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Registration No. 33-36700/811-6167
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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. 8 /X/
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 /X/
Amendment No. 9 / /
(Check appropriate box or boxes.)
SAFECO Common Stock Trust
(Exact Name of Registrant as Specified in Charter)
SAFECO Plaza, Seattle, Washington 98185
(Address of Principal Executive Offices) ZIP Code
Registrant's Telephone Number, including
Area Code (206) 545-5269
Name and Address of Agent for Service
DAVID F. HILL
SAFECO Plaza
Seattle, Washington 98185
(206) 545-5269
Approximate Date of Proposed Public Offering: Continuous
It is proposed that this filing will become effective
immediately upon filing pursuant to paragraph (b)
---
on January 31, 1996 pursuant to paragraph (b)
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X 75 days after filing pursuant to paragraph (a)
on pursuant to paragraph (a) of Rule 485
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Registrant is registering an indefinite number of its shares under the
Securities Act of 1933 by declaration made pursuant to Section 24(f) of the
Investment Company Act of 1940 (Act). Pursuant to Rule 24f-2 under the Act,
Registrant filed a Rule 24f-2 Notice on November 15, 1995.
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The Exhibit Index is at page __.
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SAFECO COMMON STOCK TRUST
Registration Statement on Form N-1A
Cross Reference Sheet
Part A
<TABLE>
<CAPTION>
Item No. Location in Prospectus
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<S> <C> <C>
Item 1. Cover Page Cover page
Item 2. Synopsis Introduction to the Trust
and the Funds; Fund
Expenses
Item 3. Condensed Financial Information Financial Highlights;
Performance Information
Item 4. General Description of Registrant The Trust and Each Fund's
Investment Policies;
Information about Share
Ownership and Companies
that Provide Services to
the Trust; Risk Factors;
Persons Controlling the
Balanced Fund,
International Fund and
Small Company Fund; Ratings
Supplement
Item 5. Management of the Trust Information about Share
Ownership and Companies
that Provide Services to
the Trust; Portfolio
Managers; Fund Expenses
Item 6. Capital Stock and Other Securities Cover Page; Fund
Distributions and How They
Are Taxed; Information
About Share Ownership and
Companies that Provide
Services to the Trust
Item 7. Purchase of Securities Being Offered How to Purchase Shares; How
to Exchange Shares From One
Fund to Another; How to
Systematically Purchase or
Redeem Shares; Share Price
Calculation; Tax Deferred
Retirement Plans; Account
Statements; Telephone
Transactions; Transactions
Through Registered
Investment Advisers
</TABLE>
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<TABLE>
<CAPTION>
Item No. Location in Prospectus
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<S> <C> <C>
Item 8. Redemption or Repurchase How to Redeem Shares; How
to Exchange Shares From
One Fund to Another; How
to Systematically Purchase
or Redeem Shares; Account
Changes and Signature
Requirements; Account
Statements; Telephone
Transactions;
Transactions Through
Registered Investment
Advisers
Item 9. Pending Legal Proceedings Not applicable
</TABLE>
Part B
<TABLE>
<CAPTION>
Location in Statement
Item No. of Additional Information
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<S> <C> <C>
Item 10. Cover Page Cover page
Item 11. Table of Contents Table of Contents
Item 12. General Information and History Not applicable
Item 13. Investment Objectives and Policies Overview of Investment
Policies of the Growth,
Equity, Income, Northwest,
Balanced, International
and Small Company Funds;
Description of Commercial
Paper and Preferred Stock
Ratings; Special Risks of
Below Investment Grade
Bonds - Equity, Income,
Balanced and Small Company
Funds
Item 14. Management of the Trust Trustees and Officers
Item 15. Control Persons and Principal Principal Shareholders of
Holders of Securities the Funds
Item 16. Investment Advisory and Other Investment Advisory and
Services Other Services
Item 17. Brokerage Allocation and Other Brokerage Practices
Practices
Item 18. Capital Stock and Other Securities Not applicable
Item 19. Purchase, Redemption and Pricing Additional Information on
of Securities Being Offered Calculation of Net Asset
Value Per Share;
Redemption in Kind
</TABLE>
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<TABLE>
<CAPTION>
Location in Statement
Item No. of Additional Information
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<S> <C> <C>
Item 20. Tax Status Additional Tax Information
Item 21. Underwriters Investment Advisory and
Other Services
Item 22. Calculations of Performance Data Additional Performance
Information
Item 23. Financial Statements Financial Statements
</TABLE>
Part C
Information required to be included in Part C is set forth under the appropriate
item, so numbered, in Part C of this Registration Statement.
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SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO INTERNATIONAL STOCK FUND
SAFECO BALANCED FUND
SAFECO SMALL COMPANY STOCK FUND JANUARY 31, 1996
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EACH FUND DESCRIBED IN THIS PROSPECTUS IS A SERIES OF THE SAFECO COMMON STOCK
TRUST ("TRUST"), AN OPEN-END, MANAGEMENT INVESTMENT COMPANY CONSISTING OF SEVEN
SEPARATE SERIES.
The SAFECO GROWTH FUND has as its investment objective to seek growth of capital
and the increased income that ordinarily follows from such growth. The Growth
Fund ordinarily invests a preponderance of its assets in common stock selected
primarily for potential appreciation.
The SAFECO EQUITY FUND has as its investment objective to seek long-term growth
of capital and reasonable current income. The Equity Fund invests principally
in common stock selected for appreciation and/or dividend potential and from a
long-range investment standpoint.
The SAFECO INCOME FUND has as its investment objective to seek high current
income and, when consistent with its objective, the long-term growth of capital.
The Income Fund invests primarily in common and preferred stock and in
convertible bonds selected for dividend potential.
The SAFECO NORTHWEST FUND has as its investment objective to seek long-term
growth of capital through investing primarily in Northwest companies. To pursue
its objective, the Fund will invest at least 65% of its total assets in
securities issued by companies with their principal executive offices located in
Alaska, Idaho, Montana, Oregon or Washington ("Northwest").
The SAFECO BALANCED FUND has as its investment objective to seek growth and
income consistent with the preservation of capital. To pursue its objective,
the Balanced Fund will invest primarily in equity and fixed income securities.
The SAFECO INTERNATIONAL STOCK FUND has as its investment objective to seek
maximum long-term total return (capital appreciation and income) by investing
primarily in common stock of established non-U.S. companies. To pursue its
objective, the International Fund, under normal market conditions, will invest
at least 65% of its total assets in the securities of companies domiciled in at
least five countries, not including the U.S.
The SAFECO SMALL COMPANY STOCK FUND has as its investment objective to seek
long- term growth of capital through investing primarily in small-sized
companies. To pursue its objective, the Small Company Fund will invest
primarily in companies with total market capitalization of less than $1 billion.
There are market risks in all securities transactions. This Prospectus sets
forth the information a prospective investor should know before investing.
PLEASE READ AND RETAIN THE PROSPECTUS FOR FUTURE REFERENCE. A Statement of
Additional Information, dated January 31, 1996 and incorporated herein by
reference, has been filed with the Securities and Exchange Commission and is
available at no charge upon request by calling one of the numbers listed on this
page. The Statement of Additional Information contains more information about
<PAGE> 6
most of the topics in this Prospectus as well as information about the trustees
and officers of the Trust.
For additional assistance, please call or write:
<TABLE>
<CAPTION>
<S> <C> <C>
Nationwide 1-800-624-5711 SAFECO Mutual Funds
Seattle 206-545-7319 P.O. Box 34890
Seattle, WA 98124-1890
Hearing Impaired TTY/TDD Service 1-800-438-8718
</TABLE>
ALL TELEPHONE CALLS ARE TAPE-RECORDED FOR YOUR PROTECTION.
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.
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TABLE OF CONTENTS
Introduction to the Trust and the Funds........................................
Fund Expenses..................................................................
Financial Highlights...........................................................
The Trust and Each Fund's Investment Policies..................................
Risk Factors...................................................................
Portfolio Managers.............................................................
Information about Share Ownership and Companies that
Provide Services to the Trust..................................................
Persons Controlling the Balanced, International and
Small Company Funds............................................................
Performance Information........................................................
Fund Distributions and How They Are Taxed......................................
Tax-Deferred Retirement Plans..................................................
Account Statements.............................................................
Account Changes and Signature Requirements.....................................
Share Price Calculation........................................................
How to Purchase Shares.........................................................
How to Redeem Shares...........................................................
How to Systematically Purchase or Redeem Shares................................
How to Exchange Shares From One Fund to Another................................
Telephone Transactions.........................................................
Transactions Through Registered Investment Advisers............................
Ratings Supplement - Equity, Income and Balanced Funds.........................
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INTRODUCTION TO THE TRUST AND THE FUNDS
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The Trust is a series investment company that currently issues shares
representing seven mutual funds: SAFECO Growth Fund ("Growth Fund"), SAFECO
Equity Fund ("Equity Fund"), SAFECO Income Fund ("Income Fund"), SAFECO
Northwest Fund ("Northwest Fund"), SAFECO Balanced Fund ("Balanced Fund"),
SAFECO International Stock Fund ("International Fund") and SAFECO Small Company
Stock Fund ("Small Company Fund") (collectively, the "Funds"). Each Fund is a
diversified series of the Trust, an open-end, management investment company
which continuously offers to sell and redeem (buy back) its shares at the
current net asset value per share without any sales or redemption charges or
12b-1 fees.
The Growth Fund has as its investment objective to seek growth of capital and
the increased income that ordinarily follows from such growth. The Growth Fund
ordinarily invests a preponderance of its assets in common stock selected
primarily for potential appreciation. Such investments may cause its share
price to be more volatile than the Equity and Income Funds.
The Equity Fund has as its investment objective to seek long-term growth of
capital and reasonable current income. The Equity Fund invests principally in
common stock selected for appreciation and/or dividend potential and from a
long-range investment standpoint.
The Income Fund has as its investment objective to seek high current income and,
when consistent with its objective, the long-term growth of capital. The Income
Fund invests primarily in common and preferred stock and in convertible bonds
selected for dividend potential.
The Northwest Fund has as its investment objective to seek long-term growth of
capital through investing primarily in Northwest companies. To pursue its
objective, the Fund will invest at least 65% of its total assets in securities
issued by companies with their principal executive offices located in the
Northwest.
The Balanced Fund has as its objective to seek growth and income consistent with
the preservation of capital. To pursue its objective, the Balanced Fund will
invest primarily in equity and fixed income securities.
The International Fund has as its investment objective to seek maximum long-term
total return (capital appreciation and income) by investing primarily in common
stock of established non-U.S. companies. To achieve its objective, the
International Fund, under normal market conditions, will invest at least 65% of
its total assets in the securities of companies domiciled in at least five
countries, not including the U.S.
The Small Company Fund has as its investment objective to seek long-term growth
of capital through investing primarily in small-sized companies. To pursue its
objective, the Balanced Fund will invest primarily in companies with total
market capitalization of less than $1 billion.
There is, of course, no assurance that a Fund will achieve its investment
objective. See "The Trust and Each Fund's Investment Policies" for more
information.
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There is a risk that the market value of each Fund's portfolio of securities may
decrease and result in a decrease in the value of a shareholder's investment.
Because the Northwest Fund concentrates its investments primarily in the
Northwest, it may be subject to special risks. Investors should carefully
consider the investment risks of such geographic concentration before purchasing
shares of the Northwest Fund. Because the International Fund invests primarily
in foreign securities, it is subject to various risks in addition to those
associated with U.S. investments. For example, the value of the International
Fund depends in part upon currency values, the political and regulatory
environments, and overall economic factors in the countries in which the Fund
invests. The Small Company Fund invests in small-sized companies, which
involves greater risks than investments in larger, more established issuers and
their securities can be subject to more abrupt and erratic movements in price.
See "The Trust and Each Fund's Investment Policies" for more information.
Each Fund is managed by SAFECO Asset Management Company ("SAM"). SAM is
headquartered in Seattle, Washington and manages over $___ billion in mutual
fund assets as of December 31, 1995. SAM has been an adviser to mutual funds
and other investment portfolios since 1973 and its predecessors have been such
advisers since 1932. The International Fund is sub-advised by Bank of Ireland
Asset Management (U.S.) Limited (the "Sub-Adviser"). The Sub-Adviser is a
direct, wholly-owned subsidiary of Bank of Ireland Asset Management Limited (an
investment advisory firm), which is headquartered in Dublin, Ireland, and an
indirect, wholly-owned subsidiary of the Bank of Ireland, which is also
headquartered in Dublin, Ireland. See "Information about Share Ownership and
Companies that Provide Services to the Trust" for more information.
Each Fund:
- - Is 100% no-load; there are no sales or redemption charges or 12b-1 fees.
- - Offers free exchanges as well as easy access to your money through telephone
redemptions and wire transfers.
- - Pays dividends, if any, quarterly.
- - Has a minimum initial investment of $1,000 for regular accounts and $250 for
IRAs.
- -------------
FUND EXPENSES
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A. SHAREHOLDER TRANSACTION EXPENSES FOR EACH FUND
<TABLE>
<CAPTION>
Sales Load
Sales Load Imposed on
Imposed on Reinvested Deferred Redemption Exchange
Purchases Dividends Sales Load Fees Fees
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<S> <C> <C> <C> <C>
None None None None None
</TABLE>
SAFECO Services Corporation, the transfer agent for the Funds, charges a $10 fee
to wire redemption proceeds.
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<PAGE> 10
B. ANNUAL OPERATING EXPENSES (AS A PERCENTAGE OF AVERAGE NET ASSETS)
<TABLE>
<CAPTION>
Total
Management Other Operating
Fund 12b-1 Fees + Fee + Expenses = Expenses
- ---- ---------- ---------- -------- ---------
<S> <C> <C> <C> <C>
Growth None .___% .___% .___%
Equity None .___% .___% .___%
Income None .___% .___% .___%
Northwest None .___% .___% .___%
Balanced None .___% .___% .___%
International None .___% .___% .___%
Small None .___% .___% .___%
Company
</TABLE>
The amounts shown are actual expenses paid by shareholders of the Growth,
Equity, Income and Northwest Funds for the fiscal year ended September 30, 1995.
The amounts shown for the Balanced, International, and Small Company Funds are
annualized expenses based on the estimated expenses for the fiscal period ending
September 30, 1995. The management fees paid by the Balanced, International and
Small Company Funds are higher than the management fees paid by most other
investment companies. See "Information about Share Ownership and Companies that
Provide Services to the Trust" on page ____ for more information.
C. EXAMPLE OF EXPENSES
You would pay the following expenses on a $1,000 investment assuming a 5% annual
return. The example assumes that all dividends and other distributions are
reinvested and that the percentage amounts listed in "Annual Operating Expenses"
above remain the same in the years shown.
<TABLE>
<CAPTION>
Fund 1 Year 3 Years 5 Years 10 Years
- ---- ------ ------- ------- --------
<S> <C> <C> <C> <C>
Growth $___ $___ $___ $___
Equity $___ $___ $___ $___
Income $___ $___ $___ $___
Northwest $___ $___ $___ $___
Balanced $___ $___
International $___ $___
Small Company $___ $___
</TABLE>
The purpose of the tables is to assist you in understanding the various costs
and expenses that an investor in each Fund would bear, directly or indirectly.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. A FUND'S ACTUAL EXPENSES OR PERFORMANCE MAY BE GREATER OR LESS THAN
THOSE SHOWN. THE ASSUMED 5% ANNUAL RETURN IS REQUIRED BY SECURITIES AND
EXCHANGE COMMISSION REGULATIONS APPLICABLE TO ALL MUTUAL FUNDS AND IT IS NOT A
PREDICTION OF, NOR DOES IT REPRESENT, PAST OR FUTURE EXPENSES OR THE PERFORMANCE
OF ANY FUND.
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FINANCIAL HIGHLIGHTS
SAFECO GROWTH FUND
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<PAGE> 12
FINANCIAL HIGHLIGHTS
SAFECO EQUITY FUND
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FINANCIAL HIGHLIGHTS
SAFECO NORTHWEST FUND
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<PAGE> 14
FINANCIAL HIGHLIGHTS
SAFECO INCOME FUND
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<PAGE> 15
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THE TRUST AND EACH FUND'S INVESTMENT POLICIES
- ---------------------------------------------
The Trust is a Delaware business trust established by a Trust Instrument dated
May 13, 1993. The Trust currently consists of seven mutual funds: Growth Fund,
Equity Fund, Income Fund, Northwest Fund, Balanced Fund, International Fund and
Small Company Fund, each of which is a diversified series of the Trust.
The investment objective and investment policies for each Fund are described
below. The Trust's Board of Trustees may change a Fund's objective without
shareholder vote, but no such change will be made without 30 days' prior written
notice to shareholders of that Fund. In the event a Fund changes its investment
objective, the new objective may not meet the investment needs of every
shareholder and may be different from the objective a shareholder considered
appropriate at the time of initial investment. Current holdings and recent
investment strategies are described in the Funds' financial reports, which are
sent to shareholders twice a year.
Each Fund has adopted a number of investment restrictions. If a Fund follows a
percentage limitation at the time of investment, a later increase or decrease in
values, net assets or other circumstances will not be considered in determining
whether a Fund complies with the applicable policy. Unless otherwise stated,
the investment policies and limitations described below under each Fund's
description and "Common Investment Practices" are non-fundamental and may be
changed by the Board of Trustees without shareholder vote.
GROWTH FUND
The investment objective of the Growth Fund is to seek growth of capital and the
increased income that ordinarily follows from such growth.
To pursue its objective, the Growth Fund:
1. WILL INVEST A PREPONDERANCE OF ITS ASSETS IN COMMON STOCKS SELECTED
PRIMARILY FOR POTENTIAL APPRECIATION. A common stock represents an equity
interest in a corporation. To determine those common stocks which have
the potential for long-term growth, SAM will evaluate the issuer's
financial strength, quality of management and earnings power. Common
stocks represent equity interest in a corporation. Although equity
securities have a history of long-term growth in value, their prices
fluctuate based on changes in a company's financial condition an overall
market and economic conditions. Smaller companies, which generally make
up a portion of the Fund's assets, are especially sensitive to these
factors.
2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK (INCLUDING
CORPORATE BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK EITHER
AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION OF THE
ISSUER). Convertible securities are debt or preferred stock which are
convertible into or exchangeable for common stock. SAM will purchase
convertible securities for the Fund if such securities offer a higher
yield than an issuer's common stock and provide reasonable potential for
capital appreciation. Debt securities are used by issuers to borrow money
from investors. The issuer pays the investor a fixed or variable rate of
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<PAGE> 16
interest, and must repay the amount borrowed at maturity. Preferred
stocks are equity securities whose owners have a claim on a company's
earnings and assets before common stockholders, but after debt holders.
The value of convertible corporate bonds will normally vary inversely with
interest rates and the value of convertible corporate bonds and
convertible preferred stock will normally vary with the value of the
underlying common stock. In general, bond prices rise when interest rates
fall, and bond prices fall when interest rates rise. Debt securities have
varying degrees of quality and varying levels of sensitivity to changes in
interest rates. Long-term bonds are generally more sensitive to interest
rate changes than short-term bonds. The risk characteristics of preferred
stocks are similar to those of common stocks, except that preferred stocks
are generally subject to less risk than common stocks.
3. MAY INVEST UP TO 5% OF NET ASSETS IN CONTINGENT VALUE RIGHTS. A
contingent value right is a right issued by a corporation that takes on a
pre-established value if the underlying common stock does not attain a
target price by a specified date.
EQUITY FUND
The investment objective of the Equity Fund is to seek long-term growth of
capital and a reasonable current income for its shareholders. The Equity Fund
does not seek to achieve both growth and income with every portfolio security
investment. Rather, it attempts to manage the portfolio as a whole so as to
achieve a reasonable balance between growth and income on and overall basis.
To pursue its objective, the Equity Fund:
1. WILL INVEST, DURING NORMAL MARKET CONDITIONS, AT LEAST 65% OF ITS TOTAL
ASSETS IN EQUITY SECURITIES (WHICH INCLUDE COMMON STOCKS AND PREFERRED
STOCKS). A common stock represents an equity interest in a corporation.
The Fund will invest principally in common stocks selected by SAM
primarily for appreciation and/or dividend potential and from a long-range
investment standpoint. Preferred stocks are equity securities whose owners
have a claim on a company's earnings and assets before common
stockholders, but after debt holders.
Although equity securities have a history of long-term growth in value,
their prices fluctuate based on changes in a company's financial condition
and overall market and economic conditions. Smaller companies are
especially sensitive to these factors. The risk characteristics of
preferred stocks are similar to those of common stocks, except that
preferred stock are generally subject to less risk than common stocks.
2. MAY INVEST UP TO 35% OF ITS TOTAL ASSETS IN SECURITIES CONVERTIBLE INTO
COMMON STOCK (INCLUDING CORPORATE BONDS AND PREFERRED STOCK THAT CONVERT
TO COMMON STOCK EITHER AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR
AT THE OPTION OF THE ISSUER). The Fund may purchase convertible corporate
bonds that are rated investment grade by Moody's Investors Service, Inc.
("Moody's") or Standard & Poor's Rating Group ("S&P") or unrated bonds
determined by SAM to be of comparable quality to such rated bonds. Bonds
rated in the lowest category of investment grade (Baa by Moody's and BBB
by S&P) and comparable unrated bonds are medium grade, have speculative
characteristics and are more likely to have a weakened capacity to make
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<PAGE> 17
principal and interest payments under changing economic conditions or upon
deterioration in the financial condition of the issuer. The value of
convertible corporate bonds will normally vary inversely with interest
rates and the value of convertible corporate bonds and convertible
preferred stock will normally vary with the value of the underlying common
stock.
INCOME FUND
The investment objective of the Income Fund is to seek high current income and,
when consistent with its objective, the long-term growth of capital. The Fund
currently intends to place greatest emphasis on holding common stock,
convertible corporate bonds and convertible preferred stock. SAM will select
securities primarily for current income, but also with a view toward capital
growth when this can be accomplished without conflicting with the Fund's
investment objective.
To pursue its objective, the Income Fund:
1. WILL INVEST PRIMARILY IN COMMON STOCK AND ALSO IN CONVERTIBLE AND
NON-CONVERTIBLE CORPORATE BONDS AND PREFERRED STOCK (INCLUDING CORPORATE
BONDS AND PREFERRED STOCK THAT CONVERT TO COMMON STOCK EITHER
AUTOMATICALLY AFTER A SPECIFIED PERIOD OF TIME OR AT THE OPTION OF THE
ISSUER). A common stock represents an equity interest in a corporation.
Convertible securities are debt or preferred stock which are convertible
into or exchangeable for common stock. Debt securities are used by issuers
to borrow money from investors. The issuer pays the investor a fixed or
variable rate of interest, and must repay the amount borrowed at maturity.
Preferred stocks are equity securities whose owners have a claim on a
company's earnings and assets before common stockholders, but after debt
holders.
SAM will purchase convertible securities for the Fund if such securities
offer a higher yield than an issuer's common stock and provide reasonable
potential for capital appreciation. The Fund may purchase convertible or
non-convertible corporate bonds that are rated investment grade by Moody's
or S&P or unrated bonds determined by SAM to be of comparable quality to
such rated bonds. Bonds rated in the lowest category of investment grade
(Baa by Moody's and BBB by S&P) and comparable unrated bonds are medium
grade, have speculative characteristics and are more likely to have a
weakened capacity to make principal and interest payments under changing
economic conditions or upon deterioration in the financial condition of
the issuer.
Although common stocks have a history of long-term growth in value, their
prices fluctuate based on changes in a company's financial condition and
overall market and economic conditions. Smaller companies are especially
sensitive to these factors. The value of convertible corporate bonds will
normally vary inversely with interest rates and the value of convertible
corporate bonds and convertible preferred stock will normally vary with
the value of the underlying common stock. The risk characteristics of
preferred stocks are similar to those of common stocks, except that
preferred stocks are generally subject to less risk than common stocks. In
general, bond prices rise when interest rates fall, and bond prices fall
when interest rates rise. Debt securities have varying degrees of quality
and varying levels of sensitivity to changes in interest rates.
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<PAGE> 18
Long-term bonds are generally more sensitive to interest rate changes than
short-term bonds.
2. MAY INVEST UP TO 10% OF TOTAL ASSETS IN EURODOLLAR BONDS WHICH ARE ISSUED
BY U.S. ISSUERS. Eurodollar bonds are traded in the European bond market
and are denominated in U.S. dollars. The Fund will purchase Eurodollar
bonds through U.S. securities dealers and hold such bonds in the U.S. The
delivery of Eurodollar bonds to the Fund's custodian in the U.S. may cause
slight delays in settlement which are not anticipated to affect the Fund
in any material, adverse manner.
NORTHWEST FUND
The Northwest Fund has as its investment objective to seek long-term growth of
capital through investing primarily in Northwest companies. To pursue its
objective, the Northwest Fund will invest at least 65% of its total assets in
securities issued by companies with their principal executive offices located in
Alaska, Idaho, Montana, Oregon or Washington.
To pursue its objective, the Northwest Fund:
1. WILL ORDINARILY INVEST ITS ASSETS IN SHARES OF COMMON STOCK AND PREFERRED
STOCK OF COMPANIES LOCATED IN THE NORTHWEST SELECTED PRIMARILY FOR
POTENTIAL LONG-TERM APPRECIATION. A common stock represents an equity
interest in a corporation. To determine those common stocks which have
the potential for long-term growth, SAM will evaluate the issuer's
financial strength, quality of management and earnings power. Preferred
stocks are equity securities whose owners have a claim on a company's
earnings and assets before common stockholders, but after debt holders.
The Fund generally invests a portion of its assets in smaller companies.
Although equity securities have a history of long-term growth in value,
their prices fluctuate based on changes in a company's financial condition
and overall market and economic conditions. Smaller companies are
especially sensitive to these factors. The risk characteristics of
preferred stocks are similar to those of common stocks, except that
preferred stock are generally subject to less risk than common stocks. See
"Risk Factors" for more information about the risks of investing primarily
in companies located in the Northwest.
2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK WHEN, IN THE
OPINION OF SAM, THE EXPECTED TOTAL RETURN OF A CONVERTIBLE SECURITY
EXCEEDS THE EXPECTED TOTAL RETURN OF COMMON STOCK ELIGIBLE FOR PURCHASE BY
THE FUND. Convertible securities are debt or preferred stock which are
convertible into or exchangeable for common stock. Debt securities are
used by issuers to borrow money from investors. The issuer pays the
investor a fixed or variable rate of interest, and must repay the amount
borrowed at maturity. The Fund may purchase corporate bonds and preferred
stock that convert to common stock either automatically after a specified
period of time or at the option of the issuer. The Fund will purchase
those convertible securities which, in SAM's opinion, have underlying
common stock with potential for long-term growth.
The Fund will purchase convertible securities which are investment grade,
i.e., rated in the top four categories by either S&P or Moody's. The Fund
may retain those convertible securities which are down-graded to below
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<PAGE> 19
investment grade after purchase. In the event that an amount in excess of
35% of the Fund's net assets is held in securities rated below investment
grade due to a downgrade of one or more corporate bonds, SAM will engage
in an orderly disposition of such securities to the extent necessary to
ensure that the Fund's holdings of such securities do not exceed 35% of
the Fund's net assets. For a description of ratings, see the "Description
of Commercial Paper and Preferred Stock Ratings" section of the Funds'
Statement of Additional Information.
The value of convertible securities will normally vary with the value of
the underlying common stock and vary inversely with interest rates. In
general, bond prices rise when interest rates fall, and bond prices fall
when interest rates rise. Debt securities have varying degrees of quality
and varying levels of sensitivity to changes in interest rates. Long-term
bonds are generally more sensitive to interest rate changes than
short-term bonds.
BALANCED FUND
The investment objective of the Balanced Fund is to seek growth and income
consistent with the preservation of capital. The Balanced Fund will
occasionally alter the mix of its equity and fixed income securities to pursue
its objective. Such action will be taken in response to economic conditions and
generally in small increments. The Balanced Fund will not make significant
changes in its asset mix in an attempt to "time the market."
To pursue its objective, the Balanced Fund:
1. WILL ORDINARILY INVEST FROM 50% TO 70% OF ITS TOTAL ASSETS IN EQUITY
SECURITIES, WHICH INCLUDE COMMON STOCKS, PREFERRED STOCK AND
SECURITIES CONVERTIBLE INTO COMMON STOCK. A common stock represents an
equity interest in a corporation. The Fund will invest principally in
common stocks selected by SAM primarily for appreciation and/or
dividend potential and from a long-range investment standpoint.
Preferred stocks are equity securities whose owners have a claim on a
company's earnings and assets before common stockholders, but after
debt holders. Convertible securities are debt or preferred stocks
which are convertible into or exchangeable for common stock. Debt
securities are used by issuers to borrow money from investors. The
issuer pays the investor a fixed or variable rate of interest, and
must repay the amount borrowed at maturity. The Fund may purchase
corporate bonds and preferred stock that convert to common stock
either automatically after a specified period of time or at the option
of the issuer.
The Fund will purchase those convertible securities which, in SAM#s
opinion, have underlying common stock with potential for long-term
growth. The Fund will purchase convertible securities which are
investment grade, i.e., rated in the top four categories by either S&P
or Moody's. The Fund may retain those convertible securities which
are down-graded to below investment grade after purchase. In the
event that an amount in excess of 35% of the Fund's net assets is held
in securities rated below investment grade due to a downgrade of one
or more corporate bonds, SAM will engage in an orderly disposition of
such securities to the extent necessary to ensure that the Fund's
holdings of such securities do not exceed 35% of the Fund's net
assets. For a description of ratings, see the "Description
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<PAGE> 20
of Commercial Paper and Preferred Stock Ratings" section of the Funds'
Statement of Additional Information.
Although equity securities have a history of long-term growth in value,
their prices fluctuate based on changes in a company's financial condition
and overall market and economic conditions. The risk characteristics of
preferred stocks are similar to those of common stocks, except that
preferred stocks are generally subject to less risk than common stocks.
The value of convertible securities will normally vary with the value of
the underlying common stock and vary inversely with interest rates.
2. WILL INVEST AT LEAST 25% OF ITS TOTAL ASSETS IN FIXED-INCOME SENIOR
SECURITIES. Fixed-income senior securities are used by issuers to borrow
money from investors. The issuer pays the investor a fixed or variable
rate of interest, and must repay the amount borrowed at maturity. In
general, bond prices rise when interest rates fall, and bond prices fall
when interest rates rise. Debt securities have varying degrees of quality
and varying levels of sensitivity to changes in interest rates. Long-term
bonds are generally more sensitive to interest rate changes than short-
term bonds.
The Fund will purchase only U.S. Government and investment grade debt
obligations or non-rated debt obligations which in the view of SAM contain
the credit characteristics of investment grade debt obligations.
Investment grade obligations (rated between Aaa - Baa by Moody's and
AAA-BBB by S&P) are from high to medium quality. Medium obligations
possess speculative characteristics and may be more sensitive to economic
changes and changes to the financial condition of issuers. The Fund may
retain a debt obligation if it is downgraded to below investment grade
after purchase.
INTERNATIONAL FUND
The investment objective of the International Fund is to seek maximum long-term
total return (capital appreciation and income) by investing primarily in common
stock of established non-U.S. companies. To pursue its objective, the
International Fund, under normal market conditions, will invest at least 65% of
its total assets in the securities of companies domiciled in at least five
countries, not including the U.S.
To pursue its objective, the International Fund:
1. WILL INVEST PRIMARILY IN COMMON STOCKS OF NON-U.S. COMPANIES. A common
stock represents an equity interest in a corporation. Although equity
securities have a history of long-term growth in value, their prices
fluctuate based on changes in a company's financial condition and overall
market and economic conditions. Common stock issued by foreign companies
is subject to various risks in addition to those associated with U.S.
investments. For example, the value of the common stock depends in part
upon currency values, the political and regulatory environments, and
overall economic factors in the countries in which the common stock is
issued. See "Risk Factors" for more information about the risks inherent
in securities issued by foreign issuers.
2. MAY INVEST IN PREFERRED STOCKS AND CONVERTIBLE SECURITIES ISSUED BY
FOREIGN COMPANIES. Preferred stocks are equity securities whose owners
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have a claim on a company's earnings and assets before common
stockholders, but after debt holders. Convertible securities are debt or
preferred stock which are convertible into or exchangeable for common
stock. The risk characteristics of preferred stocks are similar to those
of common stocks, except that preferred stocks are generally subject to
less risk than common stocks. The value of convertible corporate bonds
will normally vary inversely with interest rates and the value of
convertible corporate bonds and convertible preferred stock will normally
vary with the value of the underlying common stock. See "Risk Factors"
for more information about the risks inherent in securities issued by
foreign issuers.
3. MAY INVEST IN DEBT SECURITIES ISSUED BY FOREIGN COMPANIES AND GOVERNMENTS.
Bonds and other debt securities are used by issuers to borrow money from
investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. The Fund will
make such investments primarily for defensive purposes, but may also do so
where anticipated interest rate movements, or other factors affecting the
degree of risk inherent in a fixed income security, are expected to change
significantly so as to produce appreciation in the security consistent
with the objective of the Fund. In general, bond prices rise when
interest rates fall, and bond prices fall when interest rates rise. Debt
securities have varying degrees of quality and varying levels of
sensitivity to changes in interest rates. Long-term bonds are generally
more sensitive to interest rate changes than short-term bonds.
The Fund may purchase sovereign debt instruments issued or guaranteed by
foreign governments or their agencies. Sovereign debt may be in the form
of conventional securities or other types of debt instruments such as
loans or loan participations. Governments or governmental entities
responsible for repayment of the debt may be unable or unwilling to repay
principal and interest when due, and may require renegotiation or
rescheduling of debt payments. Repayment of principal and interest may
depend also upon political and economic factors. See "Risk Factors" for
more information about the risks inherent in securities issued by foreign
issuers.
4. MAY ESTABLISH AND MAINTAIN RESERVES FOR TEMPORARY PURPOSES OR TO ENABLE IT
TO TAKE ADVANTAGE OF BUYING OPPORTUNITIES. The Fund's reserves will be
invested in high quality domestic and foreign instruments, including, but
not limited to, obligations of U.S. government and its agencies and
instrumentalities, bank obligations, commercial paper, and short-term
corporate debt securities.
5. MAY INVEST IN PRIVATE FOREIGN INVESTMENT COMPANIES ("PFICS"), WHICH ARE
FUNDS OR TRUSTS ORGANIZED AS INVESTMENT VEHICLES TO INVEST IN COMPANIES OF
CERTAIN FOREIGN COUNTRIES. Investors in PFICs bear their proportionate
share of the PFIC's management fees and other expenses. See "Risk Factors"
for more information about the risks inherent in securities issued by
foreign issuers.
6. MAY WRITE AND PURCHASE PUT AND CALL OPTIONS ON SECURITIES, FINANCIAL
INDICES AND FOREIGN CURRENCIES, PURCHASE AND SELL FUTURES CONTRACTS AND
RELATED OPTIONS WITH RESPECT TO SECURITIES, FINANCIAL INDICES AND FOREIGN
CURRENCIES AND ENTER INTO FOREIGN CURRENCY TRANSACTIONS SUCH AS FORWARD
CONTRACTS. The Fund may employ certain strategies and techniques
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<PAGE> 22
utilizing these instruments to mitigate its exposure to changing currency
exchange rates, security prices, interest rates and other factors that
affect security values. There is no guarantee that these strategies and
techniques will work.
An option gives an owner the right to buy or sell securities at a
predetermined exercise price for a given period of time. A futures
contract is an agreement in which the seller of the contract agrees to
deliver to the buyer an amount of cash equal to a specific dollar amount
times the difference between the value of a security at the close of the
last trading day of the contract and the price at which the agreement is
made. A forward currency contract is an agreement to purchase or sell a
foreign currency at some future time for a fixed amount of U.S. dollars.
The Fund, under normal conditions, will not write a put or call option if,
as a result thereof, the aggregate value of the assets underlying all such
options (determined as of the date such options are written) would exceed
25% of the Fund's net assets. The Fund also will not purchase a put or
call option or option on a futures contract if, as a result thereof, the
aggregate premiums paid on all options or options on futures contracts
held by the Fund would exceed 20% of the its net assets. In addition, the
Fund will not enter into any futures contract or option on a futures
contract if, as a result thereof, the aggregate margin deposits and
premiums required on all such instruments would exceed 5% of the its net
assets.
Risks inherent in the use of futures, options and forward contracts
include: the risk that interest rates, security prices and currency
markets will not move in the directions anticipated; imperfect correlation
between the price of the future, option or forward contract and the price
of the security, interest rate or currency being hedged; the possible
absence of a liquid secondary market for any particular instrument at any
time; the possible need to defer closing out certain hedged positions to
avoid adverse tax consequences; and the reduction or elimination of the
opportunity to profit from increases in the value of the security,
interest rate or currency being hedged.
SMALL COMPANY FUND
The investment objective of the Small Company Fund is to seek long-term growth
of capital through investing primarily in small-sized companies.
To pursue its objective, the Small Company Fund:
1. WILL INVEST AT LEAST 65% OF ITS TOTAL ASSETS IN COMMON STOCK AND PREFERRED
STOCK OF SMALL-SIZED COMPANIES WITH TOTAL MARKET CAPITALIZATION OF LESS
THAN $1 BILLION. Companies whose capitalization falls outside this range
after purchase continue to be considered small-capitalized for purposes of
the 65% policy. In determining those common and preferred stocks which
have the potential for long-term growth, SAM will evaluate the issuer's
financial strength, quality of management and earnings power.
A common stock represents an equity interest in a corporation. The Fund
will invest principally in common stocks selected by SAM primarily for
appreciation and/or dividend potential and from a long-range investment
standpoint. Preferred stocks are equity securities whose owners have a
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<PAGE> 23
claim on a company's earnings and assets before common stockholders, but
after debt holders.
Although equity securities have a history of long-term growth in value,
their prices fluctuate based on changes in a company's financial condition
and overall market and economic conditions. The risk characteristics of
preferred stocks are similar to those of common stocks, except that
preferred stock are generally subject to less risk than common stocks.
Investments in small or newly formed companies involves greater risks than
investments in larger, more established issuers and their securities can
be subject to more abrupt and erratic movements in price. See "Risk
Factors" for more information about the risks inherent in securities
issued by small companies.
2. MAY INVEST IN SECURITIES CONVERTIBLE INTO COMMON STOCK WHEN, IN THE
OPINION OF SAM, THE EXPECTED TOTAL RETURN OF A CONVERTIBLE SECURITY
EXCEEDS THE EXPECTED TOTAL RETURN OF COMMON STOCK ELIGIBLE FOR PURCHASE BY
THE FUND. Convertible securities are debt or preferred stocks which are
convertible into or exchangeable for common stock. SAM will purchase
convertible securities for the Fund if such securities offer a higher
yield than an issuer's common stock and provide reasonable potential for
capital appreciation. Debt securities are used by issuers to borrow money
from investors. The issuer pays the investor a fixed or variable rate of
interest, and must repay the amount borrowed at maturity. Preferred
stocks are equity securities whose owners have a claim on a company's
earnings and assets before common stockholders, but after debt holders.
The value of convertible corporate bonds will normally vary inversely with
interest rates and the value of convertible corporate bonds and
convertible preferred stock will normally vary with the value of the
underlying common stock. In general, bond prices rise when interest rates
fall, and bond prices fall when interest rates rise. Debt securities have
varying degrees of quality and varying levels of sensitivity to changes in
interest rates. Long-term bonds are generally more sensitive to interest
rate changes than short-term bonds. The risk characteristics of preferred
stocks are similar to those of common stocks, except that preferred stock
are generally subject to less risk than common stocks.
COMMON INVESTMENT PRACTICES
Each of the Funds may also follow the investment practices described below:
1. MAY INVEST IN DEBT SECURITIES. Bonds and other debt securities are used
by issuers to borrow money from investors. The issuer pays the investor a
fixed or variable rate of interest, and must repay the amount borrowed at
maturity. In general, bond prices rise when interest rates fall, and bond
prices fall when interest rates rise. Debt securities have varying degrees
of quality and varying levels of sensitivity to changes in interest rates.
Long-term bonds are generally more sensitive to interest rate changes than
short-term bonds.
The Equity, Income, and Small Company Funds may invest in convertible
corporate bonds that are rated below investment grade (commonly referred
to as "high-yield" or "junk" bonds) or in comparable, unrated bonds, but
less than 35% of total assets will be invested in such securities. The
Equity Fund will not purchase a below investment grade bond rated below Ca
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<PAGE> 24
by Moody's or CC by S&P or which is in default on the payment of principal
and interest. Bonds rated Ca or CC are highly speculative and have large
uncertainties or major risk exposures.
Below-investment grade bonds are speculative and involve greater
investment risks than investment grade bonds due to the issuer's reduced
creditworthiness and increased likelihood of default and bankruptcy.
During periods of economic uncertainty or change, the market prices of
below-investment grade bonds may experience increased volatility.
Below-investment grade bonds tend to reflect short-term economic and
corporate developments to a greater extent than higher quality bonds.
After purchase by a Fund, a corporate bond may be downgraded or, if
unrated, may cease to be comparable to a rated security. Neither event
will require the Fund to dispose of that security, but SAM will take a
downgrade or loss of comparability into account in determining whether the
Fund should continue to hold the security in its portfolio. The Equity
Fund will not hold more than 3% of its total assets and the Income Fund
will not hold more than 1% of its total assets in bonds that go into
default on the payment of principal and interest after purchase. In the
event that an amount in excess of 35% of a Fund's net assets is held in
securities rated below investment grade due to a downgrade of one or more
corporate bonds, SAM will engage in an orderly disposition of such
securities to the extent necessary to ensure that the Fund's holdings of
such securities do not exceed 35% of the Fund's net assets.
2. MAY INVEST IN WARRANTS. Warrants are options to buy a stated number of
shares of common stock at a specified price any time during the life of
the warrant. Generally, the value of a warrant will fluctuate by greater
percentages than the value of the underlying common stock. The primary
risk associated with a warrant is that the term of the warrant may expire
before the exercise price of the common stock has been reached. Under
these circumstances, a Fund could lose all of its principal investment in
the warrant.
3. MAY HOLD CASH OR INVEST TEMPORARILY IN HIGH QUALITY, SHORT-TERM SECURITIES
ISSUED BY AN AGENCY OR INSTRUMENTALITY OF THE U.S. GOVERNMENT, HIGH
QUALITY COMMERCIAL PAPER, CERTIFICATES OF DEPOSIT, SHARES OF NO-LOAD,
OPEN-END MONEY MARKET FUNDS (EXCEPT THE EQUITY FUND) OR REPURCHASE
AGREEMENTS. A Fund may purchase these short-term securities as a cash
management technique under those circumstances where it has cash to manage
for a short time period, for example, after receiving proceeds from the
sale of securities, dividend distributions from portfolio securities or
cash from the sale of Fund shares to investors. SAM will waive its
advisory fees for any Growth, Income, Northwest, Balanced, International,
Small Company Fund assets invested in money market funds. With respect to
repurchase agreements, each Fund (other than the International Fund) will
invest no more than 5% of its total assets in repurchase agreements and
will not purchase repurchase agreements that mature in more than seven
days. Counterparties of foreign repurchase agreements may be less
creditworthy than U.S. counterparties.
4. MAY PURCHASE SECURITIES ON A "WHEN-ISSUED" OR "DELAYED-DELIVERY" BASIS OR
PURCHASE OR SELL SECURITIES ON A "FORWARD COMMITMENT" BASIS. Under this
procedure, a Fund agrees to acquire securities that are to be issued and
delivered against payment in the future. The price, however, is fixed at
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the time of commitment. When a Fund purchases when-issued or
delayed-delivery securities, its custodian bank will maintain in a
temporary holding account cash, U.S. government securities or other
high-grade debt obligations having a value equal to or greater than such
commitments. On delivery dates for such transactions, the Fund will meet
its obligations from maturities or sales of the securities held in the
temporary holding account or from then available cash flow. If a Fund
chooses to dispose of the right to acquire a when-issued or delayed
delivery security prior to its acquisition, it could incur a gain or loss
due to market fluctuations. Use of these techniques may affect a Fund's
share price in a manner similar to leveraging.
5. MAY INVEST IN AMERICAN DEPOSITARY RECEIPTS ("ADRS"). ADRs are registered
receipts evidencing ownership of an underlying foreign security. They are
typically issued in the U.S. by a bank or trust company. In addition to
the risks of foreign investment applicable to the underlying securities,
ADRs may also be subject to the risks that the foreign issuer may not be
obligated to cooperate with the U.S. bank or trust company, or that such
information in the U.S. market may not be current. The International Fund
may utilize European Depositary Receipts ("EDRs"), which are similar
instruments. EDRs may be in bearer form and are designed for use in the
European securities markets.
6. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN FOREIGN SECURITIES (GROWTH,
EQUITY, INCOME, NORTHWEST, BALANCED AND SMALL COMPANY FUNDS ONLY). The
International Fund may invest 100% of its assets in foreign securities.
Foreign securities are subject to risks in addition to those inherent in
investments in domestic securities. See "Risk Factors" on page __ for
more information about the risks associated with investments in foreign
securities.
7. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS IN SHARES OF REAL ESTATE
INVESTMENT TRUSTS ("REITS"). REITs purchase real property, which is then
leased, and make mortgage investments. For federal income tax purposes,
REITs attempt to qualify for beneficial tax treatment by distributing at
least 95% of their taxable income. If a REIT is unable to qualify for
such beneficial tax treatment, the income would not be deductible by it in
computing its taxable income. REITs are dependent upon the successful
operation of properties owned and the financial condition of lessees and
mortgagors. The value of REITs fluctuate depending on the underlying
value of the real property and mortgages owned and the amount of cash flow
generated and paid out. In addition, REITs typically borrow to increase
funds available for investment. Generally, there is a greater risk
associated with REITs because they are highly leveraged.
8. MAY INVEST UP TO 10% OF ITS TOTAL ASSETS (GROWTH, EQUITY, INCOME,
NORTHWEST, BALANCED AND SMALL COMPANY FUNDS ONLY) IN RESTRICTED
SECURITIES, PROVIDED THAT SAM HAS DETERMINED THAT SUCH SECURITIES ARE
LIQUID UNDER GUIDELINES ADOPTED BY THE BOARD OF TRUSTEES. The
International Fund may invest 100% of its assets in securities not
registered for sale in the U.S. Restricted securities may be sold only in
offerings registered under the Securities Act of 1933 ("1933 Act") or in
transactions exempt from the registration requirements under the 1933 Act.
Rule 144A under the 1933 Act provides an exemption for the resale of
certain restricted securities to qualified institutional buyers. Investing
in restricted securities may increase the Funds' illiquidity to
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<PAGE> 26
the extent that qualified institutional buyers or other buyers are
unwilling to purchase the securities. As a result, a Fund may not be able
to sell these securities when its investment adviser or sub-investment
adviser deems it advisable to sell, or may have to sell them at less than
fair value. In addition, market quotations are sometimes less readily
available for restricted securities. Therefore, judgment may at times play
a greater role in valuing these securities than in the case of
unrestricted securities.
9. MAY INVEST IN SECURITIES WHOSE PERFORMANCE AND PRINCIPAL AMOUNT AT
MATURITY ARE LINKED TO A SPECIFIED EQUITY SECURITY OR SECURITIES INDEX.
The following restrictions are fundamental policies which cannot be changed
without shareholder vote.
1. EACH FUND, WITH RESPECT TO 75% OF THE VALUE OF ITS TOTAL ASSETS, MAY NOT
INVEST MORE THAN 5% OF ITS TOTAL ASSETS IN THE SECURITIES OF ANY ONE
ISSUER (OTHER THAN U.S. GOVERNMENT SECURITIES).
2. EACH FUND, WITH RESPECT TO 100% OF THE VALUE OF ITS TOTAL ASSETS, MAY NOT
PURCHASE MORE THAN 10% OF THE OUTSTANDING VOTING SECURITIES OF ANY ONE
ISSUER (OTHER THAN U.S. GOVERNMENT SECURITIES).
3. EACH FUND MAY BORROW MONEY ONLY FOR TEMPORARY OR EMERGENCY PURPOSES, AND
THE GROWTH FUND ONLY FOR EXTRAORDINARY OR EMERGENCY PURPOSES, FROM A BANK
OR AFFILIATE OF SAFECO CORPORATION AT AN INTEREST RATE NOT GREATER THAN
THAT AVAILABLE FROM COMMERCIAL BANKS. The Growth, Income and Northwest
Funds will not borrow amounts in excess of 20% and the Equity, Balanced,
International and Small Company Funds will not borrow amounts in excess of
33% of total assets. A Fund will not purchase securities if borrowings
equal to or greater than 5% of total assets are outstanding.
For more information, see the "Investment Policies" and "Additional Investment
Information" sections of the Trust's Statement of Additional Information.
- ------------
RISK FACTORS
- ------------
Various factors may cause the value of a shareholder's investment in a Fund to
fluctuate. The principal risk factor associated with an investment in a mutual
fund like any of the Funds is that the market value of the portfolio securities
may decrease resulting in a decrease in the value of a shareholder's investment.
The Growth Fund currently has an aggressive investment approach to seeking
capital appreciation through investing primarily in securities issued by smaller
companies. As a result, short-term movements in the securities market may cause
the Fund's share price to be volatile.
An investment in the Northwest Fund may be subject to different risks than a
mutual fund whose investments are more geographically diverse. Since the
Northwest Fund invests primarily in companies with their principal executive
offices located in the Northwest, the number of issuers whose securities are
eligible for purchase is significantly less than many other mutual funds. Also,
some companies whose securities are held in the Northwest Fund's portfolio may
primarily distribute products or provide services in a specific locale or in the
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<PAGE> 27
Northwest region. The long-term growth of these companies can be significantly
affected by business trends in and the economic health of those areas. Other
companies whose securities are held by the Northwest Fund may have a
predominately national or partially international market for their products or
services and are more likely to be impacted by national or international trends.
As a result, the performance of the Northwest Fund may be influenced by business
trends or economic conditions not only in a specific locale or in the Northwest
region but also on a national or international level, depending on the companies
whose securities are held in its portfolio at any particular time.
Because the International Fund primarily invests, and the other Funds may
invest, in foreign securities, each of those Funds are subject to risks in
addition to those associated with U.S. investments. Foreign investments involve
sovereign risk, which includes the risk of adverse local political or economic
developments, expropriation or nationalization of assets, imposition of
withholding taxes on dividend or interest payments and currency blockage (which
would prevent currency from being sold). Foreign investments may also be
affected favorably or unfavorably by changes in currency rates and exchange
control regulations. There is also generally less publicly available
information about issuers of foreign securities as compared to U.S. issuers.
Many foreign companies are not subject to accounting, auditing and financial
reporting standards and requirements comparable to those applicable to U.S.
companies. Securities of some foreign issuers are less liquid and more volatile
than securities of U.S. issuers. Financial markets on which foreign securities
trade are generally subject to less governmental regulation as compared to U.S.
markets. Foreign brokerage commissions and custodian fees are generally higher
than those in the U.S.
The Small Company Fund invests in companies with small market capitalizations
which involves more risks than investments in larger companies. The Small
Company Fund may invest to a large extent in newly formed companies which have
limited product lines, markets or financial resources and may lack management
depth. The securities of small or newly formed companies may have limited
marketability and may be subject to more abrupt and erratic movements in price
than securities of larger, more established companies, or equity securities in
general. The Small Company Fund will not invest more than 15% of its total
assets in the securities of issuers which together with any predecessors have a
record of less than three years continuous operation.
- ------------------
PORTFOLIO MANAGERS
- ------------------
Growth Fund
The portfolio manager for the Growth Fund is Thomas M. Maguire, Vice President,
SAM. Mr. Maguire has served as portfolio manager for the Fund since 1989.
Equity Fund
The portfolio manager for the Equity Fund is Richard D. Meagley, Vice President,
SAM. Mr. Meagley began serving as portfolio manager for the Fund in 1995. He
is also the portfolio manager for certain other SAFECO Funds. Prior to these
positions, he served as portfolio manager and analyst from 1992 to 1994 for
Kennedy Associates, Inc., an investment advisory firm located in Seattle,
Washington. He was an Assistant Vice President of SAFECO Asset Management
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<PAGE> 28
Company and the fund manager of the SAFECO Northwest Fund from 1991 to 1992.
From 1983 to 1991, he was an investment portfolio manager and securities analyst
for SAM.
Income Fund
The portfolio manager for the Income Fund is Arley N. Hudson, Vice President,
SAM. Mr. Hudson has served as portfolio manager for the Fund since 1978.
Northwest Fund
The portfolio manager for the Northwest Fund is Charles R. Driggs, Vice
President, SAM. Mr. Driggs has served as portfolio manager for the Fund since
1992. From 1984 through 1992, Mr. Driggs was a securities analyst for SAM
specializing in banks, savings and loan institutions and the insurance industry.
Balanced Fund
The portfolio managers for the Balanced Fund are Rex L. Bentley, Vice President,
SAM, and Michael C. Knebel, Vice President, SAM. Mr. Bentley was Vice President
and Investment Counsel at the investment advisory firm of Badgley, Phelps and
Bell Investment Counsel, Inc., from 1990 to 1995. Mr. Knebel has served as
portfolio manager for certain other SAFECO mutual funds since 1989.
International Fund
The International Fund is managed by a committee of portfolio managers employed
and supervised by the Sub-Adviser, Bank of Ireland Asset Management Limited, an
investment adviser registered with the SEC. All investment decisions are made
by this committee and no single person is primarily responsible for making
recommendations to that committee.
Small Company Fund
The portfolio manager for the Small Company Fund is Greg Eisen. Mr. Eisen has
served as an investment analyst for SAM since 1992. From 1986 to 1992, Mr.
Eisen was engaged by SAFECO Insurance Companies as a financial analyst.
Each portfolio manager and certain other persons related to SAM, the Sub-Adviser
and the Funds are subject to written policies and procedures designed to prevent
abusive personal securities trading. Incorporated within these policies and
procedures are each of the recommendations made by the Investment Company
Institute (the trade group for the mutual fund industry) with respect to
personal securities trading by persons associated with mutual funds. Those
recommendations include preclearance procedures and blackout periods when
certain personnel may not trade in securities that are the same or related
securities being considered for purchase or sale by a Fund.
- -----------------------------------------------
INFORMATION ABOUT SHARE OWNERSHIP AND COMPANIES
THAT PROVIDE SERVICES TO THE TRUST
- -----------------------------------------------
Each Fund is a series of SAFECO Common Stock Trust, a Delaware business trust,
which issues an unlimited number of shares of beneficial interest. The Board of
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<PAGE> 29
Trustees may establish additional series of shares of the Trust without approval
of shareholders.
Shares of each Fund represent equal proportionate interests in the assets of
that Fund only and have identical voting, dividend, redemption, liquidation and
other rights. All shares issued are fully paid and non-assessable, and
shareholders have no preemptive or other right to subscribe to any additional
shares.
The Trust does not intend to hold annual meetings of shareholders of the Funds.
The Trustees will call a special meeting of shareholders of a Fund only if
required under the 1940 Act, in their discretion, or upon the written request of
holders of 10% or more of the outstanding shares of the Fund entitled to vote.
Under Delaware law, the shareholders of the Funds will not be personally liable
for the obligations of any Fund; a shareholder is entitled to the same
limitation of personal liability extended to shareholders of corporations. To
guard against the risk that Delaware law might not be applied in other states,
the Trust Instrument requires that every written obligation of the Trust or Fund
contain a statement that such obligation may be enforced only against the assets
of the Trust or Fund and generally provides for indemnification out of Trust or
Fund property of any shareholder nevertheless held personally liable for Trust
or Fund obligations, respectively.
SAM is the investment adviser for each Fund under an agreement with the Trust.
Under the agreement, SAM is responsible for the overall management of the
Trust's and each Fund's business affairs. Each Fund pays SAM an annual
management fee based on a percentage of that Fund's net assets ascertained each
business day and paid monthly in accordance with the schedules below. A
reduction in the fees paid by a Fund occurs only when that Fund's net assets
reach the dollar amounts of the break points and applies only to the assets that
fall within the specified range:
GROWTH, EQUITY AND INCOME FUNDS
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $100,000,000 .75 of 1%
$100,000,001 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
Over $500,000,000 .45 of 1%
NORTHWEST FUND
NET ASSETS ANNUAL FEE
$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
$500,000,001 - $750,000,000 .55 of 1%
Over $750,000,000 .45 of 1%
</TABLE>
-25-
<PAGE> 30
BALANCED FUND
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
Over 500,000,000 .55 of 1%
INTERNATIONAL FUND
NET ASSETS ANNUAL FEE
$0 - $250,000,000 1.10 of 1%
$250,000,001 - $500,000,000 1.00 of 1%
Over $500,000,000 .90 of 1%
SMALL COMPANY FUND
NET ASSETS ANNUAL FEE
$0 - $250,000,000 .85 of 1%
$250,000,001 - $500,000,000 .75 of 1%
Over 500,000,000 .65 of 1%
</TABLE>
For the fiscal year ended September 30, 1995 for the Growth, Equity, Income, and
Northwest each Fund's total expenses and the compensation paid by each Fund to
SAM, expressed as a percentage of average net assets, were as follows:
<TABLE>
<CAPTION>
RATIO OF EXPENSES TO RATIO OF NET COMPENSATION
AVERAGE NET ASSETS TO AVERAGE NET ASSETS
<S> <C> <C>
Growth .___% .___%
Equity .___% .___%
Income .___% .___%
Northwest .___% .___%
</TABLE>
SAM has a sub-advisory agreement with the Sub-Adviser. The Sub-Adviser is a
direct, wholly-owned subsidiary of the Bank of Ireland Asset Management Limited.
The Sub-Adviser is an indirect, wholly-owned subsidiary of Bank of Ireland. The
Sub-Adviser has its headquarters at 26 Fitzwilliam Place, Dublin, Ireland and
its U.S. office at 2 Greenwich Plaza, Greenwich, Connecticut. The Sub-Adviser
was established in 1987 and manages over $3 billion in assets.
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<PAGE> 31
Under the agreement, the Sub-Adviser is responsible for providing investment
research and advice used to manage the investment portfolio of the International
Fund. In return, SAM (and not the International Fund) pays the Sub-Adviser a
fee equal in accordance with the schedule below:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $50,000,000 .60 of 1%
$50,000,001 - $100,000,000 .50 of 1%
Over $100,000,000 .40 of 1%
</TABLE>
The Investment Bank of Ireland Limited, a direct, wholly-owned subsidiary of the
Bank of Ireland, engages in the investment banking business and is located at 26
Fitzwilliam Street, Dublin, Ireland. The Bank of Ireland is a holding company
whose primary subsidiaries are engaged in banking, insurance, securities and
related financial services, and is located at Lower Baggot Street, Dublin,
Ireland.
The distributor of each Fund's shares under an agreement with the Trust is
SAFECO Securities, Inc. ("SAFECO Securities"), a broker-dealer registered under
the Securities Exchange Act of 1934 and a member of the National Association of
Securities Dealers, Inc. SAFECO Securities receives no compensation from the
Trust or the Funds for its services.
The transfer, dividend and distribution disbursement and shareholder servicing
agent for each Fund under an agreement with the Trust is SAFECO Services
Corporation ("SAFECO Services"). SAFECO Services receives a fee from a Fund for
each shareholder transaction processed for that Fund.
SAM, SAFECO Securities and SAFECO Services are wholly-owned subsidiaries of
SAFECO Corporation (a holding company whose primary subsidiaries are engaged in
the insurance and related financial services businesses) and are each located at
SAFECO Plaza, Seattle, Washington 98185.
The International Fund, Balanced Fund and Small Company Fund expect that their
respective turnover ratios will not exceed 50%.
- ----------------------------------------------------------------------
PERSON CONTROLLING THE INTERNATIONAL, BALANCED AND SMALL COMPANY FUNDS
- ----------------------------------------------------------------------
At _________ __, 1995, SAM, a wholly-owned subsidiary of SAFECO Corporation,
controlled the International and Balanced Funds. At _________ __, 1995, SAFECO
Corporation controlled the Small Company Fund. SAFECO Corporation and SAM have
their principal place of business at SAFECO Plaza, Seattle, Washington 98185.
- -----------------------
PERFORMANCE INFORMATION
- -----------------------
Each Fund's yield, total return and average annual total return may be quoted in
advertisements. Yield is the annualization on a 360-day basis of a Fund's net
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<PAGE> 32
income per share over a 30-day period divided by the Fund's net asset value per
share on the last day of the period. Total return is the total percentage
change in an investment in a Fund, assuming the reinvestment of dividend and
capital gains distributions, over a stated period of time. Average annual total
return is the annual percentage change in an investment in a Fund, assuming the
reinvestment of dividends and capital gains distributions, over a stated period
of time.
From time to time, a Fund may advertise rankings. Rankings are calculated by
independent companies that monitor mutual fund performance (e.g., CDA Investment
Technologies, Lipper Analytical Services, Inc. and Morningstar, Inc.) and are
reported periodically in national financial publications such as Barron's,
Business Week, Forbes, Investor's Business Daily, Money Magazine, and The Wall
Street Journal. In addition, non-standardized performance figures may accompany
the standardized figures described above. Non-standardized figures may be
calculated in a variety of ways, including but not necessarily limited to,
different time periods and different initial investment amounts. Each Fund may
also compare its performance to the performances of relevant indices.
Performance information and quoted rankings are indicative only of past
performance and are not intended to represent future investment results. Each
Fund's yield and share price will fluctuate and your shares, when redeemed, may
be worth more or less than you originally paid for them.
- -----------------------------------------
FUND DISTRIBUTIONS AND HOW THEY ARE TAXED
- -----------------------------------------
DIVIDEND AND OTHER DISTRIBUTIONS
The Growth, Equity, Income, Northwest and Balanced Funds declare dividends on
the last business day of each calendar quarter and the International and Small
Company Funds declare dividends annually. Each Fund declares dividends from its
net investment income (which includes accrued dividends and interest, earned
discount, and other income earned on portfolio securities less expenses) and
such shares become entitled to declared dividends on the next business day after
shares are purchased in your account.
A shareholder's dividends and other distributions are reinvested in additional
shares of the distributing Fund at net asset value per share generally
determined as of the close of business on the ex-distribution date, unless the
shareholder elects in writing to receive dividends or other distributions in
cash and that election is provided to SAFECO Services at the address on the
Prospectus cover.
The election remains in effect until revoked by written notice by the
shareholder in the same manner as the distribution election. For retirement
accounts, all dividends and other distributions declared by a Fund must be
invested in additional shares of that Fund.
Please remember that if you purchase shares shortly before a Fund pays a taxable
dividend or other distribution, you will pay the full price for the shares, then
receive part of the price back as a taxable distribution.
TAXES
Each Fund intends to qualify for treatment as a regulated investment company
under Subchapter M of the Internal Revenue Code. By so qualifying, a Fund will
not be
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<PAGE> 33
subject to federal income taxes to the extent it distributes its net investment
income and realized capital gains to its shareholders. Each Fund will inform
you as to the amount and nature of dividends and other distributions to your
account. Dividends and distributions declared in December, but received by
shareholders in January, are taxable to shareholders in the year in which
declared.
TAX WITHHOLDING INFORMATION
You will be asked to certify on your account application or on a separate form
that the taxpayer identification number you provide is correct and that you are
not subject to, or are exempt from, backup withholding for previous
underreporting to the Internal Revenue Service.
Retirement plan distributions may be subject to federal income tax withholding.
However, you may elect to not have any distributions withheld by checking the
appropriate box on the Redemption Request form or by instructing SAFECO Services
in writing at the address on the Prospectus cover.
If the International Fund pays nonrefundable taxes to foreign government during
the year, the taxes will reduce the Fund's dividends but still be included in
your taxable income. However, you may be able to claim an offsetting credit or
deduction on your tax return for your share of foreign taxes paid by the Fund.
The foregoing is only a summary of some of the important federal tax
considerations generally affecting each Fund and its shareholders; see the
Trust's Statement of Additional Information for a further discussion. There may
be other federal, state or local tax considerations applicable to a particular
investor. You therefore are urged to consult your tax adviser.
- -----------------------------
TAX-DEFERRED RETIREMENT PLANS
- -----------------------------
SAFECO Services offers a variety of tax-deferred retirement plans for
individuals, businesses and non-profit organizations. An account may be
established under one of the following plans which allow you to defer investment
income from federal income tax while you save for retirement. Many of the
SAFECO Funds may be used as investment vehicles for these plans.
INDIVIDUAL RETIREMENT ACCOUNTS (IRAS). IRAs are tax-deferred retirement
accounts for anyone under age 70-1/2 with earned income. The maximum annual
contribution is $2,000 per person ($2,250 for you and a non-working spouse). An
annual custodial fee will be charged for any part of a calendar year in which
you have an IRA investment in a Fund.
SIMPLIFIED EMPLOYEE PENSION IRAS (SEP-IRAS). SEP-IRAs are easily administered
retirement plans for small businesses and self-employed individuals. Annual
contributions up to $30,000 may be made to SEP-IRA accounts. SEP IRAs have the
same investment minimums and custodial fees as regular IRAs.
403(b) PLANS. 403(b) plans are retirement plans for tax-exempt organizations
and school systems to which employers and employees both may contribute. Minimum
investment amounts are negotiable.
401(k) PLANS. 401(k) plans allow employers and employees to make tax-advantaged
contributions to a retirement account. SAFECO Services offers a low-cost
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<PAGE> 34
administration package that includes a prototype plan, recordkeeping, testing
and employee communications. Minimum investment amounts are negotiable.
PROFIT SHARING AND MONEY PURCHASE PENSION PLANS. These plans allow
corporations, partnerships and self-employed persons to make annual,
tax-deductible contributions to a retirement account for each person covered by
a plan. A plan may be adopted individually or paired with another plan to
maximize contributions. SAFECO Services offers an administration package for
these plans. Minimum investment amounts are negotiable.
For information about the above accounts and plans, please call 1-800-278-2985.
- ------------------
ACCOUNT STATEMENTS
- ------------------
Periodically, you will receive an account statement indicating your current Fund
holdings and transactions affecting the account. Confirmation statements will
be sent to you after each transaction that affects your account balance. Please
review the information on each confirmation statement for accuracy immediately
upon receipt. If you do not notify us within 30 days of any processing error,
SAFECO Services will consider the transactions listed on the confirmation
statement to be correct.
- ------------------------------------------
ACCOUNT CHANGES AND SIGNATURE REQUIREMENTS
- ------------------------------------------
Changes to your account registration or the services you have selected must be
in writing and signed by the number of owners specified on your account
application as having authority to make these changes. Send written changes to
SAFECO Services at the address on the Prospectus cover. Certain changes to the
Automatic Investment Method and Systematic Withdrawal Plan can be made by
telephone if you have previously selected single signature authorization for
your account.
You must specify on your account application the number of signatures required
to authorize redemptions and exchanges and to change account registration or the
services selected. Authorizing fewer than all account owners has important
implications. For example, one owner of a joint tenant account can redeem money
or change the account registration to single ownership without the co-owner's
signature. If you do not indicate otherwise on the application, the signatures
of all account owners will be required to effect a transaction. Your selection
of fewer than all account owner signatures may be revoked by any account owner
who writes to SAFECO Services at the address on the Prospectus cover.
SAFECO Services may require a signature guarantee for a signature that cannot be
verified by comparison to the signature(s) on your account application. A
signature guarantee may be obtained from most financial institutions, including
banks, savings and loans and broker-dealers.
-30-
<PAGE> 35
- -----------------------
SHARE PRICE CALCULATION
- -----------------------
The net asset value ("NAV") of each Fund is computed as of the close of regular
trading on the New York Stock Exchange (normally 1:00 p.m. Pacific time) each
day that Exchange is open for trading. The NAV is calculated by subtracting a
Fund's liabilities from its assets and dividing the result by the number of
outstanding shares.
Foreign portfolio securities are valued on the basis of quotations from the
primary market in which they trade. The value of foreign securities are
translated from the local currency into U.S. dollars using current exchange
rates.
In general, portfolio securities are valued at the last reported sale price on
the national exchange on which the securities are primarily traded, unless there
are no transactions in which case they shall be valued at the last reported bid
price. Securities traded over-the-counter are valued at the last sale price,
unless there is no reported sale price in which case the last reported bid price
will be used. Portfolio securities that trade on a stock exchange and
over-the-counter are valued according to the broadest and most representative
market. Securities not traded on a national exchange are valued based on
consideration of information with respect to transactions in similar securities,
quotations from dealers and various relationships between securities. Other
assets for which market quotations are unavailable are valued at their fair
value pursuant to guidelines approved by the Trust's Board of Trustees. The
values of portfolio securities may be computed on the basis of valuations
provided by a pricing service, unless the Trust's Board of Trustees determines
such valuations do not represent fair value.
Trading in foreign securities, as well as corporate bonds, U.S. government
securities and money market instruments that the International Fund will invest
is generally substantially completed each day at various times prior to the
close of the NYSE. The value of any such securities are determined as of such
times for purposes of computing the International Fund's net asset value.
Foreign currency exchange rates are also generally determined prior to the close
of the NYSE. If quotations are not readily available, or if values have been
materially affected by events occurring after the close of a foreign market, the
security will be valued at fair value as determined in good faith by SAM or BIAM
under procedures established by and under general supervision of the Fund's
Board of Trustees.
Options the International Fund may purchase that are traded on national
securities exchanges are valued at their last sale price as of the close of
option trading on such exchange. Futures contracts the International Fund will
enter into will be marked to market daily, and options thereon are valued at
their last sale price, as of the close of the applicable commodities exchange.
Forward contracts are valued at the current cost of covering or offsetting such
contracts.
- ----------------------
HOW TO PURCHASE SHARES
- ----------------------
A completed and signed application must accompany payment for an initial
purchase by mail and in all cases is necessary before a redemption can be made.
Specific applications for retirement accounts must be completed and signed
before any retirement account can be set up. The Funds only accept funds drawn
in U.S. dollars and payable through a U.S. bank. The Funds do not accept
currency. The
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<PAGE> 36
Funds issue shares in uncertificated form. Certificates for whole shares will
be issued without charge only upon written request. You will be required to
post a bond to replace missing certificates.
THE FUNDS HAVE THE RIGHT TO REFUSE ANY INVESTMENT.
INITIAL PURCHASES
MINIMUM INITIAL INVESTMENT $1,000 (IRA $250).
Minimum initial investments are negotiable for retirement accounts other than
IRAs.
No minimum initial investment is required to establish the Automatic Investment
Method or Payroll Deduction Plan.
BY WRITTEN REQUEST
Send a check or money order made payable to the applicable Fund and a completed
and signed application to the address on the Prospectus cover.
BY WIRE
Call toll-free 1-800-624-5711 or, in Seattle, 545-7319 for instructions.
Not available for retirement accounts.
IN PERSON
Visit a SAFECO Investor Center. Investor Centers are located at 1409 Fifth
Avenue and 4333 Brooklyn Avenue N.E. in Seattle, Washington, and at 15411 N.E.
51st Street in Redmond, Washington. A licensed representative will assist you
in completing your application.
ADDITIONAL PURCHASES
MINIMUM ADDITIONAL INVESTMENT $100 (EXCEPT DIVIDEND REINVESTMENTS).
Minimum additional investments are negotiable for retirement plans other than
IRAs.
BY WRITTEN REQUEST
Send a check or money order payable to the applicable Fund to the address on the
Prospectus cover. Please specify your account number.
BY WIRE
Instruct your bank to send wires to U.S. Bank of Washington, N.A., Seattle,
Washington, ABA #1250-0010-5, Account #0017-086083.
To ensure timely credit to your account, ask your bank to include the following
information in its wire to U.S. Bank of Washington, N.A.:
- SAFECO Fund name
- SAFECO account number
- Name of the registered owner(s) of the SAFECO account
Delays of purchases caused by inadequate wire instructions are not the
responsibility of the Funds or SAFECO Services.
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<PAGE> 37
Your bank may charge a fee for wire services.
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 545-7319. You must have previously selected
this service on your account application or by written request. Not available
to open a new account or for retirement accounts.
Maximum purchase $100,000 per day, minimum purchase $100 per day.
Monies will be transferred from your predesignated bank account to your existing
Fund account. Your bank may charge a fee if monies are wired to your Fund
account.
Please allow fifteen business days after selecting this service for it to be
available for first use.
Telephone purchases may be unavailable from some bank accounts and non-bank
financial institutions.
PLEASE READ "TELEPHONE TRANSACTIONS" ON PAGE___ FOR OTHER IMPORTANT INFORMATION.
IN PERSON
You may complete your initial application and make additional investments in
person by visiting a SAFECO Investor Center. Investor Centers are located at
1409 Fifth Avenue and 4333 Brooklyn Avenue N.E. in Seattle, Washington, and at
15411 N.E. 51st Street in Redmond, Washington. A licensed representative will
assist you in completing your application.
THROUGH REGISTERED SECURITIES DEALERS
You may open your account and make additional investments through a registered
securities dealer who is responsible for the prompt forwarding of purchase
orders. A dealer may charge a transaction fee and may place more restrictive
conditions on a purchase than would apply if you purchased your shares directly
from a Fund.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page___ for
important information.
SHARE PURCHASE PRICE
You will buy full and fractional shares at the NAV next computed after your
check, money order or wire has been received. For telephone purchase orders,
you will receive the price per share calculated on the day monies are received
from your bank account. See "Share Price Calculation" on page___ for more
information.
- --------------------
HOW TO REDEEM SHARES
- --------------------
BY WRITTEN REQUEST
Shares may be redeemed by sending a letter which specifies your account number,
the Fund's name and the number of shares or dollar amount you wish to redeem.
The request should be sent to the address on the Prospectus cover. The request
must
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<PAGE> 38
be signed by the appropriate number of owners and in some cases a signature
guarantee may be required. In all cases, SAFECO Services must have a signed and
completed application on file before a redemption can be made. See "Account
Changes and Signature Requirements" on page ___ for more information.
Retirement account shareholders must specify whether or not they elect 10%
federal income tax withholding from a distribution.
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 206-545-7319. You must have previously
selected this service on your account application or by written request.
Telephone redemptions are not available for retirement accounts or shares issued
in certificate form. You may request that redemption proceeds be sent directly
to your predesignated bank or mailed to your account address of record.
PLEASE READ "TELEPHONE TRANSACTIONS" ON PAGE __ FOR OTHER IMPORTANT
INFORMATION.
IN PERSON
Shares may be redeemed in person by visiting a SAFECO Investor Center. Investor
Centers are located at 1409 Fifth Avenue and 4333 Brooklyn Avenue N.E. in
Seattle, Washington, and at 15411 N.E. 51st Street in Redmond, Washinginton.
Funds for shares redeemed in person may be mailed to your address of record,
sent directly to your bank or retrieved directly from the SAFECO Investor Center
once they become available.
THROUGH REGISTERED SECURITIES DEALERS
Requests for redemption of shares by wire or telephone will be accepted from
registered securities dealers under agreement with each Fund's principal
underwriter. The dealer may charge a transaction fee for any order processed
for you.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page ___
for important information.
PLEASE NOTE THE FOLLOWING:
If your shares were purchased by wire, redemption proceeds will be available
immediately. If shares were purchased by means other than wire, each Fund
reserves the right to hold the proceeds of your redemption for up to 15 business
days after investment or until such time as the Fund has received assurance that
your investment will be honored by the bank on which it was drawn, whichever
occurs first.
SAFECO Services charges a $10 fee to wire redemption proceeds. In addition, some
banks may charge a fee to receive wires.
If shares are issued in certificate form, the certificates must accompany a
redemption request and be duly endorsed.
Under some circumstances (e.g., a change in corporate officer or death of an
owner), SAFECO Services may require certified copies of supporting documents
before a redemption will be made.
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<PAGE> 39
SHARE REDEMPTION PRICE AND PROCESSING
Your shares will be redeemed at the NAV next calculated after receipt of your
request that meets the redemption requirements of the Funds. The value of the
shares you redeem may be more or less than the dollar amount you purchased,
depending on the market value of the shares at the time of redemption. See
"Share Price Calculation," on page _____ for more information.
Redemption proceeds will normally be sent on the business day following receipt
of your redemption request. If your redemption request is received after the
close of trading on the New York Stock Exchange (normally 1:00 p.m. Pacific
time), proceeds will normally be sent on the second business day following
receipt. Each Fund, however, reserves the right to postpone payment of
redemption proceeds for up to seven days if making immediate payment could
adversely affect its portfolio. In addition, redemptions may be suspended or
payment dates postponed if the New York Stock Exchange is closed, its trading is
restricted or the Securities and Exchange Commission declares an emergency.
Due to the high cost of maintaining small accounts, your account may be closed
upon 60 days' written notice if at the time of any redemption or exchange the
total value falls below $100. Your shares will be redeemed at the share price
calculated on the day your account is closed.
- -----------------------------------------------
HOW TO SYSTEMATICALLY PURCHASE OR REDEEM SHARES
- -----------------------------------------------
Call 1-800-426-6730 or 206-545-5530, in Seattle, for more information.
AUTOMATIC INVESTMENT METHOD (AIM)
AIM enables you to make regular monthly investments by authorizing SAFECO
Services to withdraw a specific amount (minimum of $100 per withdrawal per Fund)
from your bank account and invest the amount in any Fund.
PAYROLL DEDUCTION PLAN
An employer or other entity using group billing may establish a
self-administered payroll deduction plan in any Fund. Payroll deduction amounts
are negotiable.
SYSTEMATIC WITHDRAWAL PLAN
This plan enables you to receive a portion of your investment on a monthly
basis. A Fund automatically redeems shares in your account and sends you a
withdrawal check (minimum amount $50 per Fund) on or about the fifth business
day of every month.
- -----------------------------------------------
HOW TO EXCHANGE SHARES FROM ONE FUND TO ANOTHER
- -----------------------------------------------
An exchange is the redemption of shares of one SAFECO Fund and the purchase of
shares of another SAFECO Fund in accounts which are identically registered;
i.e., have the same registered owners and account number. For income tax
purposes, depending on the cost or other basis of the shares you exchange, you
may realize a capital gain or loss when you make an exchange. You may purchase
shares of a
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<PAGE> 40
SAFECO Fund by exchange only if it is registered for sale in the state where you
reside. Before exchanging into a SAFECO Fund, please read its Prospectus.
BY WRITTEN REQUEST
Shares may be exchanged by writing SAFECO Services at the address on the
Prospectus cover. Please designate the SAFECO Funds you wish to exchange out of
and into as well as your account number. The request must be signed by the
number of owners designated on your account application and in some cases a
signature guarantee may be required. See "Account Changes and Signature
Requirements" on page ___ for more information.
If the shares you want to exchange are evidenced by certificates, the
certificates must accompany the request and be duly endorsed.
Under some circumstances (e.g., a change in corporate officer or death of an
owner), SAFECO Services may require certified copies of supporting documents
before an exchange can be made.
BY TELEPHONE
Call 1-800-624-5711 or, in Seattle, 206-545-7319.
Exchanges by telephone must be in amounts of $1,000 or more. Telephone
exchanges are not available for shares issued in certificate form.
Please read "Telephone Transactions" on page ____ for other important
information.
THROUGH REGISTERED INVESTMENT ADVISERS
Please read "Transactions Through Registered Investment Advisers" on page ___
for important information.
