depositor or by an authorized broker or investment manager. Neither the
Custodian nor the Depository offers investment advice regarding the investment
of funds in the IRA. The Depositor agrees to indemnify and hold the Custodian
and/or the Depository harmless against any and all liabilities, costs and
expenses incurred by the Custodian as a result of acting or omitting to act in
accordance with any directions delivered by the Depositor or on the Depositors
behalf or in omitting to act in the absence of such directions to the Custodian
and the Depository.
G. The Depositor has received the Disclosure Statement including the section
dealing with financial disclosure. If the Depositor makes self-directed
investments other than savings and time deposits, no projection of the growth in
value of the IRA can reasonably be shown or guaranteed. The value of the IRA
will be solely dependent upon the investments directed by the Depositor to fund
the IRA. The method for computing and allocating the annual earnings (interest,
dividends, etc.) on the investments selected by the Depositor will vary with the
nature of the investments selected and will be set forth in the prospectus or
contract for each such investment.
H. All proxy voting and similar rights exercised with respect to the IRA assets
shall be exercisable solely by the Depositor, unless otherwise agreed in writing
between the Trustee and the Depositor.
I. The investments made available by the Depository may be offered through or by
affiliates of the Custodian or the Depository.
J. The Depositor agrees to complete any forms required by the Depository or the
Custodian to properly administer these self-directed IRA provisions.
8.4 AVAILABLE INVESTMENTS All contributions to this IRA shall be invested and
reinvested by the Custodian and/or the Depository as directed by the Depositor
without distinction between principal and income in one or more of the
following:
A. A class of savings accounts in the Depository (or any affiliate) which the
Depository designates from time to time as available for the investment of IRA
funds under this IRA arrangement.
B. In a common trust fund(s) and/or a common investment fund(s) administered by
the Custodian or the Depository, including a fund or funds for which the
Custodian or the Depository acts as Custodian or Trustee, which meets the
requirements of Section 408(a)(5) of the Code and which is available for the
investment of IRA funds under the IRA.
C. Any other form of investment available to the IRA as designated in the IRA
Adoption Agreement or other direction from the Depositor.
8.5 ADMINISTRATIVE AND OTHER FEES The Custodian and the Depository may charge
annual service fees or other administrative fees (for example a transfer,
rollover or termination fee) in connection with the maintenance of the IRA in
accordance with the fee schedule of the Custodian and the Depository in effect
from time to time and as may change at any time. If such fees are not paid
separately by the Depositor, they may be paid from the assets of the IRA. Any
other reasonable expenses, including administrative expenses, legal fees, the
cost of fiduciary insurance, or other matters, incurred by the Custodian and the
Depository at the request of or necessitated by the actions of the Depositor,
that are over and above the services set forth in the fee schedule, will be paid
by the Depositor and the Depositor hereby agrees to pay such fees. If the
Depositor has elected to self-direct investments other than savings and time
deposits of the Depository, there may be additional fees, charged by the
Custodian and the Depository. Such additional fees and charges are set forth in
the current schedule of fees and the Depositor acknowledges receipt of a copy of
such schedule and acknowledges that such fees are subject to change at any time.
If any fees are not received by the Custodian and/or the Depository by the due
date of such fees, the Custodian and/or the Depository may deduct the amount of
the fee from the IRA even if it is necessary to liquidate or partially liquidate
an investment in order to pay the required fees. In such event, the Custodian or
the Depository may choose which investment to liquidate or partially liquidate
in its sole discretion and neither the Custodian nor the Depository will have
liability to the Depositor or any beneficiary for such selection and
liquidation. In order to understand what other fees apply to particular
investments selected by the Depositor, the Depositor must contact his or her
investment representative, if applicable, and read the prospectus or contract
describing the terms of the investment selected.
8.6 CUSTODIAN AND DEPOSITORY RESPONSIBILITIES The Custodian and/or the
Depository shall perform such functions as may from time to time be necessary,
appropriate or expedient for the administration of the IRA. These functions
shall include, for example, depositing cash in non-interest-bearing accounts of
the Custodians bank (or any affiliate bank) or the Depositorys bank (or any
affiliate bank) pending distribution or for other reasons deemed appropriate by
the Custodian. The Custodian and/or the Depository shall receive all
contributions, make distributions and pay benefits from the IRA, shall maintain
such records and file such statements and reports as may be required by law and
shall do such other things as may be required in the proper administration of
the IRA. The Custodian and/or the Depository shall use reasonable care in the
administration of the IRA. The Custodian and/or the Depository shall be entitled
to rely upon information and instructions submitted by or on behalf of the
Depositor to the Custodian and/or the Depository, whether directly or
indirectly. Neither the Custodian nor the Depository will have any liability
regarding investments made at the direction of the Depositor or his or her
beneficiary(ies) other than to carry out the duties imposed under this
Agreement. If the Custodian and the Depository are not the same entity, the
Depository shall have no duty under this Agreement and no responsibility for the
administration of the IRA, except for such duties as are imposed by law with
respect to financial institutions which accept IRAs for investment in savings
accounts, certificates or other investments, or as otherwise agreed in writing
between the Custodian and the Depository. The Custodian and/or the Depository
may employ agents to fulfill IRA administrative requirements. The Custodian and
the Depository shall only be liable under this Agreement for their bad faith,
gross negligence or willful misconduct.
8.7 AMENDMENT OF AGREEMENT This Agreement is intended to be and to remain a
qualified Individual Retirement Custodial Account within the meaning of Section
408(a) of the Code. For the sole purpose of assuring the continued compliance of
this Agreement with the requirements of applicable law, the Custodian reserves
the right to amend this Agreement consistent with the provisions of applicable
law, pursuant to the provisions of Article VII and that the Depository, the
Depositor and his or her beneficiaries shall be bound by these amendments.
Pursuant to the provisions of Article VII, the Custodian may also make such
other amendments to this Agreement from time to time as may be consistent with
the provisions of applicable law, which amendments will be effective when the
Depository and the Depositor have consented thereto. Such consent shall include
passive consent upon 30 days notice of an amendment to the Depository and the
Depositor. No amendment may be made to deprive the Depositor or his or her
beneficiaries of benefits under the IRA made prior to the amendment, except for
amendments necessary to conform this Agreement to the requirements of the
Employee Retirement Income Security Act of 1974, the Code or other applicable
law, regulation or ruling. The Custodian is authorized to make retroactive
amendments.
8.8 RECORDS AND REPORTS The Custodian and/or the Depository shall from time to
time, but at least annually, render to the Depositor or his or her
beneficiaries, as appropriate, an accounting of the IRA transactions. As
required by applicable law or regulation, the Custodian and/or the Depository
will furnish the Depositor with a statement of contributions, earnings,
withdrawals, charges and ending balance for each calendar year for the IRA. The
Custodian shall prepare and file such reports as are required under Article V of
this agreement. The Depository shall arrange for such reports and information to
be provided to the Depositor regarding the investment of the funds in the IRA as
may be reasonably necessary to enable the Depositor to direct the investment and
re-investment of the account.
