<PAGE>
As filed with the Securities and Exchange Commission
on July 31,1996.
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FILE No.: 33-57166
811-7434
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. ___ ___
Post-Effective Amendment No. 5 X
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and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. 7
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THE STRATTON FUNDS, INC.
-------------------------------
(Exact Name of Registrant as Specified in Charter)
610 W. Germantown Pike, Suite 300, Plymouth Meeting, PA 19462-1050
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(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code (610) 941-0255
Patricia L. Sloan, Secretary & Treasurer, The Stratton Funds, Inc.
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610 W. Germantown Pike, Suite 300, Plymouth Meeting, PA 19462-1050
(Name and Address of Agent for Service)
COPIES TO: Vernon Stanton, Jr. Esq.
Drinker Biddle and Reath
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
215-988-2700
It is proposed that this filing will become effective (check appropriate box)
_____ immediately upon filing pursuant to paragraph (b)
X on (July 31, 1996 ) pursuant to paragraph (b)
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_____ 60 days after filing pursuant to paragraph (a)(1)
_____ on (date) pursuant to paragraph (a)(1).
_____ 75 days after filing pursuant to paragraph (a)(2) of rule 485.
_____ on (date) pursuant to paragraph (a)(2) of rule 485.
If appropriate, check the following box:
____ this post-effective amendment designates a new
effective date for a previously filed post-
effective amendment.
The Registrant has previously registered an indefinite number of shares of
common stock of The Stratton Funds, Inc. pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. Registrant's Rule 24f-2 notice for
fiscal year-ended March 31, 1996 was filed with the Commission on May 29, 1996.
Total number of pages 284 Exhibit Index Page Begins 56
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1
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
<TABLE>
<CAPTION>
Part A
Item No. Prospectus Caption
- -------- ------------------
<S> <C>
1. Cover Page................................ Cover Page
2. Synopsis.................................. Fee Table
3. Condensed Financial Information........... Financial Highlights; Performance Calculations
4. General Description of Registrant......... Introduction, The Fund's Investment Objective,
Policies, Restrictions and Risk Considerations;
Description of Common Stock
5. Management of the Fund.................... Management of the Fund; Investment Advisor;
Service Providers and Underwriter
5A. Management's Discussion
of Fund Performance....................... Inapplicable
6. Capital Stock and Other Securities........ How to Buy Shares- Reinvestment of Income
Dividends and Capital Gains Distributions; Income
Dividends and Capital Gains Distributions: Tax
Treatment; Description of Common Stock
7. Purchase of Shares Being Offered......... Service Providers and Underwriter; Computation
of Net Asset Value; How to Buy Fund Shares;
Exchange Privilege; Retirement Plans
8. Redemption or Repurchase.................. How to Redeem Fund Shares
9. Pending Legal Proceedings................. Inapplicable
<CAPTION>
Part B Statement of Additional
Item No. Information Caption
- -------- ------------------------
<S> <C>
10. Cover Page................................ Cover Page
11. Table of Contents......................... Table of Contents
12. General Information and History........... Inapplicable
13. Investment Objective and Policies.......... Investment Restrictions
</TABLE>
2
<PAGE>
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
<TABLE>
<CAPTION>
Part B Statement of Additional
Item No. Information Caption
- -------- -------------------
<S> <C>
14. Management of the Fund .................... Directors and Officers of the Fund
15. Control Persons and Principal
Holders of Securities...................... Directors and Officers of the Fund
16. Investment Advisory and Other
Services................................... The Investment Advisor and Other Service
Providers
17. Brokerage Allocation
and Other Practices........................ Portfolio Transactions and Brokerage
Commissions
18. Capital Stock and Other Securities......... Covered in Part A
19. Purchase, Redemption and Pricing
of Securities Being Offered................ Covered in Part A
20. Tax Status................................. Additional Information Concerning Taxes
21. Underwriters............................... Underwriter
22. Calculation of Performance Data............ Additional Information on Performance
Calculations
23. Financial Statements....................... Financial Statements; Report of Independent
Certified Public Accountants
</TABLE>
PART C
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Information required to be included in Part C is set forth under the
appropriate Item, so numbered, in Part C of this Post-Effective Amendment
No.5 to the Registration Statement.
3
<PAGE>
MEMBER OF
================
PROSPECTUS NO-LOAD(TM)
JULY 31, 1996 100% MUTUAL FUND
COUNCIL
================
Stratton Small-Cap Yield Fund (the "Fund") is a separate, diversified
investment portfolio offered by The Stratton Funds, Inc. (the "Company"), a
no-load open-end series management investment company. The Fund's investment
objective is to achieve both dividend income and capital appreciation. The
Fund seeks to achieve its objective by investing in equity securities,
primarily common stock and securities convertible into or exchangeable for
common stock, of companies with total market capitalizations at the time of
investment of less than $500 million and which are outside the Standard &
Poor's 500 Index (hereinafter referred to as "small-cap companies").
This Prospectus sets forth concisely the information about the Fund that
prospective investors ought to know before investing. Investors should read
this Prospectus and retain it for future reference.
Additional information about the Fund has been filed with the Securities and
Exchange Commission and is available upon request and without charge by
calling or writing the Fund at the telephone number or address below. The
"Statement of Additional Information" bears the same date as this Prospectus
and is incorporated by reference into this Prospectus in its entirety.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE STRATTON FUNDS, INC.
STRATTON SMALL-CAP
SSCY
YIELD FUND
A NO-LOAD FUND
PROSPECTUS / JULY 31, 1996
PLYMOUTH MEETING EXECUTIVE CAMPUS . 610 W. GERMANTOWN PIKE, SUITE 300
PLYMOUTH MEETING, PA 19462-1050 . 610-941-0255
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
Introduction............................................................. 3
Fee Table................................................................ 3
Financial Highlights..................................................... 4
The Fund's Investment Objective, Policies, Restrictions & Risk
Considerations.......................................................... 5-6
Management of the Fund................................................... 6
Investment Advisor....................................................... 7-8
Computation of Net Asset Value........................................... 8-9
How to Buy Fund Shares................................................... 9-11
Investing by Mail....................................................... 9
Investing by Wire....................................................... 10
Automatic Investment Plan............................................... 10
Direct Deposit Program.................................................. 10-11
Reinvestment of Income Dividends and Capital Gains Distributions........ 11
Additional Information.................................................. 11
Investment Application................................................... 12a
How to Redeem Fund Shares................................................ 12-14
By Written Request...................................................... 12
By Automated Clearing House ("ACH")..................................... 12-13
Systematic Cash Withdrawal Plan......................................... 13
Additional Information.................................................. 13-14
Exchange Privilege....................................................... 14-15
Retirement Plans......................................................... 15
Income Dividends and Capital Gains Distributions: Tax Treatment.......... 15-16
Performance Calculations................................................. 17
Description of Common Stock.............................................. 17-18
General Information...................................................... 18
Service Providers & Underwriter.......................................... 18
Audits and Reports....................................................... 18
Automatic Investment Plan Application.................................... 19-20
</TABLE>
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FOR MORE DETAILED INFORMATION ABOUT THE ITEMS DISCUSSED IN THIS PROSPECTUS, A
COPY OF THE STATEMENT OF ADDITIONAL INFORMATION MAY BE OBTAINED WITHOUT CHARGE
BY WRITING TO THE FUND'S DISTRIBUTOR, FUND/PLAN BROKER SERVICES, INC., 2 W.
ELM STREET, P.O. BOX 874, CONSHOHOCKEN, PA 19428-0874, OR BY TELEPHONING 800-
634-5726.
2
<PAGE>
INTRODUCTION
Stratton Small-Cap Yield Fund (the "Fund"), a series of The Stratton Funds,
Inc., is a no-load, open-end diversified mutual fund. The Fund's investment
objective is to achieve both dividend income and capital appreciation.
The Fund will seek to achieve this objective through investment in the
securities of small-cap companies. Due to the inherent risk of any type of
investment, however, there is no assurance that this objective will be
achieved.
The Fund intends to pay a quarterly dividend to shareholders (see pages 15 and
16 for more detailed information about Income Dividends and Capital Gains
Distributions).
FEE TABLE
Below is a summary of the Operating Expenses that the Fund incurred during its
last fiscal year. A hypothetical example based on the summary is also shown.
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)
<TABLE>
<S> <C>
Management Fees................................................ 0.75%(/1/)
Other Expenses................................................. 0.71%
-----
Total Fund Operating Expenses.................................. 1.46%
=====
</TABLE>
<TABLE>
<CAPTION>
EXAMPLE 1 YEAR 3 YEARS 5 YEARS 10 YEARS
<S> <C> <C> <C> <C>
You would pay the following expenses on a
$1,000 investment, assuming: (1) a 5% annual
return; and (2) redemption at the end of each
time period: $15 $46 $79 $173
</TABLE>
WHILE THE FOREGOING EXAMPLE ASSUMES A 5% ANNUAL RETURN, THE FUND'S ACTUAL
PERFORMANCE WILL VARY AND MAY RESULT IN AN ACTUAL RETURN MORE OR LESS THAN 5%.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES OR ANNUAL RETURN. ACTUAL EXPENSES AND ANNUAL RETURN MAY BE MORE OR
LESS THAN THOSE SHOWN.
The purpose of this Fee Table is to assist the investor in understanding the
various costs and expenses that an investor in the Fund will bear directly or
indirectly. The Fund does not impose any sales load or redemption or exchange
fees, nor does it bear any fees pursuant to a Rule 12b-1 Plan; however, the
Transfer Agent currently charges investors who request redemptions by wire
transfer a fee of $9 for each such payment. For more complete descriptions of
the various costs and expenses, see Investment Advisor, How to Buy Fund
Shares, How to Redeem Fund Shares, Retirement Plans and Service Providers and
Underwriter in this Prospectus and the financial statements and related notes
contained in the Statement of Additional Information.
(1) This fee reflects the basic management fee of 0.75% payable by the Fund
under the Investment Advisory Agreement. The basic management fee may be
increased or decreased by a maximum of 0.50%, depending upon the Fund's
performance. This means that the total fund management fee expenses may be
as high as 1.25% or as low as 0.25%. Due to the complexities of
researching and investing in small-cap equity markets, this fee is higher
than that paid by most other investment companies. The Fund believes that
the fee is comparable to the fees paid by other investment companies with
similar equity investment objectives and policies. See "Investment
Advisor" for further information.
3
<PAGE>
FINANCIAL HIGHLIGHTS
The following information provides financial highlights for a share of the
Fund outstanding during the period stated. The information for each period
ended presented below has been audited by Tait, Weller & Baker, certified
public accountants, whose report thereon appears in the Fund's Statement of
Additional Information dated July 31, 1996. This data should be read in
conjunction with the other financial statements and notes thereto, also
included in the Fund's Statement of Additional Information. Additional
information about the performance of the Fund is contained in the Fund's
annual report, which can be obtained without charge by calling 800-634-5726.
The table below sets forth financial data for a share of capital stock
outstanding throughout the period presented.
<TABLE>
<CAPTION>
YEAR YEAR FOR THE PER
ENDED ENDED 04/12/93*
03/31/96 03/31/95 TO 03/31/94
-------- -------- -----------
<S> <C> <C> <C>
Net Asset Value, Beginning of Period............. $ 25.88 $ 25.94 $25.00
------- ------- ------
INCOME FROM INVESTMENT OPERATIONS
Net investment income............................ 0.68 0.57 0.43
Net gains (loss) on securities (both realized and
unrealized)...................................... 6.05 (0.04) 0.91
------- ------- ------
Total from investment operation.............. 6.73 0.53 1.34
------- ------- ------
LESS DISTRIBUTIONS
Dividends (from net investment income)........... (0.66) (0.59) (0.40)
------- ------- ------
Distributions (from capital gains)............... 0.00 0.00 0.00
------- ------- ------
Total distributions.......................... (0.66) (0.59) (0.40)
======= ======= ======
NET ASSET VALUE, END OF PERIOD................... $ 31.95 $ 25.88 $25.94
======= ======= ======
Total Return................................. 26.18% 2.09% 5.51%**
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's)............. $19,592 $14,058 $8,257
Ratio of expenses to average net assets.......... 1.46% 2.12% 2.28%**
Ratio of net investment income to average net
assets........................................... 2.34% 2.36% 1.85%**
Portfolio turnover rate.......................... 33.50% 30.20% 28.60%**
</TABLE>
- ----
* Commencement of operations
** Annualized
The Fund's portfolio turnover is calculated by dividing the lesser of the
Fund's aggregate purchases or sales of its portfolio securities by the average
monthly value of the Fund's portfolio securities during the year.
4
<PAGE>
THE FUND'S INVESTMENT OBJECTIVE, POLICIES, RESTRICTIONS AND
RISK CONSIDERATIONS
The investment objective of the Fund is to achieve both dividend income and
capital appreciation. The Fund seeks to achieve its objective by investing in
equity securities of companies with total market capitalizations at the time
of investment of less than $500 million and which are outside the Standard &
Poor's 500 Index ("small-cap companies"). Of course, there is no assurance
that this objective will be achieved.
On an overall portfolio basis, the Investment Advisor will seek to achieve the
Fund's objective by continuously reviewing both individual securities and
relevant economic and social conditions so that in the view of the Investment
Advisor, reviewed by the Fund's Board of Directors, the Fund has the greatest
possible potential for capital appreciation consistent with reasonable risk.
The Investment Advisor generally selects companies which pay quarterly
dividends at an above-average rate. The Fund will invest at least 65% of its
assets in small-cap companies.
Under normal market conditions, it is expected that the Fund will invest at
least 80% of its assets in common stocks and securities convertible into or
exchangeable for common stock. The Fund may also invest in other types of
securities with equity characteristics such as preferred stocks, warrants,
units and rights. The Fund may invest in both exchange-listed and over-the-
counter securities.
Although the Fund normally seeks to remain fully invested in equity
securities, the Fund may invest temporarily up to 100% of its assets in
certain short-term fixed income securities. Such securities may be used to
invest uncommitted cash balances, for temporary purposes pending investments
in other securities, to maintain liquidity to meet shareholder redemptions or
for temporary defensive measures to protect against the erosion of its capital
base. These securities include, but are not limited to, obligations of the
U.S. government, its agencies and instrumentalities, commercial paper, bank
certificates of deposit, bankers acceptances and repurchase agreements. When
the Fund invests for defensive purposes, it may affect the attainment of the
Fund's investment objective.
The foregoing objectives and policies may be changed by the Board of Directors
without shareholder approval. Any changes in the Fund's objective may result
in different goals being sought by the Fund compared to the goals that the
shareholder felt were appropriate at the time of investment. Any change in the
Fund's investment objective will be communicated promptly to shareholders. As
a matter of fundamental policy, which cannot be changed without the vote of a
majority of the Fund's outstanding shares, the Fund will not invest more than
25% of its total assets in any one industry.
The Fund may invest in real estate investment trusts ("REITs"). Equity REITs
invest directly in real property while mortgage REITs invest in mortgages on
real property. The Fund does not intend to invest in REITs that are primarily
mortgage REITs. Equity REITs usually provide a high current yield plus the
opportunity of long-term price appreciation of real estate values. REITs may
be subject to certain risks associated with the direct ownership of real
estate including declines in the value of real estate, risks related to
general and local economic conditions, overbuilding and increased competition,
increases in property taxes and operating expenses, and variations
5
<PAGE>
in rental income. Generally, increases in interest rates will decrease the
value of high yielding securities and increase the costs of obtaining
financing, which could decrease the value of the portfolio's investments.
Equity REITs may be affected by changes in the value of the underlying
property owned by the trusts. Equity REITs are dependent upon management
skill, may not be diversified and are subject to the risks of financing
projects. REITs are also subject to heavy cash flow dependency, defaults by
borrowers, self liquidation and the possibility of failing to qualify for tax-
free pass-through of income under the Internal Revenue Code and to maintain
exemption from the Investment Company Act of 1940, as amended (the "1940
Act"). REITs pay dividends to their shareholders based upon available funds
from operations. It is quite common for these dividends to exceed the REIT's
taxable earnings and profits resulting in the excess portion of such dividends
being designated as a return of capital. The Fund intends to include the gross
dividends from such REITs in its distributions to its shareholders and,
accordingly, a portion of the Fund's distributions may also be designated as a
return of capital.
The Fund will not knowingly invest more than 5% of its total assets in
securities that are illiquid. Securities having legal or contractual
restrictions on resale and no readily available market, and instruments that
do not provide for payment to the Fund within seven days after notice are
subject to this 5% limit. Securities that have legal or contractual
restrictions on resale but have a readily available market are not deemed to
be illiquid for the purposes of this limitation.
Investments in small-cap companies have certain risks associated with them.
First and foremost is their greater earnings and price volatility in
comparison to large companies. Earnings risk is partially due to the
undiversified nature of small company business lines.
The Fund attempts to counteract these concerns about investing in small-cap
companies by using strict purchase criteria. One of these criteria stipulates
that these companies must have been sound and going entities for over three
years. In addition, these companies must be established dividend-paying
entities. The dividend requirement helps to reduce share price volatility of
the issues in the Fund and ultimately of the Fund itself.
MANAGEMENT OF THE FUND
Overall responsibility for management and supervision of the Fund rests with
the Fund's Directors. There are currently seven Directors, five of whom are
not "interested persons" of the Fund within the meaning of that term under the
1940 Act. The Board meets regularly five times each year, and at other times
as necessary.
By virtue of the functions performed by Stratton Management Company as
Investment Advisor, the Fund requires no employees other than its executive
officers, all of whom are employed by the Advisor. Three of the Advisor's
employees devote full-time to the affairs and administration of the Fund,
Stratton Growth Fund, Inc. and Stratton Monthly Dividend Shares, Inc.
(collectively, the "Stratton Group"). Three other employees of the Advisor
also devote a significant amount of time to the affairs of the Stratton Group.
The Statement of Additional Information contains the names of and general
background information regarding each Director and executive officer of the
Fund.
6
<PAGE>
INVESTMENT ADVISOR
The Investment Advisor to the Fund is Stratton Management Company (the
"Advisor"), Plymouth Meeting Executive Campus, 610 W. Germantown Pike, Suite
300, Plymouth Meeting, PA 19462-1050.
The Advisor provides investment advisory services, consisting of portfolio
management, for a variety of individuals and institutions and had
approximately $1.31 billion in assets under management as of June 30, 1996.
The principal executive officer of the Advisor is James W. Stratton, who owns
all of the Advisor's issued and outstanding voting securities. Mr. Stratton
has been primarily responsible for the day-to-day investment management of the
Fund's portfolio since the Fund's commencement of operations in April of 1993.
Since 1972, Mr. Stratton has been engaged in the investment advisory business
as President of the Advisor. Mr. Stratton also serves as Chairman of the Board
of the Fund, Stratton Monthly Dividend Shares, Inc. and Stratton Growth Fund,
Inc. As of June 30, 1996, the Profit Sharing Plan of the Advisor owned 41,346
shares or 6.6% of the Fund's outstanding shares.
The Advisor also provides investment advice to Stratton Growth Fund, Inc.
("SGF"), a no-load fund whose primary objective is growth of capital with
current income from interest and dividends as a secondary objective. SGF's
investments will normally consist of common stock and securities convertible
into or exchangeable for common stock. The Advisor also provides investment
advice to Stratton Monthly Dividend Shares, Inc. ("SMDS"), a no-load fund
whose objective is a high rate of return from dividend and interest income on
its investments in common stock and securities convertible into common stock.
As of June 30, 1996, SGF and SMDS had net assets of $41.8 million and $109.6
million, respectively.
The Fund entered into its current Investment Advisory Agreement (the
"Agreement") with the Advisor on April 1, 1993. The Agreement was last
approved by the Fund's Board of Directors on June 25, 1996. Subject to the
supervision and direction of the Fund's Board of Directors, the Advisor
manages the Fund's investment portfolio in accordance with the Fund's stated
investment objective and policies, makes investment decisions for the Fund and
places orders to purchase and sell securities on behalf of the Fund.
The Advisor performs these services for an investment advisory fee payable
monthly at an annual rate of 3/4 of 1% of the Fund's average daily net asset
value subject to a performance adjustment. One-twelfth of the annual basic fee
rate is applied to the Fund's net assets averaged over the most recent month.
The performance adjustment will be calculated at the end each month based upon
a rolling 24 month performance period. The performance adjustment is added to
or subtracted from the basic investment advisory fee. The Fund's gross
performance is compared with the performance of the Frank Russell 2000 Index
("Russell 2000"), a widely recognized unmanaged index of common stock prices,
over a rolling 24-month performance period. The Russell 2000 Index is composed
of the smallest 2000 stocks in the Frank Russell annual ranking of 3000 common
stocks by market capitalization. The Russell 2000 is a widely recognized
common stock index of small to medium size companies. Total return performance
on the Russell 2000 Index includes dividends and is reported monthly on market
capitalization-
7
<PAGE>
weighted basis. When the Fund performs better than the Russell 2000, it pays
the Investment Advisor an incentive fee; less favorable performance than the
Russell 2000 reduces the basic fee. Each 1.00% of the difference in
performance between the Fund and the Russell 2000 during the performance
period is equal to a 0.10% adjustment to the basic fee. The maximum annualized
performance adjustment rate is +/- 0.50% of average net assets which would be
added to or deducted from the advisory fee if the Fund outperformed or
underperformed the Russell 2000 by 5.00%. The effect of this performance fee
adjustment is that the basic advisory fee may be increased as high as an
annual rate of 1.25% or decreased to as low as an annual rate of 0.25% of the
Fund's average daily net asset value. Due to the complexities of researching
and investing in small-cap equity securities, the advisory and incentive fees
(if realized) paid by the Fund are higher than those paid by most other
investment companies. Additionally, the Fund's incentive fee of plus or minus
0.50% is greater than that of other mutual funds with similar objectives which
pay incentive fees.
For a more complete description of the terms of the Investment Advisory
Agreement, as well as for the guidelines followed by the Advisor in seeking to
obtain the best price and execution of the purchase and sale of securities for
the Fund, refer to the Statement of Additional Information.
Pursuant to an Administration Agreement dated March 31, 1993, Fund/Plan
Services, Inc. ("Fund/Plan"), 2 W. Elm Street, Conshohocken, PA 19428-0874,
provides certain administrative services to the Fund, including assistance
with all federal and state compliance matters. Fund/Plan receives a fee
payable monthly at an annual rate of $10,000 for providing these services.
Pursuant to an Accounting Services Agreement dated March 31, 1993, Fund/Plan
also serves as the Fund's accounting services agent and has responsibility for
certain accounting services (e.g. computation of the net asset value of the
Fund's shares and maintenance of the Fund's books and financial records).
Fund/Plan receives a fee at the annual rate of $20,000 for these services.
COMPUTATION OF NET ASSET VALUE
The net asset value per share of the Fund is determined once each business day
as of the close of regular trading hours (currently 4:00 p.m. Eastern time) on
the New York Stock Exchange. Such determination will be made by dividing the
value of all securities and other assets (including dividends accrued but not
collected) less any liabilities (including accrued expenses), by the total
number of shares outstanding.
Portfolio securities are valued as follows:
1. Securities listed or admitted to trading on any national securities
exchange are valued at their last sale price on the exchange where the
securities are principally traded or, if there has been no sale on that
date, at the mean between the last reported bid and asked prices.
2. Securities traded in the over-the-counter market are valued at the last
sale price, if carried in the National Market Issues section by NASDAQ;
other over-the-counter securities are valued at the mean between the
closing bid and asked prices obtained from a principal market maker.
8
<PAGE>
3. All other securities and assets are valued at their fair value as
determined in good faith by the Board of Directors of the Fund, which may
include the amortized cost method for securities maturing in sixty days or
less and other cash equivalent investments.
Determination of the net asset value may be suspended when the right of
redemption is suspended as provided under "How to Redeem Fund Shares" on pages
xx through xx.
HOW TO BUY FUND SHARES
Shares of the Fund are offered on a continuous basis at their net asset value.
The net asset value per share of the Fund, and hence the purchase price of the
shares, will vary with the value of securities held in the Fund's portfolio.
Purchasers of the Fund's shares pay no "sales load"; the full amount of the
purchase price goes toward the purchase of shares of the Fund. Purchases are
made at the net asset value next determined following receipt of a purchase
order by the Fund's Transfer Agent, Fund/Plan, at the address set forth below,
accompanied by payment for the purchase. The Fund may also from time to time
accept wire purchase orders from broker/dealers and institutions who have been
approved previously by the Fund.
Orders for shares of the Fund received prior to the close of regular trading
hours on the New York Stock Exchange (currently 4:00 p.m. Eastern time) are
confirmed at the net asset value determined at the close of regular trading
hours on the Exchange on that day.
Orders received at the address set forth below subsequent to the close of
regular trading hours on the New York Stock Exchange will be confirmed at the
net asset value determined at the close of regular trading hours on the next
day the Exchange is open.
INVESTING BY MAIL
An account may be opened and shares of the Fund purchased by completing the
Investment Application enclosed within this Prospectus and sending the
Application, together with a check for the desired amount, payable to
"Stratton Small-Cap Yield Fund" to the Fund, c/o Fund/Plan Services, Inc., 2
W. Elm Street, P.O. Box 874, Conshohocken, PA 19428. The minimum amount for
the initial purchase of shares of the Fund is $500. This minimum amount will
remain in effect until the Fund reaches 2,000 shareholders, after which time
the minimum amount for initial purchases will be $5,000. Subsequent purchases
may be made in amounts of $100 or more. (Note: There are no minimum investment
amounts applied to retirement plans.) After each purchase you will receive an
account statement for the shares purchased. Once a shareholder's account has
been established, additional purchases may be made by sending a check made
payable to "Stratton Small-Cap Yield Fund" to the Fund, c/o Fund/Plan
Services, Inc., P.O. Box 412797, Kansas City, MO 64141-2797. Please enclose
the stub of your account statement and include your Fund account number on
your check (as well as the attributable year for retirement plan investments,
if applicable). PLEASE NOTE: A $20 FEE WILL BE CHARGED TO YOUR ACCOUNT FOR ANY
PAYMENT CHECK RETURNED TO THE CUSTODIAN.
9
<PAGE>
INVESTING BY WIRE
You may also pay for shares by instructing your bank to wire Federal funds to
the Fund's Transfer Agent. Federal funds are monies of member banks within the
Federal Reserve System. Your bank must include the full name(s) in which your
account is registered and your Fund account number, and should address its
wire as follows:
UNITED MISSOURI BANK KC NA
ABA # 10-10-00695
For: Fund/Plan Services, Inc.
Account #98-7037-071-9
FBO: "STRATTON SMALL-CAP YIELD FUND"
Account of (exact name(s) of account registration)
Shareholder Account # ____________________
If you are opening a new account by wire transfer, you must first telephone
the Fund's Transfer Agent at 800-441-6580 to request an account number and
furnish the Fund with your social security or other tax identification number.
A completed application with signature(s) of registrant(s) must be filed with
the Fund immediately subsequent to the initial wire. Your bank will generally
charge a fee for this wire. The Fund will not be responsible for the
consequences of delays, including delays in the banking or Federal Reserve
wire systems.
PLEASE NOTE: YOUR INITIAL FUND ACCOUNT MUST SATISFY THE $500 MINIMUM BALANCE
REQUIREMENT IN ORDER TO PARTICIPATE IN THE FOLLOWING PROGRAMS OR PLANS.
AUTOMATIC INVESTMENT PLAN
Shares of the Fund may also be purchased through our "AUTOMATIC INVESTMENT
PLAN" (tear-out application in back of this Prospectus). The Plan provides a
convenient method by which investors may have monies deducted directly from
their checking, savings or bank money market accounts for investment in the
Fund. The minimum investment pursuant to this Plan is $100 per month. The
account designated will be debited in the specified amount, on the date
indicated, and Fund shares will be purchased. Only an account maintained at a
domestic financial institution which is an Automated Clearing House ("ACH")
member may be so designated. The Fund may alter, modify, or terminate this
Plan at any time.
DIRECT DEPOSIT PROGRAM
This program enables a shareholder to purchase additional shares by having
certain payments from the Federal government ONLY (i.e., Federal salary,
Social Security and certain veterans, military or other payments)
automatically deposited into the shareholder's account in the Fund. The
minimum investment is $100.
To elect this privilege, a shareholder must complete a Direct Deposit
Enrollment Form for each type of payment desired. The form may be obtained by
contacting the Fund's Transfer Agent, Fund/Plan Services, Inc., at the address
or telephone number shown below. Death or legal incapacity will terminate a
shareholder's participation in this program. A shareholder may
10
<PAGE>
terminate his or her participation by notifying, in writing, the appropriate
Federal agency. In addition, the Fund may terminate participation upon 30
days' notice to the shareholder.
REINVESTMENT OF INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS
Any shareholder may at any time request and receive automatic reinvestment of
any Fund income dividends and capital gains distributions, or income dividends
only, or capital gains distributions only, in additional shares of the Fund
unless the Fund's Board of Directors determines otherwise. The Fund will send
the shareholder an account statement reflecting all such reinvestments. The
$100 minimum requirement for subsequent investments does not apply to the
reinvestment of income dividends and/or capital gain distributions.
The election to reinvest may be made on the Investment Application enclosed
within this Prospectus or by writing to Stratton Small-Cap Yield Fund, c/o
Fund/Plan Services, Inc., 2 W. Elm Street, P.O. Box 874 Conshohocken, PA
19428-0874. Any such election will automatically continue for subsequent
dividends and/or distributions until written revocation is received by the
Fund. If no election is chosen the Fund will automatically reinvest your
dividends and capital gains.
ADDITIONAL INFORMATION
Shares of the Fund may be purchased or redeemed through certain broker/dealers
who may charge a transaction fee, which would not otherwise be charged if the
shares were purchased directly from the Fund.
The Fund reserves the right to reject purchases under circumstances or in
amounts considered disadvantageous to the Fund. CERTIFICATES WILL NOT BE
ISSUED UNLESS REQUESTED IN WRITING BY THE REGISTERED SHAREHOLDER(S).
The Fund is required by Federal tax law to withhold 31% of reportable payments
(which may include dividends, capital gains distributions, and redemptions)
paid to shareholders who have not complied with IRS regulations regarding Tax
ID Certification. In order to avoid this withholding requirement, you must
certify via signature on your Application, or on a separate W-9 Form supplied
by the Transfer Agent, that your Social Security or Taxpayer Identification
Number is correct (or you are waiting for a number to be issued to you), and
that you are currently not subject to backup withholding, or you are exempt
from backup withholding.
While the Fund provides most shareholder services, certain special services,
such as a request for a historical transcript of an account, may involve an
ADDITIONAL FEE. To avoid having to pay such a fee for these special services,
it is important that you SAVE your last Year-to-Date Confirmation Statement
received each year.
PLEASE REFER ALL QUESTIONS AND CORRESPONDENCE ON NEW AND EXISTING ACCOUNTS
(SUCH AS PURCHASES OR REDEMPTIONS, OR STATEMENTS NOT RECEIVED), DIRECTLY TO
THE FUND'S TRANSFER AGENT, BY WRITING TO FUND/PLAN SERVICES, INC., 2 W. ELM
STREET, P.O. BOX 874, CONSHOHOCKEN, PA 19428-0874, OR BY CALLING FUND/PLAN'S
CUSTOMER SERVICE DEPARTMENT AT 800-441-6580. PLEASE REFERENCE YOUR FUND NAME
AND ACCOUNT NUMBER.
11
<PAGE>
HOW TO REDEEM FUND SHARES
BY WRITTEN REQUEST
Shareholders may redeem shares of the Fund by mail, by writing directly to the
Fund's Transfer Agent, Fund/Plan Services, Inc., 2 W. Elm Street, P.O. Box
874, Conshohocken, PA 19428-0874, and requesting liquidation of all or any
part of their shares. The redemption request must be signed exactly as the
shareholder's name appears in the registration and must include the Fund name
and account number. If shares are owned by more than one person, the
redemption request must be signed by all owners exactly as their names appear
on the form of registration. Shareholders holding stock certificates must
deliver them along with their signed redemption requests. To protect your
account, the Transfer Agent and the Fund from fraud, signature guarantees are
required for certain redemptions. SIGNATURE GUARANTEES ARE REQUIRED FOR: (1)
all redemptions of $5,000 or more; (2) any redemptions if the proceeds are to
be paid to someone other than the person(s) or organization in whose name the
account is registered; (3) any redemptions which request that the proceeds be
wired to a bank; (4) requests to transfer the registration of shares to
another owner; and (5) any redemption if the proceeds are to be sent to an
address other than the address of record. The Transfer Agent requires that
signatures be guaranteed by an "eligible guarantor institution" as defined in
Rule 17Ad-15 under the Securities Exchange Act of 1934. Eligible guarantor
institutions include banks, brokers, dealers, credit unions, national
securities exchanges, registered securities associations, clearing agencies
and savings associations. Broker/dealers guaranteeing signatures must be
members of a clearing corporation or maintain net capital of at least
$100,000. Credit unions must be authorized to issue signature guarantees.
Signature guarantees will be accepted from any eligible guarantor institution
which participates in a signature guarantee program. The Transfer Agent cannot
accept guarantees from notaries public. In certain instances, the Fund may
require additional documents, such as certified death certificates or proof of
fiduciary or corporate authority. (NOTE: PLEASE CALL OUR TRANSFER AGENT TO
VERIFY REQUIRED LANGUAGE FOR ALL RETIREMENT PLAN REDEMPTION REQUESTS.) No
redemption shall be made unless a shareholder's investment application is
first on file. In addition, the Fund will not accept redemption requests until
checks (including certified checks or cashier's checks) received for the
shares purchased have cleared, which can be as long as 15 days.
Redemption requests mailed to the Fund's Advisor located in Plymouth Meeting,
PA must be forwarded to the Transfer Agent and will not be effected until they
are received in good order by the Transfer Agent. The Transfer Agent cannot
accept redemption requests which specify a particular forward date for
redemption.
BY AUTOMATED CLEARING HOUSE ("ACH")
A shareholder may elect to have redemption proceeds, cash distributions or
systematic cash withdrawal payments transferred to his or her bank, savings
and loan association or credit union that is an on-line member of the ACH
system. There are no fees associated with the use of the ACH service.
Written ACH redemption requests must be received by the Fund's Transfer Agent
before 4 p.m. Eastern time to receive that day's closing net asset value. ACH
redemptions will be sent on the day following the shareholder's request; funds
will be available two days later.
12
<PAGE>
This is your
INVESTMENT APPLICATION
Detach and mail to:
Fund/Plan Services, Inc.
P.O. Box 874
Conshohocken, PA 19428
12a
<PAGE>
MEMBER OF
================
STRATTON SMALL-CAP NO-LOAD(TM)
SSCY 100% MUTUAL FUND
YIELD FUND COUNCIL
================
- --------------------------------------------------------------------------------
MAIL TO: FUND/PLAN SERVICES, INC., P.O. BOX 874, CONSHOHOCKEN, PA 19428
1. INITIAL INVESTMENT ($500 MINIMUM)
- --------------------------------------------------------------------------------
FORM OF PAYMENT
[ ]Check for $ _______ enclosed (payable to "Stratton Small-Cap Yield Fund,
Inc.")
[ ]BY WIRE An initial purchase of $_________ was wired on _______________ by
Date
_____________________________ to account # ________________________
Name of your Bank or Broker Number assigned by F/P/S
- --------------------------------------------------------------------------------
2. REGISTRATION (PLEASE PRINT) NO CERTIFICATES WILL BE ISSUED UNLESS REQUESTED
IN WRITING.
- --------------------------------------------------------------------------------
INDIVIDUAL -- --
------------------------------------------ --------------------------
First name Middle Initial Last Name Social Security #
-- --
------------------------------------------ --------------------------
Jt. Owner First Name* Middle Initial Last Name Social Security #
*(Joint ownership with rights of survivorship unless otherwise noted).
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
GIFT TO MINORS
-------------------------------------------------------------------------
Name of Custodian (name one only) As Custodian For (name one only)
Under the Uniform Gift to Minors Act -- --
---------- --------------------------
State Minor's Social Security #
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
CORPORATIONS, PARTNERSHIPS, TRUSTS AND OTHERS**
-------------------------------------------------------------------------
Name of Corporation, Partnership, Trust or Other
--
----------------------- ----------------------------------------------
Tax I.D. # Name of Trustee(s) Date of Trust
**Complete Corporate Resolution attached, if applicable.
- --------------------------------------------------------------------------------
3.MAILING ADDRESS OF RECORD AND TELEPHONE NUMBER(S)
- --------------------------------------------------------------------------------
-------------------------------------------------------------------------
Street Address & Apt. #
--
-------------------------------------- ---- -------------------------
City State Zip & ext.
( ) ____________________ ( ) ____________________
Residence Telephone Number Business Telephone Number
- --------------------------------------------------------------------------------
<PAGE>
4.DISTRIBUTION OPTIONS (SEE PAGE 11 FOR MORE DETAIL)
- --------------------------------------------------------------------------------
Income Dividends(check one box/line only)[ ] reinvested[ ] paid in cash[refer
to box 7 below for instructions
Capital Gains Distributions(check one box/line only)[ ] reinvested[ ] paid in
cash if cash option via ACH is desired]
- --------------------------------------------------------------------------------
5.SYSTEMATIC WITHDRAWAL PLAN (MINIMUM INITIAL INVESTMENT $10,000) SEE PAGE 13
FOR MORE DETAIL.
- --------------------------------------------------------------------------------
A check in the amount of $________ (minimum $50) will be sent to you at your
address of record unless otherwise noted.
Please select desired frequency:
[ ] Monthly, prior to last day
[ ] Quarterly, prior to last day of ________, ________, ________, and _______.
[ ] Semi-Annual or Annual, prior to the last day of ______, ______, or ______.
- --------------------------------------------------------------------------------
6.TELEPHONE PRIVILEGE (SEE PAGES 14 & 15 FOR MORE DETAIL)
- --------------------------------------------------------------------------------
[ ] Exchange: Permits switching at any time between Stratton Growth Fund,
Inc., Stratton Monthly Dividend Shares, Inc. and Stratton
Small-Cap Yield Fund, provided such other shares may legally
be sold in the state of the investor's residence.
- --------------------------------------------------------------------------------
7.SPECIAL PROGRAMS (SEE PAGES 10 & 12 FOR MORE DETAIL)
- --------------------------------------------------------------------------------
To participate in the Direct Deposit Program, or to send cash distributions
via the Automated Clearing House System ("ACH"), please contact the Fund's
Transfer Agent at (800) 441-6580 to obtain the proper form(s).
- --------------------------------------------------------------------------------
8.SIGNATURE AND CERTIFICATION
- --------------------------------------------------------------------------------
The following is required by Federal tax law to avoid 31% backup
withholding; "By signing below, I certify under penalties of perjury that
the social security or taxpayer identification number entered above is
correct (or I am waiting for a number to be issued to me), and that I have
not been notified by the IRS that I am subject to backup withholding unless
I have checked the box." If you have been notified by the IRS that you are
subject to backup withholding, check box [ ].
Citizen of:[ ] United States[ ] Other (Please indicate)_____________________
Receipt of current Prospectus is hereby acknowledged. I (we) authorize
Fund/Plan Services, Inc. to act upon instructions for exchanges between
Funds received by telephone believed by it to be genuine.
----------------------------------------- -----------------------------
Signature [ ] Owner [ ] Custodian [ ] Trustee Date
----------------------------------------- -----------------------------
Signature of Joint Owner (if applicable) Date
- --------------------------------------------------------------------------------
<PAGE>
- -------------------------------------------------------------------------------
RESOLUTIONS
(This Section to be Completed by Corporations, Trusts, and Other
Organizations).
RESOLVED: That this corporation or organization become a shareholder of
Stratton Small-Cap Yield Fund, Inc. (the "Fund") and that
- -------------------------------------------------------------------------------
is (are) hereby authorized to complete and execute the Application on behalf
of the corporation or organization and take any action for it as may be
necessary or appropriate with respect to its shareholders account(s) with the
Fund, and it is FURTHER RESOLVED: That any one of the above noted officers is
authorized to sign any documents necessary or appropriate to appoint Fund/Plan
Services, Inc. as redemption agent of the corporation or organization for
shares of the Fund, to establish or acknowledge terms and conditions governing
the redemption of said shares or to otherwise implement the privileges elected
on the application.
- -------------------------------------------------------------------------------
CERTIFICATE
I hereby certify that the foregoing resolutions are in conformity with the
Charter and By-Laws or other empowering documents of the ______________________
(Name of Corporation)
incorporated or formed under the laws of ______________________________________
(State)
and were adopted at a meeting of the Board of Directors or Trustees of the
organization or corporation duly called and held on _____ at which a quorum
was present and acting throughout, and that the same are now in full force and
effect.
I further certify that the following is (are) the duly elected officer(s) of
the corporation or organization, authorized to act in accordance with the
foregoing resolutions.
Name Title
______________________________________ ______________________________________
______________________________________ ______________________________________
______________________________________ ______________________________________
Witness my hand and the seal of the corporation or organization this ____ day
of __________, 19______.
______________________________________ ______________________________________
*Secretary-Clerk Other Authorized Officer (if required)
* If the Secretary or other recording officer is authorized to act by the
above resolutions, this certificate must also be signed by another officer.
<PAGE>
Redemption proceeds (including systematic cash withdrawals), as well as
dividend and capital gains distributions, may be sent to a shareholder via
Federal Funds wire. However, the Fund's Transfer Agent will charge a $9 fee
for each Federal Funds wire transmittal, which will be deducted from the
amount of the payment.
SYSTEMATIC CASH WITHDRAWAL PLAN
The Fund offers a Systematic Cash Withdrawal Plan as another option which may
be utilized by an investor who wishes to withdraw funds from his or her
account on a regular basis. To participate in this option, an investor must
either own or purchase shares having a value of $10,000 or more. Automatic
payments by check will be mailed to the investor on either a monthly,
quarterly, semi-annual or annual basis in amounts of $50 or more. All
withdrawals are processed on the 25th day of the month or, if such day is not
a business day, on the next business day and paid promptly thereafter. Please
complete the appropriate section on the Investment Application enclosed with
this Prospectus, indicating the amount of the distribution and the desired
frequency.
An investor should realize that if withdrawals exceed income dividends and
capital gains distributions, the invested principal will be depleted. Thus,
depending on the size of the withdrawal payments and fluctuations in the value
of the shares, the original investment could be exhausted entirely. An
investor may change or stop the Plan at any time by written notice to the
Fund. DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS MUST BE AUTOMATICALLY
REINVESTED TO PARTICIPATE IN THIS PLAN. Stock certificates cannot be issued
under the Systematic Cash Withdrawal program.
ADDITIONAL INFORMATION
Due to the relatively high cost of maintaining smaller accounts, the Fund
reserves the right to involuntarily redeem shares in any account for its then
current net asset value (which will be paid to the shareholder within five
business days, or such shorter time period as may be required by applicable
S.E.C. rules) if at any time the total investment does not have a value of at
least $500. The shareholder will be notified that the value of his or her
account is less than the required minimum and will be allowed at least 45 days
to bring the value of the account up to at least $500 before the redemption is
processed.
The redemption price will be the net asset value of the shares to be redeemed
as determined at the close of regular trading hours on the New York Stock
Exchange after receipt at the address set forth above of a request for
redemption in the form described above and the certificates (if any)
evidencing the shares to be redeemed. No redemption charge will be made.
Payment for shares redeemed will be made within five business days, or such
shorter time period as may be required by applicable S.E.C. rules after
receipt of the certificates (or of the redemption request where no
certificates have been issued) by mailing a check to the shareholder's address
of record. PLEASE NOTE, A $9 FEE WILL BE CHARGED TO YOUR ACCOUNT AT THE TIME
OF REDEMPTION IF INSTRUCTIONS TO WIRE PROCEEDS ARE GIVEN; THERE IS NO FEE TO
MAIL PROCEEDS.
13
<PAGE>
THE FUND MAY ALSO FROM TIME TO TIME ACCEPT TELEPHONE REDEMPTION REQUESTS, FROM
BROKER/DEALERS AND INSTITUTIONS WHO HAVE BEEN APPROVED PREVIOUSLY BY THE FUND.
Neither the Fund nor any of its service contractors will be liable for any
loss, expense or cost in acting upon any telephone instructions that are
reasonably believed to be genuine. In attempting to confirm that telephone
instructions are genuine, the Fund will use such procedures as are considered
reasonable, including requesting a shareholder to correctly state his or her
Fund account number, the name in which his or her account is registered, his
or her banking institution, bank account number and the name in which his or
her bank account is registered. To the extent that the Fund fails to use
reasonable procedures to verify the genuineness of telephone instructions, it
and/or its service contractors may be liable for any such instructions that
prove to be fraudulent or unauthorized. During times of unusual market
conditions it may be difficult to reach the Fund by telephone. If the Fund
cannot be reached by telephone, shareholders should follow the procedures for
redeeming by mail as set forth above.
The right of redemption may not be suspended or payment upon redemption
deferred for more than five business days, or such shorter time period as may
be required by applicable S.E.C. rules except: (1) when trading on the New
York Stock Exchange is restricted as determined by the S.E.C. or such Exchange
is closed for other than weekends and holidays; (2) when the S.E.C. has by
order permitted such suspension; or (3) when an emergency, as defined by the
rules of the S.E.C., exists, making disposal of portfolio securities or
valuation of net assets of the Fund not reasonably practicable. In case of a
suspension of the determination of the net asset value, the right of
redemption is also suspended and unless a shareholder withdraws his request
for redemption, he or she will receive payment at the net asset value next
determined after termination of the suspension.
As provided in the Fund's Articles of Incorporation, payment for shares
redeemed may be made either in cash or in-kind, or partly in cash and partly
in-kind. However, the Fund has elected, pursuant to Rule 18f-1 under the 1940
Act, to redeem its shares solely in cash up to the lesser of $250,000 or one
percent of the net asset value of the Fund, during any 90 day period for any
one shareholder. Payments in excess of this limit will also be made wholly in
cash unless the Board of Directors believes that economic conditions exist
which would make such a practice detrimental to the best interests of the
Fund. Any portfolio securities paid or distributed in-kind will be in readily
marketable securities, and will be valued as described under "Computation of
Net Asset Value" on page x. Subsequent sale of such securities would require
payment of brokerage commissions by the investor.
The value of a shareholder's shares on redemption may be more or less than the
cost of such shares to the shareholder, depending upon the net asset value of
the Fund's shares at the time of redemption.
EXCHANGE PRIVILEGE
Shares of the Fund may be exchanged for shares of the other funds managed by
Stratton Management Company, Stratton Growth Fund, Inc. ("SGF") or Stratton
Monthly Dividend Shares,
14
<PAGE>
Inc. ("SMDS"), provided such other shares may legally be sold in the state of
the investor's residence. SGF has a primary investment objective of possible
growth of capital with current income from interest and dividends as a
secondary objective. SGF's investments will normally consist of common stocks
and securities convertible into or exchangeable for common stock. SMDS has an
investment objective of seeking a high rate of return from dividend and
interest income on its investments in common stock and securities convertible
into common stock.
For more complete information about SGF and SMDS, including charges and
expenses, a current Prospectus of SGF or SMDS should be obtained and read
prior to seeking any such exchange. Shares may be exchanged by: (1) written
request; or (2) telephone, if a special authorization form has been completed
and is on file with the Transfer Agent in advance. See "How to Redeem Fund
Shares--Additional Information" for a description of the Fund's policy
regarding telephone instructions.
PLEASE NOTE: Shareholders who have certificated shares in their possession
MUST surrender these shares to the Fund's Transfer Agent to be held on account
in unissued form PRIOR to taking advantage of either exchange privilege. When
returning certificates for this purpose only, signature(s) need NOT be
guaranteed. There are no sales charges involved. Shareholders who engage in
frequent exchange transactions may be prohibited from further exchanges or
otherwise restricted in placing future orders. The Fund reserves the right to
suspend the telephone exchange privilege at any time. An exchange for tax
purposes constitutes the sale of one fund and the purchase of another.
Consequently, the sale may involve either a capital gain or loss to the
shareholder for Federal income tax purposes.
RETIREMENT PLANS
The Fund has available three types of tax-deferred retirement plans for its
shareholders: Defined Contribution Plans, for use by both self-employed
individuals and corporations; an Individual Retirement Account, for use by
certain eligible individuals with compensation (including earned income from
self-employment); and a 403(b)(7) Retirement Plan, for use by employees of
schools, hospitals, and certain other tax-exempt organizations or
associations. More detailed information about how to participate in these
plans, the FEES charged by the custodian, and the limits on contributions can
be found in the Statement of Additional Information. TO INVEST IN ANY OF THE
TAX-DEFERRED RETIREMENT PLANS, PLEASE CALL THE FUND FOR INFORMATION AND THE
REQUIRED SEPARATE APPLICATION.
INCOME DIVIDENDS AND CAPITAL GAINS DISTRIBUTIONS:
TAX TREATMENT
The Fund expects to distribute quarterly substantially all of its net
investment income, if any, and annually all of its net realized capital gains,
if any. Any distribution paid necessarily reduces the Fund's net asset value
per share by the amount of the distribution. Distributions may be reinvested
in additional shares of the Fund (see "Reinvestment of Income Dividends and
Capital Gains Distributions" on page 11).
15
<PAGE>
For the fiscal year ended March 31, 1996, the Fund distributed dividends of
$.66 per share from ordinary income, all of which was taxable.
For the fiscal year ended March 31, 1996 the Fund met the requirements for the
special tax treatment afforded certain investment companies and their
shareholders under Subchapter M of the Internal Revenue Code, and the Fund
expects that the requirements for special tax treatment under the Code will
continue to be met. Under such circumstances, the Fund is not subject to
Federal income tax on such part of its ordinary taxable income or net realized
long-term capital gains that it distributes to shareholders. Distributions
paid by the Fund from net investment income and short-term capital gains (but
not distributions paid from long-term capital gains) will be taxable as
ordinary income to shareholders, whether received in cash or reinvested in
additional shares of the Fund. Such ordinary income distributions will qualify
for the dividends received deduction for corporations to the extent of the
total qualifying dividends from domestic corporations received by the Fund for
the year. Shareholders who are citizens or residents of the United States will
be subject to Federal taxes with respect to long-term realized capital gains
which are distributed to them, whether or not reinvested in the Fund and
regardless of the period of time such shares have been owned by the
shareholders. These distributions do not qualify for the dividends received
deduction. Due to the nature of REITs' dividends, the Fund may or may not
realize a return of capital. Consequently, a portion of the Fund's total
distributions might also include return of capital. Shareholders will be
advised after the end of each calendar year as to the Federal income tax
consequences of dividends and distributions of the Fund made each year.
Dividends declared in October, November or December of any year payable to
shareholders of record on a specified date in such months, will be deemed for
Federal tax purposes to have been received by the shareholders and paid by the
Fund on December 31 of such year in the event such dividends are paid during
January of the following year.
Prior to purchasing shares of the Fund, the impact of dividends or capital
gains distributions which are expected to be announced or have been announced
but not paid, should be carefully considered. Any such dividends or capital
gains distributions paid shortly after a purchase of shares by an investor
prior to the record date will have the effect of reducing the per share net
asset value of his or her shares by the per share amount of the dividends or
distributions. All or a portion of such dividends or distributions, although
in effect a return of capital to the shareholder, is subject to taxes, which
may be at ordinary income tax rates.
A taxable gain or loss may be realized by an investor upon his or her
redemption, transfer or exchange of shares of the Fund, depending upon the
cost of such shares when purchased and their price at the time of redemption,
transfer or exchange. If a shareholder has held Fund shares for six months or
less and received a distribution taxable as capital gains attributable to
those shares, any loss he realizes on a disposition of those shares will be
treated as a capital loss to the extent of the earlier capital gain
distribution.
The information above is only a short summary of some of the important Federal
tax considerations generally affecting the Fund and its shareholders. Income
and capital gains distributions may also be subject to state and local taxes.
Investors should consult their tax advisor with respect to their own tax
situation.
16
<PAGE>
PERFORMANCE CALCULATIONS
From time to time, performance information such as total return for the Fund
may be quoted in advertisements or in communications to shareholders. The
Fund's total return may be calculated on an average annual total return basis,
and may also be calculated on an aggregate total return basis, for various
periods. Average annual total return reflects the average annual percentage
change in value of an investment in the Fund over the measuring period.
Aggregate total return reflects the total percentage change in value over the
measuring period. Both methods of calculating total return assume that
dividends and capital gains distributions made by the Fund during the period
are reinvested in Fund shares.
The total return of the Fund may be compared to that of other mutual funds
with similar investment objectives and other relevant indices or to rankings
prepared by independent services or other financial or industry publications
that monitor the performance of mutual funds. For example, the total return of
the Fund's shares may be compared to data prepared by Lipper Analytical
Services, Inc. and to indices prepared by Dow Jones & Co., Inc. and Standard &
Poor's Ratings Group.
Performance quotations of the Fund represent the Fund's past performance, and
should not be considered as representative of future results. The investment
return and principal value of an investment in the Fund will fluctuate so that
an investor's shares, when redeemed, may be worth more or less than their
original cost. Any fees charged by broker/dealers, banks or other financial
institutions directly to their customer accounts in connection with
investments in shares of the Fund will not be included in the Fund's
calculations of total return. Further information about the performance of the
Fund is included in the Fund's most recent Annual Report which may be obtained
without charge by contacting the Fund at (800) 634-5726.
DESCRIPTION OF COMMON STOCK
The Fund is a Maryland corporation organized on January 5, 1993. The Fund's
authorized capital is 1,000,000,000 shares of Common Stock, par value $0.001
per share. Each share has equal voting, dividend, distribution and liquidation
rights. The outstanding shares are, and when issued for a consideration in
excess of the par value, the shares offered by this Prospectus will be, fully-
paid and non-assessable. Shares have no preemptive or conversion rights and
are freely transferable.
Shares may be issued as full or fractional shares and each fractional share
has proportionately the same rights as provided for full shares.
VOTING
The Fund's shares have non-cumulative voting rights, which means that the
holders of more than 50% of the shares voting for the election of directors
can elect 100% of the directors if they choose to do so and, in such event,
the holders of the remaining shares voting for the election of directors will
not be able to elect any directors.
17
<PAGE>
The Fund does not presently intend to hold annual meetings of shareholders
except as required by the 1940 Act or other applicable law. The law under
certain circumstances provides shareholders with the right to call for a
meeting of shareholders to consider the removal of one or more directors. To
the extent required by law, the Fund will assist in shareholder communication
in such matters.
GENERAL INFORMATION
As used in this Prospectus the term "majority" of the Fund's outstanding
shares means, with respect to the approval of an investment advisory agreement
or a change in a fundamental policy, the holders of the lesser of: (1) 67% of
the Fund's shares present at a meeting if the holders of more than 50% of the
outstanding shares are present in person or by proxy; or (2) more than 50% of
the Fund's outstanding shares.
SERVICE PROVIDERS AND UNDERWRITER
Pursuant to an arrangement between the Fund, The Bank of New York and
Fund/Plan Services, Inc. ("Fund/Plan"), The Bank of New York serves as
Custodian of all securities and cash owned by the Fund. The Custodian performs
no managerial or policy-making functions for the Fund.
Pursuant to an agreement between the Custodian and Fund/Plan, Fund/Plan
performs certain administrative and recordkeeping services for the Custodian.
The Custodian reallows a portion of its custody fee to Fund/Plan for providing
such services.
Fund/Plan, serves as the Fund's Transfer Agent, Administrator and Fund
Accounting/Pricing Agent. Fund/Plan was acquired by FinDaTex, Inc. on January
1, 1986. Certain directors and officers of Stratton Management Company, the
Advisor to the Fund, and certain directors and officers of the Fund are
controlling shareholders of FinDaTex, Inc. During the Fund's last fiscal year,
Fund/Plan received fees of $25,073 for providing shareholder services, $10,000
for certain administrative services, and $20,000 for accounting/pricing
services. Fund/Plan Broker Services, Inc. ("FPBS") was paid $3,000 for
underwriting services in connection with the registration of the Fund's shares
under state securities laws.
FPBS, 2 W. Elm Street, Conshohocken, PA 19428-0874, acts as underwriter for
the Fund pursuant to an agreement dated April 12,1993. Also, Fund/Plan and
FPBS are affiliates of the Advisor inasmuch as FPBS, Fund/Plan and the Advisor
are under common control.
AUDITS AND REPORTS
Investors in the Fund will be kept informed of its progress through quarterly
reports showing diversification of portfolio, principal security changes,
statistical data and other significant data and annual reports containing
audited financial statements. The Fund's independent certified public
accountants for the fiscal year ended March 31, 1996 were Tait, Weller &
Baker.
18
<PAGE>
AUTOMATIC INVESTMENT PLAN APPLICATION
- --------------------------------------------------------------------------------
HOW DOES IT WORK?
1. Fund/Plan Services, Inc., through our bank, United Missouri Bank KC NA,
draws an automatic clearing house (ACH) debit electronically against your
personal checking account each month, according to your instructions.
2. Choose any amount ($100 or more) that you would like to invest regularly and
your debit for this amount will be processed by Fund/Plan Services, Inc. as
if you had written a check yourself.
3. Shares will be purchased and a confirmation sent to you.
HOW DO I SET IT UP?
1. Complete the forms and the Fund Application Form if you do not already have
an existing account.
2. Mark one of your personal checks VOID, attach it to the forms below and mail
to Fund/Plan Services, Inc., P.O. Box 874, Conshohocken, PA 19428-0874.
3. As soon as your bank accepts your authorization, debits will be generated
and your Automatic Investment Plan started. In order for you to have ACH
debits from your account, your bank must be able to accept ACH transactions
and/or be a member of an ACH association. Your branch manager should be able
to tell you your bank's capabilities. We cannot guarantee acceptance by your
bank.
4. Please allow one month for processing of your Automatic Investment Plan
before the first debit occurs.
- -------------------------------------------------------------------------------
AUTOMATIC INVESTMENT PLAN APPLICATION
TO:Fund/Plan Services, Inc.
P.O. Box 874
Conshohocken, PA 19428-0874
Please start an Automatic Investment Plan for
me and invest _________________________________.
($100 or more)
on the [ ] 10th [ ] 15th [ ] 20th of each
month, in shares of STRATTON SMALL-CAP YIELD
FUND.
Check one:
[ ] I am in the process of establishing an
account.
or
[ ] My account number is: ______________________________________________________
________________________________________________________________________________
Name as account is registered
________________________________________________________________________________
Street
________________________________________________________________________________
City State Zip + ext.
I understand that my ACH debit will be dated on the day of each month as
indicated above or as specified by written request. I agree that if such debit
is not honored upon presentation, Fund/Plan Services, Inc. may discontinue this
service and any share purchase made upon deposit of such debit may be
cancelled. I further agree that if the net asset value of the shares purchased
with such debit is less when said purchase is cancelled than when the purchase
was made, Fund/Plan Services, Inc. shall be authorized to liquidate other
shares or fractions thereof held in my account to make up the deficiency. This
Automatic Investment Plan may be discontinued by Fund/Plan Services, Inc. upon
30-days written notice or at any time by the investor by written notice to
Fund/Plan Services, Inc. which is received not later than 5 business days prior
to the above designed investment date.
Signature(s):____________________________
_______________________________
19
<PAGE>
AUTOMATIC INVESTMENT PLAN APPLICATION
- --------------------------------------------------------------------------------
BANK REQUEST AND AUTHORIZATION
TO: ______________________________ ____________________
Name of Your Bank Bank Checking
Account Number
____________________________________________________________________________
Address of Bank or Branch Where Account is Maintained
As a convenience to me, please honor ACH debits on my account drawn by
Fund/Plan Services, Inc., United Missouri Bank KC NA and payable to "STRATTON
SMALL-CAP YIELD FUND."
I agree that your rights with respect to such debit shall be the same as if it
were a check drawn upon you and signed personally by me. This authority shall
remain in effect until you receive written notice from me changing its terms or
revoking it, and until you actually receive such notice, I agree that you shall
be fully protected in honoring such debit.
I further agree that if any debit is dishonored, whether with or without cause
or whether intentionally or inadvertently, you shall be under no liability
whatsoever.
DEPOSITOR'S ____________________________________________________________________
Signature of Bank Depositor(s) as shown on bank records.
NOTE: Your bank must be able to accept ACH transactions and/or be a member of
an ACH association in order for you to use this service.
- -------------------------------------------------------------------------------
INDEMNIFICATION AGREEMENT
TO:The bank named above
So that you may comply with your Depositor's request and authorization,
STRATTON SMALL-CAP YIELD FUND agrees as follows:
1. To indemnify and hold you harmless from any loss you may suffer arising from
or in connection with the payment by you of a debit drawn by Fund/Plan
Services, Inc. to the order of STRATTON SMALL-CAP YIELD FUND designated on
the account of your depositor(s) executing the authorization including any
costs or expenses reasonably incurred in connection with such loss. STRATTON
SMALL-CAP YIELD FUND will not, however, indemnify you against any loss due
to your payment of any debit generated against insufficient funds.
2. To refund to you any amount erroneously paid by you to Fund/Plan Services,
Inc. on any such debit if claim for the amount of such erroneous payment is
made by you within 3 months of the date of such debit on which erroneous
payment was made.
20
<PAGE>
PROSPECTUS
JULY 31, 1996
DIRECTORS
LYNNE M. CANNON
JOHN J. LOMBARD, JR.
HENRY A. RENTSCHLER
MERRITT N. RHOAD, JR.
ALEXANDER F. SMITH
RICHARD W. STEVENS
JAMES W. STRATTON
OFFICERS
JAMES W. STRATTON
Chairman
FRANK H. REICHEL, III
President
JOHN A. AFFLECK
GERARD E. HEFFERNAN
JOAN E. KUZMA
Vice President
PATRICIA L. SLOAN
Secretary and Treasurer
JAMES A. BEERS
CAROL L. ROYCE
Assistant Secretary
Assistant Treasurer
MEMBER OF
================
NO-LOAD(TM)
100% MUTUAL FUND
COUNCIL
================
INVESTMENT ADVISOR
STRATTON MANAGEMENT COMPANY
Plymouth Meeting Executive Campus
610 W. Germantown Pike, Suite 300
Plymouth Meeting, PA 19462-1050
Telephone: 610-941-0255
TRANSFER AGENT AND DIVIDEND PAYING AGENT
FUND/PLAN SERVICES, INC.
2 W. Elm Street, P.O. Box 874
Conshohocken, PA 19428-0874
Telephones: 610-834-3500 . 800-441-6580
CUSTODIAN BANK
THE BANK OF NEW YORK
48 Wall Street
New York, NY 10286
INDEPENDENT ACCOUNTANTS
TAIT, WELLER & BAKER
2 Penn Center Plaza, Suite 700
Philadelphia, PA 19102-1707
LEGAL COUNSEL
DRINKER BIDDLE & REATH
1100 Philadelphia National Bank Building
1345 Chestnut Street
Philadelphia, PA 19107-3496
THE STRATTON FUNDS, INC.
STRATTON SMALL-CAP
SSCY
YIELD FUND
A NO-LOAD FUND
<PAGE>
STATEMENT OF ADDITIONAL INFORMATION
July 31, 1996
This Statement of Additional Information is not a Prospectus but should be read
in conjunction with the current Prospectus for Stratton Small-Cap Yield Fund
(the "Fund"), dated July 31, 1996. A copy of the Prospectus for the Fund
may be obtained by contacting the Fund's "Distributor," Fund/Plan Broker
Services, Inc., 2 W. Elm Street, P.O. Box 874, Conshohocken, PA 19428-0874, or
by telephoning (800) 634-5726.
24
<PAGE>
TABLE OF CONTENTS
Page
Statement of Additional Information............................................
Investment Restrictions........................................................
Directors and Officers of the Fund.............................................
The Investment Advisor and Other Service Providers.............................
The Investment Advisor.......................................................
Accounting Agent.............................................................
The Administrator & Transfer Agent...........................................
Auditor & Custodian..........................................................
Portfolio Transactions and Brokerage Commissions...............................
Retirement Plans...............................................................
Underwriter....................................................................
Additional Information Concerning Taxes........................................
Additional Information on Performance Calculations.............................
Miscellaneous..................................................................
Financial Statements...........................................................
STATEMENT OF ADDITIONAL INFORMATION
This Statement of Additional Information should be read in conjunction with the
Prospectus of the Fund having the same date as this Statement of Additional
Information. Much of the information contained in this Statement of Additional
Information expands upon subjects discussed in the Prospectus. No investment in
shares of the Fund should be made without first reading the Prospectus of the
Fund.
INVESTMENT RESTRICTIONS
A list of the Fund's investment policies and restrictions, including those
policies and restrictions that can be changed by the Board of Directors without
shareholder approval, can be found on pages 5 & 6 of the Fund's Prospectus.
The following investment restrictions are deemed fundamental policies and may be
changed only by the approval of the holders of a "majority" of the Fund's shares
(as defined under "General Information" in the Fund's Prospectus):
THE FUND WILL NOT:
1. Issue any senior securities (as defined in the Investment Company Act of
1940); or borrow money, except from banks for temporary or emergency
purposes in an amount not exceeding 5% of the value of its total assets; or
mortgage, pledge or hypothecate its assets.
2. Act as an underwriter of securities, except that, in connection with the
disposition of a security, the Fund may be deemed to be an "Underwriter" as
that term is defined in the Securities Act of 1933.
3. Purchase or sell real estate, commodities, or commodity contracts.
25
<PAGE>
4. As to 75% of the total assets of the Fund, purchase the securities of any
one issuer, other than securities issued by the U.S. government, its
agencies or its instrumentalities, if immediately after such purchase more
than 5% of the total assets of the Fund would be invested in securities of
such issuer.
5. Purchase or own 10% or more of the outstanding voting securities of any one
issuer.
6. Purchase the securities of an issuer, if, to the Fund's knowledge, one or
more Officers or Directors of the Fund or of its Investment Advisor
individually own beneficially more than 0.5%, and those owning more than
0.5% together own beneficially more than 5%, of the outstanding securities
of such issuer.
7. Make loans to other persons, except that the purchase of a portion of an
issue of publicly distributed debt securities (whether or not upon original
issuance) shall not be considered the making of a loan, nor shall the Fund
be prohibited from entering into repurchase agreements with banks or
broker/dealers.
8. Purchase securities on margin, except that it may obtain such short-term
credits as may be necessary for the clearance of purchases or sales of
securities.
9. Purchase the securities of issuers conducting their principal business
activities in the same industry other than obligations issued or guaranteed
by the U.S. government, its agencies or instrumentalities if, immediately
after such purchase, the value of the Fund's investments in such industry
would exceed 25% of the value of the total assets of the Fund.
10. Invest in puts, calls, straddles or combinations thereof or make short
sales.
11. Purchase the securities of other investment companies, except if they are
acquired pursuant to a merger, consolidation, acquisition, plan of
reorganization or a Securities and Exchange Commission approved offer of
exchange.
12. Invest for the purpose of exercising control over, or management of, the
issuer.
Real estate investment trusts ("REITs") are not considered investment companies,
and therefore are not subject to the restriction in limitation 11 above. The
restriction in limitation 3 on the purchase or sale of real estate does not
include investments by the Fund in securities secured by real estate or
interests therein or issued by companies or investment trusts which invest in
real estate or interests therein.
The Fund has agreed, for purposes of compliance with certain state securities
regulations, that so long as its shares are registered and are being offered in
such states, that the Fund will: (1) not invest in interests in oil, gas or
other mineral exploration or development programs; and (2) limit its investments
in securities which are not readily marketable, including restricted securities,
to 15% of average net assets at the time of purchase. Generally, an illiquid
security is any security that cannot be disposed of within seven days in the
ordinary course of business at approximately the amount at which the Fund has
valued the security. Such restricted securities do not include securities
eligible for resale pursuant to Rule 144A of the Securities Act of 1933 that
have been determined to be liquid by the Fund's Board of Directors based upon
the trading markets for such securities. These policies are subject to change
without the affirmative vote of a majority of the Fund's outstanding shares.
The percentage limitations on investments are applied at the time an investment
is made. An actual percentage in excess of a stated percentage limitation does
not violate the limitation unless such excess exists
26
<PAGE>
immediately after an investment is made and results from the investment. In
other words, appreciation or depreciation of the Fund's investments will not
cause a violation of the limitations. In addition, the limitations will not be
violated if the Fund receives securities by reason of a merger or other form of
reorganization.
DIRECTORS AND OFFICERS OF THE FUND
The directors and executive officers of the Fund, their position with the Fund,
their addresses, affiliations, if any, with the Investment Advisor, and
principal occupations during the past five years are set forth below. Each of
the directors named below is also a director of Stratton Monthly Dividend
Shares, Inc. and Stratton Growth Fund, Inc. and each of the officers named below
also holds the same position, unless otherwise noted, with Stratton Monthly
Dividend Shares, Inc. and Stratton Growth Fund, Inc.
James W. Stratton* Mr. Stratton is the Chairman of the Board
Director/Chairman of Directors and President of the
610 W. Germantown Pike Investment Advisor, Stratton Management
Suite 300 Company. He is a Director of ALCO
Plymouth Meeting, PA 19462 Standard (diversified distribution and
manufacturing company), Amerigas Propane
Ltd. (energy), FinDaTex, Inc. (financial
services), Teleflex, Inc. (aerospace
controls and medical products) and UGI
Corp., Inc. (utility-natural gas).
Lynne M. Cannon* Ms. Cannon is a Senior Vice President of
Director Relationship Management of Fund/Plan
2 W. Elm Street Services, Inc. She was formerly employed
Conshohocken, PA 19428 as Vice President of Mutual Funds of
Independence Capital Management, Inc.
(investment advisor). Prior to
Independence Capital, she was Vice
President of AMA Investment Advisors,
Inc. (investment advisor &
broker/dealer).
John J. Lombard, Jr. Mr. Lombard is a partner in the law firm
Director of Morgan, Lewis & Bockius LLP.
2000 One Logan Square
Philadelphia, PA 19103
Henry A. Rentschler Mr. Rentschler is a private investor. He
Director was formerly the President of Baldwin-
P.O. Box 962 Hamilton Company, a division of Joy
Paoli, PA 19301 Environmental Equipment Co. (manufacturer
of renewal parts for Baldwin locomotives
and diesel engines) and was also formerly
a Director of the Society for Industrial
Archeology (which promotes the study and
preservation of the physical survivals of
our technological and industrial past).
27
<PAGE>
Merritt N. Rhoad, Jr. Mr. Rhoad is a private investor. He was
Director formerly a senior systems engineer with
640 Bridle Road International Business Machines
Custis Woods Corporation.
Glenside, PA 19038
Alexander F. Smith Mr. Smith is a private investor. He was
Director formerly the Chairman and Director of
Cricket Springs Gilbert Associates, Inc.