LIMITATIONS
Exchanges out of a Fund are limited to four per calendar year. In addition,
each Fund reserves the right to refuse exchange purchases by any person or group
if, in SAM's judgment, the Fund would be unable to invest the money effectively
in accordance with that Fund's investment objective and policies or would
otherwise potentially be adversely affected.
The exchange privilege is not intended to provide a means for frequent trading
in response to short-term fluctuations in the market. Excessive exchange
transactions can be disadvantageous to other shareholders and the Funds. Your
exchanges may be restricted or refused if a Fund receives or anticipates
simultaneous orders affecting significant portions of that Fund's assets, for
example, a pattern of exchanges that coincides with a "market-timing" strategy.
Although a Fund will attempt to give you prior notice whenever it is reasonably
able to do so, it may impose the above restrictions at any time.
SHARE EXCHANGE PRICE AND PROCESSING
The shares of the SAFECO Fund you are exchanging from will be redeemed at the
price next computed after your exchange request is received. Normally the
purchase of the SAFECO Fund you are exchanging into is executed on the same day.
However, each Fund reserves the right to delay the payment of proceeds and,
hence, the purchase in an exchange for up to seven days if making immediate
payment could adversely affect the portfolio of the Fund whose shares are being
redeemed. The exchange
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<PAGE> 41
privilege may be modified or terminated with respect to a Fund at anytime, upon
at least 60 days' notice to shareholders.
- ----------------------
TELEPHONE TRANSACTIONS
- ----------------------
To purchase, redeem or exchange shares by telephone, call 1-800-624-5711 or, in
Seattle, 206-545-7319 between 5:30 a.m. and 7:00 p.m. Pacific Time, Monday
through Friday, except certain holidays. All telephone calls are tape-recorded
for your protection. During times of drastic or unusual market volatility, it
may be difficult for you to exercise the telephone transaction privileges.
To use the telephone purchase, redemption and exchange privileges, you must have
previously selected these services either on your account application or by
having submitted a request in writing to SAFECO Services at the address on the
Prospectus cover. Purchasing, redeeming or exchanging shares by telephone
allows the Funds and SAFECO Services to accept telephone instructions from an
account owner or a person preauthorized in writing by an account owner.
Each Fund and SAFECO Services reserve the right to refuse any telephone
transaction when a Fund or SAFECO Services in its sole discretion is unable to
confirm to its satisfaction that a caller is the account owner or a person
preauthorized by the account owner.
The Funds and SAFECO Services will not be liable for the authenticity of
instructions received by telephone that a Fund or SAFECO Services, in its
discretion, believes to be delivered by an account owner or preauthorized
person, provided that the Fund or SAFECO Services follows reasonable procedures
to identify the caller. The shareholder will bear the risk of any resulting
loss. The Funds and SAFECO Services will follow certain procedures designed to
make sure that telephone instructions are genuine. These procedures may include
requiring the account owner to select the telephone privileges in writing prior
to first use and to designate persons authorized to deliver telephone
instructions. SAFECO Services tape-records telephone transactions and may
request certain identifying information from the caller.
The telephone transaction privileges may be suspended, limited, modified or
terminated at any time without prior notice by the Funds or SAFECO Services.
- ---------------------------------------------------
TRANSACTIONS THROUGH REGISTERED INVESTMENT ADVISERS
- ---------------------------------------------------
SAFECO Services may accept instructions for share transactions and account
information changes from investment advisers who are acting on behalf of
shareholders, provided that the adviser is registered under the Investment
Advisers Act of 1940, has a signed agreement with SAFECO Services and has an
executed power of attorney from the shareholder, in an acceptable form, on file
with SAFECO Services. Advisers may charge a fee to shareholders for their
services which the Trust, the Funds and SAFECO Services have no control over or
involvement with. Advisers are responsible for the prompt forwarding of
instructions on shareholders' accounts to SAFECO Services and are bound by the
terms of this Prospectus. The Trust, the Funds, SAFECO Services and their
affiliated companies will not be responsible to any shareholder for any losses,
liabilities, costs or expenses associated with any investment advice or
recommendation provided by the adviser
-37-
<PAGE> 42
to the shareholder or for accepting and following any instructions from such
adviser on the shareholder's account(s).
- ---------------------------------------------------------------------
RATINGS SUPPLEMENT - EQUITY, INCOME, BALANCED AND SMALL COMPANY FUNDS
- ---------------------------------------------------------------------
DESCRIPTION OF DEBT RATINGS
Ratings by Moody's and S&P represent their respective opinions as to the
investment quality of the rated obligations. Investors should realize these
ratings do not constitute a guarantee that the principal and interest payable
under these obligations will be paid when due.
Excerpts from Moody's description of its ratings:
Investment Grade:
Aaa -- 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 by an exceptionally stable margin and principal is
secure. While the various protective elements are likely to change, such
changes as can be anticipated are most unlikely to impair the fundamentally
strong position of such issues.
Aa -- Judged to be of high quality by all standards. Together with the Aaa
group they comprise what are generally known as high grade bonds. They are
rated lower than the best bonds because margins of protection may not be as
large as in Aaa securities or fluctuation of protective elements may be of
greater amplitude or there may be other elements present which make the long
term risks appear somewhat larger than in Aaa securities.
A -- Have 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 -- Considered as medium grade obligations, i.e., they are neither highly
protected nor poorly secured. Interest payments and principal security appear
adequate for the present but certain protective elements may be lacking or may
be characteristically unreliable over any great length of time. Such bonds lack
outstanding investment characteristics and in fact have speculative
characteristics as well.
Below Investment Grade:
Ba -- Judged to have speculative elements; their future cannot be considered as
well assured. Often the protection of interest and principal payments may be
very moderate and thereby not well safeguarded during both good and bad times
over the future.
B -- Generally lack characteristics of a desirable investment. Assurance of
interest and principal payments over any long period of time may be uncertain.
Caa -- Have poor standing. Such issues may be in default or there may be
present elements of danger with respect to principal or interest.
-38-
<PAGE> 43
Ca -- Represent obligations which are speculative in a high degree. Such issues
are often in default or have other marked shortcomings.
C -- The lowest rated class of bonds and issues so rated can be regarded as
having extremely poor prospects of ever attaining any real investment standing.
Excerpts from S&P's description of its ratings:
Investment Grade:
AAA -- The highest rating assigned by Standard & Poor's. Capacity to pay
interest and repay principal is extremely strong.
AA -- Very strong capacity to pay interest and repay principal and differs from
the highest rated issues only in small degree.
A -- Strong capacity to pay interest and repay principal although it is somewhat
more susceptible to the adverse effects of changes in circumstances and economic
conditions than debt in higher rated categories.
BBB -- Have an adequate capacity to pay interest and repay principal. Whereas
it normally exhibits adequate protection parameters, adverse economic conditions
or changing circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
Below Investment Grade:
BB, B, CCC, CC -- Predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the obligation.
"BB" indicates the lowest degree of speculation and "CC" the highest degree of
speculation. While such debt will likely have some quality and protective
characteristics, these are outweighed by large uncertainties or major risk
exposures to adverse conditions.
C -- Reserved for income bonds on which no interest is being paid.
D -- In default, and payment of interest and/or repayment of principal is in
arrears.
Plus (+) or Minus (-): The ratings from "AA" to "B" may be modified by the
addition of a plus or minus sign to show relative standing within the major
rating categories.
The weighted average ratings of all debt securities held by the Income Fund,
expressed as a percentage of total investments held during the fiscal year ended
September 30, 1995, were as follows:
<TABLE>
<CAPTION>
Moody's % S&P %
- ------- - --- -
Investment Grade
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Aaa ___ AAA ___
Aa ___ AA ___
A ___ A ___
Baa ___ BBB ___
</TABLE>
-39-
<PAGE> 44
<TABLE>
<CAPTION>
Moody's % S&P %
- ------- - --- -
Below Investment Grade
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Ba ___ BB ___
B ___ B ___
Caa ___ CCC ___
Ca ___ CC ___
Not Rated, but Not Rated, but
determined to determined to
be investment be investment
grade ___ grade ___
Not Rated, but Not Rated, but
determined to determined to
be below be investment
investment grade ___ grade ___
</TABLE>
The Equity Fund did not hold any convertible debt securities during the fiscal
year ended September 30, 1995.
-40-
<PAGE> 45
SAFECO FAMILY OF FUNDS
STABILITY OF PRINCIPAL
SAFECO Money Market Fund
SAFECO Tax-Free Money Market Fund
TAXABLE BOND INCOME
SAFECO Intermediate-Term U.S. Treasury Fund
SAFECO GNMA Fund
SAFECO High-Yield Bond Fund
TAX-FREE BOND INCOME
SAFECO Intermediate-Term Municipal Bond Fund
SAFECO Insured Municipal Bond Fund
SAFECO Municipal Bond Fund
SAFECO California Tax-Free Income Fund
SAFECO Washington State Municipal Bond Fund
HIGH CURRENT INCOME WITH LONG-TERM GROWTH
SAFECO Income Fund
LONG-TERM GROWTH
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund SAFECO
Small Company Stock Fund
FOR MORE COMPLETE INFORMATION ON ANY SAFECO MUTUAL FUND, INCLUDING MANAGEMENT
FEES AND EXPENSES, CALL OR WRITE FOR A FREE PROSPECTUS. PLEASE READ IT
CAREFULLY BEFORE YOU INVEST OR SEND MONEY.
-41-
<PAGE> 46
PROSPECTUS
January 31, 1996
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
No-Load Funds
TO REQUEST A PROSPECTUS:
Nationwide: 1-800-426-6730
Seattle: 545-5530
FOR 24-HOUR PERFORMANCE FIGURES:
Nationwide: 1-800-835-4391
Seattle: 545-5113
FOR ACCOUNT INFORMATION OR TELEPHONE TRANSACTIONS*:
Nationwide: 1-800-624-5711
Seattle: 545-7319
Hearing Impaired TTY/TDD Service: 1-800-438-8718
*All telephone calls are tape-recorded for your protection.
Mailing Address:
SAFECO MUTUAL FUNDS
P.O. Box 34890
Seattle, WA 98124-1890
EXPRESS/OVERNIGHT MAIL:
SAFECO Mutual Funds
4333 Brooklyn Avenue N.E.
Seattle, WA 98105
SAFECO Securities, Inc.
Distributor
-42-
<PAGE> 47
SAFECO COMMON STOCK TRUST:
SAFECO GROWTH FUND
SAFECO EQUITY FUND
SAFECO INCOME FUND
SAFECO NORTHWEST FUND
SAFECO BALANCED FUNDSAFECO
INTERNATIONAL STOCK FUND
SAFECO SMALL COMPANY STOCK FUND
Statement of Additional Information
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus for the Funds. A copy of the Prospectus may
be obtained by writing SAFECO Mutual Funds, P.O. Box 34890, Seattle, Washington
98124-1890, or by calling TOLL FREE:
Nationwide
1-800-426-6730
Seattle Area
206-545-5530
Hearing Impaired TDD/TTY Service
1-800-438-8718
The date of the most current Prospectus of the Funds to which this Statement of
Additional Information relates is January 31, 1996.
The date of this Statement of Additional Information is January 31, 1996.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Overview of Investment Policies
Investment Policies of
the Growth Fund
Investment Policies of
the Equity Fund
Investment Policies of
the Income Fund
Investment Policies of
the Northwest Fund
Investment Policies of
the Balanced Fund
Investment Policies of
the International Fund
Investment Policies of
the Small Company Fund
Additional Investment Information
Special Risks of Below Investment
<PAGE> 48
Grade Bonds - Equity, Income,
Balanced and Small Company Funds
Special Risks of Foreign Investments
and Foreign Currency Transactions
Principal Shareholders of
the Funds
Additional Tax Information
Additional Information on
Calculation of Net Asset
Value Per Share
Additional Performance
Information
Trustees and Officers
Investment Advisory and
Other Services
Brokerage Practices
Redemption in Kind
Financial Statements
Description of Commercial Paper
and Preferred Stock Ratings
OVERVIEW OF INVESTMENT POLICIES
SAFECO Growth Fund ("Growth Fund"), SAFECO Equity Fund ("Equity Fund"), SAFECO
Income Fund ("Income Fund"), SAFECO Northwest Fund ("Northwest Fund"), SAFECO
Balanced Fund ("Balanced Fund"), SAFECO International Stock Fund ("International
Fund") and SAFECO Small Company Stock Fund ("Small Company Fund") (collectively,
the "Funds") are each a series of the SAFECO Common Stock Trust ("Trust"). The
investment policies of each Fund are described in the Prospectus and this
Statement of Additional Information. These policies state the investment
practices that the Funds will follow, in some cases limiting investments to a
certain percentage of assets, as well as those investment activities that are
prohibited. The types of securities (e.g., common stock, U.S. Government
securities or bonds) a Fund may purchase are also disclosed in the Prospectus.
Before a Fund purchases a security that the following policies permit, but which
is not currently described in the Prospectus, the Prospectus will be amended or
supplemented to describe the security. If a policy's percentage limitation is
adhered to immediately after and as a result of the investment, a later increase
or decrease in values, net assets or other circumstances will not be considered
in determining whether a Fund complies with the applicable limitation.
-2-
<PAGE> 49
Each Fund's fundamental policies may not be changed without the approval of a
"majority of its outstanding voting securities," as defined by the Investment
Company Act of 1940 ("1940 Act"). For purposes of such approval, the vote of a
majority of the outstanding voting securities of a Fund means the vote, at a
meeting of the shareholders of such Fund duly called, (i) of 67% or more of the
voting securities present at such meeting if the holders of more than 50% of the
outstanding voting securities are present or represented by proxy, or (ii) of
more than 50% of the outstanding voting securities, whichever is less.
Non-fundamental policies may be changed by the Trust's Board of Trustees without
shareholder approval.
INVESTMENT POLICIES OF THE GROWTH FUND
FUNDAMENTAL INVESTMENT POLICIES
The Growth Fund has adopted the following fundamental investment policies. The
Growth Fund will NOT:
1. Purchase the securities of any issuer (except the U.S. government, its
agencies or instrumentalities) if as a result more than 5% of the value
of the Growth Fund's total assets would be invested in the securities
of such issuer, except that up to 25% of the value of such assets
(which 25% shall not include securities issued by another investment
company) may be invested without regard to this 5% limitation.
2. Purchase securities of any issuer, if such purchase at the time thereof
would cause more than 10% of any class of securities of such issuer to
be held by the Growth Fund.
3. Purchase securities of companies which have a record of less than
3 years of continuous operation, including in such 3 years the
operation of any predecessor company or companies, partnerships, or
individual proprietorship, if the company whose securities are to be
purchased by the Growth Fund has come into existence as a result of a
merger, consolidation, reorganization or purchase of substantially all
of the assets of such predecessor company or companies, partnership or
individual proprietorship, if such purchase at the time thereof would
cause more than 5% of the Fund's assets to be invested in the
securities of such companies.
4. Concentrate its investments in particular industries or companies, but
shall maintain substantial diversification of its investments among
industries and, to the extent deemed practicable by management, among
companies within particular industries.
5. Purchase securities on margin, except for short-term credits as are
necessary for the clearance of transactions.
6. Make short sales (sales of securities not presently owned), except
where the Growth Fund has at the time of sale, by virtue of its
ownership in other securities, the right to obtain securities
equivalent in kind and amount to the securities sold.
7. Make loans to any person, firm or corporation, but the purchase by the
Growth Fund of a portion of an issue of publicly distributed bonds,
debentures or other securities issued by persons other than the Growth
-3-
<PAGE> 50
Fund, whether or not the purchase was made upon the original issue of
securities, shall not be considered a loan within the prohibition of
this section.
8. Borrow money, except from banks or affiliates of SAFECO Corporation at
an interest rate not greater than that available to the Growth Fund
from commercial banks as a temporary measure for extraordinary or
emergency purposes and in amounts not in excess of 20% of its total
assets (including borrowings) less liabilities (other than borrowings)
immediately after such borrowing. The Growth Fund will not purchase
securities if borrowings in excess of 5% of the Fund's total assets are
outstanding.
9. Pledge, mortgage or hypothecate assets taken at market to an extent
greater than 15% of its gross assets taken at cost.
10. Purchase for nor retain in its portfolio securities issued by any
issuer any of whose officers, directors or security holders is an
officer or director of the Growth Fund, if or so long as the officers
or directors of the Growth Fund, together, own beneficially more than
five percent (5%) of any class of the securities of such issuer.
11. Purchase securities issued by any other investment company or
investment trust, except by purchase in the open market where no
commission or profit to a broker or dealer results from such purchase,
other than the customary broker's commissions, or except when such
purchase, although not made in the open market, is part of a merger,
consolidation or acquisition. Such purchases in the open market will be
limited to not more than 5% of the value of the Growth Fund's total
assets. Nothing in this section or in sections 1 or 2 above shall
prevent any purchase for the purpose of effecting a merger,
consolidation or acquisition of assets expressly approved by the
shareholders after full disclosure of any commission or profit to the
principal underwriter.
12. Act as underwriter of securities issued by any other person, firm or
corporation; however, the Growth Fund may be deemed to be a statutory
underwriter as that term is defined in the 1940 Act and the Securities
Act of 1933 in connection with the disposition of any unmarketable or
restricted securities which it may acquire and hold in its portfolio.
13. Buy or sell real estate (except real estate investment trusts),
commodities, commodity contracts or futures contracts in the ordinary
course of business, but this policy shall not be construed as
preventing the Growth Fund from acquiring real estate, commodities,
commodity contracts or futures contracts through liquidating
distributions as a result of the ownership of securities.
14. Participate, on a joint or joint and several basis, in any trading
account in securities.
15. Issue or sell any senior securities, except that this restriction shall
not be construed to prohibit the Growth Fund from borrowing funds (I)
on a temporary basis as permitted by Section 18(g) of the 1940 Act, or
(ii) from any bank provided, that immediately after such borrowing,
there is an asset coverage of at least 300% for all such borrowings and
provided,
-4-
<PAGE> 51
further, that in the event that such asset coverage shall at any time
fall below 300% the Growth Fund shall, within 3 days thereafter (not
including Sundays and holidays), or such longer period as the
Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to an extent that the
asset coverage of such borrowings shall be at least 300%. For purposes
of this restriction, the terms "senior security" and "asset coverage"
shall be understood to have the meaning assigned to those terms in
Section 18 of the 1940 Act.
16. Act as a distributor of securities of which the Growth Fund is the
issuer, except through an underwriter (who may be designated as
"distributor"), who may act as principal or be an agent of the Growth
Fund and may not be obligated to the Growth Fund to sell or take any
specific amount of securities.
17. Purchase foreign securities only if (a) such securities are listed on a
national securities exchange, and (b) such purchase, at the time
thereof, would not cause more than 10% of the total assets of the
Growth Fund (taken at market value) to be invested in foreign
securities.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Growth Fund has adopted the following non-fundamental policies with respect
to its investment activities:
1. The Growth Fund will not buy or sell foreign exchange, except as
necessary to convert the proceeds of the sale of foreign portfolio
securities into United States dollars.
2. The Growth Fund will not issue long-term debt securities.
3. The Growth Fund will not invest in any security for the purpose of
acquiring or exercising control or management of the issuer.
4. The Growth Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.
5. The Growth Fund will not invest in puts, calls, straddles, spreads or
any combinations thereof.
6. The Growth Fund will not invest in securities with unlimited liability,
e.g., securities the holder of which may be assessed for amounts in
addition to the subscription or other price paid for the security.
7. Although the Growth Fund has the right to pledge, mortgage or
hypothecate its assets up to 15% of gross assets under the fundamental
policy at section 9 above, it will only do so up to ten percent (10%)
of its net assets in order to comply with state law.
8. The Growth Fund will invest no more than five percent (5%) of total
assets in qualified repurchase agreements and will not enter into a
repurchase Agreement for a period longer than 7 days.
9. The Growth Fund may purchase as temporary investments for its cash
commercial paper, certificates of deposit, no-load, open-end money
market funds (subject to the fundamental policy limitations set forth
in section 11 above), repurchase agreements (subject to the
non-fundamental policy
-5-
<PAGE> 52
limitations in section 8 above) or any other short-term instrument that
SAM deems appropriate.
10. The Growth Fund may invest up to 5% of net assets in warrants, but will
limit investments in warrants which are not listed on the New York or
American Stock Exchange to no more than two percent (2%) of net assets.
Warrants acquired as a result of unit offerings or attached to
securities may be deemed without value for purposes of the 5%
limitation.
11. The Growth Fund may invest up to 10% of its total assets in contingent
value rights.
12. The Growth Fund may invest up to 10% of its total assets in shares of
real estate investment trusts.
13. The Growth Fund may invest up to 5% of its net assets (taken at market
value) in illiquid securities or restricted securities (other than
restricted securities eligible for resale under Rule 144A).
INVESTMENT POLICIES OF THE EQUITY FUND
FUNDAMENTAL INVESTMENT POLICIES
The Equity Fund has adopted the following fundamental investment policies. The
Equity Fund will NOT:
1. Purchase the securities of any issuer (except the U.S. government, its
agencies and instrumentalities) if as a result more than 5% of the
value of the Equity Fund's total assets would be invested in the
securities of such issuer, except that up to 25% of the value of the
Fund's assets (which 25% shall not include securities issued by another
investment company) may be invested without regard to this 5%
limitation.
2. Purchase securities of any issuer, if such purchase at the time thereof
would cause more than 10% of the outstanding voting securities of such
issuer to be held by the Equity Fund.
3. Make short sales of securities or purchase securities on margin, except
for such short-term credits as are necessary for the clearance of
transactions and where the Equity Fund has at the time of sale, by
virtue of its ownership in other securities, the right to obtain
securities equivalent in kind and amount to the securities sold.
4. Purchase securities (other than obligations issued or guaranteed by the
United States government, its agencies or instrumentalities) if as a
result more than 25% of the Equity Fund's total assets would be
invested in one industry (governmental issues of securities are not
considered part of any one industry).
5. Make loans, except through the purchase of a portion or all of an issue
of debt or money market securities in accordance with the Equity Fund's
investment objective, policies and restrictions or through investments
in qualified repurchase agreements; provided, however, that the Equity
Fund shall not invest more than 10% of its total assets in qualified
repurchase agreements or through qualified loan agreements.
-6-
<PAGE> 53
6. Borrow money, except from a bank or affiliates of SAFECO Corporation at
an interest rate not greater than that available to the Equity Fund
from commercial banks for temporary or emergency purposes and not for
investment purposes. The Equity Fund will not purchase securities if
borrowings in excess of 5% of the Fund's total assets are outstanding.
7. Purchase shares of registered investment companies other than real
estate investment trusts.
8. Underwrite any issue of securities, except to the extent that the
purchase of permitted investments directly from the issuer in
accordance with the Equity Fund's investment objective, policies and
restrictions and the subsequent disposition thereof may be deemed to be
an underwriting, or the later disposition of restricted securities
acquired within the limits imposed on the acquisition of such
securities may be deemed to be an underwriting.
9. Purchase or sell real estate (except real estate investment trusts),
commodities, commodity contracts or futures contracts. This limitation
is intended to include ownership of real estate through limited
partnerships.
10. Purchase any security for the purpose of acquiring or exercising
control or management of the issuer.
11. Purchase puts, calls, straddles, spreads or any combination thereof;
provided, however, that nothing herein shall prevent the purchase,
ownership, holding or sale of warrants where the grantor of the
warrants is the issuer of the underlying securities.
12. Issue or sell any senior securities, except that this restriction shall
not be construed to prohibit the Equity Fund from borrowing funds
(i) on a temporary basis as permitted by Section 18(g) of the 1940 Act
or (ii) from any bank provided, that immediately after such borrowing,
there is an asset coverage of at least 300% for all such borrowings and
provided, further, that in the event that such asset coverage shall at
any time fall below 300%, the Equity Fund shall, within 3 days
thereafter (not including Sundays and holidays), or such longer period
as the Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to an extent that the
asset coverage of such borrowings shall be at least 300%; for purposes
of this restriction, the terms "senior security" and "asset coverage"
shall be understood to have the meaning assigned to those terms in
Section 18 of the 1940 Act.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Equity Fund has adopted the following non-fundamental policies with respect
to its investment activities:
1. The Equity Fund will not participate on a joint or joint and several
basis in any trading account in securities, except that the Equity Fund
may, for the purpose of seeking better net results on portfolio
transactions or lower brokerage commission rates, join with other
transactions executed by the Fund's investment adviser or the
investment adviser's parent company and any subsidiary thereof.
-7-
<PAGE> 54
2. The Equity Fund will not purchase securities of any issuer which with
its predecessors has been in operation less than three years, if such
purchase would cause more than 5% of the Equity Fund's total assets to
be invested in such issuers.
3. The Equity Fund will not trade in foreign currency, except as may be
necessary to convert the proceeds of the sale of foreign portfolio
securities into U.S. dollars.
4. The Equity Fund will not purchase securities with unlimited liability,
e.g., securities the holder of which may be assessed for amounts in
addition to the subscription or other price paid for the security.
5. The Equity Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.
6. The Equity Fund will not pledge, mortgage, or hypothecate its portfolio
securities to the extent that, at any time, the percentage of pledged
securities at market value will exceed 10% of its net assets.
7. The Equity Fund will invest no more than 5% of total assets in
qualified repurchase agreements and will not enter into a repurchase
Agreement for a period longer than 7 days.
8. The Equity Fund may purchase as temporary investments for its cash
commercial paper, certificates of deposit, repurchase agreements
(subject to the non-fundamental policy limitations in section 7) or any
other short-term instrument SAM deems appropriate.
9. The Equity Fund may invest up to 5% of net assets in warrants purchased
at the lower of market or cost, but will limit investments in warrants
which are not listed on the New York or American Stock Exchange to no
more than 2% of net assets. Warrants acquired as a result of unit
offerings or attached to securities may be deemed without value for
purposes of the 5% limitation.
10. The Equity Fund may invest up to 10% of its total assets in shares of
real estate investment trusts.
11. The Equity Fund may invest up to 10% of its total assets in restricted
securities eligible for resale under Rule 144A, provided that SAM has
determined that such securities are liquid under guidelines adopted by
the Board of Trustees.
12. The Equity Fund may invest in securities convertible into common stock,
but less than 35% of its total assets will be invested in such
securities.
13. The Equity Fund may purchase foreign securities, provided that such
purchase at the time thereof would not cause more than ten percent
(10%) of the total assets of the Equity Fund taken at market value to
be invested in foreign securities.
-8-
<PAGE> 55
INVESTMENT POLICIES OF THE INCOME FUND
FUNDAMENTAL POLICIES
The Income Fund has adopted the following fundamental investment policies. The
Income Fund will NOT:
1. Purchase the securities of any issuer (except the U.S. government, its
agencies or instrumentalities) if as a result more than 5% of the value
of its total assets would be invested in the securities of such issuer,
except that up to 25% of the value of such assets (which 25% shall not
include securities issued by another investment company) may be
invested without regard to this 5% limitation.
2. Purchase securities of any issuer, if such purchase at the time thereof
would cause more than 10% of any class of securities of such issuer to
be held by the Income Fund.
3. Purchase securities of companies which have a record of less than three
years of continuous operation (including in such three years the
operation of any predecessor company or companies, partnerships, or
individual proprietorship, if the company whose securities are to be
purchased by the Income Fund has come into existence as a result of a
merger, consolidation, reorganization or purchase of substantially all
of the assets of such predecessor company or companies, partnership, or
individual proprietorship), if such purchase at the time thereof would
cause more than 5% of the Income Fund's assets to be invested in the
securities of such companies.
4. Concentrate its investments in particular industries or companies, but
shall maintain substantial diversification of its investments among
industries and, to the extent deemed practicable by management, among
companies within particular industries; in no event shall the Income
Fund invest more than 25% of its assets in any one industry.
5. Purchase securities on margin, except for short-term credits as are
necessary for the clearance of transactions.
6. Make short sales (sales of securities not presently owned), except
where the Income Fund has at the time of sale, by virtue of its
ownership in other securities, the right to obtain securities
equivalent in kind and amount to the securities sold.
7. Make loans to any person, firm or corporation, but the purchase of a
portion of an issue of publicly distributed bonds, debentures or other
securities issued by persons other than the Income Fund, whether or not
the purchase was made upon the original issue of the securities, shall
not be considered as a loan within the prohibition of this section.
8. Borrow money, except from banks or affiliates of SAFECO Corporation at
an interest rate not greater than that available to the Income Fund
from commercial banks as a temporary measure for extraordinary or
emergency purposes and in amounts not in excess of 20% of its total
assets (including borrowings) less liabilities (other than borrowings)
immediately after such borrowing. The Fund will not purchase securities
if borrowings in excess of 5% of the Fund's total assets are
outstanding.
-9-
<PAGE> 56
9. Pledge, mortgage or hypothecate assets taken at market to an extent
greater than 15% of its gross assets taken at cost.
10. Purchase for nor retain in its portfolio securities issued by any
issuer, any of whose officers, directors or security holders is an
officer or director of the Income Fund, if or so long as the officers
or directors of the Income Fund together own beneficially more than
five percent (5%) of any class of the securities of such issuer.
11. Purchase securities issued by any other investment company or
investment trust, except by purchase in the open market where no
commission or profit to a broker or dealer results from such purchase,
other than the customary broker's commissions, or except where such
purchase, although not made in the open market, is part of a plan of
merger or consolidation. Such purchases in the open market shall be
limited to not more than five percent (5%) of the value of the Income
Fund's total assets. Nothing in this section or in sections 1 or 2
above shall prevent any purchase for the purpose of effecting a merger,
consolidation or acquisition of assets.
12. Underwrite securities issued by any other person, firm or corporation;
however the Income Fund may be deemed a statutory underwriter as that
term is defined in the 1940 Act and the Securities Act of 1933 in
connection with the disposition of any unmarketable or restricted
securities which it may acquire and hold in its portfolio.
13. Buy or sell real estate, (except real estate investment trusts)
commodities, commodity contracts or futures contracts.
14. Participate, on a joint or joint and several basis, in any trading
account in securities.
15. Purchase foreign securities, unless (a) such securities are listed on a
national securities exchange, and (b) such purchase at the time thereof
would not cause more than 10% of the total assets of the Income Fund
(taken at market value) to be invested in foreign securities.
16. Issue or sell any senior security, except that this restriction shall
not be construed to prohibit the Income Fund from borrowing funds (I)
on a temporary basis as permitted by Section 18(g) of the 1940 Act or
(ii) from any bank provided, that immediately after such borrowing,
there is an asset coverage of at least 300% for all such borrowings and
provided, further, that in the event that such asset coverage shall at
any time fall below 300%, the Income Fund shall, within three (3) days
thereafter (not including Sundays and holidays), or such longer period
as the Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to an extent that the
asset coverage of such borrowings shall be at least 300%. For purposes
of this restriction, the terms "senior security" and "asset coverage"
shall be understood to have the meaning assigned to those terms in
Section 18 of the 1940 Act.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Income Fund has adopted the following non-fundamental policies with respect
to its investment activities:
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1. The Income Fund will not buy or sell foreign exchange, except as
necessary to convert the proceeds of the sale of foreign portfolio
securities into U.S. dollars.
2. The Income Fund will not issue long-term debt securities.
3. Although the Income Fund has the right to pledge, mortgage or
hypothecate its assets up to 15% of gross assets under the fundamental
policy at section 9 above, it will only do so up to 10% of its net
assets.
4. The Income Fund will not invest in any security for the purpose of
acquiring or exercising control or management of the issuer.
5. The Income Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.
6. The Income Fund will not invest in puts, calls, straddles, spreads or
any combinations thereof.
7. The Income Fund will not invest in securities with unlimited liability,
e.g., securities the holder of which may be assessed for amounts in
addition to the subscription or other price paid for the security.
8. The Income Fund will invest no more than 5% of total assets in
qualified repurchase agreements and will not enter into a repurchase
Agreement for a period longer than 7 days.
9. The Income Fund will invest primarily in common stock and may also
invest in convertible and non-convertible bonds and preferred stock.
10. The Income Fund may purchase as temporary investments for its cash
commercial paper, certificates of deposit, no-load, open-end money
market funds (subject to the fundamental policy limitations set forth
in section 11 above), repurchase agreements (subject to the
non-fundamental policy limitations in section 8 above) or any other
short-term instrument SAM deems appropriate.
11. The Income Fund may invest up to 5% of net assets in warrants, but will
limit investments in warrants which are not listed on the New York or
American Stock Exchange to no more than 2% of net assets. Warrants
acquired as a result of unit offerings or attached to securities may be
deemed without value for purposes of the 5% limitation.
12. The Income Fund may invest up to 10% of its total assets in shares of
real estate investment trusts.
13. The Income Fund may invest up to 10% of its total assets in restricted
securities eligible for resale under Rule 144A, provided that SAM has
determined that such securities are liquid under guidelines adopted by
the Board of Trustees.
INVESTMENT POLICIES OF THE NORTHWEST FUND
FUNDAMENTAL POLICIES
The Northwest Fund has adopted the following fundamental investment policies.
The Northwest Fund will NOT:
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1. Purchase the securities of any issuer (except the U.S. government, its
agencies or instrumentalities) if as a result more than 5% of the value
of its total assets at the time of purchase would be invested in the
securities of such issuer, except that up to 25% of the Fund's total
assets (which 25% shall not include securities issued by another
investment company) may be invested without regard to this 5%
limitation.
2. Purchase the securities of any issuer if, as a result, more than 10% of
any class of securities of such issuer will be owned by the Fund.
3. Concentrate its investments in particular industries (other than
obligations issued or guaranteed by the U.S. government, its agencies
or instrumentalities) or invest 25% or more of the Fund's total assets
in any one industry (governmental issues of securities are not
considered part of one industry).
4. Purchase securities on margin, except for short-term credits necessary
for the clearance of transactions.
5. Make short sales (sales of securities not presently owned).
6. Make loans, except through the purchase of a portion or all of an issue
of debt securities in accordance with the Northwest Fund's investment
objective, policies and restrictions or through the purchase of
qualified repurchase agreements.
7. Borrow money, except from a bank or SAFECO Corporation or its
affiliates at an interest rate not greater than that available to the
Northwest Fund from commercial banks, for temporary or emergency
purposes and not for investment purposes, and then only in an amount
not exceeding 20% of the value of the Fund's total assets at the time
of borrowing. The Northwest Fund will not purchase securities if
borrowings in excess of 5% of the Fund's total assets are outstanding.
8. Pledge, mortgage or hypothecate its assets, except that, to secure
borrowings permitted by section 7 above, the Northwest Fund may pledge
securities having a market value at the time of pledge not exceeding
10% of the Fund's total assets.
9. Purchase or retain for its portfolio the securities of any issuer, if,
to the Northwest Fund's knowledge, the officers or directors of the
Fund, or its investment adviser, who individually own more than 1/2 of
1% of the outstanding securities of such an issuer, together own more
than 5% of such outstanding securities.
10. Underwrite any issue of securities, except to the extent that the
purchase of permitted investments directly from the issuer in
accordance with the Northwest Fund's investment objective, policies and
restrictions and the subsequent disposition thereof may be deemed to be
underwriting, or the later disposition of restricted securities
acquired within the limits imposed on the acquisition of such
securities may be deemed to be an underwriting.
11. Purchase or sell real estate, except real estate investment trusts.
12. Purchase or sell commodities, commodity contracts or futures contracts.
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<PAGE> 59
13. Participate, on a joint or joint-and-several basis, in any trading
account in securities, except that the Northwest Fund may join with
other transactions executed by the investment adviser or the investment
adviser's parent company and any subsidiary thereof, for the purpose of
seeking better net results on portfolio transactions or lower brokerage
commission rates.
14. Issue or sell any senior security, except that this restriction shall
not be construed to prohibit the Northwest Fund from borrowing funds
(I) on a temporary basis as permitted by Section 18(g) of the 1940 Act
or (ii) from any bank provided, that immediately after such borrowing,
there is an asset coverage of at least 300% for all such borrowings and
provided, further, that in the event that such asset coverage shall at
any time fall below 300%, the Northwest Fund shall, within 3 days
thereafter (not including Sundays and holidays), or such longer period
as the Securities and Exchange Commission may prescribe by rules and
regulations, reduce the amount of its borrowings to an extent that the
asset coverage of such borrowings shall be at least 300%. For purposes
of this restriction, the terms "senior security" and "asset coverage"
shall be understood to have the meaning assigned to those terms in
Section 18 of the 1940 Act.
15. Purchase from, or sell portfolio securities to, any officer or
director, the Northwest Fund's investment adviser, principal
underwriter or any affiliates or subsidiaries thereof, provided,
however, that this prohibition shall not prohibit the Northwest Fund
from purchasing with the $5,000,000 raised through the sale of 500,000
shares of common stock to SAFECO Insurance Company of America,
portfolio securities from subsidiaries of SAFECO Corporation prior to
its effective date.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Northwest Fund has adopted the following policies with respect to its
investment activities:
1. The Northwest Fund will not buy or sell foreign exchange, except as may
be necessary to invest the proceeds of the sale of foreign securities
in the Fund's portfolio in U.S. dollars.
2. The Northwest Fund will not issue long-term debt securities.
3. The Northwest Fund will not invest in any security for the purpose of
acquiring or exercising control or management of the issuer.
4. The Northwest Fund will not invest in oil, gas or other mineral
exploration or development programs.
5. The Northwest Fund will not invest in puts, calls, straddles, spreads
or any combinations thereof.
6. The Northwest Fund will not invest more than 5% of its total assets in
securities of companies (including predecessor companies) having a
record of less than 3 continuous operation.
7. The Northwest Fund will not invest in securities with unlimited
liability, e.g., securities the holder of which may be assessed for
amounts in addition to the subscription or other price paid for the
security.
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8. The Northwest Fund will not invest more than 10% of its total assets in
qualified repurchase agreements and will not invest in qualified
repurchase agreements maturing in more than 7 days.
9. The Northwest Fund will not purchase the securities of any other
investment company or investment trust, except by purchase in the open
market where no commission or profit to a broker or dealer results from
such purchase other than the customary broker's commissions, or except
as part of a merger, consolidation or acquisition. The Fund shall not
invest more than 10% of its total assets in shares of other investment
companies nor invest more than 5% of its total assets in a single
investment company.
10. The Northwest Fund may invest in shares of common stock selected
primarily for potential appreciation.
11. The Northwest Fund may occasionally invest in securities convertible
into common stock when, in the opinion of SAM, the expected total
return of a convertible security exceeds the expected total return of
common stock eligible for purchase by the Fund.
12. The Northwest Fund may invest up to 5% of its net assets in warrants,
but shall limit investments in warrants which are not listed on the New
York or American Stock Exchange to no more than 2% of net assets.
Warrants acquired as a result of unit offerings or attached to
securities may be deemed without value for purposes of the 5%
limitation.
13. The Northwest Fund may purchase as temporary investments for its cash
commercial paper, certificates of deposit, shares of no-load, open-end
money market funds (subject to the percentage limitations set forth in
section 9 above), repurchase agreements (subject to the limitations set
forth in section 8 above) or any other short-term instrument that SAM
deems appropriate.
14. The Northwest Fund shall not engage primarily in trading for short-term
profits, but it may from time to time make investments for short-term
purposes when such action is believed to be desirable and consistent
with sound investment policy. The Fund may dispose of securities
whenever its adviser deems advisable without regard to the length of
time they have been held.
15. The Northwest Fund may invest up to 10% of its total assets in
restricted securities eligible for resale under Rule 144A, provided
that SAM has determined that such securities are liquid under
guidelines adopted by the Board of Trustees.
16. The Northwest Fund may purchase foreign securities, provided that such
purchase, at the time thereof, would not cause more than 10% of the
total assets of the Northwest Fund (at market value) to be invested in
foreign securities.
INVESTMENT POLICIES OF THE BALANCED FUND
FUNDAMENTAL POLICIES
The Balanced Fund has adopted the following fundamental investment policies.
The Balanced Fund will NOT:
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1. Purchase the securities of any issuer (except the United States
Government, its agencies or instrumentalities) if as a result more than
5% of the value of the Balanced Fund's total assets would be invested
in the securities of such issuer or the Balanced Fund would own or hold
more than 10% of the outstanding voting securities of such issuer),
except that up to 25% of the value of such assets (which 25% shall not
include securities issued by another investment company) may be
invested without regard to these limits;
2. Borrow money, except the Balanced Fund may borrow money for temporary
and emergency purposes (not for leveraging or investment purposes) in
an amount not exceeding 33 1/3% of its total assets (including the
amount borrowed) less liabilities (other than borrowings). Any
borrowings by the Fund that come to exceed this amount shall be reduced
within three days (not including Sundays and holidays) to the extent
necessary to comply with the 33 1/3% limit;
3. Act as underwriter of securities issued by any other person, firm or
corporation; except to the extent that, in connection with the
disposition of portfolio securities, the Balanced Fund may be deemed an
underwriter under federal securities laws;
4. Issue senior securities, except as permitted under the 1940 Act;
5. Purchase the securities of any issuer (except the United States
Government, its agencies or instrumentalities) if, as a result, more
than 25% of the Balanced Fund's total assets would be invested in
securities of companies whose principal business activities are in the
same industry;
6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; however, the Balanced
Fund may purchase or sell options or futures contracts and invest in
securities or other instruments backed by physical commodities; and
7. Lend any security or make any loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties; however, this limit
does not apply to purchases of debt securities or to repurchase
agreements.
NON-FUNDAMENTAL INVESTMENT POLICIES
The Balanced Fund has adopted the following non-fundamental policies with
respect to its investment activities:
1. The Balanced Fund will not purchase securities of companies which
together with any predecessors have a record of less than 3 years of
continuous operation, if such purchase at the time thereof would cause
more than 5% of the Fund's total assets to be invested in the
securities of such companies.
2. The Balanced Fund will not make short sales (sales of securities not
presently owned), except where the Fund has at the time of sale, by
virtue of its ownership in other securities, the right to obtain
securities equivalent in kind and amount to the securities to be sold.
3. The Balanced Fund will not purchase securities issued by any other
investment company, except by purchase in the open market where no
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<PAGE> 62
commission or profit to a broker or dealer results from such purchase,
other than the customary broker's commissions, or except when such
purchase, although not made in the open market, is part of a merger,
consolidation or acquisition. Nothing in this policy shall prevent any
purchase for the purpose of effecting a merger, consolidation or
acquisition of assets expressly approved by the shareholders after full
disclosure of any commission or profit to the principal underwriter.
4. The Balanced Fund will not invest in oil, gas or other mineral
exploration, development programs or leases.
5. The Balanced Fund will not invest more than 5% of its net assets in
warrants. Included in that amount, but not to exceed 2% of net assets,
are warrants whose underlying securities are not traded on principal
domestic or foreign exchanges. Warrants acquired by the Fund in units
or attached to securities are not subject to these limits.
6. The Balanced Fund will not invest in interests in real estate
investment trusts that are not readily marketable or interests in real
estate limited partnerships not listed or trade on NASDAQ National
Market System if, as a result, the sum of such interests considered
illiquid and other illiquid securities would exceed 15% of the Fund's
net assets.
7. The Balanced Fund will not purchase securities on margin, except that
the Fund may obtain such short-term credits as are necessary for the
clearance of transactions, and provided that margin payments made in
connection with futures contracts and options on futures shall not
constitute purchasing securities on margins.
8. The Balanced Fund may borrow money only from a bank or SAFECO
Corporation or affiliates thereof or by engaging in reverse repurchase
agreements with any party. The Fund will not purchase any securities
while borrowings are outstanding that represent more than 5% of its
total assets.
9. The Balanced Fund will not purchase any security, if as a result, more
than 15% of its net assets would be invested in securities that are
deemed to be illiquid because they are subject to legal or contractual
restrictions on resale or because they cannot be sold or disposed of in
the ordinary course of business at approximately the prices at which
they are valued.
10. The Balanced Fund will not make loans to any person, firm or
corporation, but the purchase by the Fund of a portion of an issue of
publicly distributed bonds, debentures or other securities issued by
persons other than the Fund, whether or not the purchase was made upon
the original issue of securities, shall not be considered a loan within
the prohibition of this section.
11. The Balanced Fund will not purchase or retain the securities of any
issuer if, to the knowledge of the Fund's management, the officers and
Trustees of the SAFECO Common Stock Trust and the officers and
directors of the investment adviser to the Fund (each owning
beneficially more than 0.5% of the outstanding securities of an issuer)
own in the aggregate 5% or more of the securities of the issuer.
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<PAGE> 63
INVESTMENT POLICIES OF THE INTERNATIONAL FUND
FUNDAMENTAL POLICIES
The International Fund has adopted the following fundamental investment
policies. The International Fund will NOT:
1. Purchase the securities of any issuer (except the United States
Government, its agencies or instrumentalities) if as a result more than
5% of the value of the International Stock Fund's total assets would be
invested in the securities of such issuer or the International Stock
Fund would own or hold more than 10% of the outstanding voting
securities of such issuer), except that up to 25% of the value of such
assets (which 25% shall not include securities issued by another
investment company) may be invested without regard to these limits;
2. Borrow money, except the International Stock Fund may borrow money for
temporary and emergency purposes (not for leveraging or investment
purposes) in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings). Any borrowings by the Fund that come to exceed this amount
shall be reduced within three days (not including Sundays and holidays)
to the extent necessary to comply with the 33 1/3% limit;
3. Act as underwriter of securities issued by any other person, firm or
corporation; except to the extent that, in connection with the
disposition of portfolio securities, the International Stock Fund may
be deemed an underwriter under federal securities laws;
4. Issue senior securities, except as permitted under the 1940 Act;
5. Purchase the securities of any issuer (except the United States
Government, its agencies or instrumentalities) if, as a result, more
than 25% of the International Stock Fund's total assets would be
invested in securities of companies whose principal business activities
are in the same industry;
6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; however, the
International Stock Fund may purchase or sell options or futures
contracts and invest in securities or other instruments backed by
physical commodities; and
7. Lend any security or make any loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties; however, this limit
does not apply to purchases of debt securities or to repurchase
agreements.
NON-FUNDAMENTAL INVESTMENT POLICIES
The International Fund has adopted the following non-fundamental policies with
respect to its investment activities:
1. The International Stock Fund will not purchase securities of companies
which together with any predecessors have a record of less than 3 years
of continuous operation, if such purchase at the time thereof would
cause more than 5% of the Fund's total assets to be invested in the
securities of such companies.
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<PAGE> 64
2. The International Stock Fund will not make short sales (sales of
securities not presently owned), except where the Fund has at the time
of sale, by virtue of its ownership in other securities, the right to
obtain securities equivalent in kind and amount to the securities to be
sold.
3. The International Stock Fund will not purchase securities issued by any
other investment company, except by purchase in the open market where
no commission or profit to a broker or dealer results from such
purchase, other than the customary broker's commissions, or except when
such purchase, although not made in the open market, is part of a
merger, consolidation or acquisition. Nothing in this policy shall
prevent any purchase for the purpose of effecting a merger,
consolidation or acquisition of assets expressly approved by the
shareholders after full disclosure of any commission or profit to the
principal underwriter.
4. The International Stock Fund will not invest in oil, gas or other
mineral exploration, development programs or leases.
5. The International Stock Fund will not invest more than 5% of its net
assets in warrants. Included in that amount, but not to exceed 2% of
net assets, are warrants whose underlying securities are not traded on
principal domestic or foreign exchanges. Warrants acquired by the Fund
in units or attached to securities are not subject to these limits.
6. The International Stock Fund will not invest in interests in real
estate investment trusts that are not readily marketable or interests
in real estate limited partnerships not listed or trade on NASDAQ
National Market System if, as a result, the sum of such interests
considered illiquid and other illiquid securities would exceed 15% of
the Fund's net assets.
7. The International Stock Fund will not purchase securities on margin,
except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments made in connection with futures contracts and options on
futures shall not constitute purchasing securities on margins.
8. The International Stock Fund may borrow money only from a bank or
SAFECO Corporation or affiliates thereof or by engaging in reverse
repurchase agreements with any party. The Fund will not purchase any
securities while borrowings are outstanding that represent more than 5%
of its total assets.
9. The International Stock Fund will not purchase any security, if as a
result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the
prices at which they are valued.
10. The International Stock Fund will not make loans to any person, firm or
corporation, but the purchase by the Fund of a portion of an issue of
publicly distributed bonds, debentures or other securities issued by
persons other than the Fund, whether or not the purchase was made upon
the original issue of securities, shall not be considered a loan within
the prohibition of this section.
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<PAGE> 65
11. The International Stock Fund will not purchase or retain the securities
of any issuer if, to the knowledge of the Fund's management, the
officers and Trustees of the SAFECO Common Stock Trust and the officers
and directors of the investment adviser to the Fund (each owning
beneficially more than 0.5% of the outstanding securities of an issuer)
own in the aggregate 5% or more of the securities of the issuer.
INVESTMENT POLICIES OF THE SMALL COMPANY FUND
FUNDAMENTAL POLICIES
The Small Company Fund has adopted the following fundamental investment
policies. The Small Company Fund will NOT:
1. Purchase the securities of any issuer (except the United States
Government, its agencies or instrumentalities) if as a result more than
5% of the value of the Small Company Stock Fund's total assets would be
invested in the securities of such issuer or the Small Company Stock
Fund would own or hold more than 10% of the outstanding voting
securities of such issuer), except that up to 25% of the value of such
assets (which 25% shall not include securities issued by another
investment company) may be invested without regard to these limits;
2. Borrow money, except the Small Company Stock Fund may borrow money for
temporary and emergency purposes (not for leveraging or investment
purposes) in an amount not exceeding 33 1/3% of its total assets
(including the amount borrowed) less liabilities (other than
borrowings). Any borrowings by the Fund that come to exceed this amount
shall be reduced within three days (not including Sundays and holidays)
to the extent necessary to comply with the 33 1/3% limit;
3. Act as underwriter of securities issued by any other person, firm or
corporation; except to the extent that, in connection with the
disposition of portfolio securities, the Small Company Stock Fund may
be deemed an underwriter under federal securities laws;
4. Issue senior securities, except as permitted under the 1940 Act;
5. Purchase the securities of any issuer (except the United States
Government, its agencies or instrumentalities) if, as a result, more
than 25% of the Small Company Stock Fund's total assets would be
invested in securities of companies whose principal business activities
are in the same industry;
6. Purchase or sell physical commodities unless acquired as a result of
ownership of securities or other instruments; however, the Small
Company Stock Fund may purchase or sell options or futures contracts
and invest in securities or other instruments backed by physical
commodities; and
7. Lend any security or make any loan if, as a result, more than 33 1/3%
of its total assets would be lent to other parties; however, this limit
does not apply to purchases of debt securities or to repurchase
agreements.
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NON-FUNDAMENTAL INVESTMENT POLICIES
The Small Company Fund has adopted the following non-fundamental policies with
respect to its investment activities:
1. The Small Company Stock Fund will not make short sales (sales of
securities not presently owned), except where the Fund has at the time
of sale, by virtue of its ownership in other securities, the right to
obtain securities equivalent in kind and amount to the securities to be
sold.
2. The Small Company Stock Fund will not purchase securities issued by any
other investment company, except by purchase in the open market where
no commission or profit to a broker or dealer results from such
purchase, other than the customary broker's commissions, or except when
such purchase, although not made in the open market, is part of a
merger, consolidation or acquisition. Nothing in this policy shall
prevent any purchase for the purpose of effecting a merger,
consolidation or acquisition of assets expressly approved by the
shareholders after full disclosure of any commission or profit to the
principal underwriter.
3. The Small Company Stock Fund will not invest in oil, gas or other
mineral exploration, development programs or leases.
4. The Small Company Stock Fund will not invest more than 5% of its net
assets in warrants. Included in that amount, but not to exceed 2% of
net assets, are warrants whose underlying securities are not traded on
principal domestic or foreign exchanges. Warrants acquired by the Fund
in units or attached to securities are not subject to these limits.
5. The Small Company Stock Fund will not invest in interests in real
estate investment trusts that are not readily marketable or interests
in real estate limited partnerships not listed or trade on NASDAQ
National Market System if, as a result, the sum of such interests
considered illiquid and other illiquid securities would exceed 15% of
the Fund's net assets.
6. The Small Company Stock Fund will not purchase securities on margin,
except that the Fund may obtain such short-term credits as are
necessary for the clearance of transactions, and provided that margin
payments made in connection with futures contracts and options on
futures shall not constitute purchasing securities on margins.
7. The Small Company Stock Fund may borrow money only from a bank or
SAFECO Corporation or affiliates thereof or by engaging in reverse
repurchase agreements with any party. The Fund will not purchase any
securities while borrowings are outstanding that represent more than 5%
of its total assets.
8. The Small Company Stock Fund will not purchase any security, if as a
result, more than 15% of its net assets would be invested in securities
that are deemed to be illiquid because they are subject to legal or
contractual restrictions on resale or because they cannot be sold or
disposed of in the ordinary course of business at approximately the
prices at which they are valued.
9. The Small Company Stock Fund will not make loans to any person, firm or
corporation, but the purchase by the Fund of a portion of an issue of
publicly distributed bonds, debentures or other securities issued by
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persons other than the Fund, whether or not the purchase was made upon
the original issue of securities, shall not be considered a loan within
the prohibition of this section.
10. The Small Company Stock Fund will not purchase or retain the securities
of any issuer if, to the knowledge of the Fund's management, the
officers and Trustees of the SAFECO Common Stock Trust and the officers
and directors of the investment adviser to the Fund (each owning
beneficially more than 0.5% of the outstanding securities of an issuer)
own in the aggregate 5% or more of the securities of the issuer.
ADDITIONAL INVESTMENT INFORMATION
Each Fund may make the following investments, among others, although they may
not buy all of the types of securities that are described.
1. RESTRICTED SECURITIES AND RULE 144A SECURITIES. Restricted securities
are securities that may be sold only in a public offering with respect
to which a registration statement is in effect under the 1933 Act or,
if they are unregistered, in a privately negotiated transaction or
pursuant to an exemption from registration. In recognition of the
increased size and liquidity of the institutional markets for
unregistered securities and the importance of institutional investors
in the formation of capital, the Securities and Exchange Commission
("SEC") has adopted Rule 144A under the 1933 Act, which is designed to
further facilitate efficient trading among institutional investors by
permitting the sale of Rule 144A securities to qualified institutional
buyers. To the extent privately placed securities held by a Fund
qualify under Rule 144A and an institutional market develops for those
securities, the Fund likely will be able to dispose of the securities
without registering them under the 1933 Act. SAM, acting under
guidelines established by the Trust's Board of Trustees, may determine
that certain securities qualified for trading under Rule 144A are
liquid.
Where registration is required, a Fund may be obligated to pay all or
part of the registration expenses, and a considerable period may elapse
between the decision to sell and the time the Fund may be permitted to
sell a security under an effective registration statement. If, during
such a period, adverse market conditions were to develop, the Fund
might obtain a less favorable price than prevailed when it decided to
sell. To the extent privately placed securities are illiquid, purchases
thereof will be subject to any limitations on investments in illiquid
securities. Restricted securities for which no market exists are priced
at fair value as determined in accordance with procedures approved and
periodically reviewed by the Trust's Board of Trustees.
2. WARRANTS. A warrant is an option issued by a corporation that gives
the holder the right to buy a stated number of shares of common stock
of the corporation at a specified price within a designated time
period. Warrants may be purchased and sold separately or attached to
stocks or bonds as part of a unit offering. The term of a warrant may
run from two to five years and in some cases the term may be longer.
The exercise price carried by the warrant is usually well above the
prevailing market price of the underlying common stock at the time the
warrant is issued. The holder of a warrant has no voting rights and
receives no dividends. Warrants are freely transferable and may trade
on the major national exchanges.
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Warrants may be speculative. Generally, the value of a warrant will
fluctuate by greater percentages than the value of the underlying
common stock. The primary risk associated with a warrant is that the
term of the warrant may expire before the exercise price of the common
stock has been reached. Under these circumstances, a Fund could lose
all of its principal investment in the warrant.
A Fund will invest in a warrant only if the Fund has the authority to
hold the underlying common stock. Additionally, if a warrant is part of
a unit offering, a Fund will purchase the warrant only if it is
attached to a security in which the Fund has authority to invest. In
all cases, a Fund will purchase warrants only after SAM determines that
the exercise price for the underlying common stock is likely to be
achieved within the required time-frame and for which an actively
traded market exists. SAM will make this determination by analyzing the
issuer's financial health, quality of management and any other factors
deemed to be relevant.
3. REPURCHASE AGREEMENTS. In a repurchase agreement, a Fund and the
seller agree at the time of sale to the repurchase of a security at a
mutually agreed upon time and place. The period of maturity is usually
quite short, possibly overnight or a few days, although it may extend
over a number of months. The resale price is in excess of the purchase
price, reflecting an agreed upon market rate effective for the period
of time a Fund's money is invested in the security (which is not
related to the coupon rate of the purchased security). Repurchase
agreements may be considered loans of money to the seller of the
underlying security, which are collateralized by the securities
underlying the repurchase Agreement. A Fund will not enter into a
repurchase agreement unless the agreement is fully collateralized. A
Fund will take possession of the securities underlying the Agreement
and will value them daily to assure that this condition is met. In the
event that a seller defaults on a repurchase agreement, a Fund may
incur loss in the market value of the collateral, as well as
disposition costs; and, if a party with whom a Fund has entered into a
repurchase agreement becomes involved in a bankruptcy proceeding, a
Fund's ability to realize the collateral may be limited or delayed and
a loss may be incurred if the collateral securing the repurchase
Agreement declines in value during the bankruptcy proceeding. Foreign
repurchase agreements may be less well secured than U.S. repurchase
agreements and may be subject to currency risks. In addition, foreign
counterparties may be less creditworthy than U.S. counterparties.
4. COMMERCIAL PAPER AND CERTIFICATES OF DEPOSITS. In making temporary
investments in commercial paper and certificates of deposit, a Fund
will adhere to the following guidelines:
a) Commercial paper must be rated A-1 or A-2 by Standard & Poor's
Rating Group ("S&P") or Prime-1 or Prime-2 by Moody's Investor
Services ("Moody's") or issued by companies with an unsecured
debt issue currently outstanding rated AA by S&P or Aa by
Moody's or higher.
b) Certificates of deposit must be issued by banks or savings and
loan associations that have total assets of at least $1
billion or, in the case of a bank or savings and loan
association not having total assets of at least $1 billion,
the bank or savings and loan association is insured by the
Federal Deposit Insurance Corporation
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in which case the Growth Fund will limit its investment to the
statutory insurance coverage.
5. CONTINGENT VALUE RIGHTS. A contingent value right ("CVR") is a right
issued by a corporation that takes on a pre-established value if the
underlying common stock does not attain a target price by a specified
date. Generally, a CVR's value will be the difference between the
target price and the current market price of the common stock on the
target date. If the common stock does attain the target price by the
date, the CVR expires without value. CVRs may be purchased and sold as
part of the underlying common stock or separately from the stock. CVRs
may also be issued to owners of the underlying common stock as the
result of a corporation's restructuring.
6. REAL ESTATE INVESTMENT TRUSTS ("REITS"). REITs purchase real property,
which is then leased, and make mortgage investments. For federal income
tax purposes REITs attempt to qualify for beneficial tax treatment by
distributing at least 95% of their taxable income. If a REIT is unable
to qualify for such beneficial tax treatment, it would be taxed as a
corporation and distributions to its shareholders would not be
deductible by it in computing its taxable income.
REITs are dependent upon the successful operation of the properties
owned and the financial condition of lessees and mortgagors. The value
of REIT units will fluctuate depending on the underlying value of the
real property and mortgages owned and the amount of cashflow (net
income plus depreciation) generated and paid out. In addition, REITs
typically borrow to increase funds available for investment. Generally
there is a greater risk associated with REITs that are highly
leveraged.
7. ILLIQUID SECURITIES. Illiquid securities are securities that cannot be
sold within seven days in the ordinary course of business for
approximately the amount at which they are valued. Due to the absence
of an active trading market, a Fund may experience difficulty in
valuing or disposing of illiquid securities. SAM determines the
liquidity of the securities under guidelines adopted by the Trust's
Board of Trustees.
8. CONVERTIBLE SECURITIES. Convertible bonds and convertible preferred
stock may be exchanged for a stated number of shares of the issuer's
common stock at a certain price known as the conversion price. The
conversion price is usually greater than the price of the common stock
at the time the convertible security is purchased. Generally, the
interest rate of convertible bonds and the yield of convertible
preferred stock will be lower than the issuer's non-convertible
securities. Also, the value of convertible securities will normally
vary with the value of the underlying common stock and fluctuate
inversely with interest rates. However, convertible securities may show
less volatility in value than the issuer's non-convertible securities.
A risk associated with convertible bonds and convertible preferred
stock is that the conversion price of the common stock will not be
attained.
9. WHEN-ISSUED OR DELAYED-DELIVERY SECURITIES. Under this procedure, a
Fund agrees to acquire securities (whose terms and conditions,
including price, have been fixed by the issuer) that are to be issued
and delivered against payment in the future. Delivery of securities so
sold normally takes place 30 to 45 days (settlement date) after the
date of the commitment. No interest is earned by a Fund prior to the
settlement date. The value
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of securities sold on a "when-issued" or "delayed-delivery" basis may
fluctuate before the settlement date and the Fund bears the risk of
such fluctuation from the date of purchase. A Fund may dispose of its
interest in those securities before delivery.
10. SOVEREIGN DEBT OBLIGATIONS. Sovereign debt instruments are issued or
guaranteed by foreign governments or their agencies. Sovereign debt may
be in the form of conventional securities or other types of debt
instruments such as loans or loan participations. Governments or
governmental entities responsible for repayment of the debt may be
unable or unwilling to repay principal and interest when due, and may
require renegotiation or rescheduling of debt payments. Repayment of
principal and interest may depend also upon political and economic
factors.
11. INDEXED SECURITIES. Indexed securities are securities whose prices are
indexed to the prices of other securities, securities indices,
currencies, commodities or other financial indicators. Indexed
securities generally are debt securities whose value at maturity or
interest rate is determined by reference to a specific instrument or
statistic. Currency-indexed securities generally are debt securities
whose maturity values or interest rates are determined by reference to
values of one or more specified foreign currencies. Currency-indexed
securities may be positively or negatively indexed; i.e., their
maturity value may increase when the specified currency value
increases, resulting in a security that performs similarly to a
foreign-denominated instrument, or their maturity value may decline
when foreign currencies increase, resulting in a security whose price
characteristics are similar to a put on the underlying currency.
Currency-indexed securities may also have prices that depend on the
values of different foreign securities relative to each other.
The performance of an indexed security depends largely on the
performance of the security, currency or other instrument to which they
are indexed. Performance may also be influenced by interest rate
changes in the U.S. and foreign countries. Indexed securities
additionally are subject to credit risks associated with the issuer of
the security. Their values may decline substantially if the issuer's
creditworthiness deteriorates. Indexed securities may also be more
volatile than their underlying instruments.
12. PRIVATE FOREIGN INVESTMENT COMPANIES ("PFICS"). PFICs are funds or
trusts organized as investment vehicles to invest in companies of
certain foreign countries. Investors in a PFIC bear their proportionate
share of the PFIC's management fees and other expenses.
13. SHORT SALES AGAINST THE BOX. A Fund may make short sales of securities
or maintain a short position, provided that at all times when a short
position is open the Fund owns an equal amount of such securities or an
equal amount of the securities of the same issuer as the securities
sold short (a "short sale against the box"). Funds engaging in short
sales against the box will incur transaction costs.
14. OPTIONS ON EQUITY SECURITIES. (International Fund only.) The
International Fund may purchase and write (i.e., sell) put and call
options on equity securities that are traded on national securities
exchanges or that are listed on the National Association of Securities
Dealers Automated Quotation System ("NASDAQ"). A call option is a
short-term contract pursuant to which the purchaser or holder, in
return for a
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premium paid, has the right to buy the equity security underlying the
option at a specified exercise price (the strike price) at any time
during the term of the option. The writer of the call option, who
received the premium, has the obligation, upon exercise of the option,
to deliver the underlying equity security against payment of the strike
price. A put option is a similar contract that gives the purchaser or
holder, in return for a premium, the right to sell the underlying
equity security at a specified exercise price (the strike price) during
the term of the option. The writer of the put, who receives the
premium, has the obligation to buy the underlying equity security at
the strike price upon exercise by the holder of the put.
The Fund will write call options on stocks only if they are covered,
and such options must remain covered so long as the Fund is obligated
as a writer. A call option is "covered" if: the Fund has an immediate
right to acquire that security without additional cash consideration
(or for additional cash consideration held in a segregated account by
its custodian); upon the Fund's conversion or exchange of other
securities held in its portfolio; or the Fund holds a share-for-share
basis a call on the same security as the call written where the strike
price of the call held is equal to or less than the strike price of the
call written or grater than the strike price of the call written if the
difference is maintained by the Fund in cash, Treasury bills or other
liquid high-grade short-term debt obligations in a segregated account
with its custodian.
The Fund will write put options on stocks only if they are covered, and
such options must remain covered so long as the Fund is obligated as a
writer. A put option is "covered" if: the Fund holds in a segregated
account cash, Treasury bills, or other liquid high-grade short-term
debt obligations of a value equal to the strike price; or the Fund
holds on a share-for-share basis a put on the same security as the put
written where the strike price of the put held is equal to or grater
than the strike price of the put written or less than the strike price
of the put written if the difference is maintained by the Fund in cash,
Treasury bills, or other liquid high-grade short-term obligations in a
segregated account with its custodian.
The Fund may purchase "protective puts," i.e., put options acquired for
the purpose of protecting a portfolio security from a decline in market
value. In exchange for the premium paid for the put option, the Fund
acquires the right to sell the underlying security at the strike price
of the put regardless of the extent to which the underlying security
declines in value. The loss to the Fund is limited to the premium paid
for, and transaction costs in connection with, the put plus the initial
excess, if any, of the market price of the underlying security over the
strike price. However, if the market price of the security underlying
the put rises, the profit the Fund realizes on the sale of the security
will be reduced by the premium paid for the put option less any amount
(net of transaction costs) of which the put may be sold.
The Fund does not intend to invest more than 5% of its net assets at
any one time in the purchase of call options on stocks.
If the Fund, as a writer of an option, wishes to terminate the
obligation, it may effect a "closing purchase transaction" by buying an
option of the same series as the option previously written. Similarly,
the holder of an option may liquidate his or her position by exercising
the option or by
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effecting a "closing sale transaction, i.e., selling an option of the
same series as the option previously purchased. The Fund may effect
closing sale and purchase transactions. The Fund will realize a profit
from a closing transaction if the price of the transaction is less than
the premium received from writing the option or is more than the
premium paid to purchase the option. Because increases in the market
price of a call option will generally reflect increases in the market
price of the underlying security, any loss resulting from a closing
purchase transaction with respect to a call option is likely to be
offset in whole or in part by appreciation of the underlying equity
security owned by the Fund. There is no guaranty that closing purchase
or closing sale transactions can be effected.
The Fund's use of options on equity securities is subject to certain
special risks, in addition to the risk that the market value of the
security will move adversely to the Fund's option position. An option
position may be closed out only on an exchange, board of trade or other
trading facility that provides a secondary market for an option of the
same series. Although the Fund will generally purchase or write only
those options for which there appears to be an active secondary market,
there is no assurance that a liquid secondary market on an exchange
will exist for any particular option, or at any particular time, and
for some options no secondary market on an exchange or otherwise may
exist. In such event it might not be possible to effect closing
transactions in particular options, with the result that the Fund would
have to exercise its options in order to realize any profit and would
incur brokerage commissions upon the exercise of such options and upon
the subsequent disposition of the underlying securities acquired
through the exercise of call options or upon the purchase of underlying
securities or the exercise of put options. If the Fund as a covered
call option writer is unable to effect a closing purchase transaction
in a secondary market, it will not be able to sell underlying security
until the option expires or it delivers the underlying security upon
exercise.
Reasons for the absence of a liquid secondary market on an exchange can
include any of the following: (i) there may be insufficient trading
interest in certain options; (ii) restrictions imposed by an exchange
on opening transactions or closing transactions or both; (iii) trading
halts, suspensions or other restrictions may be imposed with respect to
particular classes or series of options or underlying securities; (iv)
unusual or unforeseen circumstances may interrupt normal operations on
an exchange; (v) the facilities of an exchange or a clearing
corporation may not at all times be adequate to handle current trading
volume; or (vi) one or more exchanges could, for economic or other
reasons, decide or be compelled at some future date to discontinue the
trading of options (or a particular class or series of options), in
which event the secondary market on that exchange (or in the class or
series of options) would cease to exist, although outstanding options
on that exchange that had been issued by a clearing corporation as a
result of trades on that exchange would continue to be exercisable in
accordance with their terms. There is no assurance that higher than
anticipated trading activity or other unforeseen events might not, at
times, render certain of the facility of any of the clearing
corporations inadequate, and thereby result in the institution by an
exchange of special procedures that may interfere with the timely
execution of customers' orders.
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15. OPTIONS ON STOCK INDICES. (International Fund only.) The
International Fund may purchase and sell (i.e., write) put and call
options on stock indices traded on national securities exchanges or
listed on NASDAQ. Options on stock indices are similar to options on
stock except that, rather than obtaining the right to take or make
delivery of stock at a specified price, an option on stock index gives
the holder the right to receive, upon exercise of the option, an amount
of cash if the closing level of the stock 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 strike price of the option. The amount of cash is
equal to such difference between the closing price of the index and the
strike price of the option times a specified multiple (the
"multiplier"). If the option is exercised, the writer is obligated, in
return for the premium received, to make delivery of this amount.
Unlike stock options, all settlements are in cash, and gain or loss
depends on price movements in the stock market generally (or in
particular industry or segment of the market) rather than price
movements in individual stocks.
The Fund will write call options on stock indices only if they are
covered, and such options remain covered as long as the Fund is
obligated as a writer. When the Fund writes a call option on a broadly
based stock market index, the Fund will segregate or put into escrow
with its custodian or pledge to a broker as collateral for the option,
cash, Treasury bills or other liquid high-grade short-term debt
obligations, or "qualified securities" (defined below) with a market
value at the time the option is written of not less than 100% of the
current index value times the multiplier times the number of contracts.
A "qualified security" is an equity security that is listed on a
national securities exchange or listed on NASDAQ against which the Fund
has not written a stock call option and that has not been hedged by the
Fund by the sale of stock index futures.
When the Fund writes a call option on an industry or market segment
index, the Fund will segregate or put into escrow with its custodian or
pledge to a broker as collateral for the option, cash, Treasury bills
or other liquid high-grade short-term debt obligations, or at least
five qualified securities, all of which are stocks of issuers in such
industry or market segment, with a market value at the time the option
is written of not less than 100% of the current index value times the
multiplier times the number of contracts. Such stocks will include
stocks wthat represent at least 50% of the weighting of the industry or
market segment index and will represent at least 50% of the portfolio's
holdings in that industry or market segment. No individual security
will represent more than 15% of the amount so segregated, pledged or
escrowed in the case of broadly based stock market stock options or 25%
of such amount in the case of industry or market segment index options.
If at the close of business on any day the market value of such
qualified securities so segregated, escrowed, or pledged falls below
100% of the current index value times the multiplier times the number
of contracts, the fund will so segregate, escrow, or pledge an amount
in cash, Treasury bills, or other liquid high-grade short-term
obligations equal in value to the difference. In addition, when the
Fund writes a call on an index that is in-the-money at the time the
call is written, the Fund will segregate with its custodian or pledge
tot he broker as collateral, cash or U.S. government or other liquid
high-grade short-term debt obligations equal in value to the amount by
which the call is in-the-money times the multiplier
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times the number of contracts. Any amount segregated pursuant to the
foregoing sentence may be applied to the Fund's obligation to segregate
additional amounts in the event that the market value of the qualified
securities falls below 100% of the current index value times the
multiplier times the number of contracts. A call option is also covered
and the Fund need not follow the segregation requirements set forth in
this paragraph if the Fund holds a call on the same index as the call
written where the strike price of the call held is equal to or less
than the strike price of the call written or greater than the strike
price of the call written if the difference is maintained by the Fund
in cash, Treasury bills or other liquid high-grade short-term
obligations in a segregated account with its custodian.
The Fund will write put options on stock indices only if they are
covered, and such options must remain covered so long as the Fund is
obligated as a writer. A put option is covered if the Fund holds in a
segregated account cash, Treasury bills, or other liquid high-grade
short-term debt obligations of a value equal to the strike price times
the multiplier times the number of contracts; or the Fund holds a put
on the same index as the put written where the strike price of the put
held is equal to or greater than the strike price of the put written or
less than the strike price of the put written if the difference is
maintained by the Fund in cash, Treasury bills, or other liquid
high-grade short-term debt obligations in a segregated account with its
custodian.
The Fund does not intend to invest more than 5% of its net assets at
any one time in the purchase of puts and calls on stock indices. The
Fund may effect closing sale and purchase transactions, as described
above in connection with options on equity securities.
The purchase and sale of options on stock indices will be subject to
the same risks as options on equity securities, described above. In
addition, the distinctive characteristics of options on indices create
certain risks that are not present with stock options. Index prices may
be distorted if trading of certain stocks included in the index is
interrupted. Trading in the index options also may be interrupted in
certain circumstances, such as if trading were halted in a substantial
number of stocks included in the index. If this occurred, the Fund
would not be able to close out options that it had purchased or written
and, if restrictions on exercise were imposed, may be unable to
exercise an option it holds, which could result in substantial losses
to the Fund. The Fund generally will purchase or write options only on
stock indices that include a number of stocks sufficient to minimize
the likelihood of a trading halt in options on the index.
Although the markets for certain index option contracts have developed
rapidly, the markets for other index options are still relatively
illiquid. The ability to establish and close out positions on such
options will be subject to the development and maintenance of a liquid
secondary market. It is not certain that this market will develop in
all index options contracts. The Fund will not purchase or sell any
index option contract unless and until Bank of Ireland Asset Management
(U.S.) Limited (the "Sub-Adviser"), the Fund's sub-investment adviser,
believes the market for such options has developed sufficiently that
the risk in connection with such transactions is no greater than the
risk in connection with options on stocks.
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Price movements in the Fund's equity security portfolio probably will
not correlate precisely with movements in the level of the index and,
therefore, in writing a call on a stock index the Fund bears the risk
that the price of the securities held by the Fund may not increase as
much as the index. In such event, the Fund would bear a loss on the
call that is not completely offset by movement in the price of the
Fund's equity securities. It is also possible that the index may rise
when the Fund's securities do not rise in value. If this occurred, the
Fund would experience a loss on the call that is not offset by an
increase in the value of its securities portfolio and might also
experience a loss in its securities portfolio. However, because the
value of a diversified securities portfolio will, over time, tend to
move in the same direction as the market, movements in the value of the
Fund's securities in the opposite direction as the market would be
likely to occur for only a short period or to a small degree.
When the Fund has written a call, there is also a risk that the market
may decline between the time the Fund has a call exercised against it,
at a price which is fixed as of the closing level of the index on the
date of exercise, and the time the Fund is able to sell stocks in its
portfolio. As with stock options, the Fund will not learn that an index
option has been exercised until the day following the exercise date
but, unlike a call on stock where the Fund would be able to deliver the
underlying securities in settlement, the Fund may have to sell part of
its stock portfolio in order to make settlement in cash, and the price
of such stocks might decline before they can be sold. This timing risk
makes certain strategies involving more than one option substantially
more risky with options in stock indices than with stock options.
There are also certain special risks involved in purchasing put and
call options on stock indices. If the Fund holds an index option and
exercises it before final determination of the closing index value for
that day, it runs the risk that the level of the underlying index may
change before closing. If such a change causes the exercised option to
fall out-of-the money, the Fund will be required to pay the difference
between the closing index value and the strike price of the option
(times the applicable multiplier) to the assigned writer. Although the
Fund may be able to minimize the risk by withholding exercise
instructions until just before the daily cutoff time or by selling
rather than exercising an option when the index level is close to the
exercise price, it may not be possible to eliminate this risk entirely
because the cutoff times for index options may be earlier than those
fixed for other types of options and may occur before definitive
closing index values are announced.
16. OPTIONS ON DEBT SECURITIES. (International Fund only.) The Fund may
purchase and write (i.e., sell) put and call options on debt securities
(including U.S. government debt securities) that are traded on national
securities exchanges or that result from privately negotiated
transactions with primary U.S. government securities dealers recognized
by the Federal Reserve Bank of New York ("OTC options"). Options on
debt are similar to options on stock, except that the option holder has
the right to take or make delivery of a debt security, rather than
stock.
The Fund will write options only if they are covered, and such options
must remain covered so long as the Fund is obligated as a writer. An
option on debt securities is covered in the same manner as explained in
connection with options on equity securities, except that, in the case
of
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call options on U.S. Treasury bills, the Fund might own U.S. Treasury
bills of a different series from those underlying the call option, but
with a principal amount and value corresponding to the option contract
amount and a maturity date no later than that of the securities
deliverable under the call option. The principal reason for the Fund to
write an option on one or more of its securities is to realize through
the receipt of the premiums paid by the purchaser of the option a
greater current return than would be realized on the underlying
security alone. Calls on debt securities will not be written when, in
the opinion of the Sub-Adviser, interest rates are likely to decline
significantly, because under those circumstances the premium received
by writing the call likely would not fully offset the foregone
appreciation in the value of the underlying security.
The Fund may also write straddles (i.e., a combination of a call and a
put written on the same security at the same strike price where the
same issue of the security is considered "cover" for both the put and
the call). In such cases, the Fund will also segregate or deposit for
the benefit of the Fund's broker cash or liquid high-grade debt
obligations equivalent to the amount, if any, by which the put is
in-the-money. The Fund's use of straddles will be limited to 5% of its
net assets (meaning that the securities used for cover or segregated as
described above will not exceed 5% of the Fund's net assets at the time
the straddle is written). The writing of a call and a put on the same
security at the same strike price where the call and the put are
covered by different securities is not considered a straddle for
purposes of this limit.
The Fund may purchase "protective puts" on debt securities in an effort
to protect the value of a security that they own against a substantial
decline in market value. Protective puts are described above in
"Options on Equities".
The Fund does not intend to invest more than 5% of its net assets at
any one time in the purchase of call options on debt securities.
If the Fund, as a writer of an exchange-traded option, wishes to
terminate the obligation, it may effect a closing purchase or sale
transaction in a manner similar to that discussed above in connection
with options on equity securities. Unlike exchange-traded options, OTC
options generally do not have a continuous liquid market. Consequently,
the Fund will generally be able to realize the value of an OTC option
it has purchased only by exercising it or reselling it to the dealer
who issued it. Similarly, when the Fund writes an OTC option, it
generally will be able to close out the OTC option prior to its
expiration only by entering into a closing purchase transaction with
the dealer to which the Fund originally wrote the OTC option. While the
Fund will seek to enter into OTC options only with dealers who agree to
and who are expected to be able to be capable of entering into closing
transactions with the Fund, there can be no assurance that the Fund
will be able to liquidate an OTC option at a favorable price at any
time prior to expiration. In the event of insolvency of the other
party, the Fund may be unable to liquidate an OTC option. There is, in
general, no guarantee that closing purchase or closing sale
transactions can be effected. The Fund may not invest more than 15% of
its total assets (determined at the time of investment) in illiquid
securities, including debt securities for which there is not an
established market. The staff of the SEC has taken the position that
purchase OTC options and the assets used as "cover" for written OTC
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options are illiquid securities. However, pursuant to the terms of
certain no-action letters issued by the staff, the securities used as
cover for written OTC options may be considered liquid provided that
the Fund sells OTC options only to qualified dealers who agree that the
Fund may repurchase any OTC option its writes for a maximum price to be
calculated by a predetermined formula. In such cases, the OTC option
would be considered illiquid only to the extent that the maximum
repurchase price under the formula exceeds the intrinsic value of the
option.