8.9 EARLY WITHDRAWAL AND OTHER PENALTIES Neither the Custodian nor the
Depository shall be responsible for any penalties imposed for premature
withdrawal or redemption of time deposit certificates or other investments, or
for any tax or other penalty resulting from any contribution, investment,
withdrawal or other distribution (including a required minimum distribution)
selected by the Depositor or required under the terms of this Agreement.
8.10 INTERPRETATION This Agreement is intended to create a qualified Individual
Retirement Account within the meaning of Section 408(a) of the Code, and each
provision is intended to be consistent with Section 408(a) of the Code and the
regulations thereunder.
8.11 CALCULATION OF LIFE EXPECTANCY Notwithstanding the provisions of Paragraph
2 of Article IV, unless the Depositor elects to recalculate life expectancies in
a written election furnished to the Custodian no later than the Depositors
required beginning date, the Depositors life expectancy (and the life expectancy
of the Depositors spouse, if any and if known) will be recalculated or not
recalculated in accordance with the Custodians standard procedures as provided
to the Depositor in a notice. If the beneficiary is the Depositors surviving
spouse and the Depositor dies before the Depositors required beginning date, the
Depositors surviving spouse may elect to recalculate such spouses life
expectancy, but unless the Depositors surviving spouse elects to recalculate his
or her life expectancy in a written election furnished to the Custodian no later
than the date distributions are required to begin to such spouse under the
applicable payment election, such spouses life expectancy will not be
recalculated. In addition to any other fees which the Custodian or the
Depository may impose under Paragraph 8.5, a fee may be imposed for services
under this Paragraph.
8.12 FAILURE TO ELECT METHOD OF DISTRIBUTION Notwithstanding the provisions of
Paragraph 3 of Article IV, if the Depositor fails to elect a method of
distribution described in Paragraph 1 of Article IV by the Depositors required
beginning date for IRA distributions, the Custodian will make distribution to
the Depositor in the form of a single, lump sum payment only if the balance in
the Depositors IRA on such required beginning date is less than or equal to
$5,000 (or a lesser designated amount). If such balance exceeds the designated
amount ($5,000 or a lesser designated amount), payments will be made to the
Depositor on an annual basis beginning on such required beginning date and
extending over a period equal to the Depositors life expectancy calculated as of
the year the Depositor attains age 70 1/2, with such life expectancy not being
recalculated. During the period of such annual payments, the Depositor, as
permitted by Paragraph 1 of Article IV, may elect to have distribution made on
an accelerated basis at any time by a written election furnished to the
Custodian. The due date of the required election by the Depositor under this
Paragraph 8.12 and the designated amount may be otherwise set as permissible
under the law by the Custodian in a written notice provided to the Depositor.
8.13 DESIGNATION OF BENEFICIARY The Depositor may designate or redesignate his
or her beneficiary in a written designation furnished to the Custodian on a form
provided or approved by the Custodian for this purpose. Unless otherwise
provided in the written beneficiary designation, the IRA will be divided equally
among the primary beneficiaries or, if none survive the Depositor, the secondary
beneficiaries. If the Depositor fails to validly designate a beneficiary, or if
no designated beneficiary survives the Depositor, the Depositors surviving
spouse shall be the beneficiary, or if the Depositor does not leave a surviving
spouse, the Depositors estate shall be the beneficiary. Except as otherwise
provided by the Depositor, or except as otherwise provided in Paragraph 8.14, if
a beneficiary dies before the complete distribution of his or her interest in
the IRA, any benefits which would have been payable to such beneficiary shall be
paid to such beneficiarys estate. Any beneficiary may, from time to time, elect
to accelerate the distribution of his or her interest in the IRA, in whole or in
part. Except to the extent that such actions may be permitted by Paragraph 8.14,
the beneficiary may not designate a beneficiary to receive any payments or
distributions from the IRA or make additional contributions to the IRA. The
Depositor may specify the method of payment to the beneficiary. If no such
specification is made, the beneficiary will have the right to elect a method of
payment of his or her distributions. Any specified or elected method of payment
must conform with the provisions of Article IV. The Depositor may limit or
eliminate any right or power granted under this Agreement to any beneficiary
(including the Depositors surviving spouse) so long as such limitation is
consistent with applicable law and regulations.
8.14 PROVISIONS APPLICABLE TO THE DEPOSITORS SPOUSE Unless specifically provided
to the contrary by the Depositor in the beneficiary designation, if the
Depositors spouse is the beneficiary, such spouse may elect to treat his or her
interest in the Depositors IRA as the spouses IRA in accordance with applicable
Internal Revenue Service regulations. In such event all of the terms, conditions
and restrictions of this Agreement shall be applied as if the spouse were the
Depositor. Notwithstanding the provisions of Paragraph 4(b) of Article IV, if
the Depositor dies before the Depositors required beginning date and if the
Depositors spouse is the Beneficiary and such spouse does not elect either of
the distribution options described in (i) or (ii) of Paragraph 4(b) of Article
IV by December 31 of the year following the year of the Depositors death, then
the spouse will be deemed to have elected to treat the Depositors IRA as the
spouses IRA. The Depositors surviving spouse may designate in writing one or
more beneficiaries to receive any benefits otherwise payable to such spouse
under this Agreement which are not completely distributed to such spouse prior
to his or her death.
8.15 GOVERNING LAW If any provision of this Agreement shall be held by a court
of appropriate jurisdiction to be invalid or unenforceable, the remaining
provisions of this Agreement shall continue to be fully effective. The
provisions of this Agreement shall be construed, administered and enforced
according to the laws of the state where the Custodian has its principal place
of business, and the Custodian shall be liable to account only in the courts of
such state.
8.16 RESIGNATION OR REMOVAL OF CUSTODIAN
A. The Custodian may resign as Custodian of the Plan. In addition, the Custodian
may be removed as Custodian of the Plan by the Depositor. The Custodian
resignation or removal may take place only after 30 days have passed since the
receipt of written notice of resignation or removal by the other party and all
fees have been paid by the Depositor.
B. If the Custodian resigns or is removed as Custodian, the Custodian and/or the
Depository and the Depositor agree to sign all documents necessary to transfer
any assets in its custody to the successor custodian or trustee appointed by the
Depositor or a court of appropriate jurisdiction and to provide a full, complete
and satisfactory accounting to the Depositor. The successor custodian or trustee
shall be a bank or other institution authorized to act as a Custodian or Trustee
for IRAs.
