Registration No. 333-
Investment Company Act No. 811-266
U.S. SECURITIES AND EXCHANGE COMMISSION,
Washington, D.C. 20549
FORM N-2
[X] REGISTRATION STATEMENT UNDER SECURITIES ACT OF 1933
[ ] Pre-Effective Amendment No._______
[ ] Post-Effective Amendment No._______
and/or
[X] REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
[X] Amendment No. 27
Exact Name of Registrant as Specified in Charter:
TRI-CONTINENTAL CORPORATION
Address of Principal Executive Offices (Number, Street, City, State, Zip Code):
100 Park Avenue, New York, New York 10017
Registrant's Telephone Number, including Area Code:
(212) 850-1864 or (800) 221-2450
Name and Address (Number, Street, City, State, Zip Code) of Agent for Service:
Frank J. Nasta, Esq.,
100 Park Avenue, New York, New York 10017
Approximate Date of Proposed Public Offering:
As soon as practicable after the effective date of this Registration Statement.
If any securities being registered on this form will be offered on a delayed or continuous basis in reliance on Rule 415 under the Securities Act of 1933, other than securities offered in connection with a dividend reinvestment plan, check the following box. [X]
Calculation of Registration Fee Under the Securities Act of 1933
Proposed Maximum Proposed Maximum
Title of Securities Amount Being Offering Price Aggregate Amount of
Being Registered Registered per Unit Offering Price Registration Fee
----------------------------------------------------------------------------------------------------
Common Stock
$.50 par value 2,000,000 $29.7813 $59,562,600 $17,570.97*
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* A credit of $17,074.24 remains from prior year.
The Registration Statement shall become effective hereafter in accordance with
Section 8(a) of the Securities Act of 1933.
TRI-CONTINENTAL CORPORATION
CROSS REFERENCE SHEET
Pursuant to Rule 495(a)
Form N-2-Part A Prospectus Caption
------------------- -------------------
Item No.
--------
1. Outside Front Cover Outside Front Cover of the Prospectus
2. Inside Front and Outside Back Cover Page Inside Front and Outside Back
Cover Page of Prospectus
3. Fee Table and Synopsis Summary of Corporation Expenses;
Prospectus Summary
4. Financial Highlights Financial Highlights
5. Plan of Distribution Not Applicable
6. Selling Shareholders Not Applicable
7. Use of Proceeds Description of Investment Plans and
Other Services - Method of Purchase
8. General Description of the Registrant Prospectus Summary; The Corporation;
Investment and Other Policies; Trading
and Net Asset Value Information
Concerning Tri-Continental Corporation
Common Stock
9. Management Management of the Corporation;
Description of Investment Plans and
Other Services; Back Cover Page of
Prospectus
10. Capital Stock, Long-Term Debt, and Other Description of Capital Stock;
Securities Description of Warrants;
Dividend Policy and Taxes; Description
of Investment Plans and Other Services;
Capitalization at March 31, 1998
11. Defaults and Arrears on Senior Securities Not Applicable
12. Legal Proceedings Not Applicable
13. Table of Contents of the Statement Table of Contents of the Statement of Additional
of Additional Information Information
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TRI-CONTINENTAL CORPORATION
CROSS REFERENCE SHEET (continued)
Pursuant to Rule 495(a)
Form N-2-Part B Statement of Additional Information Caption
--------------- -------------------------------------------
Item No.
--------
14. Cover Page Cover Page of the Statement of Additional Information
15. Table of Contents Cover Page of the Statement of Additional Information
16. General Information and History Appendix
17. Investment Objectives and Policies Additional Investment Objectives and Policies
18. Management Directors and Officers
19. Control Persons and Principal Holders Directors and Officers - Holdings of Preferred Stock,
of Securities Common Stock and Warrants
20. Investment Advisory and Other Services Directors and Officers - Holdings of
Preferred Stock, Common Stock and
Warrants; Management; Experts;
Custodian, Stockholder Service Agent
and Dividend Paying Agent
21. Brokerage Allocation and Other Practices Brokerage Commissions
22. Tax Status Additional Investment Objectives and Policies
23. Financial Statements Incorporation of Financial Statements
by Reference
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Tri-Continental Corporation
AN INVESTMENT YOU CAN LIVE WITH
May 1, 1998
100 Park Avenue
New York, NY 10017
New York City Telephone (212) 850-1864
Toll-Free Telephone (800) 874-1092 -- all continental United States For Retirement Plan Information -- Toll-Free Telephone (800) 445-1777
Tri-Continental Corporation (the 'Corporation') is a diversified, closed-end investment company -- a publicly traded investment fund. The Corporation's Common Stock is traded on the New York Stock Exchange under the symbol 'TY.'