The Fund's purchase and sale of exchange-traded options on debt
securities will be subject to the risks described above in "Options on
Equity Securities."
17. OPTIONS ON FOREIGN CURRENCIES. (International Fund only.) The Fund may
purchase and write put and call options on foreign currencies traded on
U.S. or foreign securities exchanges or boards of trade for hedging
purposes. Options on foreign currencies are similar to options on
stock, except that the option holder has the right to take or make
delivery of a specified amount of foreign currency, rather than stock.
The Fund may purchase and write options to hedge its securities
denominated in foreign currencies. If there is a decline in the dollar
value of a foreign currency in which the Fund's securities are
denominated, the dollar value of such securities will decline even
though the foreign currency value remains the same. To hedge against
the decline of the foreign currency, the Fund may purchase put options
on such foreign currency. If the value of the foreign currency
declines, the gain realized on the put option would offset, in whole or
in part, the adverse effect such decline would have on the value of the
Fund's securities. Alternatively, the Fund may write a call option on
the foreign currency. If the foreign currency declines, the option
would not be exercised and the decline in the value of the portfolio
securities denominated in such foreign currency would be offset in part
by the premium the Fund received for the option.
If, on the other hand, the Sub-Adviser anticipates purchasing a foreign
security and also anticipates a rise in such foreign currency (thereby
increasing the cost of such security), the Fund may purchase call
options on the foreign currency. The purchase of such options could
offset, at least partially, the effects of the adverse movements of the
exchange rates. Alternatively, the Fund could write a put option on the
currency and, if the exchange rates move as anticipated, the option
would expire unexercised.
The Fund's successful use of currency exchange options on foreign
currencies depends upon the Sub-Adviser's ability to predict the
direction of the currency exchange markets and political conditions,
which requires different skills and techniques than predicting changes
in the securities markets generally. For instance, if the currency
being hedged has moved in a favorable direction, the corresponding
appreciation of the Fund's securities denominated in such currency
would be partially offset by the premiums paid on the options.
Furthermore, if the currency exchange rate does not change, the Fund's
net income would be less than if the Fund had not hedged since there
are costs associated with options.
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<PAGE> 78
The use of these options is subject to various additional risks. The
correlation between movements in the price of options and the price of
the currencies being hedged is imperfect. The use of these instruments
will hedge only the currency risks associated with investments in
foreign securities, not market risks. The Fund's ability to establish
and maintain positions will depend on market liquidity. The ability of
the Fund to close out an option depends upon a liquid secondary market.
There is no assurance that liquid secondary markets will exist for any
particular option at any particular time.
18. STOCK INDEX FUTURES CONTRACTS. (International Fund only). The
International Fund may buy and sell for hedging purposes stock index
futures contracts traded on a commodities exchange or board of trade. A
stock index futures contract is an Agreement in which the seller of the
contract agrees to deliver to the buyer an amount of cash equal to a
specific dollar amount times the difference between the value of a
specific stock index at the close of the last trading day of the
contract and the price at which the Agreement is made. No physical
delivery of the underlying stocks in the index is made. When the
futures contract is entered into, each party deposits with a broker or
in a segregated custodial account approximately 5% of the contract
amount, called the "initial margin." Subsequent payments to and from
the broker, called "variation margin," will be made on a daily basis as
the price of the underlying stock index fluctuates, making the long and
short positions in the futures contracts more or less valuable, a
process known as "marking to the market."
The Fund may sell stock index futures to hedge against a decline in the
value of equity securities it holds. The Fund may also buy stock index
futures to hedge against a rise in the value of equity securities it
intends to acquire. To the extent permitted by federal regulations, the
Fund may also engage in other types of hedging transactions in stock
index futures that are economically appropriate for the reduction of
risks inherent in the ongoing management of the Fund's equity
securities.
The Fund's successful use of stock index futures contracts depends upon
the Sub-Adviser's ability to predict the direction of the market and is
subject to various additional risks. The correlation between movement
in the price of the stock index future and the price of the securities
being hedged is imperfect and the risk from imperfect correlation
increases as the composition of the Fund's securities portfolio
diverges from the composition of the relevant index. In addition, the
ability of the Fund to close out a futures position depends on a liquid
secondary market. There is no assurance that liquid secondary markets
will exist for any particular stock index futures contract at any
particular time.
Under regulations of the Commodity Futures Trading Commission ("CFTC"),
investment companies registered under the Investment Company Act of
1940 are excluded from regulation as commodity pools or commodity pool
operators if their use of futures is limited in certain specified ways.
The Fund will use futures in a manner consistent with the terms of this
exclusion. Among other requirements, no more than 5% of the Fund's
assets may be committed as initial margin on futures contracts.
19. INTEREST RATE FUTURES CONTRACTS. (International Fund only.) The
International Fund may buy and sell for hedging purposes futures
contracts on interest bearing securities (such as U.S. Treasury Bonds,
U.S. Treasury
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<PAGE> 79
Notes, 3-month U.S. Treasury Bills, and GNMA certificates) or interest
rate indices. Futures contracts on interest bearing securities and
interest rate indices are referred to collectively as "interest rate
futures contracts." The portfolios will engage in transactions in only
those futures contracts that are traded on a commodities exchange or
board of trade.
The Fund may sell an interest rate futures contract to hedge against a
decline in the market value of debt securities it owns. The Fund may
purchase an interest rate futures contract to hedge against an
anticipated increase in the value of debt securities it intends to
acquire. The Fund may also engage in other types of transactions in
interest rate futures contracts that are economically appropriate for
the reduction of risks inherent in the ongoing management of its
futures.
The Fund's successful use of interest rate futures contracts depends
upon the Sub-Adviser's ability to predict interest rate movements.
Further, because there are a limited number of types of interest rate
futures contracts, it is likely that the interest rate futures
contracts available to the Fund will not exactly match the debt
securities the Fund intends to hedge or acquire. To compensate for
differences in historical volatility between securities the Fund
intends to hedge or acquire and the interest rate futures contracts
available to it, the Fund could purchase or sell futures contracts with
a greater or lesser value than the securities it wished to hedge or
intended to purchase. Interest rate futures contracts are subject to
the same risks regarding closing transactions and the CFTC limits as
described above in "Stock Index Futures Contracts."
20. FOREIGN CURRENCY FUTURES CONTRACTS. (International Fund only.) The
International Fund may buy and sell for hedging purposes futures
contracts on foreign currencies or groups of foreign currencies such as
the European Currency Unit. A European Currency Unit is a basket of
specified amount of the currencies of certain member states of the
European Economic Community, a Western European economic cooperative
organization including France, Germany, the Netherlands and the United
Kingdom. The Fund will engage in transactions in only those futures
contracts and other options thereon that are traded on a commodities
exchange or a board of trade. See "Stock Index Futures Contracts" above
for a general description of futures contracts. The Fund intends to
engage in transactions involving futures contracts as a hedge against
changes in the value of the currencies in which they hold investments
or in which they expect to pay expenses or pay for future purchases.
The Fund may also engage in such transactions when they are
economically appropriate for the reduction of risks inherent in their
ongoing management.
The use of these futures contracts is subject to risks similar to those
involved in the use of options of foreign currencies and the use of any
futures contract. The Fund's successful use of foreign currency futures
contracts depends upon the Sub-Adviser's ability to predict the
direction of currency exchange markets and political conditions. In
addition, the correlation between movements in the price of futures
contracts and the price of currencies being hedged is imperfect, and
there is no assurance that liquid markets will exist for any particular
futures contract at any particular time. Those risks are discussed
above more fully under "Options on Foreign Currencies" and "Stock Index
Futures Contracts."
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<PAGE> 80
21. OPTIONS ON FUTURES CONTRACTS. (International Fund only.) The Fund
may, to the extent permitted by applicable regulations, enter into
certain transactions involving options on futures contracts. An option
on a futures contract gives the purchaser or holder the right, but not
the obligation, to assume a position in a futures contract (a long
position if the option is a call and a short position if the option is
a put) at a specified price at any time during the option exercise
period. The writer of the option is required upon exercise to assume an
offsetting futures position (a short position if the option is a call
and a long position if the option is a put). Upon exercise of the
option, the assumption of offsetting futures positions by the writer
and holder of the option will be accomplished by delivery of the
accumulated balance in the writer's futures margin account that
represents the amount by which the market price of the futures
contract, an exercise, exceeds, in the case of a call, or is less than,
in the case of a put, the exercise price of the option on the futures
contract. As an alternative to exercise, the holder or writer of an
option may terminate a position by selling or purchasing an option of
the same series. There is no guarantee that such closing transactions
can be effected. The Fund intends to utilize options on futures
contracts for the same purposes that it intends to use the underlying
futures contracts.
Options on futures contracts are subject to risks similar to those
described above with respect to options and futures contracts. There is
also the risk of imperfect correlation between the option and the
underlying futures contract. If there were no liquid secondary market
for a particular option on a futures contract, the Fund might have to
exercise an option it held in order to realize any profit and might
continue to be obligated under an option it had written until the
option expired or was exercised. If the Fund were unable to close out
an option it had written on a futures contract, it would continue to be
required to maintain initial margin and make variation margin payments
with respect to the option position until the option expired or was
exercise against the Fund.
22. FORWARD FOREIGN CURRENCY EXCHANGE CONTRACTS. (International Fund only.)
The Fund may enter into forward foreign currency exchange contracts in
several circumstances. When the Fund enters into a contract for the
purchase or sale of a security denominated in a foreign currency, or
when the Fund anticipates the receipt in a foreign currency of
dividends or interest payments on a security that it holds, the Fund
may desire to "lock-in" the U.S. dollar price of the security or the
U.S. dollar equivalent of such dividend or interest payment, as the
case may be. By entering into a forward contract for a fixed amount of
dollars, for the purchase or sale of the amount of foreign currency
involved in the underlying transactions, the Fund will be able to
protect itself against a possible loss resulting from an adverse change
in the relationship between the U.S. dollar and the subject foreign
currency during the period between the date on which the security is
purchased or sold, or on which the dividend or interest payment is
declared, and the date on which such payments are made or received.
Additionally, when the Sub-Adviser believes that the currency of a
particular foreign country may suffer a substantial decline against the
U.S. dollar, the Fund may enter into a forward contract for a fixed
amount of dollars, to sell the amount of foreign currency approximating
the value of some or all of the portfolio securities denominated in
such foreign currency. The precise matching of the forward contract
amounts and the
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<PAGE> 81
value of the securities involved will not generally be possible since
the future value of securities in foreign currencies will change as a
consequence of market movements in the value of those securities
between the date on which the forward contract is entered into and the
date it matures. The projection of short-term currency market movement
is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. The Fund will not enter into such
forward contracts or maintain a net exposure to such contracts where
the consummation of the contracts would obligate the Fund to deliver an
amount of foreign currency in excess of the value of the securities or
other assets denominated in that currency held by the Fund.
Under normal circumstances, consideration of the prospect for currency
parities will be incorporated in the long-term investment decisions
made with regard to overall diversification strategies. However, the
Fund believes that it is important to have the flexibility to enter
into such forward contracts when it is determined that the best
interests of the Fund will thereby be served. The Fund's custodian will
place cash or liquid, high-grade equity or debt securities into a
segregated account of the portfolio in an amount equal to the value of
the Fund's total assets committed to the consummation of forward
foreign currency exchange contracts. If the value of the securities
placed in the segregated account declines, additional cash or
securities will be placed in the account on a daily basis so that the
value of the account will equal the amount of the Fund's commitments
with respect to such contracts.
The Fund generally will not enter into a forward contract with a term
of greater than one year. At the maturity of a forward contract, the
Fund may either sell the portfolio security and make delivery of the
foreign currency or it may retain the security and terminate its
contractual obligation to deliver the foreign currency by purchasing an
"offsetting" contract with the same currency trader obligating it to
purchase, on the same maturity date, the same amount of the foreign
currency.
It is impossible to forecast with absolute precision the market value
of a particular portfolio security at the expiration of the contract.
Accordingly, it may be necessary for the Fund to purchase additional
foreign currency on the spot market (and bear the expense of such
purchase) if the market value of the security is less than the amount
of foreign currency that the Fund is obligated to deliver and if a
decision is made to sell the security and make delivery of the foreign
currency.
If the Fund retains the portfolio security and engages in an offsetting
transaction, the Fund will incur a gain or a loss (as described below)
to the extent that there has been movement in forward contract prices.
Should forward prices decline during the period between the Fund's
entering into a forward contract for the sale of a foreign currency and
the date it enters into an offsetting contract for the purchase of the
foreign currency, the Fund will realize a gain to the extent that the
price of the currency it has agreed to sell exceeds the price of the
currency it has agreed to purchase. Should forward prices increase, the
Fund will suffer a loss to the extent that the price of the currency it
has agreed to purchase exceeds the price of the currency it has agreed
to sell.
The Fund's dealing in forward foreign currency exchange contracts will
be limited to the transactions described above. Of course, the Fund is
not
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<PAGE> 82
required to enter into such transactions with regard to their foreign
currency-denominated securities. It also should be realized that this
method of protecting the value of the portfolio securities against a
decline in the value of a currency does not eliminate fluctuations in
the underlying prices of the securities that are unrelated to exchange
rates. Additionally, although such contracts tend to minimize the risk
of loss due to a decline in the value of the hedged currency, at the
same time they tend to limit any potential gain which might result
should the value of such currency increase.
Although the Fund values its assets daily in terms of U.S. dollars, it
does not intend physically to convert its holdings of foreign
currencies into U.S. dollars on a daily basis. The Fund will do so from
time to time, incurring the costs of currency conversion. Although
foreign exchange dealers do not charge a fee for conversion, they do
realize a profit based on the difference (the "spread") between the
prices at which they are buying and selling various currencies. Thus, a
dealer may offer to sell a foreign currency to the Fund at one rate,
while offering a lesser rate of exchange should the Fund desire to
resell that currency to the dealer.
SPECIAL RISKS OF BELOW INVESTMENT GRADE BONDS - EQUITY, INCOME AND BALANCED
FUNDS
Below investment grade bonds (commonly referred to as "high-yield" or "junk"
bonds) have certain additional risks associated with them. Yields on below
investment grade bonds will fluctuate over time. These bonds tend to reflect
short-term economic and corporate developments to a greater extent than higher
quality bonds that primarily react to fluctuations in interest rates. During an
economic downturn or period of rising interest rates, issuers of below
investment grade bonds may experience financial difficulties that adversely
affect their ability to make principal and interest payments, meet projected
business goals and obtain additional financing. In addition, issuers often rely
on cash flow to service debt. Failure to realize projected cash flows may
seriously impair the issuer's ability to service its debt load that in turn
might cause a Fund to lose all or part of its investment in that security. SAM
will seek to minimize these additional risks through diversification, careful
assessment of the issuer's financial structure, business plan and management
team and monitoring of the issuer's progress toward its financial goals.
The liquidity and price of below investment grade bonds can be affected by a
number of factors, including investor perceptions and adverse publicity
regarding major issues, underwriters or dealers of lower-quality corporate
obligations. These effects can be particularly pronounced in a thinly-traded
market with few participants and may adversely impact the Fund's ability to
dispose of the bonds as well as make valuation of the bonds more difficult.
Because there tend to be fewer investors in below investment grade bonds, it may
be difficult for the Fund to sell these securities at an optimum time.
Consequently, these bonds may be subject to more price changes, fluctuations in
yield and risk to principal and income than higher-rated bonds of the same
maturity.
Credit ratings evaluate the likelihood that an issuer will make principal and
interest payments, but may not reflect market value risks associated with
lower-rated bonds. Credit rating agencies may not timely revise ratings to
reflect subsequent events affecting an issuer's ability to pay principal and
interest.
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<PAGE> 83
SPECIAL RISKS OF FOREIGN INVESTMENTS AND FOREIGN CURRENCY TRANSACTIONS
FOREIGN SECURITIES
Investing in foreign companies and markets involves certain considerations,
including those set forth below, that are not typically associated with
investing in U.S. securities denominated in U.S. dollars and traded in U.S.
markets. Many of the securities held by a Fund will not be registered with, nor
will the issuers thereof be subject to the reporting requirements of U.S.
securities laws. Accordingly, there may be less publicly available information
about a foreign company than about a domestic company. Foreign companies are not
generally subject to uniform accounting and auditing and financial reporting
standards, practices and requirements comparable to those applicable to domestic
companies. Securities of some foreign companies are less liquid and more
volatile than securities of comparable domestic companies.
It is contemplated that most foreign securities will be purchased in
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. Fixed commissions on foreign
stock exchanges are generally higher than negotiated commissions on U.S.
exchanges. There is generally less governmental supervision and regulation of
foreign stock exchanges, broker-dealers and issuers than in the U.S.
In addition, with respect to some foreign countries, there is the possibility of
expropriation or confiscatory taxation, limitations on the removal of funds or
other assets of a Fund, political or social instability, or diplomatic
developments that could affect U.S. investments in those countries. Moreover,
individual foreign economics may differ favorably or unfavorably from the U.S.
economy in such respects as growth of gross domestic product, rate of inflation,
capital reinvestment, resource self-sufficiency and balance of payments
position.
CURRENCY EXCHANGE RATES
The value of the assets of a Fund as measured in U.S. dollars may be affected
favorably or unfavorably by fluctuations in currency rates and exchange control
regulations (including, but not limited to, actions by a foreign government to
devalue its currency, thereby effecting a possibly substantial reduction in the
U.S. dollar value of a Fund's investments in that country). The International
Fund is authorized to employ certain hedging techniques to minimize this risk.
However, to the extent such transactions do not fully protect the International
Fund against adverse changes in exchange rates, decreases in the value of the
currencies of the countries in which the Fund will invest will result in a
corresponding decrease in the U.S. dollar value of the Fund's assets denominated
in those currencies. Further, the International Fund may incur costs in
connection with conversions between various currencies. Foreign exchange dealers
(including banks) realize a profit based on the difference between the prices at
which they buy and sell various currencies. Thus, a dealer or bank normally will
offer to sell a foreign currency to the International Fund at one rate, while
offering a lesser rate of exchange should the Fund desire immediately to resell
that currency to the dealer. Moreover, fluctuations in exchange rates may
decrease or eliminate income available for distribution. For example, if foreign
exchange losses exceed other investment company taxable income during a taxable
year, the Fund would not be able to make ordinary dividend distributions, or
distributions made before the losses were realized would be recharacterized as a
return of capital to stockholders for U.S. income tax purposes, rather than as
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<PAGE> 84
an ordinary dividend, reducing each stockholder's basis in his Internatinal Fund
shares.
HEDGING TRANSACTIONS (INTERNATIONAL FUND ONLY)
Hedging transactions cannot eliminate all risks of loss to the International
Fund and may prevent the Fund from realizing some potential gains. The
projection of short-term foreign currency and market movements is extremely
difficult, and the successful execution of a short-term hedging strategy is
highly uncertain. Among the risks of hedging transactions are: incorrect
prediction of the movement of currency exchange rates and market movements;
imperfect correlation of currency movements in cross-hedges and indirect hedges;
imperfect correlation in the price movements of options, futures contracts and
options on future contracts with the assets on which they are based; lack of
liquid secondary markets and inability to effect closing transactions; costs
associated with effecting such transactions; inadequate disclosure and/or
regulatory controls in certain markets; counterparty default with respect to
transactions not executed on an exchange; trading restrictions imposed by
governments, or securities and commodities exchanges; and governmental actions
affecting the value or liquidity of currencies. Hedging transactions may be
effected in foreign markets or on foreign exchanges and are subject to the same
types of risks that affect foreign securities. See "Special Risks of Foreign
Investments and Foreign Currency Transactions".
Indirect hedges and cross-hedges are more speculative than other hedges because
they are not directly related to the position or transaction being hedged. With
respect to indirect hedges, movements in the proxy currency may not precisely
mirror movements in the currency in which portfolio securities are denominated.
Accordingly, the potential gain or loss on an indirect hedge may be more or less
than if the Fund had directly hedged a currency risk. Similar risks are
associated with cross-hedge transactions. In a cross-hedge, the foreign currency
in which a portfolio security is denominated is hedged against another foreign
currency, rather than the U.S. dollar. Cross-hedges may also create a greater
risk of loss than other hedging transactions because they may involve hedging a
currency risk through the U.S. dollar rather than directly to the U.S. dollar or
another currency.
In order to help reduce certain risks associated with hedging transactions, the
Board of Trustees has adopted the requirement that forward contracts, options,
futures contracts and options on futures contracts be used on the behalf of the
Fund as a hedge and not for speculation. In addition to this requirement, the
Board of Trustees has adopted the following percentage restrictions on the use
of options, futures contracts and options on futures contracts:
(i) The Fund will not write a put or call option if, as a
result thereof, the aggregate value of the assets
underlying all such options (determined as of the
date such options are written) would exceed 25% of
the Fund's net assets.
(ii) The Fund will not purchase a put or call option or
option on a futures contract if, as a result thereof,
the aggregate premiums paid on all options or options
on futures contracts held by the Fund would exceed
20% of the Fund's net assets.
(iii) The Fund will not enter into any futures contract or
option on a futures contract if, as a result thereof,
the aggregate
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margin deposits and premiums required on all
such instruments would exceed 5% of the
Fund's net assets.
PRINCIPAL SHAREHOLDERS OF THE FUNDS
At December 31, 1995, SAFECO Insurance Company of America ("SAFECO Insurance")
owned __________ shares of the Northwest Fund that represented ______% of the
Fund's outstanding shares. SAFECO Insurance is a Washington corporation and a
wholly-owned subsidiary of SAFECO Corporation, which has its principal place of
business at SAFECO Plaza, Seattle, Washington 98185. At December 31, 1995, SAM
owned 500,000 shares of the Balanced Fund and International Fund, which
represented 100.0% of each Fund's outstanding shares. At December 31, 1995
SAFECO Corporation owned 500,000 shares of the Small Company Fund which
represented 100% of the Fund's outstanding shares. SAFECO Insurance and SAM are
Washington corporations and wholly-owned subsidiaries of SAFECO Corporation,
which has its principal place of business at SAFECO Plaza, Seattle, Washington
98185.
ADDITIONAL TAX INFORMATION
Each Fund intends to continue to qualify as a "regulated investment company"
under Subchapter M of the Internal Revenue Code of 1986 ("Code"). In order to
qualify for treatment as a regulated investment company under the Code, a Fund
must distribute to its shareholders for each taxable year at least 90% of its
investment company taxable income (consisting generally of taxable net
investment income and net short-term capital gain). Each Fund intends to make
sufficient distributions to shareholders to relieve it from liability for
federal excise and income taxes.
Each Fund is treated as a separate corporation for federal income tax purposes.
The excess of net long-term capital gains over net short-term capital loss
realized by a Fund on portfolio transactions, when distributed by the Fund, is
subject to long-term capital gains treatment under the Code, regardless of how
long you have held the shares of the Fund. Distributions of net short-term
capital gains realized from portfolio transactions are treated as ordinary
income for federal income tax purposes. The tax consequences described above
apply whether distributions are taken in cash or in additional shares.
Redemptions and exchanges of shares of a Fund may result in a capital gain or
loss for federal income tax purposes.
If shares of a Fund are sold at a loss after being held for one year or less,
the loss will be treated as long-term, instead of short-term, capital loss to
the extent of any capital gain distributions received on those shares. Investors
also should be aware that if shares are purchased shortly before the record date
for any distribution, the shareholder will pay full price for the shares and
receive some portion of the purchase price back as a taxable dividend or capital
gain distribution.
The International Fund and any other Fund that invests in foreign securities may
be required to pay withholding or other taxes to a foreign government. If so,
the taxes will reduce the Fund's distributions. Foreign tax withholding from
dividends and interest (if any) is typically set at a rate between 10% and 15%
if there is a treaty with the foreign government that addresses this issue. If
no such treaty exists, the foreign tax withholding would generally be 30%.
Shareholders will bear the cost of any foreign tax withholding and would not be
able to claim a foreign tax credit or deduction for foreign taxes paid by the
Fund.
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Each Fund is required to withhold 31% of all taxable dividends, capital gain
distributions and redemption proceeds payable to individuals and certain other
noncorporate shareholders who do not furnish the Fund with a correct taxpayer
identification number. Withholding at that rate also is required from dividends
and those distributions for shareholders who otherwise are subject to backup
withholding.
If the International Fund's dividends exceed its taxable income in any year
because of currency-related losses or otherwise, all or a portion of the Fund's
dividends may be treated as a return of capital to shareholders for tax
purposes. To minimize the risk of a return of capital, the Fund may adjust its
dividends to take currency fluctuations into account, causing the dividends to
vary. Any return of capital will reduce the cost basis of your shares resulting
in a higher reported capital gains or a lower reported capital loss when you
sell your shares.
These are tax requirements that all mutual funds must follow in order to avoid
federal taxation. The Funds may have to limit investment activity in some types
of securities in order to adhere to these requirements.
ADDITIONAL INFORMATION ON CALCULATION OF NET ASSET VALUE PER SHARE
Each Fund determines its net asset value per share ("NAV") by subtracting its
liabilities (including accrued expenses and dividends payable) from its total
assets (the market value of the securities the Fund holds plus cash and other
assets, including interest accrued but not yet received) and dividing the result
by the total number of shares outstanding. The NAV of each Fund is calculated as
of the close of regular trading on the New York Stock Exchange ("Exchange")
every day the Exchange is open for trading and at such other times and/or on
such other days as there is sufficient trading. The Exchange is closed on the
following days: New Year's Day, President's Day, Good Friday, Memorial Day,
Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Short-term debt securities held by each Fund's portfolio having a remaining
maturity of less than 60 days when purchased, and securities originally
purchased with maturities in excess of 60 days but which currently have
maturities of 60 days or less, may be valued at cost adjusted for amortization
of premiums or accrual of discounts, or under such other methods as the Board of
Trustees may from time to time deem to be appropriate. The cost of those
securities that had original maturities in excess of 60 days shall be determined
by their fair market value as of the 61st day prior to maturity. All other
securities and assets in the portfolios will be appraised in accordance with
those procedures established by the Board of Trustees in good faith in computing
the fair market value of those assets.
Trading in foreign securities will generally be substantially completed each day
at various times prior to the close of the NYSE. The value of any such
securities are determined as of such times for purposes of computing the
International Fund's net asset value. Foreign currency exchange rates are also
generally determined prior to the close of the NYSE. If an extraordinary event
occurs after the close of an exchange on which that security is traded, the
security will be valued at fair value as determined in good faith by the
Sub-Adviser under procedures established by and under general supervision of the
Fund's Board of Trustees.
Options the International Fund may purchase that are traded on national
securities exchanges are valued at their last sale price as of the close of
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option trading on such exchange. Futures contracts the International Fund will
enter into will be market to market daily, and options thereon are valued at
their last sale price, as of the close of the applicable commodities exchange.
Quotations of foreign securities in a foreign currency are converted into U.S.
dollar equivalents at the current rate obtained by a recognized bank or dealer.
Forward contracts are valued at the current cost of covering or offsetting such
contracts.
ADDITIONAL PERFORMANCE INFORMATION
The yield and total return calculations set forth below are for the dates
indicated and are not a prediction of future results.
The yields for the 30-day period ended September 30, 1995, for the Growth,
Equity, Income and Northwest Funds were as follows:
<TABLE>
<S> <C>
Growth Fund _____%
Equity Fund _____%
Income Fund _____%
Northwest Fund _____%
</TABLE>
Yield is computed using the following formula:
6
Yield = 2[( (a-b)/cd + 1) - 1]
Where: a = dividends and interest earned during the period
b = expenses accrued for the period (net of
reimbursements)
c = the average daily number of shares outstanding during
the period that were entitled to receive dividends
d = the maximum offering price per share on the last day
of the period
The maturity of an obligation with a call provision is the next call date on
which the obligation reasonably may be expected to be called or, if none, the
maturity date.
The total returns, expressed as a percentage, for the one-, five- and ten-year
periods ended September 30, 1995, for the Growth, Equity and Income Funds were
as follows:
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
<S> <C> <C> <C>
Growth Fund _____% _____% _____%
Equity Fund _____% _____% _____%
Income Fund _____% _____% _____%
</TABLE>
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The total returns, expressed as a percentage, for the one-year and
since inception (55 months) periods ended September 30, 1995, for the Northwest
Fund were as follows:
<TABLE>
<CAPTION>
Since Initial Effective Date
1 Year (55 Months)
------ -----------
<S> <C> <C>
Northwest Fund _____% _____%
</TABLE>
The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-, five- and ten-year periods ended September 30, 1995,
for the Growth, Equity and Income Funds were as follows:
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Growth Fund $______ $______ $_______
Equity Fund $______ $______ $_______
Income Fund $______ $______ $_______
</TABLE>
The total returns, expressed in dollars and assuming a $10,000 initial
investment, for the one-year and since-inception (55 months) periods ended
September 30, 1995, for the Northwest Fund were as follows:
<TABLE>
<CAPTION>
Since Initial Effective Date
1 Year (55 Months)
-------- -----------
<S> <C> <C>
Northwest Fund $_______ $_______
</TABLE>
The average annual total returns for the one-, five- and ten-year periods ended
September 30, 1995, for the Growth, Equity and Income Funds were as follows:
<TABLE>
<CAPTION>
1 Year 5 Years 10 Years
------ ------- --------
<S> <C> <C> <C>
Growth Fund _____% _____% _____%
Equity Fund _____% _____% _____%
Income Fund _____% _____% _____%
</TABLE>
The average annual total returns for the one-year and since-inception (55
months) periods ended September 30, 1995, for the Northwest Fund were as
follows:
-42-
<PAGE> 89
<TABLE>
<CAPTION>
Since Initial Effective Date
1 Year 55 Months
------ ---------
<S> <C> <C>
Northwest Fund _____% _____%
</TABLE>
Calculations
The total return, expressed as a percentage, is computed using the following
formula:
T = (ERV-P)/P x 100
The total return, expressed in dollars, is computed using the following formula:
T = P(1+A)n
The average annual total return is computed using the following formula:
A = (nth root(ERV/P) - 1) x 100
Where: T = total return
A = average annual total return
n = number of years
ERV = ending redeemable value of a hypothetical
investment of $1,000 at the end of a specified
period of time
P = a hypothetical initial investment of $1,000 or
$10,000 (when total return is expressed in
dollars)
In making the above calculation, all dividends and capital gains distributions
are assumed to be reinvested at the respective Fund's NAV on the reinvestment
date.
In addition to performance figures, the Funds may advertise their rankings as
calculated by independent rating services that monitor mutual funds' performance
(e.g., CDA Investment Technologies, Lipper Analytical Services, Inc.,
Morningstar, Inc., and Wiesenberger Investment Companies Service). These
rankings may be among mutual funds with similar objectives and/or size or with
mutual funds in general. In addition, the Funds may advertise rankings which are
in part based upon subjective criteria developed by independent rating services
to measure relative performance. Such criteria may include methods to account
for levels of risk and potential tax liability, sales commissions and expense
and turnover ratios. These rating services may also base the measure of relative
performance on time periods deemed by them to be representative of up and down
markets.
The Funds may occasionally reproduce articles or portions of articles about the
Funds written by independent third parties such as financial writers, financial
planners and financial analysts, which have appeared in financial publications
-43-
<PAGE> 90
of general circulation or financial newsletters (including but not limited to
Barrons, Business Week, Forbes, Fortune, Investor's Business Daily, Kiplinger's,
Money Magazine, Newsweek, Pensions & Investments, Time Magazine, U.S. News and
World Report, and The Wall Street Journal).
Each Fund may compare its performance against the following unmanaged indices
that (unless otherwise noted in the advertisement) assume reinvestment of
dividends:
AMEX (American Stock Exchange) Major Market Index - Price weighted
(high priced issues have more influence than low-priced issues) average
of 20 Blue Chip stocks.
Dow Jones Industrial Average - Price weighted average of 30
actively traded Blue Chip stocks.
NASDAQ Price Index - Market value weighted (impact of a component's
price change is proportionate to the overall market value of the issue)
index of approximately 3500 over-the-counter stocks.
S & P's Composite Index of 500 Stocks - Market value weighted index of
500 stocks most of which are listed on the New York Stock Exchange with
some listed on the American Stock Exchange and NASDAQ.
Wilshire 5000 Equity Index - Market value weighted index of
approximately 5000 stocks including all stocks on the New York and
American Exchanges.
Morgan Stanley Capital International EAFE Index - Market value weighted
index of approximately 1200 companies located throughout the world.
Russell 2000 Index - The 2000 smallest firms in the Russell 3000 Index
which is composed of the 3000 largest companies in the U.S. as measured
by capitalization.
Each Fund may present in its advertisements and sales literature (i) a biography
or the credentials of its portfolio manager (including but not limited to
educational degrees, professional designations, work experience, work
responsibilities and outside interests), (ii) current facts (including but not
limited to number of employees, number of shareholders, business
characteristics) about its investment adviser (SAM) or any sub-investment
adviser, the investment adviser's parent company (SAFECO Corporation) or the
parent company of any subinvestment adviser, or the SAFECO Family of Funds,
(iii) descriptions, including quotations attributable to the portfolio manager,
of the investment style used to manage a Fund's portfolio, the research
methodologies underlying securities selection and a Fund's investment objective
and (iv) information about particular securities held in a Fund's portfolio.
Performance information and quoted ratings are indicative only of past
performance and are not intended to represent future investment results.
-44-
<PAGE> 91
TRUSTEES AND OFFICERS
<TABLE>
<CAPTION>
Position Held with Principal Occupation
Name and Address the Trust During Past 5 Years
- ---------------- ------------------- -------------------
<S> <C> <C>
Boh A. Dickey* Chairman and Executive Vice President,
SAFECO Plaza Trustee Chief Financial Officer and
Seattle, Washington 98185 Director of SAFECO
(51) Corporation; Director of
University of Washington
Medical Center, Seattle,
Washington. He has been an
executive officer of SAFECO
Corporation subsidiaries since
1982. See table under
"Investment Advisor and Other
Services."
Barbara J. Dingfield Trustee Manager, Corporate
Microsoft Corporation Contributions and Community
One Microsoft Way Programs for Microsoft
Redmond, Washington 98052 Corporation, Redmond,
(50) Washington, a computer
software company; Director
and former Executive Vice
President of Wright Runstad &
Co., Seattle, Washington, a
real estate development
company; Director of First
SAFECO National Life Insurance
Company of New York.
Richard W. Hubbard* Trustee Retired Vice President and
1270 NW Blakely Ct. Treasurer of the Trust and
Seattle, WA 98177 other SAFECO Trusts; retired
(66) Senior Vice President and
Treasurer of SAFECO
Corporation; former President
of SAFECO Asset Management
Company.
Richard E. Lundgren Trustee Director of Marketing and
764 S. 293rd Street Customer Relations, Building
Federal Way, Washington Materials Distribution,
98032 Weyerhaeuser Company, Tacoma,
(58) Washington; Director of First
SAFECO National Life Insurance
Company of New York.
</TABLE>
-45-
<PAGE> 92
<TABLE>
<S> <C> <C>
L. D. McClean* Trustee Retired Assistant Secretary of
7231 91st Avenue SE SAFECO Corporation and its
Mercer Island, WA 98040 property and casualty and life
(68) insurance affiliates;
Director of First SAFECO
National Life Insurance
Company of New York; former
President of the SAFECO Mutual
Funds; former Director of
SAFECO Asset Management
Company, SAFECO Securities,
Inc. and SAFECO Services
Corporation.
Larry L. Pinnt Trustee Retired Vice President and
1600 Bell Plaza Chief Financial Officer U S
Room 1802 WEST Communications, Seattle,
Seattle, Washington 98191 Washington; Director of Key
(61) Bank of Washington, Seattle,
Washington; Director of
PRIMERA and its subsidiary
Blue Cross of Washington and
Alaska, Seattle, Washington;
Director of University of
Washington Medical Center,
Seattle, Washington; Director
of First SAFECO National Life
Insurance Company of New York.
John W. Schneider Trustee President of Wallingford
1808 N 41st St. Group, Inc., Seattle,
Seattle, Washington Washington; former President
98103 of Coast Hotels, Inc.;
(54) Director of First SAFECO
National Life Insurance
Company of New York.
David F. Hill President President of SAFECO Securities
SAFECO Plaza Inc. and SAFECO Services
Seattle, Washington 98185 Corporation; and Senior Vice
(47) President of SAFECO Asset
Management Company. See table
under "Investment Advisory and
Other Services."
</TABLE>
-46-
<PAGE> 93
<TABLE>
<S> <C> <C>
Neal A. Fuller Vice President Vice President, Controller,
SAFECO Plaza Controller Assistant Secretary and
Seattle, Washington 98185 Assistant Secretary Treasurer of, SAFECO
(33) Securities, Inc. and SAFECO
Services Corporation; Vice
President, Controller,
Secretary and Treasurer of
SAFECO Asset Management
Company; former Chief
Assistant Treasurer for the
State of Idaho. See table
under "Investment Advisory and
Other Services."
Ronald L. Spaulding Vice President Vice Chairman of SAFECO Asset
SAFECO Plaza Treasurer Management Company; Vice
Seattle, Washington 98185 President and Treasurer of
(52) SAFECO Corporation; Vice
President of SAFECO Life
Insurance Company; former
Senior Portfolio Manager of
SAFECO insurance companies;
former Portfolio Manager for
several SAFECO mutual funds.
See table under "Investment
Advisory and Other Services.
</TABLE>
* Trustees who are interested persons as defined by the 1940 Act.
COMPENSATION TABLE
<TABLE>
<CAPTION>
Total
Pension or Compensation
Retirement From
Benefits Estimated Registrant and
Aggregate Accrued As Annual Fund Complex
Compensation Part of Fund Benefits Upon Paid to
Trustee from Registrant Expenses Retirement Trustees
- ----------- --------------- ------------ ------------- --------------
<S> <C> <C> <C> <C>
Barbara J.
Dingfield $_______ $0 $0 $_______
Richard E.
Lundgren $_______ $0 $0 $_______
L.D. McClean $_______ $0 $0 $_______
Larry L. Pinnt $_______ $0 $0 $_______
John W.
Schneider $_______ $0 $0 $_______
Boh A. Dickey $ 0 $0 $0 $ 0
Richard W. $_______ $0 $0 $_______
Hubbard
</TABLE>
-47-
<PAGE> 94
Currently, there is no pension, retirement, or other plan or any arrangement
pursuant to which Trustees or officers of the Trust are compensated by the
Trust. Each Trustee also serves as Trustee for six other registered open-end
management investment companies that have, in the aggregate, twenty-eight series
companies managed by SAM.
The officers of the Trust receive no compensation for their service as officers
or, if applicable, as Trustees.
At December 31, 1995, the Trustees and officers of the Trust as a group owned
_______________% of the outstanding shares of each Fund.
INVESTMENT ADVISORY AND OTHER SERVICES
SAM, SAFECO Securities, Inc. ("SAFECO Securities") and SAFECO Services
Corporation ("SAFECO Services") are wholly-owned subsidiaries of SAFECO
Corporation. SAFECO Securities is the principal underwriter of each Fund and
SAFECO Services is the transfer, dividend and distribution disbursement and
shareholder servicing agent of each Fund.
SAM has a sub-advisory Agreement with Bank of Ireland Asset Management (U.S.)
Limited. The Sub-Adviser has its headquarters at 26 Fitzwilliam Place, Dublin
Ireland and its U.S. office at 2 Greenwich Plaza, Greenwich, Connecticut. The
Sub-Adviser is a direct, wholly-owned subsidiary of Bank of Ireland Asset
Management Limited (an investment advisory firm) that is located at 26
Fitzwilliam Place, Dublin, Ireland. The Sub-Adviser is an indirect, wholly-owned
subsidiary of Bank of Ireland (a holding company whose primary subsidiaries are
engaged in banking, insurance, securities and related financial services), which
is located at Lower Baggot Street, Dublin, Ireland.
The following individuals have the following positions and offices with the
Trust, SAM, SAFECO Securities and SAFECO Services:
<TABLE>
<CAPTION>
SAFECO SAFECO
Name Trust SAM Securities Services
- ------------ -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
B. A. Dickey Chairman Director Director
Trustee Chairman
D. F. Hill President Senior Vice President President
President Director Director
Director Secretary Secretary
N. A. Fuller Vice President Vice Vice Vice
Controller President President President
Assistant Controller Controller Controller
Secretary Secretary Assistant Assistant
Treasurer Secretary Secretary
Treasurer Treasurer
R.L. Spaulding Vice President Vice Director Director
Treasurer Chairman
Director
</TABLE>
-48-
<PAGE> 95
<TABLE>
<CAPTION>
SAFECO SAFECO
Name Trust SAM Securities Services
- ------------ -------------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
S. C. Bauer President
Director
</TABLE>
Mr. Dickey is Chief Financial Officer, Executive Vice President and a director
of SAFECO Corporation and Mr. Spaulding is Treasurer and Vice President of
SAFECO Corporation. Messrs. Dickey and Spaulding are also directors of other
SAFECO Corporation subsidiaries.
In connection with its investment advisory contract with the Trust, SAM
furnishes or pays for all facilities and services furnished or performed for or
on behalf of the Trust and each Fund that includes furnishing office facilities,
books, records and personnel to manage the Trust's and each Fund's affairs and
paying certain expenses.
For the services and facilities furnished by SAM, each Fund has agreed to pay an
annual fee computed on the basis of the average market value of the net assets
of each Fund ascertained each business day and paid monthly in accordance with
the following schedules. The reduction in fees occurs only at such time as the
respective Fund's net assets reach the dollar amounts of the break points and
applies only to those assets that fall within the specified range:
<TABLE>
<CAPTION>
GROWTH, EQUITY AND INCOME FUNDS
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $100,000,000 .75 of 1%
$100,000,001 - $250,000,000 .65 of 1%
$250,000,001 - $500,000,000 .55 of 1%
Over $500,000,000 .45 of 1%
NORTHWEST FUND
NET ASSETS ANNUAL FEE
$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
$500,000,001 - $750,000,000 .55 of 1%
Over $750,000,000 .45 of 1%
BALANCED FUND
NET ASSETS ANNUAL FEE
$0 - $250,000,000 .75 of 1%
$250,000,001 - $500,000,000 .65 of 1%
Over $500,000,000 .55 of 1%
</TABLE>
-49-
<PAGE> 96
<TABLE>
<CAPTION>
INTERNATIONAL FUND
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $250,000,000 1.10 of 1%
$250,000,001 - $500,000,000 1.00 of 1%
Over $500,000,000 .90 of 1%
SMALL COMPANY FUND
NET ASSETS ANNUAL FEE
$0 - $250,000,000 .85 of 1%
$250,000,001 - $500,000,000 .75 of 1%
Over $500,000,000 .65 of 1%
</TABLE>
Under the Agreement, the Sub-Adviser is responsible for providing investment
research and advice used to manage the investment portfolio of the International
Fund. In return, SAM (and not the International Fund) pays the Sub-Adviser a fee
equal in accordance with the schedule below:
<TABLE>
<CAPTION>
NET ASSETS ANNUAL FEE
<S> <C>
$0 - $50,000,000 .45 of 1%
$50,000,001 - $100,000,000 .40 of 1%
Over $100,000,000 .30 of 1%
</TABLE>
Each Fund bears all expenses of its operations not specifically assumed by SAM.
SAM has agreed to reimburse each Fund for the amount by which a Fund's expenses
in any full fiscal year (excluding interest expense, taxes, brokerage expense
and extraordinary expenses) exceed the limits prescribed by any state in which a
Fund's shares are qualified for sale. Presently, the most restrictive expense
ratio limitation imposed by any such state is 2.5% of the first $30 million of a
Fund's average daily net assets, 2.0% of the next $70 million of such assets,
and 1.5% of the remaining net assets. For the purpose of determining whether a
Fund is entitled to reimbursement, the expenses of the Fund are calculated on a
monthly basis. If a Fund is entitled to a reimbursement, that month's advisory
fee will be reduced or postponed, with any adjustment made after the end of the
fiscal year.
The following table states the total amounts of compensation paid to SAM for the
past three fiscal years for the Growth, Equity and Income Funds and the three
fiscal periods for the Northwest Fund:
-50-
<PAGE> 97
Years Ended
<TABLE>
<CAPTION>
September 30 September 30 September 30
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Growth Fund $___________ $1,096,000 $1,068,000
Equity Fund $___________ $1,676,000 $ 749,000
Income Fund $___________ $1,363,000 $1,353,000
</TABLE>
<TABLE>
<CAPTION>
9 month
Year Ended Period Ended Year Ended
September 30, 1995 September 30, 1994 December 31, 1993
------------------ ------------------ -----------------
<S> <C> <C> <C>
Northwest $__________ $__________ $__________
Fund
</TABLE>
U.S. Bank of Washington, N.A., 1420 Fifth Avenue, Seattle, Washington 98111, is
the custodian of the securities, cash and other assets of each Fund (except the
International Fund) under an Agreement with the Trust. Chase Manhattan Bank,
N.A., 1211 Avenue of the Americas, New York, New York is the custodian of the
securities, cash and other assets of the International Fund. Chase Manhattan
Bank, N.A. has entered into sub-custodian agreements with several foreign banks
and clearing agencies, pursuant to which portfolio securities purchased outside
the U.S. are maintained in the custody of these entities. Ernst & Young LLP, 999
Third Avenue, Suite 3500, Seattle, Washington 98104, is the independent auditor
of each Fund's financial statements.
SAFECO Services, SAFECO Plaza, Seattle, Washington 98185 is the transfer,
dividend and distribution disbursement and shareholder servicing agent for each
Fund under an Agreement with the Trust. SAFECO Services is responsible for all
required transfer agent activity, including maintenance of records of each
Fund's shareholders, records of transactions involving each Fund's shares, and
the compilation, distribution, or reinvestment of income dividends or capital
gains distributions, for a fee of $3.10 per each shareholder transaction. The
following table shows the total fees paid to SAFECO Services by the Funds as
compensation for its services as transfer agent for the past three fiscal years
for the Growth, Equity and Income Funds and for the three fiscal periods for the
Northwest Fund:
Fiscal Years Ended
<TABLE>
<CAPTION>
September 30 September 30 September 30
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Growth Fund $_______ $ 210,000 $ 169,000
Equity Fund $_______ $ 370,000 $ 143,000
Income Fund $_______ $ 264,000 $ 259,000
</TABLE>
-51-
<PAGE> 98
<TABLE>
<CAPTION>
9 month
Year Ended Period Ended Year Ended
September 30, 1995 September 30, 1994 December 31, 1993
------------------ ------------------ -----------------
<S> <C> <C> <C>
Northwest $_______ $_______ $________
Fund
</TABLE>
SAFECO Securities is the principal underwriter for each Fund and distributes
each Fund's shares on a continuous best efforts basis under an Agreement with
the Trust. SAFECO Securities is not compensated by the Trust or the Funds for
underwriting, distribution or other activities.
BROKERAGE PRACTICES
SAM and the Sub-Adviser place orders for the purchase or sale of Fund portfolio
securities based on various factors, including:
(1) Which broker gives the best execution, (i.e., which broker is able to
trade the securities in the size and at the price desired and on a
timely basis);
(2) Whether the broker is known as being reputable; and
(3) All other things being equal, which broker has provided useful research
services.
Such research services as are furnished during the year (e.g., written reports
analyzing economic and financial characteristics of industries and companies,
telephone conversations between brokerage security analysts and members of SAM's
and the Sub-Adviser's staff, and personal visits by such analysts and brokerage
strategists and economists) are used to advise all clients including the Funds,
but not all such research services furnished are used by it to advise the Funds.
Excess commissions or mark-ups are not paid to any broker or dealer for research
services or for any other reason. During the fiscal year ended September 30,
1995, for the Growth, Income, Equity and Northwest Funds, 100% of each Fund's
total brokerage expenses were commissions paid to brokers providing research
services. The following table states the total amount of brokerage expense for
each Fund for the past three fiscal years for the Growth, Equity and Income
Funds and for the three fiscal periods for the Northwest Fund:
<TABLE>
<CAPTION>
Fiscal Years Ended
September 30 September 30 September 30
1995 1994 1993
------------ ------------ ------------
<S> <C> <C> <C>
Growth Fund $_______ $220,350 $197,179
Equity Fund $_______ $731,184 $223,474
Income Fund $_______ $111,612 $106,893
</TABLE>
-52-
<PAGE> 99
<TABLE>
<CAPTION>
9 month
Year Ended Period Ended Year Ended
September 30, 1995 September 30, 1994 December 31, 1993
------------------ ------------------ -----------------
<S> <C> <C> <C>
Northwest
Fund $________ $________ $_______
</TABLE>
REDEMPTION IN KIND
If the Trust concludes that cash payment upon redemption to a shareholder would
be prejudicial to the best interest of the other shareholders of a Fund, a
portion of the payment may be made in kind. The Trust has elected to be governed
by Rule 18(f)(1) under the Investment Company Act of 1940, pursuant to which the
Trust must redeem shares tendered by a shareholder of a Fund solely in cash up
to the lesser of $250,000 or 1% of a net asset value of a Fund during any 90-day
period. Any shares tendered by the shareholder in excess of the above-mentioned
limit may be redeemed through distribution of a Fund's assets. Any securities or
other property so distributed in kind shall be valued by the same method as is
used in computing NAV. Distributions in kind will be made in readily marketable
securities, unless the investor elects otherwise. Investors may incur brokerage
costs in disposing of securities received in such a distribution in kind.
FINANCIAL STATEMENTS
TO BE INSERTED BY SUBSEQUENT AMENDMENT
DESCRIPTION OF COMMERCIAL PAPER AND PREFERRED STOCK RATINGS
COMMERCIAL PAPER RATINGS
Moody's Investor Services, Inc. ("Moody's"). Issuers rated Prime-1 have a
superior capacity, issuers rated Prime-2 have a strong capacity and issuers
rated Prime-3 have an acceptable capacity for the repayment of short-term
promissory obligations.
Standard & Poor's Rating Group ("S&P"). Commercial paper rated A are the highest
quality obligations. Issues in this category are regarded as having the greatest
capacity for timely payment. For issues designated A-1 the degree of safety
regarding timely payment is very strong. Issues designated A-2 also have a
strong capacity for timely payment but not as high as A-1 issuers. Issues
designated A-3 have a satisfactory capacity for timely payment.
PREFERRED STOCK RATINGS
Generally, a preferred stock rating is an assessment of the capacity and
willingness of an issuer to pay preferred stock dividends. A preferred stock
rating differs from a bond rating since it is assigned to an equity issue which
is different from, and subordinated to, a debt issue.
Excerpts from Moody's description of its preferred stock ratings:
aaa - Top-quality preferred stock. This rating indicates good asset protection
and the least risk of dividend impairment within the universe of preferred
stocks.
-53-
<PAGE> 100
aa - High-grade preferred stock. This rating indicates that there is a
reasonable assurance that earnings and asset protection will remain relatively
well maintained in the foreseeable future.
a - Upper-medium grade preferred stock. While risks are judged to be somewhat
greater than in the "aaa" and "aa" classifications, earnings and asset
protections are, nevertheless, expected to be maintained at adequate levels.
baa - Medium grade preferred stock, neither highly protected nor poorly secured.
Earnings and asset protection appear adequate at present but may be questionable
over any great length of time.
ba - Considered to have speculative elements and its future cannot be considered
well assured. Earnings and asset protection may be very moderate and not well
safeguarded during adverse periods. Uncertainty of position characterizes
preferred stocks in this class.
b - Generally lacks the characteristics of a desirable investment. Assurance of
dividend payments and maintenance of other terms of the issue over any long
period of time may be small.
caa - Likely to be in arrears on dividend payments. This rating designation does
not purport to indicate the future status of payments.
ca - Speculative in a high degree and is likely to be in arrears on dividends
with little likelihood of eventual payments.
c - Lowest rated class of preferred or preference stock. Issues so rated can be
regarded as having extremely poor prospects of ever attaining any real
investment standing.
Excerpts from S&P's description of its preferred stock ratings:
AAA - The highest rating that may be assigned by S&P to a preferred stock issue
and indicates an extremely strong capacity to pay the preferred stock
obligations.
AA - 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 - 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 - 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 "A" category.
BB, B, CCC - Preferred stock rated "BB", "B", and "CCC" are regarded, on
balance, as predominately speculative with respect to the issuer's capacity to
pay preferred stock obligations. "BB" indicates the lowest degree of speculation
and "CCC" the highest degree of speculation. While such issues will likely have
some
-54-
<PAGE> 101
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
CC - The rating "CC" is reserved for a preferred stock issue in arrears on
dividends or sinking fund payments but that is currently paying.
C - A preferred stock rated "C" is a non-paying issue.
D - A preferred stock rated "D" is a non-paying issue with issuer in default on
debt instruments.
NR indicates that no rating has been requested, that there is insufficient
information on which to base a rating, or that S&P does not rate a particular
type of obligation as a matter of policy.
Plus (+) or Minus (-) To provide more detailed indications of preferred stock
quality, 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.
-55-
<PAGE> 102
SAFECO COMMON STOCK TRUST
PART C
OTHER INFORMATION
Item 24. Financial Statements and Exhibits
(a) TO BE FILED BY SUBSEQUENT AMENDMENT
(b) Exhibits:
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C> <C>
(99.1) Trust Instrument/Certificate of Trust
(99.2) Bylaws
(99.4) Form of Stock Certificate
(99.5) Investment Advisory and Management Contract
Form of Sub-Investment Advisory Contract
(99.6) Distribution Agreement
(99.8) Custody Agreement with U.S. Bank
Form of Custody and Subcustodian Agreements
with Chase Manhattan Bank
(99.9) Transfer Agent Agreement
(99.10) Opinion of Counsel
(99.11) Consent of Ernst & Young LLP,
Independent Auditors
(99.12) Registrant's Annual Report for Year or Period
Ended September 30, 1995+ including Financial
Statements
(99.13) Subscription Agreement
(99.14) Prototype 401(k)/Profit Sharing Plan
(99.16) Calculation of Performance Information
+ Registrant's Annual Report was filed with the SEC on
or about December ___, 1995.
</TABLE>
Item 25. Persons Controlled By or Under Common Control With Registrant
SAFECO Corporation, a Washington corporation, owns 100% of SAFECO Asset
Management Company (SAM), SAFECO Services Corporation (SAFECO Services) and
SAFECO Securities, Inc. (SAFECO Securities), each a Washington corporation. SAM
is the investment advisor, SAFECO Services is the transfer agent and SAFECO
Securities is the principal underwriter for each of the SAFECO mutual funds.
The SAFECO Mutual Funds consist of seven Delaware business trusts: SAFECO
Common Stock Trust, SAFECO Taxable Bond Trust, SAFECO Tax-Exempt Bond Trust,
SAFECO Advisor Series Trust, SAFECO Money Market Trust, SAFECO Institutional
Series Trust and SAFECO Resource Series Trust. The SAFECO Common Stock Trust
consists of seven mutual funds: SAFECO Growth Fund, SAFECO Equity Fund, SAFECO
Income Fund, SAFECO Northwest Fund, SAFECO International Stock Fund, SAFECO
Balanced Fund and SAFECO Small Company Stock Fund. The SAFECO Taxable Bond
Trust consists of three mutual funds: SAFECO Intermediate-Term U.S. Treasury
Fund, SAFECO GNMA Fund and SAFECO High-Yield Bond Fund. The SAFECO Tax-Exempt
Bond Trust consists of five mutual funds: SAFECO Intermediate-Term Municipal
Bond Fund, SAFECO Insured Municipal Bond Fund, SAFECO Municipal Bond Fund,
SAFECO California Tax-Free Income Fund and SAFECO Washington State Municipal
Bond Fund. The SAFECO Advisor Series Trust consists of eight mutual funds:
Advisor Equity Fund, Advisor Northwest Fund, Advisor Intermediate-Term Treasury
Fund, Advisor GNMA Fund, Advisor U.S. Government Fund, Advisor Municipal Bond
Fund, Advisor Intermediate-Term Municipal Bond Fund and Advisor Washington
Municipal Bond Fund. The SAFECO Money Market Fund consists of two mutual funds:
SAFECO Money Market Fund and SAFECO Tax-Free Money Market Fund. The SAFECO
Institutional Series Trust consists of one mutual fund: Fixed-Income Portfolio.
The SAFECO Resource Series Trust consists of five mutual funds: Equity
Portfolio, Growth Portfolio, Northwest Portfolio, Bond Portfolio and Money
Market Portfolio.
SAFECO Corporation, a Washington Corporation, owns 100% of the following
Washington corporations: SAFECO Insurance Company of America, General Insurance
Company of America, First National Insurance Company of America, SAFECO Life
Insurance Company of America, SAFECO Assigned Benefits Service Company, SAFECO
Administrative Services, Inc., SAFECO Properties Inc., SAFECO Credit Company,
Inc., SAFECO Asset Management Company, SAFECO Securities, Inc., SAFECO Services
Corporation, SAFECO Trust Company and General America Corporation. SAFECO
Corporation owns 100% of SAFECO National Insurance Company, a Missouri
corporation, and SAFECO Insurance Company of Illinois, an Illinois corporation.
SAFECO Corporation owns 20% of Agena, Inc., a Washington corporation. SAFECO
Insurance Company of America owns 100% of SAFECO Management Corp., a New York
corporation, and SAFECO Surplus Lines Insurance Company, a Washington
corporation. SAFECO Life Insurance Company owns 100% of SAFECO National Life
Insurance Company, a Washington corporation, and First SAFECO National Life
Insurance Company of New York, a New York corporation. SAFECO Administrative
Services, Inc. owns 100% of Employee Benefit Claims of Wisconsin, Inc. and
Wisconsin Pension and Group Services, Inc., each a Wisconsin corporation.
General America Corporation owns 100% of COMAV Managers, Inc., an Illinois
corporation, F.B. Beattie & Co., Inc., a Washington corporation, General
America Corp. of Texas, a Texas corporation, S&T Financial Corporation, a
Washington corporation and Whitehall Insurance Brokers, Inc., a California
corporation. F.B. Beattie & Co., Inc. owns 100% of F.B. Beattie Insurance
Services, Inc., a California corporation. General America Corp. of Texas is
Attorney-in-fact for SAFECO Lloyds Insurance Company, a Texas corporation.
Talbot Financial Corporation owns 100% of PNMR Securities, Inc., a Washington
corporation, and 100% of Talbot Agency, Inc., a New Mexico corporation. SAFECO
Properties Inc. owns 100% of the following, each a Washington corporation: RIA
Development, Inc., SAFECARE Company, Inc. and Winmar Company, Inc. SAFECARE
Company, Inc. owns 100% of the following, each a Washington corporation: S.C.
Bellevue, Inc., S.C. Everett, Inc., S.C. Marysville, Inc., S.C. Simi Valley,
Inc. and S.C. Vancouver, Inc. SAFECARE Company, Inc. owns 50% of Lifeguard
Ventures, Inc., a California corporation. S.C. Simi Valley, Inc. owns 100%
of Simi Valley Hospital, Inc., a Washington corporation. Winmar Company,
Inc. owns 50% of C-W Properties, Inc., a Washington corporation. Winmar
Company, Inc. owns 100% of the following: Barton Street Corp., Gem State
Investors, Inc., Kitsap Mall, Inc., WNY Development, Inc., Winmar Cascade,
Inc., Winmar Metro, Inc., Winmar Northwest, Inc., Winmar Redmond, Inc.
and Winmar of Kitsap, Inc., each a Washington corporation, and Capitol Court
Corp., a Wisconsin corporation, SAFECO Properties of Boise, Inc., an Idaho
corporation, SCIT, Inc., a Massachusetts corporation, Valley Fair Shopping
Centers, Inc., a Delaware corporation, WDI Golf Club, Inc., a California
corporation, Winmar Oregon, Inc., an Oregon corporation, Winmar of Texas, Inc.,
a Texas corporation, Winmar of Wisconsin, Inc., a Wisconsin corporation, and
Winmar of the Desert, Inc., a California corporation. Winmar Oregon, Inc. owns
100% of the following, each an Oregon corporation: North Coast Management,
Inc., Pacific Surfside Corp., Winmar of Jantzen Beach, Inc. and W-P
Development, Inc., and 100% of the following, each a Washington corporation:
Washington Square, Inc. and Winmar Pacific, Inc.
Item 26. Number of Holders of Securities
At December 31, 1995, Registrant had _________, _________, ________, ________,
_________, _________, and _________ shareholders of record in its SAFECO
Growth
<PAGE> 103
Fund, SAFECO Equity Fund, SAFECO Income Fund, SAFECO Northwest Fund, SAFECO
Balanced Fund, SAFECO International Stock Fund and SAFECO Small Company Stock
Fund, respectively.
Item 27. Indemnification
Under the Trust Instrument of the Registrant, the Registrant's trustees,
officers, employees and agents are indemnified against certain liabilities,
subject to specified conditions and limitations.
Under the indemnification provisions in the Registrant's Trust Instrument and
subject to the limitations described in the paragraph below, every person who
is, or has been, a trustee, officer, employee or agent of the Registrant shall
be indemnified by the Registrant or the appropriate Series of the Registrant to
the fullest extent permitted by law against liability and against all expenses
reasonably incurred or paid by him or her in connection with any claim, action,
suit or proceeding in which he or she becomes involved as a party or otherwise
by virtue of his or her being, or having been, a trustee, officer, employee or
agent and against amounts paid or incurred by him or her in the settlement
thereof. As used in this paragraph, "claim," "action," "suit" or "proceeding"
shall apply to all claims, actions, suits or proceedings (civil, criminal or
other, including appeals), actual or threatened, and the words, "liability" and
"expenses" shall include, without limitation, attorneys' fees, costs,
judgements, amounts paid in settlement, fines, penalties and other liabilities.
No indemnification will be provided to a trustee, officer, employee or agent:
(i) who shall have been adjudicated by a court or body before which the
proceeding was brought (a) to be liable to the Registrant or its shareholders
by reason of willful misfeasance, bad faith, gross negligence or reckless
disregard of the duties involved in the conduct of his or her office, or (b)
not to have acted in good faith in the reasonable belief that his or her action
was in the best interest of the Registrant; or (ii) in the event of settlement,
unless there has been a determination that such trustee, officer, employee or
agent did not engage in willful misfeasance, bad faith, gross negligence or
reckless disregard of the duties involved in the conduct of his or her office;
(a) by the court or other body approving the settlement, (b) by the vote of at
least a majority of a quorum of those trustees who are neither interested
persons, as that term is defined by the Investment Company Act of 1940, of the
Registrant nor are the parties to the proceeding based upon a review of readily
available facts (as opposed to a full trial type inquiry) or (c) by written
opinion of independent legal counsel based upon a review of readily available
facts (as opposed to a full trial type inquiry).
To the maximum extent permitted by applicable law, expenses incurred in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described above may be paid by the
Registrant or applicable Series from time to time prior to final disposition
thereof upon receipt of an undertaking by or on behalf of such trustee,
officer, employee or agent that such amount will be paid over by him or her to
the Registrant or the applicable Series if it is ultimately determined that he
or she is not entitled to indemnification under the Trust Instrument; provided,
however, that either (i) such trustee, officer, employee or agent shall have
provided appropriate security for such undertaking, (ii) the Registrant is
insured against such losses arising out of such advance payments or (iii)
either a majority of the trustees who are neither interested persons, as that
term is defined by the Investment Company Act of 1940, of the Registrant nor
parties to the proceeding, or independent legal counsel in a written opinion,
shall have determined, based on a review of readily available facts (as opposed
to full trial type inquiry), that there is reason to believe that such trustee,
officer, employee or agent,
2
<PAGE> 104
will not be disqualified from indemnification under Registrant's Trust
Instrument.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to trustees, officers, employees and agents of the
Registrant pursuant to such provisions of the Trust Instrument or statutes 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 said 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 trustee, officer,
employee or agent of the Registrant in the successful defense of any such
action, suit or proceeding) is asserted by such trustee, officer, employee or
agent in connection with the shares of the Registrant, 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 said Act
and will be governed by the final adjudication of such issue.
Under an Agreement with its distributor ("Distribution Agreement"), Registrant
has agreed to indemnify, defend and hold the distributor, the distributor's
several directors, officers and employees, and any person who controls the
distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
distributor, its directors, officers or employees, or any such controlling
person may incur, under the 1933 Act or under common law or otherwise, arising
out of or based upon any alleged untrue statement of a material fact contained
in the Registration Statement or arising out of or based upon any alleged
omission to state a material fact required to be stated or necessary to make
the Registration Statement not misleading, provided that in no event shall
anything contained in the Distribution Agreement be construed so as to protect
the distributor against any liability to the Registrant or its shareholders to
which the distributor would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of its duties,
or by reason of its reckless disregard of its obligations and duties under the
Distribution Agreement, and further provided that the Registrant shall not
indemnify the distributor for conduct set forth in this subparagraph.
Under an Agreement with its transfer agent, Registrant has agreed to indemnify
and hold the transfer agent harmless against any losses, claims, damages,
liabilities or expenses (including reasonable attorneys' fees and expenses)
resulting from: (1) any claim, demand, action or suit brought by any person
other than the Registrant, including by a shareholder, which names the transfer
agent and/or the Registrant as a party, and is not based on and does not result
from the transfer agent's willful misfeasance, bad faith or negligence or
reckless disregard of duties, and arises out of or in connection with the
transfer agent's performance hereunder; or (2) any claim, demand, action or
suit (except to the extent contributed to by the transfer agent's willful
misfeasance, bad faith or negligence or reckless disregard of duties) which
results from the negligence of the Registrant, or from the transfer agent
acting upon any instruction(s) reasonably believed by it to have been executed
or communicated by any person duly authorized by the Registrant, or as a result
of the transfer agent acting in reliance upon advice reasonably believed by the
transfer agent to have been given by counsel for the Registrant, or as a result
of the transfer agent acting in reliance upon any instrument or stock
certificate reasonably believed by it to have been genuine and signed,
countersigned or executed by the proper person.
3
<PAGE> 105
Item 28. Business and Other Connections of Investment Adviser
The investment adviser to the Registrant, SAM, serves as an adviser to: (a)
thirty-one series (portfolios) of seven registered investment companies,
including six series of an investment company that serves as the investment
vehicle for variable insurance products, and (b) a number of pension funds not
affiliated with SAFECO Corporation or its affiliates. The directors and
officers of SAM serve in similar capacities with SAFECO Corporation or its
affiliates. The sub-investment adviser to the SAFECO International Stock Fund,
Bank of Ireland Asset Management (U.S.) Limited, serves as investment adviser
to other registered open-end investment companies and other advisory clients.
The information set forth under "Investment Advisory and Other Services" in the
Registrant's Statement of Additional Information is incorporated by reference.
Item 29. Principal Underwriters
(a) SAFECO Securities, Inc., the principal underwriter for each series of
Registrant, acts also as the principal underwriter for each series of SAFECO
Tax-Exempt Bond Trust, SAFECO Taxable Bond Trust, SAFECO Money Market Trust,
SAFECO Institutional Series Trust and SAFECO Advisor Series Trust. In
addition, SAFECO Securities is the principal underwriter for SAFECO Separate
Account C, SAFECO Variable Account B and SAFECO Separate Account SL, all of
which are variable insurance products.
(b) The information set forth under "Investment Advisory and Other Services"
in the Statement of Additional Information is incorporated by reference.
Item 30. Location of Accounts and Records
U.S. Bank of Washington, N.A., 1420 Fifth Avenue, Seattle, Washington 98101;
the Bank of Ireland Investment Management Limited, 26 Fitzwilliam Street,
Dublin, Ireland; Bank of Ireland Investment Management (U.S.) Limited, 2
Greenwich Plaza, Greenwich, Connecticut; Chase Manhattan Bank, N.A. and various
sub-custodians maintains physical possession of the accounts, books and
documents of Registrant relating to its activities as custodian of the
Registrant. SAFECO Asset Management Company, SAFECO Plaza, Seattle, Washington
98185, maintains physical possession of all other accounts, books or documents
of the Registrant required to be maintained by Section 31(a) of the Investment
Company Act of 1940 and the rules promulgated thereunder.
Item 31. Management Services
Inapplicable.
Item 32. Undertakings
Registrant, on behalf of the SAFECO Balanced Fund, SAFECO International Stock
Fund and SAFECO Small Company Stock Fund, undertakes to file a post-effective
amendment to this Registration Satement, using financial statements which need
not be certified, within four to six months from the effective date of
Registrant's 1933 Act Registration Statement.
4
<PAGE> 106
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, the Registrant certifies that it meets all of the
requirements for effectiveness of this Registration Statement pursuant to Rule
485(b) under the Securities Act of 1933 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned thereto duly
authorized, in the City of Seattle, and State of Washington on the 15th day of
November, 1995.
SAFECO COMMON STOCK TRUST
By /S/ David F. Hill
------------------------
David F. Hill, President
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
Name Title Date
---- -----
<S> <C> <C>
President
/s/ David F. Hill Principal Executive Officer -----------
- ----------------------
David F. Hill
Vice President
RONALD L. SPAULDING* Treasurer -----------
- ----------------------
Ronald L. Spaulding
Vice President -----------
NEAL A. FULLER* Controller
- ---------------------- Assistant Secretary
Neal A. Fuller Principal Financial Officer
Chairman and Trustee -----------
/s/ Boh A. Dickey
- ----------------------
Boh A. Dickey
Trustee -----------
BARBARA J. DINGFIELD*
- ----------------------
Barbara J. Dingfield
Trustee -----------
RICHARD W. HUBBARD*
- ----------------------
Richard W. Hubbard
Trustee -----------
RICHARD E. LUNDGREN*
- ----------------------
Richard E. Lundgren
Trustee -----------
L. D. McCLEAN*
- ----------------------
L. D. McClean
Trustee -----------
LARRY L. PINNT*
- ----------------------
Larry L. Pinnt
Trustee -----------
JOHN W. SCHNEIDER*
- ----------------------
John W. Schneider
*By /s/ Boh A. Dickey
-----------------
Boh A. Dickey
Attorney-in-Fact
*By /s/ David F. Hill
-----------------
David F. Hill
Attorney-in-Fact
</TABLE>
5
<PAGE> 107
Registration No. 33-36700/811-6167
================================================================================
EXHIBITS
to
FORM N-1A
REGISTRATION STATEMENT
POST-EFFECTIVE AMENDMENT NO. 8
Under
The Securities Act of 1933
and
AMENDMENT NO. 9
Under
The Investment Company Act of 1940
---------
SAFECO Common Stock Trust
(Exact Name of Registrant as Specified in Charter)
SAFECO Plaza
Seattle, Washington 98185
(Address of Principal Executive Offices)
206-545-5269
(Registrant's Telephone Number, including Area Code)
================================================================================
7
<PAGE> 108
SAFECO COMMON STOCK TRUST
Form N-1A
Post-Effective Amendment No. 8
Exhibit Index
<TABLE>
<CAPTION>
Exhibit
Number Description Page
- ------- ----------- ----
<S> <C> <C>
(99.1) Trust Instrument/Certificate of Trust
(99.2) Bylaws
(99.4) Form of Stock Certificate
(99.5) Investment Advisory and Management Contract
Form of Subadvisory Contract
(99.6) Distribution Agreement
(99.8) Custody Agreement with U.S. Bank
Form of Custody Agreements with Chase Manhattan Bank
(99.9) Transfer Agent Agreement
(99.10) Opinion of Counsel
(99.11) Consent of Ernst & Young LLP, Independent Auditors
(99.12) Registrant's Annual Report for Year or Period
Ended September 30, 1995+ including Financial
Statements
(99.13) Subscription Agreement
(99.14) Prototype 401(k)/Profit Sharing Plan
(99.16) Calculation of Performance Information
</TABLE>
+ Registrant's Annual Report was filed with the SEC on or about December
____, 1995.
<PAGE> 1
EXHIBIT NO. 99.1
TRUST INSTRUMENT/CERTIFICATE OF TRUST
<PAGE> 2
CERTIFICATE OF TRUST
OF
SAFECO COMMON STOCK TRUST
This Certificate of Trust ("Certificate") is filed in accordance with
the provisions of the Delaware Business Trust Act (12 Del. Code Ann. Tit. 12
Section 3801 et seq.) and sets forth the following:
1. The name of the trust is: SAFECO Common Stock Trust ("Trust").
2. The business address of the registered office of the Trust and
of the registered agent of the Trust is:
The Corporation Trust Company
Corporation Trust Center
1209 Orange Street
Wilmington, Delaware 19801
3. This Certificate is effective upon filing.
4. The Trust is a Delaware business trust registered under the
Investment Company Act of 1940. Notice is hereby given that the Trust shall
consist of one or more series. The debts, liabilities, obligations and
expenses incurred, contracted for or otherwise existing with respect to a
particular series of the Trust shall be enforceable against the assets of such
series only, and not against the assets of the Trust generally or any other
series.
IN WITNESS WHEREOF, the undersigned, being the initial Trustees, have
executed this Certificate on this ___ day of _______, 1993.
/s/ Boh A. Dickey
----------------------------
Boh A. Dickey, as Trustee
and not individually
/s/ Richard W. Hubbard
----------------------------
Richard W. Hubbard, as
Trustee and not individually
<PAGE> 3
Address: SAFECO Plaza
Seattle, Washington 98185
STATE OF WASHINGTON ss
CITY OF SEATTLE
Before me this _____ day of _________, 1993, personally appeared the
above-named Boh A. Dickey and Richard W. Hubbard, known to me to be the persons
who executed the foregoing instrument and who acknowledged that they executed
the same.
-------------------------------
Notary Public
My Commission expires______________________________.
<PAGE> 4
SAFECO COMMON STOCK TRUST
TRUST INSTRUMENT
This TRUST INSTRUMENT is made on May 13, 1993, by the Trustees, to
establish a business trust for the investment and reinvestment of funds
contributed to the Trust by investors. The Trustees declare that all money and
property contributed to the Trust shall be held and managed in trust pursuant
to this Trust Instrument. The name of the Trust created by this Trust
Instrument is SAFECO Common Stock Trust.
ARTICLE I
DEFINITIONS
Unless otherwise provided or required by the context:
(a) "Bylaws" means the Bylaws of the Trust adopted by the Trustees, as
amended from time to time;
(b) "Class" means the class of Shares of a Series established pursuant
to Article IV;
(c) "Commission," "Interested Person," and "Principal Underwriter"
have the meanings provided in the 1940 Act;
(d) "Covered Person" means a person so defined in Article IX, Section
2;
(e) "Delaware Act" means Chapter 38 of Title 12 of the Delaware Code
entitled "Treatment of Delaware Business Trusts," as amended from time to time;
(f) "Majority Shareholder Vote" means "the vote of a majority of the
outstanding voting securities" as defined in the 1940 Act;
(g) "Net Asset Value" means the net asset value of each Series of the
Trust, determined as provided in Article V, Section 3;
<PAGE> 5
(h) "Outstanding Shares" means Shares shown on the books of the Trust
or its transfer agent as then issued and outstanding, but does not include
Shares which have been repurchased by the Trust;
(i) "Series" means a series of Shares established pursuant to Article
IV;
(j) "Shareholder" means a record owner of Outstanding Shares;
(k) "Shares" means the equal proportionate transferable units of
interest into which the beneficial interest of each Series or Class is divided
from time to time (including whole Shares and fractions of Shares);
(l) "Trust" means SAFECO Common Stock Trust established hereby, and
reference to the Trust, when applicable to one or more Series, refers to that
Series;
(m) "Trustees" means the persons who have signed this Trust
Instrument, so long as they shall continue in office in accordance with the
terms hereof, and all other persons who may from time to time be duly qualified
and serving as Trustees in accordance with Article II, in all cases in their
capacities as Trustees hereunder;
(n) "Trust Property" means any and all property, real or personal,
tangible or intangible, which is owned or held by or for the Trust or any
Series or the Trustees on behalf of the Trust or any Series;
(o) The "1940 Act" means the Investment Company Act of 1940, as
amended from time to time.
ARTICLE II
TRUSTEES
Section 1. Management of the Trust. The business and affairs of the
Trust shall be managed by or under the direction of the Trustees, and they
shall have all powers necessary or desirable to carry out that responsibility.
The Trustees may execute all instruments and take all action they deem
necessary or desirable to promote the interests of the Trust. Any
determination made by the Trustees in good faith as to what is in the interests
of the Trust shall be conclusive. The Trustees, in their capacity as such,
shall not be expected to devote their entire time to the business and affairs
of the Trust.
Section 2. Initial Trustees; Number, Election and Qualification of
Trustees. The initial Trustees shall be the persons initially signing this
Trust Instrument. The number of Trustees (other than the initial Trustees)
shall be fixed from time to time by a majority of the Trustees; provided, that
there shall be at least two (2) Trustees. The Shareholders shall elect the
Trustees (other than the initial Trustees) on such dates as the Trustees may
fix from time to time.
Section 3. Term of Office. Each Trustee shall hold office for life,
or until he or she reaches seventy-two (72) years of age, or until his or her
successor is elected, or the Trust terminates; except that (a) any Trustee may
resign by delivering to the Board of Trustees or to any Trust officer a written
resignation effective upon such delivery or a later date specified therein; (b)
any Trustee may be removed with or without cause at any time by a written
instrument signed by at least two-thirds of the other Trustees, specifying the
effective date of removal; (c) any Trustee who has become physically or
mentally incapacitated or is otherwise unable to serve, may be retired by a
written instrument signed by a majority of the other Trustees, specifying the
effective
<PAGE> 6
date of retirement; and (d) any Trustee may be removed at any meeting of the
Shareholders by a vote of at least two-thirds of the Outstanding Shares.
Section 4. Vacancies; Appointment of Trustees. Whenever a vacancy
shall exist in the Board of Trustees, regardless of the reason for such
vacancy, the remaining Trustees shall appoint any person as they determine in
their sole discretion to fill that vacancy, subject to Sections 10 and 16(a) of
the 1940 Act. Such appointment shall be made by a written instrument signed by
a majority of the Trustees or by a resolution of the Trustees, duly adopted and
recorded in the records of the Trust, specifying the effective date of the
appointment. The Trustees may appoint a new Trustee as provided above in
anticipation of a vacancy expected to occur because of the retirement,
resignation, or removal of a Trustee, or an increase in number of Trustees,
provided that such appointment shall become effective only at or after the
expected vacancy occurs. As soon as any such Trustee has accepted his
appointment in writing, the trust estate shall vest in the new Trustee,
together with the continuing Trustees, without any further act or conveyance,
and he shall be deemed a Trustee hereunder.
Section 5. Chairman. The Trustees shall appoint one of their number
to be Chairman of the Board of Trustees. The Chairman shall preside at all
meetings of the Trustees and the Shareholders and shall perform such other
powers and duties as may from time to time be assigned by the Board of Trustees
or prescribed by the Bylaws.