C. The transfer of the assets of the Plan shall be made at the same time as an
accounting is made by the Custodian and the Custodian shall endorse, transfer,
convey and deliver to the successor custodian or trustee all of the funds,
accounts or other property then held by it under the Plan, together with the
records reasonably required for the successor custodian or trustee to properly
administer the Plan.
D. The Custodian and/or the Depository may, without the direction or approval of
the Depositor, withhold from the Plan assets reasonable amounts as shall be
necessary to provide for any payment of either or both of their expenses,
compensation and any claims chargeable against the Plan assets for which the
Custodian and/or the Depository may be liable. If the amounts withheld by the
Custodian and/or the Depository are not adequate, either or both of them shall
be entitled to reimbursement for any deficiency from the Depositor.
E. If the Custodian resigns as Custodian pursuant to this Paragraph 8.16 and if
the Depositor does not appoint a successor custodian or trustee after 30 days
written notice of such resignation by the Custodian, the Custodian is expressly
authorized to make a total distribution to the Depositor of his or her IRA
funds, less any fee or other payments due to the Custodian and/or the
Depository. In the case that the Custodian must distribute the Depositors IRA
funds as authorized under this Paragraph 8.16(e), the Depositor and his or her
Beneficiary(ies) shall hold the Custodian and the Depository harmless for any
consequence, including any penalties or tax consequences, caused by such
distribution.
8.17 MISCELLANEOUS PROVISIONS The following miscellaneous provisions will apply
to this Agreement.
A. Except as required by law, no benefits, payments or proceeds of the
Depositors IRA will be subject to the claims of creditors of the Depositor or
his or her beneficiary. Neither the Depositor nor his or her beneficiary may
anticipate, sell, pledge, encumber or assign benefits, payments or proceeds from
the IRA.
B. The IRA is established for the exclusive benefit of the Depositor and his or
her beneficiary(ies).
C. Taxes of any and all kinds that may be levied or assessed under existing or
future laws upon or with respect to the IRA, or any money or the property
forming a part thereof, or the income therefrom, shall be paid out of the IRA.
If the Depositor is liable for a tax on the IRA and if the Custodian and/or the
Depository pays the tax pursuant to a legal requirement that would make the
Custodian and/or the Depository liable for the tax or penalties or interest if
not paid by the Depositor or his or her beneficiary(ies), the amount paid will
be reimbursed to the Custodian and/or the Depository from the IRA.
D. The Custodian and the Depository will not be liable except for their own bad
faith, gross negligence or willful misconduct. The Custodian and the Depository
will be fully protected in acting in accordance with written instructions or
authorizations from the Depositor or, following the Depositors death, his or her
beneficiaries. If the Depositor or his or her beneficiaries are incapable of
giving instructions or authorizations to the Custodian, the Custodian may (but
is not required to) act and is protected in acting without instructions or
authorizations, as in its discretion it deems appropriate and advisable in the
circumstances.
E. The Depositor (or any Beneficiary) must notify the Custodian of any address
changes.
F. Unless otherwise provided in this Plan, any notice mailed to the Depositor
(or any Beneficiary) shall be considered effective when mailed to the latest
address of such person in the Custodians records. Any notice, including address
changes, provided to the Custodian and/or the Depository by the Depositor (or
any Beneficiary) shall be effective when actually received.
G. Whenever the phrase Custodian and/or Depository is used with regard to
procedural requirements of the IRA, such term refers to one or both entities as
further clarified in the administrative forms used for this IRA or the
procedures applicable to the IRA. For purposes other than procedural purposes,
when this phrase appears it will be read to mean either or both of the entities
as is applicable under the circumstances.
8.18 SIMPLIFIED EMPLOYEE PENSION PLAN If the Depositor has executed this
Agreement in connection with a Simplified Employee Pension Plan (SEP) pursuant
to Section 408(k) of the Code, the contributions to the IRA on behalf of the
Depositor made by the Depositors employer will be governed by those sections of
the Code applicable to SEPs. The Depositor shall, if required by the Custodian
or the Depository, deliver a written form to the Custodian and/or the Depository
indicating that the contribution is eligible to be treated as a SEP-IRA
contribution. The Custodian may rely upon such statement and may treat the
contribution as a SEP-IRA thereafter. In addition to being subject to the terms
of this Agreement, the Depositors IRA will be subject to all provisions
applicable to the SEP. The Depositor will provide the Custodian and/or the
Depository (as required) a copy of the employers SEP governing documents.
INSTRUCTIONS
(Section references are to the Internal Revenue Code unless otherwise noted.)
PURPOSE OF FORM FORM 5305-A is a model custodial account
agreement that meets the requirements of Section 408(a) and has been
automatically approved by the IRS. An Individual Retirement Account (IRA) is
established after the form is fully executed by both the Individual (Depositor)
and the Custodian and to make a deductible or nondeductible contribution for a
particular tax year must be completed no later than the due date of the
Individuals income tax return for the tax year (without regard to extensions).
This account must be created in the United States for the exclusive benefit of
the Depositor or his/her beneficiaries.
Individuals may rely on regulations for the Tax Reform Act of 1986 to the extent
specified in those regulations.
Do not file Form 5305-A with the IRS. Instead keep it for your records.
For more information on IRAs, including the required
disclosure you can get from your custodian, get Pub. 590, Individual Retirement
Arrangements (IRAs).
DEFINITIONS
CUSTODIAN The Custodian must be a bank or savings and loan association, as
defined in Section 408(n), or other person who has the approval of the Internal
Revenue Service to act as Custodian.
DEPOSITOR The depositor is the person who establishes the custodial account.
IDENTIFYING NUMBER An employees Social Security number will serve as the
identification number of his or her IRA. An employer identification number is
only required for an IRA for which a return is filed to report unrelated
business taxable income. An employer identification number is required for a
common fund created for IRAs.
IRA FOR NON-WORKING SPOUSE Form 5305-A may be used to establish the IRA
custodial account for the nonworking spouse.
Contributions to an IRA custodial account for a nonworking spouse must be made
to a separate IRA custodial account established by the nonworking spouse.
SPECIFIC INSTRUCTIONS
ARTICLE IV -- Distributions made under this
article may be made in a single sum, periodic payment, or a combination of both.
The distribution option should be reviewed in the year the Depositor reaches age
70 1/2 to ensure that the requirements of Section 408(a)(6) have been met.
ARTICLE VIII and any that follow it may incorporate additional provisions that
are agreed to by the Depositor and Custodian to complete the agreement. These
may include, for example, definitions, investment powers, voting rights,
exculpatory provisions, amendment and termination, removal of Custodian,
Custodians fees, state law requirements, beginning date of distributions,
accepting only cash, treatment of excess contributions, prohibited transactions
with the Depositor, etc. Use additional pages if necessary and attach them to
this form.