Geigertown, PA 19523 (engineering/consulting services).
Richard W. Stevens
Director Mr. Stevens is an attorney in private
One Jenkintown Station practice. He was formerly a partner in
115 W. Avenue, Suite 108 the law firm of Clark, Ladner,
Jenkintown, PA 19046 Fortenbaugh and Young.
Frank H. Reichel, III Mr. Reichel is a Vice President, a
President Director and the Director of Research of
610 W. Germantown Pike the Investment Advisor, Stratton
Suite 300 Management Company. He is Vice President
Plymouth Meeting, PA 19462 of Stratton Growth Fund, Inc and Stratton
Monthly Dividend Shares, Inc.
John A. Affleck Mr. Affleck is a Senior Vice President
Vice President and Director of the Investment Advisor,
610 W. Germantown Pike Stratton Management Company. He is
Suite 300 President of Stratton Growth Fund, Inc.
Plymouth Meeting, PA 19462 and Vice President of Stratton Monthly
Dividend Shares, Inc.
Gerard E. Heffernan Mr. Heffernan is a Senior Vice President
Vice President and Director of the Investment Advisor,
610 W. Germantown Pike Stratton Management Company. He is
Suite 300 President of Stratton Monthly Dividend
Plymouth Meeting, PA 19462 Shares, Inc. and Vice President of
Stratton Growth Fund, Inc. He is
secretary of FinDaTex, Inc.
Joanne E. Kuzma Mrs. Kuzma is the Director of Trading and
Vice President a Managing Partner of the Investment
610 W. Germantown Pike Advisor, Stratton Management Company. She
Suite 300 is Vice President of Compliance for
Plymouth Meeting, PA 19462 Stratton Growth Fund, Inc. and Stratton
Monthly Dividends Shares, Inc.
Patricia L. Sloan Ms. Sloan is an employee of the
Secretary/Treasurer Investment Advisor, Stratton Management
610 W. Germantown Pike Company.
Suite 300
Plymouth Meeting, PA 19462
James A. Beers Mr. Beers is an employee of the
Assistant Secretary/Treasurer Investment Advisor, Stratton Management
610 W. Germantown Pike Company.
28
<PAGE>
Suite 300
Plymouth Meeting PA 19462
Mrs. Royce is an employee of the
Carol L. Royce Investment Advisor, Stratton Management
Assistant Secretary/Treasurer Company.
610 W. Germantown Pike
Suite 300
Plymouth Meeting PA 19462
- ------
* As defined in the 1940 Act, Mr. Stratton is an "interested person" of the
Fund by reason of his position with the Fund's Investment Advisor and Ms.
Cannon is an "interested person" of the Fund by reason of her employment
with Fund/Plan Services, Inc. Several of the Directors and officers of
the Fund are controlling shareholders of FinDaTex, Inc., which acquired
Fund/Plan on January 1, 1986.
The officers and directors of the Fund who are also officers or employees of the
Advisor or Fund/Plan Services, Inc. receive no direct compensation from the Fund
for services to it. The Directors who are not "interested persons" of the Fund
receive fees and expenses for each meeting of the Board of Directors they
attend. Such Directors currently receive $750 for each Board Meeting attended,
and an annual retainer of $4,000. The Directors serve in the same capacity for
the other two funds in the Stratton Family of Funds complex. There are no
separate audit, compensation or nominating committees of the Board of Directors.
Set forth below are the total fees which were paid to each of the Directors who
are not "interested persons" during the fiscal period ended March 31, 1996:
<TABLE>
<CAPTION>
Aggregate Fees Total Fees Paid
Director Paid by the Company By the Fund Complex
- -------- ------------------- -------------------
<S> <C> <C>
John J. Lombard, Jr. $727.60 $7,750
Rose J. Randall $666.12 $7,000
Henry A. Rentschler $727.60 $7,750
Merritt N. Rhoad, Jr. $727.60 $7,750
Alexander F. Smith $727.60 $7,750
Richard Stevens $727.60 $7,750
</TABLE>
As of June 30, 1996, the Directors and Officers as a group benefically owned
83,180 shares or 13.3 % of the Fund's outstanding shares.
As of June 30, 1996, James W. Stratton beneficially owned or exercised voting
control over 58,806 shares, or 9.4% of the outstanding shares of the Fund; as of
that same date, the Profit Sharing Plan of the Investment Advisor owned 41,346
shares, or 6.6% of the Fund.
THE INVESTMENT ADVISOR AND OTHER SERVICE PROVIDERS
The Investment Advisor
The Investment Advisory Agreement (the "Agreement") requires the Advisor to
furnish research, statistical
29
<PAGE>
and administrative services and advice, reports and recommendations with respect
to the Fund's portfolio, and to compute the net asset value of the Fund's shares
and maintain the books and records of the Fund. The Agreement provides that the
Advisor is not required to give the Fund preferential treatment as compared with
the treatment given to any other customer or investment company. In addition,
the Advisor furnishes to the Fund office space and facilities necessary in
connection with the operation of the Fund. The Fund pays, or arranges for
others to pay, all other expenses in connection with its operations.
The Advisor receives from the Fund a monthly fee at an annual rate of 0.75% of
the Fund's average daily net assets subject to a performance adjustment (as
described in the Fund's Prospectus) and is responsible for paying its expenses.
Under the Agreement, the Fund pays the following expenses: (1) the fees and
expenses of the Fund's disinterested directors; (2) the salaries and expenses of
any of the Fund's officers or employees who are not affiliated with the Advisor;
(3) interest expenses; (4) taxes and governmental fees; (5) brokerage
commissions and other expenses incurred in acquiring or disposing of portfolio
securities; (6) the expenses of registering and qualifying shares for sale with
the Securities and Exchange Commission and with various state securities
commissions; (7) accounting and legal costs; (8) insurance premiums; (9) fees
and expenses of the Fund's custodian, administrator, accounting services agent
and transfer agent and any related services; (10) expenses of obtaining
quotations of the Fund's portfolio securities and of pricing the Fund's shares;
(11) expenses of maintaining the Fund's legal existence and of shareholders'
meetings; (12) expenses of preparation and distribution to existing shareholders
of reports, proxies and prospectuses; and (13) fees and expenses of membership
in industry organizations. During the periods ended March 31, 1994,
the Fund paid the Advisor $46,439, $76,075 and $126,638,
respectively in fees.
The Advisor has agreed to waive its advisory fee in an amount equal to the total
expenses of the Fund for any fiscal year which exceeds the permissible limits
applicable to the Fund in any state in which its shares are then qualified for
sale. At the present time, the most restrictive state expense limitation limits
the Fund's annual expenses (excluding interest, taxes, distribution expenses,
brokerage commissions, extraordinary expenses, and other expenses subject to
approval by state securities administrators) to 2 1/2% of the first $30 million,
2% of the next $70 million, and 1 1/2% of the remaining average net assets. The
operating expenses of the Fund will be accrued daily and any excess over the
above described limitations will be reimbursed monthly. For the periods
ended March 31, 1994, 1995 and 1996 no such reimbursement of
expenses was necessary.
Accounting Agent
Fund/Plan Services, Inc. ("Fund/Plan") serves as the Fund's accounting services
agent, and responsibility for certain accounting services (e.g. computation of
the net asset value of the Fund's shares and maintenance of the Fund's books and
financial records).
For the fiscal years ended March 31, 1994, 1995 and 1996, the Fund paid
Fund/Plan $20,000 each year in fees pursuant to the accounting services
agreement.
The Administrator & Transfer Agent
Fund/Plan Services, Inc. provides certain administrative services to the Fund,
including assistance with all federal and state compliance matters. Fund/Plan
is entitled to receive a fee payable monthly at the annual rate of $10,000. For
the fiscal years ended March 31, 1994, 1995 and 1996, the Fund paid
Fund/Plan $10,000 each year in fees for administrative services.
The Fund's transfer agent and dividend-paying agent is Fund/Plan Services, Inc.,
2 W. Elm Street, Conshohocken, PA 19428. Fund/Plan was acquired by FinDaTex,
Inc. on January 1, 1986. Stratton Management Company, the Advisor to the Fund,
and certain directors and officers of the Fund are controlling shareholders of
FinDaTex, Inc. Fund/Plan annually receives $13.00 per account for providing this
service.
30
<PAGE>
Auditor and Custodian
The Fund's independent auditor is Tait, Weller & Baker. Their offices are
located at 2 Penn Center Plaza, Suite 700, Philadelphia PA 19102-1707. The
auditor's responsibilities are (1) to ensure that all relevant accounting
principles are being followed by the Fund; and (2) to report to the Fund's Board
of Directors concerning the Fund's operations.
The Bank of New York, 48 Wall Street, New York, NY 10286 serves as the custodian
of the Fund's assets pursuant to a custodian agreement. Under such agreement,
The Bank of New York (1) maintains a separate account or accounts in the name of
the Fund; (2) holds and transfers portfolio securities on account of the Fund;
(3) accepts receipts and makes disbursements on money on behalf of the Fund; (4)
collects and receives all income and other payments and distributions on account
of the Fund's securities; and (5) makes periodic reports to the Board of
Directors concerning the Fund's operations.
PORTFOLIO TRANSACTIONS AND BROKERAGE COMMISSIONS
The Fund seeks to obtain the best price and execution in all purchases and sales
of securities, except when the authorization to pay higher commissions for
research and services, as provided for in the Investment Advisory Agreement, is
exercised. Purchases and sales of over-the-counter securities are ordinarily
placed with primary market makers acting as principals. Consistent with its
obligation to seek the best price and execution, the Fund may place some
purchases and sales of portfolio securities with dealers or brokers who provide
statistical and research information to the Advisor. Statistical and research
services furnished by brokers through whom the Fund effects securities
transactions in accordance with these procedures are ordinarily of general
application and may be used by the Advisor in servicing other accounts as well
as that of the Fund. In addition, not all such services may be used in
connection with the Advisor's activities on behalf of the Fund. Portfolio
transactions are assigned to brokers, and commission rates negotiated, based on
an assessment of the reliability and quality of a broker's services, which may
include research and statistical information such as reports on specific
companies or groups of companies, pricing information, or broad overviews of the
stock market and the economy.
Although investment decisions for the Fund will be made independently
from investment decisions made with respect to other clients advised by the
Advisor, simultaneous transactions may occur on occasion when the same security
is suitable for the investment objectives of more than one client. When two or
more such clients are simultaneously engaged in the purchase or sale of the same
security, to the extent possible the transactions will be averaged as to price
and allocated among the clients in accordance with an equitable formula. In
some cases this system could have a detrimental effect on the price or quantity
of a security available to the Fund. In other cases, however, the ability of
the Fund to participate with other clients of the Advisor in volume transactions
may produce better executions for the Fund.
The Investment Advisory Agreement contains provisions which authorize the
Advisor to recommend and cause the Fund to pay brokerage commissions in excess
of commissions which might be charged by other brokers, where a determination is
made that the amount of commission paid is reasonable in relation to the
brokerage and research services provided by the broker to the Fund, viewed in
terms of the particular transaction or the overall responsibilities of the
Advisor with respect to the Fund. In addition, the Investment Advisory
Agreement recognizes that the Advisor may, at its expense, acquire statistical
and factual information, advice about economic factors and trends and other
appropriate information from others in carrying out its obligations.
During the fiscal years ended March 31, 1994, 1995 and 1996, the Fund paid
$ 21,855, $27,839, and $22,378 respectively in brokerage commissions,
substantially all of which were paid to brokers which had provided research,
statistical data or pricing information to the Advisor. For the fiscal years
ended March 31, 1994
31
<PAGE>
,1995 and 1996, the Fund's portfolio turnover rate was 28.60 % (annualized),
30.20% and 33.50%, respectively.
RETIREMENT PLANS
Defined Contribution Plans
The Fund offers a profit sharing and a money purchase plan (the "Defined
Contribution Plans") for use by both self-employed individuals (sole
proprietorships and partnerships) and corporations who wish to use shares of the
Fund as a funding medium for a retirement plan qualified under the Internal
Revenue Code.
Annual deductible contributions to the Defined Contribution Plans may generally
be made on behalf of each participant in a total amount of up to the lesser of
20% of a self-employed participant's pre-contribution earned income (after
reducing the earned income by the self-employed's deduction for 50% of his or
her self-employment tax) (25% of a non-self-employed participant's wages) or
$30,000. Unless the employer chooses to take Social Security contributions into
account, the same percentage of earned income (or wages) must be contributed on
behalf of each participant in the Defined Contribution Plans. Earned income and
wages are generally limited for this purpose to $150,000 (for 1996 -- indexed
for cost-of-living).
The Internal Revenue Code provides certain tax benefits for participants in a
Defined Contribution Plan. For example, amounts contributed to a Defined
Contribution Plan and earnings on such amounts are not taxed until distributed.
However, distributions to a participant from a Defined Contribution Plan before
the participant attains age 59 1/2 will (with certain exceptions) result in an
additional 10% tax on the amount included in the participant's gross income.
Individual Retirement Account
The Fund offers an individual retirement account (the "IRA") for use by
individuals with compensation for services rendered (including earned income
from self-employment) who wish to use shares of the Fund as a funding medium for
individual retirement saving. However, except for rollover contributions, an
individual who has attained, or will attain, age 70 1/2 before the end of the
taxable year may only contribute to an IRA for a nonworking spouse who
is under age 70 1/2.
The general deductible limit for contributions to an IRA is the lesser of 100%
of compensation or $2,000 ($2,250 total for the individual and the individual's
nonworking spouse with two separate accounts). However, this limit is phased
out for certain individuals who are active participants in an employer-
maintained retirement plan. If such an individual is a married person with
adjusted gross income ("AGI") on his or her joint return in excess of $40,000
but less than $50,000, or a single person with AGI in excess of $25,000 but less
than $35,000, the individual's $2,000 deduction will be decreased
proportionately. A married individual with AGI on his or her joint return of
$50,000 or more, or a single individual with AGI of $35,000 or more, may not
make any deductible contribution if he or she is an active participant in a
retirement plan.
Even if the individual is not an active participant in a retirement plan, if his
or her spouse is a participant in such a plan and if their AGI, filed jointly,
is more than $40,000, the individual and his or her spouse will both be subject
to the phase-out discussed above. If neither the individual nor his or her
spouse is a participant in an employer-sponsored retirement plan, or if their
AGI is less than the $40,000, amount discussed above, the individual may
continue to make deductible contributions of up to the lesser of $2,000
($2,250), or 100% of compensation.
Nondeductible contributions to the IRA may be made to the extent an individual
is unable to make a deductible contribution under the phase-out rules discussed
above. In addition, an individual may roll over to the IRA
32
<PAGE>
funds (in any amount) that he or she has received in a qualifying distribution
from an employer's retirement plan.
The individual's IRA assets (and earnings thereon) may generally not be
withdrawn (without the individual's incurring an additional 10% tax on the
amount included in the individual's gross income) until age 59 1/2. Earnings on
amounts contributed to the IRA are not taxed until distributed.
403(b)(7) Retirement Plan
The Fund offers a plan (the "403(b)(7) Plan") for use by schools, hospitals, and
certain other tax-exempt organizations or associations who wish to use shares of
the Fund as a funding medium for a retirement plan for their employees.
Contributions are made to the 403(b)(7) Plan based on a reduction of the
employee's regular compensation. Such contributions, to the extent they do not
exceed applicable limitations (including a generally applicable limitation of
$9,500 per year), are excludable from the gross income of the employee for
Federal income tax purposes. Assets withdrawn from the 403(b)(7) Plan are
subject to Federal income tax and to the additional 10% tax on early withdrawals
discussed above under "Defined Contribution Plans."
General Information
In all these Plans, distributions of net investment income and capital gains
will be automatically reinvested in the Fund.
The Custodian of the plans is Semper Trust Company ("Semper"), Plymouth Meeting,
Pennsylvania. Fund/Plan Services, Inc. serves as the fiduciary agent for Semper
and in such capacity is responsible for recordkeeping, applicable tax reporting
and fee collection in connection with the plan accounts. Fund/Plan Services,
Inc. is also the transfer agent for the Funds. The Custodian is entitled to
deduct its fees and administrative expenses by liquidating shares annually in
September, unless the annual maintenance fee is paid separately to Fund/Plan
Services, Inc. The annual maintenance fee is currently $12.00 per plan account.
This fee may be amended without notice by Stratton Management Company, the
Custodian, or Fund/Plan Services, Inc. in the future.
The foregoing brief descriptions are not complete or definitive explanations of
the Defined Contribution, IRA, or 403(b)(7) Plans available for investment in
the Fund. Any person who wishes to establish a retirement plan account may do
so by contacting the Fund directly. The complete Plan documents and
applications will be provided to existing or prospective shareholders upon
request, without obligation. Since all these Plans involve setting aside assets
for future years, it is important that investors consider their needs and
whether the investment objective of the Fund as described in this Statement of
Additional Information and in the Prospectus is most likely to fulfill them.
The Fund recommends that investors consult their attorneys or tax advisors to
determine if the retirement programs described herein are appropriate for their
needs.
UNDERWRITER
The Fund has entered into an Underwriting Agreement with Fund/Plan Broker
Services, Inc. ("FPBS"). FPBS acts as an underwriter of the Fund's shares for
the purpose of facilitating the registration of shares. In this regard, FPBS has
agreed at its own expense to qualify as a broker/dealer under all applicable
federal or state laws in those states which the Fund shall from time to time
identify to FPBS as states in which it wishes to offer its shares for sale, in
order that state registrations may be maintained for the Fund.
FPBS is a broker/dealer registered with the Securities and Exchange Commission
and a member in good standing of the National Association of Securities Dealers,
Inc. FPBS is an affiliate of the Advisor inasmuch as both the Underwriter and
the Advisor are under common control.
33
<PAGE>
For the services to be provided under the Underwriting Agreement in facilitating
the registration of Fund shares under state securities laws, FPBS has received
an annual fee of $3,000 for providing these services in the last
fiscal years. This fee is included in the net expenses of the Fund. The Fund
shall continue to bear the expense of all filing or registration fees incurred
in connection with the registration of shares of the Fund under state securities
laws. The Fund pays no compensation to FPBS for its assistance in sales of Fund
shares. The Advisor pays certain out-of-pocket expenses, plus the cost for
each employee to be licensed as a Registered Representative by FPBS.
The Underwriting Agreement may be terminated by either party upon 60 days prior
written notice to the other party, and if so terminated, the pro-rata portion of
the unearned fee will be returned to the Fund.
ADDITIONAL INFORMATION CONCERNING TAXES
The following summarizes certain additional tax considerations generally
affecting the Fund and its shareholders that are not described in the
Prospectus. No attempt is made to present a detailed explanation of the tax
treatment of the Fund or its shareholders, and the discussion here and in the
Prospectus is not intended as a substitute for careful tax planning. Potential
investors should consult their tax advisors with specific reference to their own
tax situation.
As stated in the Prospectus, the Fund intends to qualify as a regulated
investment company under the Internal Revenue Code for each taxable year. The
Fund will not be treated as a regulated investment company for a taxable year
if, among other things, the Fund derives 30% or more of its gross income from
the sale or other disposition of securities and certain other investments held
for less than three months.
Ordinary income of individuals is taxable at a maximum nominal rate of 39.6%;
although because of limitations on itemized deductions otherwise allowable and
the phase-out of personal exemptions, the maximum effective marginal rate of tax
for certain taxpayers may be more than 39.6% in certain circumstances. Net
long-term capital gains are taxed at a maximum nominal rate of 28%. For
corporations, long-term capital gains and ordinary income are both taxable at a
maximum nominal rate of 35%.
A 4% nondeductible excise tax is imposed on regulated investment companies that
fail to currently distribute an amount equal to specified percentages of their
ordinary taxable income and capital gain net income (excess of capital gains
over capital losses). The Fund intends to make sufficient distributions or
deemed distributions of its ordinary taxable income and any capital gain net
income prior to the end of each calendar year to avoid liability for this excise
tax.
If for any fiscal year the Fund does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income will be
subject to Federal income tax at regular corporate rates (without any deduction
for distributions to its shareholders). In such event, dividend distributions
would be taxable as ordinary income to shareholders to the extent of the Fund's
current and accumulated earnings and profits, and would be eligible for the
dividends received deduction for corporations.
The foregoing discussion is based on Federal tax laws and regulations which are
in effect on the date of this Statement of Additional Information; such laws and
regulations may be changed by legislative or administrative action.
ADDITIONAL INFORMATION ON PERFORMANCE CALCULATIONS
From time to time, the Fund's total return may be quoted in advertisements,
shareholder reports or other communications to shareholders.
34
<PAGE>
TOTAL RETURN CALCULATIONS
The Fund computes its average annual total return by determining the average
annual compounded rate of return during specified periods that equate the
initial amount invested to the ending redeemable value of such investment. This
is done by dividing the ending redeemable value of a hypothetical $1,000 initial
investment by $1,000 and raising the quotient to a power equal to one divided by
the number of years (or fractional portion thereof) covered by the computation
and subtracting one from the result.
This calculation can be expressed as follows:
ERV
T=[(---)1/n-1]
P
Where: T = average annual total return.
ERV = ending redeemable value at the end of the period
covered by the computation of a hypothetical
$1,000 investment made at the beginning of the
period.
P = hypothetical initial investment of $1,000.
n = period covered by the computation, expressed in
terms of years.
The Fund computes its aggregate total return by determining the aggregate
compounded rate of return during specified periods that likewise equate the
initial amount invested to the ending redeemable value of such investment.
The formula for calculating aggregate total return is as follows:
(ERV-P)
A = -------
P
Where: A = aggregate total return.
ERV = ending redeemable value at end of the period
covered by the computation of a hypothetical
$1,000 investment made at the beginning of the
period.
P = hypothetical initial investment of $1,000.
The calculations of average annual total return and aggregate total return
assume the reinvestment of all dividends and capital gain distributions on the
reinvestment dates during the period. The ending redeemable value (variable
"ERV" in each formula) is determined by assuming complete redemption of the
hypothetical investment and the deduction of all nonrecurring charges at the end
of the period covered by the computations.
35
<PAGE>
Since performance will fluctuate, performance data for the Fund cannot
necessarily be used to compare an investment in the Fund's shares with bank
deposits, savings accounts and similar investment alternatives which often
provide an agreed or guaranteed fixed yield for a stated period of time.
Shareholders should remember that performance is generally a function of the
kind and quality of the instruments held in a portfolio, portfolio maturity,
operating expenses and market conditions.
Based on the foregoing calculations, the Fund's average annual total return for
the periods April 12, 1993 (commencement of operation) to March 31, 1996
and the one year period ended March 31, 1996 was 10.81% and
26.18 %, respectively. The aggregate total return from April 12, 1993
(commencement of operation) to March 31, 1996 was 35.69%.
MISCELLANEOUS
As of June 30,1996, James W. Stratton owned of record and beneficially or
exercised voting control over 58,806 shares, or 9.4% of the
outstanding shares of the Fund. As of that same date, the Profit Sharing Plan
of the Investment Advisor owned 41,346 shares, or 6.6% of the
Fund. Boston & Co. was the record owner of 52.7% of the outstanding
shares of the Fund. However, at such date, no other single shareholder owned of
record or beneficially more than 5% of the outstanding shares of the Fund.
FINANCIAL STATEMENTS
The financial statements of the Fund which appear in this Statement of
Additional Information and the Financial Highlights which appears in the Fund's
Prospectus were examined by Tait, Weller & Baker, independent certified public
accountants, whose report thereon appears elsewhere herein, and have been
included herein and in the Fund's Prospectus in reliance upon the report of said
accountants given upon their authority as experts in accounting and
auditing.
36
<PAGE>
SCHEDULE OF INVESTMENTS MARCH 31, 1996
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- --------- -------- -----------
<S> <C> <C>
COMMON STOCKS - 92.7%
BANKING - 19.1%
10,000 Affiliated Community Bancorp.......................... $ 176,250
7,500 American Bank of Connecticut.......................... 191,250
10,000 Bankers Corp. (Perth Amboy, NJ)....................... 168,750
11,300 California State Bank (Covina, CA).................... 161,025
4,000 CCB Financial Corp.................................... 201,000
8,000 Centura Banks, Inc. (NC).............................. 294,000
7,000 Colonial BancGroup, Inc............................... 254,625
9,345 Commerca Bancorp, Inc. (NJ)........................... 194,055
8,000 Community Bank System, Inc............................ 248,000
9,900 Eagle Financial Corp.................................. 235,125
20,000 First Essex Bancorp, Inc.............................. 215,000
9,000 First Financial Holdings, Inc......................... 186,750
4,500 Firstbank of Illinois Co.............................. 138,375
15,000 Home Financial Corp. (Hollywood, FL).................. 221,250
12,600 Interchange Financial Services Corp................... 255,150
10,000 Medford Savings Bank.................................. 222,500
10,000 Reliance Bancorp, Inc................................. 161,250
9,000 United Carolina Bancshares Corp....................... 220,500
-----------
3,744,855
-----------
BUSINESS SERVICES - 7.1%
25,000 American Business Products, Inc....................... 565,625
15,000 PMC Capital, Inc...................................... 200,625
25,000 True North Communications, Inc........................ 625,000
-----------
1,391,250
-----------
CONSUMER DURABLES - 9.2%
25,000 Anthony Industries, Inc............................... 662,500
30,000 Jackpot Enterprises, Inc.............................. 337,500
13,000 Sturm, Ruger & Co., Inc............................... 500,500
35,000 Winnebago Industries, Inc............................. 301,875
-----------
1,802,375
-----------
CONSUMER NON-DURABLES - 10.6%
13,000 Coca-Cola Bottling Co. Consolidated.................. 438,750
10,000 International Multifoods Corp........................ 191,250
25,000 Quaker State Corp.................................... 350,000
25,000 Riviana Foods, Inc. (DE)............................. 359,375
15,000 Schweitzer-Mauduit International, Inc................ 412,500
6,000 Velcro Industries, N.V............................... 319,500
-----------
2,071,375
-----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SCHEDULE OF INVESTMENTS MARCH 31, 1996
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- --------- -------- -----------
<S> <C> <C>
COMMON STOCKS - 92.7% (CONTINUED)
INDUSTRIAL - 14.3%
12,000 Carpenter Technology Corp............................. $ 462,000
10,000 Cleveland-Cliffs, Inc................................. 442,500
25,000 Commercial Intertech Corp............................. 471,875
9,600 IMC Glogal, Inc....................................... 350,400
25,000 Kuhlman Corp.......................................... 375,000
10,000 Lukens, Inc........................................... 248,750
30,000 Roanoke Electric Steel Corp........................... 446,250
-----------
2,796,775
-----------
INSURANCE/SERVICES - 10.2%
20,000 Donegal Group, Inc.................................... 380,000
15,000 Harleysville Group, Inc. (PA)......................... 401,250
25,000 Hilb, Rogal & Hamilton Co............................. 343,750
12,500 Selective Insurance Group, Inc........................ 450,000
16,000 Washington National Corp.............................. 428,000
-----------
2,003,000
-----------
REAL ESTATE - 9.0%
8,000 Camden Property Trust................................. 185,000
8,000 Colonial Properties Trust............................. 189,000
15,000 Innkeepers USA Trust.................................. 140,625
9,000 Merry Land & Investment Co., Inc...................... 195,750
6,000 National Health Investors, Inc........................ 195,000
9,000 ROC Communities, Inc.................................. 211,500
15,000 Ryland Group, Inc..................................... 241,875
7,000 Sovran Self Storage, Inc.............................. 189,875
8,000 Sun Communities, Inc.................................. 218,000
-----------
1,766,625
-----------
TECHNOLOGY - 11.2%
14,500 Boston Acoustics, Inc................................ 264,625
15,000 Helix Technology Corp................................ 421,875
35,000 MacNeal-Schwendler Corp.............................. 498,750
2,000 Marc, Inc............................................ 33,750
9,000 Shared Medical Systems Corp.......................... 542,250
15,000 Technitrol, Inc...................................... 435,000
-----------
2,196,250
-----------
UTILITIES - 2.9%
10,000 Lincoln Telecommunications Co........................ 192,500
6,000 WICOR, Inc........................................... 202,500
-----------
395,000
-----------
TOTAL COMMON STOCKS (Cost $14,895,284)............... 18,167,505
-----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SCHEDULE OF INVESTMENTS MARCH 31, 1996
<TABLE>
<CAPTION>
MARKET
NUMBER OF VALUE
SHARES SECURITY (NOTE 1)
- --------- -------- -----------
<S> <C> <C>
SHORT-TERM NOTES - 6.9%
$670,000 General Electric Capital Corp. 5.20% due 04/03/96..... $ 670,000
$670,000 General Motors Acceptance Corp. 5.16% due 04/09/96.... 670,000
-----------
Total Short-Term Notes (cost $1,340,000).............. 1,340,000
-----------
TOTAL INVESTMENTS - 99.6% (COST $16,235,284)*......... 19,607,505
CASH AND OTHER ASSETS, LESS LIABILITIES - 0.4%........ 84,460
-----------
NET ASSETS - 100.0%................................... $19,591,965
===========
* Aggregate cost for federal income tax purposes is $16,236,284; and net
unrealized appreciation is as follows:
Gross unrealized appreciation......................... $ 3,451,846
Gross unrealized depreciation......................... (179,625)
-----------
Net unrealized appreciation......................... $ 3,272,221
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
MARCH 31, 1996
<TABLE>
<S> <C>
ASSETS
Investments in securities at market value (identified cost
$16,235,284) (Note 1).......................................... $19,507,505
Cash............................................................ 60,065
Dividends and interest receivable............................... 62,371
-----------
Total Assets.................................................. 19,629,941
-----------
LIABILITIES
Payable for securities purchased................................ 33,750
Accrued expenses................................................ 4,226
-----------
Total Liabilities............................................. 37,976
-----------
NET ASSETS
Applicable to 613,299 shares; $0.001 par value; 1,000,000,000
shares authorized.............................................. $19,591,965
===========
Net asset value, offering and redemption price per share
($19,591,965 + 613,299 shares)................................. $ 31.95
===========
SOURCE OF NET ASSETS
Paid-in capital................................................. $15,814,097
Undistributed net investment income............................. 6,437
Accumulated net realized gain on investments..................... 499,210
Net unrealized appreciation of investments...................... 3,272,221
-----------
Net Assets.................................................... $19,591,965
===========
- --------------------------------------------------------------------------------
STATEMENT OF OPERATIONS
YEAR ENDED MARCH 31, 1996
INCOME
Dividends....................................................... $ 575,956
Interest........................................................ 53,804
-----------
Total Income.................................................. 629,760
-----------
EXPENSES
Advisory fees (Note 2)......................................... 126,638
Shareholder services fees (Note 2).............................. 25,073
Registration fees (Note 2)...................................... 22,445
Accounting/Pricing services fees (Note 2)....................... 20,000
Custodian fees (Note 2)......................................... 13,696
Audit fees...................................................... 10,515
Administrative services fees (Note 2)........................... 10,000
Printing fees................................................... 7,109
Directors' fees................................................. 4,304
Legal fees...................................................... 2,941
Miscellaneous fees.............................................. 2,598
Taxes other than income taxes................................... 200
-----------
Total Expenses................................................. 245,519
-----------
Net Investment Income....................................... 384,241
-----------
REALIZED AND UNREALIZED GAIN ON INVESTMENTS
Net realized gain on investments................................ 970,650
Net increase in unrealized appreciation of investments.......... 2,474,521
-----------
Net gain on investments....................................... 3,445,171
-----------
Net increase in net assets resulting from operations........ $ 3,829,412
===========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
FOR THE YEARS ENDED MARCH 31,
<TABLE>
<CAPTION>
1996 1995
----------- -----------
<S> <C> <C>
OPERATIONS
Net investment income.............................. $ 384,241 $ 239,809
Net realized gain (loss) on investments............ 970,650 (401,356)
Net increase in unrealized appreciation of
investments....................................... 2,474,521 637,467
----------- -----------
Net increase in net assets resulting from
operations...................................... 3,829,412 475,920
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
($0.66 and $0.59 per share, respectively)......... (382,442) (243,457)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from the net
change in the number of outstanding shares (a).... 2,086,829 5,569,039
----------- -----------
Total increase in Net Assets..................... 5,533,799 5,801,502
NET ASSETS AT THE BEGINNING OF THE YEAR.............. 14,058,166 8,256,664
----------- -----------
NET ASSETS AT THE END OF THE YEAR
(including undistributed net investment income
$6,437 and $4,638, respectively)................... $19,591,965 $14,058,166
=========== ===========
</TABLE>
(a) A summary of capital share transactions follows:
<TABLE>
<CAPTION>
YEARS ENDED MARCH 31
-----------------------------------------------------
1996 1995
-------------------------- -------------------------
SHARES VALUE SHARES VALUE
------------ ------------ ----------- -----------
<S> <C> <C> <C> <C>
Shares issued............. 91,285 $2,692,659 250,270 $6,220,670
Shares reinvested from
net investment income.... 9,200 277,894 6,320 161,497
-------- ---------- ------- ----------
100,485 2,970,553 256,590 6,382,167
Shares redeemed........... (30,395) (883,724) (31,707) (813,128)
-------- ---------- ------- ----------
Net increase............ 70,090 $2,086,829 224,883 $5,569,039
======== ========== ======= ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1996
NOTE 1. - Significant Accounting Policies - The Stratton Funds, Inc. (the
"Company") was organized on January 5, 1993 as a Maryland Corporation and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. As of the date of this
report, the Company offered one investment portfolio, Stratton Small-Cap Yield
Fund (the "Fund"). The Fund's investment objective is to achieve both dividend
income and capital appreciation. The Fund will seek to achieve this objective
through investment in the securities of small-cap companies which have certain
risks associated with them. First and foremost is their greater earnings and
price volatility in comparison to large companies. Earnings risk is partially
due to the undiversified nature of small company business lines. The following
is a summary of significant accounting policies consistently followed by the
Company in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
A. Security valuation - Securities listed or admitted to trading on any
national securities exchange are valued at their last sale price on the
exchange where the securities are principally traded or, if there has been
no sale on that date, at the mean between the last reported bid and asked
prices. Securities traded in the over-the-counter market are valued at the
last sale price, if carried in the National Market Issues section by
NASDAQ; other over-the-counter securities are valued at the mean between
the closing bid and asked prices obtained from a principal market maker.
All other securities and assets are valued at their fair value as
determined in good faith by the Board of Directors of the Fund, which may
include the amortized cost method for securities maturing in sixty days or
less and other cash equivalent investments.
B. Determination of gains or losses on sales of securities - Gains or
losses on the sale of securities are calculated for accounting and tax
purposes on the identified cost basis.
C. Federal Income Taxes - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
D. Use of Estimates in Financial Statements - In preparing financial
statements in conformity with generally accepted accounting principles,
management makes estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements, as well
as the reported amounts of income and expenses during the reporting period.
Actual results may differ from these estimates.
E. Other - Security transactions are accounted for on the date the
securities are purchased or sold. Interest income is recorded on the
accrual basis and dividend income on the ex-dividend date. Dividends and
distributions to shareholders are recorded on the ex-dividend date.
<PAGE>
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 1996
NOTE 2. - During the year ended March 31, 1996, the Fund paid advisory fees
aggregating $126,638 to Stratton Management Company, (the "Advisor"). Management
services are provided by the Advisor under an agreement whereby the Advisor
furnishes all investment advice, office space and facilities to the Fund and
pays the salaries of the Fund's officers and employees, except to the extent
that those employees are engaged in administrative and accounting services
activities. In return for these services, the Fund pays a monthly fee to the
Advisor at an annual rate of 0.75% of the daily net asset value of the Fund for
such month, subject to a performance adjustment. The performance adjustment will
commence at the end of the month in which the Fund has completed 24 months of
operation, if it has net assets of $20 million or more, at such date, or at the
end of any succeeding month at which it has net assets of $20 million, but in
any event, irrespective of its net assets, at the end of the month in which the
Fund has completed 36 months of operation and will be calculated at the end of
the commencement month and each succeeding month based upon a rolling 24 month
performance period. The performance adjustment is added to or subtracted from
the basic investment advisory fee.
The Fund's gross performance is compared with the performance of the Frank
Russell 2000 Index, ("Russell 2000"). When the Fund performs better than the
Russell 2000, it pays the Investment Advisor an incentive fee; less favorable
performance than the Russell 2000 reduces the basic fee. Each 1.00% of the
difference in performance between the Fund and the Russell 2000 during the
performance period is equal to a 0.10% adjustment to the basic fee. The maximum
annualized performance adjustment rate is +/- 0.50% of average net assets which
would be added to or deducted from the advisory fee if the Fund outperformed or
underperformed the Russell 2000 by 5.00%. Because of certain undertakings to
comply with various state securities laws, if in any fiscal year the expenses of
the Fund (excluding taxes, brokerage commissions and interest) exceed 2-1/2% of
the first $30 million of the Fund's average net assets, 2% of the next $70
million and 1-1/2% of the remaining, the Advisor shall reimburse the Fund for
such excess. Certain officers and directors of the Fund are also officers and
directors of the Advisor. None of the Fund's officers receive compensation from
the Fund.
The Fund's Transfer Agent, Fund/Plan Services, Inc. ("Fund/Plan"), is a wholly-
owned subsidiary of FinDaTex, Inc. Certain directors and officers of the Fund
are shareholders of FinDaTex, Inc. Fund/Plan received fees of $25,073 for
providing shareholder services, $10,000 for certain administrative services and
$20,000 for accounting/pricing services during the year ended March 31, 1996.
Pursuant to an agreement between The Bank of New York, (the "Custodian"), and
Fund/Plan, the Custodian reallows a portion of its custody fee to Fund/Plan for
certain services delegated to Fund/Plan. The amount is not readily
determinable. Fund/Plan Broker Services, Inc. serves as the Fund's principal
underwriter and receives no fees for services in assisting in sales of the
Fund's shares but does receive an annual fee of $3,000 for its services in
connection with the registration of the Fund's shares under state securities
laws.
NOTE 3. - Purchases and sales of securities, excluding short-term notes,
aggregated $6,619,088 and $5,303,673, respectively, for the year ended March 31,
1996.
<PAGE>
FINANCIAL HIGHLIGHTS
The table below sets forth financial data for a share of capital stock
outstanding throughout each period presented.
<TABLE>
<CAPTION>
Year Year For the Period
Ended Ended 04/12/93*
03/31/96 03/31/95 to 03/31/94
--------- --------- --------------
<S> <C> <C> <C>
NET ASSET VALUE, BEGINNING OF PERIOD........................... $ 25.88 $ 25.94 $ 25.00
--------- --------- ---------
INCOME FROM INVESTMENT OPERATIONS
Net investment income......................................... 0.66 0.57 0.43
Net gain (loss) on securities (both realized and unrealized).. 6.07 (0.04) 0.91
--------- --------- ---------
Total from investment operations............................ 6.73 0.53 1.34
--------- --------- ---------
LESS DISTRIBUTIONS
Dividends (from net investment income)........................ (0.66) (0.59) (0.40)
Distributions (from capital gains)............................ 0.00 0.00 0.00
--------- --------- ---------
Total distributions......................................... (0.66) (0.59) (0.40)
--------- --------- ---------
NET ASSET VALUE, END OF PERIOD................................. $ 31.95 $ 25.88 $ 25.94
========= ========= =========
TOTAL RETURN................................................... 26.18% 2.09% 5.51%**
RATIOS/SUPPLEMENTAL DATA
Net assets, end of period (in 000's).......................... $ 19,592 $ 14,058 $ 8,257
Ratio of expenses to average net assets....................... 1.46% 2.12% 2.28%**
Ratio of net investment income to average net assets.......... 2.28% 2.36% 1.85%**
Portfolio turnover rate....................................... 33.50% 30.20% 28.60%**
</TABLE>
/*/ Commencement of operations
/**/ Annualized
See accompanying notes to financial statements.
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Shareholders and Board of Directors of The Stratton Funds, Inc.
We have audited the accompanying statement of assets and liabilities of
Stratton Small-Cap Yield Fund, a series of The Stratton Funds, Inc., including
the schedule of investments, as of March 31, 1996, and the related statement of
operations for the year then ended, the statement of changes in net assets for
each of the two years in the period then ended, and the financial highlights for
each of the two years in the period then ended and for the period April 12,
1993, (commencement of operations) to March 31, 1994. These financial
statements and financial highlights are the responsibility of the Fund's
management. Our responsibility is to express an opinion on these financial
statements and financial highlights based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and financial
highlights are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. Our procedures included confirmation of securities owned as of
March 31, 1996, by correspondence with the custodian and brokers. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements and financial highlights referred to
above present fairly, in all material respects, the financial position of
Stratton Small-Cap Yield Fund as of March 31, 1996, the results of its
operations for the year then ended, the changes in its net assets for each of
the two years in the period then ended, and the financial highlights for each of
the two years in the period then ended and for the period April 12, 1993,
(commencement of operations) to March 31, 1994, in conformity with generally
accepted accounting principles.
Philadelphia, PA
April 10, 1996 TAIT, WELLER & BAKER
14
<PAGE>
SCHEDULE OF INVESTMENTS MARCH 31, 1996
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
- --------- -------- ------------
<S> <C> <C>
COMMON STOCKS - 92.7%
Banking - 19.1%
10,000 Affiliated Community Bancorp ............................. $ 176,250
7,500 American Bank of Connecticut ............................. 191,250
10,000 Bankers Corp. (Perth Amboy, NJ) .......................... 168,750
11,300 California State Bank (Covina, CA) ....................... 161,025
4,000 CCB Financial Corp. ...................................... 201,000
8,000 Centura Banks, Inc. (NC) ................................. 294,000
7,000 Colonial BancGroup, Inc. ................................. 254,625
9,345 Commerce Bancorp, Inc. (NJ) .............................. 194,055
8,000 Community Bank System, Inc. .............................. 248,000
9,900 Eagle Financial Corp. .................................... 235,125
20,000 First Essex Bancorp, Inc. ................................ 215,000
9,000 First Financial Holdings, Inc. ........................... 186,750
4,500 Firstbank of Illinois Co. ................................ 138,375
15,000 Home Financial Corp. (Hollywood, FL) ..................... 221,250
12,600 Interchange Financial Services Corp. ..................... 255,150
10,000 Medford Savings Bank ..................................... 222,500
10,000 Reliance Bancorp, Inc. ................................... 161,250
9,000 United Carolina Bancshares Corp. ......................... 220,500
-----------
3,744,855
-----------
Business Services - 7.1%
25,000 American Business Products, Inc. ......................... 565,625
15,000 PMC Capital, Inc. ........................................ 200,625
25,000 True North Communications, Inc. .......................... 625,000
-----------
1,391,250
-----------
Consumer Durables - 9.2%
25,000 Anthony Industries, Inc. ................................. 662,500
30,000 Jackpot Enterprises, Inc. ................................ 337,500
13,000 Sturm, Ruger & Co., Inc. ................................. 500,500
35,000 Winnebago Industries, Inc. ............................... 301,875
-----------
1,802,375
-----------
Consumer Non-Durables - 10.6%
13,000 Coca-Cola Bottling Co. Consolidated ...................... 438,750
10,000 International Multifoods Corp. ........................... 191,250
25,000 Quaker State Corp. ....................................... 350,000
25,000 Riviana Foods, Inc. (DE) ................................. 359,375
15,000 Schweitzer-Mauduit International, Inc. ................... 412,500
6,000 Velcro Industries, N.V. .................................. 319,500
-----------
2,071,375
-----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SCHEDULE OF INVESTMENTS MARCH 31, 1996
<TABLE>
<CAPTION>
Market
Number of Value
Shares Security (Note 1)
- ---------- -------- ------------
COMMON STOCKS - 92.7% (continued)
Industrial - 14.3%
<C> <S> <C>
12,000 Carpenter Technology Corp. ...................... $ 462,000
10,000 Cleveland-Cliffs, Inc. .......................... 442,500
25,000 Commercial Intertech Corp. ...................... 471,875
9,600 IMC Glogal, Inc. ................................ 350,400
25,000 Kuhlman Corp. ................................... 375,000
10,000 Lukens, Inc. .................................... 248,750
30,000 Roanoke Electric Steel Corp. .................... 446,250
------------
2,796,775
------------
Insurance/Services - 10.2%
20,000 Donegal Group, Inc. ............................. 380,000
15,000 Harleysville Group, Inc. (PA).................... 401,250
25,000 Hilb, Rogal & Hamilton Co. ...................... 343,750
12,500 Selective Insurance Group, Inc. ................. 450,000
16,000 Washington National Corp. ....................... 428,000
-----------
2,003,000
-----------
Real Estate - 9.0%
8,000 Camden Property Trust............................ 185,000
8,000 Colonial Properties Trust........................ 189,000
15,000 Innkeepers USA Trust............................. 140,625
9,000 Merry Land & Investment Co., Inc. ............... 195,750
6,000 National Health Investors, Inc. ................. 195,000
9,000 ROC Communities, Inc. ........................... 211,500
15,000 Ryland Group, Inc. .............................. 241,875
7,000 Sovran Self Storage, Inc. ....................... 189,875
8,000 Sun Communities, Inc ............................ 218,000
-----------
1,766,625
-----------
Technology - 11.2%
14,500 Boston Acoustics, Inc. .......................... 264,625
15,000 Helix Technology Corp. .......................... 421,875
35,000 MacNeal-Schwendler Corp. ........................ 498,750
2,000 Marc, Inc. ...................................... 33,750
9,000 Shared Medical Systems Corp. .................... 542,250
15,000 Technitrol, Inc. ................................ 435,000
-----------
2,196,250
-----------
Utilities - 2.0%
10,000 Lincoln Telecommunications Co. .................. 192,500
6,000 WICOR, Inc. ..................................... 202,500
-----------
395,000
-----------
Total Common Stocks (Cost $14,895,284) .......... 18,167,505
-----------
</TABLE>
See accompanying notes to financial statements.
<PAGE>
SCHEDULE OF INVESTMENTS MARCH 31, 1996
Market
Principal Value
Amount Security (Note 1)
- ----------- ---------- ------------
SHORT-TERM NOTES - 6.9%
$ 670,000 General Electric Capital Corp. 5.20% due 04/03/96.... $ 670,000
$ 670,000 General Motors Acceptance Corp. 5.16% due 04/09/96... $ 670,000
------------
Total Short-Term Notes (cost $1,340,000)............. 1,340,000
------------
Total Investments - 99.6% (Cost $16,235,284)*........ 19,507,505
Cash and Other Assets, Less Liabilities - 0.4%....... 84,460
------------
NET ASSETS - 100.0%.................................. $ 19,591,965
============
* Aggregate cost for federal income tax purposes is $ 16,235,284; and net
unrealized appreciation is as follows:
Gross unrealized appreciation........................ $ 3,451,846
Gross unrealized depreciation........................ (179,625)
------------
Net unrealized appreciation........................ $ 3,272,221
============
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF ASSETS AND LIABILITIES
March 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Investments in securities at market value (identified cost
$16,236,284) (Note II)....................................... $19,507,505
Cash.......................................................... 60,065
Dividends and interest receivable............................. 62,371
-----------
Total Assets................................................ 19,629,941
-----------
LIABILITIES
Payable for securities purchased.............................. 33,750
Accrued expenses.............................................. 4,226
-----------
Total Liabilities 37,976
-----------
NET ASSETS
Applicable to 613,299 shares: $0.001 par value; 1,000,000,000
shares authorized............................................ $19,591,965
-----------
Net asset value, offering and redemption price per share
($19,591,965 - 613,299 shares)............................... $ 31.95
==========
SOURCE OF NET ASSIETS
Paid-in capital................................................ $15,814,097
Undistributed net investment income........................... 6,437
Accumulated net realized gain on investments.................. 499,210
Net unrealized appreciatlon of investments.................... 3,272,221
-----------
Net Assets.................................................. $19,591,965
- ------------------------------------------------------------------ -----------
</TABLE>
STATEMENT OF OPERATIONS
Year Ended Much 31,1996
<TABLE>
<CAPTION>
<S> <C>
INCOME
Dividends..................................................... $ 575,956
Interest...................................................... 53,804
---------
Total Income................................................ 629,760
---------
EXPENSES
Advisory fees (Note 2)........................................ 126,638
Shareholder services tees (Note 2)............................ 25,073
Registration fees (Note 2).................................... 22,445
Accounting/Pricing services fees (Note 2)..................... 20,000
Custodian fees (Note 2)....................................... 13,696
Audit fees.................................................... 10,515
Administrative seivices fees (Note 2)......................... 10,000
Printing fees................................................. 7,109
Directors fees................................................ 4,304
Legal fees.................................................... 2,941
Miscellaneous fees............................................ 2,598
Taxes other than income taxes................................. 200
---------
Total Expenses.............................................. 245,519
---------
Net lnvestment Income..................................... 384,241
---------
REALIZED AND UNREALIZE GAIN ON INVESTMENTS
Net realized gain on investments.............................. 970,650
Net increase in unrealized appreciation of investments........ 2,474,521
Net gain on investments..................................... 3,445,171
---------
Net increase in net assets resulting from operations...... $ 3,829,412
=========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
STATEMENT OF CHANGES IN NET ASSETS
For the Year Ended March 31,
<TABLE>
<CAPTION>
OPERATIONS 1996 1995
----------- -----------
<S> <C> <C>
Net investment income..................................... $ 384,241 $ 239,809
Net realized gain (loss) on investments................... 970,650 (401,356)
Net increase in unrealized appreciation
of investments........................................... 2,474,521 637,467
----------- -----------
Net increase in net assets resulting from operations..... 3,829,412 475,920
DISTRIBUTIONS TO SHAREHOLDERS
Distributions from net investment income
($0.66 and $0.59 par share, respectively)................ (382,442) (243,457)
CAPITAL SHARE TRANSACTIONS
Net increase in net assets derived from the net change
in the number of outstanding shares (a).................. 2,086,829 5.569,039
----------- ----------
Total Increase in Net Assets........................... 5,533,799 5,801,502
NET ASSETS AT THE BEGINNING OF THE YEAR.................... 14,058,166 8,256,664
----------- ----------
NET ASSETS AT THE END OF THE YEAR
(including undistributed net investment income
$6,437 and $4,636, respectively)......................... $19,591,965 $14,058,166
=========== ===========
</TABLE>
(a) A summary of capital share transactions follows:
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------------------------------
1996 1995
---------- ----------
Shares Value Shares Value
-------- ---------- -------- ----------
<S> <C> <C> <C> <C>
Shares issued............................... 91,285 $2,692,659 250,270 $6,220,670
Shares reinvested from
net investment income..................... 9,200 277,894 6,320 161,497
-------- ---------- -------- ----------
100,485 2,970,553 256,590 6,382,167
Shares redeemed............................. (30,395) (883,724) (31,707) (813,128)
-------- ---------- -------- ----------
Net Increase.............................. 70,090 $2,086,829 224,883 $5,569,039
======== ========== ======== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE>
NOTES TO FINANCIAL STATEMENTS
March 31, 1996
Note 1. - Significant Accounting Policies - The Stratton Funds, Inc. (the
"Company") was organized on January 5, 1993 as a Maryland Corporation and is
registered under the Investment Company Act of 1940, as amended, as a
diversified, open-end management investment company. As of the date of this
report, the Company offered one investment portfolio, Stratton Small-Cap Yield
Fund (the "Fund"). The Fund's investment objective is to achieve both dividend
income and capital appreciation. The Fund will seek to achieve this objective
through investment in the securities of small-cap companies which have certain
risks associated with them. First and foremost is their greater earnings and
price volatility in comparison to large companies. Earnings risk is partially
due to the undiversified nature of small company business lines. The following
is a summary of significant accounting policies consistently followed by the
Company in the preparation of its financial statements. The policies are in
conformity with generally accepted accounting principles.
A. Security valuation - Securities listed or admitted to trading on any
national securities exchange are valued at their last sale price on the
exchange where the securities are principally traded or, if there has been
no sale on that date, at the mean between the last reported bid and asked
prices. Securities traded in the over-the-counter market are valued at the
last sale price, if carried in the National Market Issues section by
NASDAQ; other over-the-counter securities are valued at the mean between
the closing bid and asked prices obtained from a principal market maker.
All other securities and assets are valued at their fair value as
determined in good faith by the Board of Directors of the Fund, which may
include the amortized cost method for securities maturing in sixty days or
less and other cash equivalent investments.
B. Determination of gains or losses on sales of securities - Gains or
losses on the sale of securities are calculated for accounting and tax
purposes on the identified cost basis.
C. Federal Income Taxes - It is the Fund's policy to comply with the
requirements of the Internal Revenue Code applicable to regulated
investment companies and to distribute all of its taxable income to its
shareholders. Therefore, no federal income tax provision is required.
D. Use of Estimates in Financial Statements - In preparing financial
statements in conformity with generally accepted accounting principles,
management makes estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements, as well
as the reported amounts of income and expenses during the reporting period.
Actual results may differ from these estimates.
E. Other - Security transactions are accounted for on the date the
securities are purchased or sold. Interest income is recorded on the
accrual basis and dividend income on the ex-dividend date. Dividends and
distributions to shareholders are recorded on the ex-dividend date.
<PAGE>
POST EFFECTIVE AMENDMENT NO.5
TO REGISTRATION STATEMENT NO. 33-57166
on
Form N-1A
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
-------------------------------------------
(A) Financial Statements:
(1) The Financial Highlights are included in Part A of this
Registration Statement on Form N-1A. The following Financial
Statements are included in Part B of this Registration Statement
on Form N-1A for the fiscal year ended March 31, 1996:
Schedule of Investments at March 31, 1996.
Statement of Assets and Liabilities at March 31, 1996.
Statement of Operations for the year ended March 31, 1996.
Statement of Changes in Net Assets for the years ended March 31,
1995 and March 31, 1996.
Notes to Financial Statements
Financial Highlights
Report of Independent Accountants.
(2) All required financial statements are included or incorporated in
Parts A and B hereof. All other financial statements and
schedules are inapplicable.
(B) Exhibits:
(1) Articles of Incorporation of Registrant dated January 5, 1993 are
incorporated herein as Exhibit No.1
(2) By-Laws of Registrant dated January 15, 1993 are incorporated
herein as Exhibit No.2
(3) None
(4) Specimen Copy of Share Certificate is incorporated herein by
reference to Exhibit No. 4 of Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form N-1A filed on
September 30, 1993.
(5) Investment Advisory Agreement dated April 1, 1993 between
Registrant and Stratton Management Company is incorporated herein
as Exhibit No.5.
(6) Underwriting Agreement dated April 12, 1993 between Registrant
and Fund/Plan
43
<PAGE>
Broker Services, Inc. is incorporated herein by reference to
Exhibit No. 6 of Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form N-1A filed on September 30, 1993.
(7) None
(8) (a) Custodian Agreement between Registrant and The Bank of New
York dated November 1, 1994 is incorporated herein as
Exhibit No.8(a).
(b) Custody Administration and Agency Agreement between
Registrant and Fund/Plan Services, Inc. dated November 1,
1994 is incorporated herein as Exhibit EX 8(b).
(9) (a) Administration Agreement dated March 31, 1993 between
Registrant and Fund/Plan Services, Inc. is incorporated
herein by reference to Exhibit No. (9)(a) of Pre-Effective
Amendment No. 2 to Registrant's Registration Statement on
Form N-1A, filed on April 5, 1993.
(b) Shareholder Services Agreement dated March 31, 1993 between
Registrant and Fund/Plan Services, Inc. is incorporated
herein by reference to Exhibit No. (9)(b) of Pre-Effective
Amendment No. 2 to Registrant's Registration Statement on
Form N-1A, filed on April 5, 1993.
(c) Accounting Services Agreement dated March 31, 1993 between
Registrant and Fund/Plan Services, Inc. is incorporated
herein by reference to Exhibit No. (9)(c) of Pre-Effective
Amendment No. 2 to Registrant's Registration Statement on
Form N-1A, filed on April 5, 1993.
(10) Opinion and Consent of counsel filed under Rule 24-f-2 of the
1940 Act as part of Registrant's Rule 24-f-2 Notice on May 29,
1996.
(11) (a) Consent of Tait, Weller & Baker filed herein as Exhibit
No.11(a).
(b) Consent of Drinker, Biddle & Reath filed herein as Exhibit
No.11(b).
(12) None.
(13) Letters of Understanding Relating to Initial Capital between The
Stratton Funds, Inc. and James W. Stratton, Arlene E. Stratton,
Carol A. Stratton, John A. Affleck, Gerard E. Heffernan, Frank H.
Reichel, III, James Van Dyke Quereau (individually) are
incorporated herein by reference to Exhibit No. (12) of Pre-
Effective Amendment No. 2 to Registrant's Registration Statement
on Form N-1A, filed on April 5, 1993.
(14) (a) Form of 403(b)(7) Retirement Plan is incorporated herein as
Exhibit No.14(a).
(b) Form of Individual Retirement Account (I.R.A.) is
incorporated herein by reference to Exhibit No. 14(b) of the
Fund's Initial Registration Statement No. 33-57166 filed on
January 15, 1993.
(c) Form of Self-Employed Retirement Plan (KEOGH) as amended
June 30,
44
<PAGE>
1994 is incorporated herein as Exhibit No.14(c).
(15) None.
(16) Schedule of computations of performance quotations is
incorporated herein by reference to Exhibit No. (16) of Post-
Effective Amendment No. 3 to Registrant's Registration Statement
on Form N-1A filed on July 29, 1994.
(17) Financial Data Scheduler is incorporated herein as
Exhibit EX27.
(18) Powers of Attorney.
Item 25. Persons Controlled by or under Common Control with Registrant
- -----------------------------------------------------------------------
Registrant is controlled by its Board of Directors
Item 26. Number of Holders of Securities
- -----------------------------------------
Number of Record Holders
as of June 30,1996
Title of Class
--------------
Class A Common Stock,
par value $0.001 per share 913
Item 27. Indemnification
- -------------------------
Section 2-418 of the Corporations and Associations Article of the Annotated Code
of Maryland gives Registrant the power to indemnify its directors and officers
under certain situations. Article SEVENTH section (a) & (b) of Registrant's
Articles of Incorporation, incorporated by reference as Exhibit (1) of the
Fund's initial registration statement filed on January 15, 1993, and Article VI,
Section 1 of Registrant's By-Laws, as amended, incorporated by reference as
Exhibit (2) of the Fund's initial registration statement filed January 15, 1993,
provide for the indemnification of Registrant's directors and officers. Each
indemnification must be authorized by the Board of Directors of Registrant by a
majority of a quorum consisting of directors who were not parties to the action,
suit or proceeding, or by independent legal counsel in a written opinion, or by
the shareholders. Notwithstanding the foregoing, Article VI Section 1 (a) of
Registrant's By-Laws provides that no director or officer of Registrant shall be
indemnified against liability to Registrant or its shareholders by reason of
willful misfeasance, bad faith, gross negligence or reckless disregard of the
duties involved in the conduct of such person's duties to the corporation.
In addition, the aforesaid section of the Corporations and Associations Article
of the Annotated Code of Maryland gives Registrant the power (a) to purchase and
maintain insurance for its directors and officers against any liability asserted
against them and incurred by them in that capacity or arising out of their
status as such, whether or not Registrant would have the power to indemnify such
directors and officers under such statute, and (b) under certain circumstances
to pay the reasonable expenses incurred by a director or officer in defending an
action, suit or proceeding in advance of the final
45
<PAGE>
disposition of the action, suit or proceeding.
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant, pursuant to the foregoing provisions or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
Indemnification of Registrant's Custodian, Transfer Agent, Accounting/Pricing
Agent and Administrator against certain stated liabilities is provided for the
following documents:
(a) Section 8(d) of Administration Agreement between the Registrant and
Fund/Plan Services, Inc., incorporated herein by reference to
Exhibit 9 (a) of Registrant's Registration Statement on Form N-1A;
(b) Section 24(c) of Shareholder Services Agreement between the Registrant
and Fund/Plan Services, Inc., incorporated herein by reference to
Exhibit 9 (b) of Registrant's Registration Statement on Form N-1A;
(c) Section 11(c) of Accounting Services Agreement, between the Registrant
and Fund/Plan Services, Inc., incorporated herein by reference to
Exhibit 9(c) of Registrant's Registration Statement on Form N-1A; and
(d) Article XVII (14) of Custodian Agreement between the Registrant and
Bank of New York, incorporated herein by reference to Exhibit 8 (a) of
Registrant's Registration Statement on Form N-1A.
Item 28. Business and Other Connections of Advisor
- ---------------------------------------------------
Stratton Management Company provides investment advisory services consisting of
portfolio management for a variety of individuals and institutions, and as of
June 30, 1996 had approximately $1.3 billion in assets under management. It
presently also acts as investment advisor to two other registered investment
companies, Stratton Monthly Dividend Shares, Inc. and Stratton Growth Fund,
Inc.
For information as to any other business, vocation or employment of a
substantial nature in which each director or officer of the Registrant's
investment advisor has been engaged for his own account or in the capacity of
director, officer, employee, partner or trustee, reference is made to the Form
ADV (File #801-8681) filed by it under the Investment Advisors Act of 1940, as
amended.
*
Item 29. Principal Underwriter
- ------------------------------
(a) Fund/Plan Broker Services, Inc. ("FPBS"), the principal underwriter for the
Registrant's
46
<PAGE>
securities, currently acts as principal underwriter for the following
entities:
The Brinson Funds
CT&T Funds
Farrell Alpha Strategies
First Mutual Funds
Focus Trust, Inc.
IAA Trust Mutual Funds
Matthews International Funds
McM Funds
Sage/Tso Trust
Smith Breeden Series Fund
Smith Breeden Short Duration U.S. Government Fund
Smith Breeden Trust
The Stratton Funds, Inc.
Stratton Growth Fund, Inc.
Stratton Monthly Dividend Shares, Inc.
The Timothy Plan, Inc.
(b) The table below sets forth certain information as to the Underwriter's
Directors, Officers and Control Persons:
Name and Principal Position and Offices Position and Offices
Business Address with Underwriter with Registrant
- ------------------ -------------------- ---------------
Kenneth J. Kempf Director and None
2 West Elm Street President
Conshohocken, PA 19428-0874
Lynne Cannon Vice President and Director
2 West Elm Street Principal
Conshohocken, PA 19428-0874
Rocco J. Cavalieri Director and None
2 West Elm Street Vice President
Conshohocken, PA 19428-0874
Gerald J. Holland Director, Vice None
2 West Elm Street President and
Conshohocken PA 19428-0874 Principal
Joseph M. O'Donnell, Esq. Director and None
2 West Elm Street Vice President
Conshohocken, PA 19428-0874
Sandra L. Adams Assistant Vice President None
2 West Elm Street and Principal
Conshohocken, PA 19428-0874
Mary P. Efstration Secretary None
2 West Elm Street
47
<PAGE>
Conshohocken, PA 19428-0874
John H. Leven Treasurer None
2 West Elm Street
Conshohocken, PA 19428-0874
Bruno DiStefano Principal None
2 West Elm Street
Conshohocken, PA 19428-0874
(c) Not applicable.
James W. Stratton may be considered a control person of the Underwriter due to
his direct or indirect ownership of Fund/Plan Services, Inc., the parent of the
Underwriter.
Item 30. Location of Accounts and Records
- ------------------------------------------
All records described in Section 31(a) of the 1940 Act and Rules 17 CFR
270.31a-1 to 31a-3 promulgated thereunder, are maintained by Stratton
Management Company, the Fund's Investment Advisor, Plymouth Meeting
Executive Campus, 610 W. Germantown Pike, Suite 300, Plymouth Meeting,
Pennsylvania 19462-1050, except for those maintained by the Fund's
Custodian, The Bank of New York, 48 Wall Street, New York, New York 10286,
and Fund/Plan Services, Inc. the Fund's Administrator, Transfer, Redemption
and Dividend Disbursing Agent, Administrator of its Retirement Plans and
Accounting Services Agent, 2 W. Elm Street, P.O. Box 874, Conshohocken,
Pennsylvania 19428-0874.
Item 31. Management Services
- -----------------------------
Not applicable.
Item 32. Undertakings
- ----------------------
Registrant undertakes to provide its Annual Report upon request without
charge to any recipient of the Fund's Prospectus.
48
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant hereby certifies that it meets
all of the requirements for effectiveness of this Post-Effective Amendment No.
5 to its Registration Statement pursuant to Rule 485(b) under the
Securities Act of 1933 and has duly caused this Post-Effective Amendment
No.5 to its Registration Statement to be signed on its behalf by the
undersigned, thereto duly authorized, in Plymouth Meeting, Pennsylvania, on the
___ day of July, 1996
THE STRATTON FUNDS, INC.
By: _________________________________
*Frank H. Reichel, III, President
Pursuant to the requirements of the Securities Act of 1933, this Post-Effective
Amendment No.5 to the Registrant's Registration Statement has been signed
below by the following persons in the capacities and on the date(s) indicated.
Signature Title Date
- --------- ----- ----
___________________ Director and July __, 1996
*James W. Stratton Chairman of the Board
(Chief Executive Officer)
___________________ Assistant Secretary/Treasurer July __, 1996
*Carol L. Royce
* Lynne M. Cannon Director July __, 1996
* John J. Lombard, Jr. Director July __, 1996
* Henry A. Rentschler Director July __, 1996
* Merritt N. Rhoad, Jr. Director July __, 1996
* Alexander F. Smith Director July __, 1996
* Richard W. Stevens Director July __, 1996
* By:
____________________________________
William J. Baltrus
as Attorney-in-Fact and Agent, pursuant to Power of Attorney
49
<PAGE>
THE STRATTON FUNDS, INC.
INDEX TO EXHIBITS ON FORM N-1A
Sequentially
Exhibit No. Description of Exhibit Numbered Page
- ----------- ---------------------- -------------
1. Articles of Incorporation
2. By-Laws
5. Investment Advisory Agreement
8(a). Custodial Agreement between Registrant
and The Bank of New York dated November 1, 1994
8(b). Custody Administration and Agency Agreement
between Registrant and Fund/Plan Services, Inc.
dated November 1, 1994
11(a). Consent of Tait, Weller & Baker
11(b). Consent of Drinker Biddle & Reath
14(a) Form of 403 (b) (7) Retirement Plan
14(c) Form of Self-Employed Retirement Plan (KEOGH) as amended June 30,
1994
17. Financial Data Schedule
18. Powers of Attorney
50
<PAGE>
THE STRATTON FUNDS, INC.
ARTICLES OF INCORPORATION
FIRST: I, THE UNDERSIGNED, Terrance James Reilly, whose post office
address is 2 W. Elm Street, Conshohocken, PA 19428 being at least eighteen
years of age, do under and by virtue of the General Laws of the State of
Maryland authorizing the formation of corporations, associate myself as
incorporator with the intention of forming a corporation (hereinafter called the
"Corporation").
SECOND: The name of the Corporation is The Stratton Funds, Inc.
THIRD: The purpose for which the Corporation is formed is to operate as a
management investment company under the Investment Company Act of 1940 and to
exercise and enjoy all of the powers, rights and privileges granted to, or
conferred upon, corporations by the General Laws of the State of Maryland now or
hereafter in force.
FOURTH: The post office address of the principal office of the Corporation
in this State is c/o The Corporation Trust, Incorporated, 32 South Street,
Baltimore, MD 21202. The name of the resident agent of the Corporation in this
state is The Corporation Trust, Incorporated a corporation of this state and the
post office address of the resident agent is c/o The Corporation Trust,
Incorporated, 32 South Street, Baltimore, MD 21202.
FIFTH: 1. The total number of shares of stock which the Corporation
initially shall have authority to issue is 1,000,000,000 shares of stock, with a
par value of one-tenth of one cent ($.001) per share, to be known and designated
as Common Stock, such shares of Common Stock having an aggregate par value of
One Million Dollars ($1,000,000). The Board of Directors shall have power and
authority to increase or decrease, from time to time, the aggregate number of
shares of stock, or of any class of stock, which the Corporation shall have the
authority to issue.
2. Subject to the provisions of these Articles of Incorporation,
the Board of Directors shall have the power to issue shares of Common Stock of
the Corporation from time to time, at prices not less than the par value thereof
for such consideration as may be fixed from time to time by the Board of
Directors. All stock shall be issued on a non-assessable basis.
<PAGE>
3. The Board of Directors of the Corporation shall have the power
to designate one or more classes or sub-classes of shares of Common Stock, to
fix the number of shares of any such class or sub-class and to classify or
reclassify any unissued shares. Each such class or sub-class shall have such
preferences, conversion or other rights, voting powers, restrictions,
limitations as to dividends, qualifications, terms and conditions of redemption
and other characteristics as the Board may determine. The aforesaid power shall
include the power to create, by classifying or reclassifying unissued shares in
the aforesaid manner, one or more classes or sub-classes in addition to those
initially designated below. Subject to such aforesaid power, the Board of
Directors has initially designated one class of shares of Common Stock of the
Corporation. The name of the initial class and the number of shares of Common
Stock initially classified and allocated to such class is as follows:
Number of Shares of Common Stock
Initially Classified and
Name of Class Allocated
- ------------- --------------------------------
Class A Common Stock 200,000,000
4. The holder of each share of stock of the Corporation shall be
entitled to one vote for each full share, and a fractional vote for each
fractional share of stock, irrespective of the class, or sub-class standing in
his or her name on the books of the Corporation. On any matter submitted to a
vote of stockholders, all shares of the Corporation then issued and outstanding
and entitled to vote, irrespective of the class or sub-class shall be voted in
the aggregate and not by class or sub-class except (1) when otherwise expressly
provided by the Maryland General Corporation Law, or (2) when required by the
Investment Company Act of 1940, as amended, shares shall be voted by individual
class or sub-class and (3) when the matter does not affect any interest of a
particular class or sub-class then only stockholders of such class or sub-class
whose interests may be affected shall be entitled to vote thereon. Holders of
shares of stock of the Corporation shall not be entitled to cumulative voting in
the election of directors or on any other matter.
5. The Board of Directors may from time to time declare and pay
dividends or distributions, in stock, property or in cash, on any or all classes
of stock and to the stockholders of record as
<PAGE>
of such date as the Board of Directors may determine; provided, such dividends
or distributions on shares of each class of stock shall be paid only out of
earnings, surplus, or other lawfully available assets belonging to such class.
Subject to the foregoing, the amount of any dividends or distributions and the
payment thereof shall be wholly in the discretion of the Board of Directors.
6. In the event of the liquidation or dissolution of the
Corporation, stockholders of each class shall be entitled to receive, as a
class, out of the assets of the Corporation available for distribution to
stockholders, but other than general assets, the assets belonging to such class,
and the assets so distributable to the stockholders of any class shall be
distributed among such stockholders in proportion to the number of shares of
such class held by them and recorded on the books of the Corporation. In the
event that there are any general assets not belonging to any particular class of
stock and available for distribution, such distribution shall be made to the
holders of stock of all classes in proportion to the net asset value of the
respective class determined as hereinafter provided.