Section 6. Action by the Trustees. The Trustees shall act by majority
vote at a meeting duly called (including at a telephonic meeting, unless the
1940 Act requires that a particular action be taken only at a meeting of
Trustees in person) at which a quorum is present or by written consent of a
majority of Trustees (or such greater number as may be required by applicable
law) without a meeting. A majority of the Trustees shall constitute a quorum
at any meeting. Meetings of the Trustees may be called orally or in writing by
the President of the Trust, the Secretary of the Trust, the Chairman of the
Board of Trustees, or by any two other Trustees. Notice of the time, date and
place of all Trustees meetings shall be given to each Trustee in person or by
telephone, telegram, facsimile or other electronic mechanism sent to his or her
home or business address at least twenty-four hours in advance of the meeting
or by written notice mailed to his or her home or business address at least
seventy-two hours in advance of the meeting. Oral notice is deemed to be given
upon communication. Written notice is deemed to be given, if mailed, when
deposited in the United States mail, postage pre-paid, or if sent by telegram,
facsimile or other electronic transmission, when dispatched, to the address,
telephone number or other number of the Trustee as it appears on the records of
the Trust. Notice need not be given to any Trustee who attends the meeting
without objecting to the lack of notice or who signs a waiver of notice either
before or after the meeting. Subject to the requirements of the 1940 Act, the
Trustees by majority vote may delegate to any Trustee or Trustees authority to
approve particular matters or take particular actions on behalf of the Trust.
Any written consent or waiver may be provided and delivered to the Trust by
facsimile or other similar electronic mechanism.
Section 7. Ownership of Trust Property. The Trust Property of the
Trust and of each Series shall be held separate and apart from any assets now
or hereafter held in any capacity other than as Trustee hereunder by the
Trustees or any successor Trustees. All of the Trust Property and legal title
thereto shall at all times be considered as vested in the Trustees on behalf of
the Trust, except that the Trustees may cause legal title to any Trust
Property to be held by or in the name of the Trust, or in the name of any
person as nominee. No Shareholder shall be deemed to have a severable
ownership in any individual asset of the Trust or of any Series or any right of
partition or possession thereof, but each
<PAGE> 7
Shareholder shall have, as provided in Article IV, a proportionate undivided
beneficial interest in the Trust or Series represented by Shares.
Section 8. Effect of Trustees Not Serving. The death, resignation,
retirement, removal, incapacity, or inability or refusal to serve of the
Trustees, or any one of them, shall not operate to annul the Trust or to revoke
any existing agency created pursuant to the terms of this Trust Instrument.
Section 9. Trustees, etc. as Shareholders. Subject to any
restrictions in the Bylaws, any Trustee, officer, agent or independent
contractor of the Trust may acquire, own and dispose of Shares to the same
extent as any other Shareholder; the Trustees may issue and sell Shares to and
buy Shares from any such person or any firm or company in which such person is
interested, subject only to any general limitations herein.
ARTICLE III
POWERS OF THE TRUSTEES
Section 1. Powers. The Trustees in all instances shall act as
principals, free of the control of the Shareholders. The Trustees shall have
full power and authority to take or refrain from taking any action and to
execute any contracts and instruments that they may consider necessary or
desirable in the management of the Trust. The Trustees shall not in any way be
bound or limited by current or future laws or customs applicable to trust
investments, but shall have full power and authority to make any investments
which they, in their discretion, deem proper to accomplish the purposes of the
Trust. The Trustees may exercise all of their powers without recourse to any
court or other authority. Subject to any applicable limitation herein or in
the Bylaws or resolutions of the Trust, the Trustees shall have power and
authority, without limitation:
(a) To invest and reinvest cash and other property, and to hold cash or
other property uninvested, without in any event being bound or limited by any
current or future law or custom concerning investments by trustees, and to
sell, exchange, lend, pledge, mortgage, hypothecate, write options on and lease
any or all of the Trust Property; to invest in obligations and securities of
any kind, and without regard to whether they may mature before the possible
termination of the Trust; and without limitation to invest all or any part of
its cash and other property in securities issued by a registered investment
company or series thereof, subject to the provisions of the 1940 Act;
(b) To operate as and carry on the business of a registered investment
company, and exercise all the powers necessary and proper to conduct such a
business;
(c) To adopt Bylaws not inconsistent with this Trust Instrument
providing for the conduct of the business of the Trust and to amend and repeal
them to the extent such right is not reserved to the Shareholders;
(d) To elect and remove such officers and appoint and terminate such
agents as they deem appropriate;
(e) To employ as custodian of any assets of the Trust, subject to any
provisions herein or in the Bylaws, one or more banks, trust companies or
companies that are members of a national securities exchange, or other entities
permitted by the Commission to serve as such;
(f) To retain one or more transfer agents and Shareholder servicing
agents, or both;
<PAGE> 8
(g) To provide for the distribution of Shares either through a
Principal Underwriter as provided herein or by the Trust itself, or both, or
pursuant to a distribution plan of any kind;
(h) To set record dates in the manner provided for herein or in the
Bylaws;
(i) To delegate such authority as they consider desirable to any
officers of the Trust and to any agent, independent contractor, manager,
investment adviser, custodian or underwriter;
(j) To sell or exchange any or all of the assets of the Trust, subject
to Article X, Section 4;
(k) To vote or give assent, or exercise any rights of ownership, with
respect to other securities or property; and to execute and deliver powers of
attorney delegating such power to other persons;
(l) To exercise powers and rights of subscription or otherwise which in
any manner arise out of ownership of securities;
(m) To hold any security or other property (i) in a form not indicating
any trust, whether in bearer, book entry, unregistered or other negotiable
form, or (ii) either in the Trust's or Trustees' own name or in the name of a
custodian or a nominee or nominees, subject to safeguards according to the
usual practice of business trusts or investment companies;
(n) To establish separate and distinct Series with separately defined
investment objectives and policies and distinct investment purposes, and with
separate Shares representing beneficial interests in such Series, and to
establish separate Classes, all in accordance with the provisions of Article
IV;
(o) To the full extent permitted by Section 3804 of the Delaware Act,
to allocate assets, liabilities and expenses of the Trust to a particular
Series and liabilities and expenses to a particular Class or to apportion the
same between or among two or more Series or Classes, provided that any
liabilities or expenses incurred by a particular Series or Class shall be
payable solely out of the assets belonging to that Series or Class as provided
for in Article IV, Section 4;
(p) To consent to or participate in any plan for the reorganization,
consolidation or merger of any corporation or concern whose securities are held
by the Trust; to consent to any contract, lease, mortgage, purchase, or sale of
property by such corporation or concern; and to pay calls or subscriptions with
respect to any security held in the Trust;
<PAGE> 9
(q) To compromise, arbitrate, or otherwise adjust claims in favor of or
against the Trust or any matter in controversy including, but not limited to,
claims for taxes;
(r) To make distributions of income and of capital gains to
Shareholders in the manner hereinafter provided for;
(s) To borrow money;
(t) To establish, from time to time, a minimum total investment for
Shareholders, and to require the redemption of the Shares of any Shareholders
whose investment is less than such minimum upon giving notice to such
Shareholder;
(u) To establish committees for such purposes, with such membership,
and with such responsibilities as the Trustees may consider proper, including a
committee consisting of fewer than all of the Trustees then in office, which
may act for and bind the Trustees and the Trust with respect to the
institution, prosecution, dismissal, settlement, review or investigation of any
legal action, suit or proceeding, pending or threatened;
(v) To issue, sell, repurchase, redeem, cancel, retire, acquire, hold,
resell, reissue, dispose of and otherwise deal in Shares; to establish terms
and conditions regarding the issuance, sale, repurchase, redemption,
cancellation, retirement, acquisition, holding, resale, reissuance, disposition
of or dealing in Shares; and, subject to Articles IV and V, to apply to any
such repurchase, redemption, retirement, cancellation or acquisition of Shares
any funds or property of the Trust or of the particular Series with respect to
which such Shares are issued; and
(w) To carry on any other business in connection with or incidental to
any of the foregoing powers, to do everything necessary or desirable to
accomplish any purpose or to further any of the foregoing powers, and to take
every other action incidental to the foregoing business or purposes, objects or
powers.
The clauses above shall be construed as objects and powers, and the
enumeration of specific powers shall not limit in any way the general powers of
the Trustees. Any action by one or more of the Trustees in their capacity as
such hereunder shall be deemed an action on behalf of the Trust or the
applicable Series, and not an action in an individual capacity. No one dealing
with the Trustees shall be under any obligation to make any inquiry concerning
the authority of the Trustees, or to see to the application of any payments
made or property transferred to the Trustees or upon their order. In
construing this Trust Instrument, the presumption shall be in favor of a grant
of power to the Trustees.
<PAGE> 10
Section 2. Certain Transactions. Except as prohibited by applicable
law, the Trustees may, on behalf of the Trust, buy any securities from or sell
any securities to, or lend any assets of the Trust to, any Trustee or officer
of the Trust or any firm of which any such Trustee or officer is a member
acting as principal, or have any such dealings with any investment adviser,
administrator, distributor or transfer agent for the Trust or with any
Interested Person of such person. The Trust may employ any such person or
entity in which such person is an Interested Person, as broker, legal counsel,
registrar, investment adviser, administrator, distributor, transfer agent,
dividend disbursing agent, custodian or in any other capacity upon customary
terms.
ARTICLE IV
SERIES; CLASSES; SHARES
Section 1. Establishment of Series or Class. The Trust shall consist
of one or more Series. The Trustees hereby establish the Series listed in
Exhibit A attached hereto and made a part hereof. Each additional Series shall
be established by the adoption of a resolution of the Trustees. The Trustees
may designate the relative rights and preferences of the Shares of each Series.
The Trustees may divide the Shares of any Series into Classes. In such case
each Class of a Series shall represent interests in the assets of that Series
and have identical voting, dividend, liquidation and other rights and the same
terms and conditions, except that expenses allocated to a Class may be borne
solely by such Class as determined by the Trustees and a Class may have
exclusive voting rights with respect to matters affecting only that Class. The
Trust shall maintain separate and distinct records for each Series and hold and
account for the assets thereof separately from the other assets of the Trust or
of any other Series. A Series may issue any number of Shares and need not
issue Shares. Each Share of a Series shall represent an equal beneficial
interest in the net assets of such Series. Each holder of Shares of a Series
shall be entitled to receive his or her pro rata share of all distributions
made with respect to such Series. Upon redemption of his or her Shares, such
Shareholder shall be paid solely out of the funds and property of such Series.
The Trustees may change the name of any Series or Class without Shareholder
approval.
Section 2. Shares. The beneficial interest in the Trust shall be
divided into Shares of one or more separate and distinct Series or Classes
established by the Trustees. The number of Shares of each Series and Class is
unlimited and each Share shall have a par value of $0.001 per Share. All
Shares issued hereunder shall be fully paid and nonassessable. Shareholders
shall have no preemptive or other right to subscribe to any additional Shares
or other securities issued by the Trust. The Trustees shall have full power
and authority, in their sole discretion and without obtaining Shareholder
approval: to issue original or additional Shares or fractional Shares at such
times and on such terms and conditions as they deem appropriate; to issue
Shares which have been repurchased by the Trust; to establish and to change in
any manner Shares of any Series or Classes with such preferences, terms of
conversion, voting powers, rights and privileges as the Trustees may determine
(but the Trustees may not change Outstanding Shares in a manner materially
adverse to the Shareholders of such Shares); to divide or combine the Shares of
any Series or Classes into a greater or lesser number; to classify or
reclassify any unissued Shares of any Series or Classes into one or more Series
or Classes of Shares; to abolish any one or more Series or Classes of Shares;
to issue Shares to acquire other assets (including assets subject to, and in
connection with, the assumption of liabilities) and businesses; and to take
such other action with respect to the Shares as the Trustees may deem
desirable. Shares which have been repurchased by the Trust and have not been
reissued shall not confer any voting rights on the Trustees and shall not be
entitled to any dividends or other distributions declared with respect to the
Shares.
<PAGE> 11
Section 3. Investment in the Trust. The Trustees shall accept
investments in any Series from such persons and on such terms as they may from
time to time authorize. At the Trustees' discretion, such investments, subject
to applicable law, may be in the form of cash or securities in which that
Series is authorized to invest, valued as provided in Article V, Section 3.
Investments in a Series shall be credited to each Shareholder's account in the
form of full or fractional Shares at the Net Asset Value per Share next
determined after the investment is received or accepted in good form as may be
determined by the Trustees; provided, however, that the Trustees may, in their
sole discretion (a) impose a sales charge upon investments in any Series or
Class or (b) determine the Net Asset Value per Share of the initial capital
contribution. The Trustees shall have the right to refuse to accept
investments in any Series at any time without any cause or reason therefor
whatsoever.
Section 4. Assets and Liabilities of Series. All consideration
received by the Trust for the issue or sale of Shares of a particular Series,
together with all assets in which such consideration is invested or reinvested,
all income, earnings, profits, and proceeds thereof (including any proceeds
derived from the sale, exchange or liquidation of such assets, and any funds or
payments derived from any reinvestment of such proceeds in whatever form the
same may be), shall be held and accounted for separately from the other assets
of the Trust and every other Series and are referred to as "assets belonging
to" that Series. The assets belonging to a Series shall belong only to that
Series for all purposes, and to no other Series, subject only to the rights of
creditors of that Series. Any assets, income, earnings, profits, and proceeds
thereof, funds, or payments which are not readily identifiable as belonging to
any particular Series shall be allocated by the Trustees between and among one
or more Series as the Trustees deem fair and equitable. Each such allocation
shall be conclusive and binding upon the Shareholders of all Series for all
purposes, and such assets, earnings, income, profits or funds, or payments and
proceeds thereof shall be referred to as assets belonging to that Series. The
assets belonging to a Series shall be so recorded upon the books of the Trust,
and shall be held by the Trustees in trust for the benefit of the Shareholders
of that Series. The assets belonging to a Series shall be charged with the
liabilities of that Series and all expenses, costs, charges and reserves
attributable to that Series, except that liabilities and expenses allocated
solely to a particular Class shall be borne by that Class. Any general
liabilities, expenses, costs, charges or reserves of the Trust which are not
readily identifiable as belonging to any particular Series or Class shall be
allocated and charged by the Trustees between or among any one or more of the
Series or Classes in such manner as the Trustees deem fair and equitable. Each
such allocation shall be conclusive and binding upon the Shareholders of all
Series or Classes for all purposes.
Without limiting the foregoing, but subject to the right of the
Trustees to allocate general liabilities, expenses, costs, charges or reserves
as herein provided, the debts, liabilities, obligations and expenses incurred,
contracted for or otherwise existing with respect to a particular Series shall
be enforceable against the assets of such Series only, and not against the
assets of the Trust generally or of any other Series. Notice of this
contractual limitation on liabilities among Series may, in the Trustees'
discretion, be set forth in the certificate of trust of the Trust (whether
originally or by amendment) as filed or to be filed in the Office of the
Secretary of State of the State of Delaware pursuant to the Delaware Act, and
upon the giving of such notice in the certificate of trust, the statutory
provisions of Section 3804 of the Delaware Act relating to limitations on
liabilities among Series (and the statutory effect under Section 3804 of
setting forth such notice in the certificate of trust) shall become applicable
to the Trust and each Series. Any person extending credit to, contracting with
or having any claim against any Series may look only to the assets of that
Series to satisfy or enforce any debt, with respect to that Series. No
Shareholder or former Shareholder of any Series shall have a claim on or any
right to any assets allocated or belonging to any other Series.
<PAGE> 12
Section 5. Ownership and Transfer of Shares. The Trust shall maintain
a register containing the names and addresses of the Shareholders of each
Series and Class thereof, the number of Shares of each Series and Class held by
such Shareholders, and a record of all Share transfers. The register shall be
conclusive as to the identity of Shareholders of record and the number of
Shares held by them from time to time. The Trustees, in their sole discretion,
may authorize the issuance of certificates representing Shares and adopt rules
governing their use. The Trustees may make rules governing the transfer of
Shares, whether or not represented by certificates.
<PAGE> 13
Section 6. Status of Shares; Limitation of Shareholder Liability.
Shares shall be deemed to be personal property giving Shareholders only the
rights provided in this Trust Instrument. Every Shareholder, by virtue of
having acquired a Share, shall be held expressly to have assented to and agreed
to be bound by the terms of this Trust Instrument and to have become a party
hereto. No Shareholder shall be personally liable for the debts, liabilities,
obligations and expenses incurred by, contracted for, or otherwise existing
with respect to, the Trust or any Series. Neither the Trust nor the Trustees
shall have any power to bind any Shareholder personally or to demand payment
from any Shareholder for anything, other than as agreed by the Shareholder.
Shareholders shall have the same limitation of personal liability as is
extended to shareholders of a private corporation for profit incorporated in
the State of Delaware. Every written obligation of the Trust or any Series
shall contain a statement to the effect that such obligation may only be
enforced against the assets of the Trust or such Series; however, the omission
of such statement shall not operate to bind or create personal liability for
any Shareholder or Trustee.
ARTICLE V
DISTRIBUTIONS AND REDEMPTIONS
Section 1. Distributions. The Trustees may declare and pay dividends
and other distributions, including dividends on Shares of a particular Series
and other distributions from the assets belonging to that Series. The amount
and payment of dividends or distributions and their form, whether they are in
cash, Shares or other Trust Property, shall be determined by the Trustees.
Dividends and other distributions may be paid pursuant to a standing resolution
adopted once or more often as the Trustees determine. All dividends and other
distributions on Shares of a particular Series shall be distributed pro rata to
the Shareholders of that Series in proportion to the number of Shares of that
Series they held on the record date established for such payment, except that
such dividends and distributions shall appropriately reflect expenses allocated
to a particular Class of such Series. The Trustees may adopt and offer to
Shareholders such dividend reinvestment plans, cash dividend payout plans or
similar plans as the Trustees deem appropriate.
Section 2. Redemptions. Each Shareholder of a Series or Class shall
have the right at such times as may be permitted by the Trustees to require the
Series to redeem all or any part of his or her Shares at a redemption price per
Share equal to the Net Asset Value per Share at such time as the Trustees shall
have prescribed by resolution. In the absence of such resolution, the
redemption price per Share shall be the Net Asset Value next determined after
receipt by the Series of a request for redemption in proper form less such
charges as are determined by the Trustees and described in the Trust's
Registration Statement for that Series or Class under the Securities Act of
1933. The Trustees may specify conditions, prices, and places of redemption,
and may specify binding requirements for the proper form or forms of requests
for redemption. Payment of the redemption price may be wholly or partly in
securities or other assets at the value of such securities or assets used in
such determination of Net Asset Value, or may be in cash. Upon redemption,
Shares may be reissued from time to time. The Trustees may require
Shareholders to redeem Shares for any reason under terms set by the Trustees,
including the failure of a Shareholder to supply a personal identification
number if required to do so, or to have the minimum investment required, or to
pay when due for the purchase of Shares issued to him. To the extent permitted
by law, the Trustees may retain the proceeds of any redemption of Shares
required by them for payment of amounts due and owing by a Shareholder to the
Trust or any Series or Class. Notwithstanding the foregoing, the Trustees may
postpone payment of the redemption price and may suspend the right of the
Shareholders to require any Series
<PAGE> 14
or Class to redeem Shares during any period of time when and to the extent
permissible under the 1940 Act.
Section 3. Determination of Net Asset Value. The Trustees shall cause
the Net Asset Value of Shares of each Series or Class to be determined from
time to time in a manner consistent with applicable laws and regulations. The
Trustees may delegate the power and duty to determine Net Asset Value per Share
to one or more Trustees or officers of the Trust or to an investment adviser,
custodian, depository or other agent appointed for such purpose. The Net Asset
Value of Shares shall be determined separately for each Series or Class at such
times as may be prescribed by the Trustees or, in the absence of action by the
Trustees, as of the close of trading on the New York Stock Exchange on each day
for all or part of which such Exchange is open for unrestricted trading.
Section 4. Suspension of Right of Redemption. If, as referred to in
Section 2 of this Article, the Trustees postpone payment of the redemption
price and suspend the right of Shareholders to redeem their Shares, such
suspension shall take effect at the time the Trustees shall specify, but not
later than the close of business on the business day next following the
declaration of suspension. Thereafter Shareholders shall have no right of
redemption or payment until the Trustees declare the end of the suspension. If
the right of redemption is suspended, a Shareholder may either withdraw his or
her request for redemption or receive payment based on the Net Asset Value per
Share next determined after the suspension terminates.
<PAGE> 15
ARTICLE VI
SHAREHOLDERS' VOTING POWERS AND MEETINGS
Section 1. Voting Powers. The Shareholders shall have power to vote
only with respect to (a) the election of Trustees as provided in Section 2 of
this Article; (b) the removal of Trustees as provided in Article II, Section
3(d); (c) any investment advisory or management contract as provided in Article
VII, Section 1; (d) any termination of the Trust as provided in Article X,
Section 4; (e) the amendment of this Trust Instrument to the extent and as
provided in Article X, Section 8; and (f) such additional matters relating to
the Trust as may be required or authorized by law, this Trust Instrument, or
the Bylaws or any registration of the Trust with the Commission or any State,
or as the Trustees may consider desirable.
On any matter submitted to a vote of the Shareholders, all Shares shall
be voted by individual Series or Class, except (a) when required by the 1940
Act, Shares shall be voted in the aggregate and not by individual Series or
Class, and (b) when the Trustees have determined that the matter affects the
interests of more than one Series or Class, then the Shareholders of all such
Series or Classes shall be entitled to vote thereon. Each whole Share shall be
entitled to one vote as to any matter on which it is entitled to vote, and each
fractional Share shall be entitled to a proportionate fractional vote. There
shall be no cumulative voting in the election of Trustees. Shares may be voted
in person or by proxy or in any manner provided for in the Bylaws. The Bylaws
may provide that proxies may be given by any electronic or telecommunications
device or in any other manner, but if a proposal by anyone other than the
officers or Trustees is submitted to a vote of the Shareholders of any Series
or Class, or if there is a proxy contest or proxy solicitation or proposal in
opposition to any proposal by the officers or Trustees, Shares may be voted
only in person or by written proxy. Until Shares of a Series are issued, as to
that Series the Trustees may exercise all rights of Shareholders and may take
any action required or permitted to be taken by Shareholders by law, this Trust
Instrument or the Bylaws.
Section 2. Meetings of Shareholders. The first Shareholders' meeting
shall be held to elect Trustees at such time and place as the Trustees
designate. There shall be no annual Shareholders' meetings except as required
by law or set forth in the Bylaws. Special meetings of the Shareholders of any
Series or Class may be called by the Trustees and shall be called by the
Trustees upon the written request of Shareholders owning at least ten percent
of the Outstanding Shares of such Series or Class entitled to vote. Special
meetings of Shareholders shall be held, notice of such meetings shall be
delivered and waiver of notice shall occur according to the provisions of the
Trust's Bylaws. Any action that may be taken at a meeting of Shareholders may
be taken without a meeting according to the procedures set forth in the Trust's
Bylaws.
Section 3. Quorum; Required Vote. One-third of the Outstanding Shares
of each Series or Class, or one-third of the Outstanding Shares of the Trust,
entitled to vote in person or by proxy shall be a quorum for the transaction of
business at a Shareholders' meeting with respect to such Series or Class, or
with respect to the entire Trust, respectively. Any lesser number shall be
sufficient for adjournments. Any adjourned session of a Shareholders' meeting
may be held within a reasonable time without further notice. Except when a
larger vote is required by law, this Trust Instrument or the Bylaws, a majority
of the Outstanding Shares voted in person or by proxy shall decide any matters
to be voted upon with respect to the entire Trust and a plurality of such
Outstanding Shares shall elect a Trustee; provided, that if this Trust
Instrument or applicable law permits or requires that Shares be voted on any
matter by individual Series or Classes, then a majority of the Outstanding
Shares of that Series or Class (or, if required by law, a Majority
<PAGE> 16
Shareholder Vote of that Series or Class) voted in person or by proxy voted on
the matter shall decide that matter insofar as that Series or Class is
concerned. Shareholders may act as to the Trust or any Series or Class by the
written consent of a majority (or such greater amount as may be required by
applicable law) of the Outstanding Shares of the Trust or of such Series or
Class, as the case may be.
ARTICLE VII
CONTRACTS WITH SERVICE PROVIDERS
Section 1. Investment Adviser. Subject to a Majority Shareholder
Vote, the Trustees may enter into one or more investment advisory contracts on
behalf of the Trust or any Series, providing for investment advisory services,
statistical and research facilities and services, and other facilities and
services to be furnished to the Trust or Series on terms and conditions
acceptable to the Trustees. Any such contract may provide for the investment
adviser to effect purchases, sales or exchanges of portfolio securities or
other Trust Property on behalf of the Trustees or may authorize any officer or
agent of the Trust to effect such purchases, sales or exchanges pursuant to
recommendations of the investment adviser. The Trustees may authorize the
investment adviser to employ one or more sub-advisers.
Section 2. Principal Underwriter. The Trustees may enter into
contracts on behalf of the Trust or any Series or Class, providing for the
distribution and sale of Shares by the other party, either directly or as sales
agent, on terms and conditions acceptable to the Trustees. The Trustees may
adopt a plan or plans of distribution with respect to Shares of any Series or
Class and enter into any related agreements, whereby the Series or Class
finances directly or
<PAGE> 17
indirectly any activity that is primarily intended to result in sales of its
Shares, subject to the requirements of Section 12 of the 1940 Act, Rule 12b-1
thereunder, and other applicable rules and regulations.
Section 3. Transfer Agency, Shareholder Services, and Administration
Agreements. The Trustees, on behalf of the Trust or any Series or Class, may
enter into transfer agency agreements, Shareholder service agreements, and
administration and management agreements with any party or parties on terms and
conditions acceptable to the Trustees.
Section 4. Custodian. The Trustees shall at all times place and
maintain the cash, securities and other assets of the Trust and of each Series
with a custodian meeting the requirements of Section 17(f) of the 1940 Act and
the rules thereunder or such other entities permitted by Commission order. The
Trustees, on behalf of the Trust or any Series, may enter into an agreement
with a custodian on terms and conditions acceptable to the Trustees, providing
for the custodian, among other things, to (a) hold the securities owned by the
Trust or any Series and deliver the same upon written order or oral order
confirmed in writing, (b) to receive and receipt for any moneys due to the
Trust or any Series and deposit the same in its own banking department or
elsewhere, (c) to disburse such funds upon orders or vouchers, and (d) to
employ one or more sub-custodians.
Section 5. Parties to Contracts with Service Providers. The Trustees
may enter into any contract referred to in this Article with any entity,
although one or more of the Trustees or officers of the Trust may be an
officer, director, trustee, partner, shareholder, or member of such entity, and
no such contract shall be invalidated or rendered void or voidable because of
such relationship. No person having such a relationship shall be disqualified
from voting on or executing a contract in his or her capacity as Trustee and/or
Shareholder, or be liable merely by reason of such relationship for any loss or
expense to the Trust with respect to such a contract or accountable for any
profit realized directly or indirectly therefrom; provided, that the contract
was reasonable and fair and not inconsistent with this Trust Instrument or the
Bylaws.
Any contract referred to in Sections 1 and 2 of this Article shall be
consistent with and subject to the applicable requirements of Section 15 of the
1940 Act and the rules and orders thereunder with respect to its continuance in
effect, its termination, and the method of authorization and approval of such
contract or renewal. No amendment to a contract referred to in Section 1 of
this Article shall be effective unless assented to in a manner consistent with
the requirements of Section 15 of the 1940 Act, and the rules and orders
thereunder.
ARTICLE VIII
EXPENSES OF THE TRUST AND SERIES
Subject to Article IV, Section 4, the Trust or a particular Series
shall pay, or shall reimburse the Trustees from the Trust estate or the assets
belonging to the particular Series, for the expenses and disbursements of its
organization, operations and business (unless a third party has agreed to bear
such expenses and disbursements). Such expenses and disbursements may include,
but are not limited to, the following: fees, expenses and charges of certain
third parties which may include the Trust's investment advisers, distributors,
transfer agents, custodian, independent auditors, legal counsel and
administrators; expenses of the organization of the Trust or a particular
Series; expenses of the issue, redemption and transfer of Shares; brokers'
commissions and other charges; expenses of custody and accounting services;
expenses of maintaining and servicing Shareholder accounts; expenses of
bonding and insurance; all taxes or governmental fees; costs of membership in
trade associations; all charges and
<PAGE> 18
expenses for equipment or services used for communication between the Trust or
any Series and any third party providing services to the Trust or any Series;
fees and expenses of Trustees' meetings, including the compensation of Trustees
who are not Interested Persons of the Trust; Commission registration fees and
related expenses; state or foreign securities laws registration fees and
related expenses; expenses of Shareholder meetings, including the printing and
distribution of proxy materials and any other costs associated with a proxy
solicitation; costs of preparing, printing and distributing Shareholder
communications such as prospectuses, statements of additional information, and
financial reports; and non-recurring expenses which may arise, including the
costs of actions, suit or proceedings to which the Trust or a Series (or a
Trustee or officer of the Trust acting as such) is a party, and the expenses
the Trust or Series may incur as a result of its obligation to provide
indemnification to its Trustees, Officers, employees or agents. The Trustees
shall have a lien on the assets belonging to the appropriate Series, or in the
case of an expense allocable to more than one Series, on the assets of each
such Series, prior to any rights or interests of the Shareholders thereto, for
the reimbursement to them of such expenses, disbursements, losses and
liabilities.
ARTICLE IX
LIMITATION OF LIABILITY AND INDEMNIFICATION
Section 1. Limitation of Liability. All persons contracting with or
having any claim against the Trust or a particular Series shall look only to
the assets of the Trust or such Series for payment under such contract or
claim; and neither the Trustees nor any of the Trust's officers, employees or
agents, whether past, present or future, shall be personally liable therefor.
Every written instrument or obligation on behalf of the Trust or any Series
shall contain a statement to the foregoing effect, but the absence of such
statement shall not operate to make any Trustee or officer of the Trust liable
thereunder. Provided they have exercised reasonable care and have acted under
the reasonable belief that their actions are in the best interest of the Trust,
the Trustees and officers of the Trust shall not be responsible or liable for
any act or omission or for neglect or wrongdoing of them or any officer, agent,
employee, investment adviser or independent contractor of the Trust, but
nothing contained in this Trust Instrument or in the Delaware Act shall protect
any Trustee or officer of the Trust against liability to the Trust or to
Shareholders to which he would otherwise be subject by reason of willful
misfeasance, bad faith, gross negligence or reckless disregard of the duties
involved in the conduct of his or her office.
Section 2. Indemnification. (a) Subject to the exceptions and
limitations contained in subsection (b) below:
(i) every person who is, or has been, a Trustee or an officer,
employee or agent of the Trust ("Covered Person") shall be
indemnified by the Trust or the appropriate Series to the
fullest extent permitted by law against liability and against
all expenses reasonably incurred or paid by him or her in
connection with any claim, action, suit or proceeding in which
he or she becomes involved as a party or otherwise by virtue of
his or her being or having been a Covered Person and against
amounts paid or incurred by him or her in the settlement
thereof;
(ii) as used herein, the words "claim," "action," "suit," or
"proceeding" shall apply to all claims, actions, suits or
proceedings (civil, criminal or other, including appeals),
actual or threatened, and the words "liability" and "expenses"
shall include, without limitation, attorneys' fees, costs,
judgments, amounts paid in settlement, fines, penalties and
other liabilities.
<PAGE> 19
(b) No indemnification shall be provided hereunder to a Covered
Person:
(i) who shall have been adjudicated by a court or body before
which the proceeding was brought (A) to be liable to the Trust
or its Shareholders by reason of willful misfeasance, bad faith,
gross negligence or reckless disregard of the duties involved in
the conduct of his or her office, or (B) not to have acted in
good faith in the reasonable belief that his or her action was
in the best interest of the Trust; or
(ii) in the event of a settlement, unless there has been a
determination that such Covered Person did not engage in willful
misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of his or her office; (A)
by the court or other body approving the settlement; (B) by the
vote of at least a majority of a quorum of those Trustees who
are neither Interested Persons of the Trust nor are parties to
the proceeding based upon a review of readily available facts
(as opposed to a full trial-type inquiry); or (C) by written
opinion of independent legal counsel based upon a review of
readily available facts (as opposed to a full trial-type
inquiry).
(c) The rights of indemnification herein provided may be insured
against by policies maintained by the Trust, shall be severable, shall not be
exclusive of or affect any other rights to which any Covered Person may now or
hereafter be entitled, and shall inure to the benefit of the heirs, executors
and administrators of a Covered Person.
(d) To the maximum extent permitted by applicable law, expenses in
connection with the preparation and presentation of a defense to any claim,
action, suit or proceeding of the character described in subsection (a) of this
Section may be paid by the Trust or applicable Series from time to time prior
to final disposition thereof upon receipt of an undertaking by or on behalf of
such Covered Person that such amount will be paid over by him or her to the
Trust or applicable Series if it is ultimately determined that he or she is not
entitled to indemnification under this Section; provided, however, that either
(i) such Covered Person shall have provided appropriate security for such
undertaking, (ii) the Trust is insured against losses arising out of any such
advance payments or (iii) either a majority of the Trustees who are neither
Interested Persons of the Trust nor parties to the proceeding, or independent
legal counsel in a written opinion, shall have determined, based upon a review
of readily available facts (as opposed to a full trial-type inquiry) that there
is reason to believe that such Covered Person will not be disqualified from
indemnification under this Section.
(e) Any repeal or modification of this Article IX by the Shareholders
of the Trust, or adoption or modification of any other provision of the Trust
Instrument or Bylaws inconsistent with this Article, shall be prospective only,
to the extent that such repeal or modification would, if applied
retrospectively, adversely affect any limitation on the liability of any
Covered Person or indemnification available to any Covered Person with respect
to any act or omission which occurred prior to such repeal, modification or
adoption.
<PAGE> 20
Section 3. Indemnification of Shareholders. If any Shareholder or
former Shareholder of any Series shall be held personally liable solely by
reason of his or her being or having been a Shareholder and not because of his
or her acts or omissions or for some other reason, the Shareholder or former
Shareholder (or his or her heirs, executors, administrators or other legal
representatives or in the case of any entity, its general successor) shall be
entitled out of the assets belonging to the applicable Series to be held
harmless from and indemnified against all loss and expense arising from such
liability. The Trust, on behalf of the affected Series, shall, upon request by
such Shareholder, assume the defense of any claim made against such Shareholder
for any act or obligation of the Series and satisfy any judgment thereon from
the assets of the Series.
ARTICLE X
MISCELLANEOUS
Section 1. Trust Not a Partnership. This Trust Instrument creates a
trust and not a partnership. No Trustee shall have any power to bind
personally either the Trust's officers or any Shareholder.
Section 2. Trustee Action; Expert Advice; No Bond or Surety. The
exercise by the Trustees of their powers and discretion hereunder in good faith
and with reasonable care under the circumstances then prevailing shall be
binding upon everyone interested. Subject to the provisions of Article IX, the
Trustees shall not be liable for errors of judgment or mistakes of fact or law.
The Trustees may take advice of counsel or other experts with respect to the
meaning and operation of this Trust Instrument, and subject to the provisions
of Article IX, shall not be liable for any act or omission in accordance with
such advice or for failing to follow such advice. The Trustees shall not be
required to give any bond as such, nor any surety if a bond is obtained.
Section 3. Record Dates. The Trustees may fix in advance a date up to
seventy (70) days before the date of any Shareholders' meeting, or the date for
the payment of any dividends or other distributions, or the date for the
allotment of rights, or the date when any change or conversion or exchange of
Shares shall go into effect as a record date for the determination of the
Shareholders entitled to notice of, and to vote at, any such meeting, or
entitled to receive payment of such dividend or other distribution, or to
receive any such allotment of rights, or to exercise such rights in respect of
any such change, conversion or exchange of Shares. Record dates for adjourned
Shareholders' meetings shall be set according to the Trust's Bylaws.
Section 4. Termination of the Trust. (a) This Trust shall have
perpetual existence. Subject to a Majority Shareholder Vote of the Trust or of
each Series to be affected, the Trustees may
(i) sell and convey all or substantially all of the assets of
the Trust or any affected Series to another Series or to another
entity which is an open-end investment company as defined in the
1940 Act, or is a series thereof, for adequate consideration,
which may include the assumption of all outstanding obligations,
taxes and other liabilities, accrued or contingent, of the Trust
or any affected Series, and which may include shares of or
interests in such Series, entity, or series thereof; or
(ii) at any time sell and convert into money all or
substantially all of the assets of the Trust or any affected
Series.
<PAGE> 21
Upon making reasonable provision for the payment of all known liabilities of
the Trust or any affected Series in either (i) or (ii), by such assumption or
otherwise, the Trustees shall distribute the remaining proceeds or assets (as
the case may be) ratably among the Shareholders of the Trust or any affected
Series; however, the payment to any particular Class of such Series may be
reduced by any fees, expenses or charges allocated to that Class.
(b) The Trustees may take any of the actions specified in subsection
(a) (i) and (ii) above without obtaining a Majority Shareholder Vote of the
Trust or any Series if a majority of the Trustees determines that the
continuation of the Trust or Series is not in the best interests of the Trust,
such Series, or their respective Shareholders as a result of factors or events
adversely affecting the ability of the Trust or such Series to conduct its
business and operations in an economically viable manner. Such factors and
events may include the inability of the Trust or a Series to maintain its
assets at an appropriate size, changes in laws or regulations governing the
Trust or the Series or affecting assets of the type in which the Trust or
Series invests, or economic developments or trends having a significant adverse
impact on the business or operations of the Trust or such Series.
(c) Upon completion of the distribution of the remaining proceeds or
assets pursuant to subsection (a), the Trust or affected Series shall terminate
and the Trustees and the Trust shall be discharged of any and all further
liabilities and duties hereunder with respect thereto and the right, title and
interest of all parties therein shall be canceled and discharged. Upon
termination of the Trust, following completion of winding up of its business,
the Trustees shall cause a certificate of cancellation of the Trust's
certificate of trust to be filed in accordance with the Delaware Act, which
certificate of cancellation may be signed by any one Trustee.
Section 5. Reorganization. Notwithstanding anything else herein, to
change the Trust's form of organization the Trustees may, without Shareholder
approval, (a) cause the Trust to merge or consolidate with or into one or more
entities, if the surviving or resulting entity is the Trust or another open-end
management investment company under the 1940 Act, or a series thereof, that
will succeed to or assume the Trust's registration under the 1940 Act, or (b)
cause the Trust to incorporate under the laws of Delaware. Any agreement of
merger or consolidation or certificate of merger may be signed by a majority of
Trustees and facsimile signatures conveyed by electronic or telecommunication
means shall be valid.
Pursuant to and in accordance with the provisions of Section 3815(f) of
the Delaware Act, an agreement of merger or consolidation approved by the
Trustees in accordance with this Section 5 may effect any amendment to the
Trust Instrument or effect the adoption of a new trust instrument of the Trust
if it is the surviving or resulting trust in the merger or consolidation.
Section 6. Trust Instrument. The original or a copy of this Trust
Instrument and of each amendment hereto or Trust Instrument supplemental shall
be kept at the office of the Trust where it may be inspected by any
Shareholder. Anyone dealing with the Trust may rely on a certificate by a
Trustee or an officer of the Trust as to the authenticity of the Trust
Instrument or any such amendments or supplements and as to any matters in
connection with the Trust. The masculine gender herein shall include the
feminine and neuter genders. Headings herein are for convenience only and
shall not affect the construction of this Trust Instrument. This Trust
Instrument may be executed in any number of counterparts, each of which shall
be deemed an original.
Section 7. Applicable Law. This Trust Instrument and the Trust
created hereunder are governed by and construed and administered according to
the Delaware Act and the applicable laws of the State of Delaware; provided,
however, that
<PAGE> 22
there shall not be applicable to the Trust, the Trustees or this Trust
Instrument (a) the provisions of Section 3540 of Title 12 of the Delaware Code,
or (b) any provisions of the laws (statutory or common) of the State of
Delaware (other than the Delaware Act) pertaining to trusts which relate to or
regulate (i) the filing with any court or governmental body or agency of
trustee accounts or schedules of trustee fees and charges, (ii) affirmative
requirements to post bonds for trustees, officers, agents or employees of a
trust, (iii) the necessity for obtaining court or other governmental approval
concerning the acquisition, holding or disposition of real or personal
property, (iv) fees or other sums payable to trustees, officers, agents or
employees of a trust, (v) the allocation of receipts and expenditures to income
or principal, (vi) restrictions or limitations on the permissible nature,
amount or concentration of trust investments or requirements relating to the
titling, storage or other manner of holding of trust assets, or (vii) the
establishment of fiduciary or other standards of responsibilities or
limitations on the acts or powers of trustees, which are inconsistent with the
limitations or liabilities or authorities and powers of the Trustees set forth
or referenced in this Trust Instrument. The Trust shall be of the type
commonly called a Delaware business trust, and, without limiting the provisions
hereof, the Trust may exercise all powers which are ordinarily exercised by
such a trust under Delaware law. The Trust specifically reserves the right to
exercise any of the powers or privileges afforded to trusts or actions that may
be engaged in by trusts under the Delaware Act, and the absence of a specific
reference herein to any such power, privilege or action shall not imply that
the Trust may not exercise such power or privilege or take such actions.
Section 8. Amendments. The Trustees may, without any Shareholder
vote, amend or otherwise supplement this Trust Instrument by making an
amendment, a Trust Instrument supplemental hereto or an amended and restated
trust instrument; provided, that Shareholders shall have the right to vote on
any amendment (a) which would affect the voting rights of Shareholders granted
in Article VI, Section 1, (b) to this Section 8, (c) required to be approved by
Shareholders by law or by the Trust's registration statement(s) filed with the
Commission, and (d) submitted to them by the Trustees in their discretion. Any
amendment submitted to Shareholders which the Trustees determine would affect
the Shareholders of any Series shall be authorized by vote of the Shareholders
of such Series and no vote shall be required of Shareholders of a Series not
affected. Notwithstanding anything else herein, any amendment to Article IX
which would have the effect of reducing the indemnification and other rights
provided thereby to Trustees, officers, employees, and agents of the Trust or
to Shareholders or former Shareholders, and any repeal or amendment of this
sentence shall each require the affirmative vote of the holders of two-thirds
of the Outstanding Shares of the Trust entitled to vote thereon.
Section 9. Fiscal Year. The fiscal year of the Trust shall end on a
specified date as set forth in the Bylaws. The Trustees may change the fiscal
year of the Trust without Shareholder approval.
Section 10. Severability. The provisions of this Trust Instrument are
severable. If the Trustees determine, with the advice of counsel, that any
provision hereof conflicts with the 1940 Act, the regulated investment company
provisions of the Internal Revenue Code or with other applicable laws and
regulations, the conflicting provision shall be deemed never to have
constituted a part of this Trust Instrument; provided, however, that such
determination shall not affect any of the remaining provisions of this Trust
Instrument or render invalid or improper any action taken or omitted prior to
such determination. If
<PAGE> 23
any provision hereof shall be held invalid or unenforceable in any
jurisdiction, such invalidity or unenforceability shall attach only to such
provision only in such jurisdiction and shall not affect any other provision of
this Trust Instrument.
IN WITNESS WHEREOF, the undersigned, being the initial Trustees,
have executed this Trust Instrument as of the date first above written.
/s/ Boh A. Dickey
----------------------------
Boh A. Dickey, as
Trustee and not individually
/s/ Richard W. Hubbard
----------------------------
Richard W. Hubbard, as
Trustee and not individually
Address: SAFECO Plaza
Seattle, Washington 98185
STATE OF WASHINGTON ss
CITY OF SEATTLE
Before me this 13th day of May, 1993, personally appeared the
above-named Boh A. Dickey and Richard W. Hubbard, known to me to be the persons
who executed the foregoing instrument and who acknowledged that they executed
the same.
/s/ Betty J. Schooling
----------------------
Notary Public
My Commission expires August 4, 1993.
<PAGE> 24
EXHIBIT A
SAFECO Growth Fund
SAFECO Equity Fund
SAFECO Income Fund
SAFECO Northwest Fund
SAFECO Balanced Fund
SAFECO International Stock Fund
SAFECO Small Company Stock Fund
<PAGE> 1
EXHIBIT NO. 99.2
BYLAWS
<PAGE> 2
BYLAWS
SAFECO COMMON STOCK TRUST
(A DELAWARE BUSINESS TRUST)
These Bylaws of SAFECO COMMON STOCK TRUST (the "Trust"), a Delaware
business trust, are subject to the Trust Instrument of the Trust dated May 13,
1993, as from time to time amended, supplemented or restated (the "Trust
Instrument"). Capitalized terms used herein have the same meanings as in the
Trust Instrument.
ARTICLE I
PRINCIPAL OFFICE AND SEAL
Section 1. Principal Office. The principal office of the Trust shall be
located in Seattle, Washington, or such other location as the Board of Trustees
may from time to time determine. The Trust may establish and maintain other
offices and places of business as the Board of Trustees may from time to time
determine.
Section 2. Seal. The seal of the Trust shall consist of a flat-faced circular
die with the words "SAFECO Common Stock Trust", and with the words "Trust Seal,
1993" in the center, and with the word "Delaware" also being shown on the face
of the seal. Any Trustee or officer of the Trust shall have authority to affix
the seal to any document requiring the same.
ARTICLE II
MEETINGS OF BOARD OF TRUSTEES
Section 1. Meetings. Meetings of the Board of Trustees may be held at such
places and such times as the Trustees may from time to time determine as
provided in Article II, Section 7, of the Trust Instrument.
Section 2. Action Without a Meeting. Actions may be taken by the Board of
Trustees without a meeting or by a telephone meeting, as provided in Article
II, Section 7, of the Trust Instrument.
Section 3. Compensation of Trustees. No compensation for services as a
Trustee shall be paid to any Trustee who is at the time an employee of an
investment adviser of the Trust or any Series or Class thereof or of any entity
affiliated with the investment adviser. A Trustee who is not an employee of
such investment adviser or any of its affiliates may receive such compensation
from the Trust for his or her services and reimbursement for his or her
expenses as may be fixed from time to time by the Board of Trustees.
ARTICLE III
BOARD COMMITTEES
Section 1. Establishment. The Board of Trustees may designate one or more
committees and shall determine the number of members of each such committee and
its powers. Each committee member shall hold office at the pleasure of the
Board of Trustees. The Board of Trustees may abolish any such committee at any
time in its sole discretion. Any committee to which the Board of Trustees
delegates any of its powers shall maintain records of its meetings and shall
report its actions to the Board of Trustees. The Board of Trustees shall have
the power to rescind any action of any committee, but no such recision shall
have retroactive effect. The Board of Trustees shall have the power at any
time to fill vacancies in the committees. The Board of Trustees may delegate
to any committee any of its powers, except the power to declare a dividend or
distribution on Shares,
<PAGE> 3
authorize the issuance of Shares, recommend to Shareholders any action
requiring Shareholders' approval, amend these Bylaws, approve any merger or
Share exchange, approve or terminate any contract with an investment adviser or
Principal Underwriter, or to take any other action required by applicable law
to be taken by the Board.
Section 2. Notice, Waiver, Consent, Quorum and Proceedings. In the absence of
a provision in these Bylaws or an appropriate resolution of the Trustees, each
committee may adopt such rules and regulations governing notice of its meetings
and waiver and consent to thereof, quorum and manner of acting as it shall deem
proper and desirable. In the event any member of any committee is absent from
any meeting, the members present at the meeting, whether or not they constitute
a quorum, may appoint another Trustee to act in the place of such absent
member.
Section 3. Audit Committee.
(a) Membership. The members of the Audit Committee shall be those
Trustees who are not Interested Persons of the Trust.
(b) Responsibilities and Duties. The Audit Committee shall assist
the Board of Trustees to fulfill its responsibility to shareholders, potential
shareholders and the investment community relating to corporate accounting,
financial reporting practices of the Trust and the quality and integrity of the
financial reports of the Trust. In carrying out these responsibilities the
Audit Committee will:
(i) Review and recommend to the Board of Trustees the
independent accountants to be selected to audit the financial statements of the
Trust;
(ii) Meet with the independent accountants and the officers of
the Trust to review the scope of the proposed audit for the current year and
the audit procedures to be utilized;
(iii) Meet with the independent accountants and the officers of
the Trust at the conclusion of each audit to review the audit, including a
review of any comments or recommendations of the independent accountants;
(iv) Review with the independent accountants and the officers
of the Trust the adequacy and effectiveness of the internal auditing,
accounting and financial controls of the Trust and elicit any recommendations
from the independent accountants and officers of the Trust for improvements in
such controls;
(v) Review the internal audit services provided to the Trust
by the Trust's investment adviser or its affiliates;
(vi) Review the planning and results of any internal audit
examinations;
(vii) Determine whether the independent accountants are
satisfied with the disclosure and content of the financial statements included
in the annual report to shareholders and review any change in accounting
principles which materially affect such financial statements;
(viii) Review the scope of and fees for consulting services
provided by the independent accountants;
(ix) Meet in separate executive sessions with the independent
accountants and management;
(x) Report to the Board of Trustees following each meeting.
<PAGE> 4
(c) Rules of Procedure. The Audit Committee shall adopt its own
rules and keep minutes of all of its meetings.
(d) Quorum. A quorum of the Audit Committee shall consist of at
least two members of the Committee.
(e) Action Without Meeting. Subject to the requirements of the 1940
Act, any action that may be or is required to be taken at a meeting of the
Audit Committee may be conducted by telephone or taken without a meeting if a
consent in writing setting forth the action so taken shall be signed by all
members of the Audit Committee. Such consent shall have the same effect as a
unanimous vote.
<PAGE> 5
Section 4. Pricing Committee.
(a) Membership. The Board of Trustees may annually appoint a Pricing
Committee comprised of two or more individuals.
(b) Responsibilities and Duties. The purpose of the Pricing
Committee shall be to value, on behalf of the Board of Trustees between
regularly scheduled trustees' meetings, any security held by or to be purchased
for the Trust or any Series which cannot be otherwise valued under the Trust's
guidelines for valuation of portfolio securities, e.g., an unrestricted
security for which market quotes are not readily available or a restricted
security ("Security").
(c) Rules of Procedure. In determining the fair value of a
Security, the Pricing Committee shall consider such factors and follow such
procedures as may be established under guidelines approved by the Trust's Board
of Trustees. The guidelines shall be periodically reviewed and approved by the
Board as frequently as the Board shall deem appropriate, but in no event less
than annually. Minutes shall be kept of each meeting of the Pricing Committee.
At the next regularly scheduled Board of Trustees' meeting following the
Pricing Committee's determination of a fair value for a Security, the Board of
Trustees shall ratify the Pricing Committee's action.
(d) Vote Required. The members of the Pricing Committee must
unanimously approve a fair value for the Security.
(e) Action Without Meeting. Any action that may be or is required
to be taken at a meeting of the Pricing Committee may be conducted by telephone
or may be taken without a meeting, if a consent in writing setting forth the
action so taken shall be signed by all members of the Pricing Committee. Such
consent shall have the same effect as a unanimous vote.
Section 5. Compensation of Committee Members. Each committee member who is
not an Interested Person of the Trust may receive such compensation from the
Trust for his or her services and reimbursement for his or her expenses as may
be fixed from time to time by the Trustees.
<PAGE> 6
ARTICLE IV
OFFICERS
Section 1. General. The officers of the Trust shall be a President, a
Treasurer, a Secretary, and may include one or more Vice Presidents, Assistant
Treasurers or Assistant Secretaries, and such other officers as the Board of
Trustees may from time to time elect. The Board of Trustees may appoint any
other officers or agents and prescribe their respective rights, terms of
office, authorities and duties.
Section 2. Election, Tenure and Qualifications of Officers. The officers of
the Trust shall be elected annually by the Trustees. Each officer elected by
the Board of Trustees shall hold office until his or her successor shall have
been elected and qualified or his or her earlier resignation. Any person may
hold one or more offices of the Trust, except no one person may serve
concurrently as President and Secretary. A person who holds more than one
office in the Trust may not act in more than one capacity to execute,
acknowledge, or verify an instrument required by law to be executed,
acknowledged, or verified by more than one officer. No officer need be a
Trustee or a Shareholder of the Trust.
Section 3. Vacancies and Newly Created Offices. Whenever a vacancy shall
occur in any office, regardless of the reason for such vacancy, or if any new
office shall be created, such vacancies or newly created offices may be filled
by the Trustees at any meeting.
Section 4. Removal and Resignation. The Board of Trustees may remove any
officer or agent from office, with or without cause, by the vote of a majority
of the Trustees. Any officer may resign from office at any time by delivering a
written resignation to the Trustees, the President, the Secretary, or any
Assistant Secretary. Unless otherwise specified therein, such resignation
shall take effect upon delivery.
Section 5. Chairman. The Chairman shall have the powers and responsibilities
set forth in Article II, section 6 of the Trust Instrument and shall exercise
and perform such other powers and duties as may from time to time be assigned
by the Board of Trustees or prescribed by these Bylaws.
Section 6. President. The President shall be the chief executive officer of
the Trust. Subject to the direction of the Trustees, the President shall have
general charge, supervision and control over the business affairs of the Trust
and shall be responsible for the management thereof. In the absence of the
Chairman, or if no Chairman of the Board of Trustees has been elected, the
President shall preside at all Shareholders' and Board of Trustees' meetings
and shall in general exercise the powers and perform the duties of the
Chairman. Except as the Board of Trustees may otherwise order, the President
shall have the power to grant, issue, execute or sign such powers of attorney,
proxies, agreements or other documents as may be deemed advisable or necessary.
The President also shall have the power to employ attorneys, accountants and
other advisers and agents for the Trust. The President shall exercise such
other powers and perform such other duties as the Board of Trustees may from
time to time assign to the President.
Section 7. Vice President. If the Board of Trustees elects one or more Vice
President(s), the Vice-President(s) shall have such powers and perform such
duties as may from time to time be assigned to them by the Board of Trustees or
the President. At the request or in the absence or disability of the
President, the Vice President (or, if there are two or more Vice Presidents,
then the senior of the Vice Presidents present and able to act) may perform all
the duties of the President and, when so acting, shall have all the powers of
the President. The Board of Trustees may designate one (1) or more of the Vice
Presidents as an
<PAGE> 7
Executive Vice President or with such other designation or title as the Board
of Trustees deem appropriate for his or her position or duties.
Section 8. Treasurer and Assistant Treasurers. The Treasurer shall be the
principal financial officer of the Trust and shall have general charge of the
finances and books of the Trust. The Treasurer shall be responsible for
delivering all funds and securities of the Trust to its custodian. The
Treasurer shall make annual reports to the Board of Trustees regarding the
business and financial condition of the Trust as soon as possible after the
close of the Trust's fiscal year. The Treasurer also shall furnish such other
reports concerning the business and financial condition of the Trust as the
Board of Trustees may from time to time require. The Treasurer shall perform
all acts incidental to the office of Treasurer, subject to the supervision of
the Board of Trustees, and shall perform such additional duties as the Board
may from time to time designate.
Any Assistant Treasurer may perform such duties of the Treasurer as the
Board of Trustees or the Treasurer may assign, and, in the absence of the
Treasurer, may perform all the duties of the Treasurer.
Section 9. Secretary and Assistant Secretaries. The Secretary shall record
all votes and proceedings of the meetings of Trustees and Shareholders in books
to be kept for that purpose. The Secretary shall be responsible for the giving
and serving of all notices of the Trust. The Secretary shall have custody of
any seal of the Trust. The Secretary shall be responsible for the records of
the Trust, including the Share register and such other books and papers as the
Trustees may direct and such books, reports, certificates and other documents
required by law. All of such records and documents shall at all reasonable
times be kept open by the Secretary for inspection by any Trustee. The
Secretary shall perform all acts incidental to the office of Secretary, subject
to the supervision of the Trustees, and shall perform such additional duties as
the Trustees may from time to time designate.
Any Assistant Secretary may perform such duties of the Secretary as the
Trustees or the Secretary may assign, and, in the absence of the Secretary, may
perform all the duties of the Secretary.
ARTICLE V
MEETINGS OF SHAREHOLDERS
Section 1. Annual Meetings. There shall be no annual Shareholders' meetings.
Section 2. Special Meetings. Special meetings of Shareholders of the Trust or
of any Series or Class shall be called by the Chairman, President or Secretary
whenever ordered by the Trustees, and shall be held at such time and place as
may be stated in the notice of the meeting.
Special meetings of the Shareholders of the Trust or of any Series or
Class shall also be called by the Chairman, President or Secretary upon the
written request of Shareholders owning at least ten percent of the Outstanding
Shares of the Trust or such Series or Class entitled to vote at such meeting,
provided that (1) such request shall state the purposes of such meeting and the
matters proposed to be acted on, and (2) the Shareholders requesting such
meeting shall have paid to the Trust the reasonably estimated cost of preparing
and mailing the notice thereof, which the Secretary shall determine and specify
to such Shareholders. No special meeting shall be called upon the request of
Shareholders of the Trust or of any Series or Class to consider any matter
which is substantially the same as a matter voted upon at any special meeting
of the Shareholders held during the preceding twelve months, unless requested
by the holders of a majority of all
<PAGE> 8
Outstanding Shares of the Trust or the Series or Class entitled to be voted at
such meeting.
If the Chairman, President or Secretary fails for more than thirty days
to call a special meeting when required to do so, the Trustees or the
Shareholders requesting such a meeting may, in the name of the Chairman,
President or Secretary, call the meeting by giving the required notice. If the
meeting is a meeting of Shareholders of any Series or Class, but not a meeting
of all Shareholders of the Trust, then only a special meeting of Shareholders
of such Series or Class shall be called and only Shareholders of such Series or
Class shall be entitled to notice of and to vote at such meeting.
<PAGE> 9
Section 3. Notice of Meetings; Waiver. The Chairman, President or Secretary
shall cause written notice of the place, date and time, and the purpose or
purposes for which the meeting is called. Notice shall be given at least ten
days before the date of the meeting. The written notice of any meeting may be
delivered or mailed, postage prepaid, to each Shareholder entitled to vote at
such meeting. If mailed, notice shall be deemed to be given when deposited in
the United States mail directed to the Shareholder at his or her address as it
appears on the records of the Trust. Notice of any Shareholders' meeting need
not be given to any Shareholder who is present at such meeting in person or by
proxy if a written waiver of notice, executed before or after such meeting, is
filed with the record of such meeting. Any irregularities in the notice of any
meeting or the nonreceipt of any such notice by any of the Shareholders shall
not invalidate any action otherwise properly taken at any such meeting.
Section 4. Adjourned Meetings. One or more adjournments of any Shareholders'
meetings may be taken by reason of failure of a quorum to attend a meeting or
for any other reason. Notice of adjournment of a Shareholders' meeting to
another time or place need not be given, if such time and place are announced
at the meeting at which the adjournment is taken, or reasonable notice is given
to persons present at the meeting, and the adjourned meeting is held within a
reasonable time after the date set for the original meeting. At the adjourned
meeting the Trust may transact any business which might have been transacted at
the original meeting. If after the adjournment a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to
Shareholders of record entitled to vote at such meeting.
Section 5. Validity of Proxies. Subject to the provisions of the Trust
Instrument, Shareholders entitled to vote may vote either in person or by
proxy, provided that either (1) a written instrument authorizing such proxy to
act has been signed and dated by the Shareholder or by his or her duly
authorized attorney, or (2) the Trustees adopt by resolution an electronic,
telephonic, computerized or other alternative to execution of a written
instrument authorizing the proxy to act, but if a proposal by anyone other than
the officers or Trustees is submitted to a vote of the Shareholders of the
Trust or of any Series or Class, or if there is a proxy contest or proxy
solicitation or proposal in opposition to any proposal by the officers or
Trustees, Shares may be voted only in person or by written proxy. Unless the
proxy provides otherwise, it shall not be valid for more than eleven months
before the date of the meeting. All proxies shall be delivered to the
Secretary or other person responsible for recording the proceedings before
being voted. A proxy with respect to Shares held in the name of two or more
persons shall be valid if executed by one of them unless at or prior to
exercise of such proxy the Trust receives a specific written notice to the
contrary from any one of them. Unless otherwise specifically limited by their
terms, proxies shall entitle the Shareholder to vote at any adjournment of a
Shareholders' meeting. A proxy purporting to be executed by or on behalf of a
Shareholder shall be deemed valid unless challenged at or prior to its
exercise, and the burden of proving invalidity shall rest on the challenger.
At every meeting of Shareholders, unless the voting is conducted by inspectors,
all questions concerning the qualifications of voters, the validity of proxies,
and the acceptance or rejection of votes, shall be decided by the chairman of
the meeting. Subject to the provisions of the Delaware Business Trust Act, the
Trust Instrument or these Bylaws, all matters concerning the giving, voting or
validity of proxies shall be governed by the General Corporation Law of the
State of Delaware relating to proxies, and judicial interpretations thereunder,
as if the Trust were a Delaware corporation and the Shareholders were
shareholders of a Delaware corporation.
<PAGE> 10
Section 6. Quorum; Required Vote. The quorum and required vote for any
Shareholders' meeting shall be as specified in Article VI, section 3 of the
Trust Instrument.
Section 7. Record Date. The Board of Trustees may fix in advance a date up to
seventy (70) days before the date of any Shareholders' meeting as a record date
for the determination of the Shareholders entitled to notice of, and to vote
at, any such meeting. The Shareholders of record entitled to vote at a
Shareholders' meeting shall be deemed the Shareholders of record at any meeting
reconvened after one or more adjournments, unless the Board of Trustees has
fixed a new record date. If the Shareholders' meeting is adjourned for more
than one hundred twenty (120) days after the original date, the Board of
Trustees shall establish a new record date.
Section 8. Place of Meeting. All special meetings of Shareholders shall be
held at the principal place of business of the Trust or at such other place as
the Board of Trustees may from time to time designate.
Section 9. Action Without a Meeting. Any action to be taken by Shareholders
may be taken without a meeting if a majority (or such other amount as may be
required by law) of the Outstanding Shares entitled to vote on the matter
consent to the action in writing and such written consents are filed with the
records of the Shareholders' meetings. Such written consent shall be treated
for all purposes as a vote at a meeting of the Shareholders held at the
principal place of business of the Trust.
<PAGE> 11
ARTICLE VI
SHARES OF BENEFICIAL INTEREST
Section 1. Share Certificates. In lieu of issuing certificates representing
Shares, the Board of Trustees or the transfer agent or Shareholder servicing
agent may keep accounts upon the books of the Trust for record holders of such
Shares. The record holders shall be deemed, for all purposes, to be holders of
certificates for such Shares as if they accepted such certificates and shall be
held to have expressly consented to the terms thereof.
If the Board of Trustees authorizes the issuance of certificates
pursuant to Article V, Section 5 of the Trust Instrument, then such
certificates shall be in the form prescribed from time to time by the Board and
shall be signed by the President or a Vice President and by the Treasurer,
Assistant Treasurer, Secretary or Assistant Secretary of the Trust. Such
signatures may be facsimile if the certificate is signed by a transfer agent or
Shareholder servicing agent or by a registrar, other than a Trustee, officer or
employee of the Trust. If any officer who has signed any such certificate or
whose facsimile signature has been placed thereon shall have ceased to be such
an officer before the certificate is issued, then such certificate may be
issued by the Trust with the same effect as if he or she were such an officer
at the date of issue. The issuance of a certificate to one or more
Shareholders shall not require the issuance of certificates to all
Shareholders. The Board of Trustees may at any time discontinue the issuance
of certificates and may, by written notice to each Shareholder, require the
surrender of certificates to the Trust for cancellation. Such surrender and
cancellation shall not affect the ownership of Shares in the Trust.
Section 2. Transfer of Shares. The Shares of the Trust shall be transferable
only by a transfer recorded on the books of the Trust by the Shareholder of
record in person or by his or her duly authorized attorney or legal
representative. The Shares of the Trust may be freely transferred, and the
Board of Trustees may, from time to time, adopt rules and regulations regarding
the method of transfer of such Shares. Shares shall not be transferred on the
books of the Trust until all requirements of the Board, including the proper
tender of any outstanding certificates, if any, have been satisfied. The Trust
shall be entitled to treat the holder of record of any Share or Shares as the
absolute owner for all purposes, and shall not be bound to recognize any legal,
equitable or other claim or interest in such Share or Shares on the part of any
other person except as otherwise expressly provided by law.
Section 3. Lost, Stolen or Destroyed Certificates. If any Share certificate
should become lost, stolen or destroyed, a duplicate Share certificate may be
issued in place thereof, upon such terms and conditions as the Board of
Trustees may prescribe, including, but not limited to, requiring the owner of
the lost, stolen or destroyed certificate to give the Trust a bond or other
indemnity, in such form and in such amount as the Board of Trustees may direct
and with such surety or sureties as may be satisfactory to the Board sufficient
to indemnify the Trust against any claim that may be made against it on account
of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
ARTICLE VII
CUSTODY OF SECURITIES
Section 1. Employment of a Custodian. The Trust shall at all times place and
maintain all cash, securities and other assets of the Trust and of each Series
in the custody of a custodian meeting the requirements set forth in Article
VII, section 4 of the Trust Instrument ("Custodian"). The Custodian shall be
appointed from time to time by the Board of Trustees, who shall determine its
remuneration.
<PAGE> 12
Section 2. Termination of Custodian Agreement. Upon termination of any
Custodian Agreement or the inability of the Custodian to continue to serve as
custodian, in either case with respect to the Trust or any Series, the Board of
Trustees shall (a) use its best efforts to obtain a successor Custodian; and
(b) require that the cash, securities and other assets owned by the Trust or
any Series be delivered directly to the successor Custodian.
Section 3. Other Arrangements. The Trust may make such other arrangements for
the custody of its assets (including deposit arrangements) as may be required
by any applicable law, rule or regulation.
ARTICLE VIII
FISCAL YEAR AND ACCOUNTANT
Section 1. Fiscal Year. The fiscal year of the Trust shall, unless otherwise
ordered by the Board of Trustees, be twelve calendar months ending on the 30th
day of September.
Section 2. Accountant. The Trust shall employ independent certified public
accountants as its Accountant to examine the accounts of the Trust and to sign
and certify financial statements filed by the Trust. The Accountant shall be
appointed in accordance with the requirements of Section 32(a) of the 1940 Act
and the rules thereunder. The Accountant's certificates and reports shall be
addressed both to the Board of Trustees and to the Shareholders.
<PAGE> 13
ARTICLE IX
AMENDMENTS
Section 1. General. Except as provided in Section 2 of this Article, all
Bylaws of the Trust shall be subject to amendment, alteration or repeal, and
new Bylaws may be made by the affirmative vote of a majority of either: (1)
the Outstanding Shares of the Trust entitled to vote at any meeting; or (2) the
Trustees.
Section 2. By Shareholders Only. After the issue of any Shares of the Trust,
no amendment, alteration or repeal of this Article shall be made except by the
affirmative vote of the holders of either: (a) more than two-thirds of the
Trust's Outstanding Shares present at a meeting at which the holders of more
than fifty percent of the Outstanding Shares are present in person or by proxy,
or (b) more than fifty percent of the Trust's Outstanding Shares.
ARTICLE X
NET ASSET VALUE
Section 1. Determination of Net Asset Value. The term "Net Asset Value" of
any Series or Class shall mean that amount by which the assets belonging to
that Series or Class exceed its liabilities, all as determined by or under the
direction of the Board of Trustees. Such value per Share shall be determined
separately for each Series or Class and shall be determined on such days and at
such times as the Board of Trustees may determine. Such determination shall be
made with respect to securities for which market quotations are readily
available, at the market value of such securities; and with respect to other
securities and assets, at the fair value as determined in good faith by the
Board of Trustees, provided, however, that the Board, without Shareholder
approval, may alter the method of appraising portfolio securities insofar as
permitted under the 1940 Act and the rules, regulations and interpretations
thereof promulgated or issued by the Commission or insofar as permitted by any
order of the Commission applicable to a Series or Class. The Board of Trustees
may delegate any of its powers and duties under this Section 1 with respect to
appraisal of assets and liabilities. At any time the Board of Trustees may
cause the Net Asset Value per Share last determined to be determined again in a
similar manner and may fix the time when such redetermined values shall become
effective.
<PAGE> 14
ARTICLE XI
INVESTMENTS
Section 1. Investment Objectives, Policies and Restrictions. The Trust and/or
each Series shall adhere to the fundamental and non-fundamental investment
objectives, policies and restrictions applicable to the Trust and/or each
Series included in the Trust's current effective registration statement as
filed with the Commission. If a percentage limitation is adhered to at the
time of an investment, a later increase or decrease in the percentage resulting
from a change in the value of the assets of a Series shall not be a violation
of such investment restrictions.
Section 2. Amendment of Investment Objectives, Policies and Restrictions. Any
investment objectives, policies and restrictions of the Trust or any Series
which are deemed to be fundamental may not be changed without the approval of
the holders of a majority of the Outstanding Shares of the Trust or of the
Series affected which shall mean the lesser of (i) 67% of the Shares
represented at a meeting at which more than 50% of the Outstanding Shares are
present or represented by proxy or (ii) more than 50% of the Outstanding
Shares. Any investment objectives, policies or restrictions deemed
non-fundamental may be changed by vote of the Board of Trustees.
ARTICLE XII
MISCELLANEOUS
Section 1. Inspection of Books. The Board of Trustees shall from time to
time determine whether and to what extent, and at what times and places, and
under what conditions the accounts and books of the Trust or any Series or
Class shall be open to the inspection of Shareholders. No Shareholder shall
have any right to inspect any account or book or document of the Trust except
as conferred by law or otherwise by the Board of Trustees or by resolution of
Shareholders.
Section 2. Severability. The provisions of these Bylaws are severable. If
the Board of Trustees determine, with the advice of counsel, that any provision
hereof conflicts with the 1940 Act, the regulated investment company provisions
of the Internal Revenue Code or with other applicable laws and regulations, the
conflicting provision shall be deemed never to have constituted a part of these
Bylaws; provided, however, that such determination shall not affect any of the
remaining provisions of these Bylaws or render invalid or improper any action
taken or omitted prior to such determination. If any provision hereof shall be
held invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall attach only to such provision only in such jurisdiction
and shall not affect any other provision of these Bylaws.
Section 3. Headings. Headings are placed in these Bylaws for convenience of
reference only and in case of any conflict, the text of these Bylaws rather
than the headings shall control.
<PAGE> 1
EXHIBIT NO. 99.4
FORM OF STOCK CERTIFICATE
<PAGE> 2
NUMBER SHARES
ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE
[NAME OF FUND]
A SERIES OF [NAME OF TRUST]
SEATTLE, WASHINGTON
CUSIP
This is to certify that,
is the owner of
of the fully paid and non-assessable shares of beneficial interest of the [NAME
OF FUND], a series of the [NAME OF TRUST], with a par value of $.001,
transferable on the books of the Trust in person or by duly authorized attorney
upon surrender of this certificate properly endorsed. This certificate and the
shares represented hereby are received and held subject to the provisions of the
Trust Instrument and the Bylaws of the Trust, as amended. In Witness Whereof,
[NAME OF THE TRUST] has caused this certificate to be signed by its duly
authorized officers. This certificate is not valid until countersigned by the
Transfer Agent.
Dated: [NAME OF TRUST]
NEAL A. FULLER, ASST. SECRETARY DAVID F. HILL, PRESIDENT
SAFECO SERVICES CORPORATION
BY
TRANSFER AGENT
AUTHORIZED SIGNATURE
<PAGE> 1
EXHIBIT NO. 99.5
INVESTMENT ADVISORY AND MANAGEMENT CONTRACT
FORM OF SUBADVISORY CONTRACT
<PAGE> 2
INVESTMENT ADVISORY AND MANAGEMENT CONTRACT
THIS AGREEMENT is made and executed this 30th day of September, 1993, between
SAFECO COMMON STOCK TRUST ("Trust"), a Delaware business trust and SAFECO ASSET
MANAGEMENT COMPANY ("Manager"), a Washington corporation.
WHEREAS, the Trust is registered with the Securities & Exchange
Commission as a series type, open-end, management investment company under the
Investment Company Act of 1940, as amended ("1940 Act"), and has caused its
shares of beneficial interest to be registered for sale to the public under the
Securities Act of 1933 (the "1933 Act") and various state securities laws; and
WHEREAS, the Trust intends to offer for public sale distinct series of
shares of beneficial interest ("Series"), each Series corresponding to a
distinct portfolio; and
WHEREAS, the Trust wishes to retain the Manager to provide investment
advisory, management, and administrative services to the Trust and each Series
as now exists and as hereafter may be established which are listed in Exhibit A
to this Agreement as amended from time to time; and
WHEREAS, the Manager is willing to furnish such services on
the terms and conditions hereinafter set forth; and
NOW THEREFORE, in consideration of the promises and mutual covenants
hereinafter contained, it is agreed as follows:
1. Appointment of Manager. The Trust hereby appoints the Manager as
investment adviser and manager of each Series to administer its affairs, subject
to the supervision of the Trust's Board of Trustees, for the period and on the
terms set forth in this Agreement. The Manager hereby accepts such appointment
and agrees to render the services required by this Agreement for the
compensation and upon such other terms and conditions as are set forth in this
Agreement. The Manager shall for all purposes herein be deemed an independent
contractor and, unless otherwise expressly provided or authorized, shall have no
authority to act for or represent the Trust in any way or otherwise be deemed an
agent of the Trust.
2. Duties of Series. Each Series shall at all times keep the Manager
fully informed with regard to the securities owned by it, its funds available or
to become available for investment,
<PAGE> 3
and generally as to the condition of its affairs. It shall furnish the Manager
with such other documents and information with regard to its affairs as the
Manager may from time to time reasonably request.
3. Duties of Manager.
(a) General. The Manager shall furnish to the Trust space in the
offices of the Manager or in such other place as may be agreed upon from time to
time and all necessary office facilities, equipment and personnel for managing
the affairs and investments and keeping the books of the Trust. Subject to the
supervision of the Trust's Board of Trustees, the Manager shall regularly
provide each Series with investment research, advice, management and supervision
and shall furnish a continuous investment program for each Series' portfolio of
securities consistent with each Series' investment objectives and policies. The
Manager shall determine from time to time what securities will be purchased,
retained or sold by each Series, and shall implement those decisions, all
subject to the provisions of the Trust's Trust Instrument and Bylaws, the 1940
Act, the applicable rules and regulations of the Securities and Exchange
Commission, and other applicable federal and state law, as well as the
investment objectives and policies of each Series. The Manager will place orders
pursuant to its investment determinations for each Series either directly with
the issuer or with any broker or dealer. In placing orders with brokers and
dealers the Manager will attempt to obtain the best net price and the most
favorable execution of its orders. The Manager shall also provide advice and
recommendations with respect to other aspects of the business and affairs of the
Trust and each Series, and shall perform such other functions of management and
supervision as may be directed by the Board of Trustees of the Trust.
(b) Reports and Records. The Manager, at its expense, shall supply the
Trust's Board of Trustees and officers with all statistical information and
reports reasonably requested by them and reasonably available to the Manager.
The Manager shall oversee the maintenance of all books and records with respect
to the Trust's and each Series' securities transactions and the keeping of the
Trust's and each Series' books of account in accordance with all applicable
federal and state laws and regulations. In compliance with the requirements of
Rule 31a-3 under the 1940 Act, the Manager hereby agrees that any records which
it maintains for the Trust or any Series are the property of the Trust, and
further agrees to surrender promptly to the Trust any of such records upon the
Trust's request. The Manager further agrees to arrange for the preservation of
the records required to be maintained by Rule 31a-1 under the 1940 Act for the
periods prescribed by Rule 31a-2 under the 1940 Act. The Manager shall authorize
and permit any of its directors, officers and employees, who may be elected as
directors or officers of the Trust, to serve in the capacities in which they are
elected.
4. Allocation of Expenses.
(a) (1) Manager shall pay the organizational expenses of the Trust,
which the Trust shall reimburse to Manager over a sixty-month period commencing
after the date of the Trust's initial public offering of its shares. If the
Trust shall not be obligated to reimburse the Manager for aggregate
organizational expenses of a Series in excess of a specified amount, such amount
shall be set forth in Exhibit A as amended from time to time. (2) The Manager
shall be responsible for the compensation (if any) paid to officers of the Trust
for serving in that capacity; the expenses of computing the net asset value per
share of the Trust and each Series; federal and state registration fees for the
Trust and each Series, other than the initial fees to be reimbursed pursuant to
Section 4(a)(1); all expenses of preparing, printing and distributing
advertising and sales literature
51
<PAGE> 4
for the Trust and each Series; and the cost of fidelity bond and other insurance
for the Trust and each Series.
(b) The Trust and each Series shall bear all expenses of their
organization, operations and business not specifically assumed or agreed to be
paid by the Manager as provided in this Agreement. In particular, but without
limiting the generality of the foregoing, the Trust and each Series shall pay:
(1) Custody and Accounting Services. All expenses of the transfer,
receipt, safekeeping, servicing and accounting for the cash,
securities, and other property of the Trust and each Series, including
all charges of depositories, custodians, and other agents, if any;
(2) Shareholder Servicing. All expenses of maintaining and servicing
shareholder accounts, including all charges of the transfer,
shareholder recordkeeping, dividend disbursing, redemption, and other
agents of the Trust and each Series, if any;
(3) Shareholder Communications. All expenses of preparing, printing,
and distributing reports and certain other communications to
shareholders of the Trust and each Series;
52
<PAGE> 5
(4) Shareholder Meetings. All expenses incidental to holding meetings
of shareholders of the Trust and each Series, including the printing of
notices and proxy materials and the expenses of any proxy solicitation;
(5) Prospectuses And Statements of Additional Information. All expenses
of preparing, printing and mailing to shareholders of annual or more
frequent revisions of the Prospectus and Statement of Additional
Information for the Trust and each Series;
(6) Communication Equipment. All charges for equipment or services used
for communication between the Manager, the Trust or each Series and the
custodian, transfer agent or any other agent selected by the Trust;
(7) Legal and Accounting Fees and Expenses. All charges for services
and expenses of the Trust's legal counsel and independent auditors;
(8) Trustees' Fees and Expenses. All compensation of trustees, other
than those affiliated with the Manager, and all expenses incurred in
connection with their service;
(9) Issue and Redemption of Fund Shares. All expenses incurred in
connection with the issue, redemption, and transfer of shares of the
Trust and each Series, including the expense of confirming all share
transactions, and of preparing and transmitting the Trust's stock
certificates, if certificates are issued;
(10) Brokerage Commissions. All brokers' commissions and other charges
incident to the purchase, sale, or lending of portfolio securities of
the Trust and Series;
(11) Taxes. All taxes or governmental fees payable by or with respect
to the Trust and each Series to federal, state, or other governmental
agencies, domestic or foreign, including stamp or other transfer taxes;
(12) Nonrecurring and Extraordinary Expenses. Such nonrecurring
expenses as may arise, including the costs of actions, suits, or
proceedings to which the Trust or any Series is a party and the
expenses the Trust or any Series may incur as a result of its legal
obligation to provide indemnification to its trustees, officers, and
agents.
53
<PAGE> 6
5. Non-Exclusive Services. The services of the Manager to the Trust and
each Series hereunder are not to be deemed exclusive, and the Manager shall be
free to render similar services to others so long as its services hereunder are
not impaired thereby.