Note: Form 5305-A may be reproduced and reduced in size for adoption to passbook
purposes.
<TABLE>
<CAPTION>
First American Investment Funds, Inc.
(With Sales Charge)
Average Annual Total Return
P(1+T)^N ERV
Class A
One Year:
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
<S> <C> <C> <C> <C>
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,183.30 1,143.50 1,104.20 1,070.70
T = 18.33 14.35 10.42 7.07
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,111.70 1,121.30 1,081.30 1,059.60
T = 11.17 12.13 8.13 5.96
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Special Equity Technology Health Sciences Real Estate
-------------- ---------- --------------- -----------
P = 1,000 1,000 N/A 1,000
n = 1 1 N/A 1
ERV = 1,196.10 1,132.60 N/A 1,128.40
T = 19.61 13.26 N/A 12.84
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 973.00 1,038.30 1,016.50 1,007.00
T = (2.70) 3.83 1.65 0.70
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,016.80 1,013.30 1,016.30 1,012.10
T = 1.68 1.33 1.63 1.21
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Average Annual Total Return (Since Inception)
(With Sales Charge)
Class A
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1000 1000 1000 1000
n = 7.78 2.80 2.80 2.80
ERV = 2,709.72 1,443.22 1,358.05 1,286.35
T = 13.67 14.00 11.55 9.41
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1000 1000 1000 1000
n = 1.08 2.78 1.42 2.80
ERV = 1,137.40 1,537.70 1,247.93 1,617.98
T = 12.66 16.74 16.88 18.75
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Real
Special Equity Technology Health Sciences Estate Securities
-------------- ---------- --------------- ------------------
P = 1000 1000 1000 1000
n = 7.78 1.42 1.42 1.42
ERV = 2,978.46 1,529.42 881.35 1,186.53
T = 15.06 34.88 (8.51) 12.80
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1000 1000 1000 1000
n = 1.42 2.80 2.80 7.78
ERV = 1,000.99 1,124.21 1,138.45 1,780.89
T = 0.07 4.27 4.74 7.70
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = 1000 1000 1000 1000
n = 7.78 7.78 1.75 1.42
ERV = 1,602.65 1,531.32 1,055.95 1,077.40
T = 6.25 5.63 3.16 5.39
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Five Year
(With Sales Charge)
Class A
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1,000 N/A N/A N/A
n = 5 N/A N/A N/A
ERV = 2,006.99 N/A N/A N/A
T = 14.95 N/A N/A N/A
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = N/A N/A N/A N/A
n = N/A N/A N/A N/A
ERV = N/A N/A N/A N/A
T = N/A N/A N/A N/A
(For the Period (For the Period (For the Period (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Special Equity Technology Health Sciences Real Estate
-------------- ---------- --------------- -----------
P = 1,000 N/A N/A N/A
n = 5 N/A N/A N/A
ERV = 2,190.57 N/A N/A N/A
T = 16.98 N/A N/A N/A
(Fiscal Year (For the Period (Not in operation (For the Period
Ended 09/30/96) Ended 09/30/96) during period) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = N/A N/A N/A 1,000
n = N/A N/A N/A 5
ERV = N/A N/A N/A 1,353.44
T = N/A N/A N/A 6.24
(For the Period (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = 1,000 1,000 N/A N/A
n = 5 5 N/A N/A
ERV = 1,262.36 1,272.03 N/A N/A
T = 4.77 4.93 N/A N/A
(Fiscal Year (Fiscal Year (For the Period (For the Period
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Cumulative Total Return
(With Sales Charge)
Class A
CTR=(ERV-P)*100
P
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1,000 1,000 1,000 1,000
ERV = 3,078.60 1,644.30 1,514.20 1,406.90
CTR = 207.86 64.43 51.42 40.69
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1,000 1,000 1,000 1,000
ERV = 1,349.90 1,476.50 1,474.80 1,919.70
CTR = 34.99 47.65 47.48 91.97
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Real
Special Equity Technology Health Sciences Estate Securities
-------------- ---------- --------------- -----------------
P = 1,000 1,000 1,000 1,000
ERV = 3,424.90 2,107.00 942.50 1,128.40
CTR = 242.49 110.70 -5.75 12.84
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1,000 1,000 1,000 1,000
ERV = 1,001.80 1,172.10 1,192.00 1,917.90
CTR = 0.18 17.21 19.20 91.79
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = 1,000 1,000 1,000 1,000
ERV = 1,702.40 1,617.20 1,084.00 1,139.60
CTR = 70.24 61.72 8.40 13.96
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
First American Investment Funds, Inc.
(Without Sales Charge)
Average Annual Total Return
P(1+T)^N = ERV
Class A
One Year:
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,239.00 1,197.50 1,156.10 1,120.90
T = 23.90 19.75 15.61 12.09
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,164.10 1,173.80 1,132.10 1,109.70
T = 16.41 17.38 13.21 10.97
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Special Equity Technology Health Sciences Real Estate
-------------- ---------- --------------- -----------
P = 1,000 1,000 N/A 1,000
n = 1 1 N/A 1
ERV = 1,252.30 1,186.00 N/A 1,181.70
T = 25.23 18.60 N/A 18.17
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,018.40 1,059.30 1,056.30 1,046.40
T = 1.84 5.93 5.63 4.64
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,048.50 1,044.50 1,048.00 1,043.90
T = 4.85 4.45 4.80 4.39
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Average Annual Total Return (Since Inception)
(Without Sales Charge)
Class A
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1000 1000 1000 1000
n = 7.78 2.80 2.80 2.80
ERV = 2,823.01 1,493.04 1,404.92 1,330.95
T = 14.27 15.39 12.91 10.75
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1000 1000 1000 1000
n = 1.08 2.78 1.42 2.80
ERV = 1,159.87 1,618.10 1,281.11 1,673.91
T = 14.72 18.90 19.06 20.20
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Special Equity Technology Health Sciences Real Estate