7. The Board of Directors may provide for a holder of any class
of stock of the Corporation who surrenders his certificate in good form for
transfer to the Corporation or, if the shares in question are not represented by
certificates, who delivers to the Corporation a written request to convert such
shares on such basis as the Board may provide, into shares of stock of any other
class of stock of the Corporation.
8. All shares now or hereafter authorized shall be redeemable at
the option of the holder, at a price per share as provided by the Board of
Directors.
9. Notwithstanding subsection 8 above, the Board of Directors of
the Corporation may suspend the right of the holders of shares to require the
Corporation to redeem such shares as permitted by the Investment Company Act of
1940.
10. All shares now or hereafter authorized shall be subject to
redemption and redeemable at the option of the Corporation. The Board of
Directors may by resolution from time to time authorize the Corporation to
require the redemption of all or any part of any outstanding shares without the
vote or consent of stockholders on such terms as the Board by resolution may
adopt.
<PAGE>
11. Payments for shares redeemed by the Corporation shall be made
from the assets of the applicable class in cash, except payment for such shares
may, at the option of the Board of Directors, or such officer or officers as
they may duly authorize for the purpose in their complete discretion, be made
from the assets of that class in kind or partially in cash and partially in
kind. In case of any payment in kind, the Board of Directors, or its delegate,
shall have absolute discretion as to what security or securities of such class
shall be distributed in kind and the amount of the same; and the securities
shall be valued for the purposes of distribution at the value at which they were
appraised in computing the current net asset value of the class of the
Corporation's shares, provided that any stockholder who cannot legally acquire
securities so distributed in kind by reason of the prohibitions of the
Investment Company Act of 1940, as amended, shall receive cash.
12. The holders of shares of Common Stock or other securities of
the Corporation shall have no preemptive rights to subscribe to new or
additional shares of its Common Stock or other securities.
-3-
SIXTH: The number of directors of the Corporation shall be not less
than three (3) provided, however, that the number of directors may be increased
or decreased in accordance with the By-Laws of the Corporation so long as the
number is never less than the minimum number permitted by the Maryland General
Corporation Law. The names of the current directors who shall act until the
first meeting of stockholders and until their successors are duly elected and
qualify are:
James W. Stratton
Gordon L. Wahls
Merritt N. Rhoad, Jr.
SEVENTH: (a) To the fullest extent that limitations on the liability
of directors and officers are permitted by the Maryland General Corporation Law,
as amended from time to time, no director or officer of the Corporation shall
have any liability to the Corporation or its stockholders for money damages.
This limitation on liability applies to liabilities occurring for acts or
omissions occurring at the time a person serves as a director or officer of
<PAGE>
the Corporation, whether or not such person is a director or officer at the time
any proceeding is commenced in which liability is asserted.
(b) Notwithstanding the foregoing, this Article SEVENTH shall
not operate to protect any director or officer of the Corporation against any
liability to the Corporation or its stockholders to which such person would
otherwise be subject by reason of willful misfeasance, bad faith, gross
negligence, or reckless disregard of the duties involved in the conduct of such
person's office.
EIGHTH: The Board of Directors shall have the management and control
of the property, business and affairs of the Corporation.
NINTH: The books of the Corporation may be kept (subject to any
provisions contained in applicable statutes) outside the State of Maryland at
such place or places as may be designated from time to time by the Board of
Directors or in the By-Laws of the Corporation.
TENTH: The Corporation reserves the right from time to time to amend,
alter, or repeal any of the provisions of these Articles of Incorporation
(including any amendment that changes the terms of any of the outstanding shares
by classification, reclassification or otherwise), and any contract rights, as
expressly set forth in these Articles of Incorporation, of any outstanding
shares, and to add or insert any other provisions that may, under the statutes
of the State of Maryland at the time in force, be lawfully contained in articles
of incorporation, and all rights at any time conferred upon the stockholders of
the Corporation by these Articles of Incorporation are subject to the provisions
of this Article TENTH.
-4-
ELEVENTH: Notwithstanding any provision of Maryland law requiring more
that a majority vote of the outstanding stock, or any class thereof, in
connection with any corporate action (including, but not limited to, the
amendment of these Articles of Incorporation), unless otherwise provided in
these Articles of Incorporation, the Corporation may take or authorize such
action upon the favorable vote of the holders of a majority of the outstanding
shares entitled to vote thereon.
<PAGE>
TWELFTH: All persons who shall acquire shares in the Corporation shall
acquire the same subject to the provisions of these Articles of Incorporation.
THIRTEENTH: The duration of the Corporation shall be perpetual.
IN WITNESS WHEREOF, the undersigned incorporator of The Stratton
Funds, Inc. who executed the foregoing Articles of Incorporation hereby
acknowledges the same to be his act and further acknowledges to the best of his
knowledge, information and behalf, the matters and facts set forth therein with
respect to approval are true in all material respects under penalties of
perjury.
THE STRATTON FUNDS, INC.
Date: By: /s/
--------------------------- -----------------------------
Terrance James Reilly
-5-
<PAGE>
BY-LAWS OF
THE STRATTON FUNDS, INC.
ARTICLE I
Fiscal Year and Offices
Section 1. Fiscal Year. Unless otherwise provided by resolution of the
Board of Directors, the fiscal year of the Corporation shall begin on the 1st
day of April and end on the last day of March.
Section 2. Registered Office. The registered office of the Corporation in
Maryland shall be located at
The Corporation Trust Incorporated
32 South Street
Baltimore, MD 21202
Section 3. Other Offices. The Corporation shall have additional places of
business, either within or outside the State of Maryland, as the Board of
Directors may from time to time designate.
ARTICLE II
Meetings of Stockholders
Section 1. Place of Meeting. Meetings of the stockholders for the
election of directors shall be held in such place as shall be fixed by
resolution of the Board of Directors and stated in the notice of the meeting.
Section 2. Annual Meetings. An Annual Meeting of stockholders will not be
held unless the Investment Company Act requires the election of directors to be
acted upon.
Section 3. Special Meetings. Special meetings of the stockholders may be
called at any time by the President, or by a majority of the Board of Directors,
and shall be called by the Secretary upon written request of the holders of
shares entitled to cast not less than ten percent of all the votes entitled to
be cast at such meeting provided that (a) such request shall state the purposes
of such meeting and the matters proposed to be acted on,
<PAGE>
and (b) the stockholders requesting such meeting shall have paid to the
Corporation the reasonable estimated cost of preparing and mailing the notice
thereof, which the Secretary shall determine and specify to such stockholders.
No special meeting need be called upon the request of holders of common stock
entitled to cast less than a majority of all votes entitled to be cast at such
meeting to consider any matter which is substantially the same as a matter voted
on at any meeting of the stockholders held during the preceding twelve months.
The foregoing provisions of this section 3 notwithstanding a special meeting of
stockholders shall be called upon the request of the holders of at least ten
percent of the shares entitled to vote for the purpose of considering removal of
a director from office as provided in section 16(c) of the Investment Company
Act of 1940.
Section 4. Notice. Not less than ten, nor more than ninety days before
the date of every Annual or Special Stockholders Meeting, the Secretary shall
cause to be mailed to each stockholder entitled to vote at such meeting at his
(her) address (as it appears on the records of the Corporation at the time of
mailing) written notice stating the time and place of the meeting and, in the
case of a Special Meeting of Stockholders shall be limited to the purposes
stated in the notice. Notice of adjournment of a stockholders meeting to
another time or place need not be given, if such time and place are announced at
the meeting.
Section 5. Record Date for Meetings. Subject to the provisions of
Maryland law, the Board of Directors may fix in advance a date not more than
ninety, nor less than ten days, prior to the date of any annual or special
meeting of the stockholders as a record date for the determination of the
stockholders entitled to receive notice of, and to vote at any meeting and any
adjournment thereof; and in such case such stockholders and only such
stockholders as shall be stockholders of record on the date so fixed shall be
entitled to receive notice of and to vote at such meeting and any adjournment
thereof as the case may be, notwithstanding any transfer of any stock on the
books of the Corporation after any such record date fixed as aforesaid.
Section 6. Quorum. At any meeting of stockholders, the presence in person
or by proxy of the holders of record of a majority of the shares issued and
outstanding and entitled to vote there at shall constitute a quorum for the
transaction of any business at the meeting, except as otherwise provided by the
Investment Company Act of 1940 or in the Corporation's Articles of
<PAGE>
Incorporation. If, however, such quorum shall not be present or represented at
any meeting of the stockholders, the holders of a majority of the stock present
or in person or by proxy shall have the power to adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
shall be present or represented to a date not more than 120 days after the
original record date. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 7. Voting. Each stockholder shall have one vote for each full
share and a fractional vote for each fractional share of stock having voting
power held by such stockholder on the record date set pursuant to Section 5 on
each matter submitted to a vote at a meeting of stockholders. Such vote may be
made in person or by proxy. On any matter submitted to a vote of shareholders,
all shares of the Corporation then issued and outstanding are entitled to vote,
irrespective of the Class and all shares of the Class shall vote as a single
Class; provided that, a quorum being present, all matters shall be decided by
majority vote of the shares of stock entitled to vote held by stockholders
present in person or by proxy, unless the question is one for which by express
provision of the laws of the State of Maryland, the Investment Company Act of
1940, as from time to time amended, or the Articles of Incorporation, a separate
vote by that Class shall apply in lieu of Single Class voting and only the
holders of such Class will be entitled to vote, in which case such express
provision shall control the decision of such question. At all meetings of
stockholders, unless the voting is conducted by inspectors, all questions
relating to the qualification of voters and the validity of proxies and the
acceptance or rejection of votes shall be decided by the Chairman of the
meeting.
Section 8. Inspectors. At any election of directors, the Board of
Directors prior thereto may, or, if they have not so acted, the Chairman of the
meeting may appoint one or more inspectors of election who shall first subscribe
an oath of affirmation to execute faithfully the duties of inspectors at such
election with strict impartiality and according to the best of their ability,
and shall after the election make a certificate of the result of the vote taken.
3
<PAGE>
Section 9. Stock Ledger and List of Stockholders. It shall be the duty of
the Secretary or Assistant Secretary of the Corporation to cause an original or
duplicate stock ledger to be maintained at the office of the Corporation's
transfer agent. Such stock ledger may be in written form or any other form
capable of being converted into written form within a reasonable time for visual
inspection.
Section 10. Action Without Meeting. Any action to be taken by
stockholders may be taken without a meeting if (a) all stockholders entitled to
vote on the matter consent to the action in writing, and (b) all stockholders
entitled to notice of the meeting but not entitled to vote at it sign a written
waiver of any right to dissent and (c) the written consents are filed with the
records of the meetings of stockholders. Such consent shall be treated for all
purposes as a vote at a meeting.
ARTICLE III
Directors
Section 1. General Powers. The business of the Corporation shall be
managed under the direction of its Board of Directors, which may exercise all
powers of the Corporation, except such as are by statute, or the Articles of
Incorporation, or by these ByLaws conferred upon or reserved to the
stockholders.
Section 2. Number and Term of Office. The number of directors which shall
constitute the whole Board shall be determined from time to time by the Board of
Directors, but shall not be fewer than the minimum number permitted by
applicable laws, nor more than fifteen. Each director elected shall hold office
until his successor is elected and qualified. Directors need not be
stockholders.
Section 3. Elections. The directors shall be those persons named as such
in the Articles of Incorporation. Provided a quorum is present, the directors
shall be elected by the vote of a plurality of the shares present in person or
by proxy, except that any vacancy on the Board of Directors may be filled by a
majority vote of the Board of Directors, although less than a quorum, subject to
the requirements of Section 16(a) of the
4
<PAGE>
Investment Company Act of 1940, and the applicable provisions of the Maryland
General Corporation Law.
Section 4. Place of Meeting. Meetings of the Board of Directors, regular
or special, may be held at any place in or out of the State of Maryland as the
Board may from time to time determine.
Section 5. Quorum. At all meetings of the Board of Directors, one-third
of the entire Board of Directors shall constitute a quorum for the transaction
of business provided that in no case may a quorum be less than two persons. The
action of a majority of the directors present at any meeting at which a quorum
is present shall be the action of the Board of Directors unless the concurrence
of a greater proportion is required for such action by the laws of Maryland, the
Investment Company Act of 1940, these By-Laws or the Articles of Incorporation.
If a quorum shall not be present at any meeting of directors, the directors
present thereat may by a majority vote adjourn the meeting from time to time
without notice other than announcement at the meeting, until a quorum shall be
present.
Section 6. Regular Meetings. Regular meetings of the Board of Directors
may be held without additional notice at such time and place as shall from time
to time be determined by the Board of Directors provided that notice of any
change in the time or place of such meetings shall be sent promptly to each
director not present at the meeting at which such change was made in the manner
provided for notice of special meetings.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the President on one day's notice to each director; Special
meetings shall be called by the President or Secretary in like manner and on
like notice on the written request of two directors.
Section 8. Telephone Meeting. Members of the Board of Directors or a
committee of the Board of Directors may participate in a meeting by means of a
conference telephone or similar communications equipment if all persons
participating in the meeting can hear each other at the same time.
5
<PAGE>
Section 9. Informal Actions. Any action required or permitted to be
taken at any meeting of the Board of Directors or of any committee thereof may
be taken without a meeting, if a written consent to such action is signed by all
members of the Board or of such committee, as the case may be, and such written
consent is filed with the minutes of proceedings of the Board or committee.
Section 10. Committees. The Board of Directors may by resolution passed
by a majority of the entire Board appoint from among its members an Executive
Committee and other committees composed of two or more directors, and may
delegate to such committees, in the intervals between meetings of the Board of
Directors, any or all of the powers of the Board of Directors in the management
of the business and affairs of the Corporation.
Section 11. Action of Committees. In the absence of an appropriate
resolution of the Board of Directors, each committee may adopt such rules an
regulations governing its proceedings, quorum and manner of acting as it shall
deem proper and desirable, provided that the quorum shall not be less than two
directors. The committees shall keep minutes of their proceedings and shall
report the same to the Board of Directors at the meeting next succeeding, and
any action by the committee shall be subject to revision and alteration by the
Board of Directors, provided that no rights of third persons shall be affected
by any such revision or alteration. In the absence of any member of such
committee, the members thereof present at any meeting, whether or not they
constitute a quorum, may appoint a member of the Board of Directors to act in
the place of such absent member.
Section 12. Compensation. Any director, whether or not he is a salaried
officer or employee of the Corporation, may be compensated for his services as
director or as a member of a committee of directors, or as Chairman of the Board
or chairman of a committee by fixed periodic payments or by fees for attendance
at meetings or by both, and in addition may be reimbursed for transportation and
other expenses, all in such manner and amounts as the Board of Directors may
from time to time determine.
6
<PAGE>
ARTICLE IV
Notices
Section 1. Form. Notices to stockholders shall be in writing and
delivered personally or mailed to the stockholders at their addresses appearing
on the books of the Corporation. Notices to directors shall be oral or by
telephone or telegram or in writing delivered personally or mailed to the
directors at their addresses appearing on the books of the Corporation. Notice
by mail shall be deemed to be given at the time when the same shall be mailed.
Subject to the provisions of the Investment Company Act of 1940, notice to
directors need not state the purpose of a regular or special meeting.
Section 2. Waiver. Whenever any notice of the time, place or purpose of
any meeting of stockholders, directors or a committee is required to be given
under the provisions of Maryland law or under the provisions of the Articles of
Incorporation or these By-Laws, a waiver thereof in writing, signed by the
person or persons entitled to such notice and filed with the records of the
meeting, whether before or after the holding thereof, or actual attendance at
the meeting of stockholders in person or by proxy, or at the meeting of
directors or committee in person, shall be deemed equivalent to the giving of
such notice to such persons.
ARTICLE V
Officers
Section 1. Executive Officers. The officers of the Corporation shall be
chosen by the Board of Directors and shall include a President, a Secretary and
a Treasurer. The Board of Directors may, from time to time, elect or appoint a
Controller, one or more vice Presidents, Assistant Secretaries and Assistant
Treasurers. The Board of Directors, at its discretion, may also appoint a
director as Chairman of the Board who shall perform and execute such executive
and administrative duties and powers as the Board of Directors shall from time
to time prescribe. The same person may hold two or more offices, except that no
person shall be
both President and Vice-President and no officer shall execute, acknowledge or
verify any instrument in more than one capacity, if
7
<PAGE>
such instrument is required by law, the Articles of Incorporation or these
By-Laws to be executed, acknowledged or verified by two or more officers.
Section 2. Election. The Board of Directors shall choose a President, a
Secretary and a Treasurer.
Section 3. Other Officers. The Board of Directors from time to time may
appoint such other officers and agents as it shall deem advisable, who shall
hold their offices for such terms and shall exercise powers and perform such
duties as shall be determined from time to time by the Board. The Board of
directors from time to time may delegate to one or more officers or agents the
power to appoint any such subordinate officers or agents and to prescribe their
respective rights, terms of office, authorities and duties.
Section 4. Compensation. The salaries or other compensation of all
officers and agents of the Corporation shall be fixed by the Board of Directors,
except that the Board of directors may delegate to any person or group of
persons the power to fix the salary or other compensation of any subordinate
officers or agents appointed pursuant to Section 3 of this Article V.
Section 5. Tenure. The officers of the Corporation shall serve at the
pleasure of the Board of Directors. Any officer or agent may be removed by the
affirmative vote of a majority of the Board of Directors whenever, in its
judgment, the best interests of the Corporation will be served thereby. In
addition, any officer or agent appointed pursuant to Section 3 may be removed,
either with or without cause, by any officer upon whom such power of removal
shall have been conferred by the Board of directors. Any vacancy occurring in
any office of the corporation by death. resignation, removal or otherwise shall
be filled by the Board of Directors, unless pursuant to Section 3 the power of
appointment has been conferred by the Board of Directors on any other officer.
Section 6. President. The President shall be the Chief Executive Officer
of the Corporation and shall see that all orders and resolutions of the Board
are carried into effect. The President shall also be the chief administrative
officer of the
8
<PAGE>
Corporation and shall perform such other duties and have such other powers as
the board of Directors may from time to time prescribe.
Section 7. Chairman of the Board. The Chairman of the Board, if one
shall be chosen, shall perform and execute such executive duties an
administrative powers as the Board of Directors shall from time to time
prescribe.
Section 8. Vice-President. The Vice-Presidents, in order of their
seniority, shall, in the absence or disability of the President, perform the
duties and exercise the powers of the President and shall perform such other
duties as the Board of Directors or the President may from time to time
prescribe.
Section 9. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of the stockholders and record all the
proceedings thereof and shall perform like duties for any committee when
required. He shall give, or cause to be given, notice of meetings of the
Stockholders and of the Board of Directors, shall have charge of the records of
the corporation, including the stock books, and shall perform such other duties
as may be prescribed by the Board of directors or Chief Executive Officer, under
whose supervision he shall be. He shall keep in safe custody the seal of the
Corporation and, when authorized by the Board of Directors, shall affix and
attest the same to any instrument requiring it. The Board of Directors may give
general authority to any other officer to affix the seal of the corporation and
to attest the affixing by his signature.
Section 10. Assistant Secretaries. the Assistant Secretaries in order of
their seniority, shall, in the absence or disability of the Secretary, perform
the duties an exercise the powers of the Secretary and shall perform such other
duties as the Board of Directors shall prescribe.
Section 11. Treasurer. The Treasurer, unless another officer has been so
designated, shall be the Chief Financial Officer of the Corporation. He shall
have general charge of the finances and books of account of the Corporation.
Except as otherwise provided by the Board of Directors, he shall have general
supervision of the funds an property of the Corporation and of the performance
by the custodian of its duties with respect thereto.
9
<PAGE>
He shall render to the Board of Directors, whenever directed by the Board, an
account of the financial condition of the Corporation and of all his
transactions as Treasurer. He shall cause to be prepared annually a full and
correct statement of the affairs of the Corporation, including a balance sheet
and a statement of operations for the preceding fiscal year. He shall perform
all the acts incidental to the office of Treasurer, subject to the control of
the Board of Directors.
Section 12. Assistant Treasurer. The Assistant Treasurer shall in the
absence or disability of the Treasurer, perform the duties and exercise the
powers of the Treasurer and shall perform such other duties as the Board of
Directors may from time to time prescribe.
ARTICLE VI
Indemnification and Insurance
Section 1. Indemnification of Directors and Officers. With respect to the
indemnification of the officers and directors of the Corporation:
(a) The Corporation shall indemnify each officer and director made party
to a proceeding, by reason of service in such capacity, to the fullest extent,
and in the manner provided, under section 2-418 of the Maryland General
Corporation Law: (i) unless it is proved that the person seeking indemnification
did not meet the standard of conduct set forth in subsection (b)(1) of such
section; and (ii) provided, that the Corporation shall not indemnify any officer
or director for any liability to the Corporation or its security holders arising
from the willful misfeasance, bad faith, gross negligence or reckless disregard
of the duties involved in the conduct of such person's duties to the
Corporation.
(b) The provisions of clause (i) of paragraph (a) herein notwithstanding.
the Corporation shall indemnify each officer and director against reasonable
expenses incurred in connection with the successful defense of any proceeding to
which such officer or director is a party by reason of service in such capacity.
10
<PAGE>
(c) The Corporation, in the manner and to the extent provided by
applicable law, shall advance to each officer and director who is made party to
a proceeding by reason of service in such capacity the reasonable expenses
incurred by such person in connection therewith.
Section 2. Insurance. The Corporation, directly, through third parties or
through affiliates of the Corporation, may purchase, or provide through a trust
fund, letter of credit or surety bond, insurance on behalf of any person who is
or was a director, officer, employee or agent of the Corporation, or who, while
a director, officer, employee or agent of the Corporation is or was serving at
the request of the Corporation as a director, officer, employee, partner,
trustee or agent of another foreign or domestic corporation, partnership, joint
venture. trust or other enterprise against any liability asserted against and
incurred by such person in any such capacity or arising out of such person's
position, whether or not the Corporation would have the power to indemnify such
person against such liability.
ARTICLE VII
Stock
Section 1. Certificates. Each stockholder shall be entitled, upon written
request, to a certificate or certificates in form approved by the Board of
Directors representing and certifying the class and the full, but not fractional
number of shares owned by him in the Corporation. Each certificate shall be
signed by facsimile or otherwise by the President or a Vice-President and
counter-signed by the Secretary or an Assistant Secretary or the Treasurer or an
Assistant Treasurer.
Section 2. Signature. In case any officer who has signed any certificate
ceases to be an officer of the Corporation before the certificate is issued, the
certificate may nevertheless be issued by the Corporation with the same effect
as if the officer had not ceased to be such officer as of the date of its issue.
Section 3. Recording and Transfer without Certificates. Notwithstanding
the foregoing provisions of this Article VII, the Corporation shall have the
full power to participate in any program approved by the Board of Directors
providing for the recording and
11
<PAGE>
transfer of ownership of shares of the Corporation's stock by electronic or
other means without the issuance of certificates.
Section 4. Lost Certificates. The Board of Directors may direct a new
certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by he Corporation alleged to have been stolen,
lost or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to have been stolen, lost or destroyed, or
upon other satisfactory evidence of such theft, loss or destruction and may in
its discretion and as a condition precedent to the issuance thereof, require the
owner of such stolen, lost or destroyed certificate or certificates, or his
legal representative, to give the Corporation a bond with sufficient surety, to
the Corporation to indemnify it against any loss or claim that may be made by
reason of the issuance of a new certificate.
Section 5. Transfer of Capital Stock. Transfers of shares of the stock of
the Corporation shall be made on the books of the Corporation by the holder of
record thereof (in person or by his attorney thereunto duly authorized by a
power of attorney duly executed in writing an filed with the Secretary of the
Corporation) (i) if a certificate or certificates have been issued, upon the
surrender of the certificate or certificates, properly endorsed or accompanied
by proper instruments of transfer, representing such shares, or (ii) as
otherwise prescribed by the Board of directors. Every certificate exchanged,
surrendered for redemption or otherwise returned to the Corporation shall be
marked "Canceled" with the date of cancellation.
Section 6. Registered Stockholders. The Corporation shall be entitled to
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and to vote as such owner and shall not be bound
to recognize any equitable or other claim to or interest in such shares or
shares on the part of any other person, whether or not it shall have express or
other notice thereof, except as otherwise provided by the laws of the State of
Maryland.
Section 7. Transfer Agents and Registrars. The Board of Directors may,
from time to time, appoint or remove transfer agents and or registrars of the
Corporation, and they may appoint the same person as both transfer agent and
registrar. Upon any such
12
<PAGE>
appointment being made, all certificates representing shares of stock thereafter
issued shall be countersigned by such transfer agent and shall not be valid
unless so countersigned.
Section 8. Stock Ledger. The Corporation shall maintain an original stock
ledger containing the names and addresses of all stockholders and the number an
class of shares held by each stockholder. Such stock ledger may be in written
form or any other form capable of being converted into written form within
reasonable time for visual inspection.
ARTICLE VIII
General Provisions
Section 1. Custodianship. Except as otherwise provided by resolution of
the Board of Directors, the Corporation shall place and at all times maintain in
the custody of a custodian (including any sub-custodian for the custodian) all
funds, securities and similar investments owned by the Corporation. Subject to
the approval of the Board of Directors, the custodian may enter into
arrangements with securities depositories, provided such arrangements comply
with the provisions of the Investment company Act of 1940 and the rules and
regulations promulgated thereunder.
Section 2. Seal. The corporate seal shall have inscribed thereon the name
of the Corporation and, the year of its organization. The seal may be used by
causing it or a facsimile thereof to be impressed or affixed or reproduced or
otherwise.
Section 3. Execution of Instruments. All deeds, documents, transfers,
contracts, agreements and other instrument requiring execution by the
Corporation shall be signed by the President or a Vice President.
Section 4. Net Asset Value. The net asset value per share shall be
determined separately as to each class of the Corporation's Common Stock, by
dividing the sum of the total market value of the class's investments and other
assets, less any liabilities, by the total outstanding shares of such class,
subject to the Investment Company Act of 1940 and any other applicable Federal
securities law or rule or regulation currently in effect.
13
<PAGE>
ARTICLE IX
Amendments
The Board of Directors shall have the power to make, alter and repeal the
By-Laws of the Corporation.
14
<PAGE>
INVESTMENT ADVISORY AGREEMENT
-----------------------------
AGREEMENT made this 1ST day of April, 1993 by and between The Stratton
--- ------ -
Funds, Inc., a Maryland corporation (the "Fund") and Stratton Management
Company, a Pennsylvania corporation (the "Adviser").
1. Duties of Adviser. The Fund hereby appoints the Adviser to act as
-----------------
investment adviser to the Fund's Stratton Small-Cap Yield Fund (the "Portfolio")
for the period and on such terms set forth in this Agreement. The Fund employs
the Adviser to manage the investment and reinvestment of the assets of the
Portfolio, to continuously review, supervise and administer the investment
program of the Portfolio, to determine in its discretion the assets to be held
uninvested, to provide the Fund with records concerning the Adviser's activities
which the Fund is required to maintain, and to render regular reports to the
Fund's officers and Board of Directors concerning the Adviser's discharge of the
forgoing responsibilities. The Adviser shall discharge the foregoing
responsibilities subject to the control of the officers and the Board of
Directors of the Fund, and in compliance with the objectives, policies and
limitations set forth in the Fund's prospectus. The Adviser accepts such
employment and agrees to render the services and to provide, at its own expense,
the office
-1-
<PAGE>
space, furnishings and equipment and the personnel required by it to perform the
services on the terms and for the compensation provided herein.
2. Portfolio Transactions. The Adviser shall select the brokers or
----------------------
dealers that will execute the purchases and sales of securities for the
Portfolio and is directed to use its best efforts to obtain the best available
price and most favorable execution of securities transactions for the Portfolio.
Subject to policies established by the Board of Directors of the Fund and
communicated to the Adviser, it is understood that the Adviser will not be
deemed to have acted unlawfully, or to have breached a fiduciary duty to the
Fund or in respect of the Portfolio, or be in breach of any obligation owing to
the Fund or in respect of the Portfolio under this Agreement, or otherwise,
solely by reason of its having caused the Portfolio to pay a member of a
securities exchange, a broker or a dealer a commission for effecting a
securities transaction for the Portfolio in excess of the amount of commission
another member of an exchange, broker or dealer would have charged if the
Advisor determines in good faith that the commission paid was reasonable in
relation to the brokerage or research services provided by such member, broker
or dealer, viewed in terms of that particular transaction or the Adviser's
overall
-2-
<PAGE>
responsibilities with respect to the accounts, including the Portfolio, as to
which it exercises investment discretion. The Adviser will promptly communicate
to the officers and directors of the Fund such information relating to Portfolio
transactions as they may reasonably request.
3. Compensation of the Adviser. For the services to be rendered by the
---------------------------
Adviser as provided in Section 1 and 2 of this Agreement, the Portfolio shall
pay to the Adviser within five business days after the end of each calendar
month, a monthly fee of one-twelfth of .75% of the Portfolio's average daily net
assets for the month, subject to a performance adjustment. The performance
adjustment will commence on the first day of the month after the Portfolio has
completed 24 months of operation, unless at the end of such month the Portfolio
has net assets of less than $20 million, in which case the performance
adjustment will commence on the first day of the month after the Portfolio has
net assets of $20 million or more, but in no event later than the end of the
month in which the Fund has completed 36 months of operation. The performance
adjustment will be calculated at the end of such month and each succeeding month
based on a rolling 24-month performance period. The performance adjustment is
calculated by calculating the difference in percentage performance between the
performance of
-3-
<PAGE>
the Portfolio and the Frank Russell 2000 Index during the performance period, in
each case calculated in accordance with the requirements of (S)205 of the
Investment Advisers Act of 1940 and the regulations thereunder. Each 1.00% of
difference in percentage performance between the Portfolio and the Frank Russell
2000 Index during the twenty-four month performance period shall be multiplied
by .10% (up to a maximum annualized performance adjustment rate of +/-.50%), and
one-twelfth of this rate is then applied to the Portfolio's net assets averaged
over the twenty-four month performance period, giving the dollar amount which is
added to or subtracted from the monthly basic fee.
In the event of termination of this Agreement, the fee provided in this
Section 3 shall be paid on a pro rata basis, based on the number of days when
this Agreement was in effect.
4. Reports. The Fund and the Adviser agree to furnish to each other such
-------
information regarding their operations with regard to their affairs as each may
reasonably request.
5. Status of Adviser. The services of the Adviser to the Fund are not to
-----------------
be deemed exclusive, and the Adviser shall be
-4-
<PAGE>
free to render similar services to others so long as its services to the Fund
are not impaired thereby.
6. Liability of Adviser. In the absence of willful misfeasance, bad
--------------------
faith, gross negligence or reckless disregard by the Adviser of its obligations
and duties hereunder, the Adviser shall not be subject to any liability
whatsoever to the Fund, or to any shareholder of the Fund, for any error of
judgment, mistake of law or any other act or omission in the course of, or
connected with, rendering services hereunder including, without limitation, for
any losses that may be sustained in connection with the purchase, holding,
redemption or sale of any security on behalf of any Portfolio of the Fund.
7. Duration and Termination. This Agreement, shall become effective on
------------------------
_____________, 1993 provided that first it is approved by the Board of Directors
of the Fund, including a majority of those directors who are not parties to this
Agreement or interested persons of any party hereto, in the manner provided in
section 15(c) of the Investment Company Act of 1940, and by the holders of a
majority of the outstanding voting securities of the Portfolio; and shall
continue in effect until, ______________ 1995. Thereafter, this Agreement may
continue in effect only if such continuance is approved at least annually by (i)
the Fund's
-5-
<PAGE>
Board of Directors or, (ii) by the vote of a majority of the outstanding voting
securities of the Portfolio; and in either event by a vote of a majority of
those directors of the Fund who are not parties to this Agreement or interested
persons of any such party in the manner provided in section 15(c) of the
Investment Company Act of 1940. This Agreement may be terminated by the Fund at
any time, without the payment of any penalty, by the Board of Directors of the
Fund or by vote of the holders of a majority of the outstanding voting
securities of the Portfolio on 60 days written notice to the Adviser. This
Agreement may be terminated by the Adviser at any time, without the payment of
any penalty, upon 60 days written notice to the Fund. This Agreement will
automatically terminate in the event of its assignment. Any notice under this
Agreement shall be given in writing, addressed and delivered or mailed postpaid,
to the other party at the principal office of such party.
As used in this Section 8, the terms "assignment", "interested person", and
"a vote of a majority of the outstanding voting securities" shall have the
respective meanings set forth in Section 2(a)(4), Section 2(a)(19) and Section
2(a)(42) of the 1940 Act and Rule 18f-2 thereunder.
-6-
<PAGE>
8. Name of Adviser. The Fund agrees that if this Agreement terminates for
---------------
any reason it shall promptly take such action as may be necessary to delete from
its corporate name and/or the name of the Portfolio any reference to the name of
the Adviser promptly after receipt from the Adviser of a written request
therefore.
9. Severability. If any provisions of this Agreement shall be held or
------------
made invalid by a court decision, statute, rule or otherwise, the remainder of
this Agreement shall not be affected thereby.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of this _________ day of ___________, 1993.
ATTEST THE STRATTON FUNDS, INC.
[SEAL]
________________________________ By:_______________________
Frank H. Reichel, III
President
ATTEST STRATTON MANAGEMENT COMPANY
[SEAL]
-7-
<PAGE>
_______________________________ By:________________________
James W. Stratton
ssc-adv.agt
-8-
<PAGE>
CUSTODY AGREEMENT
Agreement made as of this day of ,
1994, between Stratton Small-Cap Yield Fund, a corporation
organized and existing under the laws of the state of
Maryland, having its principal office and place of business
at
(hereinafter called the "Fund"), and THE BANK OF NEW YORK, a
New York corporation authorized to do a banking business, hav-
ing its principal office and place of business at 48 Wall
Street, New York, New York 10286 (hereinafter called the "Cus-
todian").
W I T N E S S E T H :
WHEREAS, the Fund represents that pursuant to the Custody
Administration and Agency Agreement between Fund/Plan
Services, Inc. ("Fund/Plan") and the Fund, Fund/Plan (a) has
agreed to perform certain administrative functions which may
include the functions of administrator, transfer agent and
accounting services agent and (b) has been appointed by the
Fund to act as its agent in respect of certain transactions
contemplated in this Agreement; and
WHEREAS, the Fund represents that (a) Fund/Plan has
agreed to act as Fund's agent in respect of certain
transactions contemplated in this Agreement and (b) the Bank
is authorized and directed to rely upon and follow
Certificates and instructions given by Fund/Plan, the Fund's
agent, in respect of transactions contemplated in this
Agreement.
NOW, THEREFORE, in consideration of the mutual promises
hereinafter set forth, the Fund and the Custodian agree as
follows:
ARTICLE I
DEFINITIONS
Whenever used in this Agreement, the following words and
phrases, unless the context otherwise requires, shall have the
following meanings:
<PAGE>
1. "Administrator" shall mean Fund/Plan Services, Inc.
and such successors or permitted assigns as may succeed and
perform its duties under the Administration Agreement.
2. "Administration Agreement" shall mean that certain
separate agreement entitled "Custody Administration and Agency
Agreement" dated as of _______________, 1994 between the Fund
and the Fund/Plan Services, Inc.
3. "Book-Entry System" shall mean the Federal
Reserve/Treasury book-entry system for United States and fed-
eral agency securities, its successor or successors and its
nominee or nominees.
4. "Call Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options,
Futures Contracts, and Futures Contract Options entitling the
holder, upon timely exercise and payment of the exercise
price, as specified therein, to purchase from the writer
thereof the specified underlying Securities.
5. "Certificate" shall mean any notice, instruction, or
other instrument in writing, authorized or required by this
Agreement to be given to the Custodian which is actually re-
ceived by the Custodian and signed on behalf of the Fund by
any two Officers, and the term Certificate shall also include
instructions communicated to the Custodian by the Administra-
tor by Terminal Link.
6. "Clearing Member" shall mean a registered
broker-dealer which is a clearing member under the rules of
O.C.C. and a member of a national securities exchange quali-
fied to act as a custodian for an investment company, or any
broker-dealer reasonably believed by the Custodian to be such
a clearing member.
7. "Collateral Account" shall mean a segregated account
so denominated which is specifically allocated to a Series and
pledged to the Custodian as security for, and in consideration
of, the Custodian's issuance of (a) any Put Option guarantee
letter or similar document described in paragraph 8 of Article
V herein, or (b) any receipt described in Article V or VIII
herein.
8. "Covered Call Option" shall mean an exchange traded
option entitling the holder, upon timely exercise and payment
of the exercise price, as specified therein, to purchase from
the writer thereof the specified underlying Securities (ex-
cluding Futures Contracts) which are owned by the writer
thereof and subject to appropriate restrictions.
9. "Depository" shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the Securities and
- 2 -
<PAGE>
Exchange Commission, its successor or successors and its nomi-
nee or nominees. The term "Depository" shall further mean and
include any other person authorized to act as a depository
under the Investment Company Act of 1940, its successor or
successors and its nominee or nominees, specifically identi-
fied in a certified copy of a resolution of the Fund's Board
of Directors specifically approving deposits therein by the
Custodian.
10. "Financial Futures Contract" shall mean the firm
commitment to buy or sell fixed income securities including,
without limitation, U.S. Treasury Bills, U.S. Treasury Notes,
U.S. Treasury Bonds, domestic bank certificates of deposit,
and Eurodollar certificates of deposit, during a specified
month at an agreed upon price.
11. "Futures Contract" shall mean a Financial Futures
Contract and/or Stock Index Futures Contracts.
12. "Futures Contract Option" shall mean an option with
respect to a Futures Contract.
13. "Margin Account" shall mean a segregated account in
the name of a broker, dealer, futures commission merchant, or
a Clearing Member, or in the name of the Fund for the benefit
of a broker, dealer, futures commission merchant, or Clearing
Member, or otherwise, in accordance with an agreement between
the Fund, the Custodian and a broker, dealer, futures commis-
sion merchant or a Clearing Member (a "Margin Account Agree-
ment"), separate and distinct from the custody account, in
which certain Securities and/or money of the Fund shall be
deposited and withdrawn from time to time in connection with
such transactions as the Fund may from time to time deter-
mine. Securities held in the Book-Entry System or the Deposi-
tory shall be deemed to have been deposited in, or withdrawn
from, a Margin Account upon the Custodian's effecting an ap-
propriate entry in its books and records.
14. "Money Market Security" shall be deemed to include,
without limitation, certain Reverse Repurchase Agreements,
debt obligations issued or guaranteed as to interest and prin-
cipal by the government of the United States or agencies or
instrumentalities thereof, any tax, bond or revenue anticipa-
tion note issued by any state or municipal government or pub-
lic authority, commercial paper, certificates of deposit and
bankers' acceptances, repurchase agreements with respect to
the same and bank time deposits, where the purchase and sale
of such securities normally requires settlement in federal
funds on the same day as such purchase or sale.
15. "O.C.C." shall mean the Options Clearing Corpora-
tion, a clearing agency registered under Section 17A of the
Securities Exchange Act of 1934, its successor or successors,
and its nominee or nominees.
- 3 -
<PAGE>
16. "Officers" shall be deemed to include the President,
any Vice President, the Secretary, the Clerk, the Treasurer,
the Controller, any Assistant Secretary, any Assistant Clerk,
any Assistant Treasurer, and any other person or persons, in-
cluding officers or employees of the Administrator, whether or
not any such other person is an officer of the Fund, duly au-
thorized by the Board of Directors of the Fund to execute any
Certificate, instruction, notice or other instrument on behalf
of the Fund and listed in the Certificate annexed hereto as
Appendix A or such other Certificate as may be received by the
Custodian from time to time.
17. "Option" shall mean a Call Option, Covered Call Op-
tion, Stock Index Option and/or a Put Option.
18. "Oral Instructions" shall mean verbal instructions
actually received by the Custodian from an Officer or from a
person reasonably believed by the Custodian to be an Officer.
19. "Put Option" shall mean an exchange traded option
with respect to Securities other than Stock Index Options,
Futures Contracts, and Futures Contract Options entitling the
holder, upon timely exercise and tender of the specified un-
derlying Securities, to sell such Securities to the writer
thereof for the exercise price.
20. "Reverse Repurchase Agreement" shall mean an agree-
ment pursuant to which the Fund sells Securities and agrees to
repurchase such Securities at a described or specified date
and price.
21. "Security" shall be deemed to include, without limi-
tation, Money Market Securities, Call Options, Put Options,
Stock Index Options, Stock Index Futures Contracts, Stock In-
dex Futures Contract Options, Financial Futures Contracts,
Financial Futures Contract Options, Reverse Repurchase Agree-
ments, common stocks and other securities having characteris-
tics similar to common stocks, preferred stocks, debt obliga-
tions issued by state or municipal governments and by public
authorities, (including, without limitation, general obliga-
tion bonds, revenue bonds, industrial bonds and industrial
development bonds), bonds, debentures, notes, mortgages or
other obligations, and any certificates, receipts, warrants or
other instruments representing rights to receive, purchase,
sell or subscribe for the same, or evidencing or representing
any other rights or interest therein, or any property or as-
sets.
22. "Senior Security Account" shall mean an account
maintained and specifically allocated to a Series under the
terms of this Agreement as a segregated account, by recorda-
tion or otherwise, within the custody account in which certain
- 4 -
<PAGE>
Securities and/or other assets of the Fund specifically al-
located to such Series shall be deposited and withdrawn from
time to time in accordance with Certificates received by the
Custodian in connection with such transactions as the Fund may
from time to time determine.
23. "Series" shall mean the various portfolios, if any,
of the Fund as described from time to time in the current and
effective prospectus for the Fund and listed on Appendix B
hereto as amended from time to time.
24. "Shares" shall mean the shares of beneficial inter-
est of the Fund, each of which is, in the case of a Fund hav-
ing Series, allocated to a particular Series.
25. "Stock Index Futures Contract" shall mean a bilat-
eral agreement pursuant to which the parties agree to take or
make delivery of an amount of cash equal to a specified dollar
amount times the difference between the value of a particular
stock index at the close of the last business day of the con-
tract and the price at which the futures contract is origi-
nally struck.
26. "Stock Index Option" shall mean an exchange traded
option entitling the holder, upon timely exercise, to receive
an amount of cash determined by reference to the difference
between the exercise price and the value of the index on the
date of exercise.
26. "Terminal Link" shall mean an electronic data trans-
mission link between the Administrator on behalf of the Fund
and the Custodian requiring in connection with each use of the
Terminal Link by or on behalf of the Administrator on behalf
of the Fund use of an authorization code provided by the
Custodian and at least two access codes established by the
Administrator on behalf of the Fund.
ARTICLE II
APPOINTMENT OF CUSTODIAN
1. The Fund hereby constitutes and appoints the Custo-
dian as custodian of the Securities and moneys at any time
owned by the Fund during the period of this Agreement.
2. The Custodian hereby accepts appointment as such
custodian and agrees to perform the duties thereof as herein-
after set forth.
- 5 -
<PAGE>
ARTICLE III
CUSTODY OF CASH AND SECURITIES
1. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, the Fund will deliver or cause to
be delivered to the Custodian all Securities and all moneys
owned by it, at any time during the period of this Agreement,
and shall specify with respect to such Securities and money
the Series to which the same are specifically allocated. The
Custodian shall segregate, keep and maintain the assets of the
Series separate and apart. The Custodian will not be respon-
sible for any Securities and moneys not actually received by
it. The Custodian will be entitled to reverse any credits
made on the Fund's behalf where such credits have been previ-
ously made and moneys are not finally collected. The Fund
shall deliver to the Custodian a certified resolution of the
Board of Directors of the Fund, substantially in the form of
Exhibit A hereto, approving, authorizing and instructing the
Custodian on a continuous and on-going basis to deposit in the
Book-Entry System all Securities eligible for deposit therein,
regardless of the Series to which the same are specifically
allocated and to utilize the Book-Entry System to the extent
possible in connection with its performance hereunder, includ-
ing, without limitation, in connection with settlements of
purchases and sales of Securities, loans of Securities and
deliveries and returns of Securities collateral. Prior to a
deposit of Securities specifically allocated to a Series in
the Depository, the Fund shall deliver to the Custodian a cer-
tified resolution of the Board of Directors of the Fund, sub-
stantially in the form of Exhibit B hereto, approving, autho-
rizing and instructing the Custodian on a continuous and ongo-
ing basis until instructed to the contrary by a Certificate
actually received by the Custodian to deposit in the Deposi-
tory all Securities specifically allocated to such Series eli-
gible for deposit therein, and to utilize the Depository to
the extent possible with respect to such Securities in connec-
tion with its performance hereunder, including, without limi-
tation, in connection with settlements of purchases and sales
of Securities, loans of Securities, and deliveries and returns
of Securities collateral. Securities and moneys deposited in
either the Book-Entry System or the Depository will be repre-
sented in accounts which include only assets held by the Cus-
todian for customers, including, but not limited to, accounts
in which the Custodian acts in a fiduciary or representative
capacity and will be specifically allocated on the Custodian's
books to the separate account for the applicable Series.
Prior to the Custodian's accepting, utilizing and acting with
respect to Clearing Member confirmations for Options and
transactions in Options for a Series as provided in this
Agreement, the Custodian shall have received a certified reso-
lution of the Fund's Board of Directors, substantially in the
- 6 -
<PAGE>
form of Exhibit C hereto, approving, authorizing and instruct-
ing the Custodian on a continuous and on-going basis, until
instructed to the contrary by a Certificate actually received
by the Custodian, to accept, utilize and act in accordance
with such confirmations as provided in this Agreement with
respect to such Series.
2. The Custodian shall establish and maintain separate
accounts, in the name of each Series, and shall credit to the
separate account for each Series all moneys received by it for
the account of the Fund with respect to such Series. Money
credited to a separate account for a Series shall be disbursed
by the Custodian only:
(a) As hereinafter provided;
(b) Pursuant to Certificates setting forth the name
and address of the person to whom the payment is to be made,
the Series account from which payment is to be made and the
purpose for which payment is to be made; or
(c) In payment of the fees and in reimbursement of
the expenses and liabilities of the Custodian attributable to
such Series.
3. Promptly after the close of business on each day,
the Custodian shall furnish the Administrator with confirma-
tions and a summary, on a per Series basis, of all transfers
to or from the account of the Fund for a Series, either here-
under or with any co-custodian or sub-custodian appointed in
accordance with this Agreement during said day. Where Securi-
ties are transferred to the account of the Fund for a Series,
the Custodian shall also by book-entry or otherwise identify
as belonging to such Series a quantity of Securities in a fun-
gible bulk of Securities registered in the name of the Custo-
dian (or its nominee) or shown on the Custodian's account on
the books of the Book-Entry System or the Depository. At
least monthly and from time to time, the Custodian shall fur-
nish the Administrator with a detailed statement, on a per
Series basis, of the Securities and moneys held by the Custo-
dian for the Fund.
4. Except as otherwise provided in paragraph 7 of this
Article and in Article VIII, all Securities held by the Custo-
dian hereunder, which are issued or issuable only in bearer
form, except such Securities as are held in the Book-Entry
System, shall be held by the Custodian in that form; all other
Securities held hereunder may be registered in the name of the
Fund, in the name of any duly appointed registered nominee of
the Custodian as the Custodian may from time to time deter-
mine, or in the name of the Book-Entry System or the Deposi-
tory or their successor or successors, or their nominee or
nominees. The Fund agrees to furnish or cause to be furnished
- 7 -
<PAGE>
to the Custodian appropriate instruments to enable the Custo-
dian to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee or in the name
of the Book-Entry System or the Depository any Securities
which it may hold hereunder and which may from time to time be
registered in the name of the Fund. The Custodian shall hold
all such Securities specifically allocated to a Series which
are not held in the Book-Entry System or in the Depository in
a separate account in the name of such Series physically seg-
regated at all times from those of any other person or per-
sons.
5. Except as otherwise provided in this Agreement and
unless otherwise instructed to the contrary by a Certificate,
the Custodian by itself, or through the use of the Book-Entry
System or the Depository with respect to Securities held here-
under and therein deposited, shall with respect to all Securi-
ties held for the Fund hereunder in accordance with preceding
paragraph 4:
(a) Collect all income due or payable;
(b) Present for payment and collect the amount pay-
able upon such Securities which are called, but only if either
(i) the Custodian receives a written notice of such call, or
(ii) notice of such call appears in one or more of the publi-
cations listed in Appendix C annexed hereto, which may be
amended at any time by the Custodian without the prior notifi-
cation or consent of the Fund;
(c) Present for payment and collect the amount pay-
able upon all Securities which mature;
(d) Surrender Securities in temporary form for de-
finitive Securities;
(e) Execute, as custodian, any necessary declara-
tions or certificates of ownership under the Federal Income
Tax Laws or the laws or regulations of any other taxing au-
thority now or hereafter in effect; and
(f) Hold directly, or through the Book-Entry System
or the Depository with respect to Securities therein depos-
ited, for the account of a Series, all rights and similar se-
curities issued with respect to any Securities held by the
Custodian for such Series hereunder.
6. Upon receipt of a Certificate and not otherwise, the
Custodian, directly or through the use of the Book-Entry Sys-
tem or the Depository, shall:
(a) Execute and deliver to such persons as may be
designated in such Certificate proxies, consents, authoriza-
tions, and any other instruments whereby the authority of the
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Fund as owner of any Securities held by the Custodian hereun-
der for the Series specified in such Certificate may be exer-
cised;
(b) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate in ex-
change for other Securities or cash issued or paid in con-
nection with the liquidation, reorganization, refinancing,
merger, consolidation or recapitalization of any corporation,
or the exercise of any conversion privilege and receive and
hold hereunder specifically allocated to such Series any cash
or other Securities received in exchange;
(c) Deliver any Securities held by the Custodian
hereunder for the Series specified in such Certificate to any
protective committee, reorganization committee or other person
in connection with the reorganization, refinancing, merger,
consolidation, recapitalization or sale of assets of any cor-
poration, and receive and hold hereunder specifically al-
located to such Series such certificates of deposit, interim
receipts or other instruments or documents as may be issued to
it to evidence such delivery;
(d) Make such transfers or exchanges of the assets
of the Series specified in such Certificate, and take such
other steps as shall be stated in such Certificate to be for
the purpose of effectuating any duly authorized plan of liqui-
dation, reorganization, merger, consolidation or recapitaliza-
tion of the Fund; and
(e) Present for payment and collect the amount pay-
able upon Securities not described in preceding paragraph 5(b)
of this Article which may be called as specified in the Cer-
tificate.
7. Notwithstanding any provision elsewhere contained
herein, the Custodian shall not be required to obtain posses-
sion of any instrument or certificate representing any Futures
Contract, any Option, or any Futures Contract Option until
after it shall have determined, or shall have received a Cer-
tificate from the Fund stating, that any such instruments or
certificates are available. The Fund shall deliver to the
Custodian such a Certificate no later than the business day
preceding the availability of any such instrument or certifi-
cate. Prior to such availability, the Custodian shall comply
with Section 17(f) of the Investment Company Act of 1940, as
amended, in connection with the purchase, sale, settlement,
closing out or writing of Futures Contracts, Options, or Fu-
tures Contract Options by making payments or deliveries speci-
fied in Certificates received by the Custodian in connection
with any such purchase, sale, writing, settlement or closing
out upon its receipt from a broker, dealer, or futures commis-
sion merchant of a statement or confirmation reasonably be-
lieved by the Custodian to be in the form customarily used by
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<PAGE>
brokers, dealers, or future commission merchants with respect
to such Futures Contracts, Options, or Futures Contract Op-
tions, as the case may be, confirming that such Security is
held by such broker, dealer or futures commission merchant, in
book-entry form or otherwise, in the name of the Custodian (or
any nominee of the Custodian) as custodian for the Fund, pro-
vided, however, that notwithstanding the foregoing, payments
to or deliveries from the Margin Account and payments with
respect to Securities to which a Margin Account relates, shall
be made in accordance with the terms and conditions of the
Margin Account Agreement. Whenever any such instruments or
certificates are available, the Custodian shall, notwithstand-
ing any provision in this Agreement to the contrary, make pay-
ment for any Futures Contract, Option, or Futures Contract
Option for which such instruments or such certificates are
available only against the delivery to the Custodian of such
instrument or such certificate, and deliver any Futures Con-
tract, Option or Futures Contract Option for which such in-
struments or such certificates are available only against re-
ceipt by the Custodian of payment therefor. Any such instru-
ment or certificate delivered to the Custodian shall be held
by the Custodian hereunder in accordance with, and subject to,
the provisions of this Agreement.
ARTICLE IV
PURCHASE AND SALE OF INVESTMENTS OF THE FUND
OTHER THAN OPTIONS, FUTURES CONTRACTS AND
FUTURES CONTRACT OPTIONS
1. Promptly after each purchase of Securities by the
Fund, other than a purchase of an Option, a Futures Contract,
or a Futures Contract Option, the Fund shall deliver or cause
the Administrator to deliver to the Custodian (i) with respect
to each purchase of Securities which are not Money Market Se-
curities, a Certificate, and (ii) with respect to each pur-
chase of Money Market Securities, a Certificate or Oral In-
structions, specifying with respect to each such purchase: (a)
the Series to which such Securities are to be specifically
allocated; (b) the name of the issuer and the title of the
Securities; (c) the number of shares or the principal amount
purchased and accrued interest, if any; (d) the date of pur-
chase and settlement; (e) the purchase price per unit; (f) the
total amount payable upon such purchase; (g) the name of the
person from whom or the broker through whom the purchase was
made, and the name of the clearing broker, if any; and (h) the
name of the broker to whom payment is to be made. The Custo-
dian shall, upon receipt of Securities purchased by or for the
Fund, pay to the broker specified in the Certificate out of
the moneys held for the account of such Series the total
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amount payable upon such purchase, provided that the same con-
forms to the total amount payable as set forth in such Cer-
tificate or Oral Instructions.
2. Promptly after each sale of Securities by the Fund,
other than a sale of any Option, Futures Contract, Futures
Contract Option, or any Reverse Repurchase Agreement, the Fund
shall deliver or cause the Administrator to deliver to the
Custodian (i) with respect to each sale of Securities which
are not Money Market Securities, a Certificate, and (ii) with
respect to each sale of Money Market Securities, a Certificate
or Oral Instructions, specifying with respect to each such
sale: (a) the Series to which such Securities were specifi-
cally allocated; (b) the name of the issuer and the title of
the Security; (c) the number of shares or principal amount
sold, and accrued interest, if any; (d) the date of sale; (e)
the sale price per unit; (f) the total amount payable to the
Fund upon such sale; (g) the name of the broker through whom
or the person to whom the sale was made, and the name of the
clearing broker, if any; and (h) the name of the broker to
whom the Securities are to be delivered. The Custodian shall
deliver the Securities specifically allocated to such Series
to the broker specified in the Certificate against payment
upon receipt of the total amount payable to the Fund upon such
sale, provided that the same conforms to the total amount pay-
able as set forth in such Certificate or Oral Instructions.
ARTICLE V
OPTIONS
1. Promptly after the purchase of any Option by the
Fund, the Fund shall deliver or cause the Administrator to
deliver to the Custodian a Certificate specifying with respect
to each Option purchased: (a) the Series to which such Option
is specifically allocated; (b) the type of Option (put or
call); (c) the name of the issuer and the title and number of
shares subject to such Option or, in the case of a Stock Index
Option, the stock index to which such Option relates and the
number of Stock Index Options purchased; (d) the expiration
date; (e) the exercise price; (f) the dates of purchase and
settlement; (g) the total amount payable by the Fund in con-
nection with such purchase; (h) the name of the Clearing Mem-
ber through whom such Option was purchased; and (i) the name
of the broker to whom payment is to be made. The Custodian
shall pay, upon receipt of a Clearing Member's statement con-
firming the purchase of such Option held by such Clearing Mem-
ber for the account of the Custodian (or any duly appointed
and registered nominee of the Custodian) as custodian for the
Fund, out of moneys held for the account of the Series to
which such Option is to be specifically allocated, the total
amount payable upon such purchase to the Clearing Member
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<PAGE>
through whom the purchase was made, provided that the same
conforms to the total amount payable as set forth in such Cer-
tificate.
2. Promptly after the sale of any Option purchased by
the Fund pursuant to paragraph 1 hereof, the Fund shall de-
liver or cause the Administrator to deliver to the Custodian a
Certificate specifying with respect to each such sale: (a) the
Series to which such Option was specifically allocated; (b)
the type of Option (put or call); (c) the name of the issuer
and the title and number of shares subject to such Option or,
in the case of a Stock Index Option, the stock index to which
such Option relates and the number of Stock Index Options
sold; (d) the date of sale; (e) the sale price; (f) the date
of settlement; (g) the total amount payable to the Fund upon
such sale; and (h) the name of the Clearing Member through
whom the sale was made. The Custodian shall consent to the
delivery of the Option sold by the Clearing Member which pre-
viously supplied the confirmation described in preceding para-
graph 1 of this Article with respect to such Option against
payment to the Custodian of the total amount payable to the
Fund, provided that the same conforms to the total amount pay-
able as set forth in such Certificate.
3. Promptly after the exercise by the Fund of any Call
Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver or cause the Administrator to deliver
to the Custodian a Certificate specifying with respect to such
Call Option: (a) the Series to which such Call Option was spe-
cifically allocated; (b) the name of the issuer and the title
and number of shares subject to the Call Option; (c) the expi-
ration date; (d) the date of exercise and settlement; (e) the
exercise price per share; (f) the total amount to be paid by
the Fund upon such exercise; and (g) the name of the Clearing
Member through whom such Call Option was exercised. The Cus-
todian shall, upon receipt of the Securities underlying the
Call Option which was exercised, pay out of the moneys held
for the account of the Series to which such Call Option was
specifically allocated the total amount payable to the Clear-
ing Member through whom the Call Option was exercised, pro-
vided that the same conforms to the total amount payable as
set forth in such Certificate.
4. Promptly after the exercise by the Fund of any Put
Option purchased by the Fund pursuant to paragraph 1 hereof,
the Fund shall deliver or cause the Administrator to deliver
to the Custodian a Certificate specifying with respect to such
Put Option: (a) the Series to which such Put Option was spe-
cifically allocated; (b) the name of the issuer and the title
and number of shares subject to the Put Option; (c) the expi-
ration date; (d) the date of exercise and settlement; (e) the
exercise price per share; (f) the total amount to be paid to
the Fund upon such exercise; and (g) the name of the Clearing
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<PAGE>
Member through whom such Put Option was exercised. The Custo-
dian shall, upon receipt of the amount payable upon the exer-
cise of the Put Option, deliver or direct the Depository to
deliver the Securities specifically allocated to such Series,
provided the same conforms to the amount payable to the Fund
as set forth in such Certificate.
5. Promptly after the exercise by the Fund of any Stock
Index Option purchased by the Fund pursuant to paragraph 1
hereof, the Fund shall deliver or cause the Administrator to
deliver to the Custodian a Certificate specifying with respect
to such Stock Index Option: (a) the Series to which such Stock
Index Option was specifically allocated; (b) the type of Stock
Index Option (put or call); (c) the number of Options being
exercised; (d) the stock index to which such Option relates;
(e) the expiration date; (f) the exercise price; (g) the total
amount to be received by the Fund in connection with such ex-
ercise; and (h) the Clearing Member from whom such payment is
to be received.
6. Whenever the Fund writes a Covered Call Option, the
Fund shall deliver or cause the Administrator to deliver to
the Custodian a Certificate specifying with respect to such
Covered Call Option: (a) the Series for which such Covered
Call Option was written; (b) the name of the issuer and the
title and number of shares for which the Covered Call Option
was written and which underlie the same; (c) the expiration
date; (d) the exercise price; (e) the premium to be received
by the Fund; (f) the date such Covered Call Option was writ-
ten; and (g) the name of the Clearing Member through whom the
premium is to be received. The Custodian shall deliver or
cause to be delivered, in exchange for receipt of the premium
specified in the Certificate with respect to such Covered Call
Option, such receipts as are required in accordance with the
customs prevailing among Clearing Members dealing in Covered
Call Options and shall impose, or direct the Depository to
impose, upon the underlying Securities specified in the Cer-
tificate specifically allocated to such Series such restric-
tions as may be required by such receipts. Notwithstanding
the foregoing, the Custodian has the right, upon prior written
notification to the Fund, at any time to refuse to issue any
receipts for Securities in the possession of the Custodian and
not deposited with the Depository underlying a Covered Call
Option.
7. Whenever a Covered Call Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall deliver or cause the Administrator
to deliver to the Custodian a Certificate instructing the Cus-
todian to deliver, or to direct the Depository to deliver, the
Securities subject to such Covered Call Option and specifying:
(a) the Series for which such Covered Call Option was written;
(b) the name of the issuer and the title and number of shares
subject to the Covered Call Option; (c) the Clearing Member to
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<PAGE>
whom the underlying Securities are to be delivered; and (d)
the total amount payable to the Fund upon such delivery. Upon
the return and/or cancellation of any receipts delivered pur-
suant to paragraph 6 of this Article, the Custodian shall de-
liver, or direct the Depository to deliver, the underlying
Securities as specified in the Certificate against payment of
the amount to be received as set forth in such Certificate.
8. Whenever the Fund writes a Put Option, the Fund
shall deliver or cause the Administrator to deliver to the
Custodian a Certificate specifying with respect to such Put
Option: (a) the Series for which such Put Option was written;
(b) the name of the issuer and the title and number of shares
for which the Put Option is written and which underlie the
same; (c) the expiration date; (d) the exercise price; (e) the
premium to be received by the Fund; (f) the date such Put Op-
tion is written; (g) the name of the Clearing Member through
whom the premium is to be received and to whom a Put Option
guarantee letter is to be delivered; (h) the amount of cash,
and/or the amount and kind of Securities, if any, specifically
allocated to such Series to be deposited in the Senior Secu-
rity Account for such Series; and (i) the amount of cash
and/or the amount and kind of Securities specifically al-
located to such Series to be deposited into the Collateral
Account for such Series. The Custodian shall, after making
the deposits into the Collateral Account specified in the Cer-
tificate, issue a Put Option guarantee letter substantially in
the form utilized by the Custodian on the date hereof, and
deliver the same to the Clearing Member specified in the Cer-
tificate against receipt of the premium specified in said Cer-
tificate. Notwithstanding the foregoing, the Custodian shall
be under no obligation to issue any Put Option guarantee let-
ter or similar document if it is unable to make any of the
representations contained therein.
9. Whenever a Put Option written by the Fund and de-
scribed in the preceding paragraph is exercised, the Fund
shall deliver or cause the Administrator to deliver to the
Custodian a Certificate specifying: (a) the Series to which
such Put Option was written; (b) the name of the issuer and
title and number of shares subject to the Put Option; (c) the
Clearing Member from whom the underlying Securities are to be
received; (d) the total amount payable by the Fund upon such
delivery; (e) the amount of cash and/or the amount and kind of
Securities specifically allocated to such Series to be with-
drawn from the Collateral Account for such Series and (f) the
amount of cash and/or the amount and kind of Securities, spe-
cifically allocated to such Series, if any, to be withdrawn
from the Senior Security Account. Upon the return and/or
cancellation of any Put Option guarantee letter or similar
document issued by the Custodian in connection with such Put
Option, the Custodian shall pay out of the moneys held for the
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<PAGE>
account of the Series to which such Put Option was specifi-
cally allocated the total amount payable to the Clearing Mem-
ber specified in the Certificate as set forth in such Certifi-
cate against delivery of such Securities, and shall make the
withdrawals specified in such Certificate.
10. Whenever the Fund writes a Stock Index Option, the
Fund shall deliver or cause the Administrator to deliver to
the Custodian a Certificate specifying with respect to such
Stock Index Option: (a) the Series for which such Stock Index
Option was written; (b) whether such Stock Index Option is a
put or a call; (c) the number of options written; (d) the
stock index to which such Option relates; (e) the expiration
date; (f) the exercise price; (g) the Clearing Member through
whom such Option was written; (h) the premium to be received
by the Fund; (i) the amount of cash and/or the amount and kind
of Securities, if any, specifically allocated to such Series
to be deposited in the Senior Security Account for such Se-
ries; (j) the amount of cash and/or the amount and kind of
Securities, if any, specifically allocated to such Series to
be deposited in the Collateral Account for such Series; and
(k) the amount of cash and/or the amount and kind of Securi-
ties, if any, specifically allocated to such Series to be de-
posited in a Margin Account, and the name in which such ac-
count is to be or has been established. The Custodian shall,
upon receipt of the premium specified in the Certificate, make
the deposits, if any, into the Senior Security Account speci-
fied in the Certificate, and either (1) deliver such receipts,
if any, which the Custodian has specifically agreed to issue,
which are in accordance with the customs prevailing among
Clearing Members in Stock Index Options and make the deposits
into the Collateral Account specified in the Certificate, or
(2) make the deposits into the Margin Account specified in the
Certificate.
11. Whenever a Stock Index Option written by the Fund
and described in the preceding paragraph of this Article is
exercised, the Fund shall deliver or cause the Administrator
to deliver to the Custodian a Certificate specifying with re-
spect to such Stock Index Option: (a) the Series for which
such Stock Index Option was written; (b) such information as
may be necessary to identify the Stock Index Option being ex-
ercised; (c) the Clearing Member through whom such Stock Index
Option is being exercised; (d) the total amount payable upon
such exercise, and whether such amount is to be paid by or to
the Fund; (e) the amount of cash and/or amount and kind of
Securities, if any, to be withdrawn from the Margin Account;
and (f) the amount of cash and/or amount and kind of Securi-
ties, if any, to be withdrawn from the Senior Security Account
for such Series; and the amount of cash and/or the amount and
kind of Securities, if any, to be withdrawn from the Col-
lateral Account for such Series. Upon the return and/or can-
cellation of the receipt, if any, delivered pursuant to the
preceding paragraph of this Article, the Custodian shall pay
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<PAGE>
out of the moneys held for the account of the Series to which
such Stock Index Option was specifically allocated to the
Clearing Member specified in the Certificate the total amount
payable, if any, as specified therein.
12. Whenever the Fund purchases any Option identical to
a previously written Option described in paragraphs, 6, 8 or
10 of this Article in a transaction expressly designated as a
"Closing Purchase Transaction" in order to liquidate its posi-
tion as a writer of an Option, the Fund shall deliver or cause
the Administrator to deliver to the Custodian a Certificate
specifying with respect to the Option being purchased: (a)
that the transaction is a Closing Purchase Transaction; (b)
the Series for which the Option was written; (c) the name of
the issuer and the title and number of shares subject to the
Option, or, in the case of a Stock Index Option, the stock
index to which such Option relates and the number of Options
held; (d) the exercise price; (e) the premium to be paid by
the Fund; (f) the expiration date; (g) the type of Option (put
or call); (h) the date of such purchase; (i) the name of the
Clearing Member to whom the premium is to be paid; and (j) the
amount of cash and/or the amount and kind of Securities, if
any, to be withdrawn from the Collateral Account, a specified
Margin Account, or the Senior Security Account for such Se-
ries. Upon the Custodian's payment of the premium and the
return and/or cancellation of any receipt issued pursuant to
paragraphs 6, 8 or 10 of this Article with respect to the Op-
tion being liquidated through the Closing Purchase Transac-
tion, the Custodian shall remove, or direct the Depository to
remove, the previously imposed restrictions on the Securities
underlying the Call Option.
13. Upon the expiration, exercise or consummation of a
Closing Purchase Transaction with respect to any Option pur-
chased or written by the Fund and described in this Article,
the Custodian shall delete such Option from the statements
delivered to the Fund pursuant to paragraph 3 Article III
herein, and upon the return and/or cancellation of any re-
ceipts issued by the Custodian, shall make such withdrawals
from the Collateral Account, and the Margin Account and/or the
Senior Security Account as may be specified in a Certificate
received in connection with such expiration, exercise, or con-
summation.
ARTICLE VI
FUTURES CONTRACTS
1. Whenever the Fund shall enter into a Futures Con-
tract, the Fund shall deliver or cause the Administrator to
deliver to the Custodian a Certificate specifying with respect
to such Futures Contract, (or with respect to any number of
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<PAGE>
identical Futures Contract(s)): (a) the Series for which the
Futures Contract is being entered; (b) the category of Futures
Contract (the name of the underlying stock index or financial
instrument); (c) the number of identical Futures Contracts
entered into; (d) the delivery or settlement date of the Fu-
tures Contract(s); (e) the date the Futures Contract(s) was
(were) entered into and the maturity date; (f) whether the
Fund is buying (going long) or selling (going short) on such
Futures Contract(s); (g) the amount of cash and/or the amount
and kind of Securities, if any, to be deposited in the Senior
Security Account for such Series; (h) the name of the broker,
dealer, or futures commission merchant through whom the Fu-
tures Contract was entered into; and (i) the amount of fee or
commission, if any, to be paid and the name of the broker,
dealer, or futures commission merchant to whom such amount is
to be paid. The Custodian shall make the deposits, if any, to
the Margin Account in accordance with the terms and conditions
of the Margin Account Agreement. The Custodian shall make
payment out of the moneys specifically allocated to such Se-
ries of the fee or commission, if any, specified in the Cer-
tificate and deposit in the Senior Security Account for such
Series the amount of cash and/or the amount and kind of Secu-
rities specified in said Certificate.
2. (a) Any variation margin payment or similar payment
required to be made by the Fund to a broker, dealer, or fu-
tures commission merchant with respect to an outstanding Fu-
tures Contract, shall be made by the Custodian in accordance
with the terms and conditions of the Margin Account Agreement.
(b) Any variation margin payment or similar payment
from a broker, dealer, or futures commission merchant to the
Fund with respect to an outstanding Futures Contract, shall be
received and dealt with by the Custodian in accordance with
the terms and conditions of the Margin Account Agreement.
3. Whenever a Futures Contract held by the Custodian
hereunder is retained by the Fund until delivery or settlement
is made on such Futures Contract, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certifi-
cate specifying: (a) the Futures Contract and the Series to
which the same relates; (b) with respect to a Stock Index Fu-
tures Contract, the total cash settlement amount to be paid or
received, and with respect to a Financial Futures Contract,
the Securities and/or amount of cash to be delivered or re-
ceived; (c) the broker, dealer, or futures commission merchant
to or from whom payment or delivery is to be made or received;
and (d) the amount of cash and/or Securities to be withdrawn
from the Senior Security Account for such Series. The Custo-
dian shall make the payment or delivery specified in the Cer-
tificate, and delete such Futures Contract from the statements
delivered to the Fund pursuant to paragraph 3 of Article III
herein.