6. Compensation for Services.
(a) For the services and facilities to be furnished by the Manager,
each existing Series shall pay the Manager an annual fee computed on the basis
of the average net asset value of the Series as ascertained each business day
and paid monthly in accordance with the schedule set forth in Exhibit A to this
Agreement. For purposes of computing the annual fee, the net asset value of the
Series shall be equal to the difference between its total assets and its total
liabilities (excluding from such liabilities its capital stock and surplus) with
its assets and its liabilities to be valued in accordance with the procedures
set forth in the Trust's Registration Statement.
(b) For the services and facilities to be furnished by the Manager, any
new Series of the Trust which is issued on a future date will pay the Manager a
fee according to a Schedule which will be set forth in an amended Exhibit A to
this Agreement.
(c) If SAFECO Securities, Inc., receives portfolio brokerage
commissions resulting from transactions in the portfolio of any Series
("commissions"), any management fee earned by Manager will be reduced by the
amount of such commissions so received by SAFECO Securities, Inc.
(d) The Trust and the Manager may mutually agree to reduce the fees
payable by any Series if the reduction is in the best long-range interest of the
Trust and the Manager.
(e) If the Manager shall serve for less than the whole of any month,
the monthly management fee payable by each Series shall be prorated.
7. Reimbursements by Manager. The Manager agrees to reimburse a Series
for the amount by which the Series' expenses in any full fiscal year (excluding
taxes and interest expense, brokerage expenses and extraordinary expenses)
exceed the limits prescribed by any state in which the Series shares are
qualified for sale. For the purpose of this calculation, the costs of acquiring
and disposing of portfolio securities shall be charged to the cost of or amount
realized from such securities and shall not be deemed expenses of the Series.
For purposes of determining whether the Series is entitled to reimbursement, the
expenses of the Series are calculated on a monthly basis. If a Series is
entitled to a reimbursement, that month's advisory fee will be reduced or
postponed, with any adjustments made at the end of the fiscal year.
8. Liability of Manager. The Manager assumes no responsibility under
this Agreement other than to render the services called for hereunder, in good
faith, and shall not be responsible for any action of the Trust's Board of
Trustees in following or declining to follow any advice or recommendations of
the Manager; provided, that nothing in this Agreement shall protect the Manager
against any liability to the Trust or its shareholders to which it would
otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties or by reason of its reckless
disregard of its obligations and duties hereunder.
54
<PAGE> 7
9. Books and Records. The Trust shall cause its books and accounts to
be audited at least once each year by a reputable, independent public accountant
or organization of public accountants who shall render a report to the Trust.
10. Affiliation.
(a) It is understood that trustees, officers, shareholders and agents
of the Trust and each Series are or may be interested in the Manager (or any
successor thereof) as directors, officers, shareholders or otherwise, and that
the Manager (or any such successor) is or may be interested in the Trust as a
shareholder or otherwise.
(b) No trustee, officer or employee of the Trust and each Series shall
receive from the Trust any salary or other compensation as such director,
officer or employee while he or she is at the same time a director, officer, or
employee of the Manager or any affiliated company of the Manager. This paragraph
shall not apply to directors or other persons who are not regular members of the
Manager's or any affiliated company's staff.
11. Unrestricted Activities. Nothing in this Agreement shall limit or
restrict the right of any director, officer, or employee of the Manager who may
also be a trustee, officer, or employee of the Trust or any Series, to engage in
any other business or to devote his or her time and attention in part to the
management or other aspects of any other business, whether of a similar nature
or a dissimilar nature, or limit or restrict the right of the Manager to engage
in any other business or to render services of any kind, including investment
advisory and management services, to any other corporation, firm, individual or
association.
12. Use of Name. In the event this Agreement is terminated by either
party or upon written notice from the Manager at any time, the Trust hereby
agrees that it will eliminate from its corporate name any reference to the name
of "SAFECO." The Trust shall have the non-exclusive use of the name "SAFECO" in
whole or in part only so long as this Agreement is effective or until such
notice is given. Notwithstanding the foregoing and in the event that this
Agreement is terminated by either party, the Manager may elect to permit the
Trust to continue to use the name "SAFECO" under such terms and conditions as
the Manager shall set forth in writing.
13. Effectiveness Date/Renewal. This Agreement will become effective
with respect to each Series on the date first written above or such later date
as indicated on Exhibit A, provided that it shall have been approved by the
Trust's Board of Trustees and by the shareholders of that Series in accordance
with the requirements of the 1940 Act and, unless sooner terminated as provided
herein, will continue in effect for two years from the above written date.
Thereafter, if not terminated, this Agreement shall continue in effect with
respect to each Series for successive annual periods ending on the same date of
each year, provided that such continuance is specifically approved at least
annually (i) by the Trust's Board of Trustees or (ii) with respect to any
Series, by a vote of a majority of the outstanding voting securities of that
Series, provided that in either event the continuance is also approved by a
majority of the Trust's trustees who are neither interested persons (as defined
in the 1940 Act) of the Trust or the Manager by vote cast at a meeting called
for the purpose of voting on such continuance.
14. Amendment. This Agreement may be amended by the parties only if the
terms of the amendment are approved by either (i) a majority of the Trust's
Board of Trustees or, (ii) with respect to any given Series, by a vote of a
majority of
55
<PAGE> 8
the outstanding voting securities of that Series at a duly called meeting of the
shareholders. In either case, the majority of the trustees, who are neither
interested persons of the Trust or the Manager, must approve the amendment.
15. Termination. This Agreement is terminable with respect to any
Series or in its entirety without penalty by the Trust's Board of Trustees, by
vote of a majority of the outstanding voting securities of each affected Series
(as defined in the 1940 Act), or by the Manager, on not less than 60 days'
notice to the other party and will be terminated upon the mutual written consent
of the Manager and the Trust. This Agreement shall terminate automatically in
the event of its assignment by the Manager and shall not be assignable by the
Trust without the consent of the Manager.
16. Limitation of Liability. Manager is hereby expressly put on notice of
(i) the limitation of shareholder, officer and trustee liability as set forth in
the Trust Instrument of the Trust and (ii) of the provisions in the Trust
Instrument permitting the establishment of separate Series and limiting the
liability of each Series to obligations of that Series. Manager hereby agrees
that obligations assumed by the Trust pursuant to this Agreement are in all
cases assumed on behalf of a particular Series and each such obligation shall be
limited in all cases to that Series and its assets. Manager agrees that it shall
not seek satisfaction of any such obligation from the shareholders or any
individual shareholder of the Trust nor from the officers or trustees of any
individual officer or trustee of the Trust.
17. Defined Terms. For the purpose of this Agreement, the terms "vote of a
majority of the outstanding voting securities," "assignment," and "interested
persons," shall have the respective meanings specified in the Investment Company
Act of 1940 when such terms are used in reference to the Trust and the Series.
18. Entire Agreement/Enforcement of Rights. This Agreement embodies the
entire agreement between the Manager and the Trust with respect to the services
to be provided by the Manager to the Trust and each Series and supersedes any
prior written or oral agreement between those parties. In the event that either
party should be required to take legal action in order to enforce its rights
under this Agreement, the prevailing party in any such action or proceeding
shall be entitled to recover from the other party costs and reasonable
attorneys' fees.
19. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed in counterparts, each of which taken together shall
constitute one and the same instrument. Manager understands that the rights and
obligations of each Series under the Trust Instrument are separate and distinct
from those of any and all other Series.
19. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington and, to the extent it
involves any United States statute, in accordance with the laws of the United
States.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their duly authorized officers as of the day and year first above written.
ATTEST: SAFECO COMMON STOCK TRUST
56
<PAGE> 9
/s/ Elna A. Thomson By /s/ David F. Hill
- -------------------------- ------------------------------
Elna A. Thomson David F. Hill
Secretary President
ATTEST: SAFECO ASSET MANAGEMENT COMPANY
/s/ Elna A. Thomson By /s/ Richard W. Hubbard
- -------------------------- ------------------------------
Elna A. Thomson Richard W. Hubbard
Secretary President
57
<PAGE> 10
EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO GROWTH FUND
FEE SCHEDULE
<TABLE>
<CAPTION>
Net Assets Annual Fee
---------- ----------
<S> <C>
For assets up to and including $100,000,000 .75 of 1%
For assets in excess of $100,000,000 and
up to and including $250,000,000 .65 of 1%
For assets in excess of $250,000,000 and
up to and including $500,000,000 .55 of 1%
For assets over $500,000,000 .45 of 1%
</TABLE>
ORGANIZATIONAL EXPENSES
Not applicable.
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO Growth Fund
By: /s/ Richard W. Hubbard By: /s/ David F. Hill
------------------------------- -------------------------
Its: President Its: President
Attest: /s/ Elna A. Thomson Attest: /s/ Elna A. Thomson
--------------------------- ----------------------
Secretary Secretary
As of 9-30-93
58
<PAGE> 11
EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO EQUITY FUND
FEE SCHEDULE
<TABLE>
<CAPTION>
Net Assets Annual Fee
---------- ----------
<S> <C>
For assets up to and including $100,000,000 .75 of 1%
For assets in excess of $100,000,000 and
up to and including $250,000,000 .65 of 1%
For assets in excess of $250,000,000 and
up to and including $500,000,000 .55 of 1%
For assets over $500,000,000 .45 of 1%
</TABLE>
ORGANIZATIONAL EXPENSES
Not applicable.
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO Equity Fund
By: /s/ Richard W. Hubbard By: /s/ David F. Hill
------------------------------ ------------------------
Its: President Its: President
Attest: /s/ Elna A. Thomson Attest: /s/ Elna A. Thomson
--------------------------- --------------------
Secretary Secretary
As of 9-30-93
59
<PAGE> 12
EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO INCOME FUND
FEE SCHEDULE
<TABLE>
<CAPTION>
Net Assets Annual Fee
---------- ----------
<S> <C>
For assets up to and including $100,000,000 .75 of 1%
For assets in excess of $100,000,000 and
up to and including $250,000,000 .65 of 1%
For assets in excess of $250,000,000 and
up to and including $500,000,000 .55 of 1%
For assets over $500,000,000 .45 of 1%
</TABLE>
ORGANIZATIONAL EXPENSES
Not applicable.
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO Income Fund
By: /s/ Richard W. Hubbard By: /s/ David F. Hill
----------------------------- ------------------------
Its: President Its: President
Attest: /s/ Elna A. Thomson Attest: /s/ Elna A. Thomson
-------------------------- --------------------
Secretary Secretary
As of 9-30-93
60
<PAGE> 13
EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO NORTHWEST FUND
FEE SCHEDULE
<TABLE>
<CAPTION>
Net Assets Annual Fee
---------- ----------
<S> <C>
For assets up to and including $250,000,000 .75 of 1%
For assets in excess of $250,000,000 and
up to and including $500,000,000 .65 of 1%
For assets in excess of $500,000,000 and
up to and including $750,000,000 .55 of 1%
For assets over $750,000,000 .45 of 1%
</TABLE>
ORGANIZATIONAL EXPENSES
The Trust shall not be obligated to reimburse the Manager for aggregate
organizational expenses in excess of $30,000 for the SAFECO Northwest Fund.
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO Northwest Fund
By: /s/ Richard W. Hubbard By: /s/ David F. Hill
--------------------------- -------------------------
Its: President Its: President
Attest: /s/ Elna A. Thomson Attest: /s/ Elna A. Thomson
----------------------- ---------------------
Secretary Secretary
As of 9-30-93
61
<PAGE> 14
EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO BALANCED FUND
The SAFECO Common Stock Trust consists of the following additional Series, which
is made a party to this Agreement pursuant to Section 13 of the Agreement:
1. SAFECO Balanced Fund
As provided in Section 6 of this Agreement, for the services and facilities to
be furnished by the Manager, SAFECO Balanced Fund shall pay the Manager an
annual fee computed on the basis of the average net asset value of SAFECO
Balanced Fund as ascertained each business day and paid monthly in accordance
with the following schedule:
<TABLE>
<CAPTION>
Net Assets Annual Fee
---------- ----------
<S> <C>
For assets up to and including $250,000,000 .75 of 1%
For assets in excess of $250,000,000 and
up to and including $500,000,000 .65 of 1%
For assets over $500,000,000 .55 of 1%
</TABLE>
ORGANIZATIONAL EXPENSES
Not applicable.
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO Balanced Fund
By: /s/ Stephen C. Bauer By: /s/ David F. Hill
------------------------ -------------------------
Its: President Its: President
Attest: /s/ Neal A. Fuller Attest: /s/ Neal A. Fuller
-------------------- ---------------------
Secretary Assistant
Secretary
As of 11-10-95
62
<PAGE> 15
EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO INTERNATIONAL STOCK FUND
The SAFECO Common Stock Trust consists of the following additional Series, which
is made a party to this Agreement pursuant to Section 13 of the Agreement:
1. SAFECO International Stock Fund
As provided in Section 6 of this Agreement, for the services and facilities to
be furnished by the Manager, SAFECO International Stock Fund shall pay the
Manager an annual fee computed on the basis of the average net asset value of
SAFECO International Stock Fund as ascertained each business day and paid
monthly in accordance with the following schedule:
<TABLE>
<CAPTION>
Net Assets Annual Fee
---------- ----------
<S> <C>
For assets up to and including $250,000,000 1.10 of 1%
For assets in excess of $250,000,000 and
up to and including $500,000,000 1.00 of 1%
For assets over $500,000,000 .90 of 1%
</TABLE>
ORGANIZATIONAL EXPENSES
Not applicable.
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO International Stock Fund
By: /s/ Stephen C. Bauer By: /s/ David F. Hill
------------------------- ------------------------
Its: President Its: President
Attest: /s/ Neal A. Fuller Attest: /s/ Neal A. Fuller
--------------------- --------------------
Secretary Assistant
Secretary
As of 11-10-95
63
<PAGE> 16
EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO SMALL COMPANY STOCK FUND
The SAFECO Common Stock Trust consists of the following additional Series, which
is made a party to this Agreement pursuant to Section 13 of the Agreement:
1. SAFECO Small Company Stock Fund
As provided in Section 6 of this Agreement, for the services and facilities to
be furnished by the Manager, SAFECO Small Company Stock Fund shall pay the
Manager an annual fee computed on the basis of the average net asset value of
SAFECO Small Company Stock Fund as ascertained each business day and paid
monthly in accordance with the following schedule:
<TABLE>
<CAPTION>
Net Assets Annual Fee
---------- ----------
<S> <C>
For assets up to and including $250,000,000 .85 of 1%
For assets in excess of $250,000,000 and
up to and including $500,000,000 .75 of 1%
For assets over $500,000,000 .65 of 1%
</TABLE>
ORGANIZATIONAL EXPENSES
Not applicable.
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO Small Company Stock Fund
By: /s/ Stephen C. Bauer By: /s/ David F. Hill
------------------------- ------------------------
Its: President Its: President
Attest: /s/ Neal A. Fuller Attest: /s/ Neal A. Fuller
--------------------- --------------------
Secretary Assistant
Secretary
As of 11-10-95
64
<PAGE> 17
SUB-INVESTMENT ADVISORY CONTRACT
Contract made as of ___________________, 1995, between SAFECO ASSET
MANAGEMENT COMPANY ("SAM") a Washington corporation, and BANK OF IRELAND ASSET
MANAGEMENT (U.S.) LIMITED ("BIAM"), a Connecticut corporation.
WHEREAS, SAM has entered into an Investment Advisory Contract dated as
of the date hereof ("Advisory Contract") with SAFECO Common Stock Trust (the
"Trust"), an open-end investment company registered under the Investment Company
Act of 1940, as amended ("1940 Act"); and
WHEREAS, SAM wishes to retain BIAM as sub-investment adviser to furnish
certain investment advisory services to SAM and the SAFECO International Fund
series ("Series") of the Trust, and BIAM is willing to furnish such services;
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
1. Appointment. SAM hereby appoints BIAM as its investment
sub-investment adviser with respect to the Series for the period and on the
terms set forth in this Contract. BIAM accepts such appointment and agrees to
render the services herein set forth, for the compensation herein provided.
2. Duties of BIAM.
(a) Subject to the supervision of the Trust's Board of Trustees
("Board") and SAM, BIAM will provide a continuous investment program for the
Series, including investment research and management. BIAM will determine from
time to time what investments will be purchased, retained or sold by the Series.
BIAM will be responsible for placing purchase and sell orders for investments
and for other related transactions. BIAM will provide services under this
Contract in accordance with the Series' investment objective, policies and
restrictions as stated in the Series' Prospectus.
(b) BIAM agrees that, in placing orders with brokers, it will attempt
to obtain the best net result in terms of price and execution; provided that, on
behalf of the Series, BIAM may, in its discretion, use brokers who provide the
Series with research, analysis, advice and similar services to execute portfolio
transactions on behalf of the Series, and BIAM may pay to those brokers in
return for brokerage and research services a higher commission than may be
charged by other brokers, subject to BIAM's determining in good faith that such
commission is reasonable in terms either of the particular transaction or of the
overall responsibility of BIAM and its affiliates to the Series and its other
clients and that the total commissions paid by the Series will be reasonable in
relation to the benefits to the Series over the long term. In no instance will
portfolio securities be purchased from or sold to BIAM, or any affiliated person
thereof, except in accordance with United States securities laws and the rules
and regulations thereunder. Whenever BIAM simultaneously places orders to
purchases or sell the same security on behalf of the Series and one or more
other accounts advised by BIAM, such orders will be allocated as to price and
amount among all such accounts in a manner
65
<PAGE> 18
believed to be equitable to each account. SAM recognizes that in some cases this
procedure may adversely affect the results obtained for the Series.
(c) BIAM will maintain all books and records required to be maintained
by BIAM pursuant to the 1940 Act and the rules and regulations promulgated
thereunder with respect to transactions on behalf of the Series, and will
furnish the Board and SAM with such periodic and special reports as the Board of
SAM reasonably may request. In compliance with the requirements of Rule 31a-3
under the 1940 Act, BIAM hereby agrees that all records which it maintains for
the Series are the property of the Trust, agrees to preserve for the periods
prescribed by Rule 31a-2 under the 1940 Act any records which it maintains for
the Trust and which are required to be maintained by Rule 31a-1 under the 1940
Act, and further agrees to surrender promptly to the Trust any records which it
maintains for the Trust upon request by the Trust.
(d) At such times as shall be reasonably requested by the Board or SAM,
BIAM will provide the Board and SAM with economic and investment analyses and
reports and make available to the Board and SAM any economic, statistical and
investment services normally available to similar investment company customers
of BIAM.
3. Further Duties. In all matters relating to the performance of this
Contract, BIAM will act in conformity with the Trust's Declaration of Trust,
By-laws and currently effective registration statement under the 1940 Act and
any amendments or supplements thereto ("Registration Statement") and with the
written instructions and directions of the Board and SAM and comply with the
requirements of the 1940 Act, the Investment Advisers Act of 1940 ("Advisers
Act"), the rules thereunder, and all other applicable federal and state laws and
regulations. SAM agrees to provide to BIAM copies of the Trust's Declaration of
Trust, Bylaws, Registration Statement, written instructions and directions of
the Board and SAM, and any amendments or supplements to any of them as soon as
practicable after such materials become available.
66
<PAGE> 19
4. Services Not Exclusive. The services furnished by BIAM hereunder are
not to be deemed exclusive, and BIAM shall be free to furnish similar services
to others so long as its services under this Contract are not impaired thereby.
Nothing in this Contract shall limit or restrict the right of any director,
officers or employee of BIAM to engage in any other business or to devote his or
her time and attention in part to the management or other aspects of any other
business, whether of a similar nature or a dissimilar nature.
5. Expenses. During the term of this Contract, BIAM will bear all
expenses incurred by it in connection with its services under this Contract.
6. Compensation.
(a) For the services provided and the expenses assumed by BIAM pursuant
to the Contract, SAM will pay to BIAM a fee, computed daily and payable monthly,
at an annual rate specified below (in United States dollars) of the Advisory Fee
received by SAM from the Trust with respect to the Series pursuant to the
Advisory Contract:
<TABLE>
<CAPTION>
Net Assets Fee
---------- ---
<S> <C>
For assets up to and including .45 of 1%
$50,000,000
For assets in excess of $50,000,000 .40 of 1%
and up to and including $100,000,000
For assets in excess of $100,000,000 .30 of 1%
</TABLE>
(b) "Net assets" shall include the assets of the Series and the assets
of any other series of any other trust managed by SAM and sub-managed by BIAM.
(c) The fee shall be accrued daily and payable monthly to BIAM on or
before the last business day of the next succeeding calendar month.
(d) If this Contract becomes effective or terminates before the end of
any month, the fee for the period from the effective date to the end of the
month or from the beginning of such month to the date of termination, as the
case may be, shall be prorated according to the proportion which such period
bears to the full month in which such effectiveness or termination occurs.
67
<PAGE> 20
7. Limitation of Liability. BIAM shall not be liable for any error of
judgment or mistake of law or for any loss suffered by the Series, the Trust or
its shareholders or by SAM in connection with the matters to which this Contract
relates, except to the extent that such a loss results from willful misfeasance,
bad faith or gross negligence on its part in the performance of its duties or
from reckless disregard by it of its obligations and duties under this Contract.
8. Representations of BIAM. BIAM represents, warrants and agrees as
follows:
(a) BIAM: (i) is registered as an investment adviser under the Advisers
Act and will continue to be so registered for so long as this Contract remains
in effect; (ii) is not prohibited by the 1940 Act or the Advisers Act from
performing the services contemplated by this Contract; (iii) has met, and will
continue to meet for so long as this Contract remains in effect, any other
applicable federal or state requirements, or the applicable requirements of any
regulatory or industry self-regulatory agency, necessary to be met in order to
perform the services contemplated by this Contract; (iv) has the authority to
enter into and perform the services contemplated by this Contract; and (v) will
immediately notify SAM of the occurrence of any event that would disqualify BIAM
from serving as an investment adviser of an investment company pursuant to
Section 9(a) of the 1940 Act or otherwise.
(b) BIAM has adopted a written code of ethics complying with the
requirements of Rule 17j-1 under the 1940 Act and will provide SAM with a copy
of such code of ethics, together with evidence of its adoption. Within 45 days
after the end of the last calendar quarter of each year that this Contract is in
effect, the president or a vice president of BIAM shall certify to SAM that BIAM
has complied with the requirements of Rule 17j-1 during the previous year and
that there has been no violation of BIAM's code of ethics or, if such a
violation has occurred, that appropriate action was taken in response to such
violation. Upon the written request of SAM, BIAM shall permit SAM, its employees
or its agents to examine the reports required to be made to BIAM by Rule
17j-1(c)(1) and all other records relevant to BIAM's code of ethics.
(c) BIAM has provided SAM with a copy of its Form ADV as most recently
filed with the Securities and Exchange Commission ("SEC") and will, promptly
after filing any amendment to its Form ADV with the SEC, furnish a copy of such
amendment to SAM.
(d) BIAM will notify SAM of any change in the identity or
control of its shareholders promptly after such change.
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<PAGE> 21
9. Duration and Termination.
(a) This Contract shall become effective upon the date first above
written, provided that this Contract shall not take effect unless it has first
been approved (1) by a vote of a majority of those trustees of the Trust who are
not parties to this Contract or interested persons of any such party, cast in
person at a meeting called for the purpose of voting on such approval, and (ii)
by vote of a majority of the Series' outstanding voting securities.
(b) Unless sooner terminated as provided herein, this Contract shall
continue in effect for two years from its effective date. Thereafter, if not
terminated, this Contract shall continue automatically for successive periods of
twelve months each, provided that such continuance is specifically approved at
least annually (i) by a vote of a majority of those trustees of the Trust who
are not parties to this Contract or interested persons of any such party, cast
in person at a meeting called for the purpose of voting on such approval, and
(ii) by the Board or by vote of a majority of the outstanding voting securities
of the Series.
(c) Notwithstanding the foregoing, this Contract may be terminated at
any time, without the payment of any penalty, by vote of the Board or by a vote
of a majority of the outstanding voting securities of the Series on 60 days'
written notice to BIAM. This Contract may also be terminated by SAM: (i) on 120
days' written notice to BIAM, without the payment of any penalty; (ii) upon
material breach by BIAM of any of the representations and warranties set forth
in Paragraph 8 of this Contract, if such breach shall not have been cured within
a 20 day period after notice of such breach; or (iii) if BIAM becomes unable to
discharge its duties and obligations under this Contract. BIAM may terminate
this Contract at any time, without the payment of any penalty, on 120 days'
notice to SAM. This Contract will terminate automatically in the event of its
assignment or upon termination of the Advisory Contract.
10. Amendment of this Contract. No provision of this Contract may be
changed, waived, discharged or terminated orally, but only by an instrument in
writing signed by the party against which enforcement of the change, waiver,
discharge or termination is sought, and no amendment of this Contract shall be
effective until approved by vote of a majority of the Series' outstanding voting
securities.
11. Governing Law. This Contract shall be construed in accordance with
the laws of the State of Washington without giving effect to the conflicts of
laws principles thereof and the 1940 Act. To the extent that the applicable laws
of the State of Washington conflict with the applicable provisions of the 1940
Act, the latter shall control.
12. Miscellaneous. The captions in this Contract are included for
convenience of reference only and in no way define or delimit any of the
provisions thereof or otherwise affect their construction or effect. If any
provision of this Contract shall be held or made invalid by a court decision,
statute, rule or otherwise, the remainder of this Contract shall not be affected
thereby. This Contract shall be binding upon and shall inure to the benefit of
the parties hereto and their respective successors. As used in this Contract,
the terms "majority of the outstanding voting securities,"
69
<PAGE> 22
"affiliated person," "control," "interested person," "assignment," "broker,"
"investment adviser," "net assets," "sale," "sell" and "security" shall have the
same meaning as such terms have in the 1940 Act, subject to such exemption as
may be granted by the SEC by any rule, regulation or order. Where the effect of
a requirement of the federal securities laws reflected in any provision of this
Contract is made less restrictive by a rule, regulation or order of the SEC,
whether of special or general application, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed by their duly authorized signatories as of the date and year first
above written.
ATTEST: SAFECO ASSET MANAGEMENT COMPANY
__________________________ By: ____________________________
Neal A. Fuller Steve Bauer
Secretary President
ATTEST: By: BANK OF IRELAND ASSET
MANAGEMENT (U.S.) LIMITED
___________________________ By: ____________________________
Gerald Colleary Denis Curran
Senior Vice President President
70
<PAGE> 1
EXHIBIT NO. 99.6
DISTRIBUTION AGREEMENT
71
<PAGE> 2
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT, made this 30th day of September, 1993, by
and between SAFECO COMMON STOCK TRUST, a Delaware business trust ("Trust"), and
SAFECO SECURITIES, INC., a Washington corporation (the "Distributor").
WHEREAS, the Trust is registered with the Securities and Exchange
Commission as a series type open-end investment company under the Investment
Company Act of 1940, as amended (the "1940 Act") and has caused its shares of
beneficial interest to be registered for sale to the public under the Securities
Act of 1933 (the "1933 Act") and various state securities laws; and
WHEREAS, the Trust intends to offer for public sale distinct series of
shares of beneficial interest, each corresponding to a distinct portfolio
("Series"); and
WHEREAS, the Trust wishes to retain the Distributor as the principal
underwriter in connection with the offering and sale of the shares of beneficial
interest of each Series as now exists and as hereafter may be established which
are listed on Exhibit A to this Agreement as amended from time to time
("Shares") and to furnish certain other services to the Trust as specified in
this Agreement; and
WHEREAS, this Agreement has been approved by a vote of the Trust's
Board of Trustees, and certain trustees who are not interested persons in
conformity with Section 15(c) under the 1940 Act; and
WHEREAS, the Distributor is willing to act as principal underwriter and
to furnish such services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein contained, it is agreed as follows:
1. Appointment of Distributor. The Trust hereby appoints the
Distributor as principal underwriter in connection with the offering and sale of
Shares of each Series. The Trust authorizes the Distributor, as exclusive agent
for the Trust, upon the commencement of operations of any Series and subject to
applicable federal and state law and the Trust Instrument and Bylaws of the
Trust: (a) to promote the Series; (b) to solicit orders for the purchase of the
Shares of the Series subject to such terms and conditions as the Trust may
specify; and (c) to accept orders for the purchase of the Shares of the Series
on behalf of the Trust. The Distributor shall comply with all applicable federal
and state laws and offer the Shares of each Series on an agency or "best
efforts" basis under which the Trust shall issue only such Shares as are
actually sold. The Distributor shall have the right to use any list of
shareholders of the Trust or any Series or any other list of investors which it
obtains in connection with its provision of services under this Agreement;
provided, however, that the Distributor shall not sell or knowingly provide such
list or lists to any unaffiliated person without the consent of the Trust's
Board of Trustees.
2. Duties of Trust. The Trust agrees to register the Shares with the
Securities and Exchange Commission, state and other regulatory bodies, and to
72
<PAGE> 3
prepare and file from time to time such Prospectuses, Statements of Additional
Information, amendments, reports and other documents as may be necessary to
maintain the Registration Statement. Each Series shall bear all expenses related
to preparing and typesetting such Prospectuses, Statements of Additional
Information and other materials required by law and such other expenses,
including printing and mailing expenses, related to such Series' communications
with persons who are shareholders of that Series.
3. Duties of Distributor. The Distributor shall print and distribute to
prospective investors Prospectuses, and shall print and distribute, upon
request, to prospective investors Statements of Additional Information, and may
print and distribute such other sales literature, reports, forms and
advertisements in connection with the sale of the Shares as comply with the
applicable provisions of federal and state law. In connection with such sales
and offers of sale, the Distributor shall give only such information and make
only such statements or representations as are contained in the Prospectus,
Statement of Additional Information, or in information furnished in writing to
the Distributor by the Trust, and the Trust shall not be responsible in any way
for any other information, statements or representations given or made by the
Distributor or its representatives or agents. Except as specifically provided in
this Agreement, the Trust shall bear none of the expenses of the Distributor in
connection with its offer and sale of the Shares.
4. Other Broker Dealers. The Distributor may enter into dealer
agreements with registered and qualified securities dealers for the sale of the
Shares. The form of any such dealer agreement shall be mutually agreed upon and
approved by the Trust and the Distributor.
5. Public Offering Price. The public offering price of the Shares of
each Series shall be the net asset value per share (as determined by the Trust)
of the outstanding Shares of the Series, if any, as described in the
Registration Statement. The Trust shall furnish the Distributor with a statement
of each computation of public offering price and of the details entering into
such computation.
6. Repurchase of Shares. The Distributor may at its sole discretion
repurchase Shares offered for sale by the shareholders. Repurchase of Shares by
the Distributor shall be at the net asset value next determined after a
repurchase order has been received. The Distributor will receive no commission
or other remuneration for repurchasing Shares. At the end of each business day,
the Distributor shall notify by any appropriate means, the Trust and SAFECO
Services Corporation, the Trust's transfer agent, of the orders for repurchase
of Shares received by the Distributor since the last such report, the amount to
be paid for such Shares, and the identity of the shareholders offering Shares
for repurchase. Upon such notice, the Trust shall pay the Distributor such
amounts as are required by the Distributor for the repurchase of such Shares in
cash or in the form of a credit against moneys due the Trust from the
Distributor as proceeds from the sale of Shares. The Trust reserves the right to
suspend such repurchase right upon written notice to the Distributor. The
Distributor further agrees to act as agent for the Trust to receive and transmit
promptly to the Trust's transfer agent shareholder requests for redemption of
Shares.
73
<PAGE> 4
7. Indemnification.
(a) The Distributor shall be entitled to receive and act on the advice
of counsel for the Trust which advice shall be at the expense of the Trust and
shall be without liability for any action taken, or things done, or omitted to
be done, pursuant to such advice.
(b) The Trust agrees to indemnify, defend and hold the Distributor, its
several directors, officers and employees, and any person who controls the
Distributor within the meaning of Section 15 of the 1933 Act, free and harmless
from and against any and all claims, demands, liabilities and expenses
(including the cost of investigating or defending such claims, demands or
liabilities and any counsel fees incurred in connection therewith) which the
Distributor, its directors, officers or employees, or any such controlling
person may incur, under the 1933 Act or under common law or otherwise, arising
out of or based upon any alleged untrue statement of a material fact contained
in the Registration Statement or arising out of or based upon any alleged
omission to state a material fact required to be stated or necessary to make the
Registration Statement not misleading, provided that in no event shall anything
contained in this Agreement be construed so as to protect the Distributor
against any liability to the Trust or its shareholders to which the Distributor
would otherwise be subject by reason of willful misfeasance, bad faith, or gross
negligence in the performance of its duties, or by reason of its reckless
disregard of its obligations and duties under this Agreement, and further
provided that the Trust shall not indemnify the Distributor for conduct set
forth in this subparagraph 7(b).
(c) The Distributor agrees to indemnify, defend and hold the Trust, its
several trustees, officers and employees and any person who controls the Trust
within the meaning of Section 15 of the 1933 Act, free and harmless from and
against any and all claims, demands, liabilities and expenses (including the
cost of investigating or defending such claims, demands or liabilities and any
counsel fees incurred in connection therewith) which the Trust, its trustees,
officers or employees or any such controlling person may incur, under the 1933
Act or under common law or otherwise, arising out of or based upon any alleged
untrue statement of a material fact contained in information furnished in
writing by the Distributor to the Trust for use in the Registration Statement or
arising out of or based upon any alleged omission to state a material fact in
connection with such information required to be stated in the Registration
Statement or necessary to make such information not misleading. As used in this
subparagraph 7(c), the term "employee" shall not include a corporate entity
under contract to provide services to the Trust or any Series, or any employee
of such a corporate entity, unless such person is otherwise an employee of the
Trust.
8. Certificates. The Trust shall not be required to issue certificates
representing Shares. If the Trust elects to issue certificates and a shareholder
request for certificates is transmitted through the Distributor, the Trust will
cause certificates evidencing the Shares owned to be issued in such names and
denominations as the Distributor shall from time to time direct, provided that
no certificates shall be issued for fractional Shares.
9. Withdrawal of Offering. The Trust reserves the right at any time to
withdraw all offerings of the Shares of any or all Series by written notice to
the Distributor at its principal office.
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10. Independent Contractor Status. The Distributor is an independent
contractor and shall be agent for the Trust only in respect to the sale and
redemption of the Shares.
11. Non-Exclusive Services. The services of the Distributor to the
Trust under this Agreement are not to be deemed exclusive, and the Distributor
shall be free to render similar services or other services to others so long as
its services hereunder are not impaired thereby.
12. Use of Name. In the event this Agreement is terminated by either
party or upon written notice from the Distributor at any time, the Trust hereby
agrees that it will eliminate from its corporate name any reference to the name
of "SAFECO." The Trust shall have the non-exclusive use of the name "SAFECO" in
whole or in part only so long as this Agreement is effective or until such
notice is given. Notwithstanding this subparagraph and in the event this
Agreement is terminated by either party, the Distributor may elect to permit the
Trust to continue to use the name "SAFECO" under such terms and conditions as
the Distributor shall set forth in writing.
13. Effective Date/Renewal. This Agreement will become effective with
respect to each Series on the date first written above or such later date as
indicated on Exhibit A and, unless sooner terminated as provided herein, will
continue in effect for two years from the above written date. Thereafter, if not
terminated, this Agreement shall continue in effect with respect to each Series
for successive annual periods ending on the same date of each year, provided
that such continuance is specifically approved at least annually (i) by the
Trust's Board of Trustees or (ii) with respect to any given Series, by a vote of
a majority of the outstanding voting securities of that Series (as defined in
the 1940 Act), provided that in either event the continuance is also approved by
majority of the Trust's trustees who are neither interested persons (as defined
in the 1940 Act) of the Trust or the Distributor by vote cast at a meeting
called for the purpose of voting on such continuance.
14. Amendment. This Agreement may be amended by the parties only if the
terms of the amendment are either (i) approved by the Trust's Board of Trustees
or, (ii) with respect to any given Series, by a vote of a majority of the
outstanding voting securities of that Series at a duly called meeting of the
shareholders. In either case, the majority of the trustees, who are neither
interested persons of the Trust or the Distributor, must approve the amendment.
15. Termination. This Agreement is terminable with respect to any
Series or in its entirety without penalty by the Trust's Board of Trustees, by
vote of a majority of the outstanding voting securities of each affected Series
(as defined in the 1940 Act), or by the Distributor, on not less than 60 days'
notice to the other party and will be terminated upon the mutual written consent
of the Distributor and the Trust. This Agreement will also automatically and
immediately terminate in the event of its assignment.
16. Limitation of Liability. Distributor is hereby expressly put on
notice of (i) the limitation of shareholder, officer and trustee liability as
set forth in the Trust Instrument of the Trust and (ii) of the provisions in the
Trust
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Instrument permitting the establishment of separate Series and limiting the
liability of each Series to obligations of that Series. Distributor hereby
agrees that obligations assumed by the Trust pursuant to this Agreement are in
all cases assumed on behalf of a particular Series and each such obligation
shall be limited in all cases to that Series and its assets. Distributor agrees
that it shall not seek satisfaction of any such obligation from the shareholders
or any individual shareholder of the Trust nor from the officers or trustees or
any individual officer or trustee of the Trust.
17. Definitions. As used in this Agreement, the term(s):
(a) "net assets" shall have the meaning ascribed to it in the Trust's
Trust Instrument;
(b) "assignment", "interested person", and "majority of the outstanding
voting securities" shall have the meanings given to them by Section 2(a) of the
1940 Act, subject to such exemptions as may be granted by the Securities and
Exchange Commission by any rule, regulation or order.
(c) "Registration Statement" shall mean the registration statement most
recently filed by the Trust with the Securities and Exchange Commission and
effective under the 1940 Act and 1933 Act, as such Registration Statement is
amended by any amendments thereto at the time in effect;
(d) "Prospectus" and "Statement of Additional Information" shall mean,
respectively, the form of prospectus and statement of additional information
with respect to each Series filed by the Trust as part of the Registration
Statement.
18. Entire Agreement/Enforcement of Rights. This Agreement embodies the
entire Agreement between the Distributor and the Trust with respect to the
services to be provided by the Distributor to the Trust and each Series and
supersedes any prior written or oral agreement between those parties. In the
event that either party should be required to take legal action in order to
enforce its rights under this Agreement, the prevailing party in any such action
or proceeding shall be entitled to recover from the other party costs and
reasonable attorneys' fees.
19. Miscellaneous. The captions in this Agreement are included for
convenience of reference only and in no way define or delimit any of the
provisions hereof or otherwise affect their construction or effect. This
Agreement may be executed in counterparts, each of which taken together shall
constitute one and the same instrument. Distributor understands that the rights
and obligations of each Series under the Trust Instrument are separate and
distinct from those of any and all other Series.
20. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of Washington.
IN WITNESS WHEREOF, the parties hereto caused this Agreement to be
executed by their officers thereunto duly authorized.
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Attest: SAFECO COMMON STOCK TRUST
By:________________________ By:________________________________
Secretary President
Attest: SAFECO SECURITIES, INC.
By:________________________ By:________________________________
Secretary President
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<PAGE> 8
EXHIBIT A
SAFECO COMMON STOCK TRUST
The SAFECO Common Stock Trust consists of the following Series:
1. SAFECO Growth Fund
2. SAFECO Equity Fund
3. SAFECO Income Fund
4. SAFECO Northwest Fund
As of 9-30-93
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<PAGE> 9
EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO BALANCED FUND
The SAFECO Common Stock Trust consists of the following additional Series, which
is made a party to this Agreement pursuant to Section 13 of the Agreement:
1. SAFECO Balanced Fund
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO Balanced Fund
By: /s/ Stephen C. Bauer By: /s/ David F. Hill
----------------------------- -------------------------
Its: President Its: President
Attest: /s/ Neal A. Fuller Attest: /s/ Neal A. Fuller
------------------------- ---------------------
Secretary Assistant
Secretary
As of 11-10-95
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<PAGE> 10
EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO INTERNATIONAL STOCK FUND
The SAFECO Common Stock Trust consists of the following additional Series, which
is made a party to this Agreement pursuant to Section 13 of the Agreement:
1. SAFECO International Stock Fund
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO International Stock Fund
By: /s/ Stephen C. Bauer By: /s/ David F. Hill
---------------------------- ------------------------
Its: President Its: President
Attest: /s/ Neal A. Fuller Attest: /s/ Neal A. Fuller
------------------------ --------------------
Secretary Assistant
Secretary
As of 11-10-95
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EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO SMALL COMPANY STOCK FUND
The SAFECO Common Stock Trust consists of the following additional Series, which
is made a party to this Agreement pursuant to Section 13 of the Agreement:
1. SAFECO Small Company Stock Fund
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO Small Company Stock Fund
By: /s/ Stephen C. Bauer By: /s/ David F. Hill
--------------------------- ---------------------------
Its: President Its: President
Attest: /s/ Neal A. Fuller Attest: /s/ Neal A. Fuller
----------------------- -----------------------
Secretary Assistant
Secretary
As of 11-10-95
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<PAGE> 1
EXHIBIT NO. 99.8
CUSTODY AGREEMENT WITH U.S. BANK
FORM OF CUSTODY AND SUBCUSTODIAN AGREEMENTS WITH CHASE MANHATTAN BANK
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MODEL SUBCUSTODIAN AGREEMENT
Dear Sirs:
This will confirm to you that The Chase Manhattan Bank, N.A. ("Chase") has been
appointed to act as Trustee, Custodian or Subcustodian of securities and monies
on behalf of certain of its customers including, without limitation, investment
companies subject to the Investment Company Act of 1940, as amended and
qualified employee benefit plans subject to the Employee Retirement Income
Security Act of 1974, as amended.
Chase has been authorized to utilize the services of other banks, financial
institutions and securities depositories located in countries or jurisdictions
in which the principal trading markets for any shares, bonds, debentures or any
other securities (hereinafter collectively called Securities") of its customers
are located or in which any Securities of its customers are to be presented for
payment or acquired, and for the purpose of holding cash and cash equivalents.
Chase wishes to utilize the services of your bank "Bank") as Chase's agent
within for such purposes and hereby establishes with Bank a Special Custody
Account which Bank understands and agrees will be used exclusively for
Securities and other assets of Chase's customers ("Account") and not for Chase's
own interest.
The services Bank will provide to Chase and the manner in which such services
will be performed will be as set forth below in this letter, which may be
mutually amended in writing from time to time by Bank and Chase. To the extent
inconsistent with this letter, as so amended, Bank's rules and conditions
regarding accounts generally or custody accounts specifically shall not apply.
1. The account shall be used to hold, acquire, transfer or otherwise care
for, on behalf of Chase as Trustee, Custodian or Subcustodian as
aforesaid and the customers of Chase and not for Chase's own interest,
Securities and such cash and cash equivalents as are transferred to
Bank or as are received in payment of any transfer of or as payment on,
or interest on or dividend from, any such Securities (hereinafter
collectively called Cash"), and beneficial ownership of the Securities
and Cash in the Account shall be freely transferable without payment of
money or value other than for safe custody and administration. All
transactions involving the Securities and Cash in the Account shall be
executed solely in accordance with Chase's Instructions as that term is
defined in Section 10, except solely in accordance with Chase's
Instructions as that term is defined in Section 10, except that until
Bank receives Instructions from Chase to the contrary, Bank will:
a) present for payment all Securities held in the Account which
are called, redeemed or retired or otherwise become payable
and all coupons and other income items which call for payment
upon presentation and hold the cash received in the Account
pursuant to this Agreement:
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b) in respect of Securities held in the Account, execute in the
name of Chase such ownership and other certificates as may be
required to obtain payments in respect thereof; and
c) exchange interim receipts or temporary Securities held in the
Account for definitive Securities.
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d) where any Securities held in any securities depository are
called for a partial redemption by the issuer of such
Securities, allot in Bank's sole discretion the called portion
to the respective holders in any manner deemed to be fair and
equitable in Bank's judgment.
Whenever pursuant to this Agreement or for any purpose relating hereto
anything whatsoever may or is required to be done or given by Chase, it
shall be done or given, as the case may be, by and for Chase by such
officer or officers of Chase or other person or persons as the
governing body of Chase shall specify from time to time. Any
specification by the governing body shall specify from time to time.
Any such specification by the governing body shall by resolution of
which a copy certified by the President, or a Vice President, and the
seal attested by the Secretary or any Assistant Secretary of Chase
shall be furnished to Bank. Bank shall be conclusively entitled to rely
upon the identification of such persons as the holders of those offices
so specified in any such resolution, absent Instructions to the
contrary. Chase shall furnish to Bank specimens of the signatures of
all such officers and persons so specified in any such resolution
received by Bank in force at he time of the receipt by Bank of such
Instructions, and shall not be charged with any responsibility
respecting the application of monies out in accordance therewith.
Bank shall not be liable for any act or omission in respect of any
Instructions so given except in the case of wilful default, negligence,
fraud, bad faith, wilful misconduct, or reckless disregard of duties on
the part of the Bank. Bank in executing all Instructions will take
relevant action in accordance with accepted industry practice.
2. The Account shall not be subject to any right, charge, security
interest, lien or claim or any kind (hereinafter collectively called
"Claims") in favor of Bank or any other institution with whom assets in
the Account may be maintained as provided in this Agreement or any
creditor of Bank or of such other institution, including a receiver or
trustee in bankruptcy, except to the extent of Bank's or such other
institution's right to compensation or reimbursement with regard to the
Account's administration in accordance with the terms of this
Agreement. Bank shall provide Chase with prompt notice of any attempt
by any party to assert any Claim against the Account and shall take all
actions to protect the Account from such Claim until Chase has had a
reasonable time to respond to such notice.
3. The ownership of the assets of the Account, whether Securities, Cash or
both, and whether any such assets are held by Bank or in a securities
depository or clearing agency as hereinafter authorized, shall be
clearly recorded on Bank's own interest, and, to the extent securities
are physically held in the Account, such Securities shall also be
physically segregated from the general assets of Bank, the assets of
Chase in its individual capacity and the assets of Bank's other
customers.
In order to facilitate the settlement of transactions, Bank may, with
the approval of Chase, which shall not be unreasonably withheld,
maintain all or any part of the Securities in the Account with a
securities depository or clearing agency which is incorporated or
organized under the law of a
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<PAGE> 5
country other than he United States of America and is supervised or
regulated by a government agency or regulatory authority in the foreign
jurisdiction having authority over such depositories or agencies, and
which operates (I) the central system for handling of securities or
equivalent book entries, provided, however, that while so maintained
such Securities shall be subject only to the directions of Bank, and
that Bank's duties, obligations and responsibilities with regard to
such Securities shall be the same as if such Securities were held by
Bank.
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<PAGE> 6
Securities which are eligible for deposit in a depository may be
maintained with the depository in an account for Bank's customers.
Securities which are not deposited in a depository will be held in the
following forms:
a) Securities issued only in bearer form shall be held in bearer
form.
b) Securities issued only in registered form shall be registered
in the name of Bank, or in the name of Bank's nominee, unless
alternate instructions are furnished by Chase.
c) Securities issued in both bearer and registered for n which
are freely interchangeable without penalty, shall be
registered in the name of Bank, or in the name of Bank's
nominee, if received by Bank in registered form, or shall be
held in bearer form if received by Bank in bearer form, unless
alternate instructions are furnished by Chase.
4. Subject to the provisions of Section 8 hereof:
a) Bank shall be responsible for complying with all provisions of
the law of ______________, or any other law, applicable to
Bank in connection with its duties hereunder including (but
not limited to) the payment of all transfer or similar taxes
and compliance with any currency restrictions and securities
laws;
b) All collections of funds or other property paid or distributed
in respect of Securities held in the Account shall be made at
the risk of the Account; and
c) Bank shall have no liability for any loss occasioned by delay
in the actual receipt of notice by its Custody Division of any
payment, redemption or other transaction regarding Securities
held in the Account in respect of which Bank has agreed to
take action as provided in Section I hereof.
5. Subject to applicable law, Bank will permit independent public
accountants for Chase and customers of Chase reasonable access to its
books and records as they pertain to the Account in connection with
such accountants' examination of the books and records of Account.
6. Bank will either periodically or upon Chase's request supply Chase with
such statements regarding the Account as Chase may request and Bank is
able to supply, including an identification of, and the location of,
any person having physical possession of the Securities in the Account,
and the name and address of the governmental agency or other regulatory
authority that supervises or regulates Bank. In addition, Bank will
furnish Chase periodically with advises and/or notifications of any
transfers of such securities.
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<PAGE> 7
7. Bank agrees that in the event of any loss of Securities or Cash in the
Account, Bank will use its best efforts to ascertain the circumstances
relating to such loss and promptly report the same to Chase.
8
<PAGE> 8
8. Bank will indemnify Chase for any loss or liability to Chase's
customers and other loss or liability incurred by Chase, individually
or as Trustee, Custodian or Subcustodian as aforesaid, with respect to
the Account (including, but not limited to, Chase's legal fees and
expenses and any other legal fees and expenses for which Chase is
liable, and any loss or liability in connection with a claim settled by
agreement between Chase and a customer, which agreement is accepted by
Bank) to the extent that such loss or liability arises from negligence,
fraud, bad faith, wilful misconduct or reckless disregard of duties on
the part of Bank. Chase will indemnify Bank for any loss or liability
Bank incurs from any action taken or omitted to be taken by Bank with
respect to the Account, except such losses or liability as results from
the negligence, fraud, bad faith, wilful misconduct or reckless
disregard of duties on he part of Bank.
9. Bank acknowledges that under U.S. regulatory requirements Bank must be
a regulated entity and must have a certain minimum shareholders' equity
in order to be used by Chase to provide the services contemplated in
this Agreement. Bank represents and warrants that it (I) is a banking
institution organized under the law of ____________, (ii) is regulated
as a banking institution by _____________, which is the agency of the
Government of _______________ responsible for the regulation of Banks
and (iii) on and after the debate hereof or such later date a shall be
specified in Instructions, has shareholders' equity in excess of two
hundred thirty million U.S. dollars (U.S.$230,000,000), or such lesser
amount as shall be specified in any order of the United States
Securities and Exchange commission applicable to Bank, or the
equivalent thereof in _____________ currency determined at current
rates. For purposes of this Section, shareholders' equity of the Bank
shall mean such shareholders' equity as would be shown on any financial
statement of the Bank if such financial statement were prepared
according to United States generally accepted accounting principles.
Bank will immediately notify Chase in writing or by other authorized
means of any development or occurrence (and the circumstances related
thereto) which could render Bank unable to make the foregoing
representation at any date. Upon such notification Chase may terminate
this Agreement immediately without prior notice to Bank.
10. As used in this Agreement, the term instructions" means instructions of
Chase received by Bank via telephone, or in writing, including but not
limited to telex, TWX, facsimile transmission, bank wire or other
teleprocess or electronic instruction system which Bank believes in
good faith to have been given by Chase or which are transmitted with
proper testing or authentication pursuant to terms and conditions which
Chase may specify. Unless otherwise expressly provided, all
Instructions shall continue in full force and effect until canceled or
superseded. Bank shall safeguard any testkeys, identification codes or
other security devices which Chase shall make available to it. Either
party may electronically record any Instructions given by telephone,
and any other telephone discussions, with respect to the Account.
Instructions by telephone shall be confirmed by telex or such other
communication as maybe mutually acceptable.
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<PAGE> 9
11. Chase agrees to pay Bank such compensation, including reimbursement of
reasonable expenses (if not charged to the Account), as may be mutually
agreed upon from time to time between Bank and Chase.
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<PAGE> 10
12. Either Bank of Chase may terminate this Agreement by 60 days written
notice to the other party, provided that any such notice, whether given
by Chase or by Bank shall be followed within 60 days by Instructions
specifying the names of the persons to whom Bank shall deliver the
Securities in the Account and to whom the cash in the Account shall be
paid. If within 60 days following the giving of such notice of
termination Bank does not receive such Instructions, Bank shall
continue to hold such Securities and cash subject to this Agreement
until such Instructions are given. The obligations of the parties under
Section 4(a), 8 and I 1 of this Agreement shall survive the termination
of this Agreement.
13. Notices with respect to termination, specification of officers and
other persons and terms and conditions for Instructions shall be in
writing, and delivered by mail, postage prepaid, to the following
addresses (or to such other address as either party hereto may from
time to time designate by notice duly given in accordance with this
paragraph):
To Bank at:
To Chase at:
The Manager
Global Custody Division
Chase Manhattan Bank NA
Woolgate House
Coleman Street
London EC2P 2HD
14. This Agreement shall not be assignable by either party but shall bind
any successor interest of Chase and Bank, respectively.
15. This Agreement shall be governed by and construed in accordance with .
Law.
If the foregoing correctly sets forth the understanding between Bank and Chase
with respect to Bank's services in connection with the Account, kindly sign and
return to us the enclosed additional copy of this letter.
Very truly yours,
THE CHASE MANHATTAN BANK,
N.A.
By_________________
The foregoing is hereby agreed
to this ________ day of ______
By_______________________
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GLOBAL CUSTODY AGREEMENT
This AGREEMENT is effective _________________________, 199__, and is between THE
CHASE MANHATTAN BANK, N.A. (the "Bank") and
_______________________________________________
__________________________________ (the "Customer").
1. Customer Accounts.
The Bank agrees to establish and maintain the following accounts
("Accounts"):
(a) A custody account in the name of the Customer ("Custody
Account") for any and all stocks, shares, bonds, debentures,
notes, mortgages or other obligations for the payment of
money, bullion, coin and any certificates, receipts, warrants
or other instruments representing rights to receive, purchase
or subscribe for the same or evidencing or representing any
other rights or interests therein and other similar property
whether certificated or uncertificated as may be received by
the Bank or its Subcustodian (as defined in Section 3) for the
account of the Customer ("Securities"); and
(b) A deposit account in the name of the Customer ("Deposit
Account") for any and all cash in any currency received by the
Bank or its subcustodian for the account of the Customer,
which cash shall not be subject to withdrawal by draft or
check.
The Customer warrants its authority to: 1) deposit the cash and Securities
("Assets") received in the Accounts and 2) give Instructions (as defined in
Section 11) concerning the Accounts. The Bank may deliver securities of the same
class in place of those deposited in the Custody Account.
Upon written agreement between the Bank and the Customer, additional Accounts
may be established and separately accounted for as additional Accounts under the
terms of this Agreement.
2. Maintenance of Securities and Cash at Bank and Subcustodian Locations.
Unless Instructions specifically require another location acceptable to
the Bank:
(a) Securities will be held in the country or other jurisdiction
in which the principal trading market for such Securities is
located, where such Securities are to be presented for payment
or where such Securities are acquired; and
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(b) Cash will be credited to an account in a country or other
jurisdiction in which such cash may be legally deposited or is
the legal currency for the payment of public or private debts.
Cash may be held pursuant to Instructions in either interest or non-interest
bearing accounts as may be available for the particular currency. To the extent
Instructions are issued and the Bank can comply with such Instructions, the Bank
is authorized to maintain cash balances on deposit for the Customer with itself
or one of its affiliates at such reasonable rates of interest as may from time
to time be paid on such accounts, or in non-interest bearing accounts as the
Customer may direct, if acceptable to the Bank.
If the Customer wishes to have any of its Assets held in the custody of an
institution other than the established Subcustodians as defined in Section 3 (or
their securities depositories), such arrangement must be authorized by a written
agreement, signed by the Bank and the Customer.
6. Custody Account Transactions.
(a) Securities will be transferred, exchanged or delivered by the
Bank or its Subcustodian upon receipt by the Bank of
Instructions which include all information required by the
Bank. Settlement and payment for Securities received for, and
delivery of Securities out of, the Custody Account may be made
in accordance with the customary or established securities
trading or securities processing practices and procedures in
the jurisdiction or market in which the transaction occurs,
including, without limitation, delivery of Securities to a
purchaser, dealer or their agents against a receipt with the
expectation of receiving later payment and free delivery.
Delivery of Securities out of the Custody Account may also be
made in any manner specifically required by Instructions
acceptable to the Bank.
(b) The Bank, in its discretion, may credit or debit the Accounts
on a contractual settlement date with cash or Securities with
respect to any sale, exchange or purchase of Securities.
Otherwise, such transactions will be credited or debited to
the Accounts on the date cash or Securities are actually
received by the Bank and reconciled to the Account.
(i) The Bank may reverse credits or debits made to the Accounts in
its discretion if the related transaction fails to settle
within a reasonable period, determined by the Bank in its
discretion, after the contractual settlement date for the
related transaction.
(ii) If any Securities delivered pursuant to this Section 6 are
returned by the recipient thereof, the Bank may reverse the
credits and debits of the particular transaction at any time.
7. Actions of the Bank.
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The Bank shall follow Instructions received regarding assets held in
the Accounts. However, until it receives Instructions to the contrary,
the Bank will:
(a) Present for payment any Securities which are called, redeemed
or retired or otherwise become payable and all coupons and
other income items which call for payment upon presentation,
to the extent that the Bank or Subcustodian is actually aware
of such opportunities.
(b) Execute in the name of the Customer such ownership and other
certificates as may be required to obtain payments in respect
of Securities.
(c) Exchange interim receipts or temporary Securities for
definitive Securities.
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(d) Appoint brokers and agents for any transaction involving the
Securities, including, without limitation, affiliates of the
Bank or any Subcustodian.
(e) Issue statements to the Customer, at times mutually agreed
upon, identifying the Assets in the Accounts.
The Bank will send the Customer an advice or notification of any
transfers of Assets to or from the Accounts. Such statements, advices
or notifications shall indicate the identity of the entity having
custody of the Assets. Unless the Customer sends the Bank a written
exception or objection to any Bank statement within sixty (60) days of
receipt, the Customer shall be deemed to have approved such statement.
In such event, or where the Customer has otherwise approved any such
statement, the Bank shall, to the extent permitted by law, be released,
relieved and discharged with respect to all matters set forth in such
statement or reasonably implied therefrom as though it had been settled
by the decree of a court of competent jurisdiction in an action where
the Customer and all persons having or claiming an interest in the
Customer or the Customer's Accounts were parties.
All collections of funds or other property paid or distributed in
respect of Securities in the Custody Account shall be made at the risk
of the Customer. The Bank shall have no liability for any loss
occasioned by delay in the actual receipt of notice by the Bank or by
its Subcustodians of any payment, redemption or other transaction
regarding Securities in the Custody Account in respect of which the
Bank has agreed to take any action under this Agreement.
8. Corporate Actions; Proxies; Tax Reclaims.
a. Corporate Actions. Whenever the Bank receives information
concerning the Securities which requires discretionary action
by the beneficial owner of the Securities (other than a
proxy), such as subscription rights, bonus issues, stock
repurchase plans and rights offerings, or legal notices or
other material intended to be transmitted to securities
holders ("Corporate Actions"), the Bank will give the Customer
notice of such Corporate Actions to the extent that the Bank's
central corporate actions department has actual knowledge of a
Corporate Action in time to notify its customers.
When a rights entitlement or a fractional interest resulting
from a rights issue, stock dividend, stock split or similar
Corporate Action is received which bears an expiration date,
the Bank will endeavor to obtain Instructions from the
Customer or its Authorized Person, but if Instructions are not
received in time for the Bank to take timely action, or actual
notice of such Corporate Action was received too late to seek
Instructions, the Bank is authorized to sell such rights
entitlement or fractional interest and to credit the Deposit
Account with the proceeds or take any other action it deems,
in good faith, to be appropriate in which case it shall be
held harmless for any such action.
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b. Proxy Voting. The Bank will deliver proxies to the Customer or
its designated agent pursuant to special arrangements which
may have been agreed to in writing. Such proxies shall be
executed in the appropriate nominee name relating to
Securities in the Custody Account registered in the name of
such nominee but without indicating the manner in which such
proxies are to be voted; and where bearer Securities are
involved, proxies will be delivered in accordance with
Instructions. Proxy voting services may be provided directly
by the Bank or, in whole or in part, by one or more affiliates
of the Bank; provided that the Bank shall be liable for the
performance of any such affiliates to the same extent as the
Bank would have been if it performed such services itself.
c. Tax Reclaims. (i) Subject to the provisions hereof, the Bank
will apply for a reduction of withholding tax and any refund
of any tax paid or tax credits which apply in each applicable
market in respect of income payments on Securities for the
benefit of the Customer which the Bank believes may be
available to such Customer.
(ii) The provision of tax reclaim services by the Bank is
conditional upon the Bank receiving from the
beneficial owner of Securities (A) a declaration of
its identity and place of residence and (B) certain
other documentation (pro forma copies of which are
available from the Bank). The Customer acknowledges
that, if the Bank does not receive such declarations,
documentation and information, additional United
Kingdom taxation will be deducted from all income
received in respect of Securities issued outside the
United Kingdom and that U.S. non-resident alien tax
or U.S. backup withholding tax will be deducted from
U.S. source income. The Customer shall provide to the
Bank such documentation and information as it may
require in connection with taxation, and warrants
that, when given, this information shall be true and
correct in every respect, not misleading in any way,
and contain all material information. The Customer
undertakes to notify the Bank immediately if any such
information requires updating or amendment.
(iii) The Bank shall not be liable to the Customer or any
third party for any tax, fines or penalties payable
by the Bank or the Customer, and shall be indemnified
accordingly, whether these result from the inaccurate
completion of documents by the Customer or any other
person, or as a result of the provision to the Bank
or any third party of inaccurate or misleading
information or the withholding of material
information by the Customer or any other person, or
as a result of any delay of any revenue authority or
any other matter beyond the control of the Bank.
(iv) The Customer confirms that the Bank is authorized to
deduct from any cash received or credited to the Cash
Account any taxes or levies required by any revenue
or governmental authority for whatever reason in
respect of the Securities or Cash Accounts.
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<PAGE> 16
(v) The Bank shall perform tax reclaim services only with
respect to taxation levied by the revenue authorities
of the countries notified to the Customer from time
to time and the Bank may, by notification in writing,
at its absolute discretion supplement or amend the
markets in which the tax reclaim services are
offered. Other than as expressly provided in this
subclause, the Bank shall have no responsibility with
regard to the Customer's tax position or status in
any jurisdiction.
(vi) The Customer confirms that the Bank is authorized to
disclose any information requested by any revenue
authority or any governmental body in relation to the
Customer or the Securities and/or Cash held for the
Customer.
(vii) Tax reclaim services may be provided directly by the
Bank or, in whole or in part, by one or more
affiliates of the Bank: provided that the Bank shall
be liable for the performance of any such affiliate
to the same extent as the Bank would have been if it
performed such services itself.
9. Nominees.
Securities which are ordinarily held in registered form may be
registered in a nominee name of the Bank, Subcustodian or securities
depository, as the case may be. The Bank may without notice to the
Customer cause any such Securities to cease to be registered in the
name of any such nominee and to be registered in the name of the
Customer. In the event that any Securities registered in a nominee name
are called for partial redemption by the issuer, the Bank may allot the
called portion to the respective beneficial holders of such class of
security in any manner the Bank deems to be fair and equitable. The
Customer agrees to hold the Bank, Subcustodians, and their respective
nominees harmless from any liability arising directly or indirectly
from their status as a mere record holder of Securities in the Custody
Account.
10. Authorized Persons.
As used in this Agreement, the term "Authorized Person" means employees
or agents including investment managers as have been designated by
written notice from the Customer or its designated agent to act on
behalf of the Customer under this Agreement. Such persons shall
continue to be Authorized Persons until such time as the Bank receives
Instructions from the Customer or its designated agent that any such
employee or agent is no longer an Authorized Person.
11. Instructions.
The term "Instructions" means instructions of any Authorized Person
received by the Bank, via telephone, telex, TWX, facsimile
transmission,
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<PAGE> 17
bank wire or other teleprocess or electronic instruction or trade
information system acceptable to the Bank which the Bank believes in
good faith to have been given by Authorized Persons or which are
transmitted with proper testing or authentication pursuant to terms and
conditions which the Bank may specify. Unless otherwise expressly
provided all Instructions shall continue in full force and effect until
canceled or superseded.
Any Instructions delivered to the Bank by telephone shall promptly
thereafter be confirmed in writing by an Authorized Person (which
confirmation may bear the facsimile signature of such Person), but the
Customer will hold the Bank harmless for the failure of an Authorized
Person to send such confirmation in writing, the failure of such
confirmation to conform to the telephone instructions received or the
Bank's failure to produce such confirmation at any subsequent time. The
Bank may electronically record any Instructions given by telephone, and
any other telephone discussions with respect to the Custody Account.
The Customer shall be responsible for safeguarding any testkeys,
identification codes or other security devices which the Bank shall
make available to the Customer or its Authorized Persons.
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<PAGE> 18
12. Standard of Care; Liabilities.
(a) The Bank shall be responsible for the performance of only such
duties as are set forth in this Agreement or expressly
contained in Instructions which are consistent with the
provisions of this Agreement as follows:
(i) The Bank will use reasonable care with respect to its
obligations under this Agreement and the safekeeping
of Assets. The Bank shall be liable to the Customer
for any loss which shall occur as the result of the
failure of a Subcustodian to exercise reasonable care
with respect to the safekeeping of such Assets to the
same extent that the Bank would be liable to the
Customer if the Bank were holding such Assets in New
York. In the event of any loss to the Customer by
reason of the failure of the Bank or its Subcustodian
to utilize reasonable care, the Bank shall be liable
to the Customer only to the extent of the Customer's
direct damages, to be determined based on the market
value of the property which is the subject of the
loss at the date of discovery of such loss and
without reference to any special conditions or
circumstances.
(ii) The Bank will not be responsible for any act,
omission, default or the solvency of any broker or
agent which it or a Subcustodian appoints unless such
appointment was made negligently or in bad faith.
(iii) The Bank shall be indemnified by and without
liability to the Customer for any action taken or
omitted by the Bank whether pursuant to Instructions
or otherwise within the scope of this Agreement if
such act or omission was in good faith, without
negligence. In performing its obligations under this
Agreement, the Bank may rely on the genuineness of
any document which it believes in good faith to have
been validly executed.
(iv) The Customer agrees to pay for and hold the Bank
harmless from any liability or loss resulting from
the imposition or assessment of any taxes or other
governmental charges, and any related expenses with
respect to income from or Assets in the Accounts.
(v) The Bank shall be entitled to rely and may act, upon
the advice of counsel (who may be counsel for the
Customer) on all matters and shall be without
liability for any action reasonably taken or omitted
pursuant to such advice.
(vi) The Bank need not maintain any insurance for the
benefit of the Customer.
(vii) Without limiting the foregoing, the Bank shall not be
liable for any loss which results from: 1) the
general
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risk of investing, or 2) investing or holding Assets
in a particular country including, but not limited
to, losses resulting from nationalization,
expropriation or other governmental actions;
regulation of the banking or securities industry;
currency restrictions, devaluations or fluctuations;
and market conditions which prevent the orderly
execution of securities transactions or affect the
value of Assets.
(vii) Neither party shall be liable to the other for any
loss due to forces beyond their control including,
but not limited to strikes or work stoppages, acts of
war or terrorism, insurrection, revolution, nuclear
fusion, fission or radiation, or acts of God.
(b) Consistent with and without limiting the first paragraph of
this Section 12, it is specifically acknowledged that the Bank
shall have no duty or responsibility to:
(i) question Instructions or make any
suggestions to the Customer or an Authorized
Person regarding such Instructions;
(ii) supervise or make recommendations with
respect to investments or the retention of
Securities;
(iii) advise the Customer or an Authorized Person
regarding any default in the payment of
principal or income of any security other
than as provided in Section 5(c) of this
Agreement.
(iv) evaluate or report to the Customer or an
Authorized Person regarding the financial
condition of any broker, agent or other
party to which Securities are delivered or
payments are made pursuant to this
Agreement:
(v) review or reconcile trade confirmations
received from brokers. The Customer or its
Authorized Persons (as defined in Section
10) issuing Instructions shall bear any
responsibility to review such confirmations
against Instructions issued to and
statements issued by the Bank.
(c) The Customer authorizes the Bank to act under this Agreement
notwithstanding that the Bank or any of its divisions or
affiliates may have a material interest in a transaction, or
circumstances are such that the Bank may have a potential
conflict of duty or interest including the fact that the Bank
or any of its affiliates may provide brokerage services to
other customers, act as financial advisor to the issuer of
Securities, act as a lender to the issuer of Securities, act
in the same transaction as agent for more than one customer,
have a material interest in the issue of Securities, or earn
profits from any of the activities listed herein.
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13. Fees and Expenses.
The Customer agrees to pay the Bank for its services under this
Agreement such amount as may be agreed upon in writing, together with
the Bank's reasonable out-of-pocket or incidental expenses, including,
but not limited to, legal fees. The Bank shall have a lien on and is
authorized to charge any Accounts of the Customer for any amount owing
to the Bank under any provision of this Agreement.
14. Miscellaneous.
(a) Foreign Exchange Transactions. To facilitate the
administration of the Customer's trading and investment
activity, the Bank is authorized to enter into spot or forward
foreign exchange contracts with the Customer or an Authorized
Person for the Customer and may also provide foreign exchange
through its subsidiaries, affiliates or Subcustodians.
Instructions, including standing instructions, may be issued
with respect to such contracts but the Bank may establish
rules or limitations concerning any foreign exchange facility
made available. In all cases where the Bank, its subsidiaries,
affiliates or Subcustodians enter into a foreign exchange
contract related to Accounts, the terms and conditions of the
then current foreign exchange contract of the Bank, its
subsidiary, affiliate or Subcustodian and, to the extent not
inconsistent, this Agreement shall apply to such transaction.
(b) Certification of Residency, etc. The Customer certifies that
it is a resident of the United States and agrees to notify the
Bank of any changes in residency. The Bank may rely upon this
certification or the certification of such other facts as may
be required to administer the Bank's obligations under this
Agreement. The Customer will indemnify the Bank against all
losses, liability, claims or demands arising directly or
indirectly from any such certifications.
(c) Access to Records. The Bank shall allow the Customer's
independent public accountant reasonable access to the records
of the Bank relating to the Assets as is required in
connection with their examination of books and records
pertaining to the Customer's affairs. Subject to restrictions
under applicable law, the Bank shall also obtain an
undertaking to permit the customer's independent public
accountants reasonable access to the records of any
Subcustodian which has physical possession of any Assets as
may be required in connection with the examination of the
Customer's books and records.
(d) Governing Law: Successors and Assigns. This Agreement shall be
governed by the laws of the State of New York and shall not be
assignable by either party, but shall bind the successors in
interest of the Customer and the Bank.
(e) Entire Agreement; Applicable Riders. Customer represents that
the Assets deposited in the Accounts are (Check one):
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___ Employee Benefit Plan or other assets subject to the
Employee Retirement Income Security Act of 1974, as
amended ("ERISA");
____ Mutual Fund assets subject to certain Securities and
Exchange Commission ("SEC") rules and regulations;
____ Neither of the above
This Agreement consists exclusively of this document together with
Schedule A, Exhibits I - ______ and the following Rider(s) [Check
applicable rider(s)]:
____ ERISA
____ MUTUAL FUND
____ SPECIAL TERMS AND CONDITIONS
There are no other provisions of this Agreement and this
Agreement supersedes any other agreements, whether written or
oral, between the parties. Any amendment to this Agreement
must be in writing, executed by both parties.
(f) Severability. In the event that one or more provisions of this
Agreement are held invalid, illegal or enforceable in any
respect on the basis of any particular circumstances or in any
jurisdiction, the validity, legality and enforceability of
such provision or provisions under other circumstances or in
other jurisdictions and of the remaining provisions will not
in any way be affected or impaired.
(g) Waiver. Except as otherwise provided in this Agreement, no
failure or delay on the part of either party in exercising any
power or right under this Agreement operates as a waiver, nor
does any single or partial exercise of any power or right
preclude any other or further exercise, or the exercise of any
other power or right. No waiver by a party of any provision of
this Agreement, or waiver of any breach or default, is
effective unless in writing and signed by the party against
whom the waiver is to be enforced.
(h) Notices. All notices under this Agreement shall be effective
when actually received. Any notices or other communications
which may be required under this Agreement are to be sent to
the parties at the following addresses or such other addresses
as may subsequently be given to the other party in writing:
Bank: The Chase Manhattan Bank, N.A.
Chase Metro Tech Center
Brooklyn, NY 11245
Attention: Global Custody Division
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or telex:____________________________
Customer: _____________________________________
_____________________________________
_____________________________________
or telex:_____________________________
(i) Termination. This Agreement may be terminated by the Customer
or the Bank by giving sixty (60) days written notice to the
other, provided that such notice to the Bank shall specify the
names of the persons to whom the Bank shall deliver the Assets
in the Accounts. If notice of termination is given by the
Bank, the Customer shall, within sixty (60) days following
receipt of the notice, deliver to the Bank Instructions
specifying the names of the persons to whom the Bank shall
deliver the Assets. In either case the Bank will deliver the
Assets to the persons so specified, after deducting any
amounts which the Bank determines in good faith to be owed to
it under Section 13. If within sixty (60) days following
receipt of a notice of termination by the Bank, the Bank does
not receive Instructions from the Customer specifying the
names of the persons to whom the Bank shall deliver the
Assets, the Bank, at its election, may deliver the Assets to a
bank or trust company doing business in the State of New York
to be held and disposed of pursuant to the provisions of this
Agreement, or to Authorized Persons, or may continue to hold
the Assets until Instructions are provided to the Bank.
CUSTOMER
By:___________________________________
Title
THE CHASE MANHATTAN BANK, N.A.
By:___________________________________
Title
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<PAGE> 23
STATE of )
: ss.
COUNTY OF )
On this _________________ day of ____________________________ , 19 _______ ,
before me personally came ______________________________ , to me known, who
being by me duly sworn, did depose and say that he/she resides in ______________
at ____________________ ; ____________________ that he/she is __________________
of ___________________ , the entity described in and which executed the
foregoing instrument; that he/she knows the seal of said entity, that the seal
affixed to said instrument is such seal, that it was so affixed by order of said
entity, and that he/she signed his/her name thereto by like order.
______________________________
Sworn to before me this _________________
day of ________, 19______.
________________________
Notary
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<PAGE> 24
STATE OF NEW YORK )
: ss.
COUNTY OF NEW YORK )
On this __________________ day of ________________________ , 19 _____ , before
me personally came __________________________ , to me known, who being by me
duly sworn, did depose and say that he/she resides in __________________ at
_________________ ; that he/she is a Vice President of THE CHASE MANHATTAN BANK,
(National Association), the corporation described in and which executed the
foregoing instrument: that he/she knows the seal of said corporation, that the
seal affixed to said instrument is such corporate seal, that it was so affixed
by order of the Board of Directors of said corporation, and that he/she signed
his/her name thereto by like order.
__________________________
Sworn to before me this _________________
day of ________, 19______.
_____________________
Notary
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Mutual Fund Rider to Global Custody Agreement
Between The Chase Manhattan Bank, N.A. and
____________________________
__________________, effective ______
Customer represents that the Assets placed in the Bank's custody are subject to
the Investment Company Act of 1940 (the Act), as the same may be amended from
time to time.
Except to the extent that the Bank has specifically agreed to comply with a
condition of a rule, regulation, interpretation promulgated by or under the
authority of the SEC or the Exemptive Order applicable to accounts of this
nature issued to the Bank (Investment Company Act of 1940, Release No. 12053,
November 20, 1981), as amended, or unless the Bank has otherwise specifically
agreed, the Customer shall be solely responsible to assure that the maintenance
of Assets under this Agreement complies with such rules, regulations,
interpretations or exemptive order promulgated by or under the authority of the
Securities Exchange Commission.
The following modifications are made to the Agreement:
Section 3. Subcustodians and Securities Depositories.
Add the following language to the end of Section 3:
The terms Subcustodian and securities depositories as used in this Agreement
shall mean a branch of qualified U.S. bank, an eligible foreign custodian or an
eligible foreign securities depository, which are further defined as follows:
(a) "qualified U.S. Bank" shall mean a qualified U.S. bank as defined in
Rule 17f-5 under the Investment Company Act of 1940;
(b) "eligible foreign custodian" shall mean (i) a banking institution or
trust company incorporated or organized under the laws of a country
other than the United States that is regulated as such by that
country's government or an agency thereof and that has shareholders'
equity in excess of $200 million in U.S. currency (or a foreign
currency equivalent thereof), (ii) a majority owned direct or indirect
subsidiary of a qualified U.S. bank or bank holding company that is
incorporated or organized under the laws of a country other than the
United States and that has shareholders' equity in excess of $100
million in U.S. currency (or a foreign currency equivalent thereof)
(iii) a banking institution or trust company incorporated or organized
under the laws of a country other than the United States or a
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<PAGE> 26
majority owned direct or indirect subsidiary of a qualified U.S. bank
or bank holding company that is incorporated or organized under the
laws of a country other than the United States which has such other
qualifications as shall be specified in Instructions and approved by
the Bank; or (iv) any other entity that shall have been qualified by
exemptive order, rule or other appropriate action of the SEC; and
(c) "eligible foreign securities depository" shall mean a securities
depository or clearing agency, incorporated or organized under the laws
of a country other than the United States, which operates (i) the
central system for handling securities or equivalent book- entries in
that country, or (ii) a transnational system for the central handling
of securities or equivalent book-entries.
The Customer represents that its Board of Directors has approved each of the
Subcustodians listed in Schedule A to this Agreement and the terms of the
subcustody agreements between the Bank and each Subcustodian, which are attached
as Exhibits I through _____ of Schedule A, and further represents that its Board
has determined that the use of each Subcustodian and the terms of each
subcustody agreement are consistent with the best interests of the Fund(s) and
its (their) shareholders. The Bank will supply the Customer with any amendment
to Schedule A for approval. The Customer has supplied or will supply the Bank
with certified copies of its Board of Directors resolution(s) with respect to
the foregoing prior to placing Assets with any Subcustodian so approved.
Section II. Instructions.
Add the following language to the end of Section 11:
Deposit Account payments and Custody Account Transactions made pursuant to
Section 5 and 6 of this Agreement may be made only for the purposes listed
below. Instructions must specify the purpose for which any transaction is to be
made and Customer shall be solely responsible to assure that Instructions are in
accord with any limitations or restrictions applicable to the Customer by law or
as may be set forth in its prospectus.
(a) In connection with the purchase or sale of Securities at prices as
confirmed by Instructions;
(b) When Securities are called, redeemed or retired, or otherwise become
payable;
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(c) In exchange for or upon conversion into other securities alone or other
securities and cash pursuant to any plan or merger consolidation,
reorganization, recapitalization or readjustment;
(d) Upon conversion of Securities pursuant to their terms into other
securities;
(e) Upon exercise of subscription, purchase or other similar rights
represented by Securities;
(f) For the payment of interest, taxes, management or supervisory fees,
distributions or operating expenses;
(g) In connection with any borrowings by the Customer requiring a pledge of
Securities, but only against receipt of amounts borrowed;
(h) In connection with any loans, but only against receipt of adequate
collateral as specified in Instructions which shall reflect any
restrictions applicable to the Customer.