-------------- ---------- --------------- -----------
P = 1000 1000 1000 1000
n = 7.78 1.42 1.42 1.42
ERV = 2,978.46 1,565.28 972.00 1,266.77
T = 15.06 37.10 (1.98) 18.12
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1000 1000 1000 1000
n = 1.42 2.80 2.80 7.78
ERV = 1,027.80 1,140.89 1,171.01 1,842.26
T = 1.95 4.82 5.80 8.17
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = 1000 1000 1000 1000
n = 7.78 7.78 1.75 1.42
ERV = 1,646.59 1,573.55 1,077.90 1,096.32
T = 6.62 6.00 4.38 6.69
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Five Year
(Without Sales Charge)
Class A
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1,000 N/A N/A N/A
n = 5 N/A N/A N/A
ERV = 2,101.25 N/A N/A N/A
T = 16.01 N/A N/A N/A
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = N/A N/A N/A N/A
n = N/A N/A N/A N/A
ERV = N/A N/A N/A N/A
T = N/A N/A N/A N/A
(For the Period (For the Period (For the Period (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Special Equity Technology Health Sciences Real Estate
-------------- ---------- --------------- -----------
P = 1,000 N/A N/A N/A
n = 5 N/A N/A N/A
ERV = 2,293.58 N/A N/A N/A
T = 18.06 N/A N/A N/A
(Fiscal Year (For the Period (Not in operation (For the Period
Ended 09/30/96) Ended 09/30/96) during period) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = N/A N/A N/A 1,000
n = N/A N/A N/A 5
ERV = N/A N/A N/A 1,405.83
T = N/A N/A N/A 7.05
(For the Period (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = 1,000 1,000 N/A N/A
n = 5 5 N/A N/A
ERV = 1,301.39 1,311.92 N/A N/A
T = 5.41 5.58 N/A N/A
(Fiscal Year (Fiscal Year (For the Period (For the Period
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Cumulative Total Return
(Without Sales Charge)
Class A
CTR=(ERV-P)*100
P
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1,000 1,000 1,000 1,000
ERV = 3,223.20 1,721.60 1,585.30 1,473.00
CTR = 222.32 72.16 58.53 47.30
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1,000 1,000 1,000 1,000
ERV = 1,413.00 1,546.20 1,544.10 2,009.90
CTR = 41.30 54.62 54.41 100.99
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Real
Special Equity Technology Health Sciences Estate Securities
-------------- ---------- --------------- -----------------
P = 1,000 1,000 1,000 1,000
ERV = 3,585.80 2,206.00 986.80 1,181.70
CTR = 258.58 120.60 -1.32 18.17
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1,000 1,000 1,000 1,000
ERV = 1,049.00 1,195.50 1,238.50 1,992.70
CTR = 4.90 19.55 23.85 99.27
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = 1,000 1,000 1,000 1,000
ERV = 1,755.20 1,667.40 1,117.60 1,174.90
CTR = 75.52 66.74 11.76 17.49
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
First American Investment Funds, Inc.
(With Sales Charge)
Average Annual Total Return
P(1+T)^N = ERV
Class B
One Year:
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,180.80 1,139.50 1,097.80 1,062.90
T = 18.08 13.95 9.78 6.29
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,106.60 1,114.10 1,073.20 1,051.40
T = 10.66 11.41 7.32 5.14
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Special Equity Technology Health Sciences Real Estate
-------------- ---------- --------------- -----------
P = 1,000 1,000 N/A 1,000
n = 1 1 N/A 1
ERV = 1,193.50 1,127.50 N/A 1,120.00
T = 19.35 12.75 N/A 12.00
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1,000 N/A N/A 1,000
n = 1 N/A N/A 1
ERV = 960.50 N/A N/A 990.20
T = (3.95) N/A N/A (0.98)
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = N/A N/A N/A N/A
n = N/A N/A N/A N/A
ERV = N/A N/A N/A N/A
T = N/A N/A N/A N/A
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Average Annual Total Return (Since Inception)
(With Sales Charge)
Class B
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1000 1000 1000 1000
n = 1.08 1.08 1.08 1.08
ERV = 1,221.25 1,223.88 1,153.65 1,134.23
T = 20.33 20.57 14.15 12.37
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1000 1000 1000 1000
n = 1.08 1.08 1.08 1.08
ERV = 1,372.08 1,236.38 1,225.52 1,246.81
T = 34.03 21.71 20.72 22.66
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Real
Special Equity Technology Health Sciences Estate Securities
-------------- ---------- --------------- -----------------
P = 1000 1000 1000 1000
n = 1.08 1.08 1.08 1.08
ERV = 1,195.29 1,477.73 892.55 1,129.87
T = 17.96 43.56 (9.99) 11.97
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1000 N/A N/A 1000
n = 1.08 N/A N/A 1.08
ERV = 983.38 N/A N/A 1,054.97
T = (1.54) N/A N/A 5.08
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = N/A N/A N/A N/A
n = N/A N/A N/A N/A
ERV = N/A N/A N/A N/A
T = N/A N/A N/A N/A
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Cumulative Total Return
(With Sales Charge)
Class B
CTR=(ERV-P)*100
P
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1,000 1,000 1,000 1,000
ERV = 1,482.10 1,488.30 1,325.00 1,281.50
CTR = 48.21 48.83 32.50 28.15
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1,000 1,000 1,000 1,000
ERV = 1,322.00 1,518.50 1,492.30 1,543.80
CTR = 32.20 51.85 49.23 54.38
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Real
Special Equity Technology Health Sciences Estate Securities
-------------- ---------- --------------- -----------------
P = 1,000 1,000 1,000 1,000
ERV = 1,420.70 2,156.90 932.30 1,120.00
CTR = 42.07 115.69 -6.77 12.00
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1,000 N/A N/A 1,000
ERV = 967.60 N/A N/A 1,111.20
CTR = -3.24 N/A N/A 11.12
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = N/A N/A N/A N/A
ERV = N/A N/A N/A N/A
CTR = N/A N/A N/A N/A
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
First American Investment Funds, Inc.