The Corporation invests primarily for the longer term, and over the years the Corporation's objective has been to produce future growth of both capital and income while providing reasonable current income. Common stocks have made up the bulk of investments. However, assets may be held in cash or invested in all types of securities. See 'Investment and Other Policies.' No assurance can be given that the Corporation's investment objective will be realized. The Corporation's Investment Manager is J. & W. Seligman & Co. Incorporated.
This Prospectus applies to all shares of Common Stock purchased pursuant to the Corporation's various Investment Plans. See 'Description of Investment Plans and Other Services.' The shares of Common Stock covered by this Prospectus also may be issued from time to time by the Corporation in connection with the acquisition of the assets of personal holding companies, private investment companies or publicly-owned investment companies. See 'Issuance of Shares in Connection with Acquisitions.'
This Prospectus sets forth concisely the information that a prospective investor should know about the Corporation before investing. Investors are advised to read this Prospectus carefully and to retain it for future reference. Additional information about the Corporation, including a Statement of Additional Information (the 'SAI'), has been filed with the Securities and Exchange Commission. The SAI is available upon request and without charge by writing or calling the Corporation at the address or telephone numbers listed above. The SAI is dated the same date as this Prospectus and is incorporated herein by reference in its entirety. The table of contents of the SAI appears on page 22 of this Prospectus. In addition, copies of the 1997 Annual Report to Stockholders of the Corporation (the '1997 Annual Report') will be furnished, without charge, to investors requesting copies of the SAI. The 1997 Annual Report contains financial statements of the Corporation for the year ended December 31, 1997 which are incorporated by reference into the SAI.
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.
TABLE OF CONTENTS
PAGE
----
Summary of Corporation Expenses.................. 2
Prospectus Summary............................... 3
Financial Highlights............................. 4
Capitalization at March 31, 1998................. 7
Trading and Net Asset Value Information
Concerning Tri-Continental Corporation Common
Stock.......................................... 7
The Corporation.................................. 8
Investment and Other Policies.................... 8
Management of the Corporation.................... 11
Description of Capital Stock..................... 12
Description of Warrants.......................... 14
Computation of Net Asset Value................... 14
Dividend Policy and Taxes........................ 15
Description of Investment Plans and Other
Services....................................... 16
Issuance of Shares in Connection with
Acquisitions................................... 20
Additional Information........................... 21
Table of Contents of the Statement of Additional
Information.................................... 22
Authorization Form for Automatic Dividend
Investment and Cash Purchase Plan.............. 23
Authorization Form for Automatic Check Service... 24
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SUMMARY OF CORPORATION EXPENSES
The following table illustrates the expenses and fees that the Corporation expects to incur and that stockholders can expect to bear.
STOCKHOLDER TRANSACTION EXPENSES
Automatic Dividend Investment and Cash Purchase Plan Fees.......................... (1)
ANNUAL EXPENSES FOR 1997 (AS A PERCENTAGE OF NET ASSETS ATTRIBUTABLE
TO COMMON STOCK)
Management Fees.................................................................... .40%
Other Expenses..................................................................... .20%
----
Total Annual Expenses......................................................... .60%
----
----
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(1) Stockholders participating in the Corporation's investment plans pay a maximum $2.00 fee per transaction. See 'Description of Investment Plans and Other Services -- Automatic Dividend Investment and Cash Purchase Plan' for a description of the investment plans and services.
The purpose of the table above is to assist investors in understanding the various costs and expenses they will bear directly or indirectly. For more complete descriptions of the various costs and expenses, see 'Management of the Corporation' and 'Description of Investment Plans and Other Services -- Automatic Dividend Investment and Cash Purchase Plan.'
The following example illustrates the expenses an investor would pay on a $1,000 investment, assuming a 5% annual return:
1 YEAR 3 YEARS 5 YEARS 10 YEARS
------ ------- ------- --------
Tri-Continental Corporation
Common Stock......................................... $6 $19 $33 $ 75
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The example does not represent actual or anticipated expenses, which may be greater or less than those shown. Moreover, the Corporation's actual rate of return may be greater or less than the hypothetical 5% return shown in the example.
PROSPECTUS SUMMARY
The following is qualified in its entirety by the more detailed information included elsewhere in this Prospectus.
The Corporation is a Maryland corporation formed in 1929 by the consolidation of two predecessor corporations. It is registered under the Investment Company Act of 1940, as amended (the '1940 Act'), as a diversified management investment company of the closed-end type. This Prospectus applies to shares of Common Stock of the Corporation. The Corporation invests primarily for the longer term and has no Charter restrictions with respect to such investments. Over the years the Corporation's objective has been to produce future growth of both capital and income while providing reasonable current income. See 'The Corporation.' There can be no assurance that this objective will be attained. While common stocks have made up the bulk of investments, assets may be held in cash or invested in all types of securities in whatever amounts or proportions J. & W. Seligman & Co. Incorporated (the 'Manager') believes best suited to current and anticipated economic and market conditions. These may include repurchase agreements, options, illiquid securities and securities of foreign issuers, each of which could involve certain risks. See 'Investment and Other Policies.' The Corporation's Common Stock is listed on the New York Stock Exchange under the symbol 'TY.' The average weekly trading volume on that and other exchanges during 1997 was 378,536 shares. The Corporation's Common Stock has historically been traded on the market at less than net asset value. As of March 31, 1998, the Corporation had 105,740,345 shares of Common Stock outstanding and net assets attributable to Common Stock of $3,785,427,349.