(i) For the purpose of redeeming shares of the capital stock of the
Customer and the delivery to, or the crediting to the account of, the
Bank, its Subcustodian or the Customer's transfer agent, such shares to
be purchased or redeemed;
(j) For the purpose of redeeming in kind shares of the Customer against
delivery to the Bank, its Subcustodian or the Customer's transfer agent
of such shares to be so redeemed;
(k) For delivery in accordance with the provisions of any agreement among
the Customer, the Bank and a broker-dealer registered under the
Securities Exchange Act of 1934 (the "Exchange Act") and a member of
The National Association of Securities Dealers, Inc. ("NASD"), relating
to compliance with the rules of The Options Clearing Corporation and of
any registered national securities exchange, or of any similar
organization or organizations, regarding escrow or other arrangements
in connection with transactions by the Customer;
(l) For release of Securities to designated brokers under covered call
options, provided, however, that such Securities shall be released only
upon payment to the Bank of monies for the premium due and a receipt
for the Securities which are to be held in escrow. Upon exercise of the
option, or at expiration, the Bank will receive from brokers the
Securities previously deposited. The Bank will act strictly in
accordance with Instructions in the delivery of Securities to be held
in escrow and will have no responsibility or liability for any such
Securities which are not returned promptly when due other than to make
proper request for such return;
(m) For spot or forward foreign exchange transactions to facilitate
security trading, receipt of income from Securities or related
transactions:
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(n) For other proper purposes as may be specified in Instructions issued by
an officer of the Customer which shall include a statement of the
purpose for which the delivery or payment is to be made, the amount of
the payment or specific Securities to be delivered, the name of the
person or persons to whom delivery or payment is to be made, and a
certification that the purpose is a proper purpose under the
instruments governing the Customer; and
(o) Upon the termination of this Agreement as set forth in Section 14(i).
Section 12. Standard of Care; Liabilities.
Add the following subsection (c) to Section 12:
(c) The Bank hereby warrants to the Customer that in its opinion, after due
inquiry, the established procedures to be followed by each of its
branches, each branch of a qualified U.S. bank, each eligible foreign
custodian and each eligible foreign securities depository holding the
Customer's Securities pursuant to this Agreement afford protection for
such Securities at least equal to that afforded by the Bank's
established procedures with respect to similar securities held by the
Bank and its securities depositories in New York.
Section 14. Access to Records.
Add the following language to the end of Section 14(c):
Upon reasonable request from the Customer the Bank shall furnish the Customer
such reports (or portions thereof) of the Bank's system of internal accounting
controls applicable to the Bank's duties under this Agreement. The Bank shall
endeavor to obtain and furnish the Customer with such similar reports as it may
reasonably request with respect to each Subcustodian and securities depository
holding the Customer's assets.
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CUSTODY AGREEMENT
THIS AGREEMENT is executed as of the 7th day of November, 1995, between
SAFECO COMMON STOCK TRUST, a Delaware business trust ("Trust"), and U.S. BANK OF
WASHINGTON, N.A., a national banking association ("Bank");
WHEREAS, the Trust is registered with the Securities and Exchange
Commission as a series type open-end, management investment company under the
Investment Company Act of 1940, as amended ("1940 Act"), and has caused its
shares of beneficial interest to be registered for sale to the public under the
Securities Act of 1933, as amended ("1933 Act"), and various state securities
laws;
WHEREAS, the Trust may, from time to time, organize one or more series
of shares, in addition to the series set forth in Exhibit A attached hereto,
each of which shall represent an interest in a separate portfolio of cash,
securities and other assets (all such existing and additional series now or
hereafter listed on Exhibit A are referred to herein individually, as a "Series"
and collectively, as "the Series,") and
WHEREAS, the Trust desires to appoint the Custodian as custodian on
behalf of the Series in accordance with the provisions of the 1940 Act and the
rules and regulations thereunder, under the terms and conditions set forth in
this Agreement, and the Custodian has agreed to act as custodian;
NOW, THEREFORE, it is agreed by and between the parties hereto as
follows:
1. Appointment. The Trust on behalf of the Series hereby appoints the
Bank as custodian of all of the Series' cash, securities and other assets, and
the Bank hereby agrees to act as such upon the terms and conditions set forth in
this Agreement.
2. Delivery, Safe Keeping. The Trust will deliver or cause to be
delivered to the Bank from time to time all cash, securities and other assets
acquired by the Series from time to time during the term of this Agreement and
shall specify the Series to which such cash, securities and other assets are to
be allocated. The Bank shall keep safely such cash, securities and other assets
as custodian for the Series and shall deposit such cash, securities and other
assets with the Bank for the account of the Series.
3. Registration of Securities. The Bank will hold stocks and other
registerable portfolio securities (other than bearer securities) registered in
the name of the Series, or in the name of any nominee of the Trust on behalf of
the Series, or in the name of any nominee of the Bank, or in the name or nominee
name of any sub-custodian or agent appointed under paragraph 4 for whose
fidelity and liabilities the Bank shall be fully responsible, or in street
certificate form, so-called, with or without any indication of fiduciary
capacity. Unless otherwise instructed by the Trust, the Bank will register all
such portfolio securities in the name of its authorized nominee. In any event,
all such securities and other assets shall be held in an account of the Bank
containing only assets of a Series, or only assets held by the Bank as a
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<PAGE> 30
fiduciary or custodian for customers, and provided further, that the records of
the Bank shall indicate at all times the Series or other customers for which
such securities and other assets are held in such account and their respective
interests therein. The Trust agrees to hold the Bank and its nominee harmless
for any liability as a record holder of securities held in custody.
4. Custody of Moneys or Securities/Appointment of Sub-custodians and
Agents. Notwithstanding any other provisions of this Agreement, all or any of
the cash, securities or other assets of a Series may be held in the Bank's
custody, provided, however, that the Bank may at any time or times in its
discretion appoint (and may at any time remove) any other bank or trust company
which is itself qualified under the 1940 Act to act as a sub-custodian or its
agent to carry out such of the provisions of this Agreement as the Bank may from
time to time direct. The appointment of any sub-custodian or agent shall not
relieve the Bank of its responsibilities or liabilities hereunder. Neither the
Bank nor any sub-custodian or agent shall be entitled to reimbursement by Trust
or the Series for any fees or expenses of any sub-custodian or agent.
5. Deposit of Trust Assets in Securities Systems. Upon order of the
Trust on behalf of any Series, the Bank may deposit and/or maintain securities
owned by a Series in a clearing agency registered with the Securities and
Exchange Commission ("SEC") under Section 17A of the Securities Exchange Act of
1934, as amended, which acts as a securities depository (or other entities which
may be otherwise authorized by the SEC to serve in the capacity of depository or
clearing agent for the securities or other assets of investment companies), or
in the book-entry system authorized by the U.S. Department of the Treasury and
certain federal agencies, collectively referred to herein as "Securities
Systems" in accordance with applicable Federal Reserve Board and SEC rules and
regulations, if any, and subject to the following provisions:
(a) The Bank may keep securities of the Series in a Securities
System provided that such securities are represented in an
account ("Account") of the Bank in the Securities System which
shall not include any assets of the Bank other than assets
held as a fiduciary, custodian or otherwise for customers;
(b) The records of the Bank with respect to securities of the
Series that are maintained in a Securities System shall
identify by book-entry those securities belonging to the
Series;
(c) The Bank shall pay for securities purchased for the
account of the Series upon (i) receipt of advice from the
Securities System that such securities have been
transferred to the Account, and (ii) the making of an
entry on the records of the Bank to reflect such payment
and transfer for the account of the Series. The Bank
shall transfer securities sold for the account of the
Series upon (i) receipt of advice from the Securities
System that payment for such securities has been
transferred to the Account, and (ii) the making of an
entry on the records of the Bank to reflect such transfer
and payment for the account of the Series. Copies of all
advice from the Securities System of transfers of
securities for the account of the Series shall identify
the Series, be maintained for the Series by the Bank and
be
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provided to the Trust at its request. Upon request, the Bank
shall furnish the Trust on behalf of the Series confirmation
of each transfer to or from the account of the Series in the
form of a written advice or notice and shall furnish to the
Trust on behalf of the Series copies of daily transaction
sheets reflecting each day's transactions in the Securities
System for the account of the Series;
(d) The Bank shall provide the Trust for the Series with any
report obtained by the Bank on the Securities System's
accounting system, internal accounting control and procedures
for safeguarding securities deposited in the Securities
System;
(e) The Bank shall exercise reasonable care and diligence in
the use of the Securities System on behalf of the Trust
and the Series. The Bank shall be liable to the Trust
for the benefit of the Series for any loss or damage to
the Series resulting from use of the Securities System by
reason of any negligence, misfeasance or misconduct of
the Bank or any of its agents, or of any of the Bank's or
any of its agent's employees, or from failure of the Bank
or any such agent to enforce effectively such rights as
it may have against the Securities System. At the
election of the Trust, it shall be entitled to be
subrogated to the rights of the Bank with respect to any
claim against the Securities System or any other person
which the Bank may have as a consequence of any such loss
or damage if and to the extent that the Series has not
been made whole for any such loss or damage.
6. Segregated Account. The Bank shall upon order of the Trust on behalf
of each applicable Series establish and maintain a segregated account or
accounts for and on behalf of each such Series, into which account or accounts
may be transferred cash, securities, and/or other assets, including securities
maintained in an account by the Bank pursuant to paragraph 5 hereof, (i) for the
purposes of compliance by the Series with the procedures required by Investment
Company Act Release No. 10666, or any subsequent release or releases of the SEC
relating to the maintenance of segregated accounts by registered investment
companies and (ii) for other proper corporate purposes, but only, in the case of
clause (ii), upon receipt of, in addition to an order of the Trust on behalf of
the applicable Series, a writing signed by any two individuals whose names and
signatures are covered by the most recent letter provided to the Bank as
provided in paragraph 12 setting forth the purpose or purposes of such
segregated account and declaring such purposes to be proper corporate purposes.
7. Purchases of Securities. Upon the order of the Trust on behalf of
the Series, the Bank shall receive all securities purchased for the account of
the Trust and make payment according to the terms of the order insofar as funds
are available.
8. Sale and Delivery of Securities.
(a) Upon the order of the Trust on behalf of the Series, the
Bank shall make delivery of securities held by it as custodian or held in a
Securities System account of the Bank which have been sold by the Trust. Such
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<PAGE> 32
delivery shall be made upon payment in a manner satisfactory to the Bank of the
amount specified in said order. The Bank shall also deliver such securities as
may be called, redeemed, retired or otherwise become payable.
(b) Subparagraph (a) shall not prevent the Bank from making:
(i) Delivery of securities for examination to
the broker selling the same in accord with
the "street" delivery custom whereby such
securities are delivered to such broker in
exchange for a delivery receipt exchanged on
the same day for an uncertified check of
such broker to be presented on the same day
for certification;
(ii) Delivery of securities as collateral on
borrowing effected by the Trust or any
Series; and
(iii) Delivery of securities owned by the Trust or
any Series as a redemption in kind of
securities issued by the Trust or any
Series.
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9. Collections.
(a) On a timely basis, the Bank shall: (i) collect, receive
and hold on deposit for the account of the appropriate Series, all income and
other payments with respect to the securities held by it on behalf of a Series
as custodian; (ii) advise the Trust once each business day of such receipts;
(iii) execute ownership and other certificates and affidavits for all federal
and state tax purposes in connection with the collection of bond and note
coupons; (iv) present for payment all coupons and all other income items
requiring presentation, present for payment all securities which have become
payable at maturity, upon call for redemption or otherwise; (v) endorse for
collection checks, drafts or other negotiable instruments; and (vi) do all other
things which may be necessary or proper in connection with the receipt and
collection of any such item.
(b) The Bank shall not be under any obligation or duty to take
action to effect collection of any amount, if the securities upon which such
amount is payable are in default and payment is refused after due demand or
presentation. The Bank will, however, notify the Trust of such default and
refusal to pay.
10. Disbursements.
(a) Notwithstanding anything contained elsewhere in this
Agreement to the contrary and subparagraphs (b) and (c) below, the Bank shall
deliver funds of the Trust only upon the purchase of securities by the Trust on
behalf of the Series.
(b) Upon the order of the Trust for the Series, the Bank shall
make cash disbursements for the account of the Trust and any Series insofar as
funds are available for such disbursements, for the payment of taxes, expenses
and liabilities including, without limitation:
(i) Management fees payable under any management
agreement with SAFECO Asset Management
Company (or its successors) or any other
person selected to serve as an investment
adviser to the Trust or any Series.
(ii) Compensation payable by the Trust or any
Series to any person, firm or corporation,
including compensation payable to the Bank
under this Agreement.
(iii) Cash dividends or distributions for any
Series declared by the Board of Trustees of
the Trust.
(c) Without the order of the Trust, the Bank may make cash
disbursements for non-discretionary ministerial items, including but not limited
to expenses in handling securities, stamp taxes, reimbursement of the Bank for
its out-of-pocket expenses incurred in the performance of its duties hereunder
and other similar items in connection with its duties under this Agreement. The
Bank shall advise the Trust once each business day of disbursements so made.
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11. Redemption and Repurchase of Shares of the Trust. From such funds
as may be available for the purpose but subject to the limitations of the Trust
Instrument and any applicable votes of the Trust's Board of Trustees pursuant to
the Trust Instrument, the Bank shall, upon receipt of instructions from a
Series' transfer agent, make funds available for payment to shareholders who
have delivered to the transfer agent a request for redemption or repurchase of
their shares. If payment is to be made in kind, the instructions must be
accompanied by a certified copy of a resolution of the Trust's Board of Trustees
authorizing redemptions in kind. In connection with the redemption or repurchase
of shares of a Series, the Bank is authorized upon receipt of instructions from
the transfer agent to wire funds to or through a commercial bank designated by
the redeeming shareholders. In connection with the redemption or repurchase of
shares of any Series, the Bank shall honor checks drawn on the Bank by a
shareholder, which checks have been furnished by the Trust to the shareholder,
when presented to the Bank in accordance with such procedures and controls as
are mutually agreed upon from time to time between the Trust and the Bank.
12. Orders of the Trust.
(a) Except in the case of non-discretionary ministerial acts,
and as otherwise specifically provided in this Agreement, all action to be taken
by the Bank as custodian shall be taken upon the order of the Trust on behalf of
the Series. An "order" of the Trust on behalf of the Series shall consist of
written instructions with respect to a specified transaction, or transactions,
which instructions shall be signed by any two individuals whose names and
signatures are covered by the most recent letter addressed to the Bank setting
forth such names and signatures and signed by the President or Treasurer and
Secretary or Assistant Secretary of the Trust. An "order" of the Trust may also
consist of trade affirmations entered on an institutional delivery system by
representatives on behalf of the Trust. Such representatives will not affirm
trades on this Institutional Delivery system unless the transactions have been
signed by two authorized signers. An "order" may also consist of oral
instructions in the case of purchases and sales of shares of registered
investment companies by any Series, but only if the Bank reasonably believes
such instructions to have been provided by a person authorized to give such
instructions for the transaction involved and if such instruction is transmitted
and received in accordance with any procedures acceptable to both the Fund and
the Bank. Oral instructions shall not be accepted by the Bank for any other type
of transaction.
(b) Notwithstanding anything to the contrary contained in the
Agreement, no person authorized to give an "order" as described in the preceding
paragraph, Trustee, officer, employee or agent of the Trust shall have physical
access to the assets of any Series held by the Bank nor shall the Bank deliver
any assets of a Series for delivery to an account of such person; provided,
however, that nothing in this sub-paragraph (b) shall prohibit the Trust's
independent certified public accountant from examining or reviewing the assets
of the Series held by the Bank.
13. Forwarding of Information and Proxies. The Bank will forward
promptly to the Trust for each Series all information or documents which it may
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<PAGE> 35
receive with respect to any securities held by a Series under this Agreement,
including all forms of proxy, proxy statements, notices, reports and other
financial information. Neither the Bank nor its nominee shall vote any of the
securities or authorize the voting of any securities or give any consent or take
any other action with respect thereto, except as otherwise provided herein,
unless directed to do so upon order of the Trust on behalf of any Series.
14. Reorganization or Liquidation, Etc. of the Trust. In the case of
the following transactions not in the ordinary course of business, namely, the
merger or consolidation of the Trust and another investment company, the sale by
the Trust of all, or substantially all, of its assets or the assets of a Series
to another investment company, or the liquidation or dissolution of the Trust or
a Series and distribution of the assets, the Bank shall deliver the securities
held by it under this Agreement and disburse cash only upon the order of the
Trust and upon receipt of opinion of counsel satisfactory to the Bank (who may
be counsel for the Trust) to the effect that all necessary corporate action
therefore has been taken, or, concurrently with the Bank's action will be taken.
15. Compensation. Each Series shall pay to the Bank compensation for
its services under this Agreement in accordance with the attached schedule of
charges set forth in Exhibit C which may be amended from time to time by mutual
agreement. In addition, each Series will reimburse the Bank for all
out-of-pocket expenses, including taxes and other charges required to be paid by
the Bank with respect to the property of each Series, incurred by the Bank in
the performance of its duties hereunder.
16. Responsibility.
(a) In the performance of its duties under this Agreement, the
Bank shall exercise reasonable care and diligence. The Bank shall be liable to
the Trust for the benefit of the Series for any loss or damage to the Series
resulting from any negligence, misfeasance or misconduct of the Bank or any of
its sub-custodians or agents, or of any of the Bank's or any agent's employees
in the performance of the Bank's duties under this Agreement.
(b) Except as otherwise provided herein, the Bank shall not
incur liability to anyone and shall be indemnified and held harmless by the
Trust and the Series from and against all liability, claims, demands, actions,
suits, costs or expenses (including the fees of its counsel) for anything done
or suffered by the Bank in good faith in accordance with an order of the Trust
or pursuant to the terms of this Agreement. The Bank may apply for and obtain
the advice and opinion of counsel to the Trust or its own counsel with respect
to questions of law and shall be fully protected with respect to anything done
or omitted by it in good faith in conformity with such advice or opinion. The
Bank shall be protected in any action taken or omitted by it in reliance upon
any order, notice, request, certificate or other instrument reasonably believed
by it to be genuine.
(c) The Bank shall be under no duty or obligation to inquire
into and shall not be liable for:
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<PAGE> 36
(i) The validity of the issue of any securities
purchased by or for the Trust or any Series,
the legality of the purchases thereof or the
propriety of the amount paid therefor;
(ii) The legality of any sale of any securities
by or for the Trust or any Series or on the
propriety of the amount for which the same
are sold;
(iii) The legality of an issue or sale of any
shares of the Trust or any Series or the
sufficiency of the amount to be received
therefor;
(iv) The legality of the repurchase of any shares
of the Trust or any Series or the propriety
of the amount to be paid therefor;
(v) The legality of the declaration of any
dividend by the Trust or any Series or the
legality of the issue of any securities held
by the Trust or any Series as a payment in
kind of such dividend;
(vi) Any property or moneys of the Trust or any
Series unless and until received by it, and
any such property or moneys delivered or
paid by it pursuant to the terms hereof.
(d) The Bank shall not be under any duty or obligation to
ascertain whether any securities at any time delivered to or held by it for the
account of a Series are such as may properly be held by a Series under the
provisions of the Trust's Instrument or Bylaws, any federal or state statutes or
any rule or regulation of any governmental agency.
17. Liability for Payment in Advance of Receipt of Securities
Purchased. In any and every case where payment for purchase of securities for
the account of a Series is made by the Bank in advance of receipt of the
securities purchased in the absence of specific written instructions from the
Trust on behalf of such Series to so pay in advance, the Bank shall be
absolutely liable to the Trust for such securities to the same extent as if the
securities had been received by the Bank.
18. Records. The Bank shall with respect to each Series create and
maintain all records relating to its activities and obligations under this
Agreement in such manner as will meet the obligations of the Trust under the
1940 Act, particularly Section 31 thereof and Rules 31a-1 and 31a-2 thereunder.
All such records shall be the property of the Trust and shall at all times
during the regular business hours of the Bank be open for inspection by duly
authorized officers, employees and agents of the Trust and employees and agents
of the SEC. The Bank shall, at the Trust's request, supply the Trust with a
tabulation of securities owned by each Series and held by the Bank and shall,
when requested to do so by the Trust and for such compensation as shall be
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agreed upon between the Trust and the Bank, include certificate numbers in such
tabulations.
19. Termination. This Agreement may be terminated at any time without
penalty with respect to one or more Series by execution of any amended Exhibit A
or in its entirety by written notice delivered by either party to the other. The
effective date of termination shall be as specified in such notice, except that
at the option of the Bank or the Trust, the effective date of the termination
may be postponed to a date not more than sixty (60) days from the date of the
delivery of such notice in order to give the Bank an opportunity to prepare for
the transfer of the Trust or any Series' assets or to give the Trust or any
Series an opportunity to make suitable arrangements for a successor custodian.
Upon termination of this Agreement, the Bank shall deliver at its office all
cash, securities and other assets held by it in accordance with paragraph 20.
20. Successor Custodian.
(a) If a successor custodian for the Trust or one or more of
the Series shall be appointed by the Trust's Board of Trustees, the Bank shall,
upon termination, deliver to such successor custodian at the office of the Bank
all cash and other assets of the Trust then held by it hereunder and, in the
case of securities, duly endorsed and in the form for transfer, all securities
of each applicable Series then held by it hereunder and shall transfer to an
account of the successor custodian all of the securities of each such Series
held in a Securities System. The Bank shall take all reasonable steps to assist
in the transfer of the cash, securities and other assets of the applicable
Series to the successor custodian.
(b) If no such successor custodian shall be appointed, the
Bank shall, in like manner, upon receipt of a certified copy of a vote of the
Trust's Board of Trustees, deliver at the office of the Bank and transfer such
cash, securities and other assets in accordance with such vote.
(c) In the event that no written order designating a successor
custodian or certified copy of a vote of the Board of Trustees shall have been
delivered to the Bank on or before the date when such termination shall become
effective, then the Bank shall have the right to deliver to a bank or trust
company of its own selection (which is a "bank" as defined in the 1940 Act)
doing business in Seattle, Washington, and having an aggregate capital, surplus,
and undivided profits, as shown by its last published report, of not less than
the amounts required by the 1940 Act, all cash, securities and other assets held
by the Bank on behalf of each applicable Series and all instruments held by the
Bank relative thereto and all other property held by it under this Agreement on
behalf of each applicable Series and to transfer to an account of such successor
custodian all the securities of each such Series held in any Securities System.
Thereafter, such bank or trust company shall be the successor of the Bank under
this Agreement.
(d) In the event that cash, securities and other assets remain
in the possession of the Bank after the date of termination hereof owing to
failure of the Trust to procure the certified copy of the vote referred to or
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of the Board of Trustees to appoint a successor custodian, the Bank shall be
entitled to fair compensation for its services during such period as the Bank
retains possession of such cash, securities and other assets and the provisions
of this Agreement relating to the duties and obligations of the Bank shall
remain in full force and effect.
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21. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto shall be
sufficiently given if addressed to such party and mailed (postage prepaid) or
delivered to it at its office at the address set forth below, namely:
In the case of the Trust:
SAFECO Common Stock Trust
Attn: David F. Hill, President
SAFECO Plaza
Seattle, Washington 98185
and
In the case of the Bank:
U.S. Bank of Washington, N.A.
Attn: Trust Operations Department
1414 Fourth Avenue
Seattle, Washington 98101
or at such other place as such party may from time to time designate in writing.
22. Bank representation. The Bank represents that it does meet, and
will continue to meet at all times that this Agreement is in effect, the
requirements of the rules and regulations promulgated pursuant to Section 17(f)
of the 1940 Act.
23. Limitation of Liability. The Bank is hereby expressly put on notice
of (i) the limitation of shareholder, officer and trustee liability as set forth
in the Trust Instrument of the Trust and (ii) of the provisions in the Trust
Instrument permitting the establishment of separate Series and limiting the
liability of each Series to obligations of that Series. The Bank hereby agrees
that obligations assumed by the Trust pursuant to this Agreement are in all
cases assumed on behalf of a particular Series and each such obligation shall be
limited in all cases to that Series and its assets. The Bank agrees that it
shall not seek satisfaction of any such obligation from the shareholders or any
individual shareholder of the Trust nor from the officers or trustees or any
individual officer or trustee of the Trust.
24. Entire Agreement. This Agreement embodies the entire Agreement
between the Bank and the Trust with respect to the services to be provided by
the Bank to the Trust and each Series and supersedes any prior written or oral
agreement between those parties.
25. Miscellaneous. This Agreement shall be binding on and shall inure
to the benefit of the parties hereto and their respective successors and
assigns; provided, however, that this Agreement shall not be assignable by the
Trust without the written consent of the Bank or by the Bank without the
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written consent of the Trust. 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. This
Agreement may be executed in counterparts, each of which taken together shall
constitute one and the same instrument. Bank understands that the rights and
obligations of each Series under the Trust Instrument are separate and distinct
from those of any and all other Series.
26. Governing Law. This Agreement shall be construed in accordance with
and governed by the laws of the State of Washington.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized officers as of the day and year first above
written.
Attest: U. S. BANK OF WASHINGTON, N.A.
By: /s/ Jennifer Buss By: /s/ Joyce Hoznagel
----------------------------- -------------------------------
Its: Assistant Vice President Its: Assistant Vice President
---------------------------- ------------------------------
Attest: SAFECO COMMON STOCK TRUST
/s/ Neal A. Fuller By: /s/ David F. Hill
- --------------------------------- -------------------------------
Neal A. Fuller David F. Hill
Assistant Secretary President
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EXHIBIT A
SAFECO COMMON STOCK TRUST
The SAFECO Common Stock Trust consists of the following Series subject to this
Agreement:
1. SAFECO Equity Fund
2. SAFECO Northwest Fund
3. SAFECO Income Fund
4. SAFECO Growth Fund
5. SAFECO Balanced Fund
6. SAFECO Small Company Stock Fund
As of 11/7/95
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EXHIBIT B
SAFECO COMMON STOCK TRUST
ALL FUNDS
PROCEDURES FOR CONTROL
Securities Held by Nominee Puget & Co.
1. All securities held in safe keeping at U.S. Bank of
Washington, N.A., main office, will be in the name of the
nominee, Puget & Co.
2. Instructions from the Trust on behalf of a Series or SAFECO Asset
Management Company, the investment adviser to the Trust, relative to
the purchase and sale of securities will be in written form on a
"Transaction Advice" form.
3. All accounting documents, minutes, bank records, and instructions to
brokers will identify the real ownership of securities being bought or
sold and of interest and dividends received.
4. Certificates for shares of stock and par value of bonds will
be in lots which will permit the physical separation of the
securities according to their real ownership. U.S. Bank of
Washington, N.A. will maintain such a physical separation.
5. Proceeds on securities sold and dividends or interest received in the
name of Puget & Co. will be collected by U.S. Bank of Washington, N.A.,
main office. On the business day of receipt of such proceeds the bank
will credit the custodial account of the Trust with the total amount of
such proceeds, dividends or interest and will specifically identify all
collections on the statement of the Trust's account.
6. Payments for securities purchased will be made from the
Trust's custodial account upon delivery of the securities.
As of 11/7/95
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EXHIBIT C
SAFECO COMMON STOCK TRUST
ALL FUNDS
---------------
Schedule of Custodian Fees with U.S. Bank of Washington, N.A.
<TABLE>
<S> <C>
Annual Base Fee Per Fund $ 1,000
-------
Annual Holding Fee Per Security $ 75.00
-------
Security Transactions $ 20.00
-------
Incoming Wires $ 15.00
-------
Outgoing Wires $ 20.00
-------
Administration - if applicable $50.00 per hour
---------------
Out of Pocket Expenses (Postage, As Incurred
insurance, long distance calls,
mileage, photocopying)
</TABLE>
As of 11/7/95
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<PAGE> 1
EXHIBIT NO. 99.9
TRANSFER AGENT AGREEMENT
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<PAGE> 2
TRANSFER AGENT AGREEMENT
THIS AGREEMENT is made and entered into this 30th day of September,
1993, between SAFECO COMMON STOCK TRUST ("Trust"), a Delaware business trust,
and SAFECO SERVICES CORPORATION ("SAFECO Services"), a Washington corporation.
WHEREAS, the Trust is registered with the Securities and Exchange
Commission as a series type open-end, management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act") and has caused its
shares of beneficial interest ("Shares") to be registered for sale to the public
under the Securities Act of 1933 (the "1933 Act") and various state securities
laws; and
WHEREAS, the Trust intends to offer for public sale distinct series of
Shares of beneficial interest, each corresponding to a distinct portfolio
(individually, "a Series" and collectively "the Series"), and
WHEREAS, the Trust wishes to retain SAFECO Services as its transfer
agent, dividend and distribution disbursement agent, and shareholder services
agent on behalf of each Series as now exists or as hereafter may be established
which are listed on Exhibit A to this Agreement as amended from time to time
("Shares")
WHEREAS, SAFECO Services is qualified and authorized to act in such
capacities;
NOW, THEREFORE, It is agreed by the parties hereto as follows:
1. Appointment. The Trust on behalf of the Series hereby appoints SAFECO
Services as the Series' transfer agent, dividend and distribution disbursement
agent and shareholder services agent, and SAFECO Services agrees to act as such
upon the terms and conditions herein set forth.
2. Documents. The Trust agrees to deliver to SAFECO Services the following
documents to enable SAFECO Services to exercise its functions under this
Agreement: (a) copies of all basic corporate documentation, including the
Trust's Trust Instrument and Bylaws; (b) evidence of creation and authorization
for issue and sale of the Trust's Shares; (c) evidence of the status of the
Trust's Shares under applicable laws, including copies of the current
registration statement or post-effective amendments to the registration
statement of the Trust's securities under the Securities Act of 1933, copies of
current prospectuses and evidence of compliance with all applicable state
securities laws. The Trust shall furnish promptly to SAFECO Services a copy of
any amendment or supplement to the above-mentioned documents. The Trust shall
furnish to SAFECO Services any additional documents requested by SAFECO Services
as necessary to perform the services required hereunder.
3. Duties of SAFECO Services. SAFECO Services shall perform as agent of the
Trust on behalf of the Series the following duties:
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<PAGE> 3
(a) Maintain a complete computerized record of each Series'
shareholders, including name(s) in which the Shares are registered, address,
account number, broker/dealer or registered representative number (if required),
type of account, number of Shares owned in certificate and non-certificate form,
dates and amounts of purchases and redemptions, dates and amounts of dividends
and capital gains distributed and reinvested, together with cost amounts.
(b) With respect to requests for the purchase, repurchase, redemption
or transfer of the Series' Shares and the receipt or disbursement of monies,
maintain records of all such transactions and from these records furnish to the
Trust as heretofore agreed, the following for each Series:
(1) Number of Shares purchased and dollar net asset value
per Share.
(2) Number of Shares repurchased or redeemed and dollar
net asset value per Share.
(3) Number of accumulated Shares outstanding.
(4) Number of opened and closed accounts.
(5) Current number of shareholder accounts.
(c) With respect to orders for the purchase of Shares of a Series
received by SAFECO Securities, Inc., principal underwriter of each Series'
Shares, from authorized broker/dealers or SAFECO registered representatives, and
orders for the repurchase of such Shares from authorized broker/dealers or
SAFECO registered representatives, SAFECO Services shall accept and execute such
orders at the prices per share next computed in accordance with Rule 22c-1 of
the Investment Company Act of 1940.
(d) Following receipt of payments, upon receipt of proper instructions,
SAFECO Services, as transfer agent, shall prepare computer input entries to
register each Series' Shares upon its books in such name or names as directed.
If the Trust elects to issue certificates representing Shares of a Series, such
certificates shall be issued, recorded and forwarded for delivery to proper
person(s) upon request. Whether or not certificates evidencing ownership are
issued, a confirmation showing the registration and listing the purchase
transaction shall be mailed to the Trust's shareholders.
Upon receipt of Shares for redemption or repurchase, in good delivery
form, SAFECO Services shall prepare computer input entries to clear the Shares
out of the shareholders' accounts and effect prompt payment to the authorized
broker/dealer or the shareholder.
(e) New investors or shareholders of the Trust may forward monies
directly to SAFECO Services for the purchase of shares under various plans as
described in the Trust's then current Prospectus.
With respect to such plans, SAFECO Services for each Series shall:
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<PAGE> 4
(1) Receive monies for the purchase of full and fractional
Shares with respect to any of the Plans. When purchase orders are
received by SAFECO Services in proper form, they shall be time-stamped
and priced in accordance with Rule 22c-1 of the Investment Company Act
of 1940.
(2) Prepare computer input entries to effect the issuance of
confirmations, registration of Shares and recording of cost amounts in
shareholder accounts; record shares and net asset value amounts in the
Series' records; record shares and aggregate dollar amounts for
updating Blue Sky records, production reports, etc.
(3) Secure signed applications from each shareholder which
shall include details as to registration of Shares, social security
number, birth date (for accounts which require it), citizenship, type
of account, broker/dealer, registered representative (if required) and
signature(s).
(4) Maintain signed applications, correspondence, etc. for
individual shareholders.
(5) With respect to the redemption of Shares of a Series
tendered by shareholders:
(i) Accept redemption orders as described in the
Series' then current Prospectus directly from shareholders, or
their qualified agents, upon tender of properly endorsed
certificates which meet the redemption requirements of the
Trust. Shares not represented by certificates tendered by the
presentation of a written request signed by the shareholder
may be accepted without a signature guarantee provided a
signature is on file with SAFECO Services.
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<PAGE> 5
(ii) Pay proceeds for Shares so tendered at the net
asset value per share next computed after receipt of tender in
accordance with Rule 22c-1 of the Investment Company Act of
1940 within the settlement period required by the Securities
Exchange Act of 1934.
(g) SAFECO Services shall perform all necessary details to complete any
transactions in connection with any exchange privileges as described in the
Series' then current Prospectus.
(h) SAFECO Services shall maintain a bank account in its own name with
any bank which qualifies under the Bylaws of the Trust, for deposit of funds
received in payment of Shares and for the withdrawal of funds in payment of
repurchases or redemptions of Shares, expenses and dividends and capital gains
distributions. After each computer run, written instructions, signed by
authorized officers or other authorized signatories, are to be forwarded to such
bank requesting the transfer of net balance to or from the Series' custodian
account with such bank.
(i) SAFECO Services shall perform all necessary details in connection
with any Withdrawal Plan, as described in the Series' then current Prospectus
including making the monthly or quarterly payments to the Plan participant, and
informing the Series with regard to Shares redeemed and total dollar amount
involved on each payment date.
Although a Withdrawal Plan terminates upon the death of the
shareholder, SAFECO Services shall not be responsible for any payments made or
other action taken in accordance with the provisions of the Plan until it has
knowledge of such death.
(j) With reference to the registration and transfer of Shares referred
to in Section (a) above, SAFECO Services shall be entitled to treat the person
in whose name any Shares are registered as the owner thereof for all purposes,
and shall not be bound to recognize any other person, whether or not SAFECO
Services shall have notice hereof, except as expressly provided under applicable
state law.
(k) SAFECO Services shall use reasonable efforts to assure the accuracy
of the records it maintains under this Agreement and to issue certificates or
register Shares only to those persons or entities entitled thereto.
When a transfer of shares is demanded, SAFECO Services shall
take reasonable steps to ascertain whether or not a transfer of the Shares
requested is duly authorized. If SAFECO Services fails to take such reasonable
steps, it will be liable to any insured party for any damages incurred as a
result. SAFECO Services' transfer obligations shall run to the owners of
beneficial interest in the Shares as well as to the owners of record. SAFECO
Services shall take reasonable steps to ascertain the identity and authority of
each assignor, where he is acting in a representative capacity.
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Before permitting a transfer of Shares, SAFECO Services shall
make reasonable efforts to insure that the transferee is properly described and
that the transfer instructions for the Shares are clear and not ambiguous or
subject to doubt.
(l) Upon receipt of proper instructions, SAFECO Services shall compile,
distribute or reinvest, authorized dividends and capital gains distributions to
Trust's shareholders. In this regard data shall be accumulated to enable SAFECO
Services to provide and process year-end income tax information for
shareholders, states and the Internal Revenue Service. Where required, taxes
shall be withheld from alien shareholders with foreign addresses and accumulated
for surrender to the Internal Revenue Service.
(m) Prior to each meeting of the Trust's or any Series' shareholders,
SAFECO Services shall address the Proxy Cards, prepare the Proxy Cards, Notice
of Meeting of Shareholders and Proxy Statement for mailing, and mail them to the
shareholders entitled to vote at such meeting. Upon their return by the
shareholders, SAFECO Services shall examine them and prepare a tabulation that
provides the following information for the Trust or Series as the case may be:
(1) Number of Shares outstanding and entitled to vote on
the record date for the meeting.
(2) Number of Shares voted by proxy.
(3) Number of Shares voting "for" each proposal.
(4) Number of Shares voting "against" each proposal.
(5) Number of Shares voting "abstain" for each proposal.
(6) Number of shareholders involved in each above
instance.
SAFECO Services shall prepare a certified list of shareholders eligible
to vote at each meeting which shall be available on the day of the meeting.
SAFECO Services shall also prepare an "Affidavit of Mailing" to be available for
reading at each meeting stating that on the appropriate date a responsible,
named individual caused the Notice of Meeting, Proxy Card and Proxy Statement to
be mailed by United States Mail, postage prepaid, to each and every shareholder
of the Shares entitled to vote at the meeting.
(n) Countersign all certificates to be issued to shareholders of the
Trust upon receipt of payments for the Shares and request of a certificate or
certificates representing the Shares being purchased.
(o) SAFECO Services in the performance of its duties may contract from
time to time with other persons to provide software or computer time. SAFECO
Services shall advise the Trust of any such arrangements.
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4. Appointment of Agents. SAFECO Services may at any time or times in its
discretion appoint (and may at any time remove) one or more other parties as
Agent to perform any or all of the services specified hereunder and carry out
such provisions of this Agreement as SAFECO Services may from time to time
direct; provided, however, that the appointment of any such Agent shall not
relieve SAFECO Services of any of its responsibilities or liabilities hereunder.
5. Record Keeping and Other Information. SAFECO Services shall create and
maintain all records required by all applicable laws, rules and regulations
relating to the services to be performed under this Agreement, including but not
limited to records required by Section 31(a) of the Investment Company Act of
1940 and the Rules thereunder, as the same may be amended from time to time. All
records shall be the property of the Trust and shall be available for inspection
and use by the Trust at all times. Where applicable, such records shall be
maintained by SAFECO Services for the periods and in the places required by Rule
31a-2 under the Investment Company Act of 1940.
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6. Net Asset Value. Wherever used herein, the term "net asset value" shall mean
the "net asset value" as computed for each Series or Class in accordance with
the Trust's Trust Instrument and Bylaws. If any amendment is made to said Trust
Instrument or Bylaws that changes the method of said computation, the Trust
shall give SAFECO Services immediate notice of such amendment.
7. Proper Instructions. The term "proper instructions" used in this Agreement
shall be deemed to mean any written instructions signed by authorized persons or
any oral instructions delivered in accordance with Trust requirements.
8. Disbursement of Funds. Funds deposited in the bank account maintained by
SAFECO Services shall not be disbursed to any trustee, officer or employee of
the Trust. This provision shall not be deemed to apply to dividend payments to
any trustee, officer, or employee in his or her capacity as shareholder. Neither
shall this provision apply to the above individuals upon payments to them for
any shares redeemed for their personal accounts.
9. Compensation. SAFECO Services shall receive from each Series of the Trust a
fee in accordance with the arrangements described in Exhibit B hereto as such
Exhibit may be amended from time to time. Exhibit B may be amended or additional
Exhibits may be added, as deemed necessary from time to time by written
agreement between the Trust and SAFECO Services. Deletion of Exhibit B shall be
in accordance with the termination provisions in paragraph 16 of this Agreement.
Each Exhibit B and any amendments thereto shall be dated and signed by the
parties to this Agreement.
10. Certification of Officers/Reliance upon Certifications.
(a) The Secretary of the Trust shall be, and is hereby, directed to
certify to SAFECO Services the names of the officers of the Trust, and their
respective signatures, and in case of any change of any holder of any such
office, the fact of such change, and the name of such new officer and the office
held by him or her, together with specimens of his or her signature. SAFECO
Services is hereby authorized to honor any instructions given to SAFECO Services
by any such new officer in respect of whom it has received any such certificate
with the same force and effect (and not otherwise), as if such new officer were
named in this Agreement in the place of any person with the same title of
office.
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(b) The Secretary of the Trust shall be, and is hereby, authorized and
directed to notify SAFECO Services promptly in writing of any change of officers
as above provided, and that until SAFECO Services has actually received and
accepted such notice of any such change, SAFECO Services is hereby authorized
and directed to act in pursuance of this Agreement and the latest certificates
theretofore received by it; and SAFECO Services shall be indemnified and saved
harmless from any loss suffered or liability incurred by it in so acting, even
though any such officer may have been changed.
11. Audits, Inspections and Visits. SAFECO Services shall make available during
regular business hours all records and other data created and maintained
pursuant to this Agreement for reasonable audit and inspection by the Trust, any
agent or person designated by the Trust, or any regulatory agency having
authority over the Trust. Upon reasonable notice by the Trust, SAFECO Services
shall make available during regular business hours its facilities and premises
employed in connection with its performance of this Agreement for reasonable
visits by the Trust, any agent or person designated by the Trust, or any
regulatory agency having authority over the Trust.
12. Acts of God, Etc. SAFECO Services shall not be liable for delays or errors
occurring by reason of circumstances beyond its control, including but not
limited to acts of civil or military authority, national emergencies, work
stoppages, fire, flood, catastrophe, acts of God, war, riot or failure of
communications equipment of common carriers or power supply. In the event of
equipment breakdowns beyond its control, SAFECO Services shall at no additional
expense to the Trust take reasonable steps to minimize service interruptions and
mitigate their effects but shall have no liability with respect thereto.
13. Liability and Indemnification.
(a) SAFECO Services shall use reasonable care in the performance of its
duties under this Agreement.
(b) SAFECO Services shall be entitled to receive and act on the advice
of counsel for the Trust which advice shall be at the expense of the Trust and
shall be without liability for any action taken, or things done, or omitted to
be done, pursuant to such advice.
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(c) SAFECO Services shall not be liable for, or considered to be, the
custodian of any money called for or represented by any check, draft, or other
instrument for the payment of money delivered to it, or on behalf of the Trust.
(d) The Trust shall indemnify and hold SAFECO Services harmless against
any losses, claims, damages, liabilities or expenses (including reasonable
attorneys' fees and expenses) resulting from:
(1) any claim, demand, action or suit brought by any
person other than the Trust, including by a
shareholder, which names SAFECO Services and/or the
Trust as a party, and is not based on and does not
result from SAFECO Services' willful misfeasance, bad
faith or negligence or reckless disregard of duties,
and arises out of or in connection with SAFECO
Services' performance hereunder; or
(2) any claim, demand, action or suit (except to the
extent contributed to by SAFECO Services' willful
misfeasance, bad faith or negligence or reckless
disregard of duties) which results from the
negligence of the Trust, or from SAFECO Services
acting upon any instruction(s) reasonably believed by
it to have been executed or communicated by any
person duly authorized by the Trust, or as a result
of SAFECO Services' acting in reliance upon advice
reasonably believed by SAFECO Services to have been
given by counsel for the Trust, or as a result of
SAFECO Services acting in reliance upon any
instrument or stock certificate reasonably believed
by it to have been genuine and signed, countersigned
or executed by the proper person.
14. Effective Date/Renewal. This Agreement shall become effective with respect
to the Trust and each Series on the date first written above or such later date
as indicated on Exhibits A or B and, unless sooner terminated as provided
herein, will continue in effect for two years from the above written date.
Thereafter, if not terminated, this Agreement shall continue in effect with
respect to each Series for successive annual periods ending on the same date of
each year, provided that such continuance is specifically approved at least
annually by a vote of the Board of Trustees of the Trust, including the vote of
a majority of the trustees who are neither interested persons of SAFECO Services
nor of the Trust at a meeting called for the purpose of voting on such
continuance.
15. Amendment. This Agreement may be modified by written mutual consent, such
consent on the part of the Trust to be authorized by the vote of the Board of
Trustees.
16. Termination.
(a) Either party hereto may, at any time on no less than sixty (60) days
prior written notice to the other, terminate this Agreement with respect to the
Trust or any Series (by deleting such Series from Exhibits A and B), in any
case, without the payment of any penalty.
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(b) Upon termination each Series shall pay to SAFECO Services such
compensation as may be due as of the date of such termination and shall likewise
reimburse SAFECO Services for its costs, expenses and disbursements.
(c) If a successor transfer agent is appointed by the Board of Trustees
of the Trust, SAFECO Services shall, upon termination, deliver to such successor
transfer agent at the office of the transfer agent, all transfer records then
held hereunder and all funds or other properties of the Trust and deposited with
or held by it hereunder.
(d) If no successor transfer agent is appointed, SAFECO Services shall,
in like manner, at its office, upon receipt of a certified copy of a vote of the
Trust's Board of Trustees deliver such transfer records, funds and other
properties in accordance with such vote.
(e) In the event that no written order designating a successor transfer
agent or certified copy of a vote of the shareholders shall have been delivered
to SAFECO Services on or before the date when such termination shall become
effective, then SAFECO Services shall have the right to deliver to a bank or
trust company doing business in Seattle, Washington, of its own selection,
having proper qualifications, all transfer records, funds and other properties
held by SAFECO Services and all instruments held by it relative thereto and all
other property held by it under this Agreement. Thereafter such bank or trust
company shall be the successor of SAFECO Services under this Agreement.
(f) In the event that transfer records, funds and other properties
remain in the possession of SAFECO Services after the date of termination hereof
owing to failure of the Trust to procure the certified copy above referred to,
or of the trustees to appoint a successor transfer agent, SAFECO Services shall
be entitled to fair compensation for its services during such period and the
provisions of this Agreement relating to the duties and obligations of SAFECO
Services shall remain in full force and effect.
17. Limitation of Liability. SAFECO Services is hereby expressly put on notice
of (i) the limitation of shareholder, officer and trustee liability as set forth
in the Trust Instrument of the Trust and (ii) of the provisions in the Trust
Instrument permitting the establishment of separate Series and limiting the
liability of each Series to obligations of that Series. SAFECO Services hereby
agrees that obligations assumed by the Trust pursuant to this Agreement are in
all cases assumed on behalf of a particular Series and each such obligation
shall be limited in all cases to that Series and its assets. SAFECO Services
agrees that it shall not seek satisfaction of any such obligation from the
shareholders or any individual shareholder of the Trust nor from the officers or
trustees or any individual officer or trustee of the Trust.
18. Entire Agreement/Enforcement of Rights. This Agreement embodies the entire
agreement between SAFECO Services and the Trust with respect to the services to
be provided by SAFECO Services to the Trust and each Series and supersedes any
prior written or oral agreement between those parties. In the event that either
party should be required to take legal action in order to enforce its rights
under this Agreement, the prevailing party in any such action or proceeding
shall be entitled to recover from the other party costs and reasonable
attorneys' fees.
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In the event that either party should be required to take legal action in order
to enforce its rights under this Agreement, the prevailing party in any such
action or proceeding shall be entitled to recover from the other party costs and
reasonable attorney's fees.
19. Miscellaneous. The captions in this Agreement are included for convenience
of reference only and in no way define or delimit any of the provisions hereof
or otherwise affect their construction or effect. This Agreement may be executed
in counterparts, each of which taken together shall constitute one and the same
instrument. SAFECO Services understands that the rights and obligations of each
Series under the Trust Instrument are separate and distinct from those of any
and all other Series.
20. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Washington and, to the extent it
involves any United States statute, in accordance with the laws of the United
States.
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their proper officers as of the day and year first above written.
SAFECO COMMON STOCK TRUST
By /s/ David F. Hill
-------------------------------
David F. Hill, President
By /s/ Elna A. Thomson
-------------------------------
Elna A. Thomson, Secretary
SAFECO SERVICES CORPORATION
By /s/ David F. Hill
-------------------------------
David F. Hill, President
By /s/ Elna A. Thomson
-------------------------------
Elna A. Thomson, Secretary
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<PAGE> 14
EXHIBIT A
SAFECO COMMON STOCK TRUST
The SAFECO Common Stock Trust consists of the following Series:
1. SAFECO Growth Fund
2. SAFECO Equity Fund
3. SAFECO Income Fund
4. SAFECO Northwest Fund
As of 9-30-93
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<PAGE> 15
EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO BALANCED FUND
The SAFECO Common Stock Trust consists of the following additional Series, which
is made a party to this Agreement pursuant to Section 14 of the Agreement:
1. SAFECO Balanced Fund
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO Balanced Fund
By: /s/ Stephen C. Bauer By: /s/ David F. Hill
---------------------------- ---------------------------
Its: President Its: President
Attest: /s/ Neal A. Fuller Attest: /s/ Neal A. Fuller
------------------------ -----------------------
Secretary Assistant
Secretary
As of 11-10-95
139
<PAGE> 16
EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO INTERNATIONAL STOCK FUND
The SAFECO Common Stock Trust consists of the following additional Series, which
is made a party to this Agreement pursuant to Section 14 of the Agreement:
1. SAFECO International Stock Fund
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO International Stock Fund
By: /s/ Stephen C. Bauer By: /s/ David F. Hill
-------------------------- -----------------------
Its: President Its: President
Attest: /s/ Neal A. Fuller Attest: /s/ Neal A. Fuller
---------------------- -------------------
Secretary Assistant
Secretary
As of 11-10-95
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<PAGE> 17
EXHIBIT A
SAFECO COMMON STOCK TRUST
SAFECO SMALL COMPANY STOCK FUND
The SAFECO Common Stock Trust consists of the following additional Series, which
is made a party to this Agreement pursuant to Section 14 of the Agreement:
1. SAFECO Small Company Stock Fund
SAFECO Asset Management Company SAFECO Common Stock Trust
on behalf of
SAFECO Small Company Stock Fund
By: /s/ Stephen C. Bauer By: /s/ David F. Hill
-------------------------- -------------------------
Its: President Its: President
Attest: /s/ Neal A. Fuller Attest: /s/ Neal A. Fuller
---------------------- ---------------------
Secretary Assistant
Secretary
As of 11-10-95
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<PAGE> 18
EXHIBIT B
SAFECO COMMON STOCK TRUST
ALL SERIES
FEE SCHEDULES
(a) SAFECO Services shall receive from each Series of the Trust a fee
of $3.10 for each transaction which amount shall be billed and paid monthly.
(b) For purposes of this Section transaction means:
(i) any event which results in a change in the number of
outstanding Shares of an account for which a confirmation is
generated, except that confirmations generated as a result of
or to correct an error made by SAFECO Services shall not be
included;
(ii) any cash dividend or distribution;
(iii) any change in the form of registration, or
changes in address.
SAFECO Services Corporation SAFECO Common Stock Trust
on behalf of each Series
By: /s/ David F. Hill By: /s/ David F. Hill
----------------------- ---------------------------
Its: President Its: President
Attest: /s/ Neal A. Fuller Attest: /s/ Neal A. Fuller
------------------- -----------------------
Secretary Assistant Secretary
As of 5-5-94
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<PAGE> 19
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<PAGE> 1
EXHIBIT 99.10
OPINION OF COUNSEL
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<PAGE> 2
January 27, 1994
Board of Trustees
SAFECO Common Stock Trust
SAFECO Plaza
Seattle, WA 98185
Gentlemen:
I have acted as counsel to the Registrant in connection with the filing with
the Securities and Exchange Commission of Post-Effective Amendment No. 5 to
Registration Statement No. 33-36700 on Form N-1A for the shares of the
Registrant. I have made such examination of law and have examined such records
and documents as in my opinion are necessary or appropriate to enable me to
render the following opinion:
1. The Registrant was established by a Trust Instrument dated May 13,
1993, and filed with the Delaware Secretary of State on May 17, 1993.
The Trust is at the present time validly existing as a Delaware
business trust under the laws of the state of Delaware.
2. The Registrant is authorized to issue an unlimited number of shares of
beneficial interest with a par value of .001 cent per share which
currently represent four series: SAFECO Growth Fund, SAFECO Equity
Fund, SAFECO Income Fund and SAFECO Northwest Fund.
3. All of the prescribed procedures for the issuance of the shares have
been followed, and, when such shares are issued in accordance with the
Prospectus contained in the Registration Statement all state
requirements relating to such shares will have been complied with.
4. Upon the acceptance of payment for shares issued in accordance with the
Prospectus contained in the Registration Statement and upon compliance
with applicable law, such shares will be legally-issued, fully paid and
non-assessable shares of the Registrant.
You may use this letter, or a copy hereof, as an exhibit to the Registration
Statement.
Very truly yours,
Elna A. Thomson
Corporate Counsel
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<PAGE> 1
EXHIBIT NO. 99.11
CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS
TO BE FILED BY SUBSEQUENT AMENDMENT
146
<PAGE> 1
EXHIBIT NO. 99.12
ANNUAL REPORT/FINANCIAL STATEMENTS
TO BE FILED BY SUBSEQUENT AMENDMENT
147
<PAGE> 1
EXHIBIT NO. 99.13
SUBSCRIPTION AGREEMENT
148
<PAGE> 2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT ("Agreement") is made and entered into this
_________ day of ______________, 19__, between __________________________, a
Washington corporation ("Fund"), and SAFECO Life Insurance Company, a Washington
corporation ("SAFECO Life"), which is a wholly-owned subsidiary of SAFECO
Corporation.
R E C I T A L S :
WHEREAS, The Fund is a recently organized corporation formed to engage in the
business of investing, reinvesting or trading securities, or in any other
business activity incidental to the business of an investment management
company, as such is defined in Section 4(3) of the Investment Company Act of
1940 ("1940 Act"), desires to raise $5,000,000 through the sale to SAFECO
Insurance of 500,000 shares of its Common Stock, par value $.10 per share
("Common Stock"), at a price of $10 per share, and plans, subsequent to the sale
of said shares under this Agreement, to register with the Securities and
Exchange Commission ("Commission") an indefinite number of shares of its Common
stock for offering and sale under the Securities Act of 1933 ("1933 Act").
WHEREAS, SAFECO Life is an affiliate of SAFECO Asset Management Company ("SAM")
which has been selected by the Fund to serve as its investment adviser and is
familiar with the advisory activities, management and experience of SAM, has
received and reviewed the Registration Statement on Form N-1A that the Fund
intends to file with the Commission with respect to the registration of an
indefinite number of shares of its Common Stock and the registration of the Fund
as an investment company under the 1940 Act, has had an opportunity to ask
questions of, and receive answers from, the Fund and SAM with respect to the
proposed activities of the Fund, and, upon the basis of the information
available to it, is willing to acquire from the Fund 500,000 of its shares of
Common Stock pursuant to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual promises, covenants, and
warranties contained herein, the Fund and SAFECO Insurance agree as follows:
1. STOCK PURCHASE.
Subject to the terms and conditions of this Agreement, the Fund agrees
to sell to SAFECO Life, and SAFECO Life agrees to purchase from the Fund,
500,000 shares of the Fund's Common Stock ("Shares") at a purchase price of $10
per share, for an aggregate consideration of $5,000,000.
Upon the execution of this Agreement by the parties and at the request
of the President of the Fund, SAFECO Life shall pay to the Fund $5,000,000 in
coin or currency of the United States of America which, at the time of payment,
is legal tender for the payment of public and private debts and the Fund shall
deliver, or cause to be delivered, to SAFECO Life a stock certificate
representing the Shares signed by duly authorized officers of the Fund and
countersigned by the Fund's transfer agent. It is hereby agreed that the stock
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<PAGE> 3
certificate shall bear a restrictive legend in substantially the form set forth
in paragraph 2 of this Agreement.
2. RESTRICTIONS UPON TRANSFER OF SHARES.
The Shares have not been registered by the Fund under the 1933 Act but
are being offered and will be sold to SAFECO Life pursuant to an exemption from
the registration requirements of that Act for transactions which do not involve
a public offering. The Fund does not plan, and is under no obligation to provide
for, any registration of the Shares in the future. SAFECO Life hereby covenants
that it will not sell, pledge, hypothecate or otherwise transfer any of the
Shares, or any interest therein, whether or not for consideration, unless it has
previously notified the Fund of the proposed transfer and delivered to the Fund
in legal opinion, in form and substance satisfactory to the Fund and its
counsel, that such transfer is not in violation of the 1933 Act and applicable
state securities laws. Furthermore, the parties hereby agree, that in view of
the restrictions upon transfer, that the stock certificate representing the
Shares shall bear a restrictive legend that is in substantially the following
form:
"The securities represented by the stock certificate have been acquired
pursuant to an investment representation on the part of the purchaser
thereof and shall not be sold, pledged, hypothecated, donated or
otherwise transferred, whether or not for consideration, by the
purchaser except upon the issuance to the corporation of a favorable
opinion of its counsel to the effect that any such transfer shall not be
in violation of the Securities Act of 1933, as amended, and applicable
state securities laws."
3. WARRANTIES AND REPRESENTATIONS OF FUND.
The Fund hereby represents and warrants as follows:
(a) The Fund has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Washington and has
the corporate power and authority to carry on its business as presently
conducted and to perform its obligations under this Agreement.
(b) The execution, delivery and performance by the Fund of this
Agreement have been duly authorized by all necessary corporate action on the
part of the Fund.
(c) The issuance and sale of the Shares pursuant to this Agreement
have been duly authorized by all necessary corporate action on the part of the
Fund and the Shares have been duly issued and shall, upon receipt of the
purchase price specified in paragraph 1 above, by fully paid and non-assessable
and shall constitute valid and legal binding obligations of the Fund entitled
to the benefits granted to the Fund's shareholders under its Articles of
Incorporation and Bylaws.
(d) Neither the issuance nor sale of the Shares, nor the consummation
of any of the transactions contemplated by this Agreement, will conflict with,
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<PAGE> 4
result in a breach of, or constitute a default under, the terms of the Articles
of Incorporation or Bylaws of the Fund, or any indenture, mortgage agreement,
instrument or undertaking to which the Fund is a party or is bound, or any other
or regulation applicable to the Fund of any court, regulatory body,
administrative agency or governmental body having jurisdiction over the Fund.
(e) No consent, approval, authorization or order of any court or
governmental agency or body is required for the issuance and sale of the Shares
or the consummation of the Transactions contemplated by this Agreement.
4. WARRANTIES AND REPRESENTATIONS OF SAFECO INSURANCE.
SAFECO Life hereby represents and warrants as follows:
(a) SAFECO Life has been duly incorporated and is a validly existing
corporation in good standing under the laws of the State of Washington with full
power and authority to own its property and conduct its business and to perform
its obligations under this Agreement.
(b) The execution, delivery and performance of this Agreement have
been duly authorized by all necessary corporate action on the part of SAFECO
Life.
(c) Neither the execution, delivery, nor performance of this
Agreement, nor the acquisition of the Shares, will conflict with, result in a
breach of, or constitute a default under the terms of the Articles of
Incorporation or Bylaws of SAFECO Life or any indenture, mortgage agreement,
instrument or undertaking to which SAFECO is a party or bound, or any order or
regulation applicable to SAFECO Life of any court, regulatory body,
administrative agency, or governmental body having jurisdiction over SAFECO
Life.
(d) No consent, approval, authorization or order of any court or
governmental agency or body is required by SAFECO Life for the acquisition of
the Shares pursuant to this Agreement, except such as has been obtained from the
Insurance Commissioner of the State of Washington.
(e) SAFECO Life is acquiring the Shares for its own account, for
investment purposes and not with a view to the subsequent offering, sale or
distribution thereof and SAFECO Life is not participating, directly or
indirectly, in any plan or scheme involving the resale or distribution of the
Shares or any interest therein.
(f) SAFECO Life has sufficient knowledge and experience in business
matters so as to enable it to evaluate the merits and risks of acquiring the
Shares from the Fund and has sufficient assets to bear the economic risk of
losing part or all of its investment in the Fund.
(g) SAFECO Life acknowledges that it has received and reviewed a copy
of the Registration Statement on Form N-1A that the Fund intends to file with
the Commission with respect to the registration of an indefinite number of
shares of its Common Stock under the 1933 Act and the registration of the Fund
as an investment company under the 1940 Act and that it has been afforded the
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<PAGE> 5
opportunity to ask questions of, and receive answers from, the Fund or SAM with
respect to the proposed operations of the Fund.
5. TRANSFER AGENT INSTRUCTIONS.
It is hereby acknowledged by the parties that the Fund's transfer agent
will be instructed not to transfer the Shares to any third party unless it has
received a copy of the legal opinion required by paragraph 2 above and written
consent to such transfer from the Fund.
6. DIVIDEND RETENTION.
SAFECO Life agrees to permit the Fund to hold all dividends accrued and
payable to it until such time as the first dividends are paid by the Fund to any
other shareholder.
7. MISCELLANEOUS.
This Agreement embodies the entire agreement and understanding between
the Fund and SAFECO Life with respect to the sale of the Shares and supersedes
any prior written or oral agreement between the parties. This Agreement shall
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<PAGE> 6
be governed by and construed in accordance with the laws of the State of
Washington.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed by
their duly authorized officers as of the date and year first above written.
------------------------------------
By
---------------------------------
L.D. McClean
President
SAFECO LIFE INSURANCE COMPANY
By
---------------------------------
R.H. Eigsti
Senior Vice President
STATE OF WASHINGTON )
) ss.
COUNTY OF K I N G )
On this day personally appeared before me L.D. McClean, to me known to
be the President of _____________________________, the corporation that executed
the foregoing instrument, and acknowledged the same instrument to be the free
and voluntary act and deed of said corporation for the uses and purposes therein
mentioned, and on oath stated that he is authorized to execute the said
instrument, and that the seal affixed (if any) is the corporate seal of said
corporation.
WITNESS MY HAND AND OFFICIAL SEAL HERETO AFFIXED this ________ day of
____________, 1995.
---------------------------------------
Notary Public in and for the State of
Washington, residing at ____________.
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EXHIBIT NO. 99.14
PROTOTYPE 401(k)/PROFIT SHARING PLAN
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<PAGE> 2
PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN
AND TRUST
SPONSORED BY
SAFECO SECURITIES, INC.
SEATTLE, WASHINGTON
BASIC PLAN DOCUMENT #01
FEBRUARY 1994
155
<PAGE> 3
COPYRIGHT 1994 THE McKAY HOCHMAN COMPANY, INC.
156
<PAGE> 4
THIS DOCUMENT IS COPYRIGHTED UNDER THE LAWS OF THE UNITED STATES. USE,
DUPLICATION OR REPRODUCTION, INCLUDING THE USE OF ELECTRONIC MEANS, IS
PROHIBITED BY LAW WITHOUT THE EXPRESS CONSENT OF THE AUTHOR.
TABLE OF CONTENTS
<TABLE>
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ARTICLE I
DEFINITIONS
1.1 Actual Deferral Percentage 1
1.2 Adoption Agreement 1
1.3 Aggregate Limit 1
1.4 Annual Additions 2
1.5 Annuity Starting Date 2
1.6 Applicable Calendar Year 2
1.7 Applicable Life Expectancy 2
1.8 Average Contribution Percentage (ACP) 2
1.9 Average Deferral Percentage (ADP) 2
1.10 Break In Service 2
1.11 Code 2
1.12 Compensation 3
1.13 Contribution Percentage 4
1.14 Custodian 5
1.15 Defined Benefit Plan 5
1.16 Defined Benefit (Plan) Fraction 5
1.17 Defined Contribution Dollar Limitation 5
1.18 Defined Contribution Plan 5
1.19 Defined Contribution (Plan) Fraction 6
1.20 Designated Beneficiary 6
1.21 Disability 6
1.22 Distribution Calendar Year 6
1.23 Early Retirement Age 6
1.24 Earned Income 6
1.25 Effective Date 6
1.26 Election Period 6
1.27 Elective Deferral 7
1.28 Eligible Participant 7
1.29 Employee 7
1.30 Employer 7
1.31 Entry Date 7
1.32 Excess Aggregate Contributions 7
1.33 Excess Amount 7
1.34 Excess Contribution 8
1.35 Excess Elective Deferrals 8
1.36 Family Member 8
1.37 First Distribution Calendar Year 8
1.38 Fund 8
1.39 Hardship 8
</TABLE>
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<TABLE>
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1.40 Highest Average Compensation 8
1.41 Highly Compensated Employee 8
1.42 Hour Of Service 9
1.43 Key Employee 10
1.44 Leased Employee 10
1.45 Limitation Year 10
1.46 Master Or Prototype Plan 10
1.47 Matching Contribution 10
1.48 Maximum Permissible Amount 10
1.49 Net Profit 10
1.50 Normal Retirement Age 10
1.51 Owner-Employee 11
1.52 Paired Plans 11
1.53 Participant 11
1.54 Participant's Benefit 11
1.55 Permissive Aggregation Group 11
1.56 Plan 11
1.57 Plan Administrator 11
1.58 Plan Year 11
1.59 Present Value 11
1.60 Projected Annual Benefit 11
1.61 Qualified Deferred Compensation Plan 11
1.62 Qualified Domestic Relations Order 12
1.63 Qualified Early Retirement Age 12
1.64 Qualified Joint And Survivor Annuity 12
1.65 Qualified Matching Contribution 12
1.66 Qualified Non-Elective Contributions 12
1.67 Qualified Voluntary Contribution 12
1.68 Required Aggregation Group 12
1.69 Required Beginning Date 12
1.70 Rollover Contribution 13
1.71 Salary Savings Agreement 13
1.72 Self-Employed Individual 13
1.73 Service 13
1.74 Shareholder Employee 13
1.75 Simplified Employee Pension Plan 13
1.76 Sponsor 13
1.77 Spouse (Surviving Spouse) 13
1.78 Super Top-Heavy Plan 13
1.79 Taxable Wage Base 13
1.80 Top-Heavy Determination Date 14
1.81 Top-Heavy Plan 14
1.82 Top-Heavy Ratio 14
1.83 Top-Paid Group 15
1.84 Transfer Contribution 15
1.85 Trustee 15
1.86 Valuation Date 15
1.87 Vested Account Balance 16
1.88 Voluntary Contribution 16
1.89 Welfare Benefit Fund 16
1.90 Year Of Service 16
</TABLE>
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<TABLE>
<CAPTION>
<S> <C> <C> <C>
2.1 Participation 17
2.2 Change In Classification Of Employment 17
2.3 Computation Period 17
2.4 Employment Rights 17
2.5 Service With Controlled Groups 17
2.6 Owner-Employees 17
2.7 Leased Employees 18
2.8 Thrift Plans 18
ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 Amount 19
3.2 Expenses And Fees 19
3.3 Responsibility For Contributions 19
3.4 Return Of Contributions 19
ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 Voluntary Contributions 20
4.2 Qualified Voluntary Contributions 20
4.3 Rollover Contribution 20
4.4 Transfer Contribution 21
4.5 Employer Approval Of Transfer Contributions 21
4.6 Elective Deferrals 21
4.7 Required Voluntary Contributions 22
4.8 Direct Rollover Of Benefits 22
ARTICLE V
PARTICIPANT ACCOUNTS
5.1 Separate Accounts 23
5.2 Adjustments To Participant Accounts 23
5.3 Allocating Employer Contributions 24
5.4 Allocating Investment Earnings And Losses 24
5.5 Participant Statements 24
ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 Normal Retirement Benefits 25
6.2 Early Retirement Benefits 25
6.3 Benefits On Termination Of Employment 25
6.4 Restrictions On Immediate Distributions 26
6.5 Normal Form Of Payment 27
6.6 Commencement Of Benefits 27
6.7 Claims Procedures 28
6.8 In-Service Withdrawals 28
</TABLE>
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<TABLE>
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ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.9 Hardship Withdrawal 29
ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 Joint And Survivor Annuity Requirements 31
7.2 Minimum Distribution Requirements 31
7.3 Limits On Distribution Periods 31
7.4 Required Distributions On Or After The
Required Beginning Date 31
7.5 Required Beginning Date 32
7.6 Transitional Rule 33
7.7 Designation Of Beneficiary For Death Benefit 34
7.8 Nonexistence Of Beneficiary 34
7.9 Distribution Beginning Before Death 34
7.10 Distribution Beginning After Death 34
7.11 Distribution Of Excess Elective Deferrals 35
7.12 Distributions Of Excess Contributions 35
7.13 Distribution Of Excess Aggregate Contributions 36
ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 Applicability Of Provisions 38
8.2 Payment Of Qualified Joint And Survivor
Annuity 38
8.3 Payment Of Qualified Pre-Retirement
Survivor Annuity 38
8.4 Qualified Election 38
8.5 Notice Requirements For Qualified Joint
And Survivor Annuity 39
8.6 Notice Requirements For Qualified Pre-
Retirement Survivor Annuity 39
8.7 Special Safe-Harbor Exception For
Certain Profit-Sharing Plans 39
8.8 Transitional Joint And Survivor
Annuity Rules 40
8.9 Automatic Joint And Survivor Annuity
And Early Survivor Annuity 40
8.10 Annuity Contracts 41
ARTICLE IX
VESTING
9.1 Employee Contributions 42
9.2 Employer Contributions 42
9.3 Computation Period 42
9.4 Requalification Prior To Five Consecutive
One-Year Breaks In Service 42
9.5 Requalification After Five Consecutive
One-Year Breaks In Service 42
9.6 Calculating Vested Interest 42
</TABLE>
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<TABLE>
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9.7 Forfeitures 43
9.8 Amendment Of Vesting Schedule 43
9.9 Service With Controlled Groups 43
ARTICLE X
LIMITATIONS ON ALLOCATIONS AND
ANTIDISCRIMINATION TESTING
10.1 Participation In This Plan Only 44
10.2 Disposition Of Excess Annual Additions 44
10.3 Participation In This Plan And Another
Prototype Defined Contribution Plan,
Welfare Benefit Fund, Or Other Medical
Account Maintained By The Employer 45
10.4 Disposition Of Excess Annual Additions
Under Two Plans 45
10.5 Participation In This Plan And Another
Defined Contribution Plan Which Is Not
A Master Or Prototype Plan 46
10.6 Participation In This Plan And A Defined
Benefit Plan 46
10.7 Average Deferral Percentage (ADP) Test 46
10.8 Special Rules Relating To Application
Of ADP Test 46
10.9 Recharacterization 47
10.10 Average Contribution Percentage (ACP) Test 47
10.11 Special Rules Relating To Application
Of ACP Test 48
ARTICLE XI
ADMINISTRATION
11.1 Plan Administrator 50
11.2 Trustee 50
11.3 Administrative Fees And Expenses 51
11.4 Division Of Duties And Indemnification 51
ARTICLE XII
TRUST FUND
12.1 The Fund 53
12.2 Control Of Plan Assets 53
12.3 Exclusive Benefit Rules 53
12.4 Assignment And Alienation Of Benefits 53
12.5 Determination Of Qualified Domestic
Relations Order (QDRO) 53
ARTICLE XIII
INVESTMENTS
13.1 Fiduciary Standards 55
13.2 Funding Arrangement 55
</TABLE>
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<TABLE>
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13.3 Investment Alternatives Of The Trustee 55
13.4 Participant Loans 56
13.5 Insurance Policies 57
13.6 Employer Investment Direction 59
13.7 Employee Investment Direction 59
ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 Applicability Of Rules 61
14.2 Minimum Contribution 61
14.3 Minimum Vesting 61
14.4 Limitations On Allocations 62
</TABLE>
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<TABLE>
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ARTICLE XV
AMENDMENT AND TERMINATION
15.1 Amendment By Sponsor 63
15.2 Amendment By Employer 63
15.3 Termination 63
15.4 Qualification Of Employer's Plan 63
15.5 Mergers And Consolidations 63
15.6 Resignation And Removal 64
15.7 Qualification Of Prototype 64
ARTICLE XVI
GOVERNING LAW 65
</TABLE>
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PROTOTYPE CASH OR DEFERRED PROFIT-SHARING PLAN AND TRUST
SPONSORED BY
SAFECO SECURITIES, INC.
The Sponsor hereby establishes the following Prototype Retirement Plan and Trust
for use by those of its customers who qualify and wish to adopt a qualified
retirement program. Any Plan and Trust established hereunder shall be
administered for the exclusive benefit of Participants and their beneficiaries
under the following terms and conditions:
ARTICLE I
DEFINITIONS
1.1 ACTUAL DEFERRAL PERCENTAGE The ratio (expressed as a percentage and
calculated separately for each Participant) of:
(a) the amount of Employer contributions [as defined at (c) and (d)]
actually paid over to the Fund on behalf of such Participant for
the Plan Year to
(b) the Participant's Compensation for such Plan Year.
Compensation will only include amounts for the period during which the Employee
was eligible to participate.
Employer contributions on behalf of any Participant shall include:
(c) any Elective Deferrals made pursuant to the Participant's
deferral election, including Excess Elective Deferrals, but
excluding Elective Deferrals that are either taken into account
in the Contribution Percentage test (provided the ADP test is
satisfied both with and without exclusion of these Elective
Deferrals) or are returned as excess Annual Additions; and
(d) at the election of the Employer, Qualified Non-Elective
Contributions and Qualified Matching Contributions.
For purposes of computing Actual Deferral Percentages, an Employee who would be
a Participant but for the failure to make Elective Deferrals shall be treated as
a Participant on whose behalf no Elective Deferrals are made.
1.2 ADOPTION AGREEMENT The document attached to this Plan by which an
Employer elects to establish a qualified retirement plan and trust/custodial
account under the terms of this Prototype Plan and Trust.
1.3 AGGREGATE LIMIT The sum of:
(a) 125 percent of the greater of the ADP of the non-Highly
Compensated Employees for the Plan Year or the ACP of non-Highly
Compensated Employees under the Plan subject to Code Section
401(m) for the Plan Year beginning with or within the Plan Year
of the cash or deferred arrangement as described in Code Section
401(k) or Code Section 402(h)(1)(B), and
(b) the lesser of 200% or two percent plus the lesser of such ADP or
ACP.
Alternatively, the aggregate limit can be determined by substituting "the lesser
of 200% or 2 percent plus" for "125% of" in (a) above, and substituting "125%
of" for "the lesser of 200% or 2 percent plus" in (b) above.
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<PAGE> 12
1.4 ANNUAL ADDITIONS The sum of the following amounts credited to a
Participant's account for the Limitation Year:
(a) Employer Contributions,
(b) Employee Contributions (under Article IV),
(c) forfeitures,
(d) amounts allocated after March 31, 1984 to an individual medical
account, as defined in Code Section 415(l)(2), which is part of a
pension or annuity plan maintained by the Employer (these amounts
are treated as Annual Additions to a Defined Contribution Plan
though they arise under a Defined Benefit Plan), and
(e) amounts derived from contributions paid or accrued after 1985, in
taxable years ending after 1985, which are either attributable to
post-retirement medical benefits allocated to the account of a
Key Employee, or to a Welfare Benefit Fund maintained by the
Employer, are also treated as Annual Additions to a Defined
Contribution Plan. For purposes of this paragraph, an Employee
is a Key Employee if he or she meets the requirements of
paragraph 1.43 at any time during the Plan Year or any preceding
Plan Year. Welfare Benefit Fund is defined at paragraph 1.89.
Excess amounts applied in a Limitation Year to reduce Employer contributions
will be considered Annual Additions for such Limitation Year, pursuant to the
provisions of Article X.
1.5 ANNUITY STARTING DATE The first day of the first period for which an
amount is paid as an annuity or in any other form.
1.6 APPLICABLE CALENDAR YEAR The First Distribution Calendar Year, and in
the event of the recalculation of life expectancy, such succeeding calendar
year. If payments commence in accordance with paragraph 7.4(e) before the
Required Beginning Date, the Applicable Calendar Year is the year such payments
commence. If distribution is in the form of an immediate annuity purchased
after the Participant's death with the Participant's remaining interest, the
Applicable Calendar Year is the year of purchase.
1.7 APPLICABLE LIFE EXPECTANCY Used in determining the required minimum
distribution. The life expectancy (or joint and last survivor expectancy)
calculated using the attained age of the Participant (or Designated Beneficiary)
as of the Participant's (or Designated Beneficiary's) birthday in the Applicable
Calendar Year reduced by one for each calendar year which has elapsed since the
date life expectancy was first calculated. If life expectancy is being
recalculated, the Applicable Life Expectancy shall be the life expectancy as so
recalculated. The life expectancy of a non-Spouse Beneficiary may not be
recalculated.
1.8 AVERAGE CONTRIBUTION PERCENTAGE (ACP) The average of the Contribution
Percentages for each Highly Compensated Employee and for each non-Highly
Compensated Employee.
1.9 AVERAGE DEFERRAL PERCENTAGE (ADP) The average of the Actual Deferral
Percentages for each Highly Compensated Employee and for each non-Highly
Compensated Employee.
1.10 BREAK IN SERVICE A 12-consecutive month period during which an Employee
fails to complete more than 500 Hours of Service.
1.11 CODE The Internal Revenue Code of 1986, including any amendments.
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<PAGE> 13
1.12 COMPENSATION The Employer may select one of the following three
safe-harbor definitions of Compensation in the Adoption Agreement. Compensation
shall only include amounts earned while a Participant if Plan Year is chosen as
the determination period.
(a) CODE SECTION 3401(A) WAGES. Compensation is defined as wages
within the meaning of Code Section 3401(a) for the purposes of
Federal income tax withholding at the source but determined
without regard to any rules that limit the remuneration included
in wages based on the nature or location of the employment or the
services performed [such as the exception for agricultural labor
in Code Section 3401(a)(2)].
(b) CODE SECTION 6041 AND 6051 WAGES. Compensation is defined as
wages as defined in Code Section 3401(a) and all other payments
of compensation to an Employee by the Employer (in the course of
the Employer's trade or business) for which the Employer is
required to furnish the employee a written statement under Code
Section 6041(d) and 6051(a)(3). Compensation must be determined
without regard to any rules under Code Section 3401(a) 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 Code Section 3401(a)(2)].
(c) CODE SECTION 415 COMPENSATION. For purposes of applying the
limitations of Article X and Top-Heavy Minimums, the definition
of Compensation shall be Code Section 415 Compensation defined as
follows: a Participant's Earned Income, wages, salaries, and
fees for professional services and other amounts received
(without regard to whether or not an amount is paid in cash) for
personal services actually rendered in the course of employment
with the Employer maintaining the Plan to the extent that the
amounts are includible in gross income [including, but not
limited to, commissions paid salesmen, Compensation for services
on the basis of a percentage of profits, commissions on insurance
premiums, tips, bonuses, fringe benefits and reimbursements or
other expense allowances under a nonaccountable plan (as
described in Regulation 1.62-2(c)], and excluding the following:
1. Employer contributions to a plan of deferred compensation
which are not includible in the Employee's gross income for
the taxable year in which contributed, or Employer
contributions under a Simplified Employee Pension Plan or
any distributions from a plan of deferred compensation,
2. Amounts realized from the exercise of a non-qualified stock
option, or when restricted stock (or property) held by the
Employee either becomes freely transferable or is no longer
subject to a substantial risk of forfeiture,
3. Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock
option; and
4. other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a
salary reduction agreement) towards the purchase of an
annuity contract described in Code Section 403(b) (whether
or not the contributions are actually excludible from the
gross income of the Employee).
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For purposes of applying the limitations of Article X and Top-Heavy Minimums,
the definition of Compensation shall be Code Section 415 Compensation described
in this paragraph 1.12(c). Also, for purposes of applying the limitations of
Article X, Compensation for a Limitation Year is the Compensation actually paid
or made available during such Limitation Year. Notwithstanding the preceding
sentence, Compensation for a Participant in a defined contribution plan who is
permanently and totally disabled [as defined in Code Section 22(e)(3)] is the
Compensation such Participant would have received for the Limitation Year if the
Participant had been paid at the rate of Compensation paid immediately before
becoming permanently and totally disabled. Such imputed Compensation for the
disabled Participant may be taken into account only if the participant is not a
Highly Compensated Employee [as defined in Code Section 414(q)] and
contributions made on behalf of such Participant are nonforfeitable when made.