(Without Sales Charge)
Average Annual Total Return
P(1+T)^N = ERV
Class B
One Year:
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,230.80 1,189.50 1,147.80 1,112.90
T = 23.08 18.95 14.78 11.29
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,156.60 1,164.10 1,123.20 1,101.40
T = 15.66 16.41 12.32 10.14
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Special Equity Technology Health Sciences Real Estate
-------------- ---------- --------------- -----------
P = 1,000 1,000 N/A 1,000
n = 1 1 N/A 1
ERV = 1,243.50 1,177.50 N/A 1,170.00
T = 24.35 17.75 N/A 17.00
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1,000 N/A N/A 1,000
n = 1 N/A N/A 1
ERV = 1,010.20 N/A N/A 1,039.30
T = 1.02 N/A N/A 3.93
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = N/A N/A N/A N/A
n = N/A N/A N/A N/A
ERV = N/A N/A N/A N/A
T = N/A N/A N/A N/A
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Average Annual Total Return (Since Inception)
(Without Sales Charge)
Class B
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1000 1000 1000 1000
n = 1.08 1.08 1.08 1.08
ERV = 1,237.92 1,240.44 1,171.23 1,152.12
T = 21.85 22.08 15.76 14.01
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1000 1000 1000 1000
n = 1.08 1.08 1.08 1.08
ERV = 1,169.92 1,252.85 1,242.09 1,263.17
T = 15.64 23.21 22.23 24.15
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Real
Special Equity Technology Health Sciences Estate Securities
-------------- ---------- --------------- -----------------
P = 1000 1000 1000 1000
n = 1.08 1.08 1.08 1.08
ERV = 1,212.26 1,491.52 970.01 1,184.24
T = 19.51 44.8 (2.78) 16.95
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1000 N/A N/A 1000
n = 1.08 N/A N/A 1.08
ERV = 1,003.67 N/A N/A 1,074.18
T = 0.34 N/A N/A 6.85
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = N/A N/A N/A N/A
n = N/A N/A N/A N/A
ERV = N/A N/A N/A N/A
T = N/A N/A N/A N/A
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Cumulative Total Return
(Without Sales Charge)
Class B
CTR=(ERV-P)*100
P
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1,000 1,000 1,000 1,000
ERV = 1,522.10 1,528.30 1,365.00 1,321.50
CTR = 52.21 52.83 36.50 32.15
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1,000 1,000 1,000 1,000
ERV = 1,362.00 1,558.50 1,532.30 1,583.80
CTR = 36.20 55.85 53.23 58.38
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Real
Special Equity Technology Health Sciences Estate Securities
-------------- ---------- --------------- -----------------
P = 1,000 1,000 1,000 1,000
ERV = 1,460.70 2,196.90 981.40 1,170.00
CTR = 46.07 119.69 -1.86 17.00
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1,000 N/A N/A 1,000
ERV = 1,007.30 N/A N/A 1,151.20
CTR = 0.73 N/A N/A 15.12
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = N/A N/A N/A N/A
ERV = N/A N/A N/A N/A
CTR = N/A N/A N/A N/A
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
First American Investment Funds, Inc.
(Without Sales Charge)
Average Annual Total Return
P(1+T)^N = ERV
Class C
One Year:
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,243.20 1,199.80 1,158.90 1,123.70
T = 24.32 19.98 15.89 12.37
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,167.90 1,175.80 1,133.90 1,112.70
T = 16.79 17.58 13.39 11.27
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Special Equity Technology Health Sciences Real Estate
-------------- ---------- --------------- -----------
P = 1,000 1,000 N/A N/A
n = 1 1 N/A N/A
ERV = 1,256.10 1,188.50 N/A N/A
T = 25.61 18.85 N/A 18.53
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,021.10 1,059.30 1,056.30 1,049.00
T = 2.11 5.93 5.63 4.90
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = 1,000 1,000 1,000 1,000
n = 1 1 1 1
ERV = 1,047.40 1,043.50 1,048.00 1,043.90
T = 4.74 4.35 4.80 4.39
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Average Annual Total Return (Since Inception)
(Without Sales Charge)
Class C
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1000 1000 1000 1000
n = 1.58 1.58 1.58 1.58
ERV = 1,316.50 1,299.59 1,217.76 1,186.99
T = 19.01 18.04 13.28 11.46
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1000 1000 1000 1000
n = 1.08 1.08 1.42 1.58
ERV = 1,177.57 1,258.12 1,282.79 1,321.40
T = 16.34 23.69 19.17 19.29
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Real
Special Equity Technology Health Sciences Estate Securities
-------------- ---------- --------------- -----------------
P = 1000 1000 1000 1000
n = 1.58 1.42 1.42 0.25
ERV = 1,283.79 1,571.94 974.68 1,045.04
T = 17.13 37.51 (1.79) 19.27
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1000 1000 1000 1000
n = 1.42 1.58 1.58 1.58
ERV = 1,029.09 1,082.74 1,086.81 1,084.37
T = 2.04 5.16 5.41 5.26
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = 1000 1000 1000 1000
n = 1.58 1.58 1.58 1.42
ERV = 1,076.24 1,061.83 1,070.08 1,096.32
T = 4.76 3.87 4.38 6.69
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Cumulative Total Return
(Without Sales Charge)
Class C
CTR=(ERV-P)*100
P
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
P = 1,000 1,000 1,000 1,000
ERV = 1,586.70 1,552.50 1,392.00 1,333.50
CTR = 58.67 55.25 39.20 33.35
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
P = 1,000 1,000 1,000 1,000
ERV = 1,387.10 1,583.50 1,547.70 1,596.30
CTR = 38.71 58.35 54.77 59.63
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Real
Special Equity Technology Health Sciences Estate Securities
-------------- ---------- --------------- -----------------
P = 1,000 1,000 1,000 1,000
ERV = 1,520.90 2,210.60 988.00 1,246.80
CTR = 52.09 121.06 -1.20 24.68
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
P = 1,000 1,000 1,000 1,000
ERV = 1,051.70 1,142.90 1,150.00 1,145.70
CTR = 5.17 14.29 15.00 14.57
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
P = 1,000 1,000 1,000 1,000
ERV = 1,131.20 1,105.90 1,117.50 1,174.90
CTR = 13.12 10.59 11.75 17.49
(Fiscal Year (Fiscal Year (Fiscal Year (Fiscal Year
Ended 09/30/96) Ended 09/30/96) Ended 09/30/96) Ended 09/30/96)
First American Investment Funds, Inc.
SEC YIELD - Class A
Yield = 2[((a-b)/cd) + 1)^6 - 1]
Stock Equity Index Balanced Asset Allocation
------ ------------ --------- ----------------
a = 44,720.77 11,381.49 70,395.05 5,731.75
b = 18,207.35 2,907.28 17,138.96 1,413.11
c = 991,473.465 395,033.994 1,578,197.823 138,432.303
d = 23.64 16.22 13.76 12.93
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
a = 8,966.43 8,292.54 N/A 27,980.93
b = 2,015.35 4,311.91 N/A 23,307.12
c = 201,841.456 384,356.096 N/A 1,438,619.141
d = 13.25 14.27 N/A 18.54
Special Equity Technology Health Sciences Real Estate
-------------- ---------- --------------- -----------
a = 23,751.10 N/A 555.49 1,320.80
b = 15,280.63 N/A 490.47 188.83
c = 874,358.426 N/A 56,615.425 19,306.752
d = 21.36 N/A 10.32 12.06
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
a = N/A 37,958.16 12,094.69 47,388.24
b = N/A 3,422.69 1,264.13 6,435.28
c = N/A 738,101.948 222,831.505 779,706.357
d = N/A 10.11 10.32 11.19
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
a = 17,795.30 10,548.35 15,498.64 12,137.21
b = 1,898.94 1,427.46 2,103.83 1,623.98
c = 363,033.083 245,337.923 371,004.260 271,977.595
d = 9.47 10.99 10.22 10.74
First American Investment Funds, Inc.