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<PAGE>
4. Whenever the Fund shall enter into a Futures Con-
tract to offset a Futures Contract held by the Custodian here-
under, the Fund shall deliver or cause the Administrator to
deliver to the Custodian a Certificate specifying: (a) the
items of information required in a Certificate described in
paragraph 1 of this Article, and (b) the Futures Contract be-
ing offset. The Custodian shall make payment out of the money
specifically allocated to such Series of the fee or commis-
sion, if any, specified in the Certificate and delete the Fu-
tures Contract being offset from the statements delivered to
the Fund pursuant to paragraph 3 of Article III herein, and
make such withdrawals from the Senior Security Account for
such Series as may be specified in such Certificate. The
withdrawals, if any, to be made from the Margin Account shall
be made by the Custodian in accordance with the terms and con-
ditions of the Margin Account Agreement.
ARTICLE VII
FUTURES CONTRACT OPTIONS
1. Promptly after the purchase of any Futures Contract
Option by the Fund, the Fund shall deliver or cause the Admin-
istrator to deliver to the Custodian a Certificate specifying
with respect to such Futures Contract Option: (a) the Series
to which such Option is specifically allocated; (b) the type
of Futures Contract Option (put or call); (c) the type of Fu-
tures Contract and such other information as may be necessary
to identify the Futures Contract underlying the Futures Con-
tract Option purchased; (d) the expiration date; (e) the exer-
cise price; (f) the dates of purchase and settlement; (g) the
amount of premium to be paid by the Fund upon such purchase;
(h) the name of the broker or futures commission merchant
through whom such option was purchased; and (i) the name of
the broker, or futures commission merchant, to whom payment is
to be made. The Custodian shall pay out of the moneys spe-
cifically allocated to such Series, the total amount to be
paid upon such purchase to the broker or futures commissions
merchant through whom the purchase was made, provided that the
same conforms to the amount set forth in such Certificate.
2. Promptly after the sale of any Futures Contract Op-
tion purchased by the Fund pursuant to paragraph 1 hereof, the
Fund shall deliver or cause the Administrator to deliver to
the Custodian a Certificate specifying with respect to each
such sale: (a) Series to which such Futures Contract Option
was specifically allocated; (b) the type of Future Contract
Option (put or call); (c) the type of Futures Contract and
such other information as may be necessary to identify the
Futures Contract underlying the Futures Contract Option; (d)
the date of sale; (e) the sale price; (f) the date of settle-
ment; (g) the total amount payable to the Fund upon such sale;
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<PAGE>
and (h) the name of the broker of futures commission merchant
through whom the sale was made. The Custodian shall consent
to the cancellation of the Futures Contract Option being
closed against payment to the Custodian of the total amount
payable to the Fund, provided the same conforms to the total
amount payable as set forth in such Certificate.
3. Whenever a Futures Contract Option purchased by the
Fund pursuant to paragraph 1 is exercised by the Fund, the
Fund shall deliver or cause the Administrator to deliver to
the Custodian a Certificate specifying: (a) the Series to
which such Futures Contract Option was specifically allocated;
(b) the particular Futures Contract Option (put or call) being
exercised; (c) the type of Futures Contract underlying the
Futures Contract Option; (d) the date of exercise; (e) the
name of the broker or futures commission merchant through whom
the Futures Contract Option is exercised; (f) the net total
amount, if any, payable by the Fund; (g) the amount, if any,
to be received by the Fund; and (h) the amount of cash and/or
the amount and kind of Securities to be deposited in the Se-
nior Security Account for such Series. The Custodian shall
make, out of the moneys and Securities specifically allocated
to such Series, the payments, if any, and the deposits, if
any, into the Senior Security Account as specified in the Cer-
tificate. The deposits, if any, to be made to the Margin Ac-
count shall be made by the Custodian in accordance with the
terms and conditions of the Margin Account Agreement.
4. Whenever the Fund writes a Futures Contract Option,
the Fund shall deliver or cause the Administrator to deliver
to the Custodian a Certificate specifying with respect to such
Futures Contract Option: (a) the Series for which such Futures
Contract Option was written; (b) the type of Futures Contract
Option (put or call); (c) the type of Futures Contract and
such other information as may be necessary to identify the
Futures Contract underlying the Futures Contract Option; (d)
the expiration date; (e) the exercise price; (f) the premium
to be received by the Fund; (g) the name of the broker or fu-
tures commission merchant through whom the premium is to be
received; and (h) the amount of cash and/or the amount and
kind of Securities, if any, to be deposited in the Senior Se-
curity Account for such Series. The Custodian shall, upon
receipt of the premium specified in the Certificate, make out
of the moneys and Securities specifically allocated to such
Series the deposits into the Senior Security Account, if any,
as specified in the Certificate. The deposits, if any, to be
made to the Margin Account shall be made by the Custodian in
accordance with the terms and conditions of the Margin Account
Agreement.
5. Whenever a Futures Contract Option written by the
Fund which is a call is exercised, the Fund shall deliver or
cause the Administrator to deliver to the Custodian a Certifi-
cate specifying: (a) the Series to which such Futures Contract
- 19 -
<PAGE>
Option was specifically allocated; (b) the particular Futures
Contract Option exercised; (c) the type of Futures Contract
underlying the Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Fu-
tures Contract Option was exercised; (e) the net total amount,
if any, payable to the Fund upon such exercise; (f) the net
total amount, if any, payable by the Fund upon such exercise;
and (g) the amount of cash and/or the amount and kind of Secu-
rities to be deposited in the Senior Security Account for such
Series. The Custodian shall, upon its receipt of the net to-
tal amount payable to the Fund, if any, specified in such Cer-
tificate make the payments, if any, and the deposits, if any,
into the Senior Security Account as specified in the Certifi-
cate. The deposits, if any, to be made to the Margin Account
shall be made by the Custodian in accordance with the terms
and conditions of the Margin Account Agreement.
6. Whenever a Futures Contract Option which is written
by the Fund and which is a put is exercised, the Fund shall
deliver or cause the Administrator to deliver to the Custodian
a Certificate specifying: (a) the Series to which such Option
was specifically allocated; (b) the particular Futures Con-
tract Option exercised; (c) the type of Futures Contract un-
derlying such Futures Contract Option; (d) the name of the
broker or futures commission merchant through whom such Fu-
tures Contract Option is exercised; (e) the net total amount,
if any, payable to the Fund upon such exercise; (f) the net
total amount, if any, payable by the Fund upon such exercise;
and (g) the amount and kind of Securities and/or cash to be
withdrawn from or deposited in, the Senior Security Account
for such Series, if any. The Custodian shall, upon its re-
ceipt of the net total amount payable to the Fund, if any,
specified in the Certificate, make out of the moneys and Secu-
rities specifically allocated to such Series, the payments, if
any, and the deposits, if any, into the Senior Security Ac-
count as specified in the Certificate. The deposits to and/or
withdrawals from the Margin Account, if any, shall be made by
the Custodian in accordance with the terms and conditions of
the Margin Account Agreement.
7. Whenever the Fund purchases any Futures Contract
Option identical to a previously written Futures Contract Op-
tion described in this Article in order to liquidate its posi-
tion as a writer of such Futures Contract Option, the Fund
shall deliver or cause the Administrator to deliver to the
Custodian a Certificate specifying with respect to the Futures
Contract Option being purchased: (a) the Series to which such
Option is specifically allocated; (b) that the transaction is
a closing transaction; (c) the type of Future Contract and
such other information as may be necessary to identify the
Futures Contract underlying the Futures Option Contract; (d)
the exercise price; (e) the premium to be paid by the Fund;
(f) the expiration date; (g) the name of the broker or futures
commission merchant to whom the premium is to be paid; and (h)
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<PAGE>
the amount of cash and/or the amount and kind of Securities,
if any, to be withdrawn from the Senior Security Account for
such Series. The Custodian shall effect the withdrawals from
the Senior Security Account specified in the Certificate. The
withdrawals, if any, to be made from the Margin Account shall
be made by the Custodian in accordance with the terms and con-
ditions of the Margin Account Agreement.
8. Upon the expiration, exercise, or consummation of a
closing transaction with respect to, any Futures Contract Op-
tion written or purchased by the Fund and described in this
Article, the Custodian shall (a) delete such Futures Contract
Option from the statements delivered to the Fund pursuant to
paragraph 3 of Article III herein and, (b) make such withdraw-
als from and/or in the case of an exercise such deposits into
the Senior Security Account as may be specified in a Certifi-
cate. The deposits to and/or withdrawals from the Margin Ac-
count, if any, shall be made by the Custodian in accordance
with the terms and conditions of the Margin Account Agreement.
9. Futures Contracts acquired by the Fund through the
exercise of a Futures Contract Option described in this Ar-
ticle shall be subject to Article VI hereof.
ARTICLE VIII
SHORT SALES
1. Promptly after any short sales by any Series of the
Fund, the Fund shall deliver or cause the Administrator to
deliver to the Custodian a Certificate specifying: (a) the
Series for which such short sale was made; (b) the name of the
issuer and the title of the Security; (c) the number of shares
or principal amount sold, and accrued interest or dividends,
if any; (d) the dates of the sale and settlement; (e) the sale
price per unit; (f) the total amount credited to the Fund upon
such sale, if any, (g) the amount of cash and/or the amount
and kind of Securities, if any, which are to be deposited in a
Margin Account and the name in which such Margin Account has
been or is to be established; (h) the amount of cash and/or
the amount and kind of Securities, if any, to be deposited in
a Senior Security Account, and (i) the name of the broker
through whom such short sale was made. The Custodian shall
upon its receipt of a statement from such broker confirming
such sale and that the total amount credited to the Fund upon
such sale, if any, as specified in the Certificate is held by
such broker for the account of the Custodian (or any nominee
of the Custodian) as custodian of the Fund, issue a receipt or
make the deposits into the Margin Account and the Senior Secu-
rity Account specified in the Certificate.
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<PAGE>
2. In connection with the closing-out of any short
sale, the Fund shall deliver or cause the Administrator to
deliver to the Custodian a Certificate specifying with respect
to each such closing out: (a) the Series for which such
transaction is being made; (b) the name of the issuer and the
title of the Security; (c) the number of shares or the princi-
pal amount, and accrued interest or dividends, if any, re-
quired to effect such closing-out to be delivered to the bro-
ker; (d) the dates of closing-out and settlement; (e) the pur-
chase price per unit; (f) the net total amount payable to the
Fund upon such closing-out; (g) the net total amount payable
to the broker upon such closing-out; (h) the amount of cash
and the amount and kind of Securities to be withdrawn, if any,
from the Margin Account; (i) the amount of cash and/or the
amount and kind of Securities, if any, to be withdrawn from
the Senior Security Account; and (j) the name of the broker
through whom the Fund is effecting such closing-out. The Cus-
todian shall, upon receipt of the net total amount payable to
the Fund upon such closing-out, and the return and/ or cancel-
lation of the receipts, if any, issued by the Custodian with
respect to the short sale being closed-out, pay out of the
moneys held for the account of the Fund to the broker the net
total amount payable to the broker, and make the withdrawals
from the Margin Account and the Senior Security Account, as
the same are specified in the Certificate.
ARTICLE IX
REVERSE REPURCHASE AGREEMENTS
1. Promptly after the Fund enters a Reverse Repurchase
Agreement with respect to Securities and money held by the
Custodian hereunder, the Fund shall deliver or cause the Ad-
ministrator to deliver to the Custodian a Certificate, or in
the event such Reverse Repurchase Agreement is a Money Market
Security, a Certificate or Oral Instructions specifying: (a)
the Series for which the Reverse Repurchase Agreement is en-
tered; (b) the total amount payable to the Fund in connection
with such Reverse Repurchase Agreement and specifically al-
located to such Series; (c) the broker or dealer through or
with whom the Reverse Repurchase Agreement is entered; (d) the
amount and kind of Securities to be delivered by the Fund to
such broker or dealer; (e) the date of such Reverse Repurchase
Agreement; and (f) the amount of cash and/or the amount and
kind of Securities, if any, specifically allocated to such
Series to be deposited in a Senior Security Account for such
Series in connection with such Reverse Repurchase Agreement.
The Custodian shall, upon receipt of the total amount payable
to the Fund specified in the Certificate or Oral Instructions
make the delivery to the broker or dealer, and the deposits,
if any, to the Senior Security Account, specified in such Cer-
tificate or Oral Instructions.
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<PAGE>
2. Upon the termination of a Reverse Repurchase Agree-
ment described in preceding paragraph 1 of this Article, the
Fund shall deliver or cause the Administrator to deliver a
Certificate or, in the event such Reverse Repurchase Agreement
is a Money Market Security, a Certificate or Oral Instructions
to the Custodian specifying: (a) the Reverse Repurchase Agree-
ment being terminated and the Series for which same was en-
tered; (b) the total amount payable by the Fund in connection
with such termination; (c) the amount and kind of Securities
to be received by the Fund and specifically allocated to such
Series in connection with such termination; (d) the date of
termination; (e) the name of the broker or dealer with or
through whom the Reverse Repurchase Agreement is to be termi-
nated; and (f) the amount of cash and/or the amount and kind
of Securities to be withdrawn from the Senior Securities Ac-
count for such Series. The Custodian shall, upon receipt of
the amount and kind of Securities to be received by the Fund
specified in the Certificate or Oral Instructions, make the
payment to the broker or dealer, and the withdrawals, if any,
from the Senior Security Account, specified in such Certifi-
cate or Oral Instructions.
ARTICLE X
LOAN OF PORTFOLIO SECURITIES OF THE FUND
1. Promptly after each loan of portfolio Securities
specifically allocated to a Series held by the Custodian here-
under, the Fund shall deliver or cause the Administrator to
deliver to the Custodian a Certificate specifying with respect
to each such loan: (a) the Series to which the loaned Securi-
ties are specifically allocated; (b) the name of the issuer
and the title of the Securities, (c) the number of shares or
the principal amount loaned, (d) the date of loan and deliv-
ery, (e) the total amount to be delivered to the Custodian
against the loan of the Securities, including the amount of
cash collateral and the premium, if any, separately identi-
fied, and (f) the name of the broker, dealer, or financial
institution to which the loan was made. The Custodian shall
deliver the Securities thus designated to the broker, dealer
or financial institution to which the loan was made upon re-
ceipt of the total amount designated as to be delivered
against the loan of Securities. The Custodian may accept pay-
ment in connection with a delivery otherwise than through the
Book-Entry System or Depository only in the form of a certi-
fied or bank cashier's check payable to the order of the Fund
or the Custodian drawn on New York Clearing House funds and
may deliver Securities in accordance with the customs prevail-
ing among dealers in securities.
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<PAGE>
2. Promptly after each termination of the loan of Secu-
rities by the Fund, the Fund shall deliver or cause the Admin-
istrator to deliver to the Custodian a Certificate specifying
with respect to each such loan termination and return of Secu-
rities: (a) the Series to which the loaned Securities are
specifically allocated; (b) the name of the issuer and the
title of the Securities to be returned, (c) the number of
shares or the principal amount to be returned, (d) the date of
termination, (e) the total amount to be delivered by the Cus-
todian (including the cash collateral for such Securities mi-
nus any offsetting credits as described in said Certificate),
and (f) the name of the broker, dealer, or financial institu-
tion from which the Securities will be returned. The Custo-
dian shall receive all Securities returned from the broker,
dealer, or financial institution to which such Securities were
loaned and upon receipt thereof shall pay, out of the moneys
held for the account of the Fund, the total amount payable
upon such return of Securities as set forth in the Certifi-
cate.
ARTICLE XI
CONCERNING MARGIN ACCOUNTS, SENIOR SECURITY
ACCOUNTS, AND COLLATERAL ACCOUNTS
1. The Custodian shall, from time to time, make such
deposits to, or withdrawals from, a Senior Security Account as
specified in a Certificate received by the Custodian. Such
Certificate shall specify the Series for which such deposit or
withdrawal is to be made and the amount of cash and/or the
amount and kind of Securities specifically allocated to such
Series to be deposited in, or withdrawn from, such Senior
Security Account for such Series. In the event the
Certificate fails to specify the Series, the name of the
issuer, the title and the number of shares or the principal
amount of any particular Securities to be deposited by the
Custodian into, or withdrawn from, a Senior Securities Ac-
count, the Custodian shall be under no obligation to make any
such deposit or withdrawal and shall so notify the
Administrator.
2. The Custodian shall make deliveries or payments from
a Margin Account to the broker, dealer, futures commission
merchant or Clearing Member in whose name, or for whose ben-
efit, the account was established as specified in the Margin
Account Agreement.
3. Amounts received by the Custodian as payments or
distributions with respect to Securities deposited in any Mar-
gin Account shall be dealt with in accordance with the terms
and conditions of the Margin Account Agreement.
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<PAGE>
4. The Custodian shall have a continuing lien and secu-
rity interest in and to any property at any time held by the
Custodian in any Collateral Account described herein. In ac-
cordance with applicable law the Custodian may enforce its
lien and realize on any such property whenever the Custodian
has made payment or delivery pursuant to any Put Option guar-
antee letter or similar document or any receipt issued hereun-
der by the Custodian. In the event the Custodian should real-
ize on any such property net proceeds which are less than the
Custodian's obligations under any Put Option guarantee letter
or similar document or any receipt, such deficiency shall be a
debt owed the Custodian by the Fund within the scope of Ar-
ticle XIV herein.
5. On each business day the Custodian shall furnish the
Fund with a statement with respect to each Margin Account in
which money or Securities are held specifying as of the close
of business on the previous business day: (a) the name of the
Margin Account; (b) the amount and kind of Securities held
therein; and (c) the amount of money held therein. The Custo-
dian shall make available upon request to any broker, dealer,
or futures commission merchant specified in the name of a Mar-
gin Account a copy of the statement furnished the Fund with
respect to such Margin Account.
6. Promptly after the close of business on each busi-
ness day in which cash and/or Securities are maintained in a
Collateral Account for any Series, the Custodian shall furnish
the Administrator with a statement with respect to such Col-
lateral Account specifying the amount of cash and/or the
amount and kind of Securities held therein. No later than the
close of business next succeeding the delivery to the Fund of
such statement, the Fund shall deliver or cause the Adminis-
trator to deliver to the Custodian a Certificate specifying
the then market value of the Securities described in such
statement. In the event such then market value is indicated
to be less than the Custodian's obligation with respect to any
outstanding Put Option guarantee letter or similar document,
the Fund shall promptly specify or cause the Administrator to
promptly specify in a Certificate the additional cash and/or
Securities to be deposited in such Collateral Account to
eliminate such deficiency.
ARTICLE XII
PAYMENT OF DIVIDENDS OR DISTRIBUTIONS
1. The Fund shall deliver or cause the Administrator to
deliver to the Custodian a copy of the resolution of the Board
of Directors of the Fund, certified by the Secretary, the
Clerk, any Assistant Secretary or any Assistant Clerk, either
(i) setting forth with respect to the Series specified therein
- 25 -
<PAGE>
the date of the declaration of a dividend or distribution, the
date of payment thereof, the record date as of which share-
holders entitled to payment shall be determined, the amount
payable per Share of such Series to the shareholders of record
as of that date and the total amount payable to the Dividend
Agent and any sub-dividend agent or co-dividend agent of the
Fund on the payment date, or (ii) authorizing with respect to
the Series specified therein the declaration of dividends and
distributions on a daily basis and authorizing the Custodian
to rely on Oral Instructions or a Certificate setting forth
the date of the declaration of such dividend or distribution,
the date of payment thereof, the record date as of which
shareholders entitled to payment shall be determined, the
amount payable per Share of such Series to the shareholders of
record as of that date and the total amount payable to the
Dividend Agent on the payment date.
2. Upon the payment date specified in such resolution,
Oral Instructions or Certificate, as the case may be, the Cus-
todian shall pay out of the moneys held for the account of
each Series the total amount payable to the Dividend Agent and
any sub-dividend agent or co-dividend agent of the Fund with
respect to such Series.
ARTICLE XIII
SALE AND REDEMPTION OF SHARES
1. Whenever the Fund shall sell any Shares, it shall
deliver or cause the Administrator to deliver to the Custodian
a Certificate duly specifying:
(a) The Series, the number of Shares sold, trade
date, and price; and
(b) The amount of money to be received by the Cus-
todian for the sale of such Shares and specifically allocated
to the separate account in the name of such Series.
2. Upon receipt of such money from the Transfer Agent,
the Custodian shall credit such money to the separate account
in the name of the Series for which such money was received.
3. Upon issuance of any Shares of any Series described
in the foregoing provisions of this Article, the Custodian
shall pay, out of the money held for the account of such Se-
ries, all original issue or other taxes required to be paid by
the Fund in connection with such issuance upon the receipt of
a Certificate specifying the amount to be paid.
4. Except as provided hereinafter, whenever the Fund
desires the Custodian to make payment out of the money held by
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<PAGE>
the Custodian hereunder in connection with a redemption of any
Shares, it shall deliver or cause the Administrator to deliver
to the Custodian a Certificate specifying:
(a) The number and Series of Shares redeemed; and
(b) The amount to be paid for such Shares.
5. Upon receipt from the Transfer Agent of an advice
setting forth the Series and number of Shares received by the
Transfer Agent for redemption and that such Shares are in good
form for redemption, the Custodian shall make payment to the
Transfer Agent out of the moneys held in the separate account
in the name of the Series the total amount specified in the
Certificate delivered pursuant to the foregoing paragraph 4 of
this Article.
6. Notwithstanding the above provisions regarding the
redemption of any Shares, whenever any Shares are redeemed
pursuant to any check redemption privilege which may from time
to time be offered by the Fund, the Custodian, unless other-
wise instructed by a Certificate, shall, upon receipt of an
advice from the Fund or its agent setting forth that the re-
demption is in good form for redemption in accordance with the
check redemption procedure, honor the check presented as part
of such check redemption privilege out of the moneys held in
the separate account of the Series of the Shares being re-
deemed.
ARTICLE XIV
OVERDRAFTS OR INDEBTEDNESS
1. If the Custodian, should in its sole discretion ad-
vance funds on behalf of any Series which results in an over-
draft because the moneys held by the Custodian in the separate
account for such Series shall be insufficient to pay the total
amount payable upon a purchase of Securities specifically al-
located to such Series, as set forth in a Certificate or Oral
Instructions, or which results in an overdraft in the separate
account of such Series for some other reason, or if the Fund
is for any other reason indebted to the Custodian with respect
to a Series, including any indebtedness to The Bank of New
York under the Fund's Cash Management and Related Services
Agreement, (except a borrowing for investment or for temporary
or emergency purposes using Securities as collateral pursuant
to a separate agreement and subject to the provisions of para-
graph 2 of this Article), such overdraft or indebtedness shall
be deemed to be a loan made by the Custodian to the Fund for
such Series payable on demand and shall bear interest from the
date incurred at a rate per annum (based on a 360-day year for
the actual number of days involved) equal to 1/2% over
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<PAGE>
Custodian's prime commercial lending rate in effect from time
to time, such rate to be adjusted on the effective date of any
change in such prime commercial lending rate but in no event
to be less than 6% per annum. In addition, the Fund hereby
agrees that the Custodian shall have a continuing lien and
security interest in and to any property specifically al-
located to such Series at any time held by it for the benefit
of such Series or in which the Fund may have an interest which
is then in the Custodian's possession or control or in posses-
sion or control of any third party acting in the Custodian's
behalf. The Fund authorizes the Custodian, in its sole dis-
cretion, at any time to charge any such overdraft or indebted-
ness together with interest due thereon against any balance of
account standing to such Series' credit on the Custodian's
books. In addition, the Fund hereby covenants that on each
Business Day on which either it intends to enter a Reverse
Repurchase Agreement and/or otherwise borrow from a third
party, or which next succeeds a Business Day on which at the
close of business the Fund had outstanding a Reverse Repur-
chase Agreement or such a borrowing, it shall prior to 9 a.m.,
New York City time, advise the Custodian, in writing, of each
such borrowing, shall specify the Series to which the same
relates, and shall not incur any indebtedness not so specified
other than from the Custodian.
2. The Fund will cause to be delivered to the Custodian
by any bank (including, if the borrowing is pursuant to a
separate agreement, the Custodian) from which it borrows money
for investment or for temporary or emergency purposes using
Securities held by the Custodian hereunder as collateral for
such borrowings, a notice or undertaking in the form currently
employed by any such bank setting forth the amount which such
bank will loan to the Fund against delivery of a stated amount
of collateral. The Fund shall promptly deliver to the Custo-
dian a Certificate specifying with respect to each such bor-
rowing: (a) the Series to which such borrowing relates; (b)
the name of the bank, (c) the amount and terms of the borrow-
ing, which may be set forth by incorporating by reference an
attached promissory note, duly endorsed by the Fund, or other
loan agreement, (d) the time and date, if known, on which the
loan is to be entered into, (e) the date on which the loan
becomes due and payable, (f) the total amount payable to the
Fund on the borrowing date, (g) the market value of Securities
to be delivered as collateral for such loan, including the
name of the issuer, the title and the number of shares or the
principal amount of any particular Securities, and (h) a
statement specifying whether such loan is for investment pur-
poses or for temporary or emergency purposes and that such
loan is in conformance with the Investment Company Act of 1940
and the Fund's prospectus. The Custodian shall deliver on the
borrowing date specified in a Certificate the specified col-
lateral and the executed promissory note, if any, against de-
livery by the lending bank of the total amount of the loan
payable, provided that the same conforms to the total amount
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<PAGE>
payable as set forth in the Certificate. The Custodian may,
at the option of the lending bank, keep such collateral in its
possession, but such collateral shall be subject to all rights
therein given the lending bank by virtue of any promissory
note or loan agreement. The Custodian shall deliver such Se-
curities as additional collateral as may be specified in a
Certificate to collateralize further any transaction described
in this paragraph. The Fund shall cause all Securities re-
leased from collateral status to be returned directly to the
Custodian, and the Custodian shall receive from time to time
such return of collateral as may be tendered to it. In the
event that the Fund fails to specify in a Certificate the Se-
ries, the name of the issuer, the title and number of shares
or the principal amount of any particular Securities to be
delivered as collateral by the Custodian, the Custodian shall
not be under any obligation to deliver any Securities.
ARTICLE XV
TERMINAL LINK
1. At no time and under no circumstances shall the Ad-
ministrator on behalf of the Fund be obligated to have or uti-
lize the Terminal Link, and the provisions of this Article
shall apply if, but only if, the Fund in its sole and absolute
discretion directs the Administrator to utilize the Terminal
Link to transmit Certificates to the Custodian.
2. The Terminal Link shall be utilized by the Adminis-
trator on behalf of the Fund only for the purpose of providing
Certificates to the Custodian with respect to transactions
involving Securities or for the transfer of money to be ap-
plied to the payment of dividends, distributions or redemp-
tions of Fund Shares, and shall be utilized by the Custodian
only for the purpose of providing notices to the Administra-
tor. Such use shall commence only after the Fund shall have
delivered or caused the Administrator to have delivered to the
Custodian a Certificate substantially in the form of Exhibit D
and shall have established access codes. Each use of the Ter-
minal Link by the Administrator shall constitute a representa-
tion and warranty that the Terminal Link is being used only
for the purposes permitted hereby, that at least two Officers
have each utilized an access code, that such safekeeping pro-
cedures have been established, and that such use does not con-
travene the Investment Company Act of 1940, as amended, or the
rules or regulations thereunder.
3. The Administrator shall obtain and maintain at its
own cost and expense all equipment and services, including,
but not limited to communications services, necessary for it
to utilize the Terminal Link, and the Custodian shall not be
responsible for the reliability or availability of any such
equipment or services.
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<PAGE>
4. The Fund and the Administrator acknowledges that any
data bases made available as part of, or through the Terminal
Link and any proprietary data, software, processes, informa-
tion and documentation (other than any such which are or be-
come part of the public domain or are legally required to be
made available to the public) (collectively, the "Informa-
tion"), are the exclusive and confidential property of the
Custodian. The Fund and the Administrator shall, and shall
cause others to which either discloses the Information, to
keep the Information confidential by using the same care and
discretion it uses with respect to its own confidential prop-
erty and trade secrets, and shall neither make nor permit any
disclosure without the express prior written consent of the
Custodian.
5. Upon termination of this Agreement for any reason,
the Fund and the Administrator shall return to the Custodian
any and all copies of the Information which are in its respec-
tive possession or under its respective control, or which ei-
ther distributed to third parties. The provisions of this
Article shall not affect the copyright status of any of the
Information which may be copyrighted and shall apply to all
Information whether or not copyrighted.
6. The Custodian reserves the right to modify the Ter-
minal Link from time to time without notice to the Fund or the
Administrator except that the Custodian shall give the Admin-
istrator notice not less than 75 days in advance of any modi-
fication which would materially adversely affect the
Administrator's operation, and the Administrator agrees that
the it shall not modify or attempt to modify the Terminal Link
without the Custodian's prior written consent. The Fund ac-
knowledges that any software or procedures provided the Fund
as part of the Terminal Link are the property of the Custodian
and, accordingly, the Administrator agrees that any modifica-
tions to the Terminal Link, whether by the Administrator, or
by the Custodian and whether with or without the Custodian's
consent, shall become the property of the Custodian.
7. Neither the Custodian nor any manufacturers and sup-
pliers it utilizes or the Fund utilizes in connection with the
Terminal Link makes any warranties or representations, express
or implied, in fact or in law, including but not limited to
warranties of merchantability and fitness for a particular
purpose.
8. The Administrator will cause its officers and em-
ployees to treat the authorization codes and the access codes
applicable to Terminal Link with extreme care, and the Fund
and the Administrator irrevocably authorizes the Custodian to
act in accordance with and rely on Certificates received by it
through the Terminal Link. The Fund and the Administrator
acknowledge that it is their respective responsibility to
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assure that only Officers use the Terminal Link, and that
Custodian shall not be responsible nor liable for use of the
Terminal Link by persons other than such persons or Officers,
or by only a single Officer, nor for any alteration, omission,
or failure to promptly forward.
9(a). Except as otherwise specifically provided in
Section 9(b) of this Article, the Custodian shall have no li-
ability for any losses, damages, injuries, claims, costs or
expenses arising out of or in connection with any failure,
malfunction or other problem relating to the Terminal Link
except for money damages suffered as the direct result of the
negligence of the Custodian in an amount not exceeding for any
incident $25,000 provided, however, that the Custodian shall
have no liability under this Section 9 if the Administrator
fails to comply with the provisions of Section 11.
9(b). The Custodian's liability for its negligence in
executing or failing to execute in accordance with a Certifi-
cate received through Terminal Link shall be only with respect
to a transfer of funds which is not made in accordance with
such Certificate after such Certificate shall have been duly
acknowledged by the Custodian, and shall be contingent upon
the Administrator complying with the provisions of Section 12
of this Article, and shall be limited to (i) restoration of
the principal amount mistransferred, if and to the extent that
the Custodian would be required to make such restoration under
applicable law, and (ii) the lesser of (A) the Fund's actual
pecuniary loss incurred by reason of its loss of use of the
mistransferred funds or the funds which were not transferred,
as the case may be, or (B) compensation for the loss of the
use of the mistransferred funds or the funds which were not
transferred, as the case may be, at a rate per annum equal to
the average federal funds rate as computed from the Federal
Reserve Bank of New York's daily determination of the effec-
tive rate for federal funds, for the period during which a
Fund has lost use of such funds. In no event shall the Custo-
dian have any liability for failing to execute in accordance
with a Certificate a transfer of funds where the Certificate
is received by the Custodian through Terminal Link other than
through the applicable transfer module for the particular in-
structions contained in such Certificate.
10. Without limiting the generality of the foregoing, in
no event shall the Custodian or any manufacturer or supplier
of its computer equipment, software or services relating to
the Terminal Link be responsible for any special, indirect,
incidental or consequential damages which the Fund or the Ad-
ministrator may incur or experience by reason of its use of
the Terminal Link even if the Custodian or any manufacturer or
supplier has been advised of the possibility of such damages,
nor with respect to the use of the Terminal Link shall the
Custodian or any such manufacturer or supplier be liable for
acts of God, or with respect to the following to the extent
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beyond such person's reasonable control: machine or computer
breakdown or malfunction, interruption or malfunction of com-
munication facilities, labor difficulties or any other similar
or dissimilar cause.
11. The Fund shall cause the Administrator to notify the
Custodian of any errors, omissions or interruptions in, or
delay or unavailability of, the Terminal Link as promptly as
practicable, and in any event within 24 hours after the earli-
est of (i) discovery thereof, (ii) the Business Day on which
discovery should have occurred through the exercise of reason-
able care and (iii) in the case of any error, the date of ac-
tual receipt of the earliest notice which reflects such error,
it being agreed that discovery and receipt of notice may only
occur on a business day. The Custodian shall promptly advise
the Fund whenever the Custodian learns of any errors, omis-
sions or interruption in, or delay or unavailability of, the
Terminal Link.
12. The Custodian shall verify to the Administrator, by
use of the Terminal Link, receipt of each Certificate the Cus-
todian receives through the Terminal Link, and in the absence
of such verification the Custodian shall not be liable for any
failure to act in accordance with such Certificate and neither
the Fund nor the Administrator may claim that such Certificate
was received by the Custodian. Such verification, which may
occur after the Custodian has acted upon such Certificate,
shall be accomplished on the same day on which such
Certificate is received.
ARTICLE XVI
DUTIES OF THE CUSTODIAN WITH RESPECT TO PROPERTY
OF ANY SERIES HELD OUTSIDE OF THE UNITED STATES
1. The Custodian is authorized and instructed to
employ, as sub-custodian for each Series' Foreign Securities
(as such term is defined in paragraph (c)(1) of Rule 17f-5
under the Investment Company Act of 1940, as amended) and
other assets, the foreign banking institutions and foreign
securities depositories and clearing agencies designated on
Schedule I hereto ("Foreign Sub-Custodians") to carry out
their respective responsibilities in accordance with the terms
of the sub-custodian agreement between each such Foreign Sub-
Custodian and the Custodian, copies of which have been previ-
ously delivered to the Fund and receipt of which is hereby
acknowledged (each such agreement, a "Foreign Sub-Custodian
Agreement"). The Custodian shall be liable for the acts and
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<PAGE>
omissions of each Foreign Sub-Custodian constituting negli-
gence or willful misconduct in the conduct of its responsi-
bilities under the terms of the Foreign Sub-Custodian Agree-
ment. Upon receipt of a Certificate, together with a certi-
fied resolution substantially in the form attached as Exhibit
E of the Fund's Board of Directors, the Fund may designate any
additional foreign sub-custodian with which the Custodian has
an agreement for such entity to act as the Custodian's agent,
as its sub-custodian and any such additional foreign sub-
custodian shall be deemed added to Schedule I. Upon receipt
of a Certificate, the Custodian shall cease the employment of
any one or more Foreign Sub-Custodians for maintaining custody
of the Fund's assets and such Foreign Sub-Custodian shall be
deemed deleted from Schedule I.
2. Each Foreign Sub-Custodian Agreement shall be
substantially in the form previously delivered to the Fund and
will not be amended in a way that materially adversely affects
the Fund without the Fund's prior written consent.
3. The Custodian shall identify on its books as
belonging to each Series of the Fund the Foreign Securities of
such Series held by each Foreign Sub-Custodian. At the elec-
tion of the Fund, it shall be entitled to be subrogated to the
rights of the Custodian with respect to any claims by the Fund
or any Series against a Foreign Sub-Custodian as a consequence
of any loss, damage, cost, expense, liability or claim sus-
tained or incurred by the Fund or any Series if and to the
extent that the Fund or such Series has not been made whole
for any such loss, damage, cost, expense, liability or claim.
4. Upon request of the Fund, the Custodian will,
consistent with the terms of the applicable Foreign Sub-
Custodian Agreement, use reasonable efforts to arrange for the
independent accountants of the Fund to be afforded access to
the books and records of any Foreign Sub-Custodian insofar as
such books and records relate to the performance of such For-
eign Sub-Custodian under its agreement with the Custodian on
behalf of the Fund.
5. The Custodian will supply to the Fund from time
to time, as mutually agreed upon, statements in respect of the
securities and other assets of each Series held by Foreign
Sub-Custodians, including but not limited to, an identifica-
tion of entities having possession of each Series' Foreign
Securities and other assets, and advices or notifications of
any transfers of Foreign Securities to or from each custodial
account maintained by a Foreign Sub-Custodian for the Custo-
dian on behalf of the Series.
6. The Custodian shall furnish annually to the
Fund, as mutually agreed upon, information concerning the For-
eign Sub-Custodians employed by the Custodian. Such informa-
tion shall be similar in kind and scope to that furnished to
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<PAGE>
the Fund in connection with the Fund's initial approval of
such Foreign Sub-Custodians and, in any event, shall include
information pertaining to (i) the Foreign Custodians' finan-
cial strength, general reputation and standing in the coun-
tries in which they are located and their ability to provide
the custodial services required, and (ii) whether the Foreign
Sub-Custodians would provide a level of safeguards for safe-
keeping and custody of securities not materially different
form those prevailing in the United States. The Custodian
shall monitor the general operating performance of each For-
eign Sub-Custodian, and at least annually obtain and review
the annual financial report published by such Foreign Sub-
Custodian to determine that it meets the financial criteria of
an "Eligible Foreign Custodian" under Rule 17f-5(c)(2)(i) or
(ii). The Custodian will promptly inform the Fund in the
event that the Custodian learns that a Foreign Sub-Custodian
no longer satisfies the financial criteria of an "Eligible
Foreign Custodian" under such Rule. The Custodian agrees that
it will use reasonable care in monitoring compliance by each
Foreign Sub-Custodian with the terms of the relevant Foreign
Sub-Custodian Agreement and that if it learns of any breach of
such Foreign Sub-Custodian Agreement believed by the Custodian
to have a material adverse effect on the Fund or any Series it
will promptly notify the Fund of such breach. The Custodian
also agrees to use reasonable and diligent efforts to enforce
its rights under the relevant Foreign Sub-Custodian Agreement.
7. The Custodian shall transmit promptly to the
Fund all notices, reports or other written information re-
ceived pertaining to the Fund's Foreign Securities, including
without limitation, notices of corporate action, proxies and
proxy solicitation materials.
8. Notwithstanding any provision of this Agreement
to the contrary, settlement and payment for securities re-
ceived for the account of any Series and delivery of securi-
ties maintained for the account of such Series may be effected
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 the
purchaser thereof or to a dealer therefor (or an agent for
such purchaser or dealer) against a receipt with the expecta-
tion of receiving later payment for such securities from such
purchaser or dealer.
ARTICLE XVII
CONCERNING THE CUSTODIAN
1. Except as hereinafter provided, or as provided in
Article XVI neither the Custodian nor its nominee shall be
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<PAGE>
liable for any loss or damage, including counsel fees, result-
ing from its action or omission to act or otherwise, either
hereunder or under any Margin Account Agreement, except for
any such loss or damage arising out of its own negligence or
willful misconduct. In no event shall the Custodian be liable
to the Fund or any third party for special, indirect or conse-
quential damages or lost profits or loss of business, arising
under or in connection with this Agreement, even if previously
informed of the possibility of such damages and regardless of
the form of action. The Custodian may, with respect to ques-
tions of law arising hereunder or under any Margin Account
Agreement, apply for and obtain the advice and opinion of
counsel to the Fund or of its own counsel, at the expense of
the Fund, and shall be fully protected with respect to any-
thing done or omitted by it in good faith in conformity with
such advice or opinion. The Custodian shall be liable to the
Fund for any loss or damage resulting from the use of the
Book-Entry System or any Depository arising by reason of any
negligence or willful misconduct on the part of the Custodian
or any of its employees or agents.
2. Without limiting the generality of the foregoing,
the Custodian shall be under no obligation to inquire into,
and shall not be liable for:
(a) The validity of the issue of any Securities
purchased, sold, or written by or for the Fund, the legality
of the purchase, sale or writing thereof, or the propriety of
the amount paid or received therefor;
(b) The legality of the sale or redemption of any
Shares, or the propriety of the amount to be received or paid
therefor;
(c) The legality of the declaration or payment of
any dividend by the Fund;
(d) The legality of any borrowing by the Fund using
Securities as collateral;
(e) The legality of any loan of portfolio Securi-
ties, nor shall the Custodian be under any duty or obligation
to see to it that any cash collateral delivered to it by a
broker, dealer, or financial institution or held by it at any
time as a result of such loan of portfolio Securities of the
Fund is adequate collateral for the Fund against any loss it
might sustain as a result of such loan. The Custodian spe-
cifically, but not by way of limitation, shall not be under
any duty or obligation periodically to check or notify the
Fund that the amount of such cash collateral held by it for
the Fund is sufficient collateral for the Fund, but such duty
or obligation shall be the sole responsibility of the Fund.
In addition, the Custodian shall be under no duty or obliga-
tion to see that any broker, dealer or financial institution
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<PAGE>
to which portfolio Securities of the Fund are lent pursuant to
Article XIV of this Agreement makes payment to it of any divi-
dends or interest which are payable to or for the account of
the Fund during the period of such loan or at the termination
of such loan, provided, however, that the Custodian shall
promptly notify the Fund in the event that such dividends or
interest are not paid and received when due; or
(f) The sufficiency or value of any amounts of
money and/or Securities held in any Margin Account, Senior
Security Account or Collateral Account in connection with
transactions by the Fund. In addition, the Custodian shall be
under no duty or obligation to see that any broker, dealer,
futures commission merchant or Clearing Member makes payment
to the Fund of any variation margin payment or similar payment
which the Fund may be entitled to receive from such broker,
dealer, futures commission merchant or Clearing Member, to see
that any payment received by the Custodian from any broker,
dealer, futures commission merchant or Clearing Member is the
amount the Fund is entitled to receive, or to notify the Fund
of the Custodian's receipt or non-receipt of any such pay-
ment.
3. The Custodian shall not be liable for, or considered
to be the Custodian of, any money, whether or not represented
by any check, draft, or other instrument for the payment of
money, received by it on behalf of the Fund until the Custo-
dian actually receives and collects such money directly or by
the final crediting of the account representing the Fund's
interest at the Book-Entry System or the Depository.
4. The Custodian shall have no responsibility and shall
not be liable for ascertaining or acting upon any calls, con-
versions, exchange offers, tenders, interest rate changes or
similar matters relating to Securities held in the Depository,
unless the Custodian shall have actually received timely no-
tice from the Depository. In no event shall the Custodian
have any responsibility or liability for the failure of the
Depository to collect, or for the late collection or late
crediting by the Depository of any amount payable upon Securi-
ties deposited in the Depository which may mature or be re-
deemed, retired, called or otherwise become payable. However,
upon receipt of a Certificate from the Fund of an overdue
amount on Securities held in the Depository the Custodian
shall make a claim against the Depository on behalf of the
Fund, except that the Custodian shall not be under any obliga-
tion to appear in, prosecute or defend any action suit or pro-
ceeding in respect to any Securities held by the Depository
which in its opinion may involve it in expense or liability,
unless indemnity satisfactory to it against all expense and
liability be furnished as often as may be required.
5. The Custodian shall not be under any duty or obliga-
tion to take action to effect collection of any amount due to
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<PAGE>
the Fund from the Transfer Agent of the Fund nor to take any
action to effect payment or distribution by the Transfer Agent
of the Fund of any amount paid by the Custodian to the Trans-
fer Agent of the Fund in accordance with this Agreement.
6. The Custodian shall not be under any duty or obliga-
tion to take action to effect collection of any amount if the
Securities upon which such amount is payable are in default,
or if payment is refused after due demand or presentation,
unless and until (i) it shall be directed to take such action
by a Certificate and (ii) it shall be assured to its satisfac-
tion of reimbursement of its costs and expenses in connection
with any such action.
7. The Custodian may in addition to the employment of
Foreign Sub-Custodians pursuant to Article XVI appoint one or
more banking institutions as Depository or Depositories, as
Sub-Custodian or Sub-Custodians, or as Co-Custodian or
Co-Custodians including, but not limited to, banking institu-
tions located in foreign countries, of Securities and moneys
at any time owned by the Fund, upon such terms and conditions
as may be approved in a Certificate or contained in an agree-
ment executed by the Custodian, the Fund and the appointed
institution.
8. The Custodian shall not be under any duty or obliga-
tion (a) to ascertain whether any Securities at any time de-
livered to, or held by it or by any Foreign Sub-Custodian, for
the account of the Fund and specifically allocated to a Series
are such as properly may be held by the Fund or such Series
under the provisions of its then current prospectus, or (b) to
ascertain whether any transactions by the Fund, whether or not
involving the Custodian, are such transactions as may properly
be engaged in by the Fund.
9. The Custodian shall be entitled to receive and the
Fund agrees to pay to the Custodian all out-of-pocket expenses
and such compensation as may be agreed upon from time to time
between the Custodian and the Fund. The Fund represents that
the Administrator has agreed to pay such compensation and ex-
penses promptly upon receipt of statements therefor, and
hereby directs the Custodian to (i) send all statements for
compensation to its attention care of Fund/Plan at the
following address: Fund/Plan Services, Inc., 2 W. Elm Street,
Conshohocken, PA 19428, Attention: Mr. Elmer Gardner, Senior
Vice President, and (ii) accept all payments made by Fund/Plan
in the Fund's name as if such payments were made directly by
the Fund. The Fund shall pay to Fund/Plan fees for services
(including custodian services provided by the Custodian) in
accordance with the Administration Agreement. The Custodian's
compensation for services rendered hereunder is set forth in a
separate agreement between the Custodian and Fund/Plan.
Should Fund/Plan fail to pay or remit such compensation to the
Custodian, the Custodian will be entitled to debit the Custody
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<PAGE>
Account directly for such compensation. The Custodian may
charge such compensation and any expenses with respect to a
Series incurred by the Custodian in the performance of its
duties pursuant to such agreement against any money
specifically allocated to such Series. Unless and until the
Fund or the Administrator instructs the Custodian by a
Certificate to apportion any loss, damage, liability or ex-
pense among the Series in a specified manner, the Custodian
shall also be entitled to charge against any money held by it
for the account of a Series such Series' pro rata share (based
on such Series net asset value at the time of the charge to
the aggregate net asset value of all Series at that time) of
the amount of any loss, damage, liability or expense, includ-
ing counsel fees, for which it shall be entitled to reimburse-
ment under the provisions of this Agreement. The expenses for
which the Custodian shall be entitled to reimbursement hereun-
der shall include, but are not limited to, the expenses of
sub-custodians and foreign branches of the Custodian incurred
in settling outside of New York City transactions involving
the purchase and sale of Securities of the Fund.
10. The Custodian shall be entitled to rely upon any
Certificate, notice or other instrument in writing received by
the Custodian and reasonably believed by the Custodian to be a
Certificate. The Custodian shall be entitled to rely upon any
Oral Instructions actually received by the Custodian. The
Fund agrees to forward or cause the Administrator to forward
to the Custodian a Certificate or facsimile thereof confirming
such Oral Instructions in such manner so that such Certificate
or facsimile thereof is received by the Custodian, whether by
hand delivery, telecopier or other similar device, or other-
wise, by the close of business of the same day that such Oral
Instructions are given to the Custodian. The Fund agrees that
the fact that such confirming instructions are not received by
the Custodian shall in no way affect the validity of the
transactions or enforceability of the transactions hereby au-
thorized by the Fund. The Fund agrees that the Custodian
shall incur no liability to the Fund in acting upon Oral In-
structions given to the Custodian hereunder concerning such
transactions provided such instructions reasonably appear to
have been received from an Officer.
11. The Custodian shall be entitled to rely upon any
instrument, instruction or notice received by the Custodian
and reasonably believed by the Custodian to be given in ac-
cordance with the terms and conditions of any Margin Account
Agreement. Without limiting the generality of the foregoing,
the Custodian shall be under no duty to inquire into, and
shall not be liable for, the accuracy of any statements or
representations contained in any such instrument or other no-
tice including, without limitation, any specification of any
amount to be paid to a broker, dealer, futures commission mer-
chant or Clearing Member.
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<PAGE>
12. The books and records pertaining to the Fund which
are in the possession of the Custodian shall be the property
of the Fund. Such books and records shall be prepared and
maintained as required by the Investment Company Act of 1940,
as amended, and other applicable securities laws and rules and
regulations. The Fund, or the Fund's authorized representa-
tives, shall have access to such books and records during the
Custodian's normal business hours. Upon the reasonable re-
quest of the Fund, copies of any such books and records shall
be provided by the Custodian to the Fund or the Fund's autho-
rized representative, and the Fund shall reimburse the Custo-
dian its expenses of providing such copies. Upon reasonable
request of the Fund, the Custodian shall provide in hard copy
or on micro-film, whichever the Custodian elects, any records
included in any such delivery which are maintained by the Cus-
todian on a computer disc, or are similarly maintained, and
the Fund shall reimburse the Custodian for its expenses of
providing such hard copy or micro-film.
13. The Custodian shall provide the Fund with any report
obtained by the Custodian on the system of internal accounting
control of the Book-Entry System, the Depository or O.C.C.,
and with such reports on its own systems of internal account-
ing control as the Fund may reasonably request from time to
time.
14. The Fund agrees to indemnify the Custodian against
and save the Custodian harmless from all liability, claims,
losses and demands whatsoever, including attorney's fees, how-
soever arising or incurred because of or in connection with
this Agreement, including the Custodian's payment or
non-payment of checks pursuant to paragraph 6 of Article XIII
as part of any check redemption privilege program of the Fund,
except for any such liability, claim, loss and demand arising
out of the Custodian's own negligence or willful misconduct.
15. Subject to the foregoing provisions of this Agree-
ment, including, without limitation, those contained in Ar-
ticle XVI the Custodian may deliver and receive Securities,
and receipts with respect to such Securities, and arrange for
payments to be made and received by the Custodian in ac-
cordance with the customs prevailing from time to time among
brokers or dealers in such Securities. When the Custodian is
instructed to deliver Securities against payment, delivery of
such Securities and receipt of payment therefor may not be
completed simultaneously. The Fund assumes all responsibility
and liability for all credit risks involved in connection with
the Custodian's delivery of Securities pursuant to Certifi-
cates or instructions of the Fund or the Administrator which
responsibility and liability shall continue until final
payment in full has been received by the Custodian.
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<PAGE>
16. In the event the Custodian is advised by the Fund
that the Fund is no longer utilizing the services of the Ad-
ministrator, then the Custodian shall furnish or give to the
Fund the statements or notices described above as to be fur-
nished or given to the Administrator.
17. The Custodian shall have no duties or responsibili-
ties whatsoever except such duties and responsibilities as are
specifically set forth in this Agreement, and no covenant or
obligation shall be implied in this Agreement against the Cus-
todian. Without limiting the generality of the foregoing, the
Custodian shall have no duties or responsibilities by reason
of any terms or provisions in the Administration Agreement,
and if such Administration Agreement shall cease to be in
effect the Custodian shall have no additional duties
hereunder.
ARTICLE XVIII
TERMINATION
1. Either of the parties hereto may terminate this
Agreement by giving to the other party a notice in writing
specifying the date of such termination, which shall be not
less than ninety (90) days after the date of giving of such
notice. In the event such notice is given by the Fund, it
shall be accompanied by a copy of a resolution of the Board of
Directors of the Fund, certified by the Secretary, the Clerk,
any Assistant Secretary or any Assistant Clerk, electing to
terminate this Agreement and designating a successor custodian
or custodians, each of which shall be a bank or trust company
having not less than $2,000,000 aggregate capital, surplus and
undivided profits. In the event such notice is given by the
Custodian, the Fund shall, on or before the termination date,
deliver to the Custodian a copy of a resolution of the Board
of Directors of the Fund, certified by the Secretary, the
Clerk, any Assistant Secretary or any Assistant Clerk, desig-
nating a successor custodian or custodians. In the absence of
such designation by the Fund, the Custodian may designate a
successor custodian which shall be a bank or trust company
having not less than $2,000,000 aggregate capital, surplus and
undivided profits. Upon the date set forth in such notice
this Agreement shall terminate, and the Custodian shall upon
receipt of a notice of acceptance by the successor custodian
on that date deliver directly to the successor custodian all
Securities and moneys then owned by the Fund and held by it as
Custodian, after deducting all fees, expenses and other
amounts for the payment or reimbursement of which it shall
then be entitled.
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<PAGE>
2. If a successor custodian is not designated by the
Fund or the Custodian in accordance with the preceding para-
graph, the Fund shall upon the date specified in the notice of
termination of this Agreement and upon the delivery by the
Custodian of all Securities (other than Securities held in the
Book-Entry System which cannot be delivered to the Fund) and
moneys then owned by the Fund be deemed to be its own custo-
dian and the Custodian shall thereby be relieved of all duties
and responsibilities pursuant to this Agreement, other than
the duty with respect to Securities held in the Book Entry
System which cannot be delivered to the Fund to hold such Se-
curities hereunder in accordance with this Agreement.
ARTICLE XIX
MISCELLANEOUS
1. Annexed hereto as Appendix A is a Certificate signed
by two of the present Officers of the Fund under its seal,
setting forth the names and the signatures of the present Of-
ficers. The Fund agrees to furnish to the Custodian a new
Certificate in similar form in the event that any such present
Officer ceases to be an Officer or in the event that other or
additional Officers are elected or appointed. Until such new
Certificate shall be received, the Custodian shall be fully
protected in acting under the provisions of this Agreement
upon Oral Instructions or signatures of the present Officers
as set forth in the last delivered Certificate.
2. Any notice or other instrument in writing, autho-
rized or required by this Agreement to be given to the Custo-
dian, shall be sufficiently given if addressed to the Custo-
dian and mailed or delivered to it at its offices at 90 Wash-
ington Street, New York, New York 10286, or at such other
place as the Custodian may from time to time designate in
writing.
3. Any notice or other instrument in writing, autho-
rized or required by this Agreement to be given to the Fund
shall be sufficiently given if addressed to the Fund and
mailed or delivered to it at its office at the address for the
Fund first above written, or at such other place as the Fund
may from time to time designate in writing, and any notice or
other instrument in writing authorized or required to be given
to the Administrator shall be sufficiently given if addressed
to the Administrator at such address as the Administrator may
from time to time designate in writing.
4. This Agreement may not be amended or modified in any
manner except by a written agreement executed by both parties
with the same formality as this Agreement and approved by a
resolution of the Board of Directors of the Fund.
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<PAGE>
5. This Agreement shall extend to and shall be binding
upon the parties hereto, and their respective successors and
assigns; provided, however, that this Agreement shall not be
assignable by the Fund without the written consent of the Cus-
todian, or by the Custodian without the written consent of the
Fund, authorized or approved by a resolution of the Fund's
Board of Directors.
6. This Agreement shall be construed in accordance with
the laws of the State of New York without giving effect to
conflict of laws principles thereof. Each party hereby con-
sents to the jurisdiction of a state or federal court situated
in New York City, New York in connection with any dispute
arising hereunder and hereby waives its right to trial by
jury.
7. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
but such counterparts shall, together, constitute only one
instrument.
- 42 -
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agree-
ment to be executed by their respective Officers, thereunto
duly authorized and their respective seals to be hereunto af-
fixed, as of the day and year first above written.
STRATTON SMALL-CAP
YIELD FUND
[SEAL] By:
-----------------------
Attest:
-----------------------
THE BANK OF NEW YORK
[SEAL] By:
-----------------------
Attest:
-----------------------
- 43 -
<PAGE>
APPENDIX A
I, , President and I,
, of
Stratton Small-Cap Yield Fund, a corporation organized and
existing under the laws of the state of Maryland (the "Fund"),
do hereby certify that:
The following individuals including officers and
employees of the Administrator have been duly authorized by
the Board of Directors of the Fund in conformity with the
Fund's Articles of Incorporation and By-Laws to give
Certificates or Oral Instructions on behalf of the Fund, and
the signatures set forth opposite their respective names are
their true and correct signatures:
Name Signature
--------------------- -------------------------
- 44 -
<PAGE>
APPENDIX B
SERIES
<PAGE>
APPENDIX C
I, , a Vice President
with THE BANK OF NEW YORK do hereby designate the following
publications:
The Bond Buyer
Depository Trust Company Notices
Financial Daily Card Service
JJ Kenney Municipal Bond Service
London Financial Times
New York Times
Standard & Poor's Called Bond Record
Wall Street Journal
<PAGE>
EXHIBIT A
CERTIFICATION
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of Stratton Small-Cap Yield Fund, a
corporation organized and existing under the laws of the state
of Maryland (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of
the Fund at a meeting duly held on , 1994,
at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full
force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 1994,
(the "Custody Agreement") is authorized and instructed on
a continuous and ongoing basis to deposit in the Book-
Entry System, as defined in the Custody Agreement, all
securities eligible for deposit therein, regardless of
the Series to which the same are specifically allocated,
and to utilize the Book-Entry System to the extent pos-
sible in connection with its performance thereunder, in-
cluding, without limitation, in connection with settle-
ments of purchases and sales of securities, loans of se-
curities, and deliveries and returns of securities col-
lateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Stratton Small-Cap Yield Fund, as of the day of
, 1994.
[SEAL]
<PAGE>
EXHIBIT B
CERTIFICATION
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of Stratton Small-Cap Yield Fund, a
corporation organized and existing under the laws of the state
of Maryland (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of
the Fund at a meeting duly held on , 1994,
at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full
force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 1994,
(the "Custody Agreement") is authorized and instructed on
a continuous and ongoing basis until such time as it re-
ceives a Certificate, as defined in the Custody Agree-
ment, to the contrary to deposit in the Depository, as
defined in the Custody Agreement, all securities eligible
for deposit therein, regardless of the Series to which
the same are specifically allocated, and to utilize the
Depository to the extent possible in connection with its
performance thereunder, including, without limitation, in
connection with settlements of purchases and sales of
securities, loans of securities, and deliveries and re-
turns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Stratton Small-Cap Yield Fund, as of the day of
, 1994.
[SEAL]
<PAGE>
EXHIBIT B-1
CERTIFICATION
The undersigned, , hereby certifies
that he or she is the duly elected and acting
of Stratton Small-Cap Yield Fund, a
corporation organized and existing under the laws of the state
of Maryland (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of
the Fund at a meeting duly held on , 1994,
at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full
force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 1994,
(the "Custody Agreement") is authorized and instructed on
a continuous and ongoing basis until such time as it re-
ceives a Certificate, as defined in the Custody Agree-
ment, to the contrary to deposit in the Participants
Trust Company as Depository, as defined in the Custody
Agreement, all securities eligible for deposit therein,
regardless of the Series to which the same are specifi-
cally allocated, and to utilize the Participants Trust
Company to the extent possible in connection with its
performance thereunder, including, without limitation, in
connection with settlements of purchases and sales of
securities, loans of securities, and deliveries and re-
turns of securities collateral.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Stratton Small-Cap Yield Fund, as of the day of
, 1994.
[SEAL]
<PAGE>
EXHIBIT C
CERTIFICATION
The undersigned, , hereby
certifies that he or she is the duly elected and acting
of Stratton Small-Cap Yield Fund, a
corporation organized and existing under the laws of the state
of Maryland (the "Fund"), and further certifies that the
following resolution was adopted by the Board of Directors of
the Fund at a meeting duly held on ,
1994, at which a quorum was at all times present and that such
resolution has not been modified or rescinded and is in full
force and effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian
pursuant to a Custody Agreement between The Bank of New
York and the Fund dated as of , 1994,
(the "Custody Agreement") is authorized and instructed on
a continuous and ongoing basis until such time as it re-
ceives a Certificate, as defined in the Custody Agree-
ment, to the contrary, to accept, utilize and act with
respect to Clearing Member confirmations for Options and
transaction in Options, regardless of the Series to which
the same are specifically allocated, as such terms are
defined in the Custody Agreement, as provided in the Cus-
tody Agreement.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Stratton Small-Cap Yield Fund, as of the day of
, 1994.
[SEAL]
<PAGE>
EXHIBIT D
The undersigned, , hereby cer-
tifies that he or she is the duly elected and acting
of Stratton Small-Cap Yield Fund, a
corporation organized and existing under the laws of the state
of Maryland (the "Fund"), further certifies that the following
resolutions were adopted by the Board of Directors of the Fund
at a meeting duly held on , 1994, at which a
quorum was at all times present and that such resolutions have
not been modified or rescinded and are in full force and
effect as of the date hereof.
RESOLVED, that The Bank of New York, as Custodian pursu-
ant to the Custody Agreement between The Bank of New York and
the Fund dated as of , 1994 (the "Custody Agree-
ment") is authorized and instructed on a continuous and ongo-
ing basis to act in accordance with, and to rely on Certifi-
cates (as defined in the Custody Agreement) given by to the
Custodian by a Terminal Link (as defined in the Custody Agree-
ment).
RESOLVED, that the Fund shall establish access codes and
grant us of such access codes only to Officers of the fund as
defined in the Custody Agreement, shall establish internal
safekeeping procedures to safeguard and protect the confiden-
tiality and availability of such access codes, shall limit its
use of the Terminal Link to those purposes permitted by the
Custody Agreement, shall require at least two such Officers to
utilize their respective access codes in connection with each
such Certificate, and shall use the Terminal Link only in a
manner that does not contravene the Investment Company Act of
1940, as amended, or the rules and regulations thereunder.
RESOLVED, that Officers of the Fund shall, following the
establishment of such access codes and such internal safekeep-
ing procedures, advise the Custodian that the same have been
established by delivering a Certificate, as defined in the
Custody Agreement, and the Custodian shall be entitled to rely
<PAGE>
upon such advice.
IN WITNESS WHEREOF, I have hereunto set my hand and the
seal of Stratton Small-Cap Yield Fund, as of the day of
, 1994.
[SEAL]
<PAGE>
EXHIBIT E
The undersigned, , hereby cer-
tifies that he or she is the duly elected and acting
of Stratton Small-Cap Yield Fund, a corporation
organized and existing under the laws of the state of Maryland
(the "Fund"), further certifies that the following resolutions
were adopted by the Board of Directors of the Fund at a
meeting duly held on , 1994, at which a
quorum was at all times present and that such resolutions have
not been modified or rescinded and are in full force and
effect as of the date hereof.
RESOLVED, that the maintenance of the Fund's assets in
each country listed in Schedule I hereto be, and hereby is,
approved by the Board of Directors as consistent with the best
interests of the Fund and its shareholders; and further
RESOLVED, that the maintenance of the Fund's assets with
the foreign branches of The Bank of New York (the "Bank")
listed in Schedule I located in the countries specified
therein, and with the foreign subcustodians and despositories
listed in Schedule I located in the countries specified
therein be, and hereby is, approved by the Board of Directors
as consistent with the best interest of the Fund and its
shareholders; and further
RESOLVED, that the Subcustodian Agreements presented to
this meeting between the Bank and each of the foreign
subcustodians and depositories listed in Schedule I providing
for the maintenance of the Fund's assets with the applicable
entity, be and hereby are, approved by the Board of Directors
as consistent with the best interests of the Fund and its
shareholders; and further
RESOLVED, that the appropriate officers of the Fund are
hereby authorized to place assets of the Fund with the afore-
mentioned foreign branches and foreign subcustodians and de-
positories as hereinabove provided; and further
<PAGE>
RESOLVED, that the appropriate officers of the Fund, or
any of them, are authorized to do any and all other acts, in
the name of the Fund and on its behalf, as they, or any of
them, may determine to be necessary or desirable and proper in
connection with or in furtherance of the foregoing resolu-
tions.
IN WITNESS WHEREOF, I hereunto set my hand and the seal
of Stratton Small-Cap Yield Fund, as of the day of
, 1994.
[SEAL]
<PAGE>
CUSTODY ADMINISTRATION AND AGENCY AGREEMENT
This AGREEMENT, dated as of the 1st day of November, 1994, made by and
--- --------
between The Stratton Funds, Inc. - Stratton Small Cap Yield Fund, (the "Fund"),
a corporation operating as a registered investment company under the Investment
Company Act of 1940, as amended, and duly organized and existing under the laws
of the state of Maryland and Fund/Plan Services, Inc. ("Fund/Plan"), a
-----------------------
corporation duly organized and existing under the laws of the State of Delaware
(collectively, the "Parties").
WITNESSETH THAT:
WHEREAS, the Fund desires to retain Fund/Plan to perform certain
custody administration services; and
WHEREAS, the Fund desires that Fund/Plan act as its agent for the
specific purpose of taking receipt of, and making payment for, custody services
performed on the Fund's behalf by The Bank of New York pursuant to an agreement
between The Bank of New York and the Fund; and
WHEREAS, Fund/Plan is willing to serve in such capacity and perform
such functions upon the terms and conditions set forth below;
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the Parties hereto, intending to be legally bound, do hereby
agree as follows:
APPOINTMENT OF FUND/PLAN AS AGENT
Section 1. The Fund hereby grants to Fund/Plan, and Fund/Plan hereby
----------
accepts such grant, as an agent of the Fund for the limited purpose of: (i)
accepting invoices for custody services from The Bank of New York which invoices
reflect charges to the Fund for custody services performed by The Bank of New
York on the Fund's behalf, and (ii) remitting payment to The Bank of New York
for such services performed in amounts as set forth in Schedule "A" attached
hereto.
CUSTODY ADMINISTRATION SERVICES
Section 2. As Custody Administrator, Fund/Plan shall:
----------
a) coordinate and process portfolio trades through client terminal
links with The Bank of New York
b) input and verify portfolio trades
c) monitor pending and failed security trades
================================================================================
Custody Administration and Agency Agreement between The Stratton Funds, Inc.,
and Fund/Plan Services, Inc.
Page 1 of 6 pages.
<PAGE>
d) coordinate communications between brokers and banks to resolve any
operational problems
e) advise the Fund of any corporate action information, address and
follow up on any dividend or interest discrepancies
f) process the Funds' expenses
g) interface with the Accounting Services and the Transfer Agent to
research and resolve Custody cash problems
h) provide daily and monthly reports
FEES
Section 3. The Fund agrees to pay Fund/Plan compensation for its
----------
services and to reimburse Fund/Plan for actual expenses incurred, at the rates
and amounts as set forth in Schedule "A" attached hereto which the Fund hereby
authorizes Fund/Plan to collect by debiting the Fund's custody account for
invoices which are rendered for the applicable function. The invoices performed
will be sent to the Fund after such debiting with the indication that payment
has been made.
For the purpose of determining fees payable to Fund/Plan, the value of
Fund's net assets shall be computed at the times and in the manner specified in
Fund's then current Prospectus and Statement of Additional Information.
During the term of this Agreement, should the Fund seek services or
functions in addition to those stated, a written amendment to this Agreement
specifying the additional services and corresponding compensation shall be
executed by both Fund/Plan and the Fund.
GENERAL PROVISIONS
Section 4.
----------
(a) Fund/Plan, its directors, officers, employees,
shareholders and agents shall only be liable for any error of judgment or
mistake of law or for any loss suffered by the Fund in connection with the
performance of this Agreement that results from willful misfeasance, bad faith,
negligence or reckless disregard on the part of Fund/Plan in the performance of
its obligations and duties under this Agreement.
(b) Any person, even though also a director, officer,
employee, shareholder or agent of Fund/Plan, who may be or become an officer,
trustee, employee, or agent of the Fund, shall be deemed, when rendering
services to such entity or acting on any business of the
================================================================================
Custody Administration and Agency Agreement between The Stratton Funds, Inc.,
and Fund/Plan Services, Inc.
Page 2 of 6 pages.
<PAGE>
Fund, (other than services or business in connection with Fund/Plan's duties
hereunder), to be rendering such services to or acting solely for the Fund and
not as a director, officer, employee, shareholder or agent of, or one under the
control or direction of Fund/Plan even though that person is being paid salary
by Fund/Plan.
(c) Notwithstanding any other provision of this Agreement, the
Fund shall indemnify and hold harmless Fund/Plan, its directors, officers,
employees, shareholders and agents from and against any and all claims, demands,
expenses and liabilities (whether with or without basis in fact or law) of any
and every nature which Fund/Plan may sustain or incur or which may be asserted
against Fund/Plan by any person by reason of, or as a result of (i) any action
taken or omitted to be taken by Fund/Plan in good faith hereunder or (ii) any
action taken or omitted to be taken by Fund/Plan in connection with its
appointment under this agreement, which action or omission was taken in good
faith in reliance upon any law, act, regulation or interpretation of the same
even though the same may thereafter have been altered, changed, amended, or
repealed. Indemnification under this subparagraph, however, shall not apply to
actions or omissions of Fund/Plan or its directors, officers, employees,
shareholders, or agents in cases of its or their own negligence, willful
misconduct, bad faith, or reckless disregard of its or their own duties
hereunder.
(d) Fund/Plan shall give written notice to the Fund within ten
(10) business days of receipt by Fund/Plan of a written assertion or claim of
any threatened or pending legal proceeding which may be subject to this
indemnification. The failure to notify the Fund of such written assertion or
claim shall not, however, operate in any manner whatsoever to relieve the Fund
of any liability arising under this Section or otherwise, except to the extent
that failure to give notice prejudices the Fund.
(e) For any legal proceeding giving rise to this
indemnification, the Fund shall be entitled to defend or prosecute any claim in
the name of Fund/Plan at its own expense and through counsel of its own choosing
if it gives written notice to Fund/Plan within ten (10) business days of
receiving notice of such claim. Notwithstanding the foregoing, Fund/Plan may
participate in the litigation at its own expense through counsel of its own
choosing. In the event the Fund chooses to defend or prosecute such claim, the
parties shall cooperate in the defense or prosecution thereof and shall furnish
such records and other information as are reasonably necessary.
================================================================================
Custody Administration and Agency Agreement between The Stratton Funds, Inc.,
and Fund/Plan Services, Inc.
Page 3 of 6 pages.
<PAGE>
(f) The Fund shall not settle any claim under (d) and (e)
above without Fund/Plan's express written consent, which consent shall not be
unreasonably withheld. Fund/Plan shall not settle any such claim under (d) and
(e) above without the Fund's express written consent which likewise shall not be
unreasonably withheld.
Section 5.
----------
(a) The fee schedule set forth in Schedule "A" attached shall
be fixed for (1) year after the effective date of this Agreement. At the end of
the first year, the fee schedule will be subject to annual review and
adjustment.
(b) After one year, the Fund or Fund/Plan may give written
notice to the other of the termination of this Agreement, such termination to
take effect at the time specified in the notice, which date shall not be less
than ninety (90) days after the date of giving notice. Upon the effective
termination date, the Fund shall pay to Fund/Plan such compensation as may be
due as of the date of termination and shall likewise reimburse Fund/Plan for any
out-of-pocket expenses and disbursements reasonably incurred by Fund/Plan to
such date.