If the Employer fails to pick the determination period in the Adoption
Agreement, the Plan Year shall be used. Unless otherwise specified by the
Employer in the Adoption Agreement, Compensation shall be determined as provided
in Code Section 3401(a) [as defined in this paragraph 1.12(a)]. In
nonstandardized Adoption Agreement 002, the Employer may choose to eliminate or
exclude categories of Compensation which do not violate the provisions of Code
Sections 401(a)(4), 414(s) the regulations thereunder and Revenue Procedure
89-65.
Beginning with 1989 Plan Years, the annual Compensation of each Participant
which may be taken into account for determining all benefits provided under the
Plan (including benefits under Article XIV) for any year shall not exceed the
limitation as imposed by Code Section 401(a)(17) and as adjusted under Code
Section 415(d). In determining the Compensation of a Participant for purposes
of this limitation, the rules of Code Section 414(q)(6) shall apply, except in
applying such rules, the term "family" shall include only the Spouse of the
Participant and any lineal descendants of the Participant who have not attained
age 19 before the end of the Plan year. If, as a result of the application of
such rules the adjusted annual Compensation limitation, as imposed by Code
Section 401(a)(17), is exceeded, then (except for purposes of determining the
portion of Compensation up to the integration level if this Plan provides for
permitted disparity), the limitation shall be prorated among the affected
individuals in proportion to each such individual's Compensation as determined
under this section prior to the application of this limitation.
If a Plan has a Plan Year that contains fewer than 12 calendar months, then the
annual Compensation limit for that period is an amount equal to the limitation
as imposed by Code Section 401(a)(17) as adjusted for the calendar year in which
the Compensation period begins, multiplied by a fraction the numerator of which
is the number of full months in the Short Plan Year and the denominator of which
is 12. If Compensation for any prior Plan Year is taken into account in
determining an Employee's contributions or benefits for the current year, the
Compensation for such prior year is subject to the applicable annual
Compensation limit in effect for that prior year. For this purpose, for years
beginning before January 1, 1990, the applicable annual Compensation limit is
$200,000. For Plan Years beginning on or after January 1, 1994, the annual
Compensation of each Participant taken into account for determining all benefits
provided under the Plan for any Plan Year shall not exceed $150,000, as adjusted
for increases in the cost-of-living in accordance with Code Section 401(a)(17).
The cost-of-living adjustment in effect for a calendar year applies to any
determination period beginning in such calendar year.
Compensation shall not include deferred Compensation other than contributions
through a salary reduction agreement to a cash or deferred plan under Code
Section 401(k), a Simplified Employee Pension Plan under Code Section
402(h)(1)(B), a cafeteria plan under Code Section 125 or a tax-deferred annuity
under Code Section 403(b). Unless elected otherwise by the Employer in the
Adoption Agreement, these deferred amounts will be considered as Compensation
for Plan purposes. These deferred amounts are not counted as Compensation for
purposes of Articles X and XIV. When applicable to a Self-Employed Individual,
Compensation shall mean Earned Income.
1.13 CONTRIBUTION PERCENTAGE The ratio (expressed as a percentage and
calculated separately for each Participant) of:
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<PAGE> 15
(a) the Participant's Contribution Percentage Amounts [as defined at
(c)-(f)] for the Plan Year, to
(b) the Participant's Compensation for the Plan Year. Compensation
will only include amounts for the period during which the
Employee was eligible to participate.
Contribution Percentage Amounts on behalf of any Participant shall include:
(c) the amount of Employee Voluntary Contributions, Matching
Contributions, and Qualified Matching Contributions (to the
extent not taken into account for purposes of the ADP test) made
under the Plan on behalf of the Participant for the Plan Year,
(d) forfeitures of Excess Aggregate Contributions or Matching
Contributions allocated to the Participant's account which shall
be taken into account in the year in which such forfeiture is
allocated,
(e) at the election of the Employer, Qualified Non-Elective
Contributions, and
(f) the Employer also may elect to use Elective Deferrals in the
Contribution Percentage Amounts so long as the ADP test is met
before the Elective Deferrals are used in the ACP test and
continues to be met following the exclusion of those Elective
Deferrals that are used to meet the ACP test.
Contribution Percentage Amounts shall not include Matching Contributions,
whether or not Qualified, 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.
1.14 CUSTODIAN The individual(s) or institution appointed by the Employer to
have custody of all or part of the Fund.
1.15 DEFINED BENEFIT PLAN A Plan under which a Participant's benefit is
determined by a formula contained in the Plan and no individual accounts are
maintained for Participants.
1.16 DEFINED BENEFIT (PLAN) FRACTION A fraction, the numerator of which is
the sum of the Participant's Projected Annual Benefits under all the Defined
Benefit Plans (whether or not terminated) maintained by the Employer, and the
denominator of which is the lesser of 125 percent of the dollar limitation
determined for the Limitation Year under Code Sections 415(b) and (d) or 140
percent of the Highest Average Compensation, including any adjustments under
Code Section 415(b).
Notwithstanding the above, if the Participant was a Participant as of the first
day of the first Limitation Year beginning after 1986, in one or more Defined
Benefit Plans maintained by the Employer which were in existence on May 6, 1986,
the denominator of this fraction will not be less than 125 percent 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 1987, disregarding any
changes in the terms and conditions of the plan after May 5, 1986. The
preceding sentence applies only if the Defined Benefit Plans individually and in
the aggregate satisfied the requirements of Section 415 for all Limitation Years
beginning before 1987.
1.17 DEFINED CONTRIBUTION DOLLAR LIMITATION Thirty thousand dollars
($30,000) or if greater, one-fourth of the defined benefit dollar limitation set
forth in Code Section 415(b)(1) as in effect for the Limitation Year.
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<PAGE> 16
1.18 DEFINED CONTRIBUTION PLAN A Plan under which individual accounts are
maintained for each Participant to which all contributions, forfeitures,
investment income and gains or losses, and expenses are credited or deducted. A
Participant's benefit under such Plan is based solely on the fair market value
of his or her account balance.
1.19 DEFINED CONTRIBUTION (PLAN) FRACTION A Fraction, the numerator of which
is the sum of the Annual Additions to the Participant's account under all the
Defined Contribution Plans (whether or not terminated) maintained by the
Employer for the current and all prior Limitation Years (including the Annual
Additions attributable to the Participant's nondeductible Employee contributions
to all Defined Benefit Plans, whether or not terminated, maintained by the
Employer, and the Annual Additions attributable to all Welfare Benefit Funds, as
defined in paragraph 1.89 and individual medical accounts, as defined in Code
Section 415(l)(2), maintained by the Employer), and the denominator of which is
the sum of the maximum aggregate amounts for the current and all prior
Limitation Years of service with the Employer (regardless of whether a Defined
Contribution Plan was maintained by the Employer). The maximum aggregate amount
in the Limitation Year is the lesser of 125 percent of the dollar limitation
determined under Code Sections 415(b) and (d) in effect under Code Section
415(c)(1)(A) or 35 percent of the Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first day of the first
Limitation Year beginning after 1986, in one or more Defined Contribution Plans
maintained by the Employer which were in existence on May 6, 1986, the numerator
of this fraction will be adjusted if the sum of this fraction and the Defined
Benefit Fraction would otherwise exceed 1.0 under the terms of this Plan. Under
the adjustment, an amount equal to the product of (1) the excess of the sum of
the fractions over 1.0 times (2) the denominator of this fraction will be
permanently subtracted from the numerator of this fraction. The adjustment is
calculated using the fractions as they would be computed as of the end of the
last Limitation Year beginning before 1987, and disregarding any changes in the
terms and conditions of the Plan made after May 6, 1986, but using the Section
415 limitation applicable to the first Limitation Year beginning on or after
January 1, 1987. The Annual Addition for any Limitation Year beginning before
1987, shall not be re-computed to treat all Employee Contributions as Annual
Additions.
1.20 DESIGNATED BENEFICIARY The individual who is designated as the
beneficiary under the Plan in accordance with Code Section 401(a)(9) and the
regulations thereunder.
1.21 DISABILITY An illness or injury of a potentially permanent nature,
expected to last for a continuous period of not less than 12 months, certified
by a physician selected by or satisfactory to the Employer, which prevents the
Employee from engaging in any occupation for wage or profit for which the
Employee is reasonably fitted by training, education or experience.
1.22 DISTRIBUTION CALENDAR YEAR A calendar year for which a minimum
distribution is required.
1.23 EARLY RETIREMENT AGE The age set by the Employer in the Adoption
Agreement (but not less than 55), which is the earliest age at which a
Participant may retire and receive his or her benefits under the Plan.
1.24 EARNED INCOME Net earnings from self-employment in the trade or
business with respect to which the Plan is established, determined without
regard to items not included in gross income and the deductions allocable to
such items, provided that personal services of the individual are a material
income-producing factor. Earned income shall be reduced by contributions made
by an Employer to a qualified plan to the extent deductible under Code Section
404. For tax years beginning after 1989, net earnings shall be determined
taking into account the deduction for one-half of self-employment taxes allowed
to the Employer under Code Section 164(f) to the extent deductible.
1.25 EFFECTIVE DATE The date on which the Employer's retirement plan or
amendment to such plan becomes effective. For amendments reflecting statutory
and regulatory changes post Tax Reform Act of 1986, the Effective Date will be
the earlier of the date upon which such amendment is first administratively
applied or the first day of the Plan Year following the date of adoption of such
amendment.
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1.26 ELECTION PERIOD The period which begins on the first day of the Plan
Year in which the Participant attains age 35 and ends on the date of the
Participant's death. If a Participant separates from service prior to the first
day of the Plan Year in which age 35 is attained, the Election Period shall
begin on the date of separation, with respect to the account balance as of the
date of separation.
1.27 ELECTIVE DEFERRAL Employer contributions made to the Plan at the
election of the Participant, in lieu of cash Compensation. Elective Deferrals
shall also include contributions made pursuant to a Salary Savings Agreement or
other deferral mechanism, such as a cash option contribution. With respect to
any taxable year, a Participant's Elective Deferral is the sum of all Employer
contributions made on behalf of such Participant pursuant to an election to
defer under any qualified cash or deferred arrangement as described in Code
Section 401(k), any simplified employee pension cash or deferred arrangement as
described in Code Section 402(h)(1)(B), any eligible deferred compensation plan
under Code Section 457, any plan as described under Code Section 501(c)(18), and
any Employer contributions made on the behalf of a Participant for the purchase
of an annuity contract under Code Section 403(b) pursuant to a Salary Savings
Agreement. Elective Deferrals shall not include any deferrals properly
distributed as Excess Annual Additions.
1.28 ELIGIBLE PARTICIPANT Any Employee who is eligible to make a Voluntary
Contribution, or an Elective Deferral (if the Employer takes such contributions
into account in the calculation of the Contribution Percentage), or to receive
a Matching Contribution (including forfeitures) or a Qualified Matching
Contribution. If a Voluntary Contribution or Elective Deferral is required as a
condition of participation in the Plan, any Employee who would be a Participant
in the Plan if such Employee made such a contribution shall be treated as an
Eligible Participant even though no Voluntary Contributions or Elective
Deferrals are made.
1.29 EMPLOYEE Any person employed by the Employer (including Self-Employed
Individuals and partners), all Employees of a member of an affiliated service
group [as defined in Code Section 414(m)], Employees of a controlled group of
corporations [as defined in Code Section 414(b)], all Employees of any
incorporated or unincorporated trade or business which is under common control
[as defined in Code Section 414(c)], Leased Employees [as defined in Code
Section 414(n)] and any Employee required to be aggregated by Code Section
414(o). All such Employees shall be treated as employed by a single Employer.
1.30 EMPLOYER The Self-Employed Individual, partnership, corporation or
other organization which adopts this Plan including any firm that succeeds the
Employer and adopts this Plan. For purposes of Article X, Limitations on
Allocations, Employer shall mean the Employer that adopts this Plan, and all
members of a controlled group of corporations [as defined in Code Section 414(b)
as modified by Code Section 415(h)], all commonly controlled trades or
businesses [as defined in Code Section 414(c) as modified by Code Section
415(h)] or affiliated service groups [as defined in Code Section 414(m)] of
which the adopting Employer is a part, and any other entity required to be
aggregated with the Employer pursuant to regulations under Code Section 414(o).
1.31 ENTRY DATE The date on which an Employee commences participation in
the Plan as determined by the Employer in the Adoption Agreement.
1.32 EXCESS AGGREGATE CONTRIBUTIONS The excess, with respect to any Plan
Year, of:
(a) The aggregate Contribution Percentage Amounts taken into
account in computing the numerator of the Contribution
Percentage actually made on behalf of Highly Compensated
Employees for such Plan Year, over
(b) The maximum Contribution Percentage Amounts permitted by the
ACP test (determined by reducing contributions made on behalf
of Highly Compensated Employees in order of their Contribution
Percentages beginning with the highest of such percentages).
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Such determination shall be made after first determining Excess Elective
Deferrals pursuant to paragraph 1.35 and then determining Excess Contributions
pursuant to paragraph 1.34.
1.33 EXCESS AMOUNT The excess of the Participant's Annual Additions for the
Limitation Year over the Maximum Permissible Amount.
1.34 EXCESS CONTRIBUTION With respect to any Plan Year, the excess of:
(a) The aggregate amount of Employer contributions actually taken
into account in computing the ADP of Highly Compensated
Employees for such Plan Year, over
(b) The maximum amount of such contributions permitted by the ADP
test (determined by reducing contributions made on behalf of
Highly Compensated Employees in order of the ADPs, beginning
with the highest of such percentages).
1.35 EXCESS ELECTIVE DEFERRALS Those Elective Deferrals that are includible
in a Participant's gross income under Code Section 402(g) to the extent such
Participant's Elective Deferrals for a taxable year exceed the dollar limitation
under such Code Section. Excess Elective Deferrals shall be treated as Annual
Additions under the Plan, unless such amounts are distributed no later than the
first April 15th following the close of the Participant's taxable year.
1.36 FAMILY MEMBER The Employee's Spouse, any lineal descendants and
ascendants and the Spouse of such lineal descendants and ascendants.
1.37 FIRST DISTRIBUTION CALENDAR YEAR For distributions beginning before
the Participant's death, the First Distribution Calendar Year is the calendar
year immediately preceding the calendar year which contains the Participant's
Required Beginning Date. For distributions beginning after the Participant's
death, the First Distribution Calendar Year is the calendar year in which
distributions are required to begin pursuant to paragraph 7.10.
1.38 FUND All contributions received by the Trustee under this Plan and
Trust, investments thereof and earnings and appreciation thereon.
1.39 HARDSHIP An immediate and heavy financial need of the Employee where
such Employee lacks other available resources.
1.40 HIGHEST AVERAGE COMPENSATION The average Compensation for the three
consecutive Years of Service with the Employer that produces the highest
average. A Year of Service with the Employer is the 12-consecutive month period
defined in the Adoption Agreement.
1.41 HIGHLY COMPENSATED EMPLOYEE Any Employee who performs service for the
Employer during the determination year and who, during the immediate prior year:
(a) received Compensation from the Employer in excess of $75,000
[as adjusted pursuant to Code Section 415(d)]; or
(b) received Compensation from the Employer in excess of $50,000
[as adjusted pursuant to Code Section 415(d)] and was a member
of the Top-Paid Group for such year; or
(c) was an officer of the Employer and received Compensation
during such year that is greater than 50 percent of the dollar
limitation in effect under Code Section 415(b)(1)(A).
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Notwithstanding (a), (b) and (c), an Employee who was not Highly Compensated
during the preceding Plan Year shall not be treated as a Highly Compensated
Employee with respect to the current Plan Year unless such Employee is a member
of the 100 Employees paid the greatest Compensation during the year for which
such determination is being made.
(d) Employees who are five percent (5%) Owners at any time during
the immediate prior year or determination year.
Highly Compensated Employee includes Highly Compensated active Employees and
Highly Compensated former Employees.
1.42 HOUR OF SERVICE
(a) Each hour for which an Employee is paid, or entitled to
payment, for the performance of duties for the Employer. These
hours shall be credited to the Employee for the computation
period in which the duties are performed; and
(b) Each hour for which an Employee is paid, or entitled to
payment, by the Employer on account of a period of time during
which no duties are performed (irrespective of whether the
employment relationship has terminated) due to vacation,
holiday, illness, incapacity (including disability), layoff,
jury duty, military duty or leave of absence. No more than
501 Hours of Service shall be credited under this paragraph
for any single continuous period (whether or not such period
occurs in a single computation period). Hours under this
paragraph shall be calculated and credited pursuant to Section
2530.200b-2 of the Department of Labor Regulations which are
incorporated herein by this reference; and
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The
same Hours of Service shall not be credited both under
paragraph (a) or paragraph (b), as the case may be, and under
this paragraph (c). These hours shall be credited to the
Employee for the computation period or periods to which the
award or agreement pertains rather than the computation period
in which the award, agreement or payment is made.
(d) Hours of Service shall be credited for employment with the
Employer and with other members of an affiliated service group
[as defined in Code Section 414(m)], a controlled group of
corporations [as defined in Code Section 414(b)], or a group
of trades or businesses under common control [as defined in
Code Section 414(c)] of which the adopting Employer is a
member, and any other entity required to be aggregated with
the Employer pursuant to Code Section 414(o) and the
regulations thereunder. Hours of Service shall also be
credited for any individual considered an Employee for
purposes of this Plan under Code Section 414(n) or Code
Section 414(o) and the regulations thereunder.
(e) Solely for purposes of determining whether a Break in
Service, as defined in paragraph 1.10, for participation and
vesting purposes has occurred in a computation period, an
individual who is absent from work for maternity or paternity
reasons shall receive credit for the Hours of Service which
would otherwise have been credited to such individual but for
such absence, or in any case in which such hours cannot be
determined, 8 Hours of Service per day of such absence. For
purposes of this paragraph, an absence from work for maternity
or paternity reasons means an absence by reason of the
pregnancy of the individual, by reason of a birth of a child
of the individual, by reason of the placement of a child with
the individual in connection with the adoption of such child
by such individual, or for purposes of caring for
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such child for a period beginning immediately following such
birth or placement. The Hours of Service credited under this
paragraph shall be credited in the computation period in which
the absence begins if the crediting is necessary to prevent a
Break in Service in that period, or in all other cases, in the
following computation period. No more than 501 hours will be
credited under this paragraph.
(f) Hours of Service shall be determined on the basis of the
method selected in the Adoption Agreement.
1.43 KEY EMPLOYEE Any Employee or former Employee (and the beneficiaries of
such employee) who at any time during the determination period was an officer of
the Employer if such individual's annual compensation exceeds 50% of the dollar
limitation under Code Section 415(b)(1)(A) (the defined benefit maximum annual
benefit), an owner (or considered an owner under Code Section 318) of one of the
ten largest interests in the employer if such individual's compensation exceeds
100% of the dollar limitation under Code Section 415(c)(1)(A), a 5% owner of the
Employer, or a 1% owner of the Employer who has an annual compensation of more
than $150,000. For purposes of determining who is a Key Employee, annual
compensation shall mean Compensation as defined for Article X, but including
amounts deferred through a salary reduction agreement to a cash or deferred plan
under Code Section 401(k), a Simplified Employee Pension Plan under Code Section
408(k), a cafeteria plan under Code Section 125 or a tax-deferred annuity under
Code Section 403(b). The determination period is the Plan Year containing the
Determination Date and the four preceding Plan Years. The determination of who
is a Key Employee will be made in accordance with Code Section 416(i)(1) and the
regulations thereunder.
1.44 LEASED EMPLOYEE Any person (other than an Employee of the recipient)
who, pursuant to an agreement between the recipient and any other person
("leasing organization"), has performed services for the recipient [or for the
recipient and related persons determined in accordance with Code Section
414(n)(6)] on a substantially full-time basis for a period of at least one year,
and such services are of a type historically performed by Employees in the
business field of the recipient Employer.
1.45 LIMITATION YEAR The calendar year or such other 12-consecutive month
period designated by the Employer in the Adoption Agreement for purposes of
determining the maximum Annual Addition to a Participant's account. 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.
1.46 MASTER OR PROTOTYPE PLAN A plan, the form of which is the subject of a
favorable opinion letter from the Internal Revenue Service.
1.47 MATCHING CONTRIBUTION An Employer contribution made to this or any
other defined contribution plan on behalf of a Participant on account of an
Employee Voluntary Contribution made by such Participant, or on account of a
Participant's Elective Deferral, under a Plan maintained by the Employer.
1.48 MAXIMUM PERMISSIBLE AMOUNT The maximum Annual Addition that may be
contributed or allocated to a Participant's account under the plan for any
Limitation Year shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation, or
(b) 25% of the Participant's Compensation for the Limitation Year.
The compensation limitation referred to in (b) shall not apply to any
contribution for medical benefits [within the meaning of Code Section 401(h) or
Code Section 419A(f)(2)] which is otherwise treated as an Annual Addition under
Code Section 415(l)(1) or 419(d)(2). If a short Limitation Year is created
because of an amendment changing the
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Limitation Year to a different 12-consecutive month period, the Maximum
Permissible Amount will not exceed the Defined Contribution Dollar Limitation
multiplied by the following fraction: Number of months in the short Limitation
Year divided by 12.
1.49 NET PROFIT The current and accumulated operating earnings of the
Employer before Federal and State income taxes, excluding nonrecurring or
unusual items of income, and before contributions to this and any other
qualified plan of the Employer. Alternatively, the Employer may fix another
definition in the Adoption Agreement.
1.50 NORMAL RETIREMENT AGE The age, set by the Employer in the Adoption
Agreement, at which a Participant may retire and receive his or her benefits
under the Plan.
1.51 OWNER-EMPLOYEE A sole proprietor, or a partner owning more than 10% of
either the capital or profits interest of the partnership.
1.52 PAIRED PLANS Two or more Plans maintained by the Sponsor designed so
that a single or any combination of Plans adopted by an Employer will meet the
antidiscrimination rules, the contribution and benefit limitations, and the
Top-Heavy provisions of the Code.
1.53 PARTICIPANT Any Employee who has met the eligibility requirements and
is participating in the Plan.
1.54 PARTICIPANT'S BENEFIT The account balance as of the last Valuation
Date in the calendar year immediately preceding the Distribution Calendar Year
(valuation calendar year) increased by the amount of any contributions or
forfeitures allocated to the account balance as of the dates in the valuation
calendar year after the Valuation Date and decreased by distributions made in
the valuation calendar year after the Valuation Date. A special exception
exists for the second distribution Calendar Year. For purposes of this
paragraph, if any portion of the minimum distribution for the First Distribution
Calendar Year is made in the second Distribution Calendar Year on or before the
Required Beginning Date, the amount of the minimum distribution made in the
second distribution calendar year shall be treated as if it had been made in the
immediately preceding Distribution Calendar Year.
1.55 PERMISSIVE AGGREGATION GROUP Used for Top-Heavy testing purposes, it
is the Required Aggregation Group of plans plus any other plan or plans of the
Employer which, when considered as a group with the Required Aggregation Group,
would continue to satisfy the requirements of Code Sections 401(a)(4) and 410.
1.56 PLAN The Employer's retirement plan as embodied herein and in the
Adoption Agreement.
1.57 PLAN ADMINISTRATOR The Employer.
1.58 PLAN YEAR The 12-consecutive month period designated by the Employer
in the Adoption Agreement.
1.59 PRESENT VALUE Used for Top-Heavy test and determination purposes, when
determining the Present Value of accrued benefits, with respect to any Defined
Benefit Plan maintained by the Employer, interest and mortality rates shall be
determined in accordance with the provisions of the respective plan. If
applicable, interest and mortality assumptions will be specified in Section 11
of the Adoption Agreement.
1.60 PROJECTED ANNUAL BENEFIT Used to test the maximum benefit which may be
obtained from a combination of retirement plans, it is the annual retirement
benefit (adjusted to an actuarial equivalent straight life annuity if such
benefit is expressed in a form other than a straight life annuity or Qualified
Joint and Survivor Annuity) to which the Participant would be entitled under the
terms of a Defined Benefit Plan or plans, assuming:
(a) the Participant will continue employment until Normal
Retirement Age under the plan (or current age, if later), and
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(b) the Participant's Compensation for the current Limitation Year
and all other relevant factors used to determine benefits
under the plan will remain constant for all future Limitation
Years.
1.61 QUALIFIED DEFERRED COMPENSATION PLAN Any pension, profit-sharing,
stock bonus, or other plan which meets the requirements of Code Section 401 and
includes a trust exempt from tax under Code Section 501(a) or any annuity plan
described in Code Section 403(a).
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An Eligible Retirement Plan is an individual retirement account (IRA) as
described in Code Section 408(a), an individual retirement annuity (IRA) as
described in Code Section 408(b), an annuity plan as described in Code Section
403(a), or a qualified trust as described in Code Section 401(a), which accepts
Eligible Rollover Distributions. However in the case of an Eligible Rollover
Distribution to a Surviving Spouse, an Eligible Retirement Plan is an individual
retirement account or individual retirement annuity.
1.62 QUALIFIED DOMESTIC RELATIONS ORDER A QDRO is a signed Domestic
Relations Order issued by a State Court which creates, recognizes or assigns to
an alternate payee(s) the right to receive all or part of a Participant's Plan
benefit and which meets the requirements of Code Section 414(p). An alternate
payee is a Spouse, former Spouse, child, or other dependent who is treated as a
beneficiary under the Plan as a result of the QDRO.
1.63 QUALIFIED EARLY RETIREMENT AGE For purposes of paragraph 8.9,
Qualified Early Retirement Age is the latest of:
(a) the earliest date, under the Plan, on which the Participant
may elect to receive retirement benefits, or
(b) the first day of the 120th month beginning before the
Participant reaches Normal Retirement Age, or
(c) the date the Participant begins participation.
1.64 QUALIFIED JOINT AND SURVIVOR ANNUITY An immediate annuity for the life
of the Participant with a survivor annuity for the life of the Participant's
Spouse which is at least one-half of but not more than the amount of the annuity
payable during the joint lives of the Participant and the Participant's Spouse.
The exact amount of the Survivor Annuity is to be specified by the Employer in
the Adoption Agreement. If not designated by the Employer, the Survivor Annuity
will be 1/2 of the amount paid to the Participant during his or her lifetime.
The Qualified Joint and Survivor Annuity will be the amount of benefit which can
be provided by the Participant's Vested Account Balance.
1.65 QUALIFIED MATCHING CONTRIBUTION Matching Contributions which when made
are subject to the distribution and nonforfeitability requirements under Code
Section 401(k).
1.66 QUALIFIED NON-ELECTIVE CONTRIBUTIONS Contributions (other than
Matching Contributions or Qualified Matching Contributions) made by the Employer
and allocated to Participants' accounts that the Participants may not elect to
receive in cash until distributed from the Plan; that are nonforfeitable when
made; and that are distributable only in accordance with the distribution
provisions that are applicable to Elective Deferrals and Qualified Matching
Contributions.
1.67 QUALIFIED VOLUNTARY CONTRIBUTION A tax-deductible voluntary Employee
contribution. These contributions may no longer be made to the Plan.
1.68 REQUIRED AGGREGATION GROUP Used for Top-Heavy testing purposes, it
consists of:
(a) each qualified plan of the Employer in which at least one Key
Employee participates or participated at any time during the
determination period (regardless of whether the plan has
terminated), and
(b) any other qualified plan of the Employer which enables a plan
described in (a) to meet the requirements of Code Sections
401(a)(4) or 410.
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1.69 REQUIRED BEGINNING DATE The date on which a Participant is required to
take his or her first minimum distribution under the Plan. The rules are set
forth at paragraph 7.5.
1.70 ROLLOVER CONTRIBUTION A contribution made by a Participant of an
amount distributed to such Participant from another Qualified Deferred
Compensation Plan in accordance with Code Sections 402(a)(5), (6), and (7).
An Eligible Rollover Distribution is any distribution of all or any portion of
the balance to the credit of the Participant except that an Eligible Rollover
Distribution does not include:
(a) any distribution that is one of a series of substantially
equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the Participant or
the joint lives (or joint life expectancies) of the
Participant and the Participant's Designated Beneficiary, or
for a specified period of ten years or more;
(b) any distribution to the extent such distribution is required
under Code Section 401(a)(9); and
(c) 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).
A Direct Rollover is a payment by the plan to the Eligible Retirement Plan
specified by the Participant.
1.71 SALARY SAVINGS AGREEMENT An agreement between the Employer and a
participating Employee where the Employee authorizes the Employer to withhold a
specified percentage of his or her Compensation for deposit to the Plan on
behalf of such Employee.
1.72 SELF-EMPLOYED INDIVIDUAL An individual who has Earned Income for the
taxable year from the trade or business for which the Plan is established
including an individual who would have had Earned Income but for the fact that
the trade or business had no Net Profit for the taxable year.
1.73 SERVICE The period of current or prior employment with the Employer.
If the Employer maintains a plan of a predecessor employer, Service for such
predecessor shall be treated as Service for the Employer.
1.74 SHAREHOLDER EMPLOYEE An Employee or Officer who owns [or is
considered as owning within the meaning of Code Section 318(a)(1)], on any day
during the taxable year of an electing small business corporation
(S Corporation), more than 5% of such corporation's outstanding stock.
1.75 SIMPLIFIED EMPLOYEE PENSION PLAN An individual retirement account
which meets the requirements of Code Section 408(k), and to which the Employer
makes contributions pursuant to a written formula. These plans are considered
for contribution limitation and Top-Heavy testing purposes.
1.76 SPONSOR SAFECO Securities, Inc., or any successor(s) or assign(s).
1.77 SPOUSE (SURVIVING SPOUSE) The Spouse or Surviving Spouse of the
Participant, provided that a former Spouse will be treated as the Spouse or
Surviving Spouse and a current Spouse will not be treated as the Spouse or
Surviving Spouse to the extent provided under a Qualified Domestic Relations
Order as described in Code Section 414(p).
1.78 SUPER TOP-HEAVY PLAN A Plan described at paragraph 1.81 under which
the Top-Heavy Ratio [as defined at paragraph 1.82] exceeds 90%.
1.79 TAXABLE WAGE BASE For plans with an allocation formula which takes
into account the Employer's contribution under the Federal Insurance
Contributions Act (FICA), the maximum amount of earnings which may be considered
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wages for such Plan Year under the Social Security Act [Code Section
3121(a)(1)], or the amount elected by the Employer in the Adoption Agreement.
1.80 TOP-HEAVY DETERMINATION DATE For any Plan Year subsequent to the first
Plan Year, the last day of the preceding Plan Year. For the first Plan Year of
the Plan, the last day of that year.
1.81 TOP-HEAVY PLAN For any Plan Year beginning after 1983, the Employer's
Plan is top-heavy if any of the following conditions exist:
(a) If the Top-Heavy Ratio for the Employer's Plan exceeds 60%
and this Plan is not part of any required Aggregation Group or
Permissive Aggregation Group of Plans.
(b) If the Employer's plan is a part of a Required Aggregation
Group of plans but not part of a Permissive Aggregation Group
and the Top-Heavy Ratio for the group of plans exceeds 60%.
(c) If the Employer's plan is a part of a Required Aggregation
Group and part of a Permissive Aggregation Group of plans and
the Top-Heavy Ratio for the Permissive Aggregation Group
exceeds 60%.
1.82 TOP-HEAVY RATIO
(a) If the Employer maintains one or more Defined Contribution
plans (including any Simplified Employee Pension Plan) and the
Employer has not maintained any Defined Benefit Plan which
during the 5-year period ending on the Determination Date(s)
has or has had accrued benefits, the Top-Heavy Ratio for this
Plan alone, or for the Required or Permissive Aggregation
Group as appropriate, is a fraction,
(1) the numerator of which is the sum of the account
balances of all Key Employees as of the Determination
Date(s) [including any part of any account balance
distributed in the 5-year period ending on the
Determination Date(s)], and
(2) the denominator of which is the sum of all account
balances [including any part of any account balance
distributed in the 5-year period ending on the
Determination Date(s)], both computed in accordance
with Code Section 416 and the regulations thereunder.
Both the numerator and denominator of the Top-Heavy Ratio are
increased to reflect any contribution not actually made as of
the Determination Date, but which is required to be taken into
account on that date under Code Section 416 and the
regulations thereunder.
(b) If the Employer maintains one or more Defined Contribution
Plans (including any Simplified Employee Pension Plan) and the
Employer maintains or has maintained one or more Defined
Benefit Plans which during the 5-year period ending on the
Determination Date(s) has or has had any accrued benefits, the
Top-Heavy Ratio for any Required or Permissive Aggregation
Group as appropriate is a fraction, the numerator of which is
the sum of account balances under the aggregated Defined
Contribution Plan or Plans for all Key Employees, determined
in accordance with (a) above, and the Present Value of accrued
benefits under the aggregated Defined Benefit Plan or Plans
for all Key Employees as of the Determination Date(s), and the
denominator of which is the sum of the account balances under
the aggregated Defined Contribution Plan or Plans for all
Participants, determined in accordance with (a) above, and
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the Present Value of accrued benefits under the Defined
Benefit Plan or Plans for all Participants as of the
Determination Date(s), all determined in accordance with Code
Section 416 and the regulations thereunder. The accrued
benefits under a Defined Benefit Plan in both the numerator
and denominator of the Top-Heavy Ratio are increased for any
distribution of an accrued benefit made in the 5-year period
ending on the Determination Date.
(c) For purposes of (a) and (b) above, the value of account
balances and the Present Value of accrued benefits will be
determined as of the most recent Valuation Date that falls
within or ends with the 12-month period ending on the
Determination Date, except as provided in Code Section 416
and the regulations thereunder for the first and second plan
years of a Defined Benefit Plan. The account balances and
accrued benefits of a participant (1) who is not a Key
Employee but who was a Key Employee in a prior year, or
(2) who has not been credited with at least one hour of
service with any Employer maintaining the Plan at any time
during the 5-year period ending on the Determination Date,
will be disregarded. The calculation of the Top-Heavy Ratio,
and the extent to which distributions, rollovers, and
transfers are taken into account will be made in accordance
with Code Section 416 and the regulations thereunder.
Qualified Voluntary Employee Contributions will not be taken
into account for purposes of computing the Top-Heavy Ratio.
When aggregating plans the value of account balances and
accrued benefits will be calculated with reference to the
Determination Dates that fall within the same calendar year.
The accrued benefit of a Participant other than a Key
Employee shall be determined under (1) the method, if any,
that uniformly applies for accrual purposes under all Defined
Benefit Plans maintained by the Employer, or (2) if there is
no such method, as if such benefit accrued not more rapidly
than the slowest accrual rate permitted under the fractional
rule of Code Section 411(b)(1)(C).
1.83 TOP-PAID GROUP The group consisting of the top 20% of Employees when
ranked on the basis of Compensation paid during such year. For purposes of
determining the number of Employees in the group (but not who is in it), the
following Employees shall be excluded:
(a) Employees who have not completed 6 months of Service.
(b) Employees who normally work less than 17-1/2 hours per week.
(c) Employees who normally do not work more than 6 months during
any year.
(d) Employees who have not attained age 21.
(e) Employees included in a collective bargaining unit, covered by
an agreement between employee representatives and the
Employer, where retirement benefits were the subject of good
faith bargaining and provided that 90% or more of the
Employer's Employees are covered by the agreement.
(f) Employees who are nonresident aliens and who receive no earned
income which constitutes income from sources within the United
States.
1.84 TRANSFER CONTRIBUTION A non-taxable transfer of a Participant's
benefit directly from a Qualified Deferred Compensation Plan to this Plan.
1.85 TRUSTEE The individual(s) or institution appointed by the Employer to
invest the Fund.
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1.86 VALUATION DATE The last day of the Plan Year or such other date as
agreed to by the Employer and the Trustee on which Participant accounts are
revalued in accordance with Article V hereof. For Top-Heavy purposes, the date
selected by the Employer as of which the Top-Heavy Ratio is calculated.
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1.87 VESTED ACCOUNT BALANCE The aggregate value of the Participant's Vested
Account Balances derived from Employer and Employee contributions (including
Rollovers), whether vested before or upon death, including the proceeds of
insurance contracts, if any, on the Participant's life. The provisions of
Article VIII shall apply to a Participant who is vested in amounts attributable
to Employer contributions, Employee contributions (or both) at the time of death
or distribution.
1.88 VOLUNTARY CONTRIBUTION An Employee contribution made to the Plan by or
on behalf of a Participant that is included in the Participant's gross income in
the year in which made and that is maintained under a separate account to which
earnings and losses are allocated.
1.89 WELFARE BENEFIT FUND Any fund that is part of a plan of the Employer,
or has the effect of a plan, through which the Employer provides welfare
benefits to Employees or their beneficiaries. For these purposes, Welfare
Benefits means any benefit other than those with respect to which Code Section
83(h) (relating to transfers of property in connection with the performance of
services), Code Section 404 (relating to deductions for contributions to an
Employee's trust or annuity and Compensation under a deferred payment plan),
Code Section 404A (relating to certain foreign deferred compensation plans)
apply. A "Fund" is any social club, voluntary employee benefit association,
supplemental unemployment benefit trust or qualified group legal service
organization described in Code Section 501(c)(7), (9), (17) or (20); any trust,
corporation, or other organization not exempt from income tax, or to the extent
provided in regulations, any account held for an Employer by any person.
1.90 YEAR OF SERVICE A 12-consecutive month period during which an Employee
is credited with not less than 1,000 (or such lesser number as specified by the
Employer in the Adoption Agreement) Hours of Service.
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ARTICLE II
ELIGIBILITY REQUIREMENTS
2.1 PARTICIPATION Employees who meet the eligibility requirements in the
Adoption Agreement on the Effective Date of the Plan shall become Participants
as of the Effective Date of the Plan. If so elected in the Adoption Agreement,
all Employees employed on the Effective Date of the Plan may participate, even
if they have not satisfied the Plan's specified eligibility requirements. Other
Employees shall become Participants on the Entry Date coinciding with or
immediately following the date on which they meet the eligibility requirements.
The Employee must satisfy the eligibility requirements specified in the Adoption
Agreement and be employed on the Entry Date to become a Participant in the Plan.
In the event an Employee who is not a member of the eligible class of Employees
becomes a member of the eligible class, such Employee shall participate
immediately if such Employee has satisfied the minimum age and service
requirements and would have previously become a Participant had he or she been
in the eligible class. A former Participant shall again become a Participant
upon returning to the employ of the Employer at the next Entry Date or if
earlier, the next Valuation Date. For this purpose, Participant's Compensation
and Service shall be considered from date of rehire.
2.2 CHANGE IN CLASSIFICATION OF EMPLOYMENT In the event a Participant
becomes ineligible to participate because he or she is no longer a member of an
eligible class of Employees, such Employee shall participate upon his or her
return to an eligible class of Employees.
2.3 COMPUTATION PERIOD To determine Years of Service and Breaks in Service
for purposes of eligibility, the 12-consecutive month period shall commence on
the date on which an Employee first performs an Hour of Service for the Employer
and each anniversary thereof, such that the succeeding 12-consecutive month
period commences with the employee's first anniversary of employment and so on.
If, however, the period so specified is one year or less, the succeeding
12-consecutive month period shall commence on the first day of the Plan Year
prior to the anniversary of the date they first performed an Hour of Service
regardless of whether the Employee is entitled to be credited with 1,000 (or
such lesser number as specified by the Employer in the Adoption Agreement) Hours
of Service during their first employment year.
2.4 EMPLOYMENT RIGHTS Participation in the Plan shall not confer upon a
Participant any employment rights, nor shall it interfere with the Employer's
right to terminate the employment of any Employee at any time.
2.5 SERVICE WITH CONTROLLED GROUPS All Years of Service with other members
of a controlled group of corporations [as defined in Code Section 414(b)],
trades or businesses under common control [as defined in Code Section 414(c)],
or members of an affiliated service group [as defined in Code Section 414(m)]
shall be credited for purposes of determining an Employee's eligibility to
participate.
2.6 OWNER-EMPLOYEES If this Plan provides contributions or benefits for
one or more Owner-Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan and the Plan
established for other trades or businesses must, when looked at as a single
Plan, satisfy Code Sections 401(a) and (d) for the Employees of this and all
other trades or businesses.
If the Plan provides contributions or benefits for one or more Owner-Employees
who control one or more other trades or businesses, the Employees of the other
trades or businesses must be included in a Plan which satisfies Code Sections
401(a) and (d) and which provides contributions and benefits not less favorable
than provided for Owner-Employees under this Plan.
If an individual is covered as an Owner-Employee under the plans of two or more
trades or businesses which are not controlled, and the individual controls a
trade or business, then the contributions or benefits of the Employees under the
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plan of the trades or businesses which are controlled must be as favorable as
those provided for him or her under the most favorable plan of the trade or
business which is not controlled.
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For purposes of the preceding sentences, an Owner-Employee, or two or more
Owner-Employees, will be considered to control a trade or business if the
Owner-Employee, or two or more Owner-Employees together:
(a) own the entire interest in an unincorporated trade or
business, or
(b) in the case of a partnership, own more than 50% of either the
capital interest or the profits interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees shall be treated as owning any interest in a partnership which
is owned, directly or indirectly, by a partnership which such Owner-Employee,
or such two or more Owner-Employees, are considered to control within the
meaning of the preceding sentence.
2.7 LEASED EMPLOYEES Any Leased Employee shall be treated as an Employee
of the recipient Employer; however, contributions or benefits provided by the
leasing organization which are attributable to services performed for the
recipient Employer shall be treated as provided by the recipient Employer. A
Leased Employee shall not be considered an Employee of the recipient if such
Employee is covered by a money purchase pension plan providing:
(a) a non-integrated Employer contribution rate of at least 10% of
Compensation, [as defined in Code Section 415(c)(3) but
including amounts contributed by the Employer pursuant to a
salary reduction agreement, which are excludable from the
Employee's gross income under a cafeteria plan covered by Code
Section 125, a cash or deferred profit-sharing plan under
Section 401(k) of the Code, a Simplified Employee Pension Plan
under Code Section 402(h)(1)(B) and a tax-sheltered annuity
under Code Section 403(b)],
(b) immediate participation, and
(c) full and immediate vesting.
This exclusion is only available if Leased Employees do not constitute more than
twenty percent (20%) of the recipient's non-highly compensated work force.
2.8 THRIFT PLANS If the Employer makes an election in the Adoption
Agreement to require Voluntary Contributions to participate in this Plan, the
Employer shall notify each eligible Employee in writing of his or her
eligibility for participation at least 30 days prior to the appropriate Entry
Date. The Employee shall indicate his or her intention to join the Plan by
authorizing the Employer to withhold a percentage of his or her Compensation as
provided in the Plan. Such authorization shall be returned to the Employer at
least 10 days prior to the Employee's Entry Date. The Employee may decline
participation by so indicating on the enrollment form or by failure to return
the enrollment form to the Employer prior to the Employee's Entry Date. If the
Employee declines to participate, such Employee shall be given the opportunity
to join the Plan on the next Entry Date. The taking of a Hardship Withdrawal
under the provisions of paragraph 6.9 will impact the Participant's ability to
make these contributions.
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ARTICLE III
EMPLOYER CONTRIBUTIONS
3.1 AMOUNT The Employer intends to make periodic contributions to the Plan
in accordance with the formula or formulas selected in the Adoption Agreement.
However, the Employer's contribution for any Plan Year shall be subject to the
limitations on allocations contained in Article X.
3.2 EXPENSES AND FEES The Employer shall also be authorized to reimburse
the Fund for all expenses and fees incurred in the administration of the Plan or
Trust and paid out of the assets of the Fund. Such expenses shall include, but
shall not be limited to, fees for professional services, printing and postage.
Brokerage commissions may not be reimbursed.
3.3 RESPONSIBILITY FOR CONTRIBUTIONS Neither the Trustee nor the Sponsor
shall be required to determine if the Employer has made a contribution or if the
amount contributed is in accordance with the Adoption Agreement or the Code. The
Employer shall have sole responsibility in this regard. The Trustee shall be
accountable solely for contributions actually received by it, within the limits
of Article XI.
3.4 RETURN OF CONTRIBUTIONS Contributions made to the Fund by the Employer
shall be irrevocable except as provided below:
(a) Any contribution forwarded to the Trustee because of a mistake
of fact, provided that the contribution is returned to the
Employer within one year of the contribution.
(b) In the event that the Commissioner of Internal Revenue
determines that the Plan is not initially qualified under the
Internal Revenue Code, any contribution made incident to that
initial qualification by the Employer must be returned to the
Employer within one year after the date the initial
qualification is denied, but only if the application for the
qualification is made by the time prescribed by law for filing
the Employer's return for the taxable year in which the Plan
is adopted, or such later date as the Secretary of the
Treasury may prescribe.
(c) Contributions forwarded to the Trustee are presumed to be
deductible and are conditioned on their deductibility.
Contributions which are determined to not be deductible will
be returned to the Employer.
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ARTICLE IV
EMPLOYEE CONTRIBUTIONS
4.1 VOLUNTARY CONTRIBUTIONS An Employee may make Voluntary Contributions
to the Plan established hereunder if so authorized by the Employer in a uniform
and nondiscriminatory manner. Such contributions are subject to the limitations
on Annual Additions and are subject to antidiscrimination testing.
4.2 QUALIFIED VOLUNTARY CONTRIBUTIONS A Participant may no longer make
Qualified Voluntary Contributions to the Plan. Amounts already contributed may
remain in the Trust Fund until distributed to the Participant. Such amounts
will be maintained in a separate account which will be nonforfeitable at all
times. The account will share in the gains and losses of the Trust in the same
manner as described at paragraph 5.4 of the Plan. No part of the Qualified
Voluntary Contribution account will be used to purchase life insurance. Subject
to Article VIII, Joint and Survivor Annuity Requirements (if applicable), the
Participant may withdraw any part of the Qualified Voluntary Contribution
account by making a written application to the Plan Administrator.
4.3 ROLLOVER CONTRIBUTION Unless provided otherwise in the Adoption
Agreement, a Participant may make a Rollover Contribution to any Defined
Contribution Plan established hereunder of all or any part of an amount
distributed or distributable to him or her from a Qualified Deferred
Compensation Plan provided:
(a) the amount distributed to the Participant is deposited to the
Plan no later than the sixtieth day after such distribution
was received by the Participant,
(b) the amount distributed is not one of a series of substantially
equal periodic payments made for the life (or life expectancy)
of the Participant or the joint lives (or joint life
expectancies) of the Participant and the Participant's
Designated Beneficiary, or for a specified period of ten years
or more;
(c) the amount distributed is not required under Code Section
401(a)(9);
(d) if the amount distributed included property such property is
rolled over, or if sold the proceeds of such property may be
rolled over,
(e) the amount distributed is not includible in gross income
(determined without regard to the exclusion for net unrealized
appreciation with respect to employer securities).
In addition, if the Adoption Agreement allows Rollover Contributions, the Plan
will also accept any Eligible Rollover Distribution (as defined at paragraph
1.70) directly to the Plan.
Rollover Contributions, which relate to distributions prior to January 1, 1993,
must be made in accordance with paragraphs (a) through (e) and additionally meet
the requirements of paragraph (f):
(f) The distribution from the Qualified Deferred Compensation Plan
constituted the Participant's entire interest in such Plan and
was distributed within one taxable year to the Participant:
(1) on account of separation from Service, a Plan
termination, or in the case of a profit-sharing or
stock bonus plan, a complete discontinuance of
contributions under such plan within the meaning of
Code Section 402(a)(6)(A), or
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(2) in one or more distributions which constitute a
qualified lump sum distribution within the meaning of
Code Section 402(e)(4)(A), determined without
reference to subparagraphs (B) and (H).
Such Rollover Contribution may also be made through an individual retirement
account qualified under Code Section 408 where the IRA was used as a conduit
from the Qualified Deferred Compensation Plan, the Rollover Contribution is made
in accordance with the rules provided under paragraphs (a) through (e) and the
Rollover Contribution does not include any regular IRA contributions, or
earnings thereon, which the Participant may have made to the IRA. Rollover
Contributions, which relate to distributions prior to January 1, 1993, may be
made through an IRA in accordance with paragraphs (a) through (f) and additional
requirements as provided in the previous sentence. The Trustee shall not be
held responsible for determining the tax-free status of any Rollover
Contribution made under this Plan.
4.4 TRANSFER CONTRIBUTION Unless provided otherwise in the Adoption
Agreement a Participant may, subject to the provisions of paragraph 4.5, also
arrange for the direct transfer of his or her benefit from a Qualified Deferred
Compensation Plan to this Plan. For accounting and record keeping purposes,
Transfer Contributions shall be treated in the same manner as Rollover
Contributions.
In the event the Employer accepts a Transfer Contribution from a Plan in which
the Employee was directing the investments of his or her account, the Employer
may continue to permit the Employee to direct his or her investments in
accordance with paragraph 13.7 with respect only to such Transfer Contribution.
Notwithstanding the above, the Employer may refuse to accept such Transfer
Contributions.
4.5 EMPLOYER APPROVAL OF TRANSFER CONTRIBUTIONS The Employer maintaining a
Safe-Harbor Profit-Sharing Plan in accordance with the provisions of paragraph
8.7, acting in a nondiscriminatory manner, may in its sole discretion refuse to
allow Transfer Contributions to its profit-sharing plan, if such contributions
are directly or indirectly being transferred from a defined benefit plan, a
money purchase pension plan (including a target benefit plan), a stock bonus
plan, or another profit-sharing plan which would otherwise provide for a life
annuity form of payment to the Participant.
4.6 ELECTIVE DEFERRALS A Participant may enter into a Salary Savings
Agreement with the Employer authorizing the Employer to withhold a portion of
such Participant's Compensation not to exceed $7,000 per calendar year as
adjusted under Code Section 415(d) or, if lesser, the percentage of Compensation
specified in the Adoption Agreement and to deposit such amount to the Plan. No
Participant shall be permitted to have Elective Deferrals made under this Plan
or any other qualified plan maintained by the Employer, during any taxable year,
in excess of the dollar limitation contained in Code Section 402(g) in effect at
the beginning of such taxable year. Thus, the $7,000 limit may be reduced if a
Participant contributes pre-tax contributions to qualified plans of this or
other Employers. Any such contribution shall be credited to the Employee's
Salary Savings Account. Unless otherwise specified in the Adoption Agreement, a
Participant may amend his or her Salary Savings Agreement to increase, decrease
or terminate the percentage upon 30 days written notice to the Employer. If a
Participant terminates his or her agreement, such Participant shall not be
permitted to put a new Salary Savings Agreement into effect until the first pay
period in the next Plan Year, unless otherwise stated in the Adoption Agreement.
The Employer may also amend or terminate said agreement on written notice to the
Participant. If a Participant has not authorized the Employer to withhold at
the maximum rate and desires to increase the total withheld for a Plan Year,
such Participant may authorize the Employer upon 30 days notice to withhold a
supplemental amount up to 100% of his or her Compensation for one or more pay
periods. In no event may the sum of the amounts withheld under the Salary
Savings Agreement plus the supplemental withholding exceed 25% of a
Participant's Compensation for a Plan Year. The Employer may also
recharacterize as after-tax Voluntary Contributions all or any portion of
amounts previously withheld under any Salary Savings Agreement within the Plan
Year as provided for at paragraph 10.9. This may be done to insure that the
Plan will meet one of the antidiscrimination tests under Code Section 401(k).
Elective Deferrals shall be deposited in the Trust within 30 days after being
withheld from the Participant's pay.
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4.7 REQUIRED VOLUNTARY CONTRIBUTIONS If the Employer makes a thrift
election in the Adoption Agreement, each eligible Participant shall be required
to make Voluntary Contributions to the Plan for credit to his or her account as
provided in the Adoption Agreement. Such Voluntary Contributions shall be
withheld from the Employee's Compensation and shall be transmitted by the
Employer to the Trustee as agreed between the Employer and Trustee. A
Participant may discontinue participation or change his or her Voluntary
Contribution percentage by so advising the Employer at least 10 days prior to
the date on which such discontinuance or change is to be effective. If a
Participant discontinues his or her Voluntary Contributions, such Participant
may not again authorize Voluntary Contributions for a period of one year from
the date of discontinuance. A Participant may voluntarily change his or her
Voluntary Contribution percentage once during any Plan Year and may also agree
to have a reduction in his or her contribution, if required to satisfy the
requirements of the ACP test.
4.8 DIRECT ROLLOVER OF BENEFITS Notwithstanding any provision of the Plan
to the contrary that would otherwise limit a Participant's election under this
paragraph, for distributions made on or after January 1, 1993, a Participant may
elect, at the time and in the manner prescribed by the Plan Administrator, to
have any portion of an Eligible Rollover Distribution paid directly to an
Eligible Retirement Plan specified by the Participant in a Direct Rollover. Any
portion of a distribution which is not paid directly to an Eligible Retirement
Plan shall be distributed to the Participant. For purposes of this paragraph, a
Surviving Spouse or a Spouse or former Spouse who is an alternate payee under a
Qualified Domestic Relations Order as defined in Code Section 414(p), will be
permitted to elect to have any Eligible Rollover Distribution paid directly to
an individual retirement account (IRA) or an individual retirement annuity
(IRA).
The plan provisions otherwise applicable to distributions continue to apply to
Rollover and Transfer Contributions.
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ARTICLE V
PARTICIPANT ACCOUNTS
5.1 SEPARATE ACCOUNTS The Employer shall establish a separate bookkeeping
account for each Participant showing the total value of his or her interest in
the Fund. Each Participant's account shall be separated for bookkeeping
purposes into the following sub-accounts:
(a) Employer contributions.
(1) Matching Contributions.
(2) Qualified Matching Contributions.
(3) Qualified Non-Elective Contributions.
(4) Discretionary Contributions.
(5) Elective Deferrals.
(b) Voluntary Contributions (and additional amounts including
required contributions and, if applicable, either repayments
of loans previously defaulted on and treated as "deemed
distributions" on which a tax report has been issued, and
amounts paid out upon a separation from service which have
been included in income and which are repaid after being
re-hired by the Employer).
(c) Qualified Voluntary Contributions (if the Plan previously
accepted these).
(d) Rollover Contributions and Transfer Contributions.
5.2 ADJUSTMENTS TO PARTICIPANT ACCOUNTS As of each Valuation Date of the
Plan, the Employer shall add to each account:
(a) the Participant's share of the Employer's contribution and
forfeitures as determined in the Adoption Agreement,
(b) any Elective Deferrals, Voluntary, Rollover or Transfer
Contributions made by the Participant,
(c) any repayment of amounts previously paid out to a Participant
upon a separation from Service and repaid by the Participant
since the last Valuation Date, and
(d) the Participant's proportionate share of any investment
earnings and increase in the fair market value of the Fund
since the last Valuation Date, as determined at paragraph 5.4.
The Employer shall deduct from each account:
(e) any withdrawals or payments made from the Participant's
account since the last Valuation Date, and
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(f) the Participant's proportionate share of any decrease in the
fair market value of the Fund since the last Valuation Date,
as determined at paragraph 5.4.
5.3 ALLOCATING EMPLOYER CONTRIBUTIONS The Employer's contribution shall be
allocated to Participants in accordance with the allocation formula selected by
the Employer in the Adoption Agreement, and the minimum contribution and
allocation requirements for Top-Heavy Plans. Beginning with the 1990 Plan Year
and thereafter, for plans on Standardized Adoption Agreement 001, Participants
who are credited with more than 500 Hours of Service or are employed on the last
day of the Plan Year must receive a full allocation of Employer contributions.
In Nonstandardized Adoption Agreement 002, Employer contributions shall be
allocated to the accounts of Participants employed by the Employer on the last
day of the Plan Year unless indicated otherwise in the Adoption Agreement. In
the case of a non-Top-Heavy, Nonstandardized Plan, Participants must also have
completed a Year of Service unless otherwise specified in the Adoption
Agreement. For Nonstandardized Adoption Agreement 002, the Employer may only
apply the last day of the Plan Year and Year of Service requirements if the Plan
satisfies the requirements of Code Sections 401(a)(26) and 410(b) and the
regulations thereunder including the exception for 401(k) plans. If, when
applying the last day and Year of Service requirements, the Plan fails to
satisfy the aforementioned requirements, additional Participants will be
eligible to receive an allocation of Employer Contributions until the
requirements are satisfied. Participants who are credited with a Year of
Service, but not employed at Plan Year end, are the first category of additional
Participants eligible to receive an allocation. If the requirements are still
not satisfied, Participants credited with more than 500 Hours of Service and
employed at Plan Year end are the next category of Participants eligible to
receive an allocation. Finally, if necessary to satisfy the said requirements,
any Participant credited with more than 500 Hours of Service will be eligible
for an allocation of Employer Contributions. The Service requirement is not
applicable with respect to any Plan Year during which the Employer's Plan is
Top-Heavy.
5.4 ALLOCATING INVESTMENT EARNINGS AND LOSSES A Participant's share of
investment earnings and any increase or decrease in the fair market value of the
Fund shall be based on the proportionate value of all active accounts (other
than accounts with segregated investments) as of the last Valuation Date less
withdrawals since the last Valuation Date. All contributions will be credited
with an allocation of the actual investment earnings and gains and losses from
the actual date of deposit of each such contribution until the end of the
period. Accounts with segregated investments shall receive only the income or
loss on such segregated investments.
5.5 PARTICIPANT STATEMENTS Upon completing the allocations described above
for the Valuation Date coinciding with the end of the Plan Year, the Employer
shall prepare a statement for each Participant showing the additions to and
subtractions from his or her account since the last such statement and the fair
market value of his or her account as of the current Valuation Date. Employers
so choosing may prepare Participant statements for each Valuation Date.
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ARTICLE VI
RETIREMENT BENEFITS AND DISTRIBUTIONS
6.1 NORMAL RETIREMENT BENEFITS A Participant shall be entitled to receive
the balance held in his or her account from Employer contributions upon
attaining Normal Retirement Age or at such earlier dates as the provisions of
this Article VI may allow. If the Participant elects to continue working past
his or her Normal Retirement Age, he or she will continue as an active Plan
Participant and no distribution shall be made to such Participant until his or
her actual retirement date unless the employer elects otherwise in the Adoption
Agreement, or a minimum distribution is required by law. Settlement shall be
made in the normal form, or if elected, in one of the optional forms of payment
provided below.
6.2 EARLY RETIREMENT BENEFITS If the Employer so provides in the Adoption
Agreement, an Early Retirement Benefit will be available to individuals who meet
the age and Service requirements. An individual who meets the Early Retirement
Age requirements and separates from Service, will become fully vested,
regardless of any vesting schedule which otherwise might apply. If a
Participant separates from Service before satisfying the age requirements, but
after having satisfied the Service requirement, the Participant will be entitled
to elect an Early Retirement benefit upon satisfaction of the age requirement.
6.3 BENEFITS ON TERMINATION OF EMPLOYMENT
(a) If a Participant terminates employment prior to Normal
Retirement Age, such Participant shall be entitled to receive
the vested balance held in his or her account payable at
Normal Retirement Age in the normal form, or if elected, in
one of the optional forms of payment provided hereunder. If
applicable, the Early Retirement Benefit provisions may be
elected. Notwithstanding the preceding sentence, a former
Participant may, if allowed in the Adoption Agreement, make
application to the Employer requesting early payment of any
deferred vested and nonforfeitable benefit due.
(b) If a Participant terminates employment, and the value of that
Participant's Vested Account Balance derived from Employer and
Employee contributions is not greater than $3,500, the
Participant may receive a lump sum distribution of the value
of the entire vested portion of such account balance and the
non-vested portion will be treated as a forfeiture. The
Employer shall continue to follow their consistent policy, as
may be established, regarding immediate cash-outs of Vested
Account Balances of $3,500 or less. For purposes of this
Article, if the value of a Participant's Vested Account
Balance is zero, the Participant shall be deemed to have
received a distribution of such Vested Account Balance
immediately following termination. Likewise, if the
Participant is reemployed prior to incurring 5 consecutive
1-year Breaks in Service they will be deemed to have
immediately repaid such distribution. For Plan Years
beginning prior to 1989, a Participant's Vested Account
Balance shall not include Qualified Voluntary Contributions.
Notwithstanding the above, if the Employer maintains or has
maintained a policy of not distributing any amounts until the
Participant's Normal Retirement Age, the Employer can continue
to uniformly apply such policy.
(c) If a Participant terminates employment with a Vested Account
Balance derived from Employer and Employee contributions in
excess of $3,500, and elects (with his or her Spouse's
consent, if required) to receive 100% of the value of his or
her Vested Account Balance in a lump sum, the non-vested
portion will be treated as a forfeiture. The Participant (and
his or her Spouse, if required) must consent to any
distribution, when the Vested
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Account Balance described above exceeds $3,500 or if at the
time of any prior distribution it exceeded $3,500. For
purposes of this paragraph, for Plan Years beginning prior to
1989, a Participant's Vested Account Balance shall not include
Qualified Voluntary Contributions.
(d) Distribution of less than 100% of the Participant's Vested
Account Balance shall only be permitted if the Participant is
fully vested upon termination of employment.
(e) If a Participant who is not 100% vested receives or is deemed
to receive a distribution pursuant to this paragraph and
resumes employment covered under this Plan, the Participant
shall have the right to repay to the Plan the full amount of
the distribution attributable to Employer contributions on or
before the earlier of the date that the Participant incurs 5
consecutive 1-year Breaks in Service following the date of
distribution or five years after the first date on which the
Participant is subsequently reemployed. In such event, the
Participant's account shall be restored to the value thereof
at the time the distribution was made and may further be
increased by the Plan's income and investment gains and/or
losses on the undistributed amount from the date of
distribution to the date of repayment.
(f) A Participant shall also have the option, to postpone payment
of his or her Plan benefits until the first day of April
following the calendar year in which he or she attains age
70-1/2. Any balance of a Participant's account resulting
from his or her Employee contributions not previously
withdrawn, if any, may be withdrawn by the Participant
immediately following separation from Service.
(g) If a Participant ceases to be an active Employee as a result
of a Disability as defined at paragraph 1.21, such Participant
shall be able to make an application for a disability
retirement benefit payment. The Participant's account balance
will be deemed "immediately distributable" as set forth in
paragraph 6.4, and will be fully vested pursuant to paragraph
9.2.
6.4 RESTRICTIONS ON IMMEDIATE DISTRIBUTIONS
(a) An account balance is immediately distributable if any part of
the account balance could be distributed to the Participant
(or Surviving Spouse) before the Participant attains (or would
have attained if not deceased) the later of the Normal
Retirement Age or age 62.
(b) If the value of a Participant's Vested Account Balance derived
from Employer and Employee Contributions exceeds (or at the
time of any prior distribution exceeded) $3,500, and the
account balance is immediately distributable, the Participant
and his or her Spouse (or where either the Participant or the
Spouse has died, the survivor) must consent to any
distribution of such account balance. The consent of the
Participant and the Spouse shall be obtained in writing within
the 90-day period ending on the annuity starting date, which
is the first day of the first period for which an amount is
paid as an annuity or any other form. The Plan Administrator
shall notify the Participant and the Participant's Spouse of
the right to defer any distribution until the Participant's
account balance is no longer immediately distributable. Such
notification shall include a general description of the
material features, and an explanation of the relative values
of, the optional forms of benefit available under the plan in
a manner that would satisfy the notice requirements of Code
Section 417(a)(3), and shall be provided no less than 30 days
and no more than 90 days prior to the annuity starting date.
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(c) Notwithstanding the foregoing, only the Participant need
consent to the commencement of a distribution in the form of a
qualified Joint and Survivor Annuity while the account balance
is immediately distributable. Furthermore, if payment in the
form of a Qualified Joint and Survivor Annuity is not required
with respect to the Participant pursuant to paragraph 8.7 of
the Plan, only the Participant need consent to the
distribution of an account balance that is immediately
distributable. Neither the consent of the Participant nor the
Participant's Spouse shall be required to the extent that a
distribution is required to satisfy Code Section 401(a)(9) or
Code Section 415. In addition, upon termination of this Plan
if the Plan does not offer an annuity option (purchased from a
commercial provider), the Participant's account balance may,
without the Participant's consent, be distributed to the
Participant or transferred to another Defined Contribution
Plan [other than an employee stock ownership plan as defined
in Code Section 4975(e)(7)] within the same controlled group.
(d) For purposes of determining the applicability of the foregoing
consent requirements to distributions made before the first
day of the first Plan Year beginning after 1988, the
Participant's Vested Account Balance shall not include amounts
attributable to Qualified Voluntary Contributions.
(e) If a distribution is one to which Code Sections 401(a)(17) and
417 do not apply, such distribution may commence less than 30
days after the notice required under Regulations Section
1.411(a)-11(c) is given, provided that:
(1) the Participant is clearly informed of his or her
right to a period of at least 30 days after receiving
the notice to consider the decision of whether or not
to elect a distribution (and, if applicable, a
particular distribution option), and
(2) the Participant, after receiving the notice
affirmatively elects to receive a distribution.
6.5 NORMAL FORM OF PAYMENT The normal form of payment for a profit-
sharing plan satisfying the requirements of paragraph 8.7 hereof shall be a lump
sum with no option for annuity payments. For all other plans, the normal form
of payment hereunder shall be a Qualified Joint and Survivor Annuity as provided
under Article VIII. A Participant whose Vested Account Balance derived from
Employer and Employee contributions exceeds $3,500, or if at the time of any
prior distribution it exceeded $3,500, shall (with the consent of his or her
Spouse) have the right to receive his or her benefit in a lump sum or in
monthly, quarterly, semi-annual or annual payments from the Fund over any period
not extending beyond the life expectancy of the Participant and his or her
Beneficiary. For purposes of this paragraph, for Plan Years prior to 1989, a
Participant's Vested Account Balance shall not include Qualified Voluntary
Contributions. The normal form of payment shall be automatic, unless the
Participant files a written request with the Employer prior to the date on which
the benefit is automatically payable, electing a lump sum or installment payment
option. No amendment to the Plan may eliminate one of the optional distribution
forms listed above.
6.6 COMMENCEMENT OF BENEFITS
(a) Unless the Participant elects otherwise, distribution of
benefits will begin no later than the 60th day after the close
of the Plan Year in which the latest of the following events
occurs:
(1) the Participant attains age 65 (or normal retirement
age if earlier),
(2) the 10th anniversary of the year in which the
Participant commenced participation in the Plan, or
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(3) the Participant terminates Service with the Employer.
(b) Notwithstanding the foregoing, the failure of a Participant
and Spouse (if necessary) to consent to a distribution while a
benefit is immediately distributable, within the meaning of
paragraph 6.4 hereof, shall be deemed an election to defer
commencement of payment of any benefit sufficient to satisfy
this paragraph.
6.7 CLAIMS PROCEDURES Upon retirement, death, or other severance of
employment, the Participant or his or her representative may make application to
the Employer requesting payment of benefits due and the manner of payment. If no
application for benefits is made, the Employer shall automatically pay any
vested benefit due hereunder in the normal form at the time prescribed at
paragraph 6.4. If an application for benefits is made, the Employer shall
accept, reject, or modify such request and shall notify the Participant in
writing setting forth the response of the Employer and in the case of a denial
or modification the Employer shall:
(a) state the specific reason or reasons for the denial,
(b) provide specific reference to pertinent Plan provisions on
which the denial is based,
(c) provide a description of any additional material or
information necessary for the Participant or his
representative to perfect the claim and an explanation of why
such material or information is necessary, and
(d) explain the Plan's claim review procedure as contained in this
Plan.
In the event the request is rejected or modified, the Participant or his or her
representative may within 60 days following receipt by the Participant or
representative of such rejection or modification, submit a written request for
review by the Employer of its initial decision. Within 60 days following such
request for review, the Employer shall render its final decision in writing to
the Participant or representative stating specific reasons for such decision. If
the Participant or representative is not satisfied with the Employer's final
decision, the Participant or representative can institute an action in a federal
court of competent jurisdiction; for this purpose, process would be served on
the Employer.
6.8 IN-SERVICE WITHDRAWALS An Employee may withdraw all or any part of the
fair market value of his or her Mandatory Contributions, Voluntary
Contributions, Qualified Voluntary Contributions or Rollover Contributions, upon
written request to the Employer. Transfer Contributions, which originate from
a Plan meeting the safe-harbor provisions of paragraph 8.7, may also be
withdrawn by an Employee upon written request to the Employer. Transfer
Contributions not meeting the safe-harbor provisions may only be withdrawn upon
retirement, death, Disability, termination or termination of the Plan, and will
be subject to Spousal consent requirements contained in Code Sections 411(a)(11)
and 417. No such withdrawals are permitted from a money purchase plan until the
participant reaches Normal Retirement Age. Such request shall include the
Participant's address, social security number, birthdate, and amount of the
withdrawal. If at the time a distribution of Qualified Voluntary Contributions
is received the Participant has not attained age 59-1/2 and is not disabled, as
defined at Code Section 22(e)(3), the Participant will be subject to a federal
income tax penalty, unless the distribution is rolled over to a qualified plan
or individual retirement plan within 60 days of the date of distribution. A
Participant may withdraw all or any part of the fair market value of his or her
pre-1987 Voluntary Contributions with or without withdrawing the earnings
attributable thereto. Post-1986 Voluntary Contributions may only be withdrawn
along with a portion of the earnings thereon. The amount of the earnings to be
withdrawn is determined by using the formula: DA[1-(V / V + E)], where DA is
the distribution amount, V is the amount of Voluntary Contributions and V + E is
the amount of Voluntary Contributions plus the earnings attributable thereto. A
Participant withdrawing his or her other contributions prior to attaining age
59-1/2, will be subject to a federal tax penalty to the extent that the
withdrawn amounts are includible in income. Unless the Employer provides
otherwise in the Adoption Agreement, any Participant in a profit-sharing plan
who is 100% fully vested in his or her Employer contributions may withdraw all
or any part of the fair market value of any of such contributions that have been
in the
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account at least two years, plus the investment earnings thereon, after
attaining age 59-1/2 without separation from Service. Such distributions shall
not be eligible for redeposit to the Fund. A withdrawal under this paragraph
shall not prohibit such Participant from sharing in any future Employer
Contribution he or she would otherwise be eligible to share in. A request to
withdraw amounts pursuant to this paragraph must if applicable, be consented to
by the Participant's Spouse. The consent shall comply with the requirements of
paragraph 6.4 relating to immediate distributions.
Elective Deferrals, Qualified Non-elective Contributions, and Qualified Matching
Contributions, and income allocable to each are not distributable to a
Participant or his or her Beneficiary or Beneficiaries, in accordance with such
Participant's or Beneficiary's or Beneficiaries' election, earlier than upon
separation from Service, death, or Disability. Such amounts may also be
distributed upon:
(a) Termination of the Plan without the establishment of another
Defined Contribution Plan.
(b) The disposition by a corporation to an unrelated corporation
of substantially all of the assets [within the meaning of Code
Section 409(d)(2)] used in a trade or business of such
corporation if such corporation continues to maintain this
Plan after the disposition, but only with respect to Employees
who continue employment with the corporation acquiring such
assets.
(c) The disposition by a corporation to an unrelated entity of
such corporation's interest in a subsidiary [within the
meaning of Code Section 409(d)(3)] if such corporation
continues to maintain this plan, but only with respect to
Employees who continue employment with such subsidiary.
(d) The attainment of age 59-1/2.
(e) The Hardship of the Participant as described in paragraph 6.9.
All distributions that may be made pursuant to one or more of the foregoing
distributable events are subject to the Spousal and Participant consent
requirements, if applicable, contained in Code Sections 401(a)(11) and 417.
6.9 HARDSHIP WITHDRAWAL If permitted by the Trustee and the Employer in
the Adoption Agreement, a Participant may request a Hardship withdrawal prior to
attaining age 59-1/2. If the Participant has not attained age 59-1/2, the
Participant may be subject to a federal income tax penalty. Such request shall
be in writing to the Employer who shall have sole authority to authorize a
Hardship withdrawal, pursuant to the rules below. Hardship withdrawals may
include Elective Deferrals regardless of when contributed and any earnings
accrued and credited thereon as of the last day of the Plan Year ending before
July 1, 1989 and Employer related contributions, including but not limited to
Employer Matching Contributions, plus the investment earnings thereon to the
extent vested. Qualified Matching Contributions, Qualified Non-Elective
Contributions and Elective Deferrals reclassified as Voluntary Contributions
plus the investment earnings thereon are only available for Hardship withdrawal
prior to age 59-1/2 to the extent that they were credited to the Participant's
Account as of the last day of the Plan Year ending prior to July 1, 1989. The
Plan Administrator may limit withdrawals to Elective Deferrals and the earnings
thereon as stipulated above. Hardship withdrawals are subject to the Spousal
consent requirements contained in Code Sections 401(a)(11) and 417. Only the
following reasons are valid to obtain Hardship withdrawal:
(a) medical expenses [within the meaning of Code Section 213(d)],
incurred or necessary for the medical care of the
Participant, his or her Spouse, children and other dependents,
(b) the purchase (excluding mortgage payments) of the principal
residence for the Participant,
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(c) payment of tuition and related educational expenses for the
next twelve (12) months of post-secondary education for the
Participant, his or her Spouse, children or other dependents,
or
(d) the need to prevent eviction of the Employee from or a
foreclosure on the mortgage of, the Employee's principal
residence.
Furthermore, the following conditions must be met in order for a withdrawal to
be authorized:
(e) the Participant has obtained all distributions, other than
hardship distributions, and all nontaxable loans under all
plans maintained by the Employer,
(f) all plans maintained by the Employer, other than flexible
benefit plans under Code Section 125 providing for current
benefits, provide that the Employee's Elective Deferrals and
Voluntary Contributions will be suspended for twelve months
after the receipt of the Hardship distribution,
(g) the distribution is not in excess of the amount of the
immediate and heavy financial need [(a) through (d) above],
including amounts necessary to pay any federal, state or local
income tax or penalties reasonably anticipated to result from
the distribution, and
(h) all plans maintained by the Employer provide that an Employee
may not make Elective Deferrals for the Employee's taxable
year immediately following the taxable year of the Hardship
distribution in excess of the applicable limit under Code
Section 402(g) for such taxable year, less the amount of such
Employee's pre-tax contributions for the taxable year of the
Hardship distribution.
If a distribution is made at a time when a Participant has a nonforfeitable
right to less than 100% of the account balance derived from Employer
contributions and the Participant may increase the nonforfeitable percentage in
the account:
(a) A separate account will be established for the Participant's
interest in the Plan as of the time of the distribution, and
(b) At any relevant time the Participant's nonforfeitable portion
of the separate account will be equal to an amount ("X")
determined by the formula:
X = P [AB + (R X D)] - (R X D)
For purposes of applying the formula: "P" is the
nonforfeitable percentage at the relevant time, "AB" is the
account balance at the relevant time, "D" is the amount of the
distribution and "R" is the ratio of the account balance at
the relevant time to the account balance after distribution.
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ARTICLE VII
DISTRIBUTION REQUIREMENTS
7.1 JOINT AND SURVIVOR ANNUITY REQUIREMENTS All distributions made under
the terms of this Plan must comply with the provisions of Article VIII
including, if applicable, the safe harbor provisions thereunder.
7.2 MINIMUM DISTRIBUTION REQUIREMENTS All distributions required under
this Article shall be determined and made in accordance with the minimum
distribution requirements of Code Section 401(a)(9) and the regulations
thereunder, including the minimum distribution incidental benefit rules found at
Regulations Section 1.401(a)(9)-2. The entire interest of a Participant must be
distributed or begin to be distributed no later than the Participant's Required
Beginning Date. Life expectancy and joint and last survivor life expectancy are
computed by using the expected return multiples found in Tables V and VI of
Regulations Section 1.72-9.
7.3 LIMITS ON DISTRIBUTION PERIODS As of the First Distribution Calendar
Year, distributions if not made in a single-sum, may only be made over one of
the following periods (or a combination thereof):
(a) the life of the Participant,
(b) the life of the Participant and a Designated Beneficiary,
(c) a period certain not extending beyond the life expectancy of
the participant, or
(d) a period certain not extending beyond the joint and last
survivor expectancy of the Participant and a designated
beneficiary.
7.4 REQUIRED DISTRIBUTIONS ON OR AFTER THE REQUIRED BEGINNING DATE
(a) If a participant's benefit is to be distributed over (1) a
period not extending beyond the life expectancy of the
Participant or the joint life and last survivor expectancy of
the Participant and the Participant's Designated Beneficiary
or (2) a period not extending beyond the life expectancy of
the Designated Beneficiary, the amount required to be
distributed for each calendar year, beginning with
distributions for the First Distribution Calendar Year, must
at least equal the quotient obtained by dividing the
Participant's benefit by the Applicable Life Expectancy.
(b) For calendar years beginning before 1989, if the Participant's
Spouse is not the Designated Beneficiary, the method of
distribution selected must have assured that at least 50% of
the Present Value of the amount available for distribution was
to be paid within the life expectancy of the Participant.
(c) For calendar years beginning after 1988, the amount to be
distributed each year, beginning with distributions for the
First Distribution Calendar Year shall not be less than the
quotient obtained by dividing the Participant's benefit by the
lesser of (1) the Applicable Life Expectancy or (2) if the
Participant's Spouse is not the Designated Beneficiary, the
applicable divisor determined from the table set forth in
Q&A-4 of Regulations Section 1.401(a)(9)-2. Distributions
after the death of the Participant shall be distributed using
the Applicable Life Expectancy as the relevant divisor without
regard to Regulations Section 1.401(a)(9)-2.
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<PAGE> 45
(d) The minimum distribution required for the Participant's First
Distribution Calendar Year must be made on or before the
Participant's Required Beginning Date. The minimum
distribution for other calendar years, including the minimum
distribution for the Distribution Calendar Year in which the
Participant's Required Beginning Date occurs, must be made on
or before December 31 of that Distribution Calendar Year.
(e) If the Participant's benefit is distributed in the form of an
annuity purchased from an insurance company, distributions
thereunder shall be made in accordance with the requirements
of Code Section 401(a)(9) and the Regulations thereunder.
(f) For purposes of determining the amount of the required
distribution for each Distribution Calendar Year, the account
balance to be used is the account balance determined as of the
last valuation preceding the Distribution Calendar Year. This
balance will be increased by the amount of any contributions
or forfeitures allocated to the account balance after the
valuation date in such preceding calendar year. Such balance
will also be decreased by distributions made after the
Valuation Date in such preceding Calendar Year.
(g) For purposes of subparagraph 7.4(f), if any portion of the
minimum distribution for the First Distribution Calendar Year
is made in the second Distribution Calendar Year on or before
the Required Beginning Date, the amount of the minimum
distribution made in the second Distribution Calendar Year
shall be treated as if it had been made in the immediately
preceding Distribution Calendar Year.
7.5 REQUIRED BEGINNING DATE
(a) General Rule. The Required Beginning Date of a Participant
is the first day of April of the calendar year following the
calendar year in which the Participant attains age 70-1/2.
(b) Transitional Rules. The Required Beginning Date of a
Participant who attains age 70-1/2 before 1988, shall be
determined in accordance with (1) or (2) below:
(1) Non-5-percent owners. The Required Beginning Date of
a Participant who is not a 5-percent owner is the
first day of April of the calendar year following the
calendar year in which the later of retirement or
attainment of age 70-1/2 occurs. In the case of a
Participant who is not a 5-percent owner who attains
age 70-1/2 during 1988 and who has not retired as of
January 1, 1989, the Required Beginning Date is April
1, 1990.