SEC YIELD - Class B
Yield = 2[((a-b)/cd) + 1)^6 - 1]
Stock Equity Index Balanced Asset Allocation
------ ------------ --------- ----------------
a = 45,552.21 15,093.66 51,199.74 7,537.21
b = 32,229.18 8,726.34 21,532.85 3,222.49
c = 1,015,942.719 525,325.596 1,150,281.385 182,829.962
d = 22.49 15.43 13.10 12.29
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
a = 12,925.73 9,016.85 N/A N/A
b = 5,151.15 8,138.93 N/A N/A
c = 291,863.102 420,984.019 N/A N/A
d = 12.61 13.57 N/A N/A
Special Equity Technology Health Sciences Real Estate
-------------- ---------- --------------- -----------
a = N/A N/A N/A 1,532.13
b = N/A N/A N/A 375.45
c = N/A N/A N/A 22,439.81
d = N/A N/A N/A 11.46
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
a = N/A N/A N/A 89,990.40
b = N/A N/A N/A 21,958.06
c = N/A N/A N/A 1,488,268.744
d = N/A N/A N/A 10.72
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
a = N/A N/A N/A N/A
b = N/A N/A N/A N/A
c = N/A N/A N/A N/A
d = N/A N/A N/A N/A
First American Investment Funds, Inc.
SEC YIELD - Class C
Yield = 2[((a-b)/cd) + 1)^6 - 1]
Stock Equity Index Balanced Asset Allocation
------ ------------ --------- ----------------
a = 931,753.21 636,050.56 1,059,769.81 183,397.92
b = 287,506.50 93,827.98 195,234.63 34,130.41
c = 20,726,963.450 22,074,274.653 23,734,330.025 4,427,266.926
d = 22.59 15.47 13.15 12.34
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
a = 225,566.50 357,816.82 N/A 327,348.37
b = 37,677.48 140,599.86 N/A 210,482.96
c = 5,080,382.742 16,529,494.568 N/A 16,696,973.644
d = 12.66 13.66 N/A 17.75
Special Equity Technology Health Sciences Real Estate
-------------- ---------- --------------- -----------
a = 312,056.14 N/A 11,940.18 102,811.38
b = 153,695.17 N/A 8,698.78 11,192.80
c = 11,449,978.972 N/A 1,291,194.284 1,506,131.181
d = 20.42 N/A 9.87 11.53
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
a = N/A 493,607.93 541,853.92 2,189,132.32
b = N/A 44,497.95 56,636.41 218,242.86
c = N/A 9,596,817.885 9,984,322.444 36,049,580.047
d = N/A 9.91 9.93 10.76
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
a = 740,971.57 266,955.24 394,944.42 209,775.96
b = 79,071.41 36,125.32 53,612.55 28,067.82
c = 15,124,438.971 6,212,054.890 9,453,142.025 4,701,300.929
d = 9.18 10.65 9.91 10.42
First American Investment Funds, Inc.
Historical Distribution Rates:
Class A
Monthly Declaring Quarterly Declaring
ACDR = CD ACDR = CD
POP POP
CD = Current Distribution
POP = Maximum Public Offering Price on 9/30/96
MD = Monthly declaring
QD = Quarterly declaring
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
MD MD MD MD
CD = 0.3675 0.2724 0.3918 0.3371
POP = 23.65 16.22 13.76 12.93
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
MD MD QD QD
CD = 0.3931 0.1496 N/A 0.0401
POP = 13.25 14.27 N/A 18.54
Special Equity Technology Health Securities Real Estate Sec Fund
-------------- ---------- ----------------- --------------------
MD QD QD QD
CD = 0.2015 N/A 0.0081 0.6789
POP = 21.37 N/A 10.32 12.06
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
MD MD MD MD
CD = 0.1819 0.5820 0.5460 0.6051
POP = 10.76 10.11 10.32 11.19
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
MD MD MD MD
CD = 0.5400 0.4620 0.448 0.4920
POP = 9.47 10.99 10.22 10.74
First American Investment Funds, Inc.
Historical Distribution Rates:
Class B
Monthly Declaring QuaRterly Declaring
ACDR = CD ACDR = CD
POP POP
CD = Current Distribution
POP = Maximum Public Offering Price on 9/30/96
MD = Monthly declaring
QD = QuaRterly declaring
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
QD QD MD MD
CD = 0.2234 0.1749 0.3070 0.2559
POP = 22.5 15.43 13.1 12.29
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
MD QD QD QD
CD = 0.3088 0.0787 N/A 0.0057
POP = 12.61 13.57 14.53 17.47
Special Equity Technology Health Securities Real Estate Sec Fund
-------------- ---------- ----------------- --------------------
QD QD QD QD
CD = 0.0952 N/A 0.004 0.623
POP = 20.31 18.85 9.81 11.46
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
MD MD MD MD
CD = 0.1587 N/A N/A 0.5285
POP = 10.14 N/A N/A 10.72
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
MD MD MD MD
CD = N/A N/A N/A N/A
POP = N/A N/A N/A N/A
First American Investment Funds, Inc.
Historical Distribution Rates:
Class C
Monthly Declaring Quarterly Declaring
ACDR = CD ACDR = CD
POP POP
CD = Current Distribution
POP = Maximum Public Offering Price on 9/30/96
MD = Monthly declaring
QD = Quarterly declaring
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
MD MD MD MD
CD = 0.4177 0.307 0.4227 0.3661
POP = 22.60 15.47 13.15 12.34
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
MD MD QD QD
CD = 0.4227 0.1765 0.0127 0.0573
POP = 12.66 13.66 14.79 17.75
Special Equity Technology Health Securities Real Estate Sec Fund
-------------- ---------- ----------------- --------------------
MD QD QD QD
CD = 0.2386 N/A 0.0104 0.7030
POP = 20.43 N/A 9.87 11.53
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
MD MD MD MD
CD = 0.1984 0.5820 0.5460 0.6320
POP = 10.31 9.91 9.93 10.76
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
MD MD MD MD
CD = 0.5400 0.4620 0.448 0.4920
POP = 9.18 10.65 9.91 10.42
First American Investment Funds, Inc.
Annualized Current Distribution Rates:
Class A
Monthly Declaring Quarterly Declaring
ACDR = CD*12 ACDR = CD*4
POP POP
CD = Current Distribution
POP = Maximum Public Offering Price on 9/30/96
MD = Monthly declaring
QD = Quarterly declaring
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
MD MD MD MD
CD = 0.0234 0.0239 0.0317 0.0315
POP = 23.65 16.22 13.76 12.93
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
MD MD QD QD
CD = 0.0244 N/A N/A N/A
POP = 13.25 N/A N/A N/A
Special Equity Technology Health Science Fund Real Estate
-------------- ---------- ------------------- -----------
MD QD QD QD
CD = N/A N/A NA 0.1732
POP = N/A N/A NA 12.06
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
MD MD MD MD
CD = NA 0.049 0.05 0.0508
POP = NA 10.11 10.32 11.19
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
MD MD MD MD
CD = 0.044 0.037 0.036 0.039
POP = 9.47 10.99 10.22 10.74
First American Investment Funds, Inc.