(c) In the event that a successor to any of Fund/Plan's duties
or responsibilities under this Agreement is designated by the Fund by
appropriate and timely written notice to Fund/Plan, Fund/Plan shall, promptly
upon such termination and at the expense of the Fund, transfer all pertinent
records and shall cooperate in the transfer of such duties and responsibilities.
Section 6. This Agreement may be amended from time to time by a
----------
supplemental agreement executed by the Fund and Fund/Plan.
Section 7. Except as otherwise provided in this Agreement, any notice
----------
or other communication required by or permitted to be given in connection with
this Agreement shall be in writing, and shall be delivered in person or sent by
first class mail, postage prepaid, to the respective parties as follows:
================================================================================
Custody Administration and Agency Agreement between The Stratton Funds, Inc.,
and Fund/Plan Services, Inc.
Page 4 of 6 pages.
<PAGE>
If to the Fund: If to Fund/Plan:
--------------- ---------------
The Stratton Funds, Inc. Fund/Plan Services, Inc.
610 W. Germantown Pike, Suite 300 2 West Elm Street
Plymouth Meeting, PA 19462-1050 Conshohocken, PA 19428
Attn: Frank H. Reichel, III, President Attn: Kenneth J. Kempf, President
Section 8. The Fund represents and warrants to Fund/Plan that the
----------
execution and delivery of this Agreement by the undersigned officers of the Fund
has been duly and validly authorized by resolution of the Board of Directors of
the Fund.
Section 9. This Agreement may be executed in two or more
----------
counterparts, each of which when so executed shall be deemed to be an original,
but such counterparts shall together constitute but one and the same instrument.
Section 10. This Agreement shall extend to and shall be binding upon
-----------
the Parties and their respective successors and assigns; provided, however, that
this Agreement shall not be assignable by the Fund without the written consent
of Fund/Plan or by Fund/Plan without the written consent of the Fund, authorized
or approved by a resolution of their Boards of Directors. Section 11. This
-----------
Agreement shall be governed by the laws of the Commonwealth of Pennsylvania and
the venue of any action arising under this Agreement shall be Montgomery County,
Commonwealth of Pennsylvania.
Section 12. No provision of this Agreement may be amended or
-----------
modified, in any manner except in writing, properly authorized and executed by
Fund/Plan and the Fund.
Section 13. If any part, term or provision of this Agreement is held
-----------
by any court to be illegal, in conflict with any law or otherwise invalid, the
remaining portion or portions shall be considered severable and not be affected,
and the rights and obligations of the parties shall be construed and enforced as
if the Agreement did not contain the particular part, term or provision held to
be illegal or invalid provided that the basic Agreement is not thereby
--------
substantially impaired.
================================================================================
Custody Administration and Agency Agreement between The Stratton Funds, Inc.,
and Fund/Plan Services, Inc.
Page 5 of 6 pages.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement,
consisting in its entirety of six type written pages, together with Schedule
"A," to be signed by their duly authorized officers, as of the day and year
first above written.
Fund/Plan Services, Inc.
------------------------
____________________________________ ____________________________________
By: Frank H. Reichel, III By: Kenneth J. Kempf
President President
================================================================================
Custody Administration and Agency Agreement between The Stratton Funds, Inc.,
and Fund/Plan Services, Inc.
Page 6 of 6 pages.
<PAGE>
Exhibit 11(a)
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the reference to our firm in the Registration Statement,
(Form N-1A), and related Statement of Additional Information of THE STRATTON
FUNDS, INC. and to the inclusion of our report dated April 10, 1996 to the
Shareholders and Board of Directors of Stratton Small CapYieldFund.
/s/ TAIT, WELLER & BAKER
TAIT, WELLER & BAKER
Philadelphia, Pennsylvania
July 24, 1996
<PAGE>
Exhibit 11(b)
DRINKER BIDDLE & REATH
CONSENT OF COUNSEL
We hereby consent to the use of our name and to the reference to our Firm
under the caption "Legal Counsel" in the Prospectus that is included in Post-
Effective Amendment No. 5 to the Registration Statement (No. 33-57166) on Form
N-1A under the Securities Act of 1933 and the Investment Company Act of 1940, as
amended, of The Stratton Funds, Inc. This consent does not constitute a consent
under Section 7 of the Securities Act of 1933, and in consenting to the use of
our name and the reference to our Firm under such caption we have not certified
any part of the Registration Statement and do not otherwise come within the
categories of persons whose consent is required under Section 7 or the rules and
regulations thereunder of the Securities and Exchange Commission.
/s/ DRINKER BIDDLE & REATH
-------------------------------
DRINKER BIDDLE & REATH
Philadelphia, Pennsylvania
July 26, 1996
<PAGE>
Ex 99B.14.a
403 (B) (7) PLAN
Dear Investor:
Enclosed are instructions, applications and a summary of Stratton Management
Company's 403 (b) (7) Plan, along with appropriate prospectuses and financial
reports. The Plan is set up to permit you to choose either or all of our funds:
STRATTON MONTHLY DIVIDEND SHARES invests in high yielding common stocks as
well as convertible bonds and preferred stocks. The Fund offers high
current monthly income as well as solid growth potential for the future.
STRATTON SMALL-CAP YIELD FUND is a small company stock portfolio of
dividend-paying companies in various industries. The Fund attempts to
capture the capital appreciation potential of small-cap stocks while
reducing the variability of return typically associated with small-cap
portfolios.
STRATTON GROWTH FUND holds a diversified portfolio of common stocks of well
established, high dividend paying companies. The Fund seeks long-term
appreciation of capital with reasonable current income.
If you sign and return the enclosed telephone exchange form along with your
403 (b) (7) applications, you may switch your investment at a later date
simply by calling the number on the form.
Complete step-by-step instructions on how to open your 403 (b) (7) account
are enclosed. If you should have any questions, please feel free to call
(800) 634-5726. Thank you for considering Stratton Mutual Funds.
Sincerely,
John L. Grieco
Director of Mutual Fund Services
JLG/clr
enclosures
2/94
<PAGE>
403 (b) (7)
-----------
NEW ACCOUNT
-----------
SHAREHOLDER INSTRUCTIONS
------------------------
1) Stratton Management Company will provide employee with:
-------------------------------------------------------
1 Instruction Sheet
1 Features of the Plan Booklet
1 403 (b) (7) Retirement Plan Document
1 Open Account Application
1 Designation of Beneficiary Form
2 Salary Reduction Agreements
1 Business Reply Envelope
1 Exclusion Allowance Worksheet
Financial Reports & Prospectus on Fund(s)
2) Employee will complete:
-----------------------
1 Open Account Application
1 Designation of Beneficiary Form
2 Salary Reduction Agreements
1 Exclusion Allowance Worksheet (working with the Employee Benefits
Department of his/her institution)
3) Employee will ask Employer to:
------------------------------
Approve Exclusion Allowance Worksheet
Sign 2 copies of Salary Reduction Agreement (Employer retains 1 copy)
Arrange with the Payroll Department to reduce employee's salary
periodically, in accordance with the Salary Reduction Agreement, and have a
check made payable to the Fund(s) selected, mailed to Fund/Plan Services,
Inc., 2 W. Elm Street, P.O. Box 874, Conshohocken, PA 19428-0874, Attn:
Retirement Plans Department.
4) Employee will return to Stratton Mutual Funds, 2 W. Elm Street, P.O. Box
------------------------------------------------------------------------
874, Conshohocken, PA 19428-0874, Attn: Retirement Plans Department:
---------------------------------------------------------------------
1 completed Open Account Application
1 completed Designation of Beneficiary Form
1 completed Salary Reduction Agreement
An investment will be made in the fund shares you have selected and a
confirmation of the purchase will be provided.
<PAGE>
STRATTON MANAGEMENT COMPANY
---------------------------
403 (B)(7) RETIREMENT PLAN
FEATURES OF THE PLAN
--------------------
The Employee Retirement Income Security Act of 1974 (the "Act") allows
employees of certain exempt organizations and schools to have a portion of their
compensation set aside for their retirement years in a mutual fund custodial
account plan. The employee is not taxed on the amount set aside or the earnings
thereon until he draws out his/her accumulated funds, normally at retirement.
In the past these plans were available only if the employee was willing to
have his/her funds used to purchase an annuity contract from an insurance
company. Customarily, a significant portion of the employee's contribution was
used to pay front end commissions to an insurance salesman, and unless the
employee was willing to purchase a so-called "variable annuity", the rate of
return was fixed for the duration of the contract and there was no possibility
of capital growth.
Now, it is possible for you to specify a mutual fund for the investment of
your employer's contributions. This means that no sales commissions are
deducted from the contribution. Under the Stratton Management Company Plan your
contributions are invested in shares of one or more of the investment companies
advised by Stratton Management Company, Stratton Monthly Dividend Shares, Inc.,
Stratton Growth Fund, Inc. or Stratton Small-Cap Yield Fund.
If you think you would like to participate, please read on for a further
explanation of the key features of the Act and Plan. If you would like
additional information or assistance in enrolling in the Plan, please contact
our Transfer Agent, Fund/Plan Services, Inc. at 800-634-5726.
ELIGIBILITY
- -----------
Any employee of a qualifying tax-exempt organization is eligible to
participate. Thus, teachers, administrators, ministers, employees of hospitals,
libraries, community chests, funds, and foundations, and many others may be
eligible. The employer must be an organization described in Section 501 (C) (3)
of the Internal Revenue Code and must be exempt from tax under Section 501 (a)
of the Code. In addition, any employee of most public educational institutions
is eligible if his/her employer is a State or a political subdivision of a
State, or an agency or instrumentality of either. The text of Section 501 (C)
(3) is set forth below for your convenience in determining whether your employer
may be one of the many qualifying organizations.
Code Section 501 (C) (3)
------------------------
"Corporations, and any community chest, fund, or foundation,
organized and operated exclusively for religious, charitable,
scientific, testing for public safety, literary, or educational
purposes, or for the prevention to cruelty of children or
animals, no part of the net earnings of which inures to the
benefit of any private shareholder or individual, no substantial
part of the activities of which is carrying on propaganda, or
otherwise attempting to influence legislation, and which does not
participate in, or intervene in (including the publishing or
distributing of statements), any political campaign on behalf of
any candidate for public office."
<PAGE>
- 2 -
As noted above, an employer organization that is one of the types of
organizations described in Section 501 (C) (3) must also be exempt under Section
501 (a) to be a qualified employer organization.
An eligible individual is not disqualified from participation by reason of
the fact that his/her employer provides a retirement plan for its employees.
However, the contributions under this or any other 403 (b) plan will be affected
by the employer's contributions to the retirement plan. The employer does not
have to adopt this Plan, but is required to cooperate to the extent of agreeing
to reduce the employee's salary and applying the amount of the reduction to
contributions for the employee under this Plan. In lieu of or in addition to a
salary reduction arrangement, an employer may be willing to make contributions
on behalf of all of his/her employees, but an employer is not obligated to do
so. Unlike most corporate and Keogh plans, where the employer is required to
include all qualified employees and contribute funds on their behalf, the 403
(b) (7) Plan may be set up for one person, a few employees or all, and the rate
of contributions may vary from person to person up to the maximum allowable
contribution.
CONTRIBUTIONS
- -------------
The amount you may have your employer contribute to the Plan and which you
may exclude from your taxable income is subject to the following limitations.
You may wish to refer to the Contribution Worksheet which appears later in this
descriptive material for assistance in determining how those limitations would
apply to your own situation.
Contributions may not exceed (I) 25% of compensation, or (ii) $25,000,
whichever is less, in any one year. The dollar limit increases each year based
on the increases in the cost of living which is $41,500 for 1981. Within that
overall limitation, your employer may contribute to the Plan and you may exclude
from your taxable income, an amount equal to the excess, if any, of (I) 20% of
includible compensation times your number of years of service, over (ii) the
aggregate amount contributed by the employer previously for 403 (b) plans for
other qualified retirement plans and excluded from your gross income for prior
tax years. "Includible Compensation" is current compensation from the school or
organization plus any excluded sick pay. It does not include (I) amounts paid
by a public school system to a teacher's retirement Plan which were not
currently taxed to the teacher or (ii) 403 (b) contributions.
If you are employed by an educational institution, hospital or home health
service agency, you may elect to be governed by one of three alternate
limitations. First, you may elect contributions which are equal to the lesser
of (I) 25% of includible compensation plus $4,000 or (ii) the limit explained in
the above paragraph. Such contributions may not exceed $15,000 in any one year.
Second, you may, in the alternative, elect to be governed by one simple
limitation which is the lesser of 25% of your compensation or $25,000 (as
adjusted as discussed above). Finally, for the year in which employment
terminates, contributions can be made in an amount which is equal to the
contributions which could have been made, but were not, under Code Section 403
(b) during the ten-year period ending on the date of termination. This final
"catch-up" contribution cannot exceed $25,000 (as adjusted as discussed above)
and may only be used once.
The optional limitations available to employees of educational
institutions, hospitals and home health service agencies are mutually exclusive.
An election of one of the options is irrevocable.
<PAGE>
- 3 -
EARNINGS AND CHARGES
- --------------------
Your contributions will be used to purchase shares of one or more of the
investment companies advised by Stratton Management Company -- Stratton Monthly
Dividend Shares, Inc., Stratton Growth Fund, Inc. or Stratton Small-Cap Yield
Fund -- all no load, which means that no sales commission is charged. Any
dividends or capital gains distributions on the shares will be reinvested in
additional shares of the same fund automatically. These additional shares will
represent your earnings in the account.
The Custodian of the Plan is Semper Trust Company. Fund/Plan Services,
Inc. serves as the fiduciary agent for Semper Trust Company and in such capacity
is responsible for all record keeping, applicable tax reporting and fee
collection in connection with the Plan account. Fund/Plan Services, Inc. is
also the transfer agent for the Funds.
The law states that the shares must be held by the Custodian, but you will
be entitled to vote the shares. The Custodian charges an annual fee of $12.00.
The Custodian shall be entitled to deduct this fee by liquidating shares
annually in September, unless the annual maintenance fee is paid to Fund/Plan
Services, Inc.
The Custodian will send you a statement of the account annually, including
such information as the law may require, and in particular, a statement of the
exact amount of contributions, earnings, distributions and total value at the
end of the year. The Custodian will also send the statement to the Internal
Revenue Service as required by law.
DISTRIBUTIONS
- -------------
You may withdraw funds from your account when you terminate employment by
retirement or otherwise. You may also withdraw funds in the event you become
disabled. Provided you do so at least sixty (60) days before you terminate your
employment, you may make an irrevocable election to postpone the date of
withdrawal to any specific subsequent date you wish so long as that date is not
later than your 75th birthday.
Your account may at your option be distributed to you in the following
ways: (1) a lump sum payment of your entire account, in cash or Fund shares; (2)
monthly, quarterly or annual payments over any period you designate which is no
longer than your life expectancy; or (3) installment payments over the joint
life expectancy of yourself and your spouse. You must elect the form that
distribution will take at least sixty (60) days prior to the date when you will
first be entitled to distribution of your funds. If you fail to specify the
form of the distribution you prefer, distribution will be made in the form of a
single sum cash payment.
In the event of death, your beneficiary or beneficiaries will receive the
balance in your account. You may designate a beneficiary and change
beneficiaries from time to time. If you do not designate a beneficiary and are
not survived by a spouse to whom you have been married for one year at the time
of your death, your estate will receive the balance in your account.
<PAGE>
- 4 -
HOW TO PARTICIPATE
- ------------------
You may establish a 403 (b) (7) account by completing the Account
Application, and Salary Reduction Agreement, which you will find at the end of
the Plan. Then mail the Application, a copy of the Agreement, and the Ruling
Request to the Custodian with your Employer's first contribution. Be sure not to
----------
send your own funds.
PLAN QUALIFICATION
- ------------------
A Ruling Request was submitted to Internal Revenue Service for a
determination that the Plan meets the requirements of the Act and the Code.
The filing was made on behalf of one of the employees of the No-Load Mutual
Fund Association, a tax-exempt organization. This filing was found to be in
compliance with the requirements of the Act and the Code. However, a favorable
ruling on the Plan in one instance does not provide any assurance that it will
be found acceptable in other similar circumstances. Consequently, you may
consider it prudent to submit a Ruling Request on your own behalf. A form or
request is enclosed with the Plan for your convenience. It should be understood
-----------------------
that neither the Fund nor the Custodian is in a position to render legal or tax
- -------------------------------------------------------------------------------
advice and that the information contained in and the documents furnished with
- -----------------------------------------------------------------------------
this description merely represent the Fund's understanding of the statues and
- -----------------------------------------------------------------------------
regulations affecting the establishment and qualification of a 403 (b) (7) plan.
- --------------------------------------------------------------------------------
Accordingly, you are urged to consult your attorney or tax advisor in connection
- --------------------------------------------------------------------------------
with the adoption of the Plan and the submission of a ruling request on your
- ----------------------------------------------------------------------------
behalf.
- -------
PLEASE NOTE
- -----------
The foregoing is not a complete or definitive explanation of the Plan or of the
provisions of the Act or Code. Please do not complete the Application without
reading the Plan and the Fund prospectus which must always accompany the Plan.
Consult your financial or tax advisor if you are uncertain that a 403 (b) (7)
Plan is an appropriate program. You may obtain additional information about 403
(b) (7) Plans from your nearest Internal Revenue Service district office.
<PAGE>
STRATTON MANAGEMENT COMPANY
---------------------------
SECTION 403 (B)(7) RETIREMENT PLAN
----------------------------------
A Retirement Plan under Section 403 (b)(7) has been established by Stratton
Management Company ("Stratton"), (Investment Adviser to Stratton Monthly
Dividend Shares, Inc., Stratton Growth Fund, Inc. and Stratton Small-Cap Yield
Fund, all regulated investment companies), and is intended for the use of
eligible persons who may wish to have their Employer's contributions invested in
shares of one or a combination of these investment companies, herein called
"fund shares", upon the following terms and conditions and in accordance with
the provisions of the Employee Retirement Income Security Act of 1974 (the
"Act") and the Internal Revenue Code of 1954, as amended (the "Code").
I. ELIGIBILITY
-----------
Any person who performs services as an employee for an employer which is an
organization described in Section 501 (C) (3) of the Code and is exempt
from tax under Section 501 (a) of the Code, or who performs services for an
educational institution (as defined in Section 151 (e) (4) of the Code)
maintained by an employer which is a State or a political subdivision of a
State or an agency or instrumentality of either, and who obtains the
consent of such employer (the "Employer") to participate herein, is
eligible to adopt this Plan.
II. PARTICIPATION
-------------
An eligible person who wishes to adopt this Plan (the "Individual") may do
so by signing and mailing to the bank named in the Account Application, as
Custodian (the "Custodian") a copy of the Account Application, Designation
of Beneficiary Form and Salary Reduction Agreement which are incorporated
herein by reference as part of the Plan. Acceptance by Semper Trust
Company, as Custodian is evidenced by the statement confirmation issued by
Fund/Plan Services, Inc., the Custodian's fiduciary agent, reflecting the
investment of your monies in the selected Stratton Fund(s).
III. An Employer may contribute cash to the Individual's account (the "Custodial
Account") in any taxable year in any amount which is not an "excess
contribution" as that expression is defined in Section 4973 (C) of the
Code. In addition, the Employer may transfer or cause to be transferred to
the Custodial Account the cash surrender or redemption value of an annuity
or variable annuity for which the Employer previously made contributions on
the Individual's behalf.
Neither Stratton or the Custodian shall be responsible for determining the
amount an Employer may contribute on behalf of the Individual, or shall
either be responsible to recommend or compel Employer contributions to the
Custodial Account. If during any taxable year the Employer contributes an
amount which is an "excess contribution", such excess contribution and any
income attributable thereto shall, upon the written request of the
Individual, be paid to him by the Custodian, or, at the Individual's
election, be applied toward a contribution for the current or the next
subsequent year.
<PAGE>
- 2 -
The interest of the Individual in the Custodial Account shall be non-
forfeitable at all times, may not be assigned, and shall not be subject to
alienation, assignment, trustee process, garnishment, attachment, execution or
levy of any kind, except with regard to payment of the expenses of the Custodian
as authorized by the provisions of this Plan.
IV. INVESTMENT OF CONTRIBUTIONS
---------------------------
All contributions made by or at the instigation of the Employer shall be
used by the Custodian to purchase fund shares. The Individual may specify the
shares of either one or more of the Stratton Funds for the investment of the
Employer's contributions, and may direct the transfer of Custodial Account
assets from one to another at any time and from time to time. All income
dividends and capital gains distributions shall be reinvested in additional fund
shares in the same proportion as designed by the Individual.
V. DISTRIBUTIONS
-------------
A. Except as provided in Paragraph B, below, the Individual, or his/her
beneficiary or estate in the event of his/her death, shall be entitled to
distribution of the assets in his/her Custodial Account as follows:
1. Upon termination of his employment;
2. Upon becoming disabled;
3. At his retirement;
4. At his death.
For the purpose of this Plan the Individual shall be considered disabled if
he/she is unable to engage in any substantial gainful activity by reason of any
medically determinable physical or mental impairment which can be expected to
result in death or to be of long continued and indefinite duration.
B. The Individual shall be entitled to distribution of the assets in his/her
Custodial Account upon termination of employment by retirement or otherwise
unless he/she makes an irrevocable election at least sixty (60) days prior to
the expected date of termination of defer distribution, or the commencement of
distribution, to any specific date subsequent to termination which he/she may
specify, provided the date is not later than the date of his/her 75th birthday.
Such election shall be made by notice in writing to the Custodian.
C. The Individual may elect a form of distribution from among the following
alternatives:
1. A single sum payment in cash or fund shares; or
2. Equal or substantially equal monthly, quarterly or annual payments
over a period certain not extending beyond the life expectancy of the
Individual and his/her spouse; or
3. Equal or substantially equal monthly, quarterly or annual payments
over a period certain not extending beyond the joint life and last
survivor of the Individual and his/her spouse.
<PAGE>
- 3 -
Such election shall be made at least sixty (60) days prior to the date on
which distribution is expected to be made or to begin. Such election shall be
irrevocable and shall be made in writing in such form as shall be acceptable to
the Custodian. In no event shall the Custodian have any responsibility for
determining, or giving advice with respect to life expectancies.
D. If the Individual fails to elect any of the methods of distribution
described above within the time specified for such election, then distribution
shall be made in the form of a single sum cash payment. If the individual elects
a mode of distribution under subparagraphs 2 or 3 of Paragraph C above, the
amount of the monthly, quarterly or annual payments shall be determined by
dividing the entire interest of the Individual in the Custodial Account at the
beginning of each year by the number of years remaining in the period specified
by the Individual's said election.
E. If the Individual dies before his/her entire interest in the Custodial
Account is distributed to him/her, or if distribution has been commenced as
provided in C (3) above to his/her surviving spouse and such surviving spouse
dies before the entire interest is distributed to such spouse, the entire
interest or the remaining undistributed balance of such interest shall be
distributed in the form of a single sum cash payment to the beneficiary or
beneficiaries, if any, designated by the Individual or his/her spouse as the
case may be, or if no such beneficiary has been designated, then to the
Individual's surviving spouse, or to the Individual's estate, in that order,
each to take to the exclusion of those following.
F. The Individual and the spouse of the Individual, if such spouse is entitled
to distribution payments by reason of the Individual's election under Paragraph
C (3) hereof, may designate a beneficiary or beneficiaries of his/her own
choosing, and may, in addition, name a contingent beneficiary. Such designation
shall be made in writing in a form acceptable to the Custodian. The Individual,
or his/her spouse, may at any time revoke his/her designation of a beneficiary
or change the beneficiary by filing notice of such revocation or change with the
Custodian. If no designation of a beneficiary shall have been made,
distribution shall be made to the estate of the Individual or his/her spouse, as
the case may be.
VI. ADMINISTRATION
--------------
The Custodian shall have the following duties:
(1) To receive contributions pursuant to the provisions of this Plan
(2) To hold, invest and reinvest the contributions in Stratton Fund shares
(3) To register any property held by the Custodian in its own name, or in
nominee or bearer form that will pass delivery and
(4) To make distributions from the Custodial Account in cash or in
Stratton Fund shares
<PAGE>
- 4 -
The Custodian shall mail to the Individual all proxies, proxy soliciting
materials, and periodic reports or other communications that may come into the
Custodian's possession by reason of its custody of fund shares. The Custodian
shall sign all proxies prior to mailing them to the Individual, it being
intended that the Individual shall vote the proxy, notwithstanding the fact that
the Custodian may be the registered owner of the fund shares, and the Custodian
shall have no further liability or responsibility with respect to the voting of
such shares.
The Custodian shall keep accurate and detailed account of its receipts,
investments and disbursements. As soon as practicable after December 31st each
year, and whenever required by Regulations adopted by Internal Revenue Service
under the Act or the Code, the Custodian shall file with the Individual a
written report of the Custodian's transactions relating to the Custodial Account
during the period from the last previous account, and shall file such other
reports with Internal Revenue Service as may be required by its Regulations.
Unless the Individual sends the Custodian written objection to a report
within 60 days after its receipt, the Individual shall be deemed to have
approved such report, and in such case the Custodian shall be forever released
and discharged with respect to all matters and things included therein. The
Custodian may seek a judicial settlement of its accounts. In any such
proceeding the only necessary party thereto in addition to the Custodian shall
be the Individual.
All written notices or communications to the Individual or the Employer
shall be effective when sent by first class mail to the last known address of
the Individual or the employer on the Custodian's records. All written notices
or communications to the Custodian shall be mailed or delivered to the Custodian
at its designated mailing address, and no such written notice or communication
shall be effective until the Custodian's actual receipt thereof. The Custodian
shall be entitled to rely conclusively upon, and shall be fully protected in any
action taken by it in good faith in reliance upon the authenticity of signatures
contained in all written notices or other communications which it receives and
which appear to have been sent by the Individual, the Employer, or any other
person.
The Custodian shall make payments from the Custodial Account in accordance
with written directions received from the Individual, and it need not make
inquiry as to the rightfulness of such distribution. If the Custodian has
reason to believe that a distribution may be due, it may, but shall not be
required to make the distribution at the request of any beneficiary who appears
to be entitled thereto.
The Custodian shall use ordinary care and reasonable diligence in the
performance of its duties as Custodian. The Custodian shall have no
responsibilities other than those provided for herein or in the Act or Code and
shall not be liable for a mistake in judgment, for any action taken in good
faith, or for any loss that is not a result of its gross negligence, except as
provided by the Act or regulations promulgated thereunder.
<PAGE>
- 5 -
The Individual agrees to indemnify and hold the Custodian harmless from and
against any liability that the Custodian may incur in the administration of the
Custodial Account, unless arising from the Custodian's own negligence or willful
misconduct or from a violation of the provisions of the Act or regulations
promulgated thereunder.
The Custodian shall be under no duty to question any direction of the
Individual in respect to the investment of contributions, or to make suggestions
to the Individual with respect to the investment, retention or disposition of
any contributions or assets held in the Custodial Account.
The Custodian shall pay out of the Custodial Account expenses of
administration, including the fees of counsel employed by the Custodian, taxes
and its fees for maintaining the Custodial Account which are set forth in the
Application or in accordance with any schedule of fees subsequently adopted by
the Custodian. The Custodian may sell Fund shares and use the proceeds of sale
to pay the foregoing expenses.
The Custodian may resign as Custodian of any Individual's Custodial Account
upon sixty (60) days prior notice to the Fund and thirty (30) days prior notice
to each Individual who will be affected by such resignation.
VII. AMENDMENT AND TERMINATION
-------------------------
The Individual delegates to Stratton the power to amend this Plan
(including retroactive amendment).
The Individual may amend his/her Application (including retroactive
amendment) by submitting to the Custodian: (1) a copy of such amended
Application, and (2) evidence satisfactory to the Custodian that the Plan as
amended by such amended Application will continue to qualify under the
provisions of Section 403 (b) (7) of the Code.
No amendment shall be effective if it would case or permit: (a) any part
of the Custodial Account to be diverted to any purpose that is not for the
exclusive benefit of the Individual and his/her beneficiaries; (b) the
Individual to be deprived of any portion of his/her interest in the Custodial
Account, or (C) the imposition of an additional duty on the Custodian without
its consent.
The Individual reserves the right to terminate further contributions to
this Plan by agreement with the Employer provided that the Individual shall file
with the Custodian an executed copy of such agreement. The Individual also
reserves the right to terminate his/her adoption of the Plan in the event that
he/she shall be unable to secure a favorable ruling from the Internal Revenue
Service with respect to this Plan. In the event of such termination, the
Custodian shall distribute the Custodial Account to the Individual. The
Individual also reserves the right to transfer the assets of his/her Custodial
Account to such other form of the 403 (b) (7) Retirement Plan as he may
determine, upon written instructions to the Custodian in such form as the
Custodian may reasonably require.
<PAGE>
- 6 -
VIII. PROHIBITED TRANSACTIONS
-----------------------
Except as provided in Section 408 of the Act or Section 4975 of the Code,
the Custodian:
(a) Shall not cause the plan to engage in a transaction if it knows or
should know that such transaction constitutes a direct or indirect--
1. sale or exchange, or leasing, or any property between the plan
and a party in interest;
2. lending of money or other extension of credit between the plan
and a party in interest;
3. furnishing of goods, services, or facilities between the plan and
a party in interest;
4. transfer to, or use by or for the benefit of, a party in
interest, of any assets of the plan; or
5. acquisition, on behalf of the plan, of any employer security or
employer real property in violation of Section 407 (a) of the
Act.
(b) Shall not permit the plan to hold any employer security or employer
real property if it knows or should know that holding such security or
real property violates Section 407 (a) of the Act,
(C) Shall not deal with the assets of the plan in its own interest or for
its own account,
(d) Shall not in any capacity act in any transaction involving the plan on
behalf of a party (or represent a party) whose interests are adverse
to the interests of the plan or the interests of its participants or
beneficiaries, and
(e) Shall not receive any consideration for its own account from any party
dealing with the Plan in connection with a transaction involving the
assets of the Plan; provided that nothing in this Section VIII shall
be construed to prohibit the payment to the Custodian of any fees
otherwise authorized under the terms of this Plan.
IX. STRATTON MANAGEMENT COMPANY
---------------------------
The Individual delegates to Stratton the following powers with respect to
the Plan: (a) to remove the Custodian and select a successor Custodian; and (b)
to amend this Plan as provided in Section VII hereof.
The powers herein delegated to Stratton shall be exercised by such officer
thereof as Stratton may designate from time to time, and shall be exercised only
when similarly exercised with respect to all other Individuals adopting the
Plan.
<PAGE>
- 7 -
Neither Stratton or its investment adviser, nor any officer, director,
board committee employee or member of the Funds or the adviser shall have any
responsibility with regard to the administration of the Plan except as provided
in this Section IX or the Plan, and none of them shall incur any liability of
any nature to the Individual or beneficiary or other person in connection with
any act done or omitted to be done in good faith in the exercise of any power or
authority herein delegated to Stratton.
The Individual agrees to indemnify and hold Stratton harmless from and
against any and all liabilities and expenses, including attorney's and
accountant's fees, incurred in connection with the exercise of, or omission to
exercise, any of the powers delegated to it under this Section, except such
liabilities and expenses as may arise from Stratton's willful misconduct.
If Stratton shall hereafter determine that it is no longer desirable for it
to continue to exercise any of the powers hereby delegated to it, it may relieve
itself of any further responsibilities hereunder by notice in writing to the
Individual at least sixty days prior to the date on which it proposes to
discontinue the exercise of the powers delegated to it.
STRATTON MANAGEMENT COMPANY
BY:____________________
(President)
CUSTODIAN:
SEMPER TRUST COMPANY
Fund/Plan Services, Inc., Plan Administrator
BY:____________________
<PAGE>
STRATTON MANAGEMENT COMPANY
403 (B)(7) RETIREMENT PLAN
APPLICATION
I. REGISTRATION OF SHARES
I have received a copy of the current prospectus of the Fund or Funds
selected below, and of the Plan Document of the 403 (b) (7) Retirement
Plan, the provisions of which shall be governed by the law of the State of
Pennsylvania.
Name: _________________________________________________________________
Address: _________________________________________________________________
_________________________________________________________________
Social Security Number*______________________Date of Birth________________
Telephone Number: Residence_________________Business______________________
Name of Employer:_________________________________________________________
Address of Employer:______________________________________________________
_____________________________________________________________________
II. CONTRIBUTIONS
Contributions under the Plan by my Employer may be invested in one or more
of the Funds advised by Stratton Management Company. Indicate the initial
dollar amount of investment being made and check the Fund(s) whose shares
you wish to acquire:
Stratton Growth Fund, Inc. $______________
Stratton Monthly Dividend Shares, Inc. $______________
Stratton Small-Cap Yield Fund $______________
Subsequent contributions in the amount of $________________ each will be
made, until further notice in each Fund indicated above.
Check One: Weekly _____ Monthly _____ Annually____
Bi-weekly____ Quarterly ___ Other _____
I previously participated in a plan, meeting the requirements of Section
403 (b) of the Internal Revenue Code, entitled: (If none, so indicate)
________________________________________________________
(Name of previous plan)
with _______________________as Trustee or Custodian, and hereby ELECT to
transfer the assets of said plan to this Plan, in the amount of
$__________________.
<PAGE>
STRATTON MANAGEMENT COMPANY
DESIGNATION OF BENEFICIARY
For:______________________ Name of Fund(s):________________________
(type of plan)
I, the undersigned, having adopted the foregoing Plan, hereby designate the
following persons as my beneficiary and contingent beneficiary under the Plan:
PRIMARY BENEFICIARY:
_________________________________________________________
(name in full)
___________________________________________________________________
(address)
___________________________________________________________________
_______ _________________________ ___________________________
(age) (relationship) (social security number)
Note: If beneficiar(y)(ies) other than spouse is designated, consent of spouse
must be obtained:
________________________________ Date_____________________
(signature of spouse)
CONTINGENT BENEFICIARY:
If my primary beneficiary fails to survive me, then I designate the following
person as my beneficiary:
_________________________________________________________
(name in full)
___________________________________________________________________
(address)
___________________________________________________________________
_______ _________________________ ___________________________
(age) (relationship) (social security number)
__________________________________
(signature of Plan participant)
__________________________________
Dated:_____________ __________________________________
(address)
IMPORTANT NOTICES:
1. You and your spouse may change your beneficiaries at any time by simply
filling out another of these forms and submitting it to the Plan Custodian.
Additional copies are available upon request from the Fund.
2. Be sure to use your full name as it appears on the Account Application when
you sign this form.
<PAGE>
STRATTON MANAGEMENT COMPANY
---------------------------
403 (b) (7) RETIREMENT PLAN
---------------------------
SALARY REDUCTION AGREEMENT
--------------------------
AGREEMENT made this _________ day of ___________________, 19____, by and
between _________________________________________________, (the "Employer") and
_________________________________________________ (the "Employee") whereby the
Employer and Employee agrees as follows:
1. The monthly salary of the Employee will be reduced by $ _________________;
or by _________% (minimum of $ _______________ per month).
2. The amount of such reduction shall be paid by the Employer to:
_________________________ (name of Fund selected), Semper Trust Company c/f
_________________________ (name of employer) under Section 403(b)7 of
Internal Revenue Code.
3. The foregoing arrangements shall be subject to the limitation provided
under Section 415 of the Internal Revenue Code as added by the Employee
Retirement Income Security Act of 1974 as well as the limitations of
Section 403 of the Code.
4. This Salary Reduction Agreement is legally binding and irrevocable with
respect to all amounts earned by the Employee while this Agreement is in
effect, provided, however, that the Employee may terminate the entire
Agreement with respect to amounts not earned at the time of termination. It
is further understood and agreed that the Employee will not be permitted to
make more than one Salary Reduction Agreement or vary the amount of the
reduction during any one taxable year of the Employee.
EXECUTED as of the date first written above.
_____________________________
(Employer)
___________________ BY: _________________________
(Employee)
_____________________________
(Title)
<PAGE>
EXCLUSION ALLOWANCE WORKSHEET
-----------------------------
The following method for determining the amount which may be contributed to a
403 (b) (7) Plan is based upon the basic provisions of Sections 403 (b) and 415
of the Internal Revenue Code. It is not feasible to portray all of the possible
variations which may arise from the application of these sections to particular
situations. Accordingly, this form should not be relied upon as a substitute
for advice from competent tax advisers.
A. PRIMARY METHOD
<TABLE>
<CAPTION>
Example 1 Example 2 Yours
--------- --------- -----
<S> <C> <C> <C>
1. Salary (before reduction)
expected from the institution
during the calendar year for
which the calculation is being
made. $ 18,000 $ 50,000 $ _______
2. Contributions by the insti-
tution under its retirement plan
during the current calendar year
(this figure should include all
annuity contributions paid by
your employer which will vest in
the year for which this calculation
is being made). $ 1,800 $ 5,000 $ _______
3. Total tax-deferred contri-
butions made by this institution
in prior years (i.e. the insti-
tution's regular contributions
and other vested employer contri-
butions and any amounts remitted
by the institution for you through
salary reduction). $ 10,200 $ 185,000 $ _______
4. Total of lines 1, 2 and 3 $ 30,000 $ 240,000 * $ _______
5. Enter service factor from
table on last page, based on
your years of service. .66667 .80000 _______
6. Multiply line 4 by line 5 $ 20,000 $ 192,000 $ _______
</TABLE>
* Do not include the figure on line 2 in this total if the institution's plan
is qualified under Section 401 of the Internal Revenue Code.
<PAGE>
<TABLE>
<S> <C> <C> <C>
7. Line 2 plus line 3 $ 12,000 * $ 190,000 * $ _______
8. Line 6 minus line 7 $ 8,000 $ 2,000 $ _______
9. 20% of line 1 $ 3,600 $ 10,000 $ _______
10. 80% of line 2 $ 1,440 $ 4,000 $ _______
11. Line 9 minus line 10 $ 2,160 $ 6,000 $ _______
12. $25,000 minus line 2 $ 23,200 $ 20,000 $ _______
13. Exclusion allowance is
----------------------
the smallest of line 8,
line 11 and line 12 $ 2,160 $ 2,000 $ _______
------- -------
</TABLE>
B. OPTIONAL METHOD FOR EMPLOYEE OF EDUCATIONAL INSTITUTION,
HOSPITAL, OR HOME HEALTH SERVICE AGENCY, AVAILABLE ONLY
IF OPTIONS C OR D HAVE BEEN EXERCISED.
<TABLE>
<S> <C> <C> <C>
14. 25% of line 1, plus $4,000 $ 8,500 $ 16,500 $ _______
15. Line 14 divided by 1.25 $ 6,800 $ 13,200 $ _______
16. Exclusion allowance is
-------------------
the smallest of line 8,
line 15 and $15,000 $ 6,800 $ 2,000 $ _______
------- -------
</TABLE>
C. OPTIONAL METHOD FOR EMPLOYEE OF EDUCATIONAL INSTITUTION,
HOSPITAL OR HOME HEALTH SERVICE AGENCY IN YEAR EMPLOYMENT
TERMINATES, AVAILABLE ONLY ONE TIME, AND IF OPTIONS B OR D
HAVE NEVER BEEN EXERCISED.
<TABLE>
<S> <C> <C> <C>
17. Line 4 $ 30,000 $ 240,000 $ _______
18. Service factor from table
on last page, unless your years
of service equal or exceed 10 years,
in which case enter .66667. .66667 .66667 _______
19. Line 17 multiplied by
line 18 $ 20,000 $ 160,000 $ _______
20. Line 2 plus line 3 $ 12,000 * $ 190,000 * $ _______
21. Subtract line 20 from line 19 $ 8,000 $ 0 $ _______
22. Exclusion allowance is the
smallest of line 21 and
$25,000 $ 8,000 $ 0 $ _______
------- -------
</TABLE>
* Do not include the figure on line 2 in the total if the institution's plan is
qualified under Section 401 of the Internal Revenue Code.
<PAGE>
D. OPTIONAL METHOD FOR EMPLOYEE OF EDUCATIONAL INSTITUTION,
HOSPITAL OR HOME HEALTH SERVICE AGENCY, AVAILABLE ONLY IF
OPTION B OR C HAVE NEVER BEEN EXERCISED.
<TABLE>
<S> <C> <C> <C>
23. Line 1 $ 18,000 $ 50,000 $ _______
24. 25% of line 1 $ 4,500 $ 12,500 $ _______
26. Exclusion allowance is
-------------------
the smaller of line 24
or $25,000 $ 4,500 $ 12,500 $ _______
------- -------
</TABLE>
Factor for Years of Service
Through End of Calendar Year
----------------------------
<TABLE>
<CAPTION>
Years Factor Years Factor Years Factor
- ----- ------ ----- ------ ----- ------
<S> <C> <C> <C> <C> <C>
1 .16667 11 .68750 21 .80769
2 .28571 12 .70588 22 .81481
3 .37500 13 .72222 23 .82143
4 .44444 14 .73684 24 .82759
5 .50000 15 .75000 25 .83333
6 .54545 16 .76190 26 .83871
7 .58333 17 .77273 27 .84375
8 .61538 18 .78261 28 .84848
9 .64286 19 .79167 29 .85294
10 .66667 20 .80000 30 .85714
</TABLE>
The formula for calculating a service factor is N , with N equal to
-----
N + 5
the total years of service through December 31 of the year for which the
calculation is being made. (After the first year of service, N must reflect
fractional years of service, e.g., for two and one half years of service N =
2.5.) This formula should be used where service is not in whole years or is
more than 30 years.
<PAGE>
STRATTON MUTUAL FUNDS - TELEPHONE EXCHANGE AUTHORIZATION FORM
- ---------------------
STRATTON GROWTH FUND, INC.
--------------------------
STRATTON MONTHLY DIVIDEND SHARES, INC.
--------------------------------------
STRATTON SMALL-CAP YIELD FUND
-----------------------------
The undersigned hereby authorizes Fund/Plan Services, Inc. (the "Transfer
Agent"), acting as the undersigned's attorney in fact, to surrender for
redemption any and all or part of the shares held for the undersigned's account
in any of the three funds listed above comprising the Stratton Mutual Funds
group, pursuant to any telephone request without a signature guarantee,
provided, however, that the proceeds of such redemptions are to be used to
purchase shares for the undersigned's account in the other fund(s) in the
Stratton Mutual Funds group. It is understood that such redemptions of shares
that are to be used to purchase shares in the other fund(s) in the Stratton
Mutual Funds group may be effected only by procedures described in the current
prospectus of the Fund(s) being redeemed. PLEASE NOTE: Shareholders who have
certificated shares in their possession, MUST surrender these shares to our
Transfer Agent, to be held on account in unissued form PRIOR to taking advantage
of this exchange privilege. When returning your certificates for this purpose
only, your signature(s) need NOT be guaranteed.
It is understood that this Authorization Form will continue in effect until the
Transfer Agent receives written notice of its cancellation from the undersigned.
This service may be discontinued or modified without notice. The undersigned
hereby authorizes the Transfer Agent to honor any telephone transfer believed by
the Transfer Agent to be genuine and agrees to be bound by the Transfer Agent's
records of such instructions. Furthermore, the undersigned and his assigns and
successors release and indemnify the Transfer Agent and the Funds in the
Stratton Mutual Funds group and their respective officers and employees from any
and all liability or losses for so acting. A current Prospectus of the Fund(s)
being purchased has been read in advance of purchase hereunder.
Telephone exchanges among the Stratton Mutual Funds can be made by calling the
Transfer Agent directly at (800)-441-6580. Please make a note of this phone
number for future use.
_________________________________ _______________________________________
(print investor's name) (signature of investor)
_________________________________ _______________________________________
(print joint investor's name) (signature of joint owner)
Account Number and Fund if an existing account:
__________________ _______________________________________
(account number) (fund)
__________________ _______________________________________
(account number) (fund)
__________________ _______________________________________
(account number) (fund)
Mail to: STRATTON MUTUAL FUNDS, C/O FUND/PLAN SERVICES, INC., P.O. BOX 874,
CONSHOHOCKEN, PA 19428
<PAGE>
STRATTON MANAGEMENT COMPANY
ACCOUNT TRANSFER INSTRUCTIONS
-----------------------------
To: ____________________________
____________________________
____________________________
(Employer)
Please discontinue payments to the 403 (b) annuity plan heretofore
established by you for me with:
_________________________________________
_________________________________________
(Existing Plan Description)
and direct the insurer to forward the cash-surrender or redemption value
thereof directly to:
SEMPER TRUST COMPANY
P. O. Box 874
Conshohocken, PA 19428
for my account.
Very truly yours,
_________________________
(Employee)
<PAGE>
To:
Sir/Madam:
You are currently acting as custodian for my 403(b)(7) plan.
It is my desire to change the vehicle of investment to the 403(b)(7) plan at
Stratton Management Company. Application has been made to transfer the account
to Semper Trust Company, and they have agreed to assume custodianship of the
plan, as per their attached letter.
You are hereby requested and authorized to:
1) liquidate my entire account in your custody,
2) Remit a check for the proceeds to Fund/Plan Services, Inc.,
fiduciary agent for Semper Trust Co.
403(b)(7) plan account # _____________________
name _________________________________________
3) Mail the check directly to Stratton Funds, c/o Fund/Plan
Services, P.O. Box 874, Conshohocken, PA 19428, Attn: 403(b)(7)
plan.
Following distribution of the proceeds of the above assets, you are relieved of
all responsibility as custodian for said account(s).
Very truly yours,
Date ______________ _________________________________
(signature)
Signature Guaranteed By:
______________________________
<PAGE>
BASIC DOCUMENT #01
<PAGE>
BASIC DOCUMENT #01
TABLE OF CONTENTS
Section Page
- ------- ----
ARTICLE 1
GENERAL
1.1 Purpose........................................................... 1
1.2 Trust............................................................. 1
ARTICLE 2
DEFINITIONS
2.1 Account........................................................... 1
2.2 Adoption Agreement................................................ 1
2.3 Affiliated Employers.............................................. 1
2.4 Beneficiary....................................................... 1
2.5 Break in Service.................................................. 1
2.6 Code.............................................................. 1
2.7 Compensation...................................................... 1
2.8 Custodian......................................................... 1
2.9 Determination Date................................................ 1
2.10 Early Retirement Date............................................. 2
2.11 Earned Income..................................................... 2
2.12 Effective Date.................................................... 2
2.13 Eligibility Computation Period.................................... 2
2.14 Employee.......................................................... 2
2.15 Employer.......................................................... 2
2.16 Employer Contributions............................................ 2
2.17 Entry Dates....................................................... 2
2.18 ERISA............................................................. 2
2.19 Hour of Service................................................... 2
2.20 Integration Level................................................. 3
2.21 Key Employee...................................................... 3
2.22 Leased Employee................................................... 3
2.23 Maximum Disparity Rate............................................ 4
2.24 Maximum Profit Sharing Disparity Rate............................. 4
2.25 Non-Key Employee.................................................. 4
2.26 Normal Retirement Age............................................. 4
2.27 Owner-Employee.................................................... 4
2.28 Participant....................................................... 4
2.29 Plan.............................................................. 4
2.30 Plan Administrator................................................ 4
2.31 Plan Year......................................................... 4
2.32 Self-Employed Individuals......................................... 4
2.33 Shares............................................................ 5
2.34 Sponsor........................................................... 5
2.35 Taxable Wage Base................................................. 5
2.36 Total and Permanent Disability.................................... 5
2.37 Trust............................................................. 5
2.38 Trust Agreement................................................... 5
2.39 Trustee........................................................... 5
2.40 Valuation Date.................................................... 5
2.41 Vesting Computation Period........................................ 5
2.42 Year of Service................................................... 5
i
<PAGE>
Section Page
- ------- ----
ARTICLE 3
ELIGIBILITY AND YEARS OF SERVICE
3.1 Eligibility Requirements.......................................... 5
3.2 Participation and Service Upon Reemployment....................... 5
3.3 Predecessor Employers............................................. 5
ARTICLE 4
CONTRIBUTIONS
4.1 Employer Contributions............................................ 6
4.2 Payment........................................................... 6
4.3 Nondeductible Voluntary Contributions by Participants............. 6
4.4 Rollovers......................................................... 6
4.5 Direct Transfers.................................................. 6
ARTICLE 5
ALLOCATIONS
5.1 Individual Accounts............................................... 7
5.2 Minimum Allocation................................................ 7
5.3 Allocation of Employer Contributions and Forfeitures.............. 8
5.4 Coordination of Social Security Integration....................... 8
5.5 Withdrawals and Distributions..................................... 8
5.6 Determination of Value of Trust Fund and of Net Earnings
or Losses......................................................... 8
5.7 Allocation of Net Earnings or Losses.............................. 9
5.8 Responsibilities of the Plan Administrator........................ 9
ARTICLE 6
LIMITATIONS ON ALLOCATIONS
6.1 Employers Who Do Not Maintain Other Qualified Plans............... 9
6.2 Employers Who Maintain Other Qualified Master
or Prototype Defined Contribution Plans........................... 10
6.3 Employers Who, In Addition to This Plan, Maintain Other
Qualified Plans Which are Defined Contribution Plans
Other Than Master or Prototype Plan............................... 10
6.4 Employers, Who In Addition To This Plan, Maintain A
Qualified Defined Benefit Plan.................................... 10
6.5 Definitions....................................................... 10
ARTICLE 7
TRUST FUND
7.1 Receipt of Contributions by Trustee............................... 12
7.2 Investment Responsibility......................................... 12
7.3 Investment Limitations............................................ 13
ARTICLE 8
VESTING
8.1 Nondeductible Voluntary Contributions and Earnings................ 13
8.2 Rollovers, Transfers and Earnings................................. 13
8.3 Employer Contributions and Earnings............................... 13
8.4 Amendments to Vesting Schedule.................................... 13
8.5 Determination of Years of Service................................. 14
8.6 Forfeiture of Nonvested Amounts................................... 14
8.7 Reinstatement of Benefit.......................................... 14
ii
<PAGE>
Section Page
- ------- ----
ARTICLE 9
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
9.1 General........................................................... 14
9.2 Qualified Joint and Survivor Annuity.............................. 14
9.3 Qualified Preretirement Survivor Annuity.......................... 14
9.4 Definitions....................................................... 14
9.5 Notice Requirements............................................... 15
9.6 Safe Harbor Rules................................................. 16
9.7 Transitional Rules................................................ 17
ARTICLE 10
DISTRIBUTION PROVISIONS
10.1 Vesting on Distribution Before Break in Service................... 17
10.2 Restrictions on Immediate Distributions........................... 18
10.3 Commencement of Benefits.......................................... 18
10.4 Early Retirement With Age and Service Requirement................. 19
10.5 Nontransferability of Annuities................................... 19
10.6 Conflicts With Annuity Contracts.................................. 19
ARTICLE 11
TIMING AND MODES OF DISTRIBUTION
11.1 General Rules..................................................... 19
11.2 Required Beginning Date........................................... 19
11.3 Limits on Distribution Periods.................................... 19
11.4 Determination of Amount to be Distributed Each Year............... 19
11.5 Death Distribution Provisions..................................... 20
11.6 Designation of Beneficiary........................................ 20
11.7 Definitions....................................................... 20
11.8 Transitional Rule................................................. 21
11.9 Optional Forms of Benefit......................................... 22
ARTICLE 12
WITHDRAWALS
12.1 Withdrawal of Nondeductible Voluntary Contributions............... 22
12.2 Hardship Withdrawals.............................................. 23
12.3 Manner of Making Withdrawals...................................... 23
12.4 Limitations on Withdrawals........................................ 23
ARTICLE 13
LOANS
13.1 General Provisions................................................ 23
13.2 Administration of Loan Program.................................... 24
13.3 Amount of Loan.................................................... 24
13.4 Manner of Making Loans............................................ 24
13.5 Terms of Loan..................................................... 24
13.6 Security for Loan................................................. 24
13.7 Segregated Investment............................................. 24
13.8 Repayment of Loan................................................. 24
13.9 Default on Loan................................................... 25
13.10 Unpaid Amounts.................................................... 25
iii
<PAGE>
Section Page
- ------- ----
ARTICLE 14
INSURANCE
14.1 Insurance......................................................... 25
14.2 Policies.......................................................... 25
14.3 Beneficiary....................................................... 25
14.4 Payment of Premiums............................................... 25
14.5 Limitation on Insurance Premiums.................................. 25
14.6 Insurance Company................................................. 26
14.7 Distribution of Policies.......................................... 26
14.8 Policy Features................................................... 26
14.9 Changed Conditions................................................ 27
14.10 Conflicts......................................................... 27
ARTICLE 15
ADMINISTRATION
15.1 Duties and Responsibilities of Fiduciaries; Allocation of
Fiduciary Responsibility.......................................... 27
15.2 Powers and Responsibilities of the Plan Administrator............. 27
15.3 Allocation of Duties and Responsibilities......................... 28
15.4 Appointment of the Plan Administrator............................. 28
15.5 Expenses.......................................................... 28
15.6 Liabilities....................................................... 28
15.7 Claims Procedure.................................................. 28
ARTICLE 16
AMENDMENT, TERMINATION AND MERGER
16.1 Sponsor's Power to Amend.......................................... 29
16.2 Amendment by Adopting Employer.................................... 29
16.3 Vesting Upon Plan Termination..................................... 29
16.4 Vesting Upon Complete Discontinuance of Contributions............. 29
16.5 Maintenance of Benefits Upon Merger............................... 29
16.6 Special Amendments................................................ 29
ARTICLE 17
MISCELLANEOUS
17.1 Exclusive Benefit of Participants and Beneficiaries............... 29
17.2 Nonguarantee of Employment........................................ 29
17.3 Rights to Trust Assets............................................ 30
17.4 Nonalienation of Benefits......................................... 30
17.5 Aggregation Rules................................................. 30
17.6 Failure of Qualification.......................................... 30
17.7 Applicable Law.................................................... 30
iv
<PAGE>
ARTICLE 1
GENERAL
1.1 Purpose. The Employer hereby establishes this Plan to provide
retirement, death and disability benefits for eligible employees and their
Beneficiaries. This Plan is a standardized prototype paired defined contribution
plan and is designed to permit adoption of profit sharing provisions, money
purchase pension provisions, or both. The provisions herein and the selections
made by the Employer by execution of the money purchase pension or profit
sharing Adoption Agreement or Agreements, shall constitute the Plan. It is
intended that the Plan and Trust qualify under sections 401 and 501 of the
Internal Revenue Code of 1986, as amended and that it comply with the provisions
of the Employee Retirement Income Security Act of 1974, as amended.
1.2 Trust. The Employer has simultaneously adopted a Trust to receive,
invest, and distribute funds in accordance with the Plan.
ARTICLE 2
DEFINITIONS
2.1 Account. The aggregate of the individual bookkeeping subaccounts
established for each Participant, as provided in section 5.1.
2.2 Adoption Agreement. The written agreement or agreements of the
Employer and the Trustee by which the Employer establishes this Plan and adopts
the Trust Agreement forming a part hereof, as the same may be amended from time
to time. The Adoption Agreement contains all the options that may be selected by
the Employer. The information set forth in the Adoption Agreement executed by
the Employer shall be deemed to be a part of this Plan as if set forth in full
herein.
2.3 Affiliated Employers. The Employer and any corporation which is a
member of a controlled group of corporations (as defined in section 414(b) of
the Code) which includes the Employer, any trade or business (whether or not
incorporated) which is under common control (as defined in section 414(c) of the
Code) with the Employer, or any service organization (whether or not
incorporated) which is a member of an affiliated service group (as defined in
sections 414(m) and (o) of the Code) which includes the Employer.
2.4 Beneficiary. The person or persons (natural or otherwise) designated
by a Participant in accordance with section 11.6 to receive any undistributed
amounts credited to the Participant's Account under the Plan at the time of the
Participant's death.
2.5 Break in Service. An Eligibility Computation Period or Vesting
Computation Period in which an Employee fails to complete more than five hundred
(500) Hours of Service.
2.6 Code. The Internal Revenue Code of 1986, as amended from time to
time, or any successor statute.
2.7 Compensation.
(a) Compensation will mean all of each Participant's W-2 earnings.
(b) For any self-employed individual covered under the Plan,
Compensation will mean Earned Income.
(c) Compensation shall include only that Compensation that is actually
paid to the Participant during the Plan Year.
(d) Notwithstanding the above, if elected by the Employer in the
Adoption Agreement, Compensation shall include any amount which is
contributed by the Employer pursuant to a salary reduction agreement and
which is not includable in the gross income of the Employee under sections
125, 402(a)(8), 402(h) or 403(b) of the Code. The effective date of this
subsection shall be elected by the Employer in the Adoption Agreement.
(e) The annual Compensation of each Participant taken into account
under the Plan for any year shall not exceed two hundred thousand dollars
($200,000), as adjusted by the Secretary at the same time and in the same
manner as under section 415(d) of the Code. In determining the Compensation
of a Participant for purposes of this limitation, the rules of section
414(q)(6) of the Code shall apply, except in applying such rules, the term
"family" shall include only the Spouse of the Participant and any lineal
descendants of the Participant who have not attained age nineteen (19)
before the close of the year. If, as a result of the application of such
rules, the adjusted two hundred thousand dollar ($200,000) limitation is
exceeded, then (except for purposes of determining the portion of
Compensation up to the Integration Level to the extent this Plan provides
for permitted disparity), the limitation shall be prorated among the
affected individuals in proportion to each such individual's Compensation
as determined under this section prior to the application of this
limitation.
(f) The effective date of this subsection shall be the first Plan Year
beginning on or after January 1, 1989.
2.8 Custodian. The custodian, if any, designated in the Adoption
Agreement.
2.9 Determination Date. With respect to any Plan Year subsequent to the
first Plan Year, the last day of the preceding Plan Year. For the first Plan
Year of the Plan, the last day of that Plan Year.
1
<PAGE>
2.10 Early Retirement Date. The first day of the month coincident with or
next following the date upon which the Participant satisfies the early
retirement age and service requirements in the Adoption Agreement; provided,
however, such requirements may not be less than age fifty-five (55), nor more
than fifteen (15) Years of Service.
2.11 Earned Income. The net earnings from self-employment in the trade or
business with respect to which the Plan is established, for which personal
services of the individual are a material income-producing factor. Net earnings
will be determined without regard to items not included in gross income and the
deductions allocable to such items. Net earnings are reduced by contributions
to a qualified plan to the extent deductible under section 404 of the Code. Net
earnings shall be determined with regard to the deduction allowed to the
Employer by section 164(f) of the Code for taxable years beginning after
December 31, 1989.
2.12 Effective Date. The first day of the first Plan Year for which the
Plan is effective as specified in the Adoption Agreement.
2.13 Eligibility Computation Period. For purposes of determining Years of
Service and Breaks in Service for eligibility to participate, the initial
Eligibility Computation Period shall be the twelve (12) consecutive month period
beginning with the day the Employee first performs an Hour of Service for the
Employer (employment commencement date). The succeeding twelve (12) consecutive
month periods commence with the first anniversary of the Employee's employment
commencement date.
2.14 Employee. Any person, including a Self-Employed Individual, who is
employed by the Employer maintaining the Plan or any other employer required to
be aggregated with such Employer under sections 414(b), (c), (m) or (o) of the
Code. The term "Employee" shall also include any Leased Employee deemed to be
an Employee of any Employer described above as provided in sections 414(n) or
(o) of the Code.
2.15 Employer. The corporation, proprietorship, partnership or other
organization that adopts the Plan by execution of an Adoption Agreement.
2.16 Employer Contributions. The contribution of the Employer to the Plan
and Trust as set forth in section 4.1 and the Adoption Agreement.
2.17 Entry Dates. The Effective Date shall be the first Entry Date.
Thereafter, the Entry Dates shall be the first day of each Plan Year and the
first day of the seventh month of each Plan Year.
2.18 ERISA. The Employee Retirement Income Security Act of 1974, as
amended.
2.19 Hour of Service.
(a) Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer. These hours shall be
credited to the Employee only for the computation period or periods in
which the duties are performed; and
(b) Each hour for which an Employee is paid, or entitled to payment,
by the Employer on account of a period of time during which no duties are
performed (irrespective of whether the employment relationship has
terminated) due to vacation, holiday, illness, incapacity (including
disability), layoff, jury duty, military duty, or leave of absence. No more
than five hundred one (501) Hours of Service shall be credited under this
paragraph to an Employee on account of any single, continuous period during
which the Employee performs no duties (whether or not such period occurs in
a single computation period). Hours under this paragraph will be calculated
and credited pursuant to section 2530.200b-2 of the Department of Labor
regulations which are incorporated herein by this reference.
(c) Each hour for which back pay, irrespective of mitigation of
damages, is either awarded or agreed to by the Employer. The same Hours of
Service shall not be credited both under paragraph (a) or paragraph (b), as
the case may be, and under this paragraph (c). These hours shall be
credited to the Employee for the computation period or periods to which the
award or agreement pertains rather than the computation period in which the
award, agreement, or payment is made.
(d) Solely for purposes of determining whether an Employee has a Break
in Service, Hours of Service shall also include an uncompensated authorized
leave of absence not in excess of two (2) years, or military leave while
the Employee's reemployment rights are protected by law or such additional
or other periods as granted by the Employer as military leave (credited on
the basis of forty (40) Hours of Service per each week or eight (8) Hours
of Service per working day), provided the Employee returns to employment at
the end of his leave of absence or within ninety (90) days of the end of
his military leave, whichever is applicable.
(e) Hours of Service will be credited for employment with other
members of an affiliated service group (under section 414(m)), a controlled
group of corporations (under section 414(b)), or a group of trades or
businesses under common control (under section 414(c)) of which the
adopting Employer is a member, and any other entity required to be
aggregated with the Employer pursuant to section 414(o) and the regulations
thereunder. Hours of Service will also be credited for any individual
considered an Employee for purposes of this Plan under section 414(n) or
section 414(o) and the regulations thereunder.
(f) Solely for purposes of determining whether an Employee has a Break
in Service, Hours of Service shall also include absence from work for
maternity or paternity reasons, if the absence begins on or after the first
day of the first Plan Year beginning after 1984. During this absence, the
Employee shall be credited with the Hours of Service which would have been
credited but for the absence, or, if such hours cannot be determined with
eight (8) hours per day. An absence from work for maternity or paternity
reasons means an absence:
2
<PAGE>
(i) by reason of the pregnancy of an Employee;
(ii) by reason of the birth of a child of the Employee;
(iii) by reason of the placement of a child with the Employee in
connection with adoption; or
(iv) for purposes of caring for such a child for a period
immediately following such birth or placement.
These Hours of Service shall be credited in the computation period following the
computation period in which the absence begins, except as necessary to prevent a
Break in Service in the computation period in which the absence begins. However,
no more than five hundred one (501) Hours of Service will be credited for
purposes of any such maternity or paternity absence from work.
(g) The Employer may elect to compute Hours of Service by the use of one of
the service equivalencies in the Adoption Agreement. Only one method may be
selected. If selected, the service equivalency must be applied to all Employees
covered under the Plan.
(h) If the Employer amends the method of crediting service from the elapsed
time method described in section 1.410(a)-7 of the Treasury regulations to the
Hours of Service computation method by the adoption of this Plan, or an Employee
transfers from a plan under which service is determined on the basis of elapsed
time, the following rules shall apply for purposes of determining the Employee's
service under this Plan up to the time of amendment or transfer:
(i) the Employee shall receive credit, as of the date of amendment or
transfer, for a number of Years of Service equal to the number of one (1)
year periods of service credited to the Employee as of the date of the
amendment or transfer; and
(ii) the Employee shall receive credit in the applicable computation
period which includes the date of amendment or transfer, for a number of
Hours of Service determined by applying the weekly service equivalency
specified in paragraph (g) to any fractional part of a year credited to the
Employee under this paragraph (h) as of the date of amendment or transfer.
The use of the weekly service equivalency shall apply to all Employees who
formerly were credited with service under the elapsed time method.
2.20 Integration Level. The Taxable Wage Base or such lesser amount elected by
the Employer in the Adoption Agreement.
2.21 Key Employee.
(a) Any Employee or former Employee (and the Beneficiaries of such
Employee) who at any time during the determination period was an officer of the
Employer if such individual's annual Compensation exceeds fifty percent (50%) of
the dollar limitation under section 415(b)(1)(A) of the Code; an owner (or
considered an owner under section 318 of the Code) of one of the ten (10)
largest interests in the Employer if such individual's Compensation exceeds one
hundred percent (100%) of the dollar limitation under section 415(c)(1)(A) of
the Code; a Five Percent (5%) Owner of the Employer; or a one percent (1%) owner
of the Employer who has annual Compensation of more than one hundred fifty
thousand dollars ($150,000).
(b) For purposes of this section, annual Compensation means compensation as
defined in section 415(c)(3) of the Code, but including amounts contributed by
the Employer pursuant to a salary reduction agreement which are excludable from
the Employee's gross income under sections 125, 402(a)(8), 402(h) or 403(b) of
the Code.
(c) For purposes of this section, determination period is the Plan Year
containing the Determination Date and the four (4) preceding Plan Years.
2.22 Leased Employee.
(a) Any person (other than an Employee of any of the Affiliated Employers)
who, pursuant to an agreement between any of the Affiliated Employers and any
other person ("leasing organization"), has performed service for any of the
Affiliated Employers (or for any of the Affiliated Employers and related persons
determined in accordance with section 414(n)(6) of the Code) on a substantially
full-time basis for a period of at least one (1) year and such services are of a
type historically performed by employees in the Affiliated Employer's business
field. Contributions or benefits provided a Leased Employee by the leasing
organization which are attributable to services performed for the Affiliated
Employer shall be treated as provided by the Affiliated Employer.
(b) A Leased Employee shall not be considered an Employee of an Affiliated
Employer if:
(i) such employee is covered by a money purchase pension plan
providing:
(1) a nonintegrated employer contribution rate of at least ten
percent (10%) of compensation (as defined in section 415(c)(3) of the
Code), but including amounts contributed pursuant to a salary
reduction agreement which are excludable from the employee's gross
income under sections 125, 402(a)(8), 402(h) or 403(b) of the Code;
(2) immediate participation; and
(3) full and immediate vesting.
and
3
<PAGE>
(ii) Leased Employees do not constitute more than twenty percent (20%)
of the Affiliated Employer's non-Highly-Compensated workforce.
(c) The determination of whether a person is a Leased Employee will be made
pursuant to section 414(n) of the Code.
2.23 Maximum Disparity Rate. The lesser of:
(a) five and seven-tenths percent (5.7%);
(b) the applicable percentage determined in accordance with the table
below:
<TABLE>
<CAPTION>
If the Integration Level is
The Applicable
More Than But Not More Than Percentage Is:
--------- ----------------- --------------
<S> <C> <C>
$0 X */ 5.7%
X of TWB 80% of TWB 4.3%
80% of TWB Y **/ 5.4%
</TABLE>
*/ X = the greater of $10,000 or 20% of the Taxable Wage Base.
**/ Y = any amount more than 80% of the Taxable Wage Base but less than 100% of
the Taxable Wage Base.
"TWB" means the Taxable Wage Base.
If the Integration Level used is equal to the Taxable Wage Base, the applicable
percentage is five and seven-tenths percent (5.7%).
2.24 Maximum Profit Sharing Disparity Rate. The lesser of:
(a) two and seven-tenths percent (2.7%);
(b) the applicable percentage determined in accordance with the table
below:
If the Integration Level is
<TABLE>
<CAPTION>
The Applicable
More Than But Not More Than Percentage Is:
--------- ----------------- --------------
<S> <C> <C>
$0 X */ 2.7%
X of TWB 80% of TWB 1.3%
80% of TWB Y **/ 2.4%
</TABLE>
*/ X = the greater of $10,000 or 20% of the Taxable Wage Base.
- -
**/ Y = any amount more than 80% of the Taxable Wage Base but less than 100% of
the Taxable Wage Base.
"TWB" means the Taxable Wage Base.
If the Integration Level used is equal to the Taxable Wage Base, the applicable
percentage is two and seven-tenths percent (2.7%).
2.25 Non-Key Employee. Any Employee or former Employee who is not a Key
Employee. In addition, any Beneficiary of a Non-Key Employee shall be treated
as a Non-Key Employee.
2.26 Normal Retirement Age. The age selected in the Adoption Agreement,
but not less than age fifty-five (55). If the Employer enforces a mandatory
retirement age, the Normal Retirement Age is the lesser of that mandatory age or
the age specified in the Adoption Agreement.
2.27 Owner-Employee. An individual who is a sole proprietor, or who is a
partner owning more than ten percent (10%) of either the capital or profits
interest of a partnership.
2.28 Participant. A person who has met the eligibility requirements of
section 3.1 and whose Account hereunder has been neither completely forfeited
nor completely distributed.
2.29 Plan. The prototype paired defined contribution profit sharing and
money purchase pension plan provided under this basic plan document. References
to the Plan shall refer to the profit sharing provisions, the money purchase
pension provisions, or both, as the context may require.
2.30 Plan Administrator. The person, persons or entity appointed by the
Employer pursuant to ARTICLE 15 to manage and administer the Plan.
2.31 Plan Year. The twelve (12) consecutive month period designated by the
Employer in the Adoption Agreement.
2.32 Self-Employed Individual. An individual who has Earned Income for the
taxable year from the trade or business for which the Plan is established, or an
individual who would have had Earned Income for the taxable year but for the
fact that the trade or business had no net profits for the taxable year.
4
<PAGE>
2.33 Shares. Shares of stock in any regulated investment company
registered under the Investment Company Act of 1940 that are made available for
investment purposes as an investment option under this Plan.
2.34 Sponsor. The sponsor designated in the Adoption Agreement which has
made this Plan available to the Employer.
2.35 Taxable Wage Base. The maximum amount of earnings which may be
considered wages for a year under section 3121(a)(1) of the Code in effect as of
the beginning of the Plan Year.
2.36 Total and Permanent Disability. The inability of the Participant to
engage in any substantial gainful activity by reason of any medically
determinable physical or mental impairment, which condition, in the opinion of a
physician chosen by the Plan Administrator, can be expected to result in death
or which has lasted or can be expected to last for a continuous period of not
less than twelve (12) months.
2.37 Trust. The fund maintained by the Trustee for the investment of Plan
assets in accordance with the terms and conditions of the Trust Agreement.
2.38 Trust Agreement. The agreement between the Employer and the Trustee
under which the assets of the Plan are held, administered, and managed. The
provisions of the Trust Agreement shall be considered an integral part of this
Plan as if set forth fully herein.
2.39 Trustee. The individual or corporate Trustee or Trustees under the
Trust Agreement as they may be constituted from time to time.
2.40 Valuation Date. The last day of each Plan Year and such other dates
as may be determined by the Plan Administrator, as provided in section 5.6 for
valuing the Trust assets.