(2) 5-percent owners. The Required Beginning Date of a
Participant who is a 5-percent owner during any year
beginning after 1979, is the first day of April
following the later of:
(i) the calendar year in which the Participant
attains age 70-1/2, or
(ii) the earlier of the calendar year with or
within which ends the plan year in which the
Participant becomes a 5-percent owner, or
the calendar year in which the Participant
retires.
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(c) A Participant is treated as a 5-percent owner for purposes of
this Paragraph if such Participant is a 5-percent owner as
defined in Code Section 416(i) (determined in accordance with
Code Section 416 but without regard to whether the Plan is
Top-Heavy) at any time during the Plan Year ending with or
within the calendar year in which such Owner attains age
66-1/2 or any subsequent Plan Year.
(d) Once distributions have begun to a 5-percent owner under this
paragraph, they must continue to be distributed, even if the
Participant ceases to be a 5-percent owner in a subsequent
year.
7.6 TRANSITIONAL RULE
(a) Notwithstanding the other requirements of this Article and
subject to the requirements of Article VIII, Joint and
Survivor Annuity Requirements, distribution on behalf of any
Employee, including a 5-percent owner, may be made in
accordance with all of the following requirements (regardless
of when such distribution commences):
(1) The distribution by the Trust is one which would not
have disqualified such Trust under Code Section
401(a)(9) as in effect prior to amendment by the
Deficit Reduction Act of 1984.
(2) The distribution is in accordance with a method of
distribution designated by the Employee whose
interest in the Trust is being distributed or, if the
Employee is deceased, by a beneficiary of such
Employee.
(3) Such designation was in writing, was signed by the
Employee or the beneficiary, and was made before
1984.
(4) The Employee had accrued a benefit under the Plan as
of December 31, 1983.
(5) The method of distribution designated by the Employee
or the beneficiary specifies the time at which
distribution will commence, the period over which
distributions will be made, and in the case of any
distribution upon the Employee's death, the
beneficiaries of the Employee listed in order of
priority.
(b) A distribution upon death will not be covered by this
transitional rule unless the information in the designation
contains the required information described above with respect
to the distributions to be made upon the death of the
Employee.
(c) For any distribution which commences before 1984, but
continues after 1983, the Employee or the beneficiary, to whom
such distribution is being made, will be presumed to have
designated the method of distribution under which the
distribution is being made if the method of distribution was
specified in writing and the distribution satisfies the
requirements in subparagraphs (a)(1) and (5) above.
(d) If a designation is revoked, any subsequent distribution must
satisfy the requirements of Code Section 401(a)(9) and the
regulations thereunder. If a designation is revoked
subsequent to the date distributions are required to begin,
the Trust must distribute by the end of the calendar year
following the calendar year in which the revocation occurs the
total amount not yet distributed which would have been
required to have been distributed to
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satisfy Code Section 401(a)(9) and the regulations thereunder,
but for the section 242(b)(2) election of the Tax Equity and
Fiscal Responsibility Act of 1982. For calendar years
beginning after 1988, such distributions must meet the minimum
distribution incidental benefit requirements in section
1.401(a)(9)-2 of the Income Tax Regulations. Any changes in
the designation will be considered to be a revocation of the
designation. However, the mere substitution or addition of
another beneficiary (one not named in the designation) under
the designation will not be considered to be a revocation of
the designation, so long as such substitution or addition does
not alter the period over which distributions are to be made
under the designation, directly or indirectly (for example, by
altering the relevant measuring life). In the case in which
an amount is transferred or rolled over from one plan to
another plan, the rules in Q&A J-2 and Q&A J-3 of the
regulations shall apply.
7.7 DESIGNATION OF BENEFICIARY FOR DEATH BENEFIT Each Participant shall
file a written designation of beneficiary with the Employer upon qualifying for
participation in this Plan. Such designation shall remain in force until
revoked by the Participant by filing a new beneficiary form with the Employer.
The Participant may elect to have a portion of his or her account balance
invested in an insurance contract. If an insurance contract is purchased under
the Plan, the Trustee must be named as Beneficiary under the terms of the
contract. However, the Participant shall designate a Beneficiary to receive the
proceeds of the contract after settlement is received by the Trustee. Under a
profit-sharing plan satisfying the requirements of paragraph 8.7, the Designated
Beneficiary shall be the Participant's Surviving Spouse, if any, unless such
Spouse properly consents otherwise.
7.8 NONEXISTENCE OF BENEFICIARY Any portion of the amount payable
hereunder which is not disposed of because of the Participant's or former
Participant's failure to designate a beneficiary, or because all of the
Designated Beneficiaries predeceased the Participant, shall be paid to his or
her Spouse. If the Participant had no Spouse at the time of death, payment
shall be made to the personal representative of his or her estate in a lump sum.
7.9 DISTRIBUTION BEGINNING BEFORE DEATH If the Participant dies after
distribution of his or her interest has begun, the remaining portion of such
interest will continue to be distributed at least as rapidly as under the method
of distribution being used prior to the Participant's death.
7.10 DISTRIBUTION BEGINNING AFTER DEATH If the Participant dies before
distribution of his or her interest begins, distribution of the Participant's
entire interest shall be completed by December 31 of the calendar year
containing the fifth anniversary of the Participant's death except to the extent
that an election is made to receive distributions in accordance with (a) or (b)
below:
(a) If any portion of the Participant's interest is payable to a
Designated Beneficiary, distributions may be made over the
life or over a period certain not greater than the life
expectancy of the Designated Beneficiary commencing on or
before December 31 of the calendar year immediately following
the calendar year in which the Participant died;
(b) If the Designated Beneficiary is the Participant's surviving
Spouse, the date distributions are required to begin in
accordance with (a) above shall not be earlier than the later
of (1) December 31 of the calendar year immediately following
the calendar year in which the participant died or (2)
December 31 of the calendar year in which the Participant
would have attained age 70-1/2.
If the Participant has not made an election pursuant to this paragraph 7.10 by
the time of his or her death, the Participant's Designated Beneficiary must
elect the method of distribution no later than the earlier of (1) December 31 of
the calendar year in which distributions would be required to begin under this
section, or (2) December 31 of the calendar year which contains the fifth
anniversary of the date of death of the participant. If the Participant has no
Designated Beneficiary,
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<PAGE> 48
or if the Designated Beneficiary does not elect a method of distribution, then
distribution of the Participant's entire interest must be completed by
December 31 of the calendar year containing the fifth anniversary of the
Participant's death.
For purposes of this paragraph if the Surviving Spouse dies after the
Participant, but before payments to such Spouse begin, the provisions of this
paragraph with the exception of paragraph (b) therein, shall be applied as if
the Surviving Spouse were the Participant. For the purposes of this paragraph
and paragraph 7.9, distribution of a Participant's interest is considered to
begin on the Participant's Required Beginning Date (or, if the preceding
sentence is applicable, the date distribution is required to begin to the
Surviving Spouse). If distribution in the form of an annuity described in
paragraph 7.4(e) irrevocably commences to the Participant before the Required
Beginning Date, the date distribution is considered to begin is the date
distribution actually commences.
For purposes of paragraph 7.9 and this paragraph, if an amount is payable to
either a minor or an individual who has been declared incompetent, the benefits
shall be paid to the legally appointed guardian for the benefit of said minor or
incompetent individual, unless the court which appointed the guardian has
ordered otherwise.
7.11 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
(a) Notwithstanding any other provision of the Plan, Excess
Elective Deferrals plus any income and minus any loss
allocable thereto, shall be distributed no later than
April 15, 1988, and each April 15 thereafter, to Participants
to whose accounts Excess Elective Deferrals were allocated for
the preceding taxable year, and who claim Excess Elective
Deferrals for such taxable year. Excess Elective Deferrals
shall be treated as Annual Additions under the Plan, unless
such amounts are distributed no later than the first
April 15th following the close of the Participant's taxable
year. A Participant is deemed to notify the Plan
Administrator of any Excess Elective Deferrals that arise by
taking into account only those Elective Deferrals made to
this Plan and any other plans of this Employer.
(b) Furthermore, a Participant who participates in another plan
allowing Elective Deferrals may assign to this Plan any Excess
Elective Deferrals made during a taxable year of the
Participant, by notifying the Plan Administrator of the amount
of the Excess Elective Deferrals to be assigned. The
Participant's claim shall be in writing; shall be submitted to
the Plan Administrator not later than March 1 of each 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 Code Sections 401(k), 408(k)
[Simplified Employee Pensions], or 403(b) [annuity programs
for public schools and charitable organizations] will exceed
the $7,000 limit as adjusted under Code Section 415(d) imposed
on the Participant by Code Section 402(g) for the year in
which the deferral occurred.
(c) Excess Elective Deferrals shall be adjusted for any income or
loss up to the end of the taxable year, during which such
excess was deferred. Income or loss will be calculated under
the method used to calculate investment earnings and losses
elsewhere in the Plan.
(d) If the Participant receives a return of his or her Elective
Deferrals, the amount of such contributions which are returned
must be brought into the Employee's taxable income.
7.12 DISTRIBUTIONS OF EXCESS CONTRIBUTIONS
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<PAGE> 49
(a) Notwithstanding any other provision of this Plan, Excess
Contributions, plus any income and minus any loss allocable
thereto, shall be distributed no later than the last day of
each Plan Year to Participants to whose accounts such Excess
Contributions were allocated for the preceding Plan Year. If
such excess amounts are distributed more than 2-1/2 months
after the last day of the Plan Year in which such excess
amounts arose, a ten (10) percent excise tax will be imposed
on the Employer maintaining the Plan with respect to such
amounts. Such distributions shall be made to Highly
Compensated Employees on the basis of the respective portions
of the Excess Contributions attributable to each of such
Employees. Excess Contributions of Participants who are
subject to the Family Member aggregation rules of Code Section
414(q)(6) shall be allocated among the Family Members in
proportion to the Elective Deferrals (and amounts treated as
Elective Deferrals) of each Family Member that is combined to
determine the Average Deferral Percentage.
(b) Excess Contributions (including the amounts recharacterized)
shall be treated as Annual Additions under the Plan.
(c) Excess Contributions shall be adjusted for any income or loss
up to the end of the Plan Year. Income or loss will be
calculated under the method used to calculate investment
earnings and losses elsewhere in the Plan.
(d) Excess Contributions shall be distributed from the
Participant's Elective Deferral account and Qualified Matching
Contribution account (if applicable) in proportion to the
Participant's Elective Deferrals and Qualified Matching
Contributions (to the extent used in the ADP test) for the
Plan Year. Excess Contributions shall be distributed from the
Participant's Qualified Non-Elective Contribution account only
to the extent that such Excess Contributions exceed the
balance in the Participant's Elective Deferral account and
Qualified Matching Contribution account.
7.13 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
(a) Notwithstanding any other provision of this Plan, Excess
Aggregate Contributions, plus any income and minus any loss
allocable thereto, shall be forfeited, if forfeitable, or if
not forfeitable, distributed no later than the last day of
each Plan Year to Participants to whose accounts such Excess
Aggregate Contributions were allocated for the preceding Plan
Year. Excess Aggregate Contributions shall be allocated to
Participants who are subject to the Family Member aggregation
rules of Code Section 414(q)(6) in the manner prescribed by
the regulations. If such Excess Aggregate Contributions are
distributed more than 2-1/2 months after the last day of the
Plan Year in which such excess amounts arose, a ten (10)
percent excise tax will be imposed on the Employer maintaining
the Plan with respect to those amounts. Excess Aggregate
Contributions shall be treated as Annual Additions under the
plan.
(b) Excess Aggregate Contributions shall be adjusted for any
income or loss up to the end of the Plan Year. The income or
loss allocable to Excess Aggregate Contributions is the sum of
income or loss for the Plan Year allocable to the
Participant's Voluntary Contribution account, Matching
Contribution account (if any, and if all amounts therein are
not used in the ADP test) and, if applicable, Qualified
Non-Elective Contribution account and Elective Deferral
account. Income or loss will be calculated under the method
used to calculate investment earnings and losses elsewhere in
the Plan.
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(c) Forfeitures of Excess Aggregate Contributions may either be
reallocated to the accounts of non-Highly Compensated
Employees or applied to reduce Employer contributions, as
elected by the employer in the Adoption Agreement.
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(d) Excess Aggregate Contributions shall be forfeited if such
amount is not vested. If vested, such excess shall be
distributed on a pro-rata basis from the Participant's
Voluntary Contribution account (and, if applicable, the
Participant's Qualified Non-Elective Contribution account,
Matching Contribution account, Qualified Matching Contribution
account, or Elective Deferral account, or both).
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ARTICLE VIII
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
8.1 APPLICABILITY OF PROVISIONS The provisions of this Article shall apply
to any Participant who is credited with at least one Hour of Service with the
Employer on or after August 23, 1984 and such other Participants as provided in
paragraph 8.8.
8.2 PAYMENT OF QUALIFIED JOINT AND SURVIVOR ANNUITY Unless an optional
form of benefit is selected pursuant to a Qualified Election within the 90-day
period ending on the Annuity Starting Date, a married Participant's Vested
Account Balance will be paid in the form of a Qualified Joint and Survivor
Annuity and an unmarried Participant's Vested Account Balance will be paid in
the form of a life annuity. The Participant may elect to have such annuity
distributed upon attainment of the Early Retirement Age under the Plan.
8.3 PAYMENT OF QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY Unless an
optional form of benefit has been selected within the Election Period pursuant
to a Qualified Election, if a Participant dies before benefits have commenced
then the Participant's Vested Account Balance shall be paid in the form of an
annuity for the life of the Surviving Spouse. The Surviving Spouse may elect to
have such annuity distributed within a reasonable period after the Participant's
death.
A Participant who does not meet the age 35 requirement set forth in the Election
Period as of the end of any current Plan Year may make a special qualified
election to waive the qualified Pre-retirement Survivor Annuity for the period
beginning on the date of such election and ending on the first day of the Plan
Year in which the Participant will attain age 35. Such election shall not be
valid unless the Participant receives a written explanation of the Qualified
Pre-retirement Survivor Annuity in such terms as are comparable to the
explanation required under paragraph 8.5. Qualified Pre-retirement Survivor
Annuity coverage will be automatically reinstated as of the first day of the
Plan Year in which the Participant attains age 35. Any new waiver on or after
such date shall be subject to the full requirements of this Article.
8.4 QUALIFIED ELECTION A Qualified Election is an election to either waive
a Qualified Joint and Survivor Annuity or a qualified pre-retirement survivor
annuity. Any such election shall not be effective unless:
(a) the Participant's Spouse consents in writing to the election;
(b) the election designates a specific beneficiary, including any
class of beneficiaries or any contingent beneficiaries, which
may not be changed without spousal consent (or the Spouse
expressly permits designations by the Participant without any
further spousal consent);
(c) the Spouse's consent acknowledges the effect of the election;
and
(d) the Spouse's consent is witnessed by a Plan representative or
notary public.
Additionally, a Participant's waiver of the Qualified Joint and Survivor
Annuity shall not be effective unless the election designates a form of benefit
payment which may not be changed without spousal consent (or the Spouse
expressly permits designations by the Participant without any further spousal
consent). If it is established to the satisfaction of the Plan Administrator
that there is no Spouse or that the Spouse cannot be located, a waiver will be
deemed a Qualified Election. Any consent by a Spouse obtained under this
provision (or establishment that the consent of a Spouse may not be obtained)
shall be effective only with respect to such Spouse. A consent that permits
designations by the Participant without any requirement of further consent by
such Spouse must acknowledge that the Spouse has the right to limit consent to a
specific beneficiary, and a specific form of benefit where applicable, and that
the Spouse voluntarily elects to relinquish either or both of such rights. A
revocation of a prior waiver may be made by a Participant without
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the consent of the Spouse at any time before the commencement of benefits. The
number of revocations shall not be limited. No consent obtained under this
provision shall be valid unless the Participant has received notice as provided
in paragraphs 8.5 and 8.6 below.
8.5 NOTICE REQUIREMENTS FOR QUALIFIED JOINT AND SURVIVOR ANNUITY In the
case of a Qualified Joint and Survivor Annuity, the Plan Administrator shall, no
less than 30 days and no more than 90 days prior to the Annuity Starting date,
provide each Participant a written explanation of:
(a) the terms and conditions of a Qualified Joint and Survivor
Annuity;
(b) the Participant's right to make and the effect of an election
to waive the Qualified Joint and Survivor Annuity form of
benefit;
(c) the rights of a Participant's Spouse; and
(d) the right to make, and the effect of, a revocation of a
previous election to waive the Qualified Joint and Survivor
Annuity.
8.6 NOTICE REQUIREMENTS FOR QUALIFIED PRE-RETIREMENT SURVIVOR ANNUITY In
the case of a qualified pre- retirement survivor annuity as described in
paragraph 8.3, the Plan Administrator shall provide each Participant within the
applicable period for such Participant a written explanation of the qualified
pre-retirement survivor annuity in such terms and in such manner as would be
comparable to the explanation provided for meeting the requirements of paragraph
8.5 applicable to a Qualified Joint and Survivor Annuity. The applicable period
for a Participant is whichever of the following periods ends last:
(a) the period beginning with the first day of the Plan Year in
which the Participant attains age 32 and ending with the close
of the Plan Year preceding the Plan Year in which the
Participant attains age 35;
(b) a reasonable period ending after the individual becomes a
Participant;
(c) a reasonable period ending after this Article first applies to
the Participant. Notwithstanding the foregoing, notice must
be provided within a reasonable period ending after separation
from Service in the case of a Participant who separates from
Service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable period ending
after the events described in (b) and (c) is the end of the two-year period
beginning one-year prior to the date the applicable event occurs, and ending
one-year after that date. In the case of a Participant who separates from
Service before the Plan Year in which age 35 is attained, notice shall be
provided within the two-year period beginning one year prior to separation and
ending one year after separation. If such a Participant subsequently returns to
employment with the Employer, the applicable period for such Participant shall
be re-determined.
8.7 SPECIAL SAFE-HARBOR EXCEPTION FOR CERTAIN PROFIT-SHARING PLANS
(a) This paragraph shall apply to a Participant in a
profit-sharing plan, and to any distribution, made on or after
the first day of the first plan year beginning after 1988,
from or under a separate account attributable solely to
Qualified Voluntary contributions, as maintained on behalf of
a Participant in a money purchase pension plan, (including a
target benefit plan) if the following conditions are
satisfied:
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(1) the Participant does not or cannot elect payments in
the form of a life annuity; and
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(2) on the death of a Participant, the Participant's
Vested Account Balance will be paid to the
Participant's Surviving Spouse, but if there is no
Surviving Spouse, or if the Surviving Spouse has
consented in a manner conforming to a Qualified
Election, then to the Participant's Designated
Beneficiary.
The Surviving Spouse may elect to have distribution of the
Vested Account Balance commence within the 90-day period
following the date of the Participant's death. The account
balance shall be adjusted for gains or losses occurring after
the Participant's death in accordance with the provisions of
the Plan governing the adjustment of account balances for
other types of distributions. These safe-harbor rules shall
not be operative with respect to a Participant in a
profit-sharing plan if that plan is a direct or indirect
transferee of a Defined Benefit Plan, money purchase plan, a
target benefit plan, stock bonus plan, or profit-sharing plan
which is subject to the survivor annuity requirements of Code
Section 401(a)(11) and Code Section 417, and would therefore
have a Qualified Joint and Survivor Annuity as its normal form
of benefit.
(b) The Participant may waive the spousal death benefit described
in this paragraph at any time provided that no such waiver
shall be effective unless it satisfies the conditions
(described in paragraph 8.4) that would apply to the
Participant's waiver of the Qualified Pre-Retirement Survivor
Annuity.
(c) If this paragraph 8.7 is operative, then all other provisions
of this Article other than paragraph 8.8 are inoperative.
8.8 TRANSITIONAL JOINT AND SURVIVOR ANNUITY RULES Special transition rules
apply to Participants who were not receiving benefits on August 23, 1984.
(a) Any living Participant not receiving benefits on August 23,
1984, who would otherwise not receive the benefits prescribed
by the previous paragraphs of this Article, must be given the
opportunity to elect to have the prior paragraphs of this
Article apply if such Participant is credited with at least
one Hour of Service under this Plan or a predecessor Plan in a
Plan Year beginning on or after January 1, 1976 and such
Participant had at least 10 Years of Service for vesting
purposes when he or she separated from Service.
(b) Any living Participant not receiving benefits on August 23,
1984, who was credited with at least one Hour of Service under
this Plan or a predecessor Plan on or after September 2, 1974,
and who is not otherwise credited with any Service in a Plan
Year beginning on or after January 1, 1976, must be given the
opportunity to have his or her benefits paid in accordance
with paragraph 8.9.
(c) The respective opportunities to elect [as described in (a) and
(b) above] must be afforded to the appropriate Participants
during the period commencing on August 23, 1984 and ending on
the date benefits would otherwise commence to said
Participants.
8.9 AUTOMATIC JOINT AND SURVIVOR ANNUITY AND EARLY SURVIVOR ANNUITY Any
Participant who has elected pursuant to paragraph 8.8(b) and any Participant who
does not elect under paragraph 8.8(a) or who meets the requirements of paragraph
8.8(a), except that such Participant does not have at least 10 years of vesting
Service when he or she separates from Service, shall have his or her benefits
distributed in accordance with all of the following requirements if benefits
would have been payable in the form of a life annuity.
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(a) Automatic Joint and Survivor Annuity. If benefits in the form
of a life annuity become payable to a married Participant who:
(1) begins to receive payments under the Plan on or after
Normal Retirement Age, or
(2) dies on or after Normal Retirement Age while still
working for the Employer, or
(3) begins to receive payments on or after the Qualified
Early Retirement Age, or
(4) separates from Service on or after attaining Normal
Retirement (or the Qualified Early Retirement Age)
and after satisfying the eligibility requirements for
the payment of benefits under the Plan and thereafter
dies before beginning to receive such benefits, then
such benefits will be received under this Plan in the
form of a Qualified Joint and Survivor Annuity,
unless the Participant has elected otherwise during
the Election Period. The Election Period must begin
at least 6 months before the Participant attains
Qualified Early Retirement Age and end not more than
90 days before the commencement of benefits. Any
election will be in writing and may be changed by the
Participant at any time.
(b) Election of Early Survivor Annuity. A Participant who is
employed after attaining the Qualified Early Retirement Age
will be given the opportunity to elect, during the Election
Period, to have a survivor annuity payable on death. If the
Participant elects the survivor annuity, payments under such
annuity must not be less than the payments which would have
been made to the Spouse under the Qualified Joint and Survivor
Annuity if the Participant had retired on the day before his
or her death. Any election under this provision will be in
writing and may be changed by the Participant at any time. The
Election Period begins on the later of:
(1) the 90th day before the Participant attains the
Qualified Early Retirement Age, or
(2) the date on which participation begins, and ends on
the date the Participant terminates employment.
8.10 ANNUITY CONTRACTS Any annuity contract distributed under this Plan
must be nontransferable. The terms of any annuity contract purchased and
distributed by the Plan to a Participant or Spouse shall comply with the
requirements of this Plan.
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ARTICLE IX
VESTING
9.1 EMPLOYEE CONTRIBUTIONS A Participant shall always have a 100% vested
and nonforfeitable interest in his or her Elective Deferrals, Voluntary
Contributions, Qualified Voluntary Contributions, Rollover Contributions, and
Transfer Contributions plus the earnings thereon. No forfeiture of Employer
related contributions (including any minimum contributions made under paragraph
14.2) will occur solely as a result of an Employee's withdrawal of any Employee
contributions.
9.2 EMPLOYER CONTRIBUTIONS A Participant shall acquire a vested and
nonforfeitable interest in his or her account attributable to Employer
contributions in accordance with the table selected in the Adoption Agreement,
provided that if a Participant is not already fully vested, he or she shall
become so upon attaining Normal Retirement Age, Early Retirement Age, on death
prior to normal retirement, on retirement due to Disability, or on termination
of the Plan.
9.3 COMPUTATION PERIOD The computation period for purposes of determining
Years of Service and Breaks in Service for purposes of computing a Participant's
nonforfeitable right to his or her account balance derived from Employer
contributions shall be determined by the Employer in the Adoption Agreement. In
the event a former Participant with no vested interest in his or her Employer
contribution account requalifies for participation in the Plan after incurring a
Break in Service, such Participant shall be credited for vesting with all
pre-break and post-break Service.
9.4 REQUALIFICATION PRIOR TO FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE
The account balance of such Participant shall consist of any undistributed
amount in his or her account as of the date of re-employment plus any future
contributions added to such account plus the investment earnings on the account.
The Vested Account Balance of such Participant shall be determined by
multiplying the Participant's account balance (adjusted to include any
distribution or redeposit made under paragraph 6.3) by such Participant's vested
percentage. All Service of the Participant, both prior to and following the
break, shall be counted when computing the Participant's vested percentage.
9.5 REQUALIFICATION AFTER FIVE CONSECUTIVE ONE-YEAR BREAKS IN SERVICE If
such Participant is not fully vested upon re-employment, a new account shall be
established for such Participant to separate his or her deferred vested and
nonforfeitable account, if any, from the account to which new allocations will
be made. The Participant's deferred account to the extent remaining shall be
fully vested and shall continue to share in earnings and losses of the Fund.
When computing the Participant's vested portion of the new account, all
pre-break and post-break Service shall be counted. However, notwithstanding
this provision, no such former Participant who has had five consecutive one-year
Breaks in Service shall acquire a larger vested and nonforfeitable interest in
his or her prior account balance as a result of requalification hereunder.
9.6 CALCULATING VESTED INTEREST A Participant's vested and nonforfeitable
interest shall be calculated by multiplying the fair market value of his or her
account attributable to Employer contributions on the Valuation Date preceding
distribution by the decimal equivalent of the vested percentage as of his or her
termination date. The amount attributable to Employer contributions for
purposes of the calculation includes amounts previously paid out pursuant to
paragraph 6.3 and not repaid. The Participant's vested and nonforfeitable
interest, once calculated above, shall be reduced to reflect those amounts
previously paid out to the Participant and not repaid by the Participant. The
Participant's vested and nonforfeitable interest so determined shall continue to
share in the investment earnings and any increase or decrease in the fair market
value of the Fund up to the Valuation Date preceding or coinciding with payment.
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9.7 FORFEITURES Any balance in the account of a Participant who has
separated from Service to which he or she is not entitled under the foregoing
provisions, shall be forfeited and applied as provided in the Adoption
Agreement. A forfeiture may only occur if the Participant has received a
distribution from the Plan or if the Participant has incurred five consecutive
1-year Breaks in Service. Furthermore, a Highly Compensated Employee's Matching
Contributions may be forfeited, even if vested, if the contributions to which
they relate are Excess Deferrals, Excess Contributions or Excess Aggregate
Contributions.
9.8 AMENDMENT OF VESTING SCHEDULE No amendment to the Plan shall have the
effect of decreasing a Participant's vested interest determined without regard
to such amendment as of the later of the date such amendment is adopted or the
date it becomes effective. Further, if the vesting schedule of the Plan is
amended, or the Plan is amended in any way that directly or indirectly affects
the computation of any Participant's nonforfeitable percentage or if the Plan is
deemed amended by an automatic change to or from a Top-Heavy vesting schedule,
each Participant with at least three Years of Service with the Employer may
elect, within a reasonable period after the adoption of the amendment, to have
his or her nonforfeitable percentage computed under the Plan without regard to
such amendment. For Participants who do not have at least one Hour of Service
in any Plan Year beginning after 1988, the preceding sentence shall be applied
by substituting "Five Years of Service" for "Three Years of Service" where such
language appears. The period during which the election may be made shall
commence with the date the amendment is adopted and shall end on the later of:
(a) 60 days after the amendment is adopted;
(b) 60 days after the amendment becomes effective; or
(c) 60 days after the Participant is issued written notice of the
amendment by the Employer or the Trustee. If the Trustee is
asked to so notify, the Fund will be charged for the costs
thereof.
No amendment to the Plan shall be effective to the extent that it has the effect
of decreasing a Participant's accrued benefit. Notwithstanding the preceding
sentence, a Participant's account balance may be reduced to the extent permitted
under section 412(c)(8) of the Code (relating to financial hardships). For
purposes of this paragraph, a Plan amendment which has the effect of decreasing
a Participant's account balance or eliminating an optional form of benefit, with
respect to benefits attributable to service before the amendment, shall be
treated as reducing an accrued benefit.
9.9 SERVICE WITH CONTROLLED GROUPS All Years of Service with other members
of a controlled group of corporations [as defined in Code Section 414(b)],
trades or businesses under common control [as defined in Code Section 414(c)],
or members of an affiliated service group [as defined in Code Section 414(m)]
shall be considered for purposes of determining a Participant's nonforfeitable
percentage.
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ARTICLE X
LIMITATIONS ON ALLOCATIONS
AND ANTIDISCRIMINATION TESTING
10.1 PARTICIPATION IN THIS PLAN ONLY If the Participant does not
participate in and has never participated in another qualified plan, a Welfare
Benefit Fund (as defined in paragraph 1.89) or an individual medical account, as
defined in Code Section 415(1)(2), maintained by the adopting Employer, which
provides an Annual Addition as defined in paragraph 1.4, the amount of Annual
Additions which may be credited to the Participant's account for any Limitation
Year will not exceed the lesser of the Maximum Permissible Amount or any other
limitation contained in this Plan. If the Employer contribution that would
otherwise be contributed or allocated to the Participant's account would cause
the Annual Additions for the Limitation Year to exceed the Maximum Permissible
Amount, the amount contributed or allocated will be reduced so that the Annual
Additions for the Limitation Year will equal the Maximum Permissible Amount.
Prior to determining the Participant's actual Compensation for the Limitation
Year, the Employer may determine the Maximum Permissible Amount for a
Participant on the basis of a reasonable estimate of the Participant's
Compensation for the Limitation Year, uniformly determined for all Participants
similarly situated. As soon as is administratively feasible after the end of
the Limitation Year, the Maximum Permissible Amount for the Limitation Year will
be determined on the basis of the Participant's actual Compensation for the
Limitation Year.
10.2 DISPOSITION OF EXCESS ANNUAL ADDITIONS If, pursuant to paragraph 10.1
or as a result of the allocation of forfeitures, there is an Excess Amount, the
excess will be disposed of under one of the following methods as determined in
the Adoption Agreement. If no election is made in the Adoption Agreement then
method "(a)" below shall apply.
(a) Suspense Account Method
(1) Any nondeductible Employee Voluntary, Required
Voluntary Contributions and unmatched Elective
Deferrals to the extent they would reduce the Excess
Amount will be returned to the Participant. To the
extent necessary to reduce the Excess Amount,
non-Highly Compensated Employees will have all
Elective Deferrals returned whether or not there was
a corresponding match.
(2) If after the application of paragraph (1) an Excess
Amount still exists, and the Participant is covered
by the Plan at the end of the Limitation Year, the
Excess Amount in the Participant's account will be
used to reduce Employer contributions (including any
allocation of forfeitures) for such Participant in
the next Limitation Year, and each succeeding
Limitation Year if necessary;
(3) If after the application of paragraph (1) an Excess
Amount still exists, and the Participant is not
covered by the Plan at the end of the Limitation
Year, the Excess Amount will be held unallocated in a
suspense account. The suspense account will be
applied to reduce future Employer contributions
(including allocation of any forfeitures) for all
remaining Participants in the next Limitation Year,
and each succeeding Limitation Year if necessary;
(4) If a suspense account is in existence at any time
during the Limitation Year pursuant to this
paragraph, it will not participate in the allocation
of investment gains and losses. If a suspense
account is in existence at any
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time during a particular Limitation Year, all amounts
in the suspense account must be allocated and
reallocated to Participants' accounts before any
Employer contributions or any Employee Contributions
may be made to the Plan for that Limitation Year.
Excess amounts may not be distributed to Participants
or former Participants.
(b) Spillover Method
(1) Any nondeductible Employee Voluntary, Required
Voluntary Contributions and unmatched Elective
Deferrals to the extent they would reduce the Excess
Amount will be returned to the Participant. To the
extent necessary to reduce the Excess Amount,
non-Highly Compensated Employees will have all
Elective Deferrals returned whether or not there was
a corresponding match.
(2) Any Excess Amount which would be allocated to the
account of an individual Participant under the Plan's
allocation formula will be reallocated to other
Participants in the same manner as other Employer
contributions. No such reallocation shall be made to
the extent that it will result in an Excess Amount
being created in such Participant's own account.
(3) To the extent that amounts cannot be reallocated
under (1) above, the suspense account provisions of
(a) above will apply.
10.3 PARTICIPATION IN THIS PLAN AND ANOTHER MASTER AND PROTOTYPE DEFINED
CONTRIBUTION PLAN, WELFARE BENEFIT FUND OR INDIVIDUAL MEDICAL ACCOUNT MAINTAINED
BY THE EMPLOYER 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 Master or Prototype Defined Contribution Plans, Welfare
Benefit Funds, and individual medical accounts as defined in Code Section
415(1)(2), maintained by the Employer, which provide an Annual Addition as
defined in paragraph 1.4 for the same Limitation Year. If the Annual Additions,
with respect to the Participant under other Defined Contribution Plans and
Welfare Benefit Funds maintained by the Employer, are less than the Maximum
Permissible Amount and the Employer contribution that would otherwise be
contributed or allocated to the Participant's account under this Plan would
cause the Annual Additions for the Limitation Year to exceed this limitation,
the amount contributed or allocated will be reduced so that the Annual Additions
under all such plans and funds for the Limitation Year will equal the Maximum
Permissible Amount. If the Annual Additions with respect to the Participant
under such other Defined Contribution Plans and Welfare Benefit Funds in the
aggregate are equal to or greater than the Maximum Permissible Amount, no amount
will be contributed or allocated to the Participant's account under this Plan
for the Limitation Year. Prior to determining the Participant's actual
Compensation for the Limitation Year, the Employer may determine the Maximum
Permissible Amount for a Participant in the manner described in paragraph 10.1.
As soon as administratively feasible after the end of the Limitation Year, the
Maximum Permissible Amount for the Limitation Year will be determined on the
basis of the Participant's actual Compensation for the Limitation Year.
10.4 DISPOSITION OF EXCESS ANNUAL ADDITIONS UNDER TWO PLANS If, pursuant to
paragraph 10.3 or as a result of forfeitures, a Participant's Annual Additions
under this Plan and such other plans would result in an Excess Amount for a
Limitation Year, the Excess Amount will be deemed to consist of the Annual
Additions last allocated except that Annual Additions attributable to a Welfare
Benefit Fund or Individual Medical Account as defined in Code Section 415(1)(2)
will be deemed to have been allocated first regardless of the actual allocation
date. 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:
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(a) the total Excess Amount allocated as of such date, times
(b) the ratio of:
(1) the Annual Additions allocated to the Participant for
the Limitation Year as of such date under the Plan,
to
(2) the total Annual Additions allocated to the
Participant for the Limitation Year as of such date
under this and all the other qualified Master or
Prototype Defined Contribution Plans.
Any Excess Amount attributed to this Plan will be disposed of in the manner
described in paragraph 10.2.
10.5 PARTICIPATION IN THIS PLAN AND ANOTHER DEFINED CONTRIBUTION PLAN WHICH
IS NOT A MASTER OR PROTOTYPE PLAN If the Participant is covered under another
qualified Defined Contribution Plan maintained by the Employer which is not a
Master or Prototype Plan, Annual Additions which may be credited to the
Participant's account under this Plan for any Limitation Year will be limited in
accordance with paragraphs 10.3 and 10.4 as though the other plan were a Master
or Prototype Plan, unless the Employer provides other limitations in the
Adoption Agreement.
10.6 PARTICIPATION IN THIS PLAN AND A DEFINED BENEFIT PLAN If the Employer
maintains, or at any time maintained, a qualified Defined Benefit Plan covering
any Participant in this Plan, the sum of the Participant's Defined Benefit Plan
Fraction and Defined Contribution Plan Fraction will not exceed 1.0 in any
Limitation Year. For any Plan Year during which the Plan is Top-Heavy, the
Defined Benefit and Defined Contribution Plan Fractions shall be calculated in
accordance with Code Section 416(h). 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 provisions set forth in the Adoption Agreement.
10.7 AVERAGE DEFERRAL PERCENTAGE (ADP) TEST With respect to any Plan Year,
the Average Deferral Percentage for Participants who are Highly Compensated
Employees and the Average Deferral Percentage for Participants who are
non-Highly Compensated Employees must satisfy one of the following tests:
(a) BASIC TEST - The Average Deferral Percentage for Participants
who are Highly Compensated Employees for the Plan Year is not
more than 1.25 times the Average Deferral Percentage for
Participants who are non-Highly Compensated Employees for the
same Plan Year, or
(b) ALTERNATIVE TEST - The Average Deferral Percentage for
Participants who are Highly Compensated Employees for the Plan
Year does not exceed the Average Deferral Percentage for
Participants who are non-Highly Compensated Employees for the
same Plan Year by more than 2 percentage points provided that
the Average Deferral Percentage for Participants who are
Highly Compensated Employees is not more than 2.0 times the
Average Deferral Percentage for Participants who are
non-Highly Compensated Employees.
10.8 SPECIAL RULES RELATING TO APPLICATION OF ADP TEST
(a) The Actual Deferral Percentage for any Participant who is a
Highly Compensated Employee for the Plan Year and who is
eligible to have Elective Deferrals (and Qualified
Non-Elective Contributions or Qualified Matching
Contributions, or both, if treated as Elective Deferrals for
purposes of the ADP test) allocated to his or her accounts
under two or more arrangements described in Code Section
401(k), that are maintained by the Employer, shall be
determined as if such Elective Deferrals (and, if applicable,
such Qualified Non-Elective Contributions or Qualified
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Matching Contributions, or both) were made under a single
arrangement. If a Highly Compensated Employee participates in
two or more cash or deferred arrangements that have different
Plan Years, all cash or deferred arrangements ending with or
within the same calendar year shall be treated as a single
arrangement.
(b) In the event that this Plan satisfies the requirements of Code
Sections 401(k), 401(a)(4), or 410(b), only if aggregated with
one or more other plans, or if one or more other plans satisfy
the requirements of such Code Sections only if aggregated with
this Plan, then this Section shall be applied by determining
the Actual Deferral Percentage of Employees as if all such
plans were a single plan. For Plan Years beginning after
1989, plans may be aggregated in order to satisfy Code
Section 401(k) only if they have the same Plan Year.
(c) For purposes of determining the Actual Deferral Percentage of
a Participant who is a 5-percent owner or one of the ten most
highly-paid Highly Compensated Employees, the Elective
Deferrals (and Qualified Non-Elective Contributions or
Qualified Matching Contributions, or both, if treated as
Elective Deferrals for purposes of the ADP test) and
Compensation of such Participant shall include the Elective
Deferrals (and, if applicable, Qualified Non-Elective
Contributions and Qualified Matching Contributions, or both)
for the Plan Year of Family Members as defined in paragraph
1.36 of this Plan. Family Members, with respect to such
Highly Compensated Employees, shall be disregarded as separate
Employees in determining the ADP both for Participants who are
non-Highly Compensated Employees and for Participants who are
Highly Compensated Employees. In the event of repeal of the
family aggregation rules under Code Section 414(q)(6), all
applications of such rules under this Plan will cease as of
the effective date of such repeal.
(d) For purposes of determining the ADP test, Elective Deferrals,
Qualified Non-Elective Contributions and Qualified Matching
Contributions must be made before the last day of the
twelve-month period immediately following the Plan Year to
which contributions relate.
(e) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ADP test and the amount of Qualified
Non-Elective Contributions or Qualified Matching
Contributions, or both, used in such test.
(f) The determination and treatment of the Actual Deferral
Percentage amounts of any Participant shall satisfy such other
requirements as may be prescribed by the Secretary of the
Treasury.
10.9 RECHARACTERIZATION If the Employer allows for Voluntary Contributions
in the Adoption Agreement, a Participant may treat his or her Excess
Contributions as an amount distributed to the Participant and then contributed
by the Participant to the Plan. Recharacterized amounts will remain
nonforfeitable and subject to the same distribution requirements as Elective
Deferrals. Amounts may not be recharacterized by a Highly Compensated Employee
to the extent that such amount in combination with other Employee Contributions
made by that Employee would exceed any stated limit under the Plan on Voluntary
Contributions. Recharacterization must occur no later than two and one-half
months after the last day of the Plan Year in which such Excess Contributions
arose and is deemed to occur no earlier than the date the last Highly
Compensated Employee is informed in writing of the amount recharacterized and
the consequences thereof. Recharacterized amounts will be taxable to the
Participant for the Participant's tax year in which the Participant would have
received them in cash.
10.10 AVERAGE CONTRIBUTION PERCENTAGE (ACP) TEST If the Employer makes
Matching Contributions or if the Plan allows Employees to make Voluntary
Contributions the Plan must meet additional nondiscrimination requirements
provided under Code Section 401(m). If Employee Contributions (including any
Elective Deferrals recharacterized as Voluntary Contributions) are made pursuant
to this Plan, then in addition to the ADP test
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referenced in paragraph 10.7, the Average Contribution Percentage test is also
applicable. The Average Contribution Percentage for Participants who are Highly
Compensated Employees for each Plan Year and the Average Contribution Percentage
for Participants who are Non-Highly Compensated Employees for the same Plan Year
must satisfy one of the following tests:
(a) BASIC TEST - The Average Contribution Percentage for
Participants who are Highly Compensated Employees for the Plan
Year shall not exceed the Average Contribution Percentage for
Participants who are non-Highly Compensated Employees for the
same Plan Year multiplied by 1.25; or
(b) ALTERNATIVE TEST - The ACP for Participants who are Highly
Compensated Employees for the Plan Year shall not exceed the
Average Contribution Percentage for Participants who are
non-Highly Compensated Employees for the same Plan Year
multiplied by two (2), provided that the Average Contribution
Percentage for Participants who are Highly Compensated
Employees does not exceed the Average Contribution Percentage
for Participants who are non-Highly Compensated Employees by
more than two (2) percentage points.
10.11 SPECIAL RULES RELATING TO APPLICATION OF ACP TEST
(a) If one or more Highly Compensated Employees participate in
both a cash or deferred arrangement and a plan subject to the
ACP test maintained by the Employer and the sum of the ADP and
ACP of those Highly Compensated Employees subject to either or
both tests exceeds the Aggregate Limit, then the ADP or ACP of
those Highly Compensated Employees who also participate in a
cash or deferred arrangement will be reduced (beginning with
such Highly Compensated Employee whose ADP or ACP is the
highest) as set forth in the Adoption Agreement so that the
limit is not exceeded. The amount by which each Highly
Compensated Employee's Contribution Percentage Amounts is
reduced shall be treated as an Excess Aggregate Contribution.
The ADP and ACP of the Highly Compensated Employees are
determined after any corrections required to meet the ADP and
ACP tests. Multiple use does not occur if both the ADP and
ACP of the Highly Compensated Employees does not exceed 1.25
multiplied by the ADP and ACP of the non-Highly Compensated
Employees.
(b) For purposes of this Article, the Contribution Percentage for
any Participant who is a Highly Compensated Employee and who
is eligible to have Contribution Percentage Amounts allocated
to his or her account under two or more plans described in
Code Section 401(a), or arrangements described in Code Section
401(k) that are maintained by the Employer, shall be
determined as if the total of such Contribution Percentage
Amounts was made under each Plan. If a Highly Compensated
Employee participates in two or more cash or deferred
arrangements that have different plan years, all cash or
deferred arrangements ending with or within the same calendar
year shall be treated as a single arrangement.
(c) In the event that this Plan satisfies the requirements of Code
Sections 401(a)(4), 401(m), or 410(b) only if aggregated with
one or more other plans, or if one or more other plans satisfy
the requirements of such Code Sections only if aggregated with
this Plan, then this Section shall be applied by determining
the Contribution Percentage of Employees as if all such plans
were a single plan. For plan years beginning after 1989,
plans may be aggregated in order to satisfy Code Section
401(m) only if the aggregated plans have the same Plan Year.
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(d) For purposes of determining the Contribution percentage of a
Participant who is a five-percent owner or one of the ten most
highly-paid, Highly Compensated Employees, the Contribution
Percentage Amounts and Compensation of such Participant shall
include the Contribution Percentage Amounts and Compensation
for the Plan Year of Family Members as defined in Paragraph
1.36 of this Plan. Family Members, with respect to Highly
Compensated Employees, shall be disregarded as separate
Employees in determining the Contribution Percentage both for
Participants who are non-Highly Compensated Employees and for
Participants who are Highly Compensated Employees. In the
event of repeal of the family aggregation rules under Code
Section 414(q)(6), all applications of such rules under this
Plan will cease as of the effective date of such repeal.
(e) For purposes of determining the Contribution Percentage test,
Employee Contributions are considered to have been made in the
Plan Year in which contributed to the trust. Matching
Contributions and Qualified Non-Elective Contributions will be
considered made for a Plan Year if made no later than the end
of the twelve-month period beginning on the day after the
close of the Plan Year.
(f) The Employer shall maintain records sufficient to demonstrate
satisfaction of the ACP test and the amount of Qualified
Non-Elective Contributions or Qualified Matching
Contributions, or both, used in such test.
(g) 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.
(h) Qualified Matching Contributions and Qualified Non-Elective
Contributions used to satisfy the ADP test may not be used to
satisfy the ACP test.
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ARTICLE XI
ADMINISTRATION
11.1 PLAN ADMINISTRATOR The Employer shall be the named fiduciary and Plan
Administrator. These duties shall include:
(a) appointing the Plan's attorney, accountant, actuary, or any
other party needed to administer the Plan,
(b) directing the Trustee with respect to payments from the Fund,
(c) communicating with Employees regarding their participation and
benefits under the Plan, including the administration of all
claims procedures,
(d) filing any returns and reports with the Internal Revenue
Service, Department of Labor, or any other governmental
agency,
(e) reviewing and approving any financial reports, investment
reviews, or other reports prepared by any party appointed by
the Employer under paragraph (a),
(f) establishing a funding policy and investment objectives
consistent with the purposes of the Plan and the Employee
Retirement Income Security Act of 1974, and
(g) construing and resolving any question of Plan interpretation.
The Plan Administrator's interpretation of Plan provisions
including eligibility and benefits under the Plan is final,
and unless it can be shown to be arbitrary and capricious will
not be subject to "de novo" review.
11.2 TRUSTEE The Trustee shall be responsible for the administration of
investments held in the Fund. These duties shall include:
(a) receiving contributions under the terms of the Plan,
(b) making distributions from the Fund in accordance with written
instructions received from an authorized representative of the
Employer,
(c) keeping accurate records reflecting its administration of the
Fund and making such records available to the Employer for
review and audit. Within 90 days after each Plan Year, and
within 90 days after its removal or resignation, the Trustee
shall file with the Employer an accounting of its
administration of the Fund during such year or from the end of
the preceding Plan Year to the date of removal or resignation.
Such accounting shall include a statement of cash receipts and
disbursements since the date of its last accounting and shall
contain an asset list showing the fair market value of
investments held in the Fund as of the end of the Plan Year.
The value of marketable investments shall be determined using
the most recent price quoted on a national securities exchange
or over the counter market. The value of non-marketable
investments shall be determined in the sole judgement of the
Trustee which determination shall be binding and conclusive.
The value of investments in securities or obligations of the
Employer in which there is no market shall be determined in
the sole judgement of the Employer and the Trustee shall have
no responsibility with respect to the valuation of such
assets. The Employer shall review the Trustee's accounting
and
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notify the Trustee in the event of its disapproval of the
report within 90 days, providing the Trustee with a written
description of the items in question. The Trustee shall have
60 days to provide the Employer with a written explanation of
the items in question. If the Employer again disapproves, the
Trustee shall file its accounting in a court of competent
jurisdiction for audit and adjudication, and
(d) employing such agents, attorneys or other professionals as the
Trustee may deem necessary or advisable in the performance of
its duties.
The Trustee's duties shall be limited to those described above. The Employer
shall be responsible for any other administrative duties required under the Plan
or by applicable law.
11.3 ADMINISTRATIVE FEES AND EXPENSES All reasonable costs, charges and
expenses incurred by the Trustee in connection with the administration of the
Fund and all reasonable costs, charges and expenses incurred by the Plan
Administrator in connection with the administration of the Plan (including fees
for legal services rendered to the Trustee or Plan Administrator) may be paid by
the Employer, but if not paid by the Employer when due, shall be paid from the
Fund. Such reasonable compensation to the Trustee as may be agreed upon from
time to time between the Employer and the Trustee and such reasonable
compensation to the Plan Administrator as may be agreed upon from time to time
between the Employer and Plan Administrator may be paid by the Employer, but if
not paid by the Employer when due shall be paid by the Fund. The Trustee shall
have the right to liquidate trust assets to cover its fees. Notwithstanding the
foregoing, no compensation other than reimbursement for expenses shall be paid
to a Plan Administrator who is the Employer or a full-time Employee of the
Employer. In the event any part of the Trust becomes subject to tax, all taxes
incurred will be paid from the Fund unless the Plan Administrator advises the
Trustee not to pay such tax.
11.4 DIVISION OF DUTIES AND INDEMNIFICATION
(a) The Trustee shall have the authority and discretion to manage
and govern the Fund to the extent provided in this instrument,
but does not guarantee the Fund in any manner against
investment loss or depreciation in asset value, or guarantee
the adequacy of the Fund to meet and discharge all or any
liabilities of the Plan.
(b) The Trustee shall not be liable for the making, retention or
sale of any investment or reinvestment made by it, as herein
provided, or for any loss to, or diminution of the Fund, or
for any other loss or damage which may result from the
discharge of its duties hereunder except to the extent it is
judicially determined that the Trustee has failed to exercise
the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in
a like capacity and familiar with such matters would use in
the conduct of an enterprise of a like character with like
aims.
(c) The Employer warrants that all directions issued to the
Trustee by it or the Plan Administrator will be in accordance
with the terms of the Plan and not contrary to the provisions
of the Employee Retirement Income Security Act of 1974 and
regulations issued thereunder.
(d) The Trustee shall not be answerable for any action taken
pursuant to any direction, consent, certificate, or other
paper or document on the belief that the same is genuine and
signed by the proper person. All directions by the Employer,
Participant or the Plan Administrator shall be in writing. The
Employer shall deliver to the Trustee certificates evidencing
the individual or individuals authorized to act as set forth
in the Adoption Agreement or as the Employer may subsequently
inform the Trustee in writing and shall deliver to the Trustee
specimens of their signatures.
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(e) The duties and obligations of the Trustee shall be limited to
those expressly imposed upon it by this instrument or
subsequently agreed upon by the parties. Responsibility for
administrative duties required under the Plan or applicable
law not expressly imposed upon or agreed to by the Trustee,
shall rest solely with the Employer.
(f) The Trustee shall be indemnified and saved harmless by the
Employer from and against any and all liability to which the
Trustee may be subjected, including all expenses reasonably
incurred in its defense, for any action or failure to act
resulting from compliance with the instructions of the
Employer, the employees or agents of the Employer, the Plan
Administrator, or any other fiduciary to the Plan, and for any
liability arising from the actions or non-actions of any
predecessor Trustee or fiduciary or other fiduciaries of the
Plan.
(g) The Trustee shall not be responsible in any way for the
application of any payments it is directed to make or for the
adequacy of the Fund to meet and discharge any and all
liabilities under the Plan.
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ARTICLE XII
TRUST FUND
12.1 THE FUND The Fund shall consist of all contributions made under
Article III and Article IV of the Plan and the investment thereof and earnings
thereon. All contributions and the earnings thereon less payments made under the
terms of the Plan, shall constitute the Fund. The Fund shall be administered as
provided in this document.
12.2 CONTROL OF PLAN ASSETS The assets of the Fund or evidence of ownership
shall be held by the Trustee under the terms of the Plan and Trust. If the
assets represent amounts transferred from another trustee/custodian under a
former plan, the Trustee named hereunder shall not be responsible for the
propriety of any investment under the former plan.
12.3 EXCLUSIVE BENEFIT RULES No part of the Fund shall be used for, or
diverted to, purposes other than for the exclusive benefit of Participants,
former Participants with a vested interest, and the beneficiary or beneficiaries
of deceased Participants having a vested interest in the Fund at death.
12.4 ASSIGNMENT AND ALIENATION OF BENEFITS No right or claim to, or
interest in, any part of the Fund, or any payment from the Fund, shall be
assignable, transferable, or subject to sale, mortgage, pledge, hypothecation,
commutation, anticipation, garnishment, attachment, execution, or levy of any
kind. The Trustee shall not recognize any attempt to assign, transfer, sell,
mortgage, pledge, hypothecate, commute, or anticipate the same, except to the
extent required by law. The preceding sentences shall also apply to the
creation, assignment, or recognition of a right to any benefit payable with
respect to a Participant pursuant to a domestic relations order, unless such
order is determined to be a qualified domestic relations order, as defined in
Code Section 414(p), or any domestic relations order entered before January 1,
1985 which the Plan attorney and Plan Administrator deem to be qualified.
12.5 DETERMINATION OF QUALIFIED DOMESTIC RELATIONS ORDER (QDRO) A Domestic
Relations Order shall specifically state all of the following in order to be
deemed a Qualified Domestic Relations Order ("QDRO"):
(a) The name and last known mailing address (if any) of the
Participant and of each alternate payee covered by the QDRO.
However, if the QDRO does not specify the current mailing
address of the alternate payee, but the Plan Administrator has
independent knowledge of that address, the QDRO will still be
valid.
(b) The dollar amount or percentage of the Participant's benefit
to be paid by the Plan to each alternate payee, or the manner
in which the amount or percentage will be determined.
(c) The number of payments or period for which the order applies.
(d) The specific plan (by name) to which the Domestic Relations
Order applies.
The Domestic Relations Order shall not be deemed a QDRO if it requires the Plan
to provide:
(e) any type or form of benefit, or any option not already
provided for in the Plan;
(f) increased benefits, or benefits in excess of the Participant's
vested rights;
(g) payment of a benefit earlier than allowed by the Plan's
earliest retirement provisions or in the case of a
profit-sharing plan, prior to the allowability of in-service
withdrawals, or
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(h) payment of benefits to an alternate payee which are required
to be paid to another alternate payee under another QDRO.
Promptly, upon receipt of a Domestic Relations Order ("Order") which may or may
not be "Qualified", the Plan Administrator shall notify the Participant and any
alternate payee(s) named in the Order of such receipt, and include a copy of
this paragraph 12.5. The Plan Administrator shall then forward the Order to the
Plan's legal counsel for an opinion as to whether or not the Order is in fact
"Qualified" as defined in Code Section 414(p). Within a reasonable time after
receipt of the Order, not to exceed 60 days, the Plan's legal counsel shall make
a determination as to its "Qualified" status and the Participant and any
alternate payee(s) shall be promptly notified in writing of the determination.
If the "Qualified" status of the Order is in question, there will be a delay in
any payout to any payee including the Participant, until the status is resolved.
In such event, the Plan Administrator shall segregate the amount that would have
been payable to the alternate payee(s) if the Order had been deemed a QDRO. If
the Order is not Qualified, or the status is not resolved (for example, it has
been sent back to the Court for clarification or modification) within 18 months
beginning with the date the first payment would have to be made under the Order,
the Plan Administrator shall pay the segregated amounts plus interest to the
person(s) who would have been entitled to the benefits had there been no Order.
If a determination as to the Qualified status of the Order is made after the
18-month period described above, then the Order shall only be applied on a
prospective basis. If the Order is determined to be a QDRO, the Participant and
alternate payee(s) shall again be notified promptly after such determination.
Once an Order is deemed a QDRO, the Plan Administrator shall pay to the
alternate payee(s) all the amounts due under the QDRO, including segregated
amounts plus interest which may have accrued during a dispute as to the Order's
qualification.
Unless specified otherwise in the Adoption Agreement, the earliest retirement
age with regard to the Participant against whom the order is entered shall be
the date the order is determined to be qualified. This will only allow payouts
to alternate payee(s) and not the Participant.
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ARTICLE XIII
INVESTMENTS
13.1 FIDUCIARY STANDARDS The Trustee shall invest and reinvest principal
and income in the same Fund in accordance with the investment objectives
established by the Employer, provided that:
(a) such investments are prudent under the Employee Retirement
Income Security Act of 1974 and the regulations thereunder,
(b) such investments are sufficiently diversified or otherwise
insured or guaranteed to minimize the risk of large losses,
and
(c) such investments are similar to those which would be purchased
by another professional money manager for a like plan with
similar investment objectives.
13.2 FUNDING ARRANGEMENT The Employer shall, in the Adoption Agreement,
appoint a Trustee to administer the Fund. The Trustee shall invest the Fund in
any of the alternatives available under paragraph 13.3 herein.
13.3 INVESTMENT ALTERNATIVES OF THE TRUSTEE As Trustee, the Sponsor shall
implement an investment program based on the Employer's investment objectives
and the Employee Retirement Income Security Act of 1974. In addition to powers
given by law, the Trustee may:
(a) invest the Fund in any form of property, including common and
preferred stocks, exchange traded put and call options, bonds,
money market instruments, mutual funds (including funds for
which the Trustee or its affiliates serve as investment
advisor), savings accounts, certificates of deposit, Treasury
bills, insurance policies and contracts, or in any other
property, real or personal, having a ready market. The
Trustee may invest in time deposits (including, if applicable,
its own or those of affiliates) which bear a reasonable
interest rate. No portion of any Qualified Voluntary
Contribution, or the earnings thereon, may be invested in life
insurance contracts or, as with any Participant-directed
investment, in tangible personal property characterized by the
IRS as a collectible,
(b) transfer any assets of the Fund to a group or collective
trust established to permit the pooling of funds of separate
pension and profit-sharing trusts, provided the Internal
Revenue Service has ruled such group or collective trust to be
qualified under Code Section 401(a) and exempt under Code
Section 501(a) (or the applicable corresponding provision of
any other Revenue Act) or to any other common, collective, or
commingled trust fund which has been or may hereafter be
established and maintained by the Trustee and/or affiliates of
the Trustee. Such commingling of assets of the Fund with
assets of other qualified trusts is specifically authorized,
and to the extent of the investment of the Fund in such a
group or collective trust, the terms of the instrument
establishing the group or collective trust shall be a part
hereof as though set forth herein,
(c) invest up to 100% of the Fund in the common stock, debt
obligations, or any other security issued by the Employer or
by an affiliate of the Employer within the limitations
provided under Sections 406, 407, and 408 of the Employee
Retirement Income Security Act of 1974 and further provided
that such investment does not constitute a prohibited
transaction under Code Section 4975. Any such investment in
Employer securities shall only be made upon
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written direction of the Employer who shall be solely
responsible for propriety of such investment,
(d) hold cash uninvested and deposit same with any banking or
savings institution, including its own banking department,
(e) join in or oppose the reorganization, recapitalization,
consolidation, sale or merger of corporations or properties,
including those in which it is interested as Trustee, upon
such terms as it deems wise,
(f) hold investments in nominee or bearer form,
(g) vote proxies and, if appropriate, pass them on to any
investment manager which may have directed the investment in
the equity giving rise to the proxy,
(h) exercise all ownership rights with respect to assets held in
the Fund.
13.4 PARTICIPANT LOANS If agreed upon by the Trustee and permitted by the
Employer in the Adoption Agreement, a Plan Participant may make application to
the Employer requesting a loan from the Fund. The Employer shall have the sole
right to approve or disapprove a Participant's application provided that loans
shall be made available to all Participants on a reasonably equivalent basis.
Loans shall not be made available to Highly Compensated Employees [as defined in
Code Section 414(q)] in an amount greater than the amount made available to
other Employees. Any loan granted under the Plan shall be made subject to the
following rules:
(a) No loan, when aggregated with any outstanding Participant
loan(s), shall exceed the lesser of (i) $50,000 reduced by the
excess, if any, of the highest outstanding balance of loans
during the one year period ending on the day before the loan
is made, over the outstanding balance of loans from the Plan
on the date the loan is made or (ii) one-half of the fair
market value of a Participant's Vested Account Balance built
up from Employer Contributions, Voluntary Contributions, and
Rollover Contributions. If the Participant's Vested Account
Balance is $20,000 or less, the maximum loan shall not exceed
the lesser of $10,000 or 100% of the Participant's Vested
Account Balance. For the purpose of the above limitation, all
loans from all plans of the Employer and other members of a
group of employers described in Code Sections 414(b), 414(c),
and 414(m) are aggregated. An assignment or pledge of any
portion of the Participant's interest in the Plan and a loan,
pledge, or assignment with respect to any insurance contract
purchased under the Plan, will be treated as a loan under this
paragraph.
(b) All applications must be made on forms provided by the
Employer and must be signed by the Participant.
(c) Any loan shall bear interest at a rate reasonable at the time
of application, considering the purpose of the loan and the
rate being charged by representative commercial banks in the
local area for a similar loan unless the Employer sets forth a
different method for determining loan interest rates in its
loan procedures. The loan agreement shall also provide that
the payment of principal and interest be amortized in level
payments not less than quarterly.
(d) The term of such loan shall not exceed five years except in
the case of a loan for the purpose of acquiring any house,
apartment, condominium, or mobile home (not used on a
transient basis) which is used or is to be used within a
reasonable time as the principal residence of
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the Participant. The term of such loan shall be determined by
the Employer considering the maturity dates quoted by
representative commercial banks in the local area for a
similar loan.
(e) The principal and interest paid by a Participant on his or her
loan shall be credited to the Fund in the same manner as for
any other Plan investment. If elected in the Adoption
Agreement, loans may be treated as segregated investments of
the individual Participants. This provision is not available
if its election will result in discrimination in operation of
the Plan.
(f) If a Participant's loan application is approved by the
Employer, such Participant shall be required to sign a note,
loan agreement, and assignment of 50% of his or her interest
in the Fund as collateral for the loan. The Participant,
except in the case of a profit-sharing plan satisfying the
requirements of paragraph 8.7 must obtain the consent of his
or her Spouse, if any, within the 90 day period before the
time his or her account balance is used as security for the
loan. A new consent is required if the account balance is
used for any renegotiation, extension, renewal or other
revision of the loan, including an increase in the amount
thereof. The consent must be written, must acknowledge the
effect of the loan, and must be witnessed by a plan
representative or notary public. Such consent shall
subsequently be binding with respect to the consenting Spouse
or any subsequent Spouse.
(g) If a valid Spousal consent has been obtained, then,
notwithstanding any other provision of this Plan, the portion
of the Participant's Vested Account Balance used as a security
interest held by the Plan by reason of a loan outstanding to
the Participant shall be taken into account for purposes of
determining the amount of the account balance payable at the
time of death or distribution, but only if the reduction is
used as repayment of the loan. If less than 100% of the
Participant's Vested Account Balance (determined without
regard to the preceding sentence) is payable to the Surviving
Spouse, then the account balance shall be adjusted by first
reducing the Vested Account Balance by the amount of the
security used as repayment of the loan, and then determining
the benefit payable to the Surviving Spouse.
(h) The Employer may also require additional collateral in order
to adequately secure the loan.
(i) A Participant's loan shall immediately become due and payable
if such Participant terminates employment for any reason or
fails to make a principal and/or interest payment as provided
in the loan agreement. If such Participant terminates
employment, the Employer shall immediately request payment of
principal and interest on the loan. If the Participant
refuses payment following termination, the Employer shall
reduce the Participant's Vested Account Balance by the
remaining principal and interest on his or her loan. If the
Participant's Vested Account Balance is less than the amount
due, the Employer shall take whatever steps are necessary to
collect the balance due directly from the Participant.
However, no foreclosure on the Participant's note or
attachment of the Participant's account balance will occur
until a distributable event occurs in the Plan.
(j) No loans will be made to Owner-Employees (as defined in
paragraph 1.51) or Shareholder-Employees (as defined in
paragraph 1.74), unless the Employer obtains a prohibited
transaction exemption from the Department of Labor.
13.5 INSURANCE POLICIES If agreed upon by the Trustee and permitted by the
Employer in the Adoption Agreement, Employees may elect the purchase of life
insurance policies under the Plan. If elected, the maximum annual premium for a
whole life policy shall not exceed 50% of the aggregate Employer contributions
allocated to the account of a Participant. For profit-sharing plans the 50%
test need only be applied against Employer contributions allocated in the
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last two years. Whole life policies are policies with both nondecreasing death
benefits and nonincreasing premiums. The maximum annual premium for term
contracts or universal life policies and all other policies which are not whole
life shall not exceed 25% of aggregate Employer contributions allocated to the
account of a Participant. The two-year rule for profit-sharing plans again
applies. The maximum annual premiums for a Participant with both a whole life
and a term contract or universal life policies shall be limited to one-half of
the whole life premium plus the term premium, but shall not exceed 25% of the
aggregate Employer contributions allocated to the account of a Participant,
subject to the two year rule for profit-sharing plans. Any policies purchased
under this Plan shall be held subject to the following rules:
(a) The Trustee shall be applicant and owner of any policies
issued.
(b) All policies or contracts purchased hereunder, shall be
endorsed as nontransferable, and must provide that proceeds
will be payable to the Trustee; however, the Trustee shall be
required to pay over all proceeds of the contracts to the
Participant's Designated Beneficiary in accordance with the
distribution provisions of this Plan. Under no circumstances
shall the Trust retain any part of the proceeds.
(c) Each Participant shall be entitled to designate a beneficiary
under the terms of any contract issued; however, such
designation will be given to the Trustee which must be the
named beneficiary on any policy. Such designation shall
remain in force, until revoked by the Participant, by filing a
new beneficiary form with the Trustee. A Participant's Spouse
will be the Designated Beneficiary of the proceeds in all
circumstances unless a Qualified Election has been made in
accordance with paragraph 8.4. The beneficiary of a deceased
Participant shall receive, in addition to the proceeds of the
Participant's policy or policies, the amount credited to such
Participant's investment account.
(d) A Participant who is uninsurable or insurable at substandard
rates, may elect to receive a reduced amount of insurance, if
available, or may waive the purchase of any insurance.
(e) All dividends or other returns received on any policy
purchased shall be applied to reduce the next premium due on
such policy, or if no further premium is due, such amount
shall be credited to the Fund as part of the account of the
Participant for whom the policy is held.
(f) If Employer contributions are inadequate to pay all premiums
on all insurance policies, the Trustee may, at the option of
the Employer, utilize other amounts remaining in each
Participant's account to pay the premiums on his or her
respective policy or policies, allow the policies to lapse,
reduce the policies to a level at which they may be
maintained, or borrow against the policies on a prorated
basis, provided that the borrowing does not discriminate in
favor of the policies on the lives of Officers, Shareholders,
and highly compensated Employees.
(g) On retirement or termination of employment of a Participant,
the Employer shall direct the Trustee to cash surrender the
Participant's policy and credit the proceeds to his or her
account for distribution under the terms of the Plan. However,
before so doing, the Trustee shall first offer to transfer
ownership of the policy to the Participant in exchange for
payment by the Participant of the cash value of the policy at
the time of transfer. Such payment shall be credited to the
Participant's account for distribution under the terms of the
Plan. All distributions resulting from the application of
this paragraph shall be subject to the Joint and Survivor
Annuity Rules of Article VIII, if applicable.
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(h) The Employer shall be solely responsible to see that these
insurance provisions are administered properly and that if
there is any conflict between the provisions of this Plan and
any insurance contracts issued that the terms of this Plan
will control.
13.6 EMPLOYER INVESTMENT DIRECTION If agreed upon by the Trustee and
approved by the Employer in the Adoption Agreement, the Employer shall have the
right to direct the Trustee with respect to investments of the Fund, may appoint
an investment manager (registered as an investment advisor under the Investment
Advisors Act of 1940) to direct investments, or may give the Trustee sole
investment management responsibility. The Employer may purchase and sell
interests in a registered investment company (i.e., mutual funds) for which the
Sponsor, its parent, affiliates, or successors, may serve as investment advisor
and receive compensation from the registered investment company for its services
as investment advisor. The Employer shall advise the Trustee in writing
regarding the retention of investment powers, the appointment of an investment
manager, or the delegation of investment powers to the Trustee. Any investment
directive under this Plan shall be made in writing by the Employer or investment
manager, as the case may be. In the absence of such written directive, the
Trustee shall automatically invest the available cash in its discretion in an
appropriate interim investment until specific investment directions are
received. Such instructions regarding the delegation of investment
responsibility shall remain in force until revoked or amended in writing. The
Trustee shall not be responsible for the propriety of any directed investment
made and shall not be required to consult with or advise the Employer regarding
the investment quality of any directed investment held hereunder. If the
Employer fails to designate an investment manager, the Trustee shall have full
investment authority. If the Employer does not issue investment directions, the
Trustee shall have authority to invest the Fund in its sole discretion. While
the Employer may direct the Trustee with respect to Plan investments, the
Employer may not:
(a) borrow from the Fund or pledge any of the assets of the Fund
as security for a loan,
(b) buy property or assets from or sell property or assets to the
Fund,
(c) charge any fee for services rendered to the Fund, or
(d) receive any services from the Fund on a preferential basis.
13.7 EMPLOYEE INVESTMENT DIRECTION If agreed to by the Trustee and approved
by the Employer in the Adoption Agreement, Participants shall be given the
option to direct the investment of their personal contributions and their share
of the Employer's contribution among alternative investment funds established as
part of the overall Fund. Unless otherwise specified by the Employer in the
Adoption Agreement, such investment funds shall be restricted to funds offered
by the Trustee. If investments outside the Trustee's control are allowed,
Participants may not direct that investments be made in collectibles, other than
U.S. Government or State issued gold and silver coins. In this connection, a
Participant's right to direct the investment of any contribution shall apply
only to selection of the desired fund. The following rules shall apply to the
administration of such funds.
(a) At the time an Employee becomes eligible for the Plan, he or
she shall complete an investment designation form stating the
percentage of his or her contributions to be invested in the
available funds.
(b) A Participant may change his or her election with respect to
future contributions by filing a new investment designation
form with the Employer in accordance with the procedures
established by the Plan Administrator.
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(c) A Participant may elect to transfer all or part of his or her
balance from one investment fund to another by filing an
investment designation form with the Employer or by using a
telephone exchange privilege offered by an investment fund in
which the Participants' balance is invested (provided a
telephone exchange privilege has been previously selected by
the Trustee), in accordance with the procedures established by
the Plan Administrator.
(d) The Employer shall be responsible when transmitting Employee
and Employer contributions to show the dollar amount to be
credited to each investment fund for each Employee.
(e) Except as otherwise provided in the Plan, neither the Trustee,
nor the Employer, nor any fiduciary of the Plan shall be
liable to the Participant or any of his or her beneficiaries
for any loss resulting from action taken at the direction of
the Participant.
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ARTICLE XIV
TOP-HEAVY PROVISIONS
14.1 APPLICABILITY OF RULES If the Plan is or becomes Top-Heavy in any Plan
Year beginning after 1983, the provisions of this Article will supersede any
conflicting provisions in the Plan or Adoption Agreement.
14.2 MINIMUM CONTRIBUTION Notwithstanding any other provision in the
Employer's Plan, for any Plan Year in which the Plan is Top-Heavy or Super
Top-Heavy, the aggregate Employer contributions and forfeitures allocated on
behalf of any Participant (without regard to any Social Security contribution)
under this Plan and any other Defined Contribution Plan of the Employer shall be
lesser of 3% of such Participant's Compensation or the largest percentage of
Employer contributions and forfeitures, as a percentage of the first $200,000,
as adjusted under Code Section 415(d), of the Key Employee's Compensation,
allocated on behalf of any Key Employee for that year.
Each Participant who is employed by the Employer on the last day of the Plan
Year shall be entitled to receive an allocation of the Employer's minimum
contribution for such Plan Year. The minimum allocation applies even though
under other Plan provisions the Participant would not otherwise be entitled to
receive an allocation, or would have received a lesser allocation for the year
because the Participant fails to make Mandatory Contributions to the Plan, the
Participant's Compensation is less than a stated amount, or the Participant
fails to complete 1,000 Hours of Service (or such lesser number designated by
the Employer in the Adoption Agreement) during the Plan Year. A Paired
profit-sharing plan designated to provide the minimum Top-Heavy contribution
must do so regardless of profits. An Employer may make the minimum Top-Heavy
contribution available to all Participants or just non-Key Employees.
For purposes of computing the minimum allocation, Compensation shall mean
Compensation as defined in paragraph 1.12(c) of the Plan.
The Top-Heavy minimum contribution does not apply to any Participant to the
extent the Participant is covered under any other plan(s) of the Employer and
the Employer has provided in Section 11 of the Adoption Agreement that the
minimum allocation or benefit requirements applicable to Top-Heavy Plans will be
met in the other plan(s).
If a Key Employee makes an Elective Deferral or has an allocation of Matching
Contributions made to his or her account, a Top-Heavy minimum will be required
for non-Key Employees who are Participants, however, neither Elective Deferrals
by nor Matching Contributions to non-Key Employees may be taken into account for
purposes of satisfying the top-heavy Minimum Contribution requirement.
14.3 MINIMUM VESTING For any Plan Year in which this Plan is Top-Heavy,
the minimum vesting schedule elected by the Employer in the Adoption Agreement
will automatically apply to the Plan. If the vesting schedule selected by the
Employer in the Adoption Agreement is less liberal than the allowable schedule,
the schedule will automatically be modified. If the vesting schedule under the
Employer's Plan shifts in or out of the Top-Heavy schedule for any Plan Year,
such shift is an amendment to the vesting schedule and the election in paragraph
9.8 of the Plan applies. The minimum vesting schedule applies to all accrued
benefits within the meaning of Code Section 411(a)(7) except those attributable
to Employee contributions, including benefits accrued before the effective date
of Code Section 416 and benefits accrued before the Plan became Top-Heavy.
Further, no reduction in vested benefits may occur in the event the Plan's
status as Top-Heavy changes for any Plan Year. However, this paragraph does not
apply to the account balances of any Employee who does not have an Hour of
Service after the Plan initially becomes Top-Heavy and such Employee's account
balance attributable to Employer contributions and forfeitures will be
determined without regard to this paragraph.
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14.4 LIMITATIONS ON ALLOCATIONS In any Plan Year in which the Top-Heavy
Ratio exceeds 90% (i.e., the Plan becomes Super Top-Heavy), the denominators of
the Defined Benefit Fraction (as defined in paragraph 1.16) and Defined
Contribution Fraction (as defined in paragraph 1.19) shall be computed using
100% of the dollar limitation instead of 125%.
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ARTICLE XV
AMENDMENT AND TERMINATION
15.1 AMENDMENT BY SPONSOR The Sponsor may amend any or all provisions of
this Plan and Trust at any time without obtaining the approval or consent of any
Employer which has adopted this Plan and Trust provided that no amendment shall
authorize or permit 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
their beneficiaries, or eliminate an optional form of distribution. In the case
of a mass-submitted plan, the mass-submitter shall amend the Plan on behalf of
the Sponsor.
15.2 AMENDMENT BY EMPLOYER The Employer may amend any option in the
Adoption Agreement, and may include language as permitted in the Adoption
Agreement,
(a) to satisfy Code Section 415, or
(b) to avoid duplication of minimums under Code Section 416
because of the required aggregation of multiple plans.
The Employer may add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause the Plan
to be treated as an individually designed plan for which the Employer must
obtain a separate determination letter.
If the Employer amends the Plan and Trust other than as provided above, the
Employer's Plan shall no longer participate in this Prototype Plan and will be
considered an individually designed plan.
15.3 TERMINATION Employers shall have the right to terminate their Plans
upon 60 days notice in writing to the Trustee. If the Plan is terminated,
partially terminated, or if there is a complete discontinuance of contributions
under a profit-sharing plan maintained by the Employer, all amounts credited to
the accounts of Participants shall vest and become nonforfeitable. In the event
of a partial termination, only those who are affected by such partial
termination shall be fully vested. In the event of termination, the Employer
shall direct the Trustee with respect to the distribution of accounts to or for
the exclusive benefit of Participants or their beneficiaries. The Trustee shall
dispose of the Fund in accordance with the written directions of the Plan
Administrator, provided that no liquidation of assets and payment of benefits,
(or provision therefor), shall actually be made by the Trustee until after it is
established by the Employer in a manner satisfactory to the Trustee, that the
applicable requirements, if any, of the Employee Retirement Income Security Act
of 1974 and the Internal Revenue Code governing the termination of employee
benefit plans, have been or are being, complied with, or that appropriate
authorizations, waivers, exemptions, or variances have been, or are being
obtained.
15.4 QUALIFICATION OF EMPLOYER'S PLAN If the adopting Employer fails to
attain or retain Internal Revenue Service qualification, such Employer's Plan
shall no longer participate in this Prototype Plan and will be considered an
individually designed plan.
15.5 MERGERS AND CONSOLIDATIONS
(a) In the case of any merger or consolidation of the Employer's
Plan with, or transfer of assets or liabilities of the
Employer's Plan to, any other plan, Participants in the
Employer's Plan shall be entitled to receive benefits
immediately after the merger, consolidation, or transfer which
are equal to or greater than the benefits they would have been
entitled to receive immediately before the merger,
consolidation, or transfer if the Plan had then terminated.
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(b) Any corporation into which the Trustee or any successor
trustee/custodian may be merged or with which it may be
consolidated, or any corporation resulting from any merger or
consolidation to which the Trustee or any successor
trustee/custodian may be a party, or any corporation to which
all or substantially all the trust business of the Trustee or
any successor trustee/custodian may be transferred, shall be
the successor of such Trustee without the filing of any
instrument or performance of any further act, before any
court.
15.6 RESIGNATION AND REMOVAL The Trustee may resign by written notice to
the Employer which shall be effective 60 days after delivery. The Employer may
discontinue its participation in this Prototype Plan and Trust effective upon 60
days written notice to the Sponsor. In such event the Employer shall, prior to
the effective date thereof, amend the Plan to eliminate any reference to this
Prototype Plan and Trust and appoint a successor trustee or custodian or arrange
for another funding agent. The Trustee shall deliver the Fund to its successor
on the effective date of the resignation or removal, or as soon thereafter as
practicable, provided that this shall not waive any lien the Trustee may have
upon the Fund for its compensation or expenses. If the Employer fails to amend
the Plan and appoint a successor trustee, custodian, or other funding agent
within the said 60 days, or such longer period as the Trustee may specify in
writing, the Plan shall be deemed individually designed and the Employer shall
be deemed the successor trustee/custodian. The Employer must then obtain its
own determination letter.
15.7 QUALIFICATION OF PROTOTYPE The Sponsor intends that this Prototype
Plan will meet the requirements of the Code as a qualified Prototype Retirement
Plan and Trust. Should the Commissioner of Internal Revenue or any delegate of
the Commissioner at any time determine that the Plan and Trust fails to meet the
requirements of the Code, the Sponsor will amend the Plan and Trust to maintain
its qualified status.
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ARTICLE XVI
GOVERNING LAW
Construction, validity and administration of the Prototype Plan and Trust, and
any Employer Plan and Trust as embodied in the Prototype document and
accompanying Adoption Agreement, shall be governed by Federal law to the extent
applicable and to the extent not applicable by the laws of the
State/Commonwealth in which the principal office of the Sponsor is located.
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EXHIBIT NO. 99.16
CALCULATION OF PERFORMANCE INFORMATION
TO BE FILED BY SUBSEQUENT AMENDMENT
72