Annualized Current Distribution Rates:
Class B
Monthly Declaring Quarterly Declaring
ACDR = CD*12 ACDR = CD*4
POP POP
CD = Current Distribution
POP = Maximum Public Offering Price on 9/30/96
MD = Monthly declaring
QD = Quarterly declaring
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
MD MD MD MD
CD = 0.0103 0.015 0.0243 0.0242
POP = 22.5 15.43 13.1 12.29
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
MD MD QD QD
CD = 0.0171 N/A N/A N/A
POP = 12.61 N/A N/A N/A
Special Equity Technology Health Science Fund Real Estate
-------------- ---------- ------------------- -----------
MD QD QD QD
CD = N/A N/A NA 0.1548
POP = N/A N/A NA 11.46
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
MD MD MD MD
CD = NA N/A NA 0.0443
POP = NA N/A NA 10.72
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
MD MD MD MD
CD = NA NA NA NA
POP = NA NA NA NA
First American Investment Funds, Inc.
Annualized Current Distribution Rates:
Class C
Monthly Declaring Quarterly Declaring
ACDR = CD*12 ACDR = CD*4
POP POP
CD = Current Distribution
POP = Maximum Public Offering Price on 9/30/96
MD = Monthly declaring
QD = Quarterly declaring
Stock Fund Equity Index Balanced Fund Asset Allocation
---------- ------------ ------------- ----------------
MD MD MD MD
CD = 0.0277 0.027 0.0344 0.034
POP = 22.60 15.47 13.15 12.34
Equity Income Diversified Growth Emerging Growth Regional Equity
------------- ------------------ --------------- ---------------
MD MD QD QD
CD = 0.027 N/A NA N/A
POP = 12.66 N/A NA N/A
Special Equity Technology Health Science Fund Real Estate
-------------- ---------- ------------------- -----------
MD QD QD QD
CD = N/A NA NA 0.1789
POP = N/A NA NA 11.53
International Limited Term Intermediate Term Fixed Income
------------- ------------ ----------------- ------------
MD MD MD MD
CD = NA 0.049 0.05 0.053
POP = NA 9.91 9.93 10.76
Inter. Gov't. Bond Inter. Tax Free Minnesota Tax Free Colorado Tax Free
------------------ --------------- ------------------ -----------------
MD MD MD MD
CD = 0.044 0.037 0.036 0.039
POP = 9.18 10.65 9.91 10.42
</TABLE>
<TABLE>
<CAPTION>
First American Investment Funds, Inc.
Tax Equivalent Yield
Class A
TEY= TFY
(1-TR)
TEY = Tax Equivalent Yield
TFY = Tax Free Yield
TR = Maximum Tax Rate
Inter. Tax Free Minnesota Tax Free Colorado Tax Free
--------------- ------------------ -----------------
<S> <C> <C> <C>
TEY = 6.79% 7.74% 7.60%
TFY = 4.10% 4.28% 4.36%
TR = 39.60% 44.70% 42.60%
First American Investment Funds, Inc.
Tax Equivalent Yield
Class C
TEY= TFY
(1-TR)
TEY = Tax Equivalent Yield
TFY = Tax Free Yield
TR = Maximum Tax Rate
Inter. Tax Free Minnesota Tax Free Colorado Tax Free
--------------- ------------------ -----------------
TEY = 6.99% 7.97% 7.82%
TFY = 4.22% 4.41% 4.49%
TR = 39.60% 44.70% 42.60%
First American Investment Funds, Inc.
Tax Equivalent Distribution Rate
Class A
TEDR= ACDR
(1-TR)
TEDR = Tax Equivalent Distribution Rate
ACDR = Annualized Current Distribution Rate
TR = Maximum Tax Rate
Inter. Tax Free Minnesota Tax Free Colorado Tax Free
--------------- ------------------ -----------------
TEDR = 6.79% 7.76% 7.70%
ACDR = 4.10% 4.29% 4.42%
TR = 39.60% 44.70% 42.60%
First American Investment Funds, Inc.
Tax Equivalent Distribution Rates
Class C
TEDR= ACDR
(1-TR)
TEDR = Tax Equivalent Distribution Rate
ACDR = Annualized Current Distribution Rate
TR = Maximum Tax Rate
Inter. Tax Free Minnesota Tax Free Colorado Tax Free
--------------- ------------------ -----------------
TEDR = 7.00% 7.99% 7.93%
ACDR = 4.23% 4.42% 4.55%
TR = 39.60% 44.70% 42.60%
</TABLE>
EXHIBIT (19)(b)
FIRST AMERICAN INVESTMENT FUNDS, INC.
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person hereby
constitutes and appoints David Lee, Stephen G. Meyer, Kathryn Stanton, and
Joseph Lydon, and each of them, his true and lawful attorneys-in-fact and
agents, each acting alone, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign a
Registration Statement on Form N-1A of First American Investment Funds, Inc.,
and any and all amendments thereto, including post-effective amendments, 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, each acting alone, full power and authority to do
and perform 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, each
acting alone, or the substitutes for such attorneys-in-fact and agents, may
lawfully do or cause to be done by virtue hereof.
Signature Title Date
/s/ Andrew M. Hunter III Director Jan. 2, 1997
----------------------------- --------------
Andrew M. Hunter III
EXHIBIT (19)(c)
FIRST AMERICAN INVESTMENT FUNDS, INC.
CONSENT TO BE NAMED AND POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that the undersigned person hereby:
(1) consents to being named in the Registration Statement referred to
below as a person who intends to become a director of First American Investment
Funds, Inc.; and
(2) constitutes and appoints David Lee, Stephen G. Meyer, Kathryn
Stanton, and Joseph Lydon, and each of them, his true and lawful
attorneys-in-fact and agents, each acting alone, with full power of substitution
and resubstitution, for him and in his name, place and stead, in any and all
capacities, to sign a Registration Statement on Form N-1A of First American
Investment Funds, Inc., and any and all amendments thereto, including
post-effective amendments, 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, each acting alone,
full power and authority to do and perform 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, each acting alone, or the substitutes for such
attorneys-in-fact and agents, may lawfully do or cause to be done by virtue
hereof.
Signature Date
/s/ Robert L. Spies 12/27/96
------------------------------ ----------
Robert L. Spies
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000820892
<NAME> FIRST AMERICAN INVESTMENT FUNDS
<SERIES>
<NUMBER> 011
<NAME> INTERMEDIATE GOVERNMENT BOND RETAIL CLASS A
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1996
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