2.41 Vesting Computation Period. The Plan Year.
2.42 Year of Service. An Eligibility Computation Period, Vesting
Computation Period, or Plan Year, whichever is applicable, during which an
Employee has completed at least one thousand (1,000) Hours of Service (whether
or not continuous). The Employer may, in the Adoption Agreement, specify a
fewer number of hours.
ARTICLE 3
ELIGIBILITY AND YEARS OF SERVICE
3.1 Eligibility Requirements.
(a) Each Employee of the Affiliated Employers shall become a
Participant in the Plan as of the first Entry Date after the date on which
the Employee has satisfied the minimum age and service requirements
specified in the Adoption Agreement.
(b) The Employer may elect in the Adoption Agreement to exclude from
participation:
(i) Employees included in a unit of employees covered by a
collective bargaining agreement between the Employer and Employee
representatives, if retirement benefits were the subject of good faith
bargaining. For this purpose, the term "Employee representatives"
does not include any organization more than half of whose members are
Employees who are owners, officers, or executives of the Employer; and
(ii) nonresident aliens who receive no earned income from the
Employer which constitutes income from sources within the United
States.
3.2 Participation and Service Upon Reemployment. Upon the reemployment of
any Employee, the following rules shall determine his eligibility to participate
in the Plan and his credit for prior service.
(a) Participation. If the reemployed Employee was a Participant in
the Plan during his prior period of employment, he shall be eligible upon
reemployment to resume participation in the Plan. If the reemployed
Employee was not a Participant in the Plan, he shall be considered a new
Employee and required to meet the requirements of section 3.1 in order to
be eligible to participate in the Plan, subject to the reinstatement of
credit for prior service under paragraph (b) below.
(b) Credit for Prior Service. In the case of any Employee who is
reemployed before or after incurring a Break in Service, any Hour of
Service and Year of Service credited to the Employee at the end of his
prior period of employment shall be reinstated as of the date of his
reemployment.
3.3 Predecessor Employers. If specified in the Adoption Agreement, Years
of Service with a predecessor employer will be treated as service for the
Employer for eligibility purposes; provided, however, if the Employer maintains
the plan of a predecessor employer, Years of Service with such employer will be
treated as service with the Employer without regard to any election.
5
<PAGE>
ARTICLE 4
CONTRIBUTIONS
4.1 Employer Contributions.
(a) Money Purchase Pension Contributions. For each Plan Year, the
Employer shall contribute to the Trust an amount equal to such uniform
percentage of Compensation of each eligible Participant as may be
determined by the Employer in accordance with the money purchase pension
contribution formula specified in the Adoption Agreement. Subject to the
limitations of section 5.4, the money purchase pension contribution formula
may be integrated with Social Security, as set forth in the Adoption
Agreement.
(b) Profit Sharing Contribution. For each Plan Year, the Employer
shall contribute to the Trust an amount as may be determined by the
Employer in accordance with the profit sharing formula set forth in the
Adoption Agreement.
(c) Eligible Participants. Subject to the Minimum Allocation rules of
section 5.2 and the exclusions specified in this section, each Participant
shall be eligible to share in the Employer Contribution. An Employer may
elect in the Adoption Agreement that Participants who terminate employment
during the Plan Year with not more than five hundred (500) Hours of Service
and who are not Employees as of the last day of the Plan Year (other than
Participants who die, retire or become totally and Permanently Disabled
during the Plan Year) shall not be eligible to share in the Employer
Contribution. An Employer may further elect in the Adoption Agreement to
allocate a contribution on behalf of a Participant who completes fewer than
five hundred (500) Hours of Service and is otherwise ineligible to share in
the Employer Contribution. If the Employer fails to specify in the Adoption
Agreement the number of Hours of Service required to share in the Employer
Contribution, the number shall be five hundred (500) Hours of Service.
(d) Contribution Limitation. In no event shall any Employer
Contribution exceed the maximum amount deductible from the Employer's
income under section 404 of the Code, or the maximum limitations under
section 415 of the Code provided in ARTICLE 6.
4.2 Payment. All Employer Contributions to the Trust for any Plan Year
shall be made either in one lump-sum or in installments in U.S. currency, by
check, or in Shares within the time prescribed by law, including extensions
granted by the Internal Revenue Service, for filing the Employer's federal
income tax return for the taxable year with or within which such Plan Year ends.
All Employer Contributions to the Trust for a money purchase pension plan for
any Plan Year shall be made within the time prescribed by regulations under
section 412(c)(10) of the Code.
4.3 Nondeductible Voluntary Contributions by Participants.
(a) This Plan will not accept nondeductible Employee contributions for
Plan Years beginning after the Plan Year in which this Plan is adopted by
the Employer. Employee contributions made with respect to Plan years
beginning after December 31, 1986 will be limited so as to meet the
nondiscrimination test of section 401(m).
(b) A separate account shall be maintained by the Trustee for the
nondeductible Employee contributions of each Participant.
(c) Employee contributions and earnings thereon shall be fully vested
and nonforfeitable at all times.
(d) The provisions of this section shall apply to Employee
contributions made prior to the first Plan Year after the Plan Year in
which the Employer adopts this Plan.
4.4 Rollovers.
(a) Subject to the approval of the Plan Administrator, a participant
who has participated in any other qualified plan described in section
401(a) of the Code or in a qualified annuity plan described in section
403(a) of the Code shall be permitted to make a rollover contribution in
the form of cash to the Trustee of an amount received by the Participant
that is attributable to participation in such other plan (reduced by any
nondeductible voluntary contributions he made to the plan), provided that
the rollover contribution complies with all requirements of sections
402(a)(5) or 403(a)(4) of the Code, whichever is applicable.
(b) Before approving such a Participant rollover, the Plan
Administrator may request from the Participant or the Employer any
documents which the Plan Administrator, in its discretion, deems necessary
for such rollover.
(c) Any rollover contribution to the Trust shall be credited to the
Participant's rollover subaccount established under section 5.1 and
separately accounted for.
4.5 Direct Transfers.
(a) The Plan shall accept a transfer of assets directly from another
plan qualified under sections 401(a) or 403(a) of the Code only if the Plan
Administrator, in its sole discretion, agrees to accept such a transfer. In
determining whether to accept such a transfer the Plan Administrator shall
consider the administrative inconvenience engendered by such a transfer and
any risks to the continued qualification of the Plan under section 401(a)
of the Code. Acceptance of any such transfer shall not preclude the Plan
Administrator from refusing any subsequent such transfers.
6
<PAGE>
(b) Any transfer of assets accepted under this section shall be
credited to the Participant's direct transfer subaccount and shall be
separately accounted for at all times and shall remain subject to the
provisions of the transferor plan (as it existed at the time of such
transfer) to the extent required by section 411(d)(6) of the Code
(including, but not limited to, any rights to Qualified Joint and Survivor
Annuities and qualified preretirement survivor annuities) as if such
provisions were part of the Plan. In all other respects, however, such
transferred assets will be subject to the provisions of the Plan.
(c) Assets accepted under this section shall be fully vested and
nonforfeitable.
(d) Before approving such a direct transfer, the Plan Administrator
may request from the Participant or the Employer (or the prior employer)
any documents the Plan Administrator, in its discretion, deems necessary
for such direct transfer.
ARTICLE 5
ALLOCATIONS
5.1 Individual Accounts. The Plan Administrator shall establish and
maintain an Account in the name of each Participant. The Account shall contain
the following subaccounts:
(a) A money purchase pension contribution subaccount to which shall be
credited each such Participant's share of (i) Employer Contributions under
section 4.1(a); (ii) the net earnings or net losses on the investment of
the assets of the Trust; (iii) distributions; and (iv) dividends, capital
gain distributions and other earnings received on any Shares credited to
the Participant's subaccount;
(b) A profit sharing contribution subaccount to which shall be
credited each such Participant's share of (i) Employer Contributions under
section 4.1(b); (ii) forfeitures; (iii) the net earnings or net losses on
the investment of the assets of the trust; (iv) distributions; and (v)
dividends, capital gain distributions and other earnings received on any
Shares credited to the Participant's subaccount;
(c) A nondeductible voluntary contribution subaccount to which shall
be credited (i) nondeductible voluntary contributions by the Participant
under section 4.3; (ii) the net earnings or net losses on the investment of
the assets of the Trust; (iii) distributions; and (iv) dividends, capital
gain distributions and other earnings received on any Shares credited to
the Participant's subaccount;
(d) A direct transfer subaccount to which shall be credited (i)
contributions to the Trust accepted under section 4.5(a); (ii) the net
earnings or net losses on the investment of the assets of the Trust; (iii)
distributions; and (iv) dividends, capital gain distributions and other
earnings received on any Shares credited to the Participant's subaccount;
(e) A rollover subaccount to which shall be credited (i) contributions
to the Trust accepted under section 4.4(a); (ii) the net earnings or net
losses on the investment of the assets of the Trust; (iii) distributions;
and (iv) dividends, capital gain distributions and other earnings received
on any Shares credited to the Participant's subaccount.
5.2 Minimum Allocation.
(a) Except as otherwise provided in this section, the Employer
Contributions and forfeitures allocated on behalf of any Participant who is
not a Key Employee shall not be less than the lesser of three percent (3%)
of such Participant's Compensation or in the case where the Employer has no
defined benefit plan which designates this Plan to satisfy section 401 of
the Code, the largest percentage of Employer Contributions and forfeitures,
as a percentage of the first two hundred thousand dollars ($200,000) of the
Key Employee's Compensation, allocated on behalf of any Key Employee for
that year. The minimum allocation is determined without regard to any
Social Security contribution. This minimum allocation shall be made even
though, under other Plan provisions, the Participant would not otherwise be
entitled to receive an allocation, or would have received a lesser
allocation for the year because of (i) the Participant's failure to
complete one thousand (1,000) Hours of Service (or any equivalent provided
in the Plan); or (ii) the Participant's failure to make mandatory Employee
contributions to the Plan; or (iii) Compensation less than a stated amount.
For purposes of this subsection, all defined contribution plans required to
be included in an aggregation group under section 416(g)(2)(A)(i) shall be
treated as a single plan.
(b) For purposes of computing the minimum allocation, Compensation
shall mean Compensation as defined in section 6.5(b) of the Plan.
(c) The provision in subsection (a) above shall not apply to any
Participant who was not employed by the Employer on the last day of the
Plan Year.
(d) The provision in subsection (a) above shall not apply to any
Participant to the extent the Participant is covered under any other plan
or plans of the Employer and the Employer has provided in the Adoption
Agreement that the minimum allocation or benefit requirement applicable to
topheavy plans will be met in the other plan or plans.
(e) The minimum allocation required (to the extent required to be
nonforfeitable under section 416(b)) may not be forfeited under section
411(a)(3)(B) or 411(a)(3)(D).
7
<PAGE>
5.3 Allocation of Employer Contributions and Forfeitures.
(a) All money purchase pension contributions for a given Plan Year
shall be allocated to the Account of the Participant for whom such
contribution was made. Any forfeiture from a Participant's money purchase
pension contribution subaccount arising under the Plan for a given Plan
Year shall be applied as specified in the Adoption Agreement, either: (i)
to reduce the Employer Contribution in that year, or if in excess of the
Employer Contribution for such Plan Year, the excess amounts shall be used
to reduce the Employer Contribution in the next succeeding Plan Year or
Years or (ii) to be added to the Employer Contributions and allocated
accordingly.
(b) All profit sharing contributions and forfeitures from a
Participant's profit sharing contribution subaccount will be allocated to
the Account of each Participant in the ratio that such Participant's
Compensation bears to the Compensation of all Participants. However, if the
profit sharing contribution formula selected in the Adoption Agreement is
integrated with Social Security, profit sharing contributions for the Plan
Year plus any forfeitures will be allocated to Participants' Accounts as
follows:
(i) Step One. Contributions and forfeitures will be allocated to
each Participant's Account in the ratio that each Participant's total
Compensation bears to all Participants' total Compensation, but not in
excess of three percent (3%) of each Participant's Compensation. (Step
One is not applicable if the Employer enters into the money purchase
pension Adoption Agreement).
(ii) Step Two. Any contributions and forfeitures remaining after
the allocation in Step One (if any) will be allocated to each
Participant's Account in the ratio that each Participant's
Compensation for the Plan Year in excess of the Integration Level
bears to the excess Compensation of all Participants, but not in
excess of three percent (3%). (Step Two is not applicable if the
Employer enters into the money purchase pension Adoption Agreement).
(iii) Step Three. Any contributions and forfeitures remaining
after the allocation in Step Two (if any) will be allocated to each
Participant's Account in the ratio that the sum of each Participant's
total Compensation and Compensation in excess of the Integration Level
bears to the sum of all Participants' total Compensation and
Compensation in excess of the Integration Level, but not in excess of
whichever of the following is applicable:
(i) if the Employer has not adopted the money purchase pension
Adoption Agreement, then the Maximum Profit Sharing Disparity Rate; or
(ii) If the Employer has adopted the money purchase pension
Adoption Agreement, then the lesser of:
(1) the percentage of each Participant's Compensation for
the Plan Year up to the Integration Level determined by dividing
the allocation by such Compensation (the base contribution
percentage); or
(2) the Maximum Disparity Rate.
(iv) Step Four. Any remaining contributions or forfeitures will
be allocated to each Participant's Account in the ratio that each
Participant's total Compensation for the Plan Year bears to all
Participants' total Compensation for that year.
(c) Notwithstanding anything in (a) or (b) above to the contrary,
forfeitures arising under a Participant's money purchase pension
contribution subaccount will only be used to reduce the contributions of
the Participant's Employer who adopted this Plan, and forfeitures arising
under a Participant's profit sharing contribution subaccount will be
reallocated only for the benefit of Employees of the Participant's Employer
who adopted this Plan.
5.4 Coordination of Social Security Integration. If the Employer
maintains plans involving integration with Social Security other than this Plan,
and if any Participant is eligible to participate in more than one of such
plans, all such plans will be considered to be integrated if the extent of the
integration of all such plans does not exceed one hundred percent (100%). For
purposes of the preceding sentence, the extent of integration of a plan is the
ratio (expressed as a percentage) which the actual benefits, benefit rate,
offset rate, or Employer Contribution rate under the plan bears to the
integration limitation applicable to such plan. If the Employer enters into
both the money purchase pension Adoption Agreement and the profit sharing
Adoption Agreement under this Plan, integration with Social Security may only be
selected in one Adoption Agreement.
5.5 Withdrawals and Distributions. Any distribution to a Participant or
his Beneficiary, any amount transferred from a Participant's Account directly to
the Trustee of any other qualified plan described in section 401(a) of the Code
or to a qualified annuity plan described in section 403(a) of the Code, or any
withdrawal by a Participant shall be charged to the appropriate subaccount(s) of
the Participant as of the date of the distribution or the withdrawal.
5.6 Determination of Value of Trust Fund and of Net Earnings or Losses.
As of each Valuation Date the Trustee shall determine for the period then ended
the sum of the net earnings or losses of the Trust (excluding with respect to
Shares and other assets specifically allocated to a
specific Participant's subaccount, (i) dividends and capital gain distributions
from Shares, (ii) receipts or income attributable to insurance policies, (iii)
income gains and/or losses attributable to a Participant's loans made pursuant
to ARTICLE 13 or to any other assets) which shall reflect accrued but unpaid
interest, dividends, gains, or losses realized from the sale, exchange or
collection of assets, other income received, appreciation in the fair market
value of assets, depreciation in the fair market value of
8
<PAGE>
assets, administration expenses, and taxes and other expenses paid. Gains or
losses realized and adjustments for appreciation or depreciation in fair market
value shall be computed with respect to the difference between such value as of
the preceding Valuation Date or date of purchase, whichever is applicable, and
the value as of the date of disposition or the current Valuation Date, whichever
is applicable.
5.7 Allocation of Net Earnings or Losses.
(a) As of each Valuation Date the net earnings or losses of the Trust
(excluding with respect to Shares and other assets specifically allocated
to a specific Participant's subaccount, (i) dividends and capital gain
distributions from Shares, (ii) dividends or credits attributable to
insurance policies, (iii) income gains and/or losses attributable to a
Participant's loans made pursuant to ARTICLE 13 or to any other assets, all
of which shall be allocated to such Participant's subaccount) for the
valuation period then ending shall be allocated to the Accounts of all
Participants (or Beneficiaries) having credits in the fund both on such
date and at the beginning of such valuation period. Such allocation shall
be made by the application of a fraction, the numerator of which is the
value of the Account of a specific Participant (or Beneficiary) as of the
immediately preceding Valuation Date, reduced by any distributions
therefrom since such preceding Valuation Date, and the denominator of which
is the total value of all such Accounts as of the preceding Valuation Date,
reduced by any distributions therefrom since such preceding Valuation Date.
(b) To the extent that Shares and other assets are specifically
allocated to a specific Participant's subaccount: (i) dividends and capital
gain distributions from Shares; (ii) dividends or credits attributable to
insurance policies; and (iii) income gains and/or losses attributable to a
Participant's loans made pursuant to ARTICLE 13 or to any other assets, all
shall be allocated to such Participant's subaccount.
5.8 Responsibilities of the Plan Administrator. The Plan Administrator
shall maintain accurate records with respect to the contributions made by or on
behalf of Participants under the Plan, and shall furnish the Trustee with
written instructions directing the Trustee to allocate all Plan contributions to
the Trust among the separate Accounts of Participants in accordance with section
5.1 above. In making any such allocation, the Trustee shall be fully entitled
to rely on the instructions furnished by the Plan Administrator, and shall be
under no duty to make any inquiry or investigation with respect thereto.
ARTICLE 6
LIMITATIONS ON ALLOCATIONS
6.1 Employers Who Do Not Maintain Other Qualified Plans.
===================================================
(a) If the Participant does not participate in, and has never
participated in another qualified plan or a welfare benefit fund, as
defined in section 419(e) of the Code, maintained by the Employer, or an
individual medical account, as defined in section 415(l)(2) of the Code,
maintained by the Employer, which provides an Annual Addition as defined in
section 6.5(a), the amount of Annual Additions that may be credited to the
Participant's Account for any Limitation Year will not exceed the lesser of
the Maximum Permissible Amount or any other limitation contained in this
Plan. If the Employer Contribution that would otherwise be contributed or
allocated to the Participant's Account would cause the Annual Additions for
the Limitation Year to exceed the Maximum Permissible Amount, the amount
contributed or allocated will be reduced so that the Annual Additions for
the Limitation Year will equal the Maximum Permissible Amount.
(b) Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount
for a Participant on the basis of a reasonable estimation of the
Participant's Compensation for the Limitation Year, uniformly determined
for all Participants similarly situated.
(c) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation Year
will be determined on the basis of the Participant's actual Compensation
for the Limitation Year.
(d) If, pursuant to subsection (c) or as a result of the allocation of
forfeitures, there is an Excess Amount the excess will be disposed of as
follows:
(i) Any nondeductible voluntary Employee contributions, to the
extent they would reduce the Excess Amount, will be returned to the
Participant;
(ii) If after the application of paragraph (i) an Excess Amount
still exists, and the Participant is covered by the Plan at the end of
the Limitation Year, the Excess Amount in the Participant's Account
will be used to reduce Employer Contributions (including any
allocation of forfeitures) for such Participant in the next Limitation
Year, and each succeeding Limitation Year if necessary;
(iii) If after the application of paragraph (i) an Excess Amount
still exists, and the Participant is not covered by the Plan at the
end of the Limitation Year, the Excess Amount will be held unallocated
in a suspense account. The suspense account will be applied to reduce
future Employer Contributions (including allocation of any
forfeitures) for all remaining Participants in the next Limitation
Year, and each succeeding Limitation Year if necessary;
9
<PAGE>
(iv) If a suspense account is in existence at any time during the
Limitation Year pursuant to this section, it will not participate in
the allocation of the Trust's investment gains and losses. If a
suspense account is in existence at any time during a particular
Limitation Year, all amounts in the suspense account must be allocated
and reallocated to Participants' Accounts before any Employer or any
Employee contributions may be made to the Plan for that Limitation
Year. Excess amounts may not be distributed to Participants or former
Participants.
6.2 Employers Who Maintain Other Qualified Master or Prototype Defined
Contribution Plans.
(a) This section applies if, in addition to this Plan, the Participant
is covered under another qualified master or prototype defined contribution
plan maintained by the Employer, a welfare benefit fund, as defined in
section 419(e) of the Code maintained by the Employer or an individual
medical account, as defined in section 415(l)(2) of the Code, maintained by
the Employer which provides an Annual Addition as defined in section
6.5(a), during any Limitation Year. The Annual Additions that may be
credited to a Participant's Account under this Plan for any such Limitation
Year will not exceed the Maximum Permissible Amount reduced by the Annual
Additions credited to a Participant's Account under the other plans and
welfare benefit funds for the same Limitation Year. If the Annual Additions
with respect to the Participant under other defined contribution plans and
welfare benefit funds maintained by the Employer are less than the Maximum
Permissible Amount and the Employer Contribution that would otherwise be
contributed or allocated to the Participant's Account under this Plan would
cause the Annual Additions for the Limitation Year to exceed this
limitation, the amount contributed or allocated will be reduced so that the
Annual Additions under all such plans and funds for the Limitation Year
will equal the Maximum Permissible Amount. If the Annual Additions with
respect to the Participant under such other defined contribution plans and
welfare benefit funds in the aggregate are equal to or greater than the
Maximum Permissible Amount, no amount will be contributed or allocated to
the Participant's Account under this Plan for the Limitation Year.
(b) Prior to determining the Participant's actual Compensation for the
Limitation Year, the Employer may determine the Maximum Permissible Amount
for a Participant in the manner described in section 6.1(b).
(c) As soon as is administratively feasible after the end of the
Limitation Year, the Maximum Permissible Amount for the Limitation Year
will be determined on the basis of the Participant's actual Compensation
for the Limitation Year.
(d) If, pursuant to section 6.2(c), or as a result of the allocation
of forfeitures, a Participant's Annual Additions under this Plan and such
other plans would result in an Excess Amount for a Limitation Year, the
Excess Amount will be deemed to consist of the Annual Additions last
allocated, except that Annual Additions attributable to a welfare benefit
fund or individual medical account will be deemed to have been allocated
first regardless of the actual allocation date.
(e) If an Excess Amount was allocated to a Participant on an
allocation date of this Plan which coincides with an allocation date of
another plan, the Excess Amount attributed to this Plan will be the product
of:
(i) the total Excess Amount allocated as of such date, times
(ii) the ratio of (1) the Annual Additions allocated to the
Participant for the Limitation Year as of such date under this Plan to
(2) the total Annual Additions allocated to the Participant for the
Limitation Year as of such date under this and all the other qualified
master or prototype defined contribution plans.
(f) Any Excess Amount attributed to this Plan will be disposed of in
the manner described in section 6.1(d).
6.3 Employers Who, In Addition to this Plan, Maintain Other Qualified
Plans Which Are Defined Contribution Plans Other than Master or Prototype Plans.
If the Participant is covered under another qualified defined contribution plan
maintained by the Employer which is not a Master or Prototype Plan, Annual
Additions which may be credited to the Participant's Account under this Plan for
any Limitation Year will be limited in accordance with section 6.2 as though the
other plan were a Master or Prototype Plan unless the Employer provides other
limitations in the Adoption Agreement.
6.4 Employers Who, In Addition to This Plan, Maintain A Qualified Defined
Benefit Plan. If the Employer maintains, or at any time maintained, a qualified
defined benefit plan covering any Participant in this Plan, the sum of the
Participant's Defined Benefit Fraction and Defined Contribution Fraction will
not exceed 1.0 in any Limitation Year. The Annual Additions which may be
credited to the Participant's Account under this Plan for any Limitation Year
will be limited in accordance with the Adoption Agreement.
6.5 Definitions. Unless otherwise expressly provided herein, for purposes
of this ARTICLE only, the following definitions and rules of interpretation
shall apply:
(a) Annual Additions. The sum of the following amounts credited to a
Participant's Account for the Limitation Year:
(i) Employer Contributions;
(ii) Employee contributions;
(iii) forfeitures; and
(iv) amounts allocated after March 31, 1984 to an individual
medical account, as defined in section 415(l)(2) of the Code, which is
part of a pension or annuity plan maintained by the Employer, are
treated as Annual Additions to a defined contribution plan. Also,
amounts derived from contributions paid or accrued after December 31,
1985, in taxable years ending after
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such date, which are attributable to post-retirement medical benefits
allocated to the separate account of a key employee, as defined in
section 419A(d)(3) of the Code, under a welfare benefit fund, as
defined in section 419(e) of the Code, maintained by the Employer, are
treated as Annual Additions to a defined contribution plan.
For this purpose, any Excess Amount applied under sections 6.1(d) or 6.2(f) in
the Limitation Year to reduce Employer Contributions will be considered Annual
Additions for such Limitation Year.
(b) Compensation. A Participant's earned income, wages, salaries, and
fees for professional services and other amounts received for personal services
actually rendered in the course of employment with the Employer maintaining the
Plan (including, but not limited to, commissions paid salesmen, compensation for
services on the basis of a percentage of profits, commissions on insurance
premiums, tips and bonuses), and excluding the following:
(i) Employer contributions to a plan of deferred compensation
which are not includable in the Employee's gross income for the
taxable year in which contributed, or Employer Contributions under a
simplified employee pension plan to the extent such contributions are
excluded from the Employee's gross income, or any distributions from a
plan of deferred compensation;
(ii) Amounts realized from the exercise of a nonqualified stock
option, or when restricted stock (or property) held by the Employee
either becomes freely transferable or is no longer subject to a
substantial risk of forfeiture;
(iii) Amounts realized from the sale, exchange or other
disposition of stock acquired under a qualified stock option; and
(iv) Other amounts which received special tax benefits, or
contributions made by the Employer (whether or not under a salary
reduction agreement) towards the purchase of an annuity described in
section 403(b) of the Code (whether or not the amounts are actually
excludable from the gross income of the Employee).
For purposes of applying the limitations of this ARTICLE, Compensation
for a Limitation Year is the Compensation actually paid or includable in
gross income during such year.
Notwithstanding the preceding sentence, Compensation for a Participant
in a defined contribution plan who is Totally and Permanently Disabled (as
defined in section 22(e)(3) of the Code) is the Compensation such
Participant would have received for the Limitation Year if the Participant
had been paid at the rate of Compensation paid immediately before becoming
permanently and totally disabled; such imputed Compensation for the
disabled Participant may be taken into account only if the Participant is
not a Highly-Compensated Employee (as defined in section 414(q) of the
Code), and contributions made on behalf of such Participant are
nonforfeitable when made.
(c) Defined Benefit Fraction. A fraction, the numerator of which is
the sum of the Participant's Projected Annual Benefits under all the
defined benefit plans (whether or not terminated) maintained by the
Employer, and the denominator of which is the lesser of one hundred percent
(100%) of the dollar limitation determined for the Limitation Year under
sections 415(b) and (d) of the Code or one hundred forty percent (140%) of
highest average compensation, including any adjustments under section
415(b) of the Code.
Notwithstanding the above, if the Participant was a Participant as of
the first day of the first Limitation Year beginning after December 31,
1986, in one or more defined benefit plans maintained by the Employer which
were in existence on May 6, 1986, the denominator of this fraction will not
be less than one hundred twenty-five percent (125%) of the sum of the
annual benefits under such plans which the Participant had accrued as of
the close of the last Limitation Year beginning before January 1, 1987,
disregarding any changes in the terms and conditions of the Plan after May
5, 1986. The preceding sentence applies only if the defined benefit plans
individually and in the aggregate satisfied the requirements of section 415
of the Code for all Limitation Years beginning before January 1, 1987.
(d) Defined Contribution Dollar Limitation. Thirty thousand dollars
($30,000) or, if greater, one-fourth (1/4) of the defined benefit dollar
limitation set forth in section 415(b)(1) of the Code as in effect for the
Limitation Year.
(e) Defined Contribution Fraction. A fraction, the numerator of which
is the sum of the Annual Additions to the Participant's Account under all
the defined contribution plans (whether or not terminated) maintained by
the Employer for the current and all prior Limitation Years (including the
Annual Additions attributable to the Participant's nondeductible voluntary
contributions to all defined benefit plans, whether or not terminated,
maintained by the Employer, and the Annual Additions attributable to all
welfare benefit funds, as defined in section 419(e) of the Code and
individual medical accounts, as defined in section 415(l)(2) of the Code,
maintained by the Employer), and the denominator of which is the sum of the
maximum aggregate amounts for the current and all prior Limitation Years of
service with the Employer (regardless of whether a defined contribution
plan was maintained by the Employer). The maximum aggregate amount in any
Limitation Year is the lesser of one hundred percent (100%) of the dollar
limitation in effect under section 415(c)(1)(A) of the Code or thirty-five
percent (35%) of the Participant's Compensation for such year.
If the Participant was a Participant as of the end of the first day of
the first Limitation Year beginning after December 31, 1986, in one or more
defined contribution plans maintained by the Employer which were in
existence on May 6, 1986, the numerator of this fraction will be adjusted
if the sum of this fraction and the Defined Benefit Fraction would
otherwise exceed 1.0 under the terms
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of this Plan. Under the adjustment, an amount equal to the product of (1)
the excess of the sum of the fractions over 1.0 times (2) the denominator
of this fraction, will be permanently subtracted from the numerator of this
fraction. The adjustment is calculated using the fractions as they would be
computed as of the end of the last Limitation Year beginning before January
1, 1987, and disregarding any changes in the terms and conditions of the
Plan made after May 5, 1986, but using the section 415 limitation
applicable to the first Limitation Year beginning on or after January 1,
1987. The Annual Addition for any Limitation Year beginning before January
1, 1987, shall not be recomputed to treat all Employee contributions as
Annual Additions.
(f) Employer. For purposes of this ARTICLE, Employer shall mean the
employer that adopts this Plan, and all members of a controlled group of
corporations (as defined in section 414(b) of the Code as modified by
section 415(h) of the Code), all commonly controlled trades or businesses
(as defined in section 414(c) of the Code as modified by section 415(h) of
the Code), or affiliated service groups (as defined in section 414(m) of
the Code) of which the adopting Employer is a part and any other entity
required to be aggregated with the Employer pursuant to regulations under
section 414(o) of the Code.
(g) Excess Amount. The excess of the Participant's Annual Addition
for the Limitation Year over the Maximum Permissible Amount.
(h) Highest Average Compensation. The average compensation for the
three consecutive Plan Years that produce the highest average.
(i) Limitation Year. A Plan Year, or the twelve (12) consecutive
month period elected by the Employer in the Adoption Agreement. All
qualified plans maintained by the Employer must use the same Limitation
Year. If the Limitation Year is amended to a different twelve (12)
consecutive month period, the new Limitation Year must begin on a date
within the Limitation Year in which the amendment is made.
(j) Master or Prototype Plan. A plan the form of which is the subject
of a favorable opinion letter from the Internal Revenue Service.
(k) Maximum Permissible Amount. The maximum Annual Addition that may
be contributed or allocated to a Participant's Account under the Plan for
any Limitation Year shall not exceed the lesser of:
(a) the Defined Contribution Dollar Limitation;
or
(b) twenty-five percent (25%) of the Participant's Compensation
for the Limitation Year.
The Compensation limitation referred to in subsection (b) shall not apply
to any contribution for medical benefits (within the meaning of section 401(h)
or section 419A(f)(2) of the Code) which is otherwise treated as an Annual
Addition under section 415(l)(1) or section 419A(d)(2) of the Code.
If a short Limitation Year is created because of an amendment changing the
Limitation Year to a different twelve (12) consecutive month period, the Maximum
Permissible Amount will not exceed the Defined Contribution Dollar Limitation
multiplied by the following fraction:
Number of Months in the Short Limitation Year
---------------------------------------------
12
(l) Projected Annual Benefit. The annual retirement benefit (adjusted
to an actuarially equivalent straight life annuity if such benefit is
expressed in a form other than a straight life annuity or Qualified Joint
and Survivor Annuity) to which the Participant would be entitled under the
terms of the Plan assuming:
(i) the Participant will continue employment until Normal
Retirement Age under the Plan (or current age, if later), and
(ii) the Participant's Compensation for the current Limitation
Year and all other relevant factors used to determine benefits under
the Plan will remain constant for all future Limitation Years.
ARTICLE 7
TRUST FUND
7.1 Receipt of Contributions by Trustee. All contributions to the Trust
that are received by the Trustee, together with any earnings thereon, shall be
held, managed and administered by the Trustee named in the Adoption Agreement in
accordance with the terms and conditions of the Trust Agreement and the Plan.
The Trustee may use a Custodian designated by the Sponsor to perform
recordkeeping and custodial functions. The Trustee shall be subject to the
proper directions of the Employer or the Plan Administrator made in accordance
with the terms of the Plan and ERISA.
7.2 Investment Responsibility.
(a) If the Employer elects in the Adoption Agreement to exercise
investment authority and responsibility, the selection of the investments in
which assets of the Trust are invested shall be the responsibility of the Plan
Administrator and each Participant will have a ratable interest in all assets of
the Trust.
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<PAGE>
(b) If the Adoption Agreement so provides and the Employer elects to
permit each Participant or Beneficiary to select the investments in his
Account, no person, including the Trustee and the Plan Administrator, shall
be liable for any loss or for any breach of fiduciary duty which results
from such Participant's or Beneficiary's exercise of control.
(c) If the Adoption Agreement so provides and the Employer elects to
permit each Participant or Beneficiary to select the investments in his
Account, the Employer or the Plan Administrator must complete a schedule of
Participant designations.
(d) If Participants and Beneficiaries are permitted to select the
investment in their Accounts, all investment related expenses, including
administrative fees charged by brokerage houses, will be charged against
the Accounts of the Participants.
(e) The Plan Administrator may at any time change the selection of
investments in which the assets of the Trust are invested, or subject to
such reasonable restrictions as may be imposed by the Sponsor for
administrative convenience, may submit an amended schedule of Participant
designations. Such amended documents may provide for a variance in the
percentages of contributions to any particular investment or a request that
Shares in the Trust be reinvested in whole or in part in other Shares.
7.3 Investment Limitations. The Sponsor may impose reasonable investment
limitations on the Employer and the Plan Administrator relating to the type of
permissible investments in the Trust or the minimum percentage of Trust assets
to be invested in Shares.
ARTICLE 8
VESTING
8.1 Nondeductible Voluntary Contributions and Earnings. The Participant's
nondeductible voluntary contribution subaccount shall be fully vested and
nonforfeitable at all times and no forfeitures will occur as a result of an
Employee's withdrawal of nondeductible voluntary contributions.
8.2 Rollovers, Transfers and Earnings. The Participant's rollover
subaccount and direct transfer subaccount shall be fully vested and
nonforfeitable at all times.
8.3 Employer Contributions and Earnings. Notwithstanding the vesting
schedule elected by the Employer in the Adoption Agreement, the Participant's
money purchase pension contribution subaccount and profit sharing contribution
subaccount shall be fully vested and nonforfeitable upon the Participant's
death, disability, attainment of Normal Retirement Age, or, if the Adoption
Agreement provides for an Early Retirement Date, attainment of the required age
and completion of the required service. In the absence of any of the preceding
events, the Participant's money purchase contribution subaccount and his profit
sharing contribution subaccount shall vest in accordance with a minimum vesting
schedule specified in the Adoption Agreement. The schedule must be at least as
favorable to Participants as either schedule (a) or (b) below.
(a) Graduated vesting according to the following schedule:
Years of Service Vested Percentage
---------------- -----------------
Less than 2............... 0%
2 but less than 3......... 20%
3 but less than 4......... 40%
4 but less than 5......... 60%
5 but less than 6......... 80%
6 or more................. 100%
(b) Full one hundred percent (100%) vesting after three (3) Years of
Service.
8.4 Amendments to Vesting Schedule.
(a) If the Plan's vesting schedule is amended, or the Plan is amended
in any way that directly or indirectly affects the computation of the
Participant's nonforfeitable percentage or if the Plan is deemed amended by
an automatic change to or from a top-heavy vesting schedule, each
Participant with at least three (3) Years of Service with the Employer may
elect, within a reasonable period after the adoption of the amendment or
change, to have the nonforfeitable percentage computed under the Plan
without regard to such amendment or change. For any Participants who do not
have at least one (1) Hour of Service in any Plan Year beginning after
December 31, 1988, the preceding sentence shall be applied by substituting
"five (5) Years of Service" for "three (3) Years of Service" where such
language appears.
(b) The period during which the election may be made shall commence
with the date the amendment is adopted or deemed to be made and shall end
on the latest of:
(i) sixty (60) days after the amendment is adopted;
(ii) sixty (60) days after the amendment becomes effective; or
(iii) sixty (60) days after the Participant is issued written
notice of the amendment by the Employer or Plan
Administrator.
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<PAGE>
(c) No amendment to the Plan shall be effective to the extent that it
has the effect of decreasing a Participant's accrued benefit.
Notwithstanding the preceding sentence, a Participant's Account balance may
be reduced to the extent permitted under section 412(c)(8) of the Code. For
purposes of this paragraph, a Plan amendment which has the effect of
decreasing a Participant's Account balance or eliminating an optional form
of benefit, with respect to benefits attributable to service before the
amendment shall be treated as reducing an accrued benefit. Furthermore, if
the vesting schedule of a Plan is amended, in the case of an Employee who
is a Participant as of the later of the date such amendment is adopted or
the date it becomes effective, the nonforfeitable percentage (determined as
of such date) of such Employee's right to his Employer-derived accrued
benefit will not be less than his percentage computed under the Plan
without regard to such amendment.
8.5 Determination of Years of Service. For purposes of determining the
vested and nonforfeitable percentage of the Participant's Employer Contribution
subaccounts, all of the Participant's Years of Service with the Employer or an
Affiliated Employer shall be taken into account. If specified in the Adoption
Agreement, Years of Service with a predecessor employer will be treated as
service for the Employer; provided, however, if the Employer maintains the plan
of a predecessor employer, Years of Service with such predecessor employer will
be treated as service with the Employer without regard to any election.
8.6 Forfeiture of Nonvested Amounts.
(a) For Plan Years beginning before 1985, any portion of a
Participant's Account that is not vested shall be forfeited by him as of
the last day of the Plan Year in which a Break in Service occurs. For Plan
Years beginning after 1984, any portion of a Participant's Account that is
not vested shall be forfeited by him as of the last day of the Plan Year in
which his fifth consecutive Break in Service occurs. Any amounts thus
forfeited shall be reallocated as provided in ARTICLE 5 and shall not be
considered part of a Participant's Account in computing his vested
interest. The remaining portion of the Participant's Account will be
nonforfeitable.
(b) If a distribution is made at a time when a Participant has a
vested right to less than one hundred percent (100%) of the value of the
Participant's Account attributable to Employer Contributions and
forfeitures, as determined in accordance with the provisions of section
8.3, and the nonvested portion of the Participant's Account has not yet
been forfeited in accordance with paragraph (a) above:
(i) a separate remainder subaccount shall be established for the
Participant's interest in the Plan as of the time of the distribution,
and
(ii) at any relevant time the Participant's vested portion of the
separate remainder subaccount shall be equal to an amount ("X")
determined by the following formula:
X = P(AB + (R x D)) - (R x D)
For purposes of applying the formula: P is the vested percentage
at the relevant time; AB is the Account balance at the relevant time;
D is the amount of the distribution; and R is the ratio of the Account
balance at the relevant time to the Account balance after
distribution.
8.7 Reinstatement of Benefit. If a benefit is forfeited because a
Participant or Beneficiary cannot be found, such benefit will be reinstated if a
claim is made by the Participant or Beneficiary.
ARTICLE 9
JOINT AND SURVIVOR ANNUITY REQUIREMENTS
9.1 General. The provisions of this ARTICLE shall apply to any
Participant who is credited with at least one (1) Hour of Service with the
Employer on or after August 23, 1984, and such other Participants as provided in
section 9.7.
9.2 Qualified Joint and Survivor Annuity. Unless an optional form of
benefit is selected pursuant to a Qualified Election within the ninety (90) day
period ending on the Annuity Starting Date, a married Participant's Vested
Account Balance will be paid in the form of a Qualified Joint and Survivor
Annuity and an unmarried Participant's Vested Account Balance will be paid in
the form of a life annuity. The Participant may elect to have such annuity
distributed upon attainment of the Earliest Retirement Age under the Plan.
9.3 Qualified Preretirement Survivor Annuity. Unless an optional form of
benefit has been selected within the Election Period pursuant to a Qualified
Election, if a Participant dies before the Annuity Starting Date, then the
Participant's Vested Account Balance shall be applied toward the purchase of an
annuity for the life of the Surviving Spouse. The Surviving Spouse may elect to
have such annuity distributed within a reasonable period after the Participant's
death.
9.4 Definitions.
(a) Election Period.
(i) The period which begins on the first day of the Plan Year in
which the Participant attains age thirty-five (35) and ends on the
date of the Participant's death. If a Participant separates from
service prior to the first day of the Plan Year in which age thirty-
five (35) is attained, with respect to the Account balance as of the
date of separation, the Election Period shall begin on the date of
separation.
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<PAGE>
(ii) A Participant who has not yet attained age thirty-five (35)
as of the end of any current Plan Year may make a special Qualified
Election to waive the qualified preretirement survivor annuity for the
period beginning on the date of such election and ending on the first
day of the Plan Year in which the Participant will attain age thirty-
five (35). Such election shall not be valid unless the Participant
receives a written explanation of the qualified preretirement survivor
annuity in such terms as are comparable to the explanation required
under section 9.5. Qualified preretirement survivor annuity coverage
will be automatically reinstated as of the first day of the Plan Year
in which the Participant attains age thirty-five (35). Any new waiver
on or after such date shall be subject to the full requirements of
this ARTICLE.
(b) Earliest Retirement Age. The earliest date on which, under the
Plan, the Participant could elect to receive retirement benefits.
(c) Qualified Election.
(i) A waiver of a Qualified Joint and Survivor Annuity or a
qualified preretirement survivor annuity. Any waiver of a Qualified
Joint and Survivor Annuity or a qualified preretirement survivor
annuity shall not be effective unless:
(1) the Participant's Spouse consents in writing to the
election;
(2) the election designates a specific Beneficiary, including
any class of Beneficiaries or any contingent Beneficiaries, which
may not be changed without spousal consent (or the Spouse
expressly permits designations by the Participant without any
further spousal consent);
(3) the Spouse's consent acknowledges the effect of the
election; and
(4) the Spouse's consent is witnessed by a Plan
representative or notary public. Additionally, a Participant's
waiver of the Qualified Joint and Survivor Annuity shall not be
effective unless the election designates a form of benefit payment
which may not be changed without spousal consent (or the Spouse
expressly permits designations by the participant without any
further spousal consent). If it is established to the satisfaction
of a Plan representative that there is no Spouse or that the
Spouse cannot be located, a waiver will be deemed a Qualified
Election.
(ii) Any consent by a Spouse obtained under this provision (or
establishment that the consent of Spouse may not be obtained) shall be
effective only with respect to such Spouse. A consent that permits
designations by the Participant without any requirement of further
consent by such Spouse must acknowledge that the Spouse has the right
to limit consent to a specific Beneficiary, and a specific form of
benefit where applicable, and that the Spouse voluntarily elects to
relinquish either or both of such rights. A revocation of a prior
waiver may be made by a Participant without the consent of the Spouse
at any time before the commencement of benefits. The number of
revocations shall not be limited. No consent obtained under this
provision shall be valid unless the Participant has received notice as
provided in section 9.5.
(d) Qualified Joint and Survivor Annuity. An immediate annuity for
the life of the Participant with a survivor annuity for the life of the
Spouse which equals fifty percent (50%) of the amount of the annuity which
is payable during the joint lives of the Participant and the Spouse and
which is the amount of benefit which can be purchased with the
Participant's Vested Account Balance.
(e) Spouse (Surviving Spouse). The Spouse or Surviving Spouse of the
Participant, provided that a former spouse will be treated as the Spouse or
Surviving Spouse and a current Spouse will not be treated as the Spouse or
Surviving Spouse to the extent provided under a qualified domestic
relations order as described in section 414(p) of the Code.
(f) Annuity Starting Date. The first day of the first period for which
an amount is paid as an annuity or any other form.
(g) Vested Account Balance. The aggregate value of the Participant's
Vested Account Balances derived from Employer and Employee contributions
(including rollovers and direct transfers), whether vested before or upon
death, including the proceeds of insurance contracts if any, on the
Participant's life. The provisions of this ARTICLE shall apply to a
Participant who is vested in amounts attributable to Employer
Contributions, Employee contributions (or both) at the time of death or
distribution.
9.5 Notice Requirements.
(a) In the case of a Qualified Joint and Survivor Annuity, the Plan
Administrator shall no less than thirty (30) days and no more than ninety
(90) days prior to the Annuity Starting Date, provide each Participant a
written explanation of:
(i) the terms and conditions of a Qualified Joint and Survivor
Annuity;
(ii) the Participant's right to make and the effect of an election
to waive the Qualified Joint and Survivor Annuity form of benefit;
(iii) the rights of a Participant's Spouse; and
(iv) the right to make, and the effect of, a revocation of a
previous election to waive the Qualified Joint and Survivor Annuity.
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<PAGE>
(b) In the case of a qualified preretirement survivor annuity as
described in section 9.3, the Plan Administrator shall provide each
Participant within the applicable period for such Participant a written
explanation of the qualified preretirement survivor annuity in such terms
and in such manner as would be comparable to the explanation provided for
meeting the requirements of subsection (a) applicable to a Qualified Joint
and Survivor Annuity.
(c) The applicable period for a Participant is whichever of the
following periods ends last:
(i) the period beginning with the first day of the Plan Year in
which the Participant attains age thirty-two (32) and ending with the
close of the Plan Year preceding the Plan Year in which the
Participant attains age thirty-five (35);
(ii) a reasonable period ending after the individual becomes a
Participant;
(iii) a reasonable period ending after subsection (e) ceases to
apply to the Participant;
(iv) a reasonable period ending after this ARTICLE first applies
to the Participant. Notwithstanding the foregoing, notice must be
provided within a reasonable period ending after separation from
service in the case of a Participant who separates from service before
attaining age thirty-five (35).
(d) For purposes of applying subsection (c), a reasonable period
ending after the enumerated events described above in subsections (ii),
(iii) and (iv) is the end of the two-year period beginning one (1) year
prior to the date the applicable event occurs, and ending one (1) year
after that date. In the case of a Participant who separates from service
before the Plan Year in which age thirty-five (35) is attained, notice
shall be provided within the two (2) year period beginning one (1) year
prior to separation and ending one (1) year after separation. If such a
participant thereafter returns to employment with the Employer, the
applicable period for such Participant shall be redetermined.
(e) Notwithstanding the other requirements of this section, the
respective notices prescribed by this section need not be given to a
Participant if:
(i) the Plan "fully subsidizes" the cost of a Qualified Joint and
Survivor Annuity or qualified preretirement survivor annuity; and
(ii) the Plan does not allow the Participant to waive the
Qualified Joint and Survivor Annuity or qualified preretirement
survivor annuity and does not allow a married Participant to designate
a nonspouse Beneficiary.
For purposes of this subsection, a plan fully subsidizes the costs of a
benefit if no increase in cost, or decrease in benefits to the Participant may
result from the Participant's failure to elect another benefit.
9.6 Safe Harbor Rules.
(a) This section shall apply to a Participant in a profit sharing
plan, and to any distribution, made on or after the first day of the first
Plan year beginning after December 31, 1988, from or under a separate
account attributable solely to accumulated deductible Employee
contributions, as defined in section 72(o)(5)(B) of the Code, and
maintained on behalf of a Participant in a money purchase pension plan
(including a target benefit plan) if the following conditions are
satisfied:
(i) the Participant does not or cannot elect payments in the form
of a life annuity; and
(ii) on the death of a Participant, the Participant's Vested
Account Balance will be paid to the Participant's Surviving Spouse,
but if there is no Surviving Spouse, or if the Surviving Spouse has
consented in a manner conforming to a Qualified Election, then to the
Participant's Designated Beneficiary.
(b) The Surviving Spouse may elect to have distribution of the Vested
Account Balance commence within the ninety (90) day period following the
date of the Participant's death. The Account balance shall be adjusted for
gains or losses occurring after the Participant's death in accordance with
the provisions of the Plan governing the adjustment of Account balances for
other types of distributions.
(c) This section shall not be operative with respect to a Participant
in a profit sharing plan if the plan is a direct or indirect transferee of
a defined benefit plan, money purchase plan, a target benefit plan, stock
bonus, or profit sharing plan which is subject to the survivor annuity
requirements of sections 401(a)(11) and 417 of the Code. If this section is
operative, then the provisions of this ARTICLE, other than section 9.7,
shall be inoperative.
(d) The Participant may waive the spousal death benefit described in
this section at any time provided that no such waiver shall be effective
unless it satisfies the conditions of section 9.4(c) (other than the
notification requirement referred to therein) that would apply to the
Participant's waiver of the qualified preretirement survivor annuity.
(e) For purposes of this section, Vested Account Balance shall mean,
in the case of a money purchase pension plan or a target benefit plan, the
Participant's separate Account balance attributable solely to accumulated
deductible Employee contributions within the meaning of section 72(o)(5)(B)
of the Code. In the case of a profit sharing plan, Vested Account Balance
shall have the same meaning as provided in section 9.4(g).
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9.7 Transitional Rules.
(a) Any living Participant not receiving benefits on August 23, 1984,
who would otherwise not receive the benefits prescribed by the previous
sections of this ARTICLE must be given the opportunity to elect to have the
prior sections of this ARTICLE apply if such Participant is credited with
at least one (1) Hour of Service under this Plan or a predecessor plan in a
Plan Year beginning on or after January 1, 1976, and such Participant had
at least ten (10) years of vesting service when he or she separated from
service.
(b) Any living Participant not receiving benefits on August 23, 1984,
who was credited with at least one (1) Hour of Service under this Plan or a
predecessor plan on or after September 2, 1974, and who is not otherwise
credited with any service in a Plan Year beginning on or after January 1,
1976, must be given the opportunity to have his or her benefits paid in
accordance with subsection (d).
(c) The respective opportunities to elect (as described in subsections
(a) and (b) above) must be afforded to the appropriate Participants during
the period commencing on August 23, 1984, and ending on the date benefits
would otherwise commence to said Participants.
(d) Any Participant who has elected pursuant to subsection (b) and any
Participant who does not elect under subsection (a) or who meets the
requirements of subsection (a) except that such Participant does not have
at least ten (10) years of vesting service when he or she separates from
service, shall have his or her benefits distributed in accordance with all
of the following requirements if benefits would have been payable in the
form of a life annuity:
(i) Automatic Joint and Survivor Annuity. If benefits in the form
of a life annuity become payable to a married Participant who:
(1) begins to receive payments under the Plan on or after
Normal Retirement Age; or
(2) dies on or after Normal Retirement Age while still
working for the Employer; or
(3) begins to receive payments on or after the qualified
early retirement age; or
(4) separates from service on or after attaining Normal
Retirement Age (or the qualified early retirement age) and after
satisfying the eligibility requirements for the payment of
benefits under the Plan and thereafter dies before beginning to
receive such benefits;
then such benefits will be received under this Plan in the form of a
Qualified Joint and Survivor Annuity, unless the Participant has elected
otherwise during the Election Period. The Election Period must begin at
least six (6) months before the Participant attains qualified early
retirement age and end not more than ninety (90) days before the
commencement of benefits. Any election hereunder will be in writing and may
be changed by the Participant at any time.
(ii) Election of Early Survivor Annuity. A Participant who is employed
after attaining the qualified early retirement age will be given the
opportunity to elect, during the Election Period, to have a survivor
annuity payable on death. If the Participant elects the survivor annuity,
payments under such annuity must not be less than the payments which would
have been made to the Spouse under the Qualified Joint and Survivor Annuity
if the Participant had retired on the day before his or her death. Any
election under this provision will be in writing and may be changed by the
Participant at any time. The Election Period begins on the later of (1) the
90th day before the Participant attains the qualified early retirement age;
or (2) the date on which participation begins, and ends on the date the
Participant terminates employment.
(e) The following terms shall have the meanings specified herein:
(i) Qualified Early Retirement Age. The latest of:
(1) the earliest date, under the Plan, on which the Participant
may elect to receive retirement benefits;
(2) the first day of the 120th month beginning before the
Participant reaches Normal Retirement Age; or
(3) the date the Participant begins participation.
(ii) Qualified Joint and Survivor Annuity. An annuity for the life of
the Participant with a survivor annuity for the life of the Spouse as
described in section 9.4(d).
ARTICLE 10
DISTRIBUTION PROVISIONS
10.1 Vesting on Distribution Before Break in Service.
(a) If an Employee terminates service, and the value of the Employee's
Vested Account Balance derived from Employer and Employee contributions is
not greater than three thousand five hundred dollars ($3,500), the Employee
will receive a distribution of the value of the entire vested portion of
such Account balance and the nonvested portion will be treated as a
forfeiture. For
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purposes of this section, if the value of an Employee's Vested Account
Balance is zero, the Employee shall be deemed to have received a
distribution of such Vested Account Balance. A Participant's Vested Account
Balance shall not include accumulated deductible Employee contributions
within the meaning of section 72(o)(5)(B) of the Code for Plan Years
beginning prior to January 1, 1989.
(b) If an Employee terminates service and elects, in accordance with
this ARTICLE, to receive the value of his Vested Account Balance, the
nonvested portion will be treated as a forfeiture. If the Employee elects
to have distributed less than the entire vested portion of the Account
balance derived from Employer Contributions, the part of the nonvested
portion that will be treated as a forfeiture is the total nonvested portion
multiplied by a fraction, the numerator of which is the amount of the
distribution attributable to Employer Contributions and the denominator of
which is the total value of the vested Employer derived Account balance.
(c) If an Employee receives a distribution pursuant to this section
and the Employee resumes employment covered under this Plan, the Employee's
Employer-derived Account balance will be restored to the amount on the date
of distribution if the Employee repays to the Plan the full amount of the
distribution attributable to Employer Contributions before the earlier of
five (5) years after the first date on which the Participant is
subsequently reemployed by the Employer, or the date the Participant incurs
five (5) consecutive one (1) year Breaks in Service following the date of
the distribution. If an Employee is deemed to receive a distribution
pursuant to this section, and the Employee resumes employment covered under
this Plan before the date the Participant incurs five (5) consecutive one
(1) year Breaks in Service, upon the reemployment of such Employee, the
Employer-derived Account balance of the Employee will be restored to the
amount on the date of such deemed distribution.
10.2 Restrictions on Immediate Distributions.
(a) If the value of a Participant's Vested Account Balance derived
from Employer and Employee contributions exceeds (or at the time of any
prior distribution exceeded) three thousand five hundred dollars ($3,500)
and the Account balance is immediately distributable, the Participant and
the Participant's Spouse (or where either the Participant or the Spouse has
died, the survivor) must consent to any distribution of such Account
balance. The consent of the Participant and the Participant's Spouse shall
be obtained in writing within the ninety (90) day period ending on the
Annuity Starting Date. The Annuity Starting Date is the first day of the
first period for which an amount is paid as an annuity or any other form.
The Plan Administrator shall notify the Participant and the Participant's
Spouse of the right to defer any distribution until the Participant's
Account balance is no longer immediately distributable. Such notification
shall include a general description of the material features, and an
explanation of the relative values of, the optional forms of benefit
available under the Plan in a manner that would satisfy the notice
requirements of section 417(a)(3), and shall be provided no less than
thirty (30) days and no more than ninety (90) days prior to the Annuity
Starting Date.
(b) Notwithstanding the provisions of subsection (a), only the
Participant need consent to the commencement of a distribution in the form
of a Qualified Joint and Survivor Annuity while the Account balance is
immediately distributable. (Furthermore, if payment in the form of a
Qualified Joint and Survivor Annuity is not required with respect to the
Participant pursuant to section 9.6 of the Plan, only the Participant need
consent to the distribution of an Account balance that is immediately
distributable). Neither the consent of the Participant nor the
Participant's Spouse shall be required to the extent that a distribution is
required to satisfy section 401(a)(9) or section 415 of the Code. In
addition, upon termination of this Plan if the Plan does not offer an
annuity option (purchased from a commercial provider), the Participant's
Account balance may, without the Participant's consent, be distributed to
the Participant or transferred to another defined contribution plan (other
than an employee stock ownership plan as defined in section 4975(e)(7) of
the Code) within the same controlled group.
(c) An Account balance is immediately distributable if any part of the
Account balance could be distributed to the Participant (or Surviving
Spouse) before the Participant attains (or would have attained if not
deceased) the later of Normal Retirement Age or age sixty-two (62).
(d) For purposes of determining the applicability of the foregoing
consent requirements to distributions made before the first day of the
first Plan Year beginning after December 31, 1988, the Participant's Vested
Account Balance shall not include amounts attributable to accumulated
deductible Employee contributions within the meaning of section 72(o)(5)(B)
of the Code.
10.3 Commencement of Benefits.
(a) Unless the Participant elects otherwise, distribution of benefits
will begin no later than the 60th day after the latest of the close of the
Plan Year in which:
(i) the Participant attains age sixty-five (65) (or Normal
Retirement Age, if earlier);
(ii) the 10th anniversary of the year in which the Participant
commenced participation in the Plan occurs; or
(iii) the Participant terminates service with the Employer.
(b) Notwithstanding the foregoing, the failure of a Participant and
Spouse to consent to a distribution while a benefit is immediately
distributable, within the meaning of section 10.2 of the Plan, shall be
deemed to be an election to defer commencement of payment of any benefit
sufficient to satisfy this section.
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10.4 Early Retirement With Age and Service Requirement. If a Participant
separates from service before satisfying the age requirement for early
retirement, but has satisfied the service requirement, the Participant will be
entitled to elect an early retirement benefit upon satisfaction of such age
requirement.
10.5 Nontransferability of Annuities. Any annuity contract distributed
herefrom must be nontransferable.
10.6 Conflicts With Annuity Contracts. The terms of any annuity contract
purchased and distributed by the Plan to a Participant or Spouse shall comply
with the requirements of this Plan.
ARTICLE 11
TIMING AND MODES OF DISTRIBUTION
11.1 General Rules.
(a) Subject to ARTICLE 9, the requirements of this ARTICLE shall apply
to any distribution of a Participant's interest and will take precedence
over any inconsistent provisions of this Plan. Unless otherwise specified,
the provisions of this ARTICLE apply to calendar years beginning after
December 31, 1984.
(b) All distributions required under this ARTICLE shall be determined
and made in accordance with the income tax regulations under section
401(a)(9) of the Code, including the minimum distribution incidental
benefit requirement of section 1.401(a)(9)-2 of the proposed regulations.
11.2 Required Beginning Date. The entire interest of a Participant must be
distributed or begin to be distributed no later than the Participant's Required
Beginning Date.
11.3 Limits on Distribution Periods. As of the first Distribution Calendar
Year, distributions, if not made in a single-sum, may only be made over one of
the following periods (or a combination thereof):
(a) the life of the Participant;
(b) the life of the Participant and a Designated Beneficiary;
(c) a period certain not extending beyond the Life Expectancy of the
Participant; or
(d) a period certain not extending beyond the joint and last survivor
expectancy of the Participant and a Designated Beneficiary.
11.4 Determination of Amount to be Distributed Each Year.
(a) Individual Account.
(i) If a Participant's Benefit is to be distributed over (1) a
period not extending beyond the Life Expectancy of the Participant or
the joint life and last survivor expectancy of the Participant and the
Participant's Designated Beneficiary or (2) a period not extending
beyond the Life Expectancy of the Designated Beneficiary, the amount
required to be distributed for each calendar year, beginning with
distributions for the first Distribution Calendar Year, must at least
equal the quotient obtained by dividing the Participant's Benefit by
the Applicable Life Expectancy.
(ii) For calendar years beginning before January 1, 1989, if the
Participant's Spouse is not the Designated Beneficiary, the method of
distribution selected must assure that at least fifty percent (50%) of
the present value of the amount available for distribution is paid
within the Life Expectancy of the Participant.
(iii) For calendar years beginning after December 31, 1988, the
amount to be distributed each year, beginning with distributions for
the first Distribution Calendar Year shall not be less than the
quotient obtained by dividing the Participant's Benefit by the lesser
of (1) the Applicable Life Expectancy or (2) if the Participant's
Spouse is not the Designated Beneficiary, the applicable divisor
determined from the table set forth in Q&A-4 of section 1.401(a)(9)-2
of the proposed regulations. Distributions after the death of the
Participant shall be distributed using the Applicable Life Expectancy
in subsection (a)(i) above as the relevant divisor without regard to
proposed regulations section 1.401(a)(9)-2.
(iv) The minimum distribution required for the Participant's first
Distribution Calendar Year must be made on or before the Participant's
Required Beginning Date. The minimum distribution for other calendar
years, including the minimum distribution for the Distribution
Calendar Year in which the Employee's Required Beginning Date occurs,
must be made on or before December 31 of that Distribution Calendar
Year.
(b) Other Forms. If the Participant's Benefit is distributed in the
form of an annuity purchased from an insurance company, distributions
thereunder shall be made in accordance with the requirements of section
401(a)(9) of the Code and the proposed regulations thereunder.
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11.5 Death Distribution Provisions.
(a) Distribution Beginning Before Death. If the Participant dies
after distribution of his or her interest has begun, the remaining portion
of such interest will continue to be distributed at least as rapidly as
under the method of distribution being used prior to the Participant's
death.
(b) Distribution Beginning After Death. If the Participant dies
before distribution of his or her interest begins, distribution of the
Participant's entire interest shall be completed by December 31 of the
calendar year containing the fifth anniversary of the Participant's death
except to the extent that an election is made to receive distributions in
accordance with (i) or (ii) below:
(i) if any portion of the Participant's interest is payable to a
Designated Beneficiary, distributions may be made over the life or
over a period certain not greater than the Life Expectancy of the
Designated Beneficiary commencing on or before December 31 of the
calendar year immediately following the calendar year in which the
Participant died;
(ii) if the Designated Beneficiary is the Participant's Surviving
Spouse, the date distributions are required to begin in accordance
with (i) above shall not be earlier than the later of (1) December 31
of the calendar year immediately following the calendar year in which
the Participant died and (2) December 31 of the calendar year in which
the Participant would have attained age seventy and one-half (70 1/2).
(c) If the Participant has not made an election pursuant to this
section by the time of his or her death, the Participant's Designated
Beneficiary must elect the method of distribution no later than the earlier
of (1) December 31 of the calendar year in which distributions would be
required to begin under this section; or (2) December 31 of the calendar
year which contains the fifth anniversary of the date of death of the
Participant. If the Participant has no Designated Beneficiary, or if the
Designated Beneficiary does not elect a method of distribution,
distribution of the Participant's entire interest must be completed by
December 31 of the calendar year containing the fifth anniversary of the
Participant's death.
(d) For purposes of subsection (b) above, if the Surviving Spouse dies
after the Participant, but before payments to such Spouse begin, the
provisions of subsection (b), with the exception of paragraph (ii) therein,
shall be applied as if the Surviving Spouse were the Participant.
(e) For purposes of this section, any amount paid to a child of the
Participant will be treated as if it had been paid to the Surviving Spouse
if the amount becomes payable to the Surviving Spouse when the child
reaches the age of majority.
(f) For the purposes of this section, distribution of a Participant's
interest is considered to begin on the Participant's Required Beginning
Date (or, if subsection (d) above is applicable, the date distribution is
required to begin to the Surviving Spouse pursuant to subsection (b)
above). If distribution in the form of an annuity described in section
11.4(b) above irrevocably commences to the Participant before the Required
Beginning Date, the date distribution is considered to begin is the date
distribution actually commences.
11.6 Designation of Beneficiary. Subject to the rules of ARTICLE 9, a
Participant (or former Participant) may designate from time to time any person
or persons (who may be designated contingently or successively and may be an
entity other than a natural person) as his Beneficiary who will be entitled to
receive any undistributed amounts credited to the Participant's separate Account
under the Plan at the time of the Participant's death. Any such Beneficiary
designation by a Participant shall be made in writing in the manner prescribed
by the Plan Administrator, and shall be effective only when filed with the Plan
Administrator during the Participant's lifetime. A Participant may change or
revoke his Beneficiary designation at any time in the manner prescribed by the
Plan Administrator. If any portion of the Participant's Account is invested in
insurance pursuant to ARTICLE 14, the Beneficiary of the benefits under the
insurance policy shall be the person or persons designated under the policy. If
the Designated Beneficiary (or each of the Designated Beneficiaries) predeceases
the Participant, the Participant's Beneficiary designation shall be ineffective.
If no Beneficiary designation is in effect at the time of the Participant's
death, his Beneficiary shall be his estate.
11.7 Definitions.
(a) Applicable Life Expectancy. The Life Expectancy (or joint and
last survivor expectancy) calculated using the attained age of the
Participant (or Designated Beneficiary) as of the Participant's (or
Designated Beneficiary's) birthday in the applicable calendar year reduced
by one (1) for each calendar year which has elapsed since the date Life
Expectancy was first calculated. If Life Expectancy is being recalculated,
the Applicable Life Expectancy shall be the Life Expectancy as so
recalculated. The applicable calendar year shall be the first Distribution
Calendar Year, and if Life Expectancy is being recalculated such succeeding
calendar year. If annuity payments commence in accordance with section
11.4(b) before the Required Beginning Date, the applicable calendar year is
the year such payments commence. If distribution is in the form of an
immediate annuity purchased after the Participant's death with the
Participant's remaining interest, the applicable calendar year is the year
of purchase.
(b) Designated Beneficiary. The individual who is designated as the
Beneficiary under the Plan in accordance with section 401(a)(9) and the
proposed regulations thereunder.
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(c) Distribution Calendar Year. A calendar year for which a minimum
distribution is required. For distributions beginning before the
Participant's death, the first Distribution Calendar Year is the calendar
year immediately preceding the calendar year which contains the
Participant's Required Beginning Date. For distributions beginning after
the Participant's death, the first Distribution Calendar Year is the
calendar year in which distributions are required to begin pursuant to
section 11.5 above.
(d) Life Expectancy.
(i) Life Expectancy and joint and last survivor expectancy are
computed by use of the expected return multiples in Tables V and VI of
section 1.72-9 of the income tax regulations.
(ii) Unless otherwise elected by the Participant (or Spouse, in
the case of distributions described in section 11.5(b)(ii) above) by
the time distributions are required to begin, life expectancies shall
be recalculated annually. Such election shall be irrevocable as to the
Participant (or Spouse) and shall apply to all subsequent years. The
Life Expectancy of a non-Spouse Beneficiary may not be recalculated.
(e) Participant's Benefit.
(i) The Account balance as of the last valuation date in the
calendar year immediately preceding the Distribution Calendar Year
(valuation calendar year) increased by the amount of any contributions
or forfeitures allocated to the Account balance as of dates in the
valuation calendar year after the valuation date and decreased by
distributions made in the valuation calendar year after the valuation
date.
(ii) For purposes of subsection (i) above, if any portion of the
minimum distribution for the first Distribution Calendar Year is made
in the second Distribution Calendar Year on or before the Required
Beginning Date, the amount of the minimum distribution made in the
second Distribution Calendar Year shall be treated as if it had been
made in the immediately preceding Distribution Calendar Year.
(f) Required Beginning Date.
(i) General Rule. The Required Beginning Date of a Participant is
the first day of April of the calendar year following the calendar
year in which the Participant attains age seventy and one-half (70
1/2).
(ii) Transitional Rules. The Required Beginning Date of a
Participant who attains age seventy and one-half (70 1/2) before
January 1, 1988, shall be determined in accordance with (1) or (2)
below:
(1) Non-Five-Percent Owners. The Required Beginning Date of
a Participant who is not a Five Percent (5%) Owner is the first
day of April of the calendar year following the calendar year in
which the later of retirement or attainment of age seventy and
one-half (70 1/2) occurs.
(2) Five Percent Owners. The Required Beginning Date of a
Participant who is a Five Percent (5%) Owner during any year
beginning after December 31, 1979, is the first day of April
following the later of:
(A) the calendar year in which the Participant attains
age seventy and one-half (70 1/2); or
(B) the earlier of the calendar year with or within
which ends the Plan Year in which the Participant becomes a Five
Percent (5%) Owner, or the calendar year in which the Participant
retires.
The Required Beginning Date of a Participant who is not a Five Percent
(5%) Owner who attains age seventy and one-half (70 1/2) during 1988
and who has not retired as of January 1, 1989, is April 1, 1990.
(iii) Five Percent Owner. A Participant is treated as a Five
Percent (5%) Owner for purposes of this section if such Participant is
a Five Percent (5%) Owner as defined in section 416(i) of the Code
(determined in accordance with section 416 but without regard to
whether the Plan is top-heavy) at any time during the Plan Year ending
with or within the calendar year in which such owner attains age
sixty-six and one-half (66 1/2) or any subsequent year.
(iv) Once distributions have begun to a Five Percent (5%) Owner
under this section, they must continue to be distributed, even if the
Participant ceases to be a Five Percent (5%) Owner in a subsequent
year.
11.8 Transitional Rule.
(a) Notwithstanding the other requirements of this ARTICLE and subject
to the requirements of ARTICLE 9, distribution on behalf of any Employee,
including a Five Percent (5%) Owner, may be made in accordance with all of
the following requirements (regardless of when such distribution
commences):
(i) The distribution by the Trust is one which would not have
disqualified such trust under section 401(a)(9) of the Internal
Revenue Code as in effect prior to amendment by the Deficit Reduction
Act of 1984.
(ii) The distribution is in accordance with a method of
distribution designated by the Employee whose interest in the Trust is
being distributed or, if the Employee is deceased, by a Beneficiary of
such Employee.
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(iii) Such designation was in writing, was signed by the Employee
or the Beneficiary, and was made before January 1, 1984.
(iv) The Employee had accrued a benefit under the Plan as of
December 31, 1983.
(v) The method of distribution designated by the Employee or the
Beneficiary specifies the time at which distributions will be made,
and in the case of any distribution upon the Employee's death, the
Beneficiaries of the Employee listed in order of priority.
(b) A distribution upon death will not be covered by this transitional
rule unless the information in the designation contains the required
information described above with respect to the distributions to be made
upon the death of the Employee.
(c) For any distribution which commences before January 1, 1984, but
continues after December 31, 1983, the Employee, or the Beneficiary, to
whom such distribution is being made, will be presumed to have designated
the method of distribution under which the distribution is being made if
the method of distribution was specified in writing and the distribution
satisfies the requirements in subsections (a)(i) and (a)(v).
(d) If a designation is revoked, any subsequent distribution must
satisfy the requirements of section 401(a)(9) of the Code and the proposed
regulations thereunder. If a designation is revoked subsequent to the date
distributions are required to begin, the Trust must distribute by the end
of the calendar year following the calendar year in which the revocation
occurs the total amount not yet distributed which would have been required
to have been distributed to satisfy section 401(a)(9) of the Code and the
regulations thereunder but for the section 242(b)(2) election. For calendar
years beginning after December 31, 1988, such distributions must meet the
minimum distribution incidental benefit requirements in section
1.401(a)(9)-2 of the proposed regulations. Any changes in the designation
will be considered to be a revocation of the designation. However, the mere
substitution or addition of another beneficiary (one not named in the
designation) under the designation will not be considered to be a
revocation of the designation, so long as such substitution or addition
does not alter the period over which distributions are to be made under the
designation, directly or indirectly (for example, by altering the relevant
measuring life). In the case in which an amount is transferred or rolled
over from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 shall
apply.
11.9 Optional Forms of Benefit.
(a) Except to the extent benefits are required to be paid in the form
of an automatic joint and survivor annuity under ARTICLE 9, any amount
which a Participant shall be entitled to receive under the Plan shall be
distributed in one or a combination of the following ways:
(i) in a lump-sum payment of cash, the amount of which shall be
determined by redeeming all Shares credited to the Participant's
Account under the Plan as of the date of distribution;
(ii) in a lump-sum payment including a distribution in kind of all
Shares credited to the Participant's Account under the Plan as of the
date of distribution;
(iii) in substantially equal monthly, quarterly, or annual
installment payments of cash, or the distribution of Shares in kind,
over a period certain not to exceed the Life Expectancy of the
Participant or the joint and last survivor Life Expectancy of the
Participant and his Beneficiary, determined in each case as of the
earlier of: (1) the end of the Plan Year in which occurs the event
entitling the Participant to a distribution of benefits, or (2) the
date such installments commence;
(iv) if permitted by the Sponsor, in monthly, quarterly, or annual
installment payments of cash, or the distribution of Shares in kind,
so that the amount distributed in each Plan Year equals the quotient
obtained by dividing the Participant's Account at the beginning of
that Plan Year by the joint and last survivor Life Expectancy of the
Participant and the Beneficiary for that Plan Year. The Life
Expectancy will be computed using the recomputation method described
in section 11.7(d). Unless the Spouse of the retired Participant is
the Beneficiary, the actuarial present value of all expected payments
to the retired Participant must be more than fifty percent (50%) of
the actuarial present value of payments to the retired Participant and
the Beneficiary; or
(v) by application of the Participant's vested Account to the
purchase of a nontransferable immediate or deferred annuity contract,
on an individual or group basis. Unless the Spouse of the retired
Participant is the Beneficiary, the actuarial present value of all
expected payments to the retired Participant must be more than fifty
percent (50%) of the actuarial present value of payments to the
retired Participant and the Beneficiary.
(b) If the Participant fails to select a method of distribution,
except as may be required by ARTICLE 9, all amounts which he is entitled to
receive under the Plan shall be distributed to him in a lump-sum payment.
ARTICLE 12
WITHDRAWALS
12.1 Withdrawal of Nondeductible Voluntary Contributions. Subject to the
Qualified Election requirements of ARTICLE 9 and section 12.3, any Participant
who has made nondeductible voluntary contributions may, upon thirty (30) days
notice in writing filed with the Plan Administrator, have paid to him all or any
portion of the fair market value of his nondeductible voluntary contribution
subaccount.
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12.2 Hardship Withdrawals. If the Adoption Agreement so provides and the
Employer elects, this section applies only to the profit sharing contribution
subaccount and only if the profit sharing allocation formula selected in the
Adoption Agreement is not integrated with Social Security.
(a) Demonstration of Need. Subject to the Qualified Election
requirements of ARTICLE 9 and section 12.3, if a Participant establishes an
immediate and heavy financial need for funds because of a hardship
resulting from the purchase or renovation of a primary residence, the
education of the Participant or a member of his immediate family (including
special education), the medical or personal expenses of the Participant or
a member of his immediate family, or other demonstrable emergency as
determined by the Plan Administrator on a uniform and nondiscriminatory
basis, the Participant shall be permitted, subject to the limitations of
subsection (b) below, to make a hardship withdrawal of an amount credited
to his profit sharing contribution subaccount under the Plan.
(b) Amount of Hardship Withdrawal. The amount of any hardship
withdrawal by a Participant under subsection (a) above shall not exceed the
amount required to meet the immediate financial need created by the
hardship and not reasonably available from other resources of the
Participant.
(c) Prior Withdrawal of Nondeductible Voluntary Participant
Contributions. A Participant shall not be permitted to make a hardship
withdrawal under subsection (a) above unless he has already withdrawn, in
accordance with section 12.1, any amount credited to his nondeductible
voluntary contributions subaccount.
12.3 Manner of Making Withdrawals. Any withdrawal by a Participant under
the Plan shall be made only after the Participant files a written request with
the Plan Administrator specifying the nature of the withdrawal (and the reasons
therefor, if a hardship withdrawal), and the amount of funds requested to be
withdrawn. Upon approving any withdrawal, the Plan Administrator shall furnish
the Trustee with written instructions directing the Trustee to make the
withdrawal in a lump-sum payment of cash to the Participant. In making any
withdrawal payment, the Trustee shall be fully entitled to rely on the
instructions furnished by the Plan Administrator, and shall be under no duty to
make any inquiry or investigation with respect thereto. Unless section 9.6 is
applicable, if the Participant is married, his Spouse must consent to the
withdrawal pursuant to a Qualified Election (as defined in section 9.4(c))
within the ninety (90) day period ending on the date of the withdrawal.
12.4 Limitations on Withdrawals. The Plan Administrator may prescribe
uniform and nondiscriminatory rules and procedures limiting the number of times
a Participant may make a withdrawal under the Plan during any Plan Year, and the
minimum amount a Participant may withdraw on any single occasion.
ARTICLE 13
LOANS
13.1 General Provisions.
(a) If the Adoption Agreement so provides and the Employer so elects,
loans shall be made available to any Participant or Beneficiary who is a
party-in-interest (as defined in section 3(14) of ERISA) on a reasonably
equivalent basis. A Participant or Beneficiary who is not a party-in-
interest (as defined in section 3(14) of ERISA) shall not be eligible to
receive a loan under this ARTICLE.
(b) Loans shall not be made available to Highly-Compensated Employees
(as defined in section 414(q) of the Code) in an amount greater than the
amount made available to other Employees.
(c) Loans must be adequately secured and bear a reasonable interest
rate.
(d) No Participant loan shall exceed the present value of the
Participant's Vested Account Balance.
(e) Unless section 9.6 is applicable, a Participant must obtain the
consent of his or her Spouse, if any, to use of the Account balance as
security for the loan. Spousal consent shall be obtained no earlier than
the beginning of the ninety (90) day period that ends on the date on which
the loan is to be so secured. The consent must be in writing, must
acknowledge the effect of the loan, and must be witnessed by a Plan
representative or notary public. Such consent shall thereafter be binding
with respect to the consenting Spouse or any subsequent Spouse with respect
to that loan. A new consent shall be required if the Account balance is
used for renegotiation, extension, renewal or other revision of the loan.
(f) In the event of default, foreclosure on the note and attachment of
security will not occur until a distributable event occurs under the Plan.
(g) Loans will not be made to any shareholder-employee or Owner-
Employee. For purposes of this requirement, a shareholder-employee means an
Employee or officer of an electing small business (subchapter S)
corporation who owns (or is considered as owning within the meaning of
section 318(a)(1) of the Code), on any day during the taxable year of such
corporation, more than five percent (5%) of the outstanding stock of the
corporation.
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(h) If a valid spousal consent has been obtained in accordance with
subsection (e), then, notwithstanding any other provision of this Plan, the
portion of the Participant's Vested Account Balance used as a security
interest held by the Plan by reason of a loan outstanding to the
Participant shall be taken into account for purposes of determining the
amount of the Account balance payable at the time of death or distribution,
but only if the reduction is used as repayment of the loan. If less than
one hundred percent (100%) of the Participant's Vested Account Balance
(determined without regard to the preceding sentence) is payable to the
Surviving Spouse, then the Account balance shall be adjusted by first
reducing the Vested Account Balance by the amount of the security used as
repayment of the loan, and then determining the benefit payable to the
Surviving Spouse.
13.2 Administration of Loan Program.
(a) The Plan's loan program will be administered by the Plan
Administrator.
(b) Loan requests shall be made on a form prescribed by the Plan
Administrator and shall comply with section 13.4.
(c) Loan requests that comply with all the requirements of this
ARTICLE shall be approved by the Plan Administrator.
(d) The rate of interest to be charged on loans shall be determined
under section 13.5.
(e) The only collateral that may be used as security for a loan, and
the limitations and requirements applicable, are determined under section
13.6.
(f) The rules regarding defaults are set forth in section 13.9.
13.3 Amount of Loan. Loans to any Participant or Beneficiary will not be
made to the extent that such loan, when added to the outstanding balance of all
other loans to the Participant or Beneficiary, would exceed the lesser of:
(a) fifty thousand dollars ($50,000) reduced by the excess (if any) of
the highest outstanding balance of loans during the one (1) year period
ending on the day before the loan is made, over the outstanding balance of
loans from the Plan on the date the loan is made; or
(b) one-half (1/2) the present value of the nonforfeitable accrued
benefit of the Participant.
(c) For the purpose of the above limitation, all loans from all plans
of the Employer and other members of a group of employers described in
sections 414(b), 414(c) and 414(m) of the Code are aggregated.
13.4 Manner of Making Loans. A request by a Participant for a loan shall
be made in writing to the Plan Administrator and shall specify the amount of the
loan, and the subaccount(s) or Shares of the Participant from which the loan
should be made. The terms and conditions on which the Plan Administrator shall
approve loans under the Plan shall be applied on a uniform and nondiscriminatory
basis with respect to all Participants. If a Participant's request for a loan is
approved by the Plan Administrator, the Plan Administrator shall furnish the
Trustee with written instructions directing the Trustee to make the loan in a
lump-sum payment of cash to the Participant. In making any loan payment under
this ARTICLE, the Trustee shall be fully entitled to rely on the instructions
furnished by the Plan Administrator and shall be under no duty to make any
inquiry or investigation with respect thereto.
13.5 Terms of Loan. Loans shall be made on such terms and subject to such
limitations as the Plan Administrator may prescribe. Furthermore, any loan
shall, by its terms, require that repayment (principal and interest) be
amortized in level payments, not less frequently than quarterly, over a period
not extending beyond five (5) years from the date of the loan, unless such loan
is used to acquire a dwelling unit which, within a reasonable time (determined
at the time the loan is made) will be used as the principal residence of the
Participant. The rate of interest to be charged shall be determined by the Plan
Administrator in accordance with the rates quoted by representative financial
institutions in the local area for similar loans.
13.6 Security for Loan. Any loan to a Participant under the Plan shall be
secured by the pledge of all the Participant's right, title, and interest in the
Trust. Such pledge shall be evidenced by the execution of a promissory note by
the Participant which shall provide that, in the event of any default by the
Participant on a loan repayment, the Plan Administrator shall be authorized (to
the extent permitted by law) to deduct the amount of the loan outstanding and
any unpaid interest due thereon from the Participant's wages or salary to be
thereafter paid by the Employer, and to take any and all other actions necessary
and appropriate to enforce collection of the unpaid loan. An assignment or
pledge of any portion of the Participant's interest in the Plan and a loan,
pledge, or assignment with respect to any insurance contract purchased under the
Plan, will be treated as a loan under this section. In the event the value of
the Participant's vested Account at any time is less than one hundred twenty-
five percent (125%) of the outstanding loan balance, the Plan Administrator
shall request additional collateral of sufficient value to adequately secure the
repayment of the loan. Failure to provide such additional collateral upon a
request of the Plan Administrator shall constitute an event of default.
13.7 Segregated Investment. Loans shall be considered a Participant
directed investment and, for the limited purposes of allocating earnings and
losses pursuant to ARTICLE 5, shall not be considered a part of the common fund
under the Trust.
13.8 Repayment of Loan. The Plan Administrator shall have the sole
responsibility for ensuring that a Participant timely makes all loan repayments,
and for notifying the Trustee in the event of any default by the Participant on
the loan. Each loan repayment shall be paid to the Trustee and shall be
accompanied by written instructions from the Plan Administrator that identify
the Participant on whose behalf the loan repayment is being made.
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13.9 Default on Loan.
(a) In the event of a termination of the Participant's employment with
the Affiliated Employers or a default by a Participant on a loan repayment,
all remaining payments on the loan shall be immediately due and payable.
The Employer shall, upon the direction of the Plan Administrator, to the
extent permitted by law, deduct the total amount of the loan outstanding
and any unpaid interest due thereon from the wages or salaries payable to
the Participant by the Employer in accordance with the Participant's
promissory note. In addition, the Plan Administrator shall take any and all
other actions necessary and appropriate to enforce collection of the unpaid
loan. However, attachment of the Participant's Account pledged as security
will not occur until a distributable event occurs under the Plan.
(b) For purposes of this section, the term "default" shall mean
failure, by a period of at least ten (10) days, to make any loan payment
(whether principal or interest or both) that is due and payable. Neither
the Plan Administrator nor any other fiduciary is required to give any
written or oral notice of default.
13.10 Unpaid Amounts. Upon the occurrence of a Participant's
retirement or death, or upon a Participant's fifth consecutive Break in Service
or earlier distribution, the unpaid balance of any loan, including any unpaid
interest, shall be deducted from any payment or distribution from the Trust to
which such Participant or his Beneficiary may be entitled. If after charging
the Participant's Account with the unpaid balance of the loan, including any
unpaid interest, there still remains an unpaid balance of any such loan and
interest, then the remaining unpaid balance of such loan and interest shall be
charged against any property pledged as security with respect to such loan.
ARTICLE 14
INSURANCE
14.1 Insurance. If the Adoption Agreement so provides and the Employer
elects to allocate or permit Participants to allocate a portion of their
Accounts to purchase life insurance, the ensuing subsections of this ARTICLE
shall apply.
14.2 Policies. The Plan Administrator shall instruct the Trustee to
procure one or more life insurance policies on the Participant's life, the terms
of which shall conform to the requirements of the Plan and the Code. The
policies and the companies which write them shall be subject to the approval of
the Plan Administrator and the Trustee. The Trustee shall procure and hold such
policies in its name or the name of the nominee. The Trustee shall be the sole
owner of all contracts purchased hereunder, and it shall be so designated in
each policy and application therefor.
14.3 Beneficiary. The Participant shall have the right to name the
Beneficiary and to choose the benefit option under the policy for the
Beneficiary. The Trustee shall designate the Beneficiary of all such policies in
accordance with the written directions of the Plan Administrator and the policy
terms. Such designations may be outlined in the original application as
forwarded to the issuing company. However, the Plan Administrator shall have
available and shall furnish the Participant with the necessary forms for any
Beneficiary designation or change of Beneficiary and it will keep a copy of all
executed designations as part of its records. Upon a Participant's death, the
Plan Administrator will promptly furnish the Trustee a copy of the last
designation and shall authorize the Trustee to complete such forms as the
insurance company may require in order to effect the benefit option.
14.4 Payment of Premiums. Subject to the provisions of sections 7.3 and
14.5, premium payments to the insurer may be made only by the Trustee with
respect to any insurance policy purchased on behalf of a Participant and shall
constitute first an investment of a portion of the funds of the Participant's
Employer Contribution subaccounts up to the maximum amount of such subaccounts
permitted to be applied toward such premium payments, as provided in section
14.5. If a Participant's subaccounts lack sufficient assets to pay premiums on a
life insurance policy due on his behalf, the Trustee, at the direction of the
Plan Administrator, acting upon the request of the Participant, shall borrow
under the policy loan provisions, if any, the amount necessary to pay such
premiums, using the cash value of the insurance as security, or the Trustee may
liquidate assets held in the Participant's Account, in the same order, of
sufficient value to pay such premiums. Any loans shall be repaid by the
application of earnings, contributions, or forfeitures to the Account of the
Participant insured by such policy. In the absence of the Plan Administrator's
direction to borrow or to liquidate assets to pay premiums, the life insurance
policy shall be put on a paid-up basis or, if it has no cash value, cancelled.
14.5 Limitation on Insurance Premiums. The Trustee shall not pay, nor
shall anyone on behalf of the Trustee pay, any life insurance premium for any
Participant out of the Participant's Employer Contribution subaccounts unless
the amount of such payment, plus all premiums previously so paid on behalf of
the Participant, is less than fifty percent (50%) of the Employer Contributions
and forfeitures allocated to the Participant's Employer Contribution subaccounts
as determined on the date such premium is paid with respect to reserve life
insurance policies and shall be less than twenty-five percent (25%) thereof with
respect to nonreserve (term) policies, or, if both reserve life and term
insurance are purchased on the life of any Participant, the sum of the term
insurance premium plus one-half (1/2) of the reserve life premiums may not
exceed twenty-five percent (25%) of the Employer Contributions made on behalf of
such Participant. For purposes of these incidental insurance provisions,
reserve life insurance contracts are contracts with both nondecreasing death
benefits and nonincreasing premiums. Dividends received on life insurance
policies shall be considered a reduction of premiums paid in such computations.
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If payment of premiums on a Participant's life insurance policy is
prohibited because of the limitation, the Trustee, as directed by the Plan
Administrator, shall permit the Participant to maintain that part of the
coverage made available by the prohibited premiums, either by payment of the
amount of the prohibited premium by the Participant from sources other than the
Trust or by distributing the policy to the extent of the Participant's vested
interest to the Participant and eliminating it from the Trust.
Nothing contained in the foregoing provisions of section 14.4 and this
section shall be deemed to authorize the payment of any premium or premiums for
any Participant which would result in a failure to maintain any mandatory
investment in Shares required by the Sponsor in the Account or subaccounts of
any such Participant.
14.6 Insurance Company. No insurance company which may issue any policies
for the purposes of this Plan shall be required to take or permit any action
contrary to the provisions of said policies, nor shall such insurance company be
deemed to be a party to, or responsible for the validity of, this Plan for any
purpose. No such insurance company shall be required to look into the terms of
this Plan or question any action of the Trustee hereunder, nor be responsible to
see that any action of the Trustee is authorized by the terms of this Plan. Any
such issuing insurance company shall be fully discharged from any and all
liability for any amount paid to the Trustee or paid in accordance with the
direction of the Trustee, as the case may be, or for any change made or action
taken by such insurance company upon such direction and no such insurance
company shall be obliged to see to the distribution or further application of
any monies paid by it. The certificate of the Trustee signed by one of its
trust officers, assistant secretary, or other authorized representative thereof,
may be received by any insurance company as conclusive evidence of any of the
matters mentioned in this Plan and any insurance company shall be fully
protected in taking or permitting any action on the faith thereof and shall
incur no liability or responsibility for so doing.
14.7 Distribution of Policies. Upon a Participant's death, the Trustee,
upon direction of the Plan Administrator, shall procure the payment of the
proceeds of any policy held by the Participant in accordance with its terms and
this Plan. The Trustee shall be required to pay over all the proceeds of any
policy to the Participant's Designated Beneficiary in accordance with the
distribution provisions of this Plan. A Participant's Spouse will be the
Designated Beneficiary unless a Qualified Election has been made in accordance
with section 9.4(c) of the Plan. Under no circumstances shall the Trust retain
any part of the proceeds. Subject to the joint and survivor annuity
requirements of ARTICLE 9, the policies shall be converted or distributed upon
commencement of benefits in accordance with the provisions of this section.
Upon a Participant's retirement at or after his Normal Retirement Age, unless
there is a single sum distribution in which case any policy shall be
distributed, any such policy shall be converted to a paid-up contract and
delivered to the Participant but the Plan Administrator may, with the
Participant's consent, direct that a portion or all of such cash value of the
policy be converted to provide retirement income as permitted within the terms
of the policy and this Plan. Upon a Participant's retirement due to Total and
Permanent Disability, any such policy shall be held for his account and assigned
or delivered to the Participant in addition to any other benefits provided by
this Plan. Upon a Participant's termination of employment for reasons other than
death, Total and Permanent Disability, or retirement as stated above, to the
extent of life insurance purchased by Employer Contributions, he shall be
entitled to a vested interest in any policy held for his account as his interest
is vested in the remainder of his Employer Contribution subaccounts (exclusive
of any such policy). Whenever the Participant is entitled to one hundred percent
(100%) vesting, then such policy shall be assigned and delivered to the
Participant in accordance with its terms and the terms of the Plan. Whenever the
Participant is entitled to vesting of less than one hundred percent (100%), then
the Participant shall be entitled to a vested interest of the cash surrender
value of any such policy equal to his percent of vested interest in his Employer
Contribution subaccounts, exclusive of the policy, and one of the following
distribution procedures shall apply:
(a) If the nonvested portion of the cash surrender value of all
policies held for the Participant's Account is less than the amount of his
vested termination benefit exclusive of the policies, then, such policy
shall be assigned to the Participant and the remainder of the Participant's
vested interest in the Participant's Employer Contribution subaccounts
shall be reduced by the cash surrender value of the nonvested portion of
all policies, after which it shall be paid or distributed to the
Participant in accordance with the terms of the Plan; or
(b) If the nonvested portion of the cash surrender value of all
policies held for the Participant's Account exceeds the Participant's
vested interest in the Employer Contribution subaccount exclusive of such
policies, the Participant shall be given the opportunity to purchase such
policies by paying to the Trustee the amount of such excess within thirty
(30) days after notice to him of the amount to be paid. Upon receipt of
such payment said policy shall be assigned and delivered to the Participant
to the full satisfaction of all termination benefits under this Plan. Any
such policy not so purchased shall be surrendered by the Trustee for its
cash value and the proceeds thereof deposited in the Trust for reallocation
pursuant to ARTICLE 5.
It is the intention hereof that the total termination benefit of a
Participant whose interest is not fully vested shall be equal to the sum of the
vested percentage of his Employer Contribution subaccounts exclusive of all such
policies and the same percentage of the cash value of all such policies held for
his Account. To the extent possible under the foregoing provisions, such total
termination benefits shall be satisfied by the transfer and delivery to the
Participant of one or more such policies with the balance, if any, to be paid in
cash or in kind.
14.8 Policy Features. The Trustee shall arrange, where possible, that all
policies purchased for the benefit of a Participant shall have the same dividend
option which shall be on the premium reduction plan, and as nearly as may be
possible all policies issued under
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the Plan shall have the same anniversary date. To the extent any dividends or
credits earned on insurance policies are not applied toward the next premiums
due, they shall be allocated to the Participant's Employer Contribution
subaccount in the same manner as a Participant's directed investment.
14.9 Changed Conditions. From time to time because of changed conditions,
the Trustee, acting at the direction of the Plan Administrator upon the election
of the Participant concerned, shall obtain an additional contract or policy or
make such change in the contracts or policies maintained by the Trustee on the
life of the Participant as may be required by such changed conditions, within
the limits permitted by the insurance company which issued or is requested to
issue a contract and the limits established by this Plan.
14.10 Conflicts. In the event of any conflict between the terms of the
Plan and the provisions of any contract issued hereunder, the terms of the Plan
shall control.
ARTICLE 15
ADMINISTRATION
15.1 Duties and Responsibilities of Fiduciaries; Allocation of Fiduciary
Responsibility. A fiduciary of the Plan shall have only those specific powers,
duties, responsibilities, and obligations as are explicitly given him under the
Plan and Trust Agreement. In general, the Employer shall have the sole
responsibility for making contributions to the Plan required under ARTICLE 4;
appointing the Trustee and the Plan Administrator; and determining the funds
available for investment under the Plan. The Plan Administrator shall have the
sole responsibility for the administration of the Plan, as more fully described
in section 15.2. It is intended that each fiduciary shall be responsible only
for the proper exercise of his own powers, duties, responsibilities, and
obligations under the Plan and Trust Agreement, and shall not be responsible for
any act or failure to act of another fiduciary. A fiduciary may serve in more
than one fiduciary capacity with respect to the Plan.
15.2 Powers and Responsibilities of the Plan Administrator.
(a) Administration of the Plan. The Plan Administrator shall have all
powers necessary to administer the Plan, including the power to construe
and interpret the Plan documents; to decide all questions relating to an
individual's eligibility to participate in the Plan; to determine the
amount, manner, and timing of any distribution of benefits or withdrawal
under the Plan; to approve and ensure the repayment of any loan to a
Participant under the Plan; to resolve any claim for benefits in accordance
with section 15.7; and to appoint or employ advisors, including legal
counsel; to render advice with respect to any of the Plan Administrator's
responsibilities under the Plan. Any construction, interpretation, or
application of the Plan by the Plan Administrator shall be final,
conclusive, and binding. All actions by the Plan Administrator shall be
taken pursuant to uniform standards applied to all persons similarly
situated. The Plan Administrator shall have no power to add to, subtract
from, or modify any of the terms of the Plan, or to change or add to any
benefits provided by the Plan, or to waive or fail to apply any
requirements of eligibility for a benefit under the Plan.
(b) Records and Reports. The Plan Administrator shall be responsible
for maintaining sufficient records to reflect the Eligibility Computation
Periods in which an Employee is credited with one or more Years of Service
for purposes of determining his eligibility to participate in the Plan, and
the Compensation of each Participant for purposes of determining the amount
of contributions that may be made by or on behalf of the Participant under
the Plan. The Plan Administrator shall be responsible for submitting all
required reports and notifications relating to the Plan to Participants or
their Beneficiaries, the Internal Revenue Service and the Department of
Labor.
(c) Furnishing Trustee with Instructions. The Plan Administrator
shall be responsible for furnishing the Trustee with written instructions
regarding all contributions to the Trust, all distributions to Participants
in accordance with ARTICLE 10, all withdrawals by Participants in
accordance with ARTICLE 12, all loans to Participants in accordance with
ARTICLE 13 and all purchases of life insurance in accordance with ARTICLE
14. In addition, the Plan Administrator shall be responsible for furnishing
the Trustee with any further information respecting the Plan which the
Trustee may request for the performance of its duties or for the purpose of
making any returns to the Internal Revenue Service or Department of Labor
as may be required of the Trustee.
(d) Rules and Decisions. The Plan Administrator may adopt such rules
as it deems necessary, desirable, or appropriate in the administration of
the Plan. All rules and decisions of the Plan Administrator shall be
applied uniformly and consistently to all Participants in similar
circumstances. When making a determination or calculation, the Plan
Administrator shall be entitled to rely upon information furnished by a
Participant or Beneficiary, the Employer, the legal counsel of the
Employer, or the Trustee.
(e) Application and Forms for Benefits. The Plan Administrator may
require a Participant or Beneficiary to complete and file with it an
application for a benefit, and to furnish all pertinent information
requested by it. The Plan Administrator may rely upon all such information
so furnished to it, including the Participant's or Beneficiary's current
mailing address.
(f) Facility of Payment. Whenever, in the Plan Administrator's
opinion, a person entitled to receive a payment of a benefit or installment
thereof is under a legal disability or is incapacitated in any way so as to
be unable to manage his financial affairs, as determined by a court of
competent jurisdiction, it may direct the Trustee to make payments to such
person or to the legal representative or to a relative or friend of such
person for that person's benefit, or it may direct the Trustee to apply the
payment for the benefit of such person in such manner as it considers
advisable.
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15.3 Allocation of Duties and Responsibilities. The Plan
Administrator may, by written instrument, allocate among its members or
employees any of its duties and responsibilities not already allocated under the
Plan or may designate persons other than members or employees to carry out any
of the Plan Administrator's duties and responsibilities under the Plan. Any
such duties or responsibilities thus allocated must be described in the written
instrument. If a person other than an Employee of the Employer is so
designated, such person must acknowledge in writing his acceptance of the duties
and responsibilities allocated to him.
15.4 Appointment of the Plan Administrator. The Employer shall designate
in the Adoption Agreement the Plan Administrator who shall administer the
Employer's Plan. Such Plan Administrator may consist of an individual, a
committee of two or more individuals, whether or not, in either such case, the
individual or any of such individuals are Employees of the Employer, a
consulting firm or other independent agent, the Trustee (with its consent), or
the Employer itself. The Plan Administrator shall be charged with the full
power and the responsibility for administering the Plan in all its details. If
no Plan Administrator has been appointed by the Employer, or if the person
designated as Plan Administrator by the Employer is not serving as such for any
reason, the Employer shall be deemed to be the Plan Administrator of the Plan.
The Plan Administrator may be removed by the Employer, or may resign by giving
notice in writing to the Employer, and in the event of the removal, resignation,
or death, or other termination of service by the Plan Administrator, the
Employer shall, as soon as practicable, appoint a successor Plan Administrator,
such successor thereafter to have all of the rights, privileges, duties, and
obligations of the predecessor Plan Administrator.
15.5 Expenses. The Employer shall pay all expenses authorized and incurred
by the Plan Administrator in the administration of the Plan except to the extent
such expenses are paid from the Trust.
15.6 Liabilities. The Plan Administrator and each person to whom duties
and responsibilities have been allocated pursuant to section 15.3 may be
indemnified and held harmless by the Employer with respect to any alleged breach
of responsibilities performed or to be performed hereunder. The Employer and
each Affiliated Employer shall indemnify and hold harmless the Sponsor against
all claims, liabilities, fines, and penalties, and all expenses reasonably
incurred by or imposed upon him (including, but not limited to, reasonable
attorney's fees) which arise as a result of actions or failure to act in
connection with the operation and administration of the Plan.
15.7 Claims Procedure.
(a) Filing a Claim. Any Participant or Beneficiary under the Plan may
file a written claim for a Plan benefit with the Plan Administrator or with
a person named by the Plan Administrator to receive claims under the Plan.
(b) Notice of Denial of Claim. In the event of a denial or limitation
of any benefit or payment due to or requested by any Participant or
Beneficiary under the Plan ("claimant"), claimant shall be given a written
notification containing specific reasons for the denial or limitation of
his benefit. The written notification shall contain specific reference to
the pertinent Plan provisions on which the denial or limitation of his
benefit is based. In addition, it shall contain a description of any other
material or information necessary for the claimant to perfect a claim, and
an explanation of why such material or information is necessary. The
notification shall further provide appropriate information as to the steps
to be taken if the claimant wishes to submit his claim for review. This
written notification shall be given to a claimant within ninety (90) days
after receipt of his claim by the Plan Administrator unless special
circumstances require an extension of time for processing the claim. If
such an extension of time for processing is required, written notice of the
extension shall be furnished to the claimant prior to the termination of
said ninety (90) day period, and such notice shall indicate the special
circumstances which make the postponement appropriate.
(c) Right of Review. In the event of a denial or limitation of his
benefit, the claimant or his duly authorized representative shall be
permitted to review pertinent documents and to submit to the Plan
Administrator issues and comments in writing. In addition, the claimant or
his duly authorized representative may make a written request for a full
and fair review of his claim and its denial by the Plan Administrator;
provided, however, that such written request must be received by the Plan
Administrator (or its delegate to receive such requests) within sixty (60)
days after receipt by the claimant of written notification of the denial or
limitation of the claim. The sixty (60) day requirement may be waived by
the Plan Administrator in appropriate cases.
(d) Decision on Review. A decision shall be rendered by the Plan
Administrator within sixty (60) days after the receipt of the request for
review, provided that where special circumstances require an extension of
time for processing the decision, it may be postponed on written notice to
the claimant (prior to the expiration of the initial sixty (60) day period)
for an additional sixty (60) days, but in no event shall the decision be
rendered more than one hundred twenty (120) days after the receipt of such
request for review. Any decision by the Plan Administrator shall be
furnished to the claimant in writing and shall set forth the specific
reasons for the decision and the specific Plan provisions on which the
decision is based.
(e) Court Action. No Participant or Beneficiary shall have the right
to seek judicial review of a denial of benefits, or to bring any action in
any court to enforce a claim for benefits prior to filing a claim for
benefits or exhausting his rights to review under this section.
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ARTICLE 16
AMENDMENT, TERMINATION AND MERGER
16.1 Sponsor's Power to Amend. The Sponsor may amend any part of the Plan.
For purposes of Sponsor's amendments, the mass submitter shall be recognized as
the agent of the Sponsor. If the Sponsor does not adopt the amendments made by
the mass submitter, it will no longer be identical to or a minor modifier of the
mass submitter plan.
16.2 Amendment by Adopting Employer.
(a) The Employer may:
(i) change the choice of options in the Adoption Agreement;
(ii) add overriding language in the Adoption Agreement when such
language is necessary to satisfy section 415 or section 416 of the
Code because of the required aggregation of multiple plans; and
(iii) add certain model amendments published by the Internal
Revenue Service which specifically provide that their adoption will
not cause the Plan to be treated as individually designed.
(b) An Employer that amends the Plan for any other reason, including a
waiver of the minimum funding requirement under section 412(d) of the Code,
will no longer participate in this prototype plan and will be considered to
have an individually designed plan.
16.3 Vesting Upon Plan Termination. In the event of the termination or
partial termination of the Plan, the Account balance of each affected
Participant will be nonforfeitable.
16.4 Vesting Upon Complete Discontinuance of Contributions. In the event
of a complete discontinuance of contributions under the Plan, the Account
balance of each affected Participant will be nonforfeitable.
16.5 Maintenance of Benefits Upon Merger. In the event of a merger or
consolidation with, or transfer of assets to any other plan, each Participant
will receive a benefit immediately after such merger, consolidation or transfer
(if the Plan then terminated) which is at least equal to the benefit the
Participant was entitled to immediately before such merger, consolidation or
transfer (if the Plan had been terminated).
16.6 Special Amendments. The Employer may from time to time make any
amendment to the Plan that may be necessary to satisfy section 415 or 416 of the
Code. Any such amendment will be adopted by the Employer by completing
overriding Plan language in the Adoption Agreement. In the event of such an
amendment, the Employer must obtain a separate determination letter from the
Internal Revenue Service to continue reliance on the Plan's qualified status.
ARTICLE 17
MISCELLANEOUS
17.1 Exclusive Benefit of Participants and Beneficiaries.
(a) All assets of the Trust shall be retained for the exclusive
benefit of Participants and their Beneficiaries, and shall be used only to
pay benefits to such persons or to pay the fees and expenses of the Trust.
The assets of the Trust shall not revert to the benefit of the Employer,
except as otherwise specifically provided in section 17.1(b).
(b) To the extent permitted or required by ERISA and the Code,
contributions to the Trust under this Plan are subject to the following
conditions:
(i) If a contribution or any part thereof is made to the Trust by
the Employer under a mistake of fact, such contribution or part
thereof shall be returned to the Employer within one (1) year after
the date the contribution is made.
(ii) In the event the Plan is determined not to meet the initial
qualification requirements of section 401 of the Code, contributions
made in respect of any period for which such requirements are not met
shall be returned to the Employer within one (1) year after the Plan
is determined not to meet such requirements, but only if the
application for the qualification is made by the time prescribed by
law for filing the Employer's return for the taxable year in which the
Plan is adopted, or such later date as the Secretary of the Treasury
may prescribe.
(iii) Contributions to the Trust are specifically conditioned on
their deductibility under the Code and, to the extent a deduction is
disallowed for any such contribution, such amount shall be returned to
the Employer within one (1) year after the date of the disallowance of
the deduction.
17.2 Nonguarantee of Employment. Nothing contained in this Plan shall be
construed as a contract of employment between the Employer and any Employee, or
as a right of any Employee to be continued in the employment of the Employer, or
as a limitation of the right of the Employer to discharge any of its Employees,
with or without cause.
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17.3 Rights to Trust Assets. No Employee, Participant, or Beneficiary
shall have any right to, or interest in, any assets of the Trust upon
termination of employment or otherwise, except as provided under the Plan. All
payments of benefits under the Plan shall be made solely out of the assets of
the Trust.
17.4 Nonalienation of Benefits. No benefit or interest available hereunder
will be subject to assignment or alienation, either voluntarily or
involuntarily. The preceding sentence shall also apply to the creation,
assignment, or recognition of a right to any benefit payable with respect to a
Participant pursuant to a domestic relations order, unless such order is
determined to be a qualified domestic relations order, as defined in section
414(p) of the Code, or any domestic relations order entered before January 1,
1985.
17.5 Aggregation Rules.
(a) Except as provided in ARTICLE 6, all Employees of the Employer or
any Affiliated Employer will be treated as employed by a single employer.
(b) If this Plan provides contributions or benefits for one or more
Owner-Employees who control both the business for which this Plan is
established and one or more other trades or businesses, this Plan and the
plan established for other trades or businesses must, when looked at as a
single plan, satisfy sections 401(a) and (d) of the Code for the Employees
of this and all other trades or businesses.
(c) If the Plan provides contributions or benefits for one or more
Owner-Employees who control one or more other trades or businesses, the
employees of the other trades or businesses must be included in a plan
which satisfies sections 401(a) and (d) of the Code and which provides
contributions and benefits not less favorable than provided for Owner-
Employees under this Plan.
(d) If an individual is covered as an Owner-Employee under the plans
of two or more trades or businesses which are not controlled and the
individual controls a trade or business, then the contributions or benefits
of the employees under the plan of the trades or businesses which are
controlled must be as favorable as those provided for him under the most
favorable plan of the trade or business which is not controlled.
(e) For purposes of paragraphs (b), (c) and (d), an Owner-Employee, or
two or more Owner-Employees, will be considered to control a trade or
business if the Owner-Employee, or two or more Owner-Employees together:
(i) own the entire interest in an unincorporated trade or
business; or
(ii) in the case of a partnership, own more than fifty percent
(50%) of either the capital interest or the profits interest in the
partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more
Owner-Employees shall be treated as owning an interest in a partnership which is
owned, directly or indirectly, by a partnership which such Owner-Employee, or
such two or more Owner-Employees, are considered to control within the meaning
of the preceding sentence.
17.6 Failure of Qualification. If the Employer's plan fails to attain or
retain qualification, such plan will no longer participate in this
master/prototype plan and will be considered an individually designed plan.
17.7 Applicable Law. Except to the extent otherwise required by ERISA, as
amended, this Plan shall be construed and enforced in accordance with the laws
of the state in which the Employer's principal place of business is located, as
specified in the Adoption Agreement.
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PROTOTYPE DEFINED CONTRIBUTION TRUST
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PROTOTYPE DEFINED CONTRIBUTION TRUST
TABLE OF CONTENTS
-----------------
Article Page
- ------- ----
ARTICLE I ACCOUNTS
1.1 Establishing Accounts........................... 33
1.2 Charges Against Accounts........................ 33
1.3 Prospectus to be Provided....................... 33
ARTICLE II RECEIPT OF CONTRIBUTIONS............................. 33
ARTICLE III INVESTMENT POWERS OF THE TRUSTEE
3.1 Investment of Account Assets.................... 33
3.2 Directed Investments............................ 34
3.3 General Investment Powers....................... 34
3.4 Investment in Combined Funds.................... 35
3.5 Other Powers of the Trustee..................... 35
3.6 General Powers.................................. 35
3.7 Valuation of Trust.............................. 35
3.8 Bonding......................................... 35
3.9 Duties not Assigned............................. 35
ARTICLE IV DISTRIBUTIONS FROM A PARTICIPANT'S ACCOUNT........... 35
ARTICLE V REPORTS OF THE TRUSTEE AND THE PLAN ADMINISTRATOR.... 36
ARTICLE VI TRUSTEE'S FEES AND EXPENSES OF THE TRUST............. 36
ARTICLE VII DUTIES OF THE EMPLOYER AND THE PLAN ADMINISTRATOR.... 36
7.1 Information and Data to be Furnished
the Trustee..................................... 36
7.2 Limitation of Duties............................ 36
ARTICLE VIII LIABILITY OF THE TRUST
8.1 Trustee's Liability............................. 36
ARTICLE IX DELEGATION OF POWERS
9.1 Delegation by the Trustee....................... 37
9.2 Delegation with Employer Approval............... 37
ARTICLE X AMENDMENT............................................ 38
ARTICLE XI RESIGNATION OR REMOVAL OF TRUSTEE.................... 38
ARTICLE XII TERMINATION OF THE TRUST
12.1 Term of the Trust............................... 38
12.2 Termination by the Trustee...................... 38
ARTICLE XIII MISCELLANEOUS
13.1 No Diversion of Assets.......................... 38
13.2 Notices......................................... 38
13.3 Multiple Trustees............................... 38
13.4 Conflict with Plan.............................. 38
13.5 Applicable Law.................................. 39
13.6 Returned Contributions.......................... 39
13.7 General Undertaking............................. 39
13.8 Invalidity of Certain Provisions................ 39
13.9 Counterpart Originals........................... 39
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TRUST AGREEMENT
The Employer has established a Plan for the benefit of Participants
therein pursuant to section 401 of the Internal Revenue Code of 1986. As part
of the Plan, the Employer has requested such person or persons (individual,
corporate, or other entity), as may be designated in the Adoption Agreement, to
serve as Trustee pursuant to the Trust established for the investment of
contributions under the Plan upon the terms and conditions set forth in this
Trust Agreement.
Unless the context of this Trust Agreement clearly indicates
otherwise, the terms defined in ARTICLE 2 of the Plan entered into by the
Employer, of which this Trust Agreement forms a part, shall, when used herein,
have the same meaning as in the Plan.
ARTICLE I
ACCOUNTS
1.1 Establishing Accounts. The Trustee shall open and maintain a
Trust account for the Plan and, as part thereof, Participants' Accounts for such
individuals as the Plan Administrator shall, from time to time, give written
notice to the Trustee as being Participants in the Plan. The Trustee shall also
open and maintain such other subaccounts as may be appropriate or desirable to
aid in the administration of the Plan. Separate subaccounts shall be maintained
for each Participant and shall be credited with the contributions made by the
Employer and with forfeitures allocated to each such Participant pursuant to the
Plan (and all earnings thereon). If nondeductible voluntary contributions by
Participants are permitted by the Plan, the Trustee shall open and maintain as a
part of the Trust a separate subaccount for each Participant who makes such
nondeductible voluntary contributions, each such subaccount to be credited with
the Participant's voluntary contributions (and all earnings attributable to such
contributions). If trustee transfers or rollover contributions from another
qualified plan are received, the Trustee shall open and maintain a separate
rollover subaccount for each Participant, each such subaccount to be credited
with the Participant's trustee transfers or rollover contributions (and all
earnings attributable to such contributions).
1.2 Charges Against Accounts. Upon receipt of written instructions
from the Administrator, the Trustee shall charge the appropriate subaccount of
the Participant for any withdrawals or distributions made under the Plan and any
forfeiture, which may be required under the Plan, of unvested interests
attributable to Employer Contributions. The Plan Administrator will give written
instructions to the Trustee specifying the manner in which Employer
Contributions and any forfeiture of the nonvested portion of Accounts, as
allocated by the Plan Administrator in accordance with the provisions of the
Plan, are to be credited to the various Accounts maintained for Participants.
1.3 Prospectus to be Provided. The Plan Administrator shall ensure
that a Participant who makes a nondeductible voluntary contribution has
previously received or receives a copy of the then current prospectus relating
to the Shares. Delivery of such a nondeductible voluntary contribution,
pursuant to the provisions of the Plan by the Plan Administrator to the Trustee
shall entitle the Trustee to assume that the Participant has received such a
prospectus.
ARTICLE II
RECEIPT OF CONTRIBUTIONS
The Trustee shall accept and hold in the Trust contributions made by
the Employer and Participants under the Plan. The Administrator shall give
written instructions to the Trustee specifying the Participants' Accounts to
which contributions are to be credited, the amount of each such credit which is
attributable to Employer Contributions, and the amount, if any, which is
attributable to the Participant's nondeductible voluntary contributions. If
written instructions are not received by the Trustee, or if such instructions
are received but are deemed by the Trustee to be unclear, upon notice to the
Employer, the Trustee may elect to hold all or part of any such contribution in
cash, without liability for rising security prices or distributions made,
pending receipt by it from the Plan Administrator of written instructions or
other clarification, or the Trustee may return the contribution to the Employer.
If any contributions or earnings are less than any minimum which the then
current prospectus for the Shares requires, the Trustee may hold the specified
portion of contributions or earnings in cash, without interest, until such time
as the proper amount has been contributed or earned so that the investment in
the Shares required under the Plan may be made. All payments to the Trust shall
be remitted in U.S. currency or other property to the Trustee at the address
specified by it. Any payments not in U.S. currency may, in the sole discretion
of the Trustee, be refused.
ARTICLE III
INVESTMENT POWERS OF THE TRUSTEE
3.1 Investment of Account Assets. The Trustee shall invest the
amount of each contribution made hereunder and all earnings on the Trust in full
and fractional Shares in accordance with the current prospectus for such Shares,
in such amounts and proportions as shall from time to time be designated by the
Plan Administrator on forms provided by the Sponsor, and shall credit such
Shares to the
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Accounts of each Participant on whose behalf or by whom the contributions are
made and any forfeitures are allocated. All dividends and capital gain
distributions received on the Shares held by the Trustee in each Account, shall,
if received in cash, be reinvested in such Shares in accordance with the current
prospectus for such Shares and shall in any event be credited to such Account.
If any distribution on Shares may be received at the election of the shareholder
in additional Shares, the Trustee shall so elect. The Trustee shall deliver, or
cause to be executed and delivered, to the Plan Administrator, all notices,
prospectuses, financial statements, proxies, and proxy soliciting materials
relating to Shares held hereunder. The Trustee shall not vote any of the Shares
held hereunder, except in accordance with the written instructions of the Plan
Administrator. If no such written instructions are received, such Shares shall
not be voted. The obligations of the Trustee hereunder may be delegated by it as
provided in sections 9.1 and 9.2.
The Trustee shall sell Shares and purchase Shares to accomplish any
change in investments desired by the Employer as indicated on any amended
Adoption Agreement or other instructions in accordance with the terms of the
Plan.
Notwithstanding the above, if periodic payments are being made to a
Participant pursuant to ARTICLE IV hereof, any dividends received on Shares held
in such Participant's Account, which dividends are invested at an offering price
which includes a sales charge, need not be invested in additional Shares but may
be held for distribution to the Participant in periodic payments. In such
instances, the Trustee may make any election necessary to receive any such
dividends in cash.
3.2 Directed Investments. When so instructed by the Plan
Administrator, the Trustee shall invest all or any portion of the individual
Account of any Participant in accordance with the direction of the Employer or
such Participant in lieu of participation in the general assets of the Trust.
Such directed investments shall be accounted for separately for each
Participant. Except as otherwise provided herein, the Trustee shall not have any
discretion, and is specifically prohibited from exercising any control or
discretion, with respect to such directed investments. Each Participant who
directs the investment of his Account shall be solely and absolutely responsible
for the investment or reinvestment of all directed investment assets held on his
behalf in Trust, and, except as otherwise provided herein, the Trustee shall not
question any such direction, review any securities or other such assets, or make
suggestions with respect to the investment, retention or disposition of any such
assets; provided that:
(a) If any contributions are transmitted to or otherwise received
or held as directed investment assets without investment directions
from the Participant, the Trustee may retain such amounts in a
noninterest-bearing savings account in a federally insured institution
for the benefit of the Participant.
(b) The Trustee may establish such reasonable rules and
regulations, applied on a uniform basis to all Participants, with
respect to the requirements for, and the form and manner of,
effectuating any transaction with respect to directed investment
assets including, without limitation, minimum amounts, rules
applicable to conversion of directed investments into general assets
of the Trust, and appropriate adjustments (based on fair market
values) to Accounts to reflect any such conversion, as the Trustee
shall determine to be consistent with the purposes of the Plan. Any
such rules and regulations shall be binding upon all persons
interested in the Trust.
(c) The Trustee may establish a procedure for the periodic review
of directed investment assets to determine, in light of the facts and
circumstances reasonably known to it, whether any actual or proposed
investment of such assets constitutes or would constitute a prohibited
transaction as that term is defined in sections 406-408 of ERISA and
the corresponding provisions of the Code. If the Trustee determines
that any investment constitutes or would constitute a prohibited
transaction, the Trustee shall promptly communicate this determination
to the Plan Administrator, and shall recommend that the investment be
prevented or disposed of, as the case may be, and may recommend any
other action authorized or required by law, to prevent or remedy the
transaction.
(d) In accordance with and pursuant to uniform and
nondiscriminatory rules established under and in accordance with the
Plan, the Trustee may deny the Plan Administrator's application to
allow a directed investment proposed by a Participant.
(e) Notwithstanding anything herein to the contrary, in no event
shall the Trustee engage in any transaction that would be prohibited
under ERISA.
3.3 General Investment Powers. Subject to any investment limitations
or minimum requirements for investments in Shares imposed by the Sponsor, and
subject to investment instructions given by the Employer, the Trustee shall be
authorized and empowered to invest and reinvest all or any part of the Trust in
any property, real or personal or mixed, including, but not being limited to,
capital or common stock (whether voting or nonvoting or whether or not currently
paying a dividend), preferred or preference stock (whether voting or nonvoting
or whether or not currently paying a dividend), Shares of regulated investment
companies, convertible securities, corporate and governmental obligations,
leaseholds, ground rents, mortgages, and other interests in realty, trust, and
participation certificates, oil, mineral or gas properties, royalty interests or
rights, including equipment pertaining thereto, notes and other evidences of
indebtedness or ownership, secured or unsecured, contracts, choses in action,
and warrants, and other instruments entitling the owner thereof to subscribe to
or purchase any of the aforesaid. Subject to any investment limitations or
requirements imposed by the Sponsor relating to the type of permissible
investments in the Trust or the minimum percentage of Trust assets to be
invested in Shares, and subject to the provisions of ARTICLE VIII hereof, in
making and retaining such investments and reinvestments pursuant hereto, the
Trustee shall not be bound as to the character of any investments by any
statute, rule of court, or custom governing the investment of Trust funds.
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3.4 Investment in Combined Funds. If the Trustee is a banking
institution, subject to any investment limitations or minimum requirements for
investment in Shares imposed by the Sponsor, and subject to investment
instructions given by the Employer, it may, subject to the election of the
Sponsor or the Employer, cause funds of this Trust to be invested in its
commingled funds for qualified employee benefit plan trusts and such commingled
funds are hereby adopted and made a part of the Plan of which this Trust is a
part, and any funds of this Trust invested in any such commingled funds shall be
subject to all the provisions thereof, as the same may be amended from time to
time.
3.5 Other Powers of the Trustee. The Trustee is authorized and
empowered with respect to the Trust:
(a) Subject to any investment limitations or minimum requirements
for investment in Shares imposed by the Sponsor, and subject to
investment instructions given by the Employer, to sell, exchange,
convey, transfer, or otherwise dispose of, either at public or private
sale, any property, real or personal or mixed, at any time held by it,
for such consideration and on such terms and conditions as to credit
or otherwise as the Trustee may deem best.
(b) Subject to the provisions of section 3.1, to vote in person or
by proxy any stocks, bonds, or other securities held by it; to
exercise any options appurtenant to any stocks, bonds, or other
securities, or to exercise any rights to subscribe for additional
stocks, bonds, or other securities, and to make any and all necessary
payments therefor, to join in, or to dissent from, and to oppose, the
reorganizations, consolidation, liquidation, sale, or merger of
corporations, or properties in which it may be interested as Trustee,
upon such terms and conditions as it may deem wise.
(c) To make, execute, acknowledge, and deliver any and all
documents of transfer and conveyance and any and all other instruments
that may be necessary or appropriate to carry out the powers herein
granted.
(d) To register any investment held in the Trust in the name of
the Trust or in the name of a nominee, and to hold any investment in
bearer form, but the books and records of the Trustee shall at all
times show that all such investments are part of the Trust.
(e) To employ suitable agents and counsel (who may also be agents
and/or counsel for the Employer or the Sponsor) and to pay their
reasonable expenses and compensation.
(f) To borrow or raise monies for the purpose of the Trust from
any source and, for any sum so borrowed to issue its promissory note
as Trustee and to secure the repayment thereof by pledging all or any
part of the Trust fund, but nothing herein contained shall obligate
the Trustee to render itself liable individually for the amount of any
such borrowing; and no person loaning money to the Trustee shall be
bound to see to the application of money loaned or to inquire into the
validity or propriety of any such borrowing.
Each and all of the foregoing powers may be exercised without a court
order or approval. No one dealing with the Trustee need inquire concerning the
validity or propriety of anything that is done or need see to the application of
any money paid or property transferred to or upon the order of the Trustee.
3.6 General Powers. The Trustee shall have all of the powers
necessary or desirable to do all acts, take all such proceedings, and exercise
all such rights and privileges, whether or not expressly authorized herein,
which it may deem necessary or proper for the administration and protection of
the property of the Trust and to accomplish any action provided for in the Plan.
3.7 Valuation of Trust. The Trustee, as of the Valuation Date, and
at such other time or times as it determines, shall determine the net worth of
the assets of the Trust. In determining such net worth, the assets of the Trust
shall be evaluated at their fair market value and all expenses shall be
deducted. The Trustee may adopt such methods of valuation as it deems
advisable.
3.8 Bonding. Except to the extent otherwise required by law, the
Trustee shall not be required to obtain any bonds in connection with its duties
hereunder. The cost of any bond obtained may be charged as an expense of the
Trust, but if not so charged, shall be paid by the Employer.
3.9 Duties not Assigned. The duties of the Trustee with respect to
the Plan are limited to those assumed by the Trustee by the terms of this Trust.
The Trustee shall not be deemed, by virtue hereof, to be the administrator or
sponsor of the Plan, and shall not be responsible for filing reports, returns or
disclosures with any government agency except as may otherwise be required by
its duties as Trustee under applicable law.
ARTICLE IV
DISTRIBUTIONS FROM A PARTICIPANT'S ACCOUNT
Distributions from the Trust shall be made by the Trustee in
accordance with proper written directions of the Plan Administrator in
accordance with the provisions of section 15.2 of the Plan, and the Plan
Administrator shall have the sole responsibility for determining that the
directions given conform to provisions of the Plan and applicable law, including
(without limitation) responsibility for calculating the vested interests of the
Participant, for calculating the amounts payable to a Participant pursuant to
ARTICLE 11 of the Plan, and for
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determining the proper person to whom benefits are payable under the Plan.
Except to the extent otherwise provided in the Plan, the interest of
Participants and Beneficiaries in the Trust and in the net earnings and profits
thereof may not be assigned or used by a Participant or Beneficiary as
collateral for a loan and shall not be subject to garnishment, attachment, levy
or execution of any kind for the debts or defaults of the Trustee or of any
person, natural or legal, having interest in the Trust.
ARTICLE V
REPORTS OF THE TRUSTEE AND THE PLAN ADMINISTRATOR
The Trustee shall keep accurate and detailed records of all receipts,
investments, disbursements, and other transactions required to be performed
hereunder with respect to the Trust. The Trustee shall file with the Plan
Administrator a written report or reports reflecting the receipts,
disbursements, and other transactions effected by it with respect to the Trust
during such Plan Year and the assets and liabilities of the Trust at the close
of the Plan Year. Such report or reports shall be open to inspection by any
Participant for a period of one hundred eighty (180) days immediately following
the date on which it is filed with the Plan Administrator. Except as otherwise
prescribed by ERISA, upon the expiration of such one hundred eighty (180) day
period, the Trustee shall be forever released and discharged from all liability
and accountability to anyone with respect to its acts, transactions, duties,
obligations, or responsibilities as shown in or reflected by such report, except
with respect to any such acts or transactions as to which the Plan Administrator
shall have filed written objections with the Trustee within such one hundred
eighty (180) day period, and except for willful misconduct or lack of good faith
on the part of the Trustee.
ARTICLE VI
TRUSTEE'S FEES AND EXPENSES OF THE TRUST
The Trustee's fees for performing its duties hereunder shall be such
reasonable amounts as shall be respectively established by it from time to time.
The Trustee shall furnish the Employer with its current schedule of fees and
shall give written notice to the Employer whenever its fees are changed or
revised. Such fees, any taxes of any kind whatsoever which may be levied or
assessed upon or in respect of the Trust, to the extent incurred by the Trustee
and any and all expenses incurred by the Trustee in the performance of its
duties, including fees for legal services rendered to the Trustee, shall, unless
paid by the Employer, be paid from the Trust in the manner provided in the Plan.
Unless paid by the Employer, all fees of the Trustee and taxes and
other expenses charged to a Participant's Account may be collected by the
Trustee from the amount of any contribution to be credited or distribution to be
charged to such Account or may be paid by redeeming or selling assets credited
to such Account.
ARTICLE VII
DUTIES OF THE EMPLOYER AND THE PLAN ADMINISTRATOR
7.1 Information and Data to be Furnished the Trustee. In addition to
making the contributions called for in ARTICLE II hereof, the Employer, through
the Plan Administrator, agrees to furnish the Trustee with such information and
data relative to the Plan as is necessary for the proper administration of the
Trust established hereunder.
7.2 Limitation of Duties. Neither the Employer nor any of its
officers, directors, or partners, nor the Plan Administrator shall have any
duties or obligations with respect to this Trust Agreement, except those
expressly set forth herein and in the Plan.
ARTICLE VII
LIABILITY OF THE TRUST
8.1 Trustee's Liability.
(a) The Employer shall indemnify and save the Trustee (including
its affiliates, representatives and agents) harmless from and against
any liability, cost or other expense, including, but not limited to,
the payment of attorneys' fees that the Trustee may incur in
connection with this Trust Agreement or the Plan unless such
liability, cost or other expense (whether direct or indirect) arises
from the Trustee's own willful misconduct or gross negligence. The
Employer recognizes that a burden of litigation may be imposed upon
the Trustee as a result of some act or transaction for which it has no
responsibility or over which it has no control under this Trust
Agreement. Therefore, the Employer agrees to indemnify and hold
harmless and, if requested, defend the Trustee (including its
affiliates, representatives and agents) from any expenses (including
counsel fees, liabilities, claims, damages, actions, suits or other
charges) incurred by the Trustee in prosecuting or defending against
any such litigation.
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(b) The Trustee shall not be liable for, and the Employer will
indemnify and hold harmless the Trustee (including its affiliates,
representatives and agents) from and against all liability or expense
(including counsel fees) because of (i) any investment action taken or
omitted by the Trustee in accordance with any direction of the
Employer or a Participant, or investment inaction in the absence of
directions from the Employer or a Participant or (ii) any investment
action taken by the Trustee pursuant to an order to purchase or sell
securities placed by the Employer or a Participant directly with a
broker, dealer or issuer. It is understood that although, when the
Trustee is subject to the direction of the Employer or a Participant
the Trustee will perform certain ministerial duties with respect to
the portion of the Fund subject to such direction (the "Directed
Fund"), such duties do not involve the exercise of any discretionary
authority or other authority to manage and control assets of the
Directed Fund and will be performed in the normal course of business
by officers and employees of the Trustee or its affiliates,
representatives or agents who may be unfamiliar with investment
management. It is agreed that the Trustee is not undertaking any duty
or obligation, express or implied, to review, and will not be deemed
to have any knowledge of or responsibility with respect to, any
transaction involving the investment of the Directed Fund as a result
of the performance of its ministerial duties. Therefore, in the event
that "knowledge" of the Trustee shall be a prerequisite to imposing a
duty upon or determining liability of the Trustee under the Plan or
this Trust or any law or regulation regulating the conduct of the
Trustee with respect to the Directed Fund, as a result of any act or
omission of the Employer or any Participant, or as a result of any
transaction engaged in by any of them, then the receipt and processing
of investment orders and other documents relating to Plan assets by an
officer or other employee of the Trustee or its affiliates,
representatives or agents engaged in the performance of purely
ministerial functions shall not constitutes "knowledge" of the
Trustee.
(c) Notwithstanding the foregoing provisions of this Trust
Agreement, the Trustee shall discharge its duties hereunder with the
care, skill, prudence and diligence under the circumstances then
prevailing that a prudent man acting in a like capacity and familiar
with such matters would use in the conduct of an enterprise of a like
character and with like aims. Any investments selected by the Trustee
without specific direction from the Employer shall be selected to
diversify the investments of the Trust fund so as to minimize the risk
of large losses, unless in the circumstances it is clearly prudent not
to do so. The Trustee shall perform its duties in accordance with this
Trust Agreement insofar as this Trust Agreement is consistent with the
provisions of ERISA. To the extent not prohibited by ERISA, the
Trustee shall not be responsible in any way for any action or omission
of the Employer or the Plan Administrator with respect to the
performance of their duties and obligations set forth in the Plan. To
the extent not prohibited by ERISA, the Trustee shall not be
responsible for any action or omission of any of its agents, or with
respect to reliance upon advice of its counsel (whether or not such
counsel is also counsel to the Employer or to the Plan Administrator),
provided that such agents or counsel were prudently chosen by the
Trustee and that the Trustee relied in good faith upon the action of
such agent or the advice of such counsel. The Trustee shall be
indemnified and held harmless by the Employer against liability or
losses occurring by reason of any act or omission of the Trustee under
this Trust Agreement, unless such act or omission is due to its own
willful nonfeasance, malfeasance, or misfeasance or other breach of
duty under ERISA, to the extent that such indemnification does not
violate ERISA or any other federal or state laws.
ARTICLE IX
DELEGATION OF POWERS
9.1 Delegation by the Trustee. With respect to Shares held by the
Plan, the Trustee hereby delegates to the custodian or other agent designated by
the Sponsor the functions designated in (a) through (d) hereunder, other than
the investment, management or control of the Trust assets. With respect to
assets other than Shares, the Trustee may delegate in writing pursuant to a
procedure permitted and established by the Sponsor, to a person (individual,
corporate, or other entity) designated by the Sponsor as an agent or custodian,
any of the powers or functions of the Trustee hereunder other than the
investment, management or control of the Trust assets, including (without
limitation):
(a) custodianship of all or any part of the assets of the Trust;
(b) maintaining and accounting for the Trust and for Participants
and other Accounts as a part thereof;
(c) distribution of benefits as directed by the Plan
Administrator; and
(d) Preparation of the annual report on the status of the Trust.
The agent or custodian so appointed may act as agent for the Trustee,
without investment responsibility, for fees to be mutually agreed upon by the
Employer and the agent or custodian and paid in the same manner as Trustee's
fees. The Trustee shall not be responsible for any act or omission of the agent
or custodian arising from any such delegation, except to the extent provided in
section 8.1.
9.2 Delegation with Employer Approval. The Trustee (whether or not a
bank or trust company) and the Employer may, by mutual agreement, arrange for
the delegation by the Trustee to the Plan Administrator or any agent of the
Employer of any powers or functions of the Trustee hereunder other than the
investment and custody of the Trust assets. The Trustee shall not be responsible
for any act or omission of such person or persons arising from any such
delegation, except to the extent provided in ARTICLE VIII.
37
<PAGE>
ARTICLE X
AMENDMENT
As provided in section 16.1 of the Plan, and subject to the
limitations set forth therein, the prototype Adoption Agreement, Plan and Trust
Agreement may be amended at any time, in whole or in part, by the Sponsor. The
Trustee hereby delegates authority to the Sponsor, and to any successor Sponsor,
to so amend the prototype Adoption Agreement, Plan and Trust Agreement and the
Trustee hereby agrees that it shall be deemed to have consented to any amendment
so made which does not increase the duties of the Trustee without its consent.
ARTICLE XI
RESIGNATION OR REMOVAL OF TRUSTEE
The Trustee may resign at any time upon thirty (30) days notice in
writing to the Employer, and may be removed by the Sponsor or Employer at any
time upon thirty (30) days notice in writing to the Trustee. Upon such
resignation or removal, the Sponsor or Employer shall appoint a successor
Trustee or Trustees. Upon receipt by the Trustee of written acceptance of such
appointment by the successor Trustee, the Trustee shall transfer and pay over to
such successor the assets of the Trust and all records pertaining thereto,
provided that any successor Trustee shall agree not to dispose of any such
records without the Trustee's consent. The successor Trustee shall be entitled
to rely on all accounts, records, and other documents received by it from the
Trustee, and shall not incur any liability whatsoever for such reliance. The
Trustee is authorized, however, to reserve such sum of money or property as it
may deem advisable for payment of all its fees, compensation, costs, and
expenses, or for payment of any other liabilities constituting a charge on or
against the assets of the Trust or on or against the Trustee, with any balance
of such reserve remaining after the payment of all such items to be paid over to
the successor Trustee. Upon the assignment, transfer, and payment over of the
assets of the Trust, and obtaining a receipt thereof from the successor Trustee,
the Trustee shall be released and discharged from any and all claims, demands,
duties, and obligations arising out of the Trust and its management thereof,
excepting only claims based upon the Trustee's willful misconduct or lack of
good faith. The successor Trustee shall hold the assets paid over to it under
terms similar to those of this Trust Agreement under a trust that will qualify
under section 401 of the Code. If within thirty (30) days after the Trustee's
resignation or removal, the Employer or Sponsor has not appointed a successor
Trustee which has accepted such appointment, the Trustee shall, unless it elects
to terminate the Trust pursuant to ARTICLE XII, appoint such successor itself.
ARTICLE XII
TERMINATION OF THE TRUST
12.1 Term of the Trust. This Trust shall continue as to the Employer
so long as the Plan is in full force and effect. If the Plan ceases to be in
full force and effect, this Trust shall thereupon terminate unless expressly
extended by the Employer.
12.2 Termination by the Trustee. The Trustee may elect to terminate
the Trust if within thirty (30) days after its resignation or removal pursuant
to ARTICLE XI the Employer or Sponsor has not appointed a successor Trustee
which has accepted such appointment. Termination of the Trust shall be effected
by distributing all assets thereof to the Participants or other persons entitled
thereto pursuant to the directions of the Plan Administrator (or, in the absence
of such direction, as determined by the Trustee) as provided in section 16.3 of
the Plan, subject to the Trustee's right to reserve funds as provided in ARTICLE
XI hereof. Upon the completion of such distribution, the Trustee shall be
relieved from all further liability with respect to all amounts so paid, other
than any liability arising out of the Trustee's willful misconduct.
ARTICLE XIII
MISCELLANEOUS
13.1 No Diversion of Assets. At no time shall it be possible for any
part of the assets of the Trust to be used for or diverted to purposes other
than for the exclusive benefit of Participants and their Beneficiaries or revert
to the Employer, except as specifically provided in the Plan or this Trust
Agreement.
13.2 Notices. Any notice from the Trustee to the Employer or from
the Employer to the Trustee provided for in the Plan and Trust shall be
effective if sent by first class mail to their respective last address of
record.
13.3 Multiple Trustees. In the event that there shall be two (2) or
more Trustees serving hereunder, any action taken or decision made by any such
Trustee may be taken or made by a majority of them with the same effect as if
all had joined therein, if there be more than two (2), or unanimously if there
be two (2).
13.4 Conflict With Plan. In the event of any conflict between the
provisions of the Plan and those of this Trust Agreement, the Plan shall
prevail.
38
<PAGE>
13.5 Applicable Law. Except to the extent otherwise required by
ERISA, as amended, this Trust Agreement shall be construed in accordance with
the laws of the state where the Trustee has its principal place of business.
13.6 Returned Contributions.
(a) A contribution made by the Employer by a mistake of fact
shall, if the Administrator so directs, be returned to the Employer
within one (1) year after its payment. The Administrator shall, in its
sole discretion, determine whether the contribution was made by
mistake of fact based upon such evidence as it deems appropriate.
(b) A contribution made by the Employer that is conditioned on
deductibility under section 404 of the Code shall, to the extent such
deduction is disallowed, be returned to the Employer within one (1)
year after the disallowance, if the Administrator so directs.
13.7 General Undertaking. All parties to this Trust and all persons
claiming any interest whatsoever hereunder agree to perform any and all acts and
execute any and all documents and papers which may be necessary or desirable for
the carrying out of the Trust or any of its provisions.
13.8 Invalidity of Certain Provisions. If any provision of this
Trust shall be held invalid or unenforceable, such invalidity or
unenforceability shall not affect any other provisions hereof and the Trust
shall be construed and enforced as if such provisions had not been included.
13.9 Counterpart Originals. This Trust may be executed in one or
more counterpart originals.
39
<PAGE>
IN WITNESS WHEREOF, the Employer and the Trustee(s) have signed this
Trust effective as of the date specified in the Adoption Agreement.
Attest:
____________________________________
[NAME OF EMPLOYER]
____________________________________ By: _______________________________
Secretary President
TRUSTEE(S)
____________________________________
____________________________________
____________________________________
____________________________________
)
) ss
)
I, ____________________________________________________, a notary
public in and for the jurisdiction above named, do hereby certify that
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
did personally appear before me and do acknowledge that they executed the
foregoing Trust as their free act and deed.
Subscribed and sworn to before me this ___________ day of
__________________________, 19_____.
____________________________________
Notary Public
My Commission
Expires: ___________________________
40
<PAGE>
PROVISION-BY-PROVISION EXPLANATION AND
INSTRUCTIONS FOR COMPLETING
THE ADOPTION AGREEMENT
41
<PAGE>
PROVISION-BY-PROVISION EXPLANATION AND
INSTRUCTIONS FOR COMPLETING
THE ADOPTION AGREEMENT
As indicated in the introductory material to the Adoption Agreement, the
Employer should consult with a tax advisor or attorney before completing an
Adoption Agreement. The consultation is advised because adopting a retirement
plan has substantial financial and legal consequences. Establishing a plan
imposes contribution obligations on the Employer and subjects the Employer to
additional tax laws. In addition, the Employer assumes new administrative
responsibilities and fiduciary obligations. These consequences should be known
and carefully assessed with professional tax or legal assistance before deciding
to adopt any retirement plan.
EMPLOYER DATA
Name of Employer. The name and employer identification number (EIN) of the
Employer should include the names and EINs of all Affiliated Employers. If there
are a number of Affiliated Employers, their names and EINs can be listed on an
attachment to the Adoption Agreement and all the Affiliated Employers should
execute the Adoption Agreement. Failure to list all Affiliated Employers can
jeopardize the tax-qualified status of the plan. Examples of an Affiliated
Employer are:
1. A corporation or unincorporated business that owns 80 percent or more
of the Employer.
2. A corporation or unincorporated business that is 80 percent or more
owned by the Employer.
3. Certain businesses that perform services for or with the Employer and
that are owned in part by the Employer.
4. Certain businesses that are owned in part by the Employer and for which
the Employer provides services.
Amendment to Existing Plan. The sponsor may impose reasonable investment
limitations on the Employer regarding the type of investments selected for the
trust or the minimum percentage of trust assets that must be invested in mutual
funds. If the adoption of a prototype plan constitutes an amendment to an
existing plan, it may be necessary to change the existing investments to conform
to these limitations.
ELIGIBILITY
The eligibility provisions of a plan govern which employees participate in a
plan and the date on which an employee begins to participate in the plan. An
employee can be required to complete both age and service requirements before
participation begins.
The eligibility provisions interact with the vesting provisions. If the
Employer chooses to require only one Year of Service for eligibility, then
participants may gradually vest over a period of years, according to one of the
vesting schedules in Section VIII of the Adoption Agreement. If, however, the
Employer chooses to require more than one Year of Service for eligibility, the
participants must be fully and immediately vested when participation in the
plan(s) commences.
Years of Service. The Employer may require an employee to complete one or
more, up to two, Years of Service with the Employer (including Affiliated
Employers). Alternatively, the Employer may permit immediate participation
without any service requirement. A Year of Service is a 12-month period of
employment during which an employee must complete at least 1,000 Hours of
Service, unless the Employer chooses a lesser number of hours. If the Employer
does not maintain records that make it possible to determine an employee's Hours
of Service, the Employer must use an Equivalency Method that will credit an
employee with a specified number of Hours of Service based upon designated
periods of service. See CREDITED SERVICE herein.
Age. The Employer may require an employee to reach a specified age, up to 21
years of age, to be eligible to participate in the plan. However, the Employer
may permit immediate participation upon employment or upon completion of stated
service requirements without any age requirement.
Coverage. All employees of the Employer and of Affiliated Employers must be
eligible to participate. The only employees that may be excluded are union
employees who have bargained in good faith with the Employer for retirement
benefits, and nonresident alien employees.
CREDITED SERVICE
Hours of Service. Under the plan(s), a Year of Service requires 1,000 Hours
of Service, unless the Employer designates otherwise. The Employer is permitted
to reduce the number of required hours. The Employer is not permitted, however,
to change the method of counting Hours of Service. Under the plan(s), one Hour
of Service is counted for each hour for which an employee is paid or entitled to
be paid for work, vacation, holiday, illness, incapacity, maternity or paternity
leave, layoff, jury duty, military duty, or leave of absence. However, no more
than 501 Hours of Service will be credited on account of any period during which
no duties are performed by the employee.
42
<PAGE>
Equivalency Methods. The Employer must designate how Hours of Service will be
determined. If the Employer has records of actual hours for which an employee is
paid or entitled to payment, the Employer can use actual hours to determine
Hours of Service. If the Employer does not wish to use this method, or does not
have the necessary records, the Employer should choose an alternate method based
on days, weeks, semi-monthly payroll periods, or months worked. If no
Equivalency Method is indicated, the Employer will be deemed to use actual hours
and must keep appropriate records.
Note: If the plans are an amendment to a prior plan that used the elapsed
time method of calculating service, the plans provide special rules for
converting elapsed time service to Years of Service and Hours of Service. These
rules count Hours of Service for partial periods on the basis of the weekly
method, under which employees are credited with 45 Hours of Service for each
week in which they perform one Hour of Service.
Service with Predecessor Employer. Generally, the Employer has the discretion
as to whether to count hours worked for a predecessor employer. For example, if
a business is sold, the new employer may count hours worked by employees for the
old business under the prototype plan. If, however, the adoption of a prototype
plan is a continuation of a Predecessor Plan or a successor plan to a
Predecessor Plan, then hours counted under the Predecessor Plan must be counted
under the prototype plan. For example, if a partnership maintained a Keogh plan
before it incorporated, and adopts a prototype plan after it incorporates, the
hours counted under the Keogh plan must be counted under the corporate plan.
COMPENSATION
Definition of Compensation. Generally, Compensation under the plan means all
of the employee's W-2 earnings. The Employer may elect, however, in the Adoption
Agreements, to expand the definition to include amounts contributed pursuant to
a salary reduction agreement, such as contributions to a cafeteria plan under
section 125 of the Code or a tax-deferred annuity under section 403(b) of the
Code.
CONTRIBUTIONS AND ALLOCATIONS
The contribution formulas to be chosen by the Employer are different in the
Adoption Agreement for the profit sharing plan from those in the Adoption
Agreement for the money purchase pension plan. The difference is due in part to
the fact that contributions are required to be a fixed percentage under the
money purchase pension plan whereas contributions may be discretionary under the
profit sharing plan. The difference is also attributable to the effect of
Social Security Integration on the contribution formulas. If only one of the
prototype plans is adopted, the Employer can choose whether or not to use Social
Security Integration. If both of the prototype plans are adopted, however, the
Employer can use Social Security Integration with only one plan. The Employer
may choose to use Social Security Integration with either plan.
When Social Security Integration is used, the Employer's contributions are
adjusted to take into account the Employer's Social Security contribution for
old age and disability benefits for an employee. Employers considering
integration of their plans should consult with a tax advisor.
Profit Sharing Plan Formulas: Employer Contributions. Employer contributions
can be completely or partially discretionary. That is, the amount can be
determined on an ad hoc basis by the Employer each year. If the Employer wants
a completely discretionary contribution formula, the Employer should check item
A.1. or designate zero percent. If the Employer wants to make a regular
contribution, the Employer should specify the percentage of compensation to be
contributed (up to 15 percent) on item A.2. or insert the percentage of
compensation in item A.1. under Section VI. The Employer can then make
additional contributions (up to 15 percent total) at its discretion. If the
profit sharing plan is to be integrated with Social Security, the integration
formula will be designated in Allocations.
Profit Sharing Allocation Formula. If the plan does not use Social Security
Integration, check item A.1. Check item A.2. if the plan uses Social Security
Integration. The plan's integration level may be set at the Social Security
taxable wage base, at a dollar amount below the Social Security taxable wage
base or at a specified percentage of the Social Security taxable wage base. If
the Employer allows the integration level to vary with changes in the Social
Security Act, the level of compensation required in order to receive plan
contributions will generally increase.
Money Purchase Plan Formulas: Employer Contributions. If the money purchase
contribution formula is not integrated with Social Security, check item A.1.
and specify a contribution percentage between one percent and 25 percent.
If the money purchase contribution formula uses Social Security Integration,
item A.2. should be checked. The plan's integration level may be set at the
Social Security taxable wage base, at a dollar amount below the Social Security
taxable wage base, or at a specified percentage of the Social Security taxable
wage base.
If the Employer allows the integration level to vary with changes in the
Social Security Act, the level of compensation required in order to receive plan
contributions will generally increase.
43
<PAGE>
Self-Employed Individuals. The manner in which contributions are determined
is somewhat different if the plan covers self-employed individuals. Under the
law, deductible contributions to the plan on behalf of a self-employed
individual will reduce that self-employed individual's earned income. Therefore,
in determining the plan contribution on behalf of a self-employed individual,
the contribution must be converted from a percent of earned income before
deductible plan contributions to a percent of earned income after deductible
plan contributions. This conversion is shown below:
<TABLE>
<CAPTION>
Contributions as Contributions as
a Percentage of a Percentage of
Earned Income Earned Income
Before Deductible After Deductible
Contributions Contributions
----------------- ----------------
<S> <C>
20.00% 25.00%
19.35% 24.00%
18.70% 23.00%
18.03% 22.00%
17.36% 21.00%
16.67% 20.00%
15.97% 19.00%
15.25% 18.00%
14.53% 17.00%
13.79% 16.00%
13.04% 15.00%
12.28% 14.00%
11.50% 13.00%
10.71% 12.00%
9.91% 11.00%
9.09% 10.00%
8.26% 9.00%
7.41% 8.00%
6.54% 7.00%
5.66% 6.00%
4.76% 5.00%
3.85% 4.00%
2.91% 3.00%
1.96% 2.00%
0.99% 1.00%
</TABLE>
For example, if the plan provides for a 10 percent contribution on behalf of
a self-employed individual, only 9.09 percent of the self-employed individual's
earned income before the deductible plan contribution will be required to meet
the contribution obligation.
This conversion also must be applied in determining the maximum deductible
contribution that may be made to a plan. Thus, in the case of a profit sharing
plan covering only self-employed individuals, the 15 percent limit on deductible
plan contributions translates into a limit of 13.04 percent of unreduced earned
income (i.e., earned income before deductible plan contributions). Similarly,
in the case of a money purchase pension plan, or a combination of a money
purchase pension plan and a profit sharing plan, the 25 percent limit on
deductible plan contributions translates into a limit of 20 percent of unreduced
earned income.
Contribution Eligibility. This provision concerns the contribution for the
year in which an employee terminates employment with the Employer with not more
than 500 Hours of Service and is not an employee on the last day of the plan
year. Although the Employer has the discretion as to whether an employee is
allocated a contribution in such a year, not permitting the employee to receive
an allocation may result in discrimination in the operation of the plan in favor
of Key Employees. Such discrimination could cause the plan to lose its qualified
status notwithstanding the plan's favorable opinion letter.
DISTRIBUTIONS
Normal Retirement Age. Generally, normal retirement age is 65 years of age.
However, the Employer may choose a different age (item A.1.), or may choose a
combination of age and Years of Service (item A.2.), provided the age does not
exceed 65 and is not less than 55, and no more than 5 Years of Service is
required.
Early Retirement Date. The Employer has the discretion to allow benefits to
be paid upon a designated early retirement date. The early retirement age must
be at least 55, and no more than 15 years of service can be required.
44
<PAGE>
OPTIONAL FEATURES
The optional features permitted under the profit sharing plan differ from
those under the money purchase pension plan. Both plans allow withdrawals of
voluntary employee contributions, loans and purchases of insurance. However,
hardship withdrawals are only permitted under the profit sharing plan. If the
participant is married, spousal consent is required for all distributions,
including hardship withdrawals and withdrawals of nondeductible voluntary
employee contributions.
Hardship Withdrawals. The Employer may allow hardship withdrawals of amounts
contributed by the Employer under the profit sharing plan if the plan is not
integrated with Social Security benefits. This feature is not available if
Section V.II.A.2. is selected.
Loans. The Employer may choose to allow loans to participants to be made from
plan assets, provided the loans meet the requirements specified in the plan(s),
including a reasonable interest rate, adequate security, and a fixed repayment
term. If the loans do not meet these requirements, they may result in plan
disqualification. If loans are permitted, the plan administrator assumes the
additional administrative responsibility of seeing that the loans are repaid in
a timely fashion.
A participant loan will be treated as a distribution to the extent that the
sum of all a participant's loans under all the Employer's qualified plans
(taking into account the highest principal balance of any loan outstanding at
any time during the preceding 12 months) exceeds the lesser of $50,000 or 50
percent of the participant's vested account balance, unless it is less than
$10,000. It will also be treated as a distribution if it is not repaid within
five years.
The plan does not permit loans to Owner-Employees or to Shareholder-
Employees in subchapter S corporations.
Life Insurance Contracts. The Employer may permit a participant to use a
portion of the plan assets allocated to him to purchase life insurance
contracts. The maximum amount that may be used to purchase whole life policies
is 50 percent of the participant's account balance. Also, the maximum amount
that may be used to purchase term life insurance is 25 percent of the
participant's account balance.
VESTING
Vesting is the rate at which an employee earns a nonforfeitable right to the
Employer contributions allocated to his account. As indicated above with
respect to Year of Service requirements, vesting requirements interact with the
Year of Service options. If an eligibility service requirement in excess of one
Year of Service is selected, you must choose item B. If item D is chosen and
the vesting schedule exceeds three Years of Service, applicable percentages must
be at least as rapid at all points as the schedule in item A.
INVESTMENT CHOICES
Subject to limitations imposed by the sponsor, the Employer may limit the
investment of plan assets to investment options offered by the sponsor or permit
a designated percentage of plan assets to be invested in other investment
options.
INVESTMENT AUTHORITY
The Employer may choose whether plan assets are to be invested according to
the instructions of the Employer, the plan administrator, the participants, or
some combination of the above. If participants are to be permitted to direct the
investment of voluntary employee contributions or Employer contributions, items
C.1. or C.2. should be checked.
ALLOCATION LIMITATIONS
This section is applicable only if the Employer maintains or ever maintained
other qualified plans in addition to this prototype plan. If not, section 6.1
of the plan will automatically apply.
ADMINISTRATION
Plan Administrator. The Employer must designate the plan administrator,
unless the Employer is going to be the plan administrator. The plan
administrator is generally responsible for implementing and interpreting the
plan; deciding all questions concerning eligibility, distribution of benefits
and loan provisions; employing investment, legal, or accounting professionals;
keeping all records and filing all administrative reports; furnishing
instructions to the plan trustees; adopting rules and procedures for employee
elections and benefit claims; and collecting all forms and applications from
employees.
Named Fiduciaries. The plan administrator is the named fiduciary under the
plan. Additional named fiduciaries also may be designated in the Adoption
Agreement. If any powers or duties under the plan are allocated between the
named fiduciaries or to third parties, they should be specified in item C.
45
<PAGE>
THE TRUSTEE
Unless the sponsor has designated a trustee, the Employer must designate
individuals or institutions with trust powers to serve as trustees of the plan.
If the Employer wishes to have individuals as trustees, more than one individual
should be chosen. The designated parties must be informed of their fiduciary
obligations regarding the plan and must expressly accept those obligations in
writing.
EMPLOYER SIGNATURE
The Employer must execute the Adoption Agreement on the last page. If the
Employer is a corporation, the individual executing the agreement must be a
corporate officer who is duly authorized, pursuant to a corporate resolution, to
act on behalf of the corporation. Any Affiliated Employers also should execute
the Adoption Agreement.
The FOLLOWING DOCUMENTS ARE TO BE
COMPLETED, REMOVED AND SUBMITTED TO THE FUND
46
<PAGE>
PROFIT SHARING ADOPTION AGREEMENT
FOR PROTOTYPE PAIRED DEFINED CONTRIBUTION PLAN
Adoption Agreement #001
47
<PAGE>
This is the Adoption Agreement for paired defined contribution plan #001 of
basic plan document #01, which is a combined prototype profit sharing/money
purchase pension plan. This Adoption Agreement may be adopted either singly or
in combination with paired defined contribution plan #002, a prototype money
purchase pension plan.
NOTE: Before executing this Adoption Agreement, the Employer should consult with
a tax advisor or attorney. Failure to properly complete this Adoption Agreement
may result in Plan disqualification.
The Employer hereby establishes a profit sharing plan and a trust upon the
respective terms and conditions contained in the prototype paired defined
contribution plan (the "Plan") and the Trust Agreement annexed hereto and
appoints as Trustee of such trust the person(s) who have executed this Adoption
Agreement evidencing their acceptance of such appointment. The Plan, the Trust
Agreement, and the Custody Agreement, if applicable, shall be supplemented and
modified by the terms and conditions contained in this Adoption Agreement and
shall be effective on the Effective Date.
The Sponsor will inform the Employer of any amendments made to the Plan or the
discontinuance or abandonment of the Plan.
SPONSOR A._________________________________________________________
DATA Stratton Management Co.
Stratton Funds
B. Plymouth Mtg. Exec. Campus ________________
610 West Germantown Pike, Ste 361
Plymouth Meeting, PA 194621050
C._________________________________________________________
Address
_________________________________________________________
D. 1 800-634-5726
_________________________________________________________
Telephone Number
48
<PAGE>
<TABLE>
<S> <C>
EMPLOYER A. _____________________________________________________________________________________________________
DATA Name of Employer and Employer Identification Number
B. _____________________________________________________________________________________________________
Address
C. ( )
_____________________________________________________________________________________________________
Telephone Number
D. _____________________________________________________________________________________________________
Employer's Taxable Year End
E. _____________________________________________________________________________________________________
Plan Year End
F. The Employer is: [ ] A corporate entity
[ ] A noncorporate entity
[ ] A corporation electing to be taxed under Subchapter S
G. _____________________________________________________________________________________________________
Effective Date (should be first day of a Plan Year)
H. _____________________________________________________________________________________________________
If this is an amendment of an existing plan, complete the following:
_____________________________________________________________________________________________________
Effective Date of Amendment (should be first day of a Plan Year)
_____________________________________________________________________________________________________
Name of Prior Plan
_____________________________________________________________________________________________________
Effective Date of Prior Plan
I. _____________________________________________________________________________________________________
Limitation Year, if different from E., above
ELIGIBILITY A. Employees shall be eligible to participate in the Plan upon completion of the eligibility require-
ments (complete 1 and 2) (Plan section 3.1):
1. Years of Service. The Employee must complete (check one box):
[ ] One Year of Service.
[ ]____ Years of Service. (You can require less than or more than one Year of Service,
but not more than two (2). If you select more than one Year of Service, the Employee
must be 100% vested once he becomes eligible, and you must select vesting schedule B
in section X of this Adoption Agreement. If the Year of Service is or includes a fractional
year, an Employee will not be required to complete any specified number of Hours of Service
(section IV, A of this Adoption Agreement) to receive credit for such fractional year.
2. Age. The Employee must attain age____(not greater than age 21).
</TABLE>
49
<PAGE>
<TABLE>
<S> <C>
B. The following Employees will not be eligible to participate in the Plan (Plan section 3.1):
[ ] Union Employees. Employees included in a unit of employees covered by a collective
bargaining agreement between the Employer and Employee representatives (as defined in
section 3.1(b)(i) of the Plan), if retirement benefits were the subject of good faith
bargaining.
[ ] Nonresident Aliens. Employees who are nonresident aliens and who receive no earned
income from the Employer which constitutes income from sources within the United States.
For purposes of this section III, the term "Employee" includes all employees of this
Employer or any employer aggregated with this Employer under sections 414(b), (c) or
(m) or (o) of the Code and individuals who are Leased Employees required to be
considered Employees of any such employer under section 414(n) or (o) of the Code.
CREDITED A. The Plan provides that a Year of Service requires at least 1,000 hours during any Plan Year.
SERVICE If a lower number of hours is desired, state the number here: _______ (Plan section 2.42).
B. The Plan permits Hours of Service to be determined by the use of service equivalencies under
one of the methods selected below (choose one method) (Plan section 2.19):
1. [ ] On the basis of actual hours for which an Employee is paid or entitled to payment.
2. [ ] On the basis of days worked. An Employee will be credited with ten (10) Hours of Service
if under section 2.19 of the Plan such Employee would be credited with at least one (1) Hour of
Service during the day.
3. [ ] On the basis of weeks worked. An Employee will be credited with forty-five (45) Hours of
Service if under section 2.19 of the Plan such Employee would be credited with at least one (1) Hour
of Service during the week.
4. [ ] On the basis of semimonthly payroll periods. An Employee will be credited with ninety-five (95)
Hours of Service if under section 2.19 of the Plan such Employee would be credited with at least one
(1) Hour of Service during the semimonthly payroll period.
- or -
5. [ ] On the basis of months worked. An Employee will be credited with one hundred ninety (190) Hours
of Service if under section 2.19 of the Plan such Employee would be credited with at least one
(1) Hour of Service during the month.
C. Service with a predecessor employer (choose 1 or 2) (Plan sections 3.3 and 8.5):
1. [ ] No credit will be given for service with a predecessor employer.
- or -
2. [ ] Credit will be given for service with the following predecessor employer(s):
NOTE: The Plan provides that if this is a continuation of a predecessor plan, service under the
predecessor plan must be counted.
</TABLE>
50
<PAGE>
<TABLE>
<S> <C>
COMPENSATION A. Compensation (choose 1 or 2) (Plan section 2.7):
1. [ ] shall include
- or -
2. [ ] shall not include
Employer Contributions made pursuant to a salary reduction agreement which are not includable in the
gross income of the Employee under sections 125, 402(a)(8), 402(h) or 403(b) of the Code.
B. The effective date of the election in A. above shall be ______________ (but not earlier than the first day
of the first Plan Year beginning after 1986).
CONTRIBUTIONS A. Profit sharing plan formulas (choose 1 or 2) (Plan section 4.1(b)):
1. [ ] Discretionary pursuant to Employer resolution. If no resolution is adopted, then ___ % of
Participants' compensation.
- or -
2. [ ] ___ % of Participants' Compensation, plus discretionary amount, if any, by Employer resolution.
NOTE: Each of these formulas is subject to maximum limitations on contributions as provided in the Plan
and the Internal Revenue Code. In no event may the Employer Contribution exceed 15% of the aggregate
compensation of all Participants for the year, plus up to 10% credit carryover in certain circumstances.
Additional limitations are included in the Plan where the Employer also has another qualified retirement
plan. An individual Participant's limit on contributions and forfeitures, per year is generally the lesser
of 25% of compensation or $30,000.
ALLOCATION A. Formula -- Choose 1 or 2 (Plan section 5.3(b)).
OF
EMPLOYER NOTE: If you provide for hardship withdrawals you must use Formula 1.
CONTRIBUTIONS
1. [ ] Nonintegrated Plan -- Employer contributions shall be allocated to the accounts of all eligible
Participants prorated upon compensation.
- or -
2. [ ] Integrated Plan -- Employer contributions and forfeitures shall be integrated with Social
Security and allocated in accordance with the provisions of Plan section 5.3(b). The Plan's
Integration Level shall be (choose (a), (b) or (c)):
(a) [ ] Taxable Wage Base. (The maximum amount considered as wages for such year under section
3121(a)(1) of the Internal Revenue Code (the Social Security taxable wage base) as of the
beginning of the Plan Year).
- or -
(b) [ ] $_____ (a dollar amount not to exceed the Taxable Wage Base).
- or -
(c) [ ] ____% of the Taxable Wage Base (not to exceed 100%).
NOTE: If you maintain any other plan in addition to this Plan, only one plan may be
integrated with Social Security.
B. Contribution Eligibility (Plan section 4.1(c)):
The Plan provides that all Participants will share in Employer Contributions for the Plan Year, except
the following (if elected):
</TABLE>
51
<PAGE>
<TABLE>
<S> <C>
[ ] Participants who terminate employment during the Plan Year with not more than 500 Hours of Service
and who are not Employees as of the last day of the Plan Year (other than Participants who die, retire
or become Totally and Permanently Disabled).
If a fewer number of hours than 500 is desired, state the number here: _____.
DISTRIBUTIONS A. Normal Retirement Age is (choose 1 or 2) (Plan section 2.26):
1. [ ] The date a Participant reaches age _____ (not more than 65 or less than 55). If no age is
indicated, normal retirement age shall be 65.
- or -
2. [ ] The later of age ___ (not more than 65) or the ___ (not more than 5th) anniversary of the day
the Participant commenced participation in the Plan. The participation commencement date is the
first day of the first Plan Year in which the Participant commenced participation in the Plan.
B. Early Retirement (choose 1 or 2) (Plan section 2.10):
1. [ ] Early Retirement Date is the first day of the month coincident with or next following the date
upon which a Participant reaches age ___ (not less than 55) and completes ___ years of service
(not more than 15).
- or -
2. [ ] Early Retirement will not be permitted under the Plan.
</TABLE>
52
<PAGE>
<TABLE>
<S> <C>
VESTING Employer Contributions will become vested if the Participant terminates employment for any reasons other than
retirement, death, or disability pursuant to the following schedule (choose A, B, C or D) (Plan section 8.3):
A. [ ] Years of
Service Vested Percentage
------- -----------------
1 year 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 or more years 100%
B. [ ] 100% vesting immediately after satisfaction of the eligibility requirements.
NOTE: If a service requirement greater than one year is chosen for eligibility as stated in the
"Eligibility" section of this Adoption Agreement, vesting schedule B must be chosen.
C. [ ] 100% vesting after ____ years of service (not to exceed three).
- or -
D. [ ] Years of
Service Vested Percentage
------- -----------------
1 year __%
2 years __% (not less than 20)
3 years __% (not less than 40)
4 years __% (not less than 60)
5 years __% (not less than 80)
6 years __% (not less than 100)
INVESTMENT A. [X] Investment of Trust assets may be selected only from Shares or other investments offered by
CHOICES the Sponsor.
INVESTMENT Contributions to the Plan shall be invested by the Trustee in accordance with instructions of the Employer or
AUTHORITY Plan Administrator except that (choose A, B or C) (Plan section 7.2):
A. [ ] No exceptions; the Employer or Plan Administrator shall make all investment selections.
B. [ ] The Employer delegates all investment responsibility to the Trustee. (MUST NOT be selected if
Sponsor's designated trustee is appointed as Trustee).
- or -
C. [ ] Each Participant [ ] may, [ ] shall direct that:
</TABLE>
53
<PAGE>
<TABLE>
<S> <C>
1. [ ] Amounts voluntarily contributed by such Participant pursuant to section 4.3 of the Plan, rollover
contributions pursuant to section 4.4 of the Plan and direct transfers pursuant to section 4.5 of the
Plan, if any,
- and/or -
2. [ ] Employer Contributions on the Participant's behalf shall be invested in specified investments offered
by the Sponsor. Participants may make or change such directions by giving written notice to the Plan
Administrator. Reasonable restrictions may be imposed on this privilege by the Plan Administrator or the
Sponsor for purposes of administrative convenience.
TOP-HEAVY Participants who are eligible to receive the minimum allocation provided by section 5.2 of the Plan shall
PROVISIONS receive a minimum allocation of contributions and forfeitures under this Plan equal to 3% of Compensation, or
if lesser, the largest percentage of Compensation allocated on behalf of any Key Employee for the Plan Year.
NOTE: If the Participant also participates in paired defined contribution plan #002 (the money purchase pension
plan), the required minimum allocation must be made under paired defined contribution plan #002 (the money
purchase pension plan).
ALLOCATION COMPLETE THIS SECTION ONLY IF YOU MAINTAIN OR EVER MAINTAINED ANOTHER QUALIFIED PLAN (OTHER THAN PAIRED PLAN
LIMITATIONS #002) IN WHICH ANY PARTICIPANT IN THIS PLAN IS (OR WAS) A PARTICIPANT OR COULD BECOME A PARTICIPANT. THIS
SECTION MUST ALSO BE COMPLETED IF THE EMPLOYER MAINTAINS A WELFARE BENEFIT FUND, AS DEFINED IN SECTION 419(e)
OF THE CODE, OR AN INDIVIDUAL MEDICAL ACCOUNT, AS DEFINED IN SECTION 415(l)(2) OF THE CODE, UNDER WHICH AMOUNTS
ARE TREATED AS ANNUAL ADDITIONS WITH RESPECT TO ANY PARTICIPANT IN THIS PLAN.
A. If the Participant is covered under another qualified defined contribution plan maintained by the Employer,
other than a master or prototype plan (choose either 1 or 2) (Plan section 6.3):
1. [ ] The provisions of section 6.2 will apply as if the other plan were a master or prototype plan.
- or -
2. [ ] (On an attachment, provide the method under which the plans will limit total annual additions to
the maximum permissible amount, and will properly reduce any excess amounts, in a manner that
precludes Employer discretion).
B. If the Participant is or has ever been a participant in a defined benefit plan maintained by the Employer
attach an explanation of the method under which the plan involved will satisfy the 1.0 limitation in a
manner that precludes Employer discretion.
ADMINISTRATION A. The Plan Administrator of the Plan will be (choose 1, 2, 3 or 4) (Plan sections 2.30 and 15.4):
1. [ ] The Trustee
NOTE: If the Trustee designated in the "Investment Authority" section of this Adoption Agreement is the
Sponsor's designated Trustee, it may not be appointed as Plan Administrator.
- or -
2. [ ] The Employer
- or -
3. [ ] An individual Plan Administrator designated by the Employer
</TABLE>
54
<PAGE>
<TABLE>
<S> <C>
__________________________________________________________________________
Name
__________________________________________________________________________
Address
__________________________________________________________________________
- or -
4. [ ] A committee of two or more Employees designated by the Employer:
__________________________________________________________________________
Name & Title
__________________________________________________________________________
Signature
__________________________________________________________________________
Name & Title
__________________________________________________________________________
Signature
__________________________________________________________________________
Name & Title
__________________________________________________________________________
Signature
NOTE: IF NO PLAN ADMINISTRATOR HAS BEEN DESIGNATED OR SERVING AT ANY
TIME, THE EMPLOYER WILL BE DEEMED THE PLAN ADMINISTRATOR (PLAN SECTION
15.4).
B. The Plan Administrator (including all members of a committee, if a committee
is named) is a named fiduciary for the Plan. If other persons are also to be
named fiduciaries, their names and addresses are:
______________________________________________________________________________
Name:
______________________________________________________________________________
Address:
______________________________________________________________________________
______________________________________________________________________________
Name:
______________________________________________________________________________
Address:
______________________________________________________________________________
______________________________________________________________________________
Name:
______________________________________________________________________________
Address:
______________________________________________________________________________
</TABLE>
55
<PAGE>
<TABLE>
<S> <C>
C. The named fiduciaries have all of the powers set forth in the Plan. If any powers or duties are to be allocated
among them, or delegated to third parties, indicate below what the powers or duties are and to whom they are to
be delegated (Plan section 15.3):
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
THE TRUSTEE A. The Employer hereby appoints the following to serve as Trustee (Plan section 2.39):
_______________________________________________________________________________________________________________
Name
_______________________________________________________________________________________________________________
Address
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
Dated Signature of Trustee
_______________________________________________________________________________________________________________
Name
_______________________________________________________________________________________________________________
Address
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
Dated Signature of Trustee
B. The Employer hereby appoints the Sponsor's designated trustee(s) to serve as Trustee(s):
___________________________________________________________________________________________
Semper Trust Company _______________________________
610 West Germantown Pike
Suite 361 _______________________________
Plymouth Meeting, PA 194621050
_______________________________
Dated Signature of Trustee
_______________________________________________________________________________________________________________
Name
_______________________________________________________________________________________________________________
Address
_______________________________________________________________________________________________________________
_______________________________________________________________________________________________________________
Dated Signature of Trustee
</TABLE>
56
<PAGE>
EMPLOYER The Employer acknowledges receipt of the current prospectus of
SIGNATURE the investment companies designated by the Employer for its
initial investments under the Plan and represents that it has
delivered a copy thereof to each Participant in the Plan, and
that it will deliver to each Participant making contributions
and each new Participant, a copy of the then current prospectus
of such investment companies. The Employer further represents
that the information in this Adoption Agreement shall become
effective only when approved and countersigned by the Trustee.
The right to reject this Adoption Agreement for any reason is
reserved.
This Adoption Agreement must be used only in conjunction with
basic plan document #01.
NOTE: An Employer who has ever maintained or who later
adopts any plan (including, after December 31, 1985, a
welfare benefit fund, as defined in section 419(e) of the
Code, which provides post-retirement medical benefits
allocated to separate accounts for Key Employees, as
defined in section 419A(d)(3) of the Code, or an
individual medical account, as defined in section
415(l)(2) of the Code), in addition to this Plan (other
than paired defined contribution plan #002), may not rely
on the opinion letter issued by the National Office of the
Internal Revenue Service as evidence that this Plan is
qualified under section 401 of the Internal Revenue Code.
If the Employer who adopts or maintains multiple plans
wishes to obtain reliance that the plans are qualified,
application for a determination letter should be made to
the appropriate Key District Director of Internal Revenue.
This Adoption Agreement consists of pages.
IN WITNESS WHEREOF, the Employer has caused this Adoption
Agreement to be executed by its duly authorized officers
this _____ day of __________________________.
__________________________________________________
Name of Employer
By:_______________________________________________
Name & Title
Date:_________________________
57
<PAGE>
MONEY PURCHASE PENSION
ADOPTION AGREEMENT
FOR PROTOTYPE PAIRED DEFINED CONTRIBUTION PLAN
Adoption Agreement #002
58
<PAGE>
This is the Adoption Agreement for paired defined contribution plan #002 of
basic plan document #01, which is a combined prototype profit sharing/money
purchase pension defined contribution plan. This adoption agreement may be
adopted either singly or in combination with paired defined contribution plan
#001, a prototype profit sharing plan.
NOTE: Before executing this Adoption Agreement, the Employer should consult with
a tax advisor or attorney. Failure to properly complete this Adoption Agreement
may result in Plan disqualification.
The Employer hereby establishes a money purchase pension plan and a trust upon
the respective terms and conditions contained in the prototype paired defined
contribution plan (the "Plan") and the Trust Agreement annexed hereto and
appoints as Trustee of such trust the person(s) who have executed this Adoption
Agreement evidencing their acceptance of such appointment. The Plan, the Trust
Agreement, and the Custody Agreement, if applicable, shall be supplemented and
modified by the terms and conditions contained in this Adoption Agreement and
shall be effective on the Effective Date.
The Sponsor will inform the Employer of any amendments made to the Plan or the
discontinuance or abandonment of the Plan.
SPONSOR DATA A. ______________________________________________________________
Stratton Management Co.
Stratton Funds
B. Plymouth Mtg. Exec. Campus ______________________
610 West Germantown Pike, Ste 361
Plymouth Meeting, PA 194621050
C. ______________________________________________________________
Address
______________________________________________________________
1-800-634-5726
D. ______________________________________________________________
Telephone Number
59
<PAGE>
EMPLOYER A. ______________________________________________________________
DATA Name of Employer and Employer Identification Number
B. ______________________________________________________________
Address
______________________________________________________________
C. ( )________________________________________________________
Telephone Number
D. ______________________________________________________________
Employer's Taxable Year End
E. ______________________________________________________________
Plan Year End
F. The Employer is: [ ] A corporate entity
[ ] A noncorporate entity
[ ] A corporation electing to be taxed under
Subchapter S
G. ______________________________________________________________
Effective Date (should be first day of a Plan Year)
H. If this is an amendment of an existing plan, complete the
following:
______________________________________________________________
Effective Date of Amendment (should be first day of a Plan
Year)
______________________________________________________________
Name of Prior Plan
______________________________________________________________
Effective Date of Prior Plan
I. ______________________________________________________________
Limitation Year, if different from E., above
ELIGIBILITY A. Employees shall be eligible to participate in the Plan upon
completion of the eligibility requirements (complete 1 and 2)
(Plan section 3.1):
1. Years of Service. The Employee must complete (check one
box):
[ ] One Year of Service.
[ ] __ Years of Service. (You can require less than or
more than one Year of Service, but not more than two
(2). If you select more than one Year of Service, the
Employee must be 100% vested once he becomes eligible,
and you must select vesting schedule A as stated in the
"Vesting Section" of this Adoption Agreement. If the
Year of Service is or includes a fractional year, an
Employee will not be required to complete any specified
number of Hours of Service (as stated in the "Credited
Service" section of this Adoption Agreement) to receive
credit for such fractional year.
2. Age. The Employee must attain age __ (not greater than age
21).
60
<PAGE>
B. The following Employees will not be eligible to participate in
the Plan (Plan section 3.1):
[ ] Union Employees. Employees included in a unit of
employees covered by a collective bargaining agreement
between the Employer and Employee representatives (as
defined in section 3.1(b)(i) of the Plan), if
retirement benefits were the subject of good faith
bargaining.
[ ] Nonresident Aliens. Employees who are nonresident
aliens and who receive no earned income from the
Employer which constitutes income from sources within
the United States.
For purposes of this section III, the term "Employee"
includes all employees of this Employer or any
employer aggregated with this Employer under sections
414(b), (c), (m) or (o) of the Code and individuals
who are Leased Employees required to be considered
Employees of any such employer under section 414(n) or
(o) of the Code.
CREDITED A. The Plan provides that a Year of Service requires at least
SERVICE 1,000 hours during any Plan Year. If a lower number of hours
is desired, state the number here: __ (Plan section 2.42).
B. The Plan permits Hours of Service to be determined by the use
of service equivalencies under one of the methods selected
below (choose one method) (Plan section 2.19):
1. [ ] On the basis of actual hours for which an Employee is
paid or entitled to payment.
2. [ ] On the basis of days worked. An Employee will be
credited with ten (10) Hours of Service if under section
2.19 of the Plan such Employee would be credited with at
least one (1) Hour of Service during the day.
3. [ ] On the basis of weeks worked. An Employee will be
credited with forty-five (45) Hours of Service if under
section 2.19 of the Plan such Employee would be credited
with at least one (1) Hour of Service during the week.
4. [ ] On the basis of semimonthly payroll periods. An
Employee will be credited with ninety-five (95) Hours of
Service if under section 2.19 of the Plan such Employee
would be credited with at least one (1) Hour of Service
during the semimonthly payroll period.
- or -
5. [ ] On the basis of months worked. An Employee will be
credited with one hundred ninety (190) Hours of Service if
under section 2.19 of the Plan such Employee would be
credited with at least one (1) Hour of Service during the
month.
C. Service with a predecessor employer (choose 1 or 2) (Plan
sections 3.3 and 8.5):
1. [ ] No credit will be given for service with a predecessor
employer.
- or -
2. [ ] Credit will be given for service with the following
predecessor employer(s):
NOTE: The Plan provides that if this is a continuation of
a predecessor plan, service under the predecessor plan
must be counted.
COMPENSATION A. Compensation (choose 1 or 2) (Plan section 2.7):
1. [ ] shall include
- or -
2. [ ] shall not include
Employer Contributions made pursuant to a salary reduction
agreement which are not includable in the gross income of
the Employee under sections 125, 402(a)(8), 402(h) or
403(b) of the Code.
B. The effective date of the election in A. above shall be
__________ (but not earlier than the first day of the first
Plan Year beginning after 1986).
61
<PAGE>
CONTRIBUTIONS A. Formulas (choose 1 or 2) (Plan section 4.1(a)):
1. [ ] Plan not integrated with Social Security
The Employer will contribute ___% of compensation for each
Participant (not less than 3% if the profit sharing
Adoption Agreement is also adopted and, in any event, not
more than 25%).
2. [ ] Integrated Plan -- The Employer will contribute an
amount equal to ___% (base contribution percentage, not
less than 3) of each Participant's Compensation (as
defined in section 2.7 of the Plan) for the Plan Year, up
to the Integration Level plus ___% (not less than 3% and
not to exceed the base contribution percentage by more
than the lesser of: (1) the base contribution percentage,
or (2) the Maximum Disparity Rate of such Participant's
Compensation in excess of the Integration Level.
a. [ ] Taxable Wage Base. (The maximum amount considered
as wages for such year under section 3121(a)(1) of the
Internal Revenue Code (the Social Security taxable wage
base) as of the beginning of the Plan Year).
- or -
b. [ ] $_______ (a dollar amount not to exceed the Taxable
Wage Base).
- or -
c. [ ] __% of the Taxable Wage Base (not to exceed 100%).
NOTE: If you maintain any other plan in addition to
this Plan, only one plan may be integrated with Social
Security.
B. Forfeitures for a given Plan Year (choose 1 or 2) (Plan
section 5.3(a)):
1. [ ] Shall be applied to reduce the Employer Contribution
in that year, or if in excess of the Employer Contribution
for such Plan Year, the excess amounts shall be used to
reduce the Employer Contribution in the next succeeding
Plan Year or Years.
- or -
2. [ ] Shall be added to the Employer Contribution and
allocated accordingly.
C. Contribution Eligibility (Plan section 4.1(c)):
The Plan provides that all Participants will share in Employer
Contributions for the Plan Year, except the following (if
elected):
[ ] Participants who terminate employment during the Plan
Year with not more than 500 Hours of Service and who
are not Employees as of the last day of the Plan Year
(other than Participants who die, retire or become
Totally and Permanently Disabled).
If a fewer number of hours than 500 is desired, state the
number here: _____.
DISTRIBUTIONS A. Normal Retirement Age is (choose 1 or 2) (Plan section
2.26):
1. [ ] The date a Participant reaches age ___ (not more
than 65 or less than 55). If no age is indicated, normal
retirement age shall be 65.
- or -
2. [ ] The later of age __ (not more than 65) or the (not
more than 5th) anniversary of the day the Participant
commenced participation in the Plan. The participation
commencement date is the first day of the first Plan
Year in which the Participant commenced participation in
the Plan.
B. Early Retirement (choose 1 or 2) (Plan section 2.10):
1. [ ] Early Retirement Date is the first day of the month
coincident with or next following the date upon which a
Participant reaches age __ (not less than 55) and
completes __ years of service (not more than 15).
- or -
62
<PAGE>
2. [ ] Early Retirement will not be permitted under the
Plan.
OPTIONAL
FEATURES
VESTING Employer Contributions will become vested if the Participant
terminates employment for any reasons other than retirement,
death, or disability pursuant to the following schedule (choose
A, B, C or D) Plan section 8.3:
A. [ ] Years of
Service Vested Percentage
------- -----------------
1 year 0%
2 years 20%
3 years 40%
4 years 60%
5 years 80%
6 or more years 100%
B. [ ] 100% vesting immediately after satisfaction of the
eligibility requirements.
NOTE: If a service requirement greater than one year is
chosen for eligibility as stated in the "Eligibility
Section" of this Adoption Agreement, vesting schedule B
must be chosen.
C. [ ] 100% vesting after __ years of service (not to exceed
three).
- or -
D. [ ] Years of
Service Vested Percentage
------- -----------------
1 year __%
2 years __% (not less than 20)
3 years __% (not less than 40)
4 years __% (not less than 60)
5 years __% (not less than 80)
6 years __% (not less than 100)
63
<PAGE>
INVESTMENT A. [X] Investment of Trust assets may be selected only from
CHOICES Shares or other investments offered by the Sponsor.
INVESTMENT Contributions to the Plan shall be invested by the Trustee in
AUTHORITY accordance with instructions of the Employer or Plan
Administrator except that (choose A, B or C) (Plan section 7.2):
A. [ ] No exceptions; the Employer or Plan Administrator shall
make all investment selections.
B. [ ] The Employer delegates all investment responsibility to
the Trustee. (MUST NOT be selected if Sponsor's designated
trustee is appointed as Trustee).
- or -
C. [ ] Each Participant [ ] may, [ ] shall direct that:
1. [ ] Amounts voluntarily contributed by such Participant
pursuant to section 4.3 of the Plan, rollover
contributions pursuant to section 4.4 of the Plan, and
direct transfers pursuant to section 4.5 of the Plan, if
any,
- and/or -
2. [ ] Employer Contributions on the Participant's behalf
shall be invested in specified investments offered by the
Sponsor. Participants may make or change such directions
by giving written notice to the Plan Administrator.
Reasonable restrictions may be imposed on this privilege
by the Plan Administrator or the Sponsor for purposes of
administrative convenience.
TOP-HEAVY Participants who are eligible to receive the minimum allocation
PROVISIONS provided by section 5.2 of the Plan shall receive a minimum
contribution under this Plan equal to 3% of Compensation, or if
lesser, the largest percentage of Compensation allocated on
behalf of any Key Employee for the Plan Year under this Plan and
paired defined contribution plan #001.
NOTE: If the Participant also participates in paired defined
contribution plan #001 (the profit sharing plan), the required
minimum contribution must be made under this Plan, even if the
integrated plan combination formula is selected.
ALLOCATION COMPLETE THIS SECTION ONLY IF YOU MAINTAIN OR EVER MAINTAINED
LIMITATIONS ANOTHER QUALIFIED PLAN (OTHER THAN PAIRED PLAN #001) IN WHICH ANY
PARTICIPANT IN THIS PLAN IS (OR WAS) A PARTICIPANT OR COULD
BECOME A PARTICIPANT. THIS SECTION MUST ALSO BE COMPLETED IF THE
EMPLOYER MAINTAINS A WELFARE BENEFIT FUND, AS DEFINED IN SECTION
419(e) OF THE CODE, OR AN INDIVIDUAL MEDICAL ACCOUNT, AS DEFINED
IN SECTION 415(l)(2) OF THE CODE, UNDER WHICH AMOUNTS ARE TREATED
AS ANNUAL ADDITIONS WITH RESPECT TO ANY PARTICIPANT IN THIS PLAN.
A. If the Participant is covered under another qualified defined
contribution plan maintained by the Employer, other than a
master or prototype plan (choose either 1 or 2) (Plan section
6.3):
1. [ ] The provisions of section 6.2 will apply as if the
other plan were a master or prototype plan.
64
<PAGE>
- or -
2. [ ] (On an attachment, provide the method under which the
plans will limit total annual additions to the maximum
permissible amount, and will properly reduce any excess
amounts, in a manner that precludes Employer discretion).
B. If the Participant is or has ever been a participant in a
defined benefit plan maintained by the Employer attach an
explanation of the method under which the plan involved will
satisfy the 1.0 limitation in a manner that precludes
Employer discretion.
ADMINISTRATION A. The Plan Administrator of the Plan will be (choose 1, 2,
3 or 4) (Plan sections 2.30 and 15.4):
1. [ ] The Trustee
NOTE: If the Trustee designated as stated in the
"Investment Authority" section of this Adoption Agreement
is the Sponsor's designated Trustee, it may not be
appointed as Plan Administrator.
- or -
2. [ ] The Employer
- or -
3. [ ] An individual Plan Administrator designated by the
Employer
_________________________________________________________
Name
_________________________________________________________
Address
_________________________________________________________
- or -
4. [ ] A committee of two or more Employees designated by
the Employer:
_________________________________________________________
Name & Title
_________________________________________________________
Signature
_________________________________________________________
Name & Title
_________________________________________________________
Signature
_________________________________________________________
Name & Title
_________________________________________________________
Signature
NOTE: IF NO PLAN ADMINISTRATOR HAS BEEN DESIGNATED OR
SERVING AT ANY TIME, THE EMPLOYER WILL BE DEEMED THE PLAN
ADMINISTRATOR (PLAN SECTION 15.4).
65
<PAGE>
B. The Plan Administrator (including all members of a
committee, if a committee is named) is a named fiduciary for
the Plan. If other persons are also to be named fiduciaries,
their names and addresses are:
_____________________________________________________________
Name
_____________________________________________________________
Address
_____________________________________________________________
_____________________________________________________________
Name
_____________________________________________________________
Address
_____________________________________________________________
C. The named fiduciaries have all of the powers set forth in the
Plan. If any powers or duties are to be allocated among them,
or delegated to third parties, indicate below what the powers
or duties are and to whom they are to be delegated (Plan
section 15.3):
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
THE TRUSTEE A. The Employer hereby appoints the following to serve as
Trustee (Plan section 2.39):
_____________________________________________________________
Name
_____________________________________________________________
Address
_____________________________________________________________
_____________________________________________________________
Dated Signature of Trustee
_____________________________________________________________
Name
_____________________________________________________________
Address
_____________________________________________________________
_____________________________________________________________
Dated Signature of Trustee
66
<PAGE>
B. The Employer hereby appoints the Sponsor's designated
trustee(s) to serve as Trustee(s):
_____________________________________________________________
Semper Trust Company
610 West Germantown Pike ________________
Suite 361
Plymouth Meeting, PA 194621050 ________________
_____________________________________________________________
Dated Signature of Trustee
_____________________________________________________________
Name
_____________________________________________________________
Address
_____________________________________________________________
_____________________________________________________________
Dated Signature of Trustee
EMPLOYER The Employer acknowledges receipt of the current prospectus of
SIGNATURE the investment companies designated by the Employer for its
initial investments under the Plan and represents that it has
delivered a copy thereof to each Participant in the Plan, and
that it will deliver to each Participant making contributions and
each new Participant, a copy of the then current prospectus of
such investment companies. The Employer further represents that
the information in this Adoption Agreement shall become effective
only when approved and countersigned by the Trustee. The right to
reject this Adoption Agreement for any reason is reserved.
This Adoption Agreement must be used only in conjunction with
basic plan document #01.
NOTE: An Employer who has ever maintained or who later adopts
any plan (including a welfare benefit fund, as defined in
section 419(e) of the Code, which provides post-retirement
medical benefits allocated to separate accounts for Key
Employees, as defined in section 419A(d)(3) of the Code, or
an individual medical account as defined in section 415(l)(2)
of the Code), in addition to this Plan (other than paired
plan #001), may not rely on the opinion letter issued by the
National Office of the Internal Revenue Service as evidence
that this Plan is qualified under section 401 of the Internal
Revenue Code. If the Employer who adopts or maintains
multiple plans wishes to obtain reliance that the plans are
qualified, application for a determination letter should be
made to the appropriate Key District Director of Internal
Revenue.
This Adoption Agreement consists of __ pages.
IN WITNESS WHEREOF, the Employer has caused this Adoption
Agreement to be executed by its duly authorized officers this ___
day of ____________.
__________________________________
Name of Employer
By:_______________________________
Name & Title
Date:____________________________
67
<PAGE>
Beneficiary Designation
68
<PAGE>
BENEFICIARY DESIGNATION
- ----------------------------------------- -----------------------------------
Employee's Name (last, first, middle) Social Security Number
Birth Date:
------------------------------
Marital
Status: Married Single Divorced Widowed
--- --- --- ---
Beneficiary Designation
I. PRIMARY
% (Paid
Equally
Unless
Otherwise
Last Name First Name Middle Relationship Noted
- --------- ---------- ------ ------------ -----
- ----------------------------------- ------------------ ---------------
- ----------------------------------- ------------------ ---------------
- ----------------------------------- ------------------ ---------------
- ----------------------------------- ------------------ ---------------
II. CONTINGENT
If all of the above beneficiaries are not living, then pay:
% (Paid
Equally
Unless
Otherwise
Last Name First Name Middle Relationship Noted
- --------- ---------- ------ ------------ -----
- ----------------------------------- ------------------ ---------------
- ----------------------------------- ------------------ ---------------
- ----------------------------------- ------------------ ---------------
Note: If more than one primary beneficiary is named and a primary beneficiary
dies before payment is made, the amounts designated for the deceased
primary beneficiary will be reallocated to the other primary
beneficiaries (in accordance with the indicated proportions). Similar
rules apply for contingent beneficiaries.
The foregoing designation is effective upon receipt by the Plan
Administrator and revokes any and all previous designations made by the
employee. The Plan Administrator is authorized to act under this Beneficiary
Designation unless it is revoked or changed by the employee in writing.
- ----------------------------------- --------------------------------------
Witness Employee
In the event the employee designates someone other than his or her spouse, the
following Consent of Spouse must be completed by the employee's spouse.
69
<PAGE>
Consent of Spouse
I, __________________________, spouse of __________________________, in
accordance with section 417 of the Internal Revenue Code, do hereby consent to
this Beneficiary Designation.
The effect of the foregoing consent is to pay my spouse's vested benefits
under the Plan, which may be substantial, to persons other than myself.
---------------------------------
Signature of Spouse
The foregoing Beneficiary Designation and Consent of Spouse were signed in my
presence.
---------------------------------
Plan Administrator
Dated: _____________________________
If not so witnessed, the following notarization must be executed
)
) ss
)
I, ____________________________________, a notary public in and for the
jurisdiction above named, do hereby certify that ___________________________
did personally appear before me and did acknowledge that he/she executed the
foregoing Consent of Spouse as his/her free act and deed.
Subscribed and sworn to before me this ____ day of _____________, 19__.
---------------------------------
Notary Public
My Commission
Expires: ___________________________
Receipt of this Beneficiary Designation is hereby acknowledged.
---------------------------------
Plan Administrator
Dated: _____________________________
NOTICE OF PRE-RETIREMENT SURVIVOR ANNUITY
As a married participant in the ________________, if you die before
(NAME OF PLAN)
commencing distributions from your account, your entire account will be used to
purchase a qualified survivor annuity for your spouse, which will be distributed
in monthly installments over his or her lifetime.
You may elect to waive the requirement that your spouse receive a survivor
annuity during any Plan year in which you are at least age 35. However, your
spouse must consent in writing to this waiver before a Plan representative or
notary public.
You may also elect to waive the requirement that your spouse be your primary
beneficiary during any Plan year in which you are at least age 35. Again, your
spouse must consent to this waiver in writing before a Plan representative or
notary public. If you do elect to waive both the survivor annuity and the
designation of your spouse as beneficiary, and your spouse has consented in
writing, you may designate any beneficiary as the recipient of your account
balance.
You may revoke your waiver at any time before your death and make a new
election. Should you choose to make an election change, or should you have a
change in marital status, notify the Plan Administrator promptly.
70
<PAGE>
CORPORATE RESOLUTION
71
<PAGE>
SECRETARY'S CERTIFICATION
OF ADOPTION OF CORPORATE RESOLUTION
_________________________________
(Name of Corporation)
The undersigned hereby certifies that he/she is the Secretary of
___________________________, (the "Corporation"), a corporation organized and
(Name of Corporation)
existing under the laws of ___________________, and that the following
(Name of State)
resolutions were duly adopted by the Corporation's Board of Directors on
___________________________________________________; that such resolutions are
(Date of Meeting or Unanimous Consent Action)
in full force and effect as of the date of this certification; and that the
following is a true copy of the resolutions as adopted:
[CHECK IF THE ADOPTION OF THIS PROTOTYPE CONSTITUTES AN AMENDMENT AND
RESTATEMENT OF AN EXISTING PLAN]
1. RESOLVED, that the ________________ is hereby amended by the actions
(Name of Plan)
taken pursuant to the following resolutions; and
- or -
[CHECK IF THE ADOPTION OF THIS PROTOTYPE CONSTITUTES THE ESTABLISHMENT OF A NEW
PLAN]
1. RESOLVED. that the Corporation adopt the ______________________________
(Name of Sponsor's Prototype
Plan and Trust)
by executing and delivering the Adoption Agreement; and
2. RESOLVED, that the proper officers of the Corporation are hereby
authorized to take all steps necessary to notify the employees
concerning the Plan, properly execute said Adoption Agreement, and do
all things as they, in their discretion and with advice of counsel, deem
necessary or desirable to establish and maintain the Plan and Trust,
including, but not limited to, making contributions in accordance with
the terms of the Plan; and
3. RESOLVED, that the Trustee(s) and the Plan Administrator designated in
the Adoption Agreement be appointed to serve in accordance with the
terms of the Plan and Trust.
IN WITNESS WHEREOF, the undersigned has signed this Certificate and affixed
the seal of the Corporation this day of , 19
[Corporate Seal] _________________________________
Corporate Secretary
72
<PAGE>
AMENDMENT TO THE
INVESTMENT COMPANY INSTITUTE
PROTOTYPE MONEY PURCHASE PENSION AND PROFIT SHARING PLAN
BASIC DOCUMENT #01
FIRST
=====
The Plan is hereby amended by the word-for-word adoption of the model
language contained in Revenue Procedure 93-12, for distributions made on or
after January 1, 1993, as follows:
Notwithstanding any provision of the Plan to the contrary that would
otherwise limit a Distributee's election under this provision, a
Distributee may elect, at the time and in the manner prescribed by the Plan
Administrator, to have any portion of an Eligible Rollover Distribution
paid directly to an Eligible Retirement Plan specified by the Distributee
in a Direct Rollover.
Definitions
===========
(a) Eligible Rollover Distribution. An Eligible Rollover
-------------------------------
Distribution is any distribution of all or any portion of the balance to
the credit of the Distributee, except that an Eligible Rollover
Distribution does not include: any distribution that is one of a series of
substantially equal periodic payments (not less frequently than annually)
made for the life (or life expectancy) of the Distributee or the joint
lives (or joint life expectancies) of the Distributee and the Distributee's
designated Beneficiary, or for a specified period of ten (10) years or
more; any distribution to the extent such distribution is required under
section 401(a)(9) of the Code; and the portion of any distribution that is
not includable in gross income (determined without regard to the exclusion
for net unrealized appreciation with respect to employer securities).
(b) Eligible Retirement Plan. An Eligible Retirement Plan is an
-------------------------
individual retirement account described in section 408(a) of the Code, an
individual retirement annuity described in section 408(b) of the Code, an
annuity plan described in section 403(a) of the Code, or a qualified trust
described in section 401(a) of the Code, that accepts the Distributee's
Eligible Rollover Distribution. However, in the case of an Eligible
Rollover Distribution to the surviving spouse, an Eligible Retirement Plan
is an individual retirement account or individual retirement annuity.
(c) Distributee. A Distributee includes an Employee or former
------------
Employee. In addition, the Employee's or former Employee's surviving
spouse and the Employee's or former Employee's spouse or former spouse who
is the alternate payee under a qualified domestic relations order, as
defined in section 414(p) of the Code, are Distributees with regard to the
interest of the spouse or former spouse.
<PAGE>
(d) Direct Rollover. A Direct Rollover is a payment by the Plan
----------------
to the Eligible Retirement Plan specified by the Distributee.
SECOND
======
The Plan is hereby amended by the word-for-word adoption of the model
language contained in Revenue Procedure 94-13 as follows:
In addition to other applicable limitations set forth in the Plan, and
notwithstanding any other provision of the Plan to the contrary, for Plan
Years beginning on or after January 1, 1994, the annual Compensation of
each Employee taken into account under the Plan shall not exceed the OBRA
'93 Annual Compensation Limit. The OBRA '93 Annual Compensation Limit is
$150,000, as adjusted by the Commissioner for increases in the cost-of-
living in accordance with section 401(a)(17)(B) of the Internal Revenue
Code. The cost-of-living adjustment in effect for a calendar year applies
to any period, not exceeding 12 months, over which Compensation is
determined ("Determination Period") beginning in such calendar year. If a
Determination Period consists of fewer than 12 months, the OBRA '93 Annual
Compensation Limit will be multiplied by a fraction, the numerator of which
is the number of months in the Determination Period, and the denominator of
which is 12.
For Plan Years beginning on or after January 1, 1994, any reference in this
Plan to the limitation under section 401(a)(17) of the Code shall mean the
OBRA '93 Annual Compensation Limit set forth in this provision.
If Compensation for any prior Determination Period is taken into account in
determining an Employee's benefits accruing in the current Plan Year, the
Compensation for that prior Determination Period is subject to the OBRA '93
Annual Compensation Limit in effect for that prior Determination Period.
For this purpose, for Determination Periods beginning before the first day
of the first Plan Year beginning on or after January 1, 1994, the OBRA '93
Annual Compensation Limit is $150,000.
-2-
<PAGE>
[ARTICLE] 6
[CIK] 0000896165
[NAME] STRATTON FUNDS INC.
[SERIES]
[NUMBER] 1
[NAME] STRATTON SMALL-CAP YIELD FUND
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] MAR-31-1996
[PERIOD-START] APR-01-1996
[PERIOD-END] MAR-31-1996
[INVESTMENTS-AT-COST] 16,235,284
[INVESTMENTS-AT-VALUE] 19,507,505
[RECEIVABLES] 62,371
[ASSETS-OTHER] 60,065
[OTHER-ITEMS-ASSETS] 0
[TOTAL-ASSETS] 19,629,941
[PAYABLE-FOR-SECURITIES] 33,750
[SENIOR-LONG-TERM-DEBT] 0
[OTHER-ITEMS-LIABILITIES] 4,226
[TOTAL-LIABILITIES] 37,976
[SENIOR-EQUITY] 0
[PAID-IN-CAPITAL-COMMON] 15,814,097
[SHARES-COMMON-STOCK] 613,299
[SHARES-COMMON-PRIOR] 566,957
[ACCUMULATED-NII-CURRENT] 6,437
[OVERDISTRIBUTION-NII] 0
[ACCUMULATED-NET-GAINS] 499,210
[OVERDISTRIBUTION-GAINS] 0
[ACCUM-APPREC-OR-DEPREC] 3,272,221
[NET-ASSETS] 19,591,965
[DIVIDEND-INCOME] 575,956
[INTEREST-INCOME] 53,804
[OTHER-INCOME] 0
[EXPENSES-NET] 245,519
[NET-INVESTMENT-INCOME] 384,241
[REALIZED-GAINS-CURRENT] 970,650
[APPREC-INCREASE-CURRENT] 2,474,521
[NET-CHANGE-FROM-OPS] 3,829,412
[EQUALIZATION] 0
[DISTRIBUTIONS-OF-INCOME] 382,442
[DISTRIBUTIONS-OF-GAINS] 0
[DISTRIBUTIONS-OTHER] 0
[NUMBER-OF-SHARES-SOLD] 91,285
[NUMBER-OF-SHARES-REDEEMED] 30,395
[SHARES-REINVESTED] 9,200
[NET-CHANGE-IN-ASSETS] 5,533,799
[ACCUMULATED-NII-PRIOR] 4,638
[ACCUMULATED-GAINS-PRIOR] (471,440)
[OVERDISTRIB-NII-PRIOR] 0
[OVERDIST-NET-GAINS-PRIOR] 0
[GROSS-ADVISORY-FEES] 126,638
[INTEREST-EXPENSE] 0
[GROSS-EXPENSE] 245,519
[AVERAGE-NET-ASSETS] 16,852,202
[PER-SHARE-NAV-BEGIN] 25.88
[PER-SHARE-NII] .66
[PER-SHARE-GAIN-APPREC] 6.07
[PER-SHARE-DIVIDEND] .66
[PER-SHARE-DISTRIBUTIONS] 0
[RETURNS-OF-CAPITAL] 0
[PER-SHARE-NAV-END] 31.95
[EXPENSE-RATIO] 1.46
[AVG-DEBT-OUTSTANDING] 0
[AVG-DEBT-PER-SHARE] 0
</TABLE>
<PAGE>
===================
POWER OF ATTORNEY
===================
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph M. O'Donnell, Gerald J. Holland, and William J. Baltrus and each of them,
with full power to act without the other, as true and lawful attorney-in-fact
and agent, with full and several power of substitution, to sign any Post-
Effective Amendment to the Registration Statement of The Stratton Funds, Inc.
(the "Fund") to be filed with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission; granting to such attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act requisite and necessary to be done in connection therewith, as
fully as James W. Stratton might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his/her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
____ day of March, 1995.
_____________________________________
James W. Stratton
Chairman of the Board of Directors
ACKNOWLEDGEMENT
---------------
State of ________________ )
) ss:
County of _________________ )
The foregoing instrument was acknowledged before me on this ____ day of March,
1995 by James W. Stratton, Chairman of the Board of Directors of The Stratton
Funds, Inc.
______________________________________________
NOTARY PUBLIC
In and for the County of __________________
State of _____________________
My Commission Expires: __________________
[NOTARIAL SEAL APPEARS HERE]
<PAGE>
===================
POWER OF ATTORNEY
===================
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph M. O'Donnell, Gerald J. Holland, and William J. Baltrus and each of them,
with full power to act without the other, as true and lawful attorney-in-fact
and agent, with full and several power of substitution, to sign any Post-
Effective Amendment to the Registration Statement of The Stratton Funds, Inc.
(the "Fund") to be filed with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission; granting to such attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act requisite and necessary to be done in connection therewith, as
fully as Lynne M. Cannon might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his/her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
____ day of May, 1995.
_____________________________________
Lynne M. Cannon
Director
ACKNOWLEDGEMENT
---------------
State of ________________ )
) ss:
County of _________________ )
The foregoing instrument was acknowledged before me on this ____ day of May,
1995 by Lynne M. Cannon, Director of The Stratton Funds, Inc.
______________________________________________
NOTARY PUBLIC
In and for the County of __________________
State of _____________________
My Commission Expires: __________________
[NOTARIAL SEAL APPEARS HERE]
<PAGE>
===================
POWER OF ATTORNEY
===================
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph M. O'Donnell, Gerald J. Holland, and William J. Baltrus and each of them,
with full power to act without the other, as true and lawful attorney-in-fact
and agent, with full and several power of substitution, to sign any Post-
Effective Amendment to the Registration Statement of The Stratton Funds, Inc.
(the "Fund") to be filed with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission; granting to such attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act requisite and necessary to be done in connection therewith, as
fully as John J. Lombard, Jr. might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his/her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
____ day of March, 1995.
_____________________________________
John J. Lombard, Jr.
Director
ACKNOWLEDGEMENT
---------------
State of ________________ )
) ss:
County of _________________ )
The foregoing instrument was acknowledged before me on this ____ day of March,
1995 by John J. Lombard, Jr., Director of The Stratton Funds, Inc.
______________________________________________
NOTARY PUBLIC
In and for the County of __________________
State of _____________________
My Commission Expires: __________________
[NOTARIAL SEAL APPEARS HERE]
<PAGE>
===================
POWER OF ATTORNEY
===================
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph M. O'Donnell, Gerald J. Holland, and William J. Baltrus and each of them,
with full power to act without the other, as true and lawful attorney-in-fact
and agent, with full and several power of substitution, to sign any Post-
Effective Amendment to the Registration Statement of The Stratton Funds, Inc.
(the "Fund") to be filed with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission; granting to such attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act requisite and necessary to be done in connection therewith, as
fully as Rose J. Randall might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his/her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
____ day of March, 1995.
_____________________________________
Rose J. Randall
Director
ACKNOWLEDGEMENT
---------------
State of ________________ )
) ss:
County of _________________ )
The foregoing instrument was acknowledged before me on this ____ day of March,
1995 by Rose J. Randall, Director of The Stratton Funds, Inc.
______________________________________________
NOTARY PUBLIC
In and for the County of __________________
State of _____________________
My Commission Expires: __________________
[NOTARIAL SEAL APPEARS HERE]
<PAGE>
===================
POWER OF ATTORNEY
===================
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph M. O'Donnell, Gerald J. Holland, and William J. Baltrus and each of them,
with full power to act without the other, as true and lawful attorney-in-fact
and agent, with full and several power of substitution, to sign any Post-
Effective Amendment to the Registration Statement of The Stratton Funds, Inc.
(the "Fund") to be filed with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission; granting to such attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act requisite and necessary to be done in connection therewith, as
fully as Henry A. Rentschler might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his/her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
____ day of March, 1995.
_____________________________________
Henry A. Rentschler
Director
ACKNOWLEDGEMENT
---------------
State of ________________ )
) ss:
County of _________________ )
The foregoing instrument was acknowledged before me on this ____ day of March,
1995 by Henry A. Rentschler, Director of The Stratton Funds, Inc.
______________________________________________
NOTARY PUBLIC
In and for the County of __________________
State of _____________________
My Commission Expires: __________________
[NOTARIAL SEAL APPEARS HERE]
<PAGE>
===================
POWER OF ATTORNEY
===================
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph M. O'Donnell, Gerald J. Holland, and William J. Baltrus and each of them,
with full power to act without the other, as true and lawful attorney-in-fact
and agent, with full and several power of substitution, to sign any Post-
Effective Amendment to the Registration Statement of The Stratton Funds, Inc.
(the "Fund") to be filed with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission; granting to such attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act requisite and necessary to be done in connection therewith, as
fully as Alexander F. Smith might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his/her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
____ day of March, 1995.
_____________________________________
Alexander F. Smith
Director
ACKNOWLEDGEMENT
---------------
State of ________________ )
) ss:
County of _________________ )
The foregoing instrument was acknowledged before me on this ____ day of March,
1995 by Alexander F. Smith, Director of The Stratton Funds, Inc.
______________________________________________
NOTARY PUBLIC
In and for the County of __________________
State of _____________________
My Commission Expires: __________________
[NOTARIAL SEAL APPEARS HERE]
<PAGE>
===================
POWER OF ATTORNEY
===================
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph M. O'Donnell, Gerald J. Holland, and William J. Baltrus and each of them,
with full power to act without the other, as true and lawful attorney-in-fact
and agent, with full and several power of substitution, to sign any Post-
Effective Amendment to the Registration Statement of The Stratton Funds, Inc.
(the "Fund") to be filed with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission; granting to such attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act requisite and necessary to be done in connection therewith, as
fully as Richard W. Stevens might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his/her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
____ day of March, 1995.
_____________________________________
Richard W. Stevens
Director
ACKNOWLEDGEMENT
---------------
State of ________________ )
) ss:
County of _________________ )
The foregoing instrument was acknowledged before me on this ____ day of March,
1995 by Richard W. Stevens, Director of The Stratton Funds, Inc.
______________________________________________
NOTARY PUBLIC
In and for the County of __________________
State of _____________________
My Commission Expires: __________________
[NOTARIAL SEAL APPEARS HERE]
<PAGE>
===================
POWER OF ATTORNEY
===================
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph M. O'Donnell, Gerald J. Holland, and William J. Baltrus and each of them,
with full power to act without the other, as true and lawful attorney-in-fact
and agent, with full and several power of substitution, to sign any Post-
Effective Amendment to the Registration Statement of The Stratton Funds, Inc.
(the "Fund") to be filed with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission; granting to such attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act requisite and necessary to be done in connection therewith, as
fully as Frank H. Reichel, III might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his/her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
____ day of March, 1995.
_____________________________________
Frank H. Reichel, III
President
ACKNOWLEDGEMENT
---------------
State of ________________ )
) ss:
County of _________________ )
The foregoing instrument was acknowledged before me on this ____ day of March,
1995 by Frank H. Reichel, III, President of The Stratton Funds, Inc.
______________________________________________
NOTARY PUBLIC
In and for the County of __________________
State of _____________________
My Commission Expires: __________________
[NOTARIAL SEAL APPEARS HERE]
<PAGE>
===================
POWER OF ATTORNEY
===================
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph M. O'Donnell, Gerald J. Holland, and William J. Baltrus and each of them,
with full power to act without the other, as true and lawful attorney-in-fact
and agent, with full and several power of substitution, to sign any Post-
Effective Amendment to the Registration Statement of The Stratton Funds, Inc.
(the "Fund") to be filed with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission; granting to such attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act requisite and necessary to be done in connection therewith, as
fully as Merritt N. Rhoad, Jr. might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his/her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
____ day of March, 1995.
_____________________________________
Merritt N. Rhoad, Jr.
Director
ACKNOWLEDGEMENT
---------------
State of ________________ )
) ss:
County of _________________ )
The foregoing instrument was acknowledged before me on this ____ day of March,
1995 by Merritt N. Rhoad, Jr., Director of The Stratton Funds, Inc.
______________________________________________
NOTARY PUBLIC
In and for the County of __________________
State of _____________________
My Commission Expires: __________________
[NOTARIAL SEAL APPEARS HERE]
<PAGE>
===================
POWER OF ATTORNEY
===================
KNOW ALL MEN BY THESE PRESENTS, that the undersigned constitutes and appoints
Joseph M. O'Donnell, Gerald J. Holland, and William J. Baltrus and each of them,
with full power to act without the other, as true and lawful attorney-in-fact
and agent, with full and several power of substitution, to sign any Post-
Effective Amendment to the Registration Statement of The Stratton Funds, Inc.
(the "Fund") to be filed with the Securities and Exchange Commission under the
Investment Company Act of 1940, as amended, and the Securities Act of 1933, as
amended, with all exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission; granting to such attorneys-in-fact
and agents, and each of them, full power and authority to do and perform each
and every act requisite and necessary to be done in connection therewith, as
fully as Carol L. Royce might or could do in person, hereby ratifying and
confirming all that such attorneys-in-fact and agents or any of them, or their
or his/her substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
IN WITNESS WHEREOF, the undersigned has executed this Power of Attorney on the
____ day of March, 1995.
_____________________________________
Carol L. Royce
Assistant Secretary and
Assistant Treasurer
ACKNOWLEDGEMENT
---------------
State of ________________ )
) ss:
County of _________________ )
The foregoing instrument was acknowledged before me on this ____ day of March,
1995 by Carol L. Royce, Assistant Secretary and Assistant Treasurer of The
Stratton Funds, Inc.
______________________________________________
NOTARY PUBLIC
In and for the County of __________________
State of _____________________
My Commission Expires: __________________
[NOTARIAL SEAL APPEARS HERE]