The Manager manages the investment of the assets of the Corporation and administers its business and other affairs pursuant to a Management Agreement approved by the Board of Directors and the stockholders of the Corporation. The Manager also serves as manager of seventeen other investment companies which, together with the Corporation, make up the 'Seligman Group.' The aggregate assets of the Seligman Group at March 31, 1998 were approximately $20.2 billion. The Manager also provides investment management or advice to institutional and other accounts having a value at March 31, 1998 of approximately $7.4 billion. The Manager's fee is based in part on the average daily net assets of the Corporation. The management fee rate for 1997 was equivalent to .40% of the Corporation's average daily net investment assets. See 'Management of the Corporation.'
Shares of Common Stock covered by this Prospectus may be purchased from time to time by Seligman Data Corp., the Plan service agent for Automatic Dividend Investment and Cash Purchase Plans, Individual Retirement Accounts ('IRAs'), Retirement Plans for Self-Employed Individuals, Partnerships and Corporations, the J. & W. Seligman & Co. Incorporated Matched Accumulation Plan and the Seligman Data Corp. Employees' Thrift Plan (collectively, the 'Plans'), as directed by participants, and may be sold from time to time by the Plan service agent for participants in Systematic Withdrawal Plans. See 'Description of Investment Plans and Other Services -- Automatic Dividend Investment and Cash Purchase Plan' and ' -- Systematic Withdrawal Plan.' Shares will be purchased for the Plans on the New York Stock Exchange or elsewhere when the market price of the Common Stock is equal to or less than its net asset value, and any brokerage commissions applicable to such purchases will be charged pro rata to the Plan participants. Shares will be purchased for the Plans from the Corporation at net asset value when the net asset value is lower than the market price, all as more fully described in this Prospectus.
FINANCIAL HIGHLIGHTS
The Corporation's financial highlights for the years presented below have been audited by Deloitte & Touche LLP, independent auditors. This information which is derived from the financial and accounting records of the Corporation should be read in conjunction with the financial statements and notes contained in the 1997 Annual Report which may be obtained from the Corporation as provided on the cover page of this Prospectus.
'Per share operating performance' data is designed to allow an investor to trace the operating performance, on a per Common share basis, from the beginning net asset value to the ending net asset value so that investors can understand what effect the individual items have on their investment, assuming it was held throughout the year. Generally, the per share amounts are derived by converting the actual dollar amounts incurred for each item, as disclosed in the financial statements, to their equivalent per Common share amount.
PER SHARE OPERATING PERFORMANCE, TOTAL
(FOR A SHARE OF COMMON STOCK
---------------------------------------
1997 1996 1995 1994
------ ------ ------ ------
PER SHARE OPERATING PERFORMANCE:
Net asset value, beginning of year.......................... $29.28 $27.58 $23.70 $27.49
------ ------ ------ ------
Net investment income*...................................... .60 .68 .74 .83
Net realized and unrealized investment gain (loss).......... 6.94 4.84 6.14 (1.69)
Net realized and unrealized gain (loss) from foreign
currency transactions..................................... (.17) (.02) .03 .02
------ ------ ------ ------
Increase (decrease) from investment operations.............. 7.37 5.50 6.91 (.84)
Dividends paid on Preferred Stock........................... (.02) (.02) (.02) (.03)
Dividends paid on Common Stock.............................. (.60) (.66) (.73) (.79)
Distribution from net gain realized......................... (3.45) (2.72) (2.01) (1.90)
Issuance of Common Stock in gain distributions.............. (.52) (.40) (.27) (.23)
Issuance of Common Stock from exercise of Rights............ -- -- -- --
Rights offering costs....................................... -- -- -- --
Issuance of Common Stock upon Warrant exercise**............ -- -- -- --
------ ------ ------ ------
Net increase (decrease) in net asset value.................. 2.78 1.70 3.88 (3.79)
------ ------ ------ ------
Net asset value at end of year.............................. $32.06 $29.28 $27.58 $23.70
------ ------ ------ ------
------ ------ ------ ------
Adjusted net asset value at end of year**................... $31.99 $29.22 $27.52 $23.65
Market value, end of year................................... $26.6875 $24.125 $22.625 $19.875
TOTAL INVESTMENT RETURN FOR YEAR:
Based upon market value..................................... 27.96% 21.98% 27.95% (5.07)%
Based upon net asset value.................................. 26.65% 21.45% 30.80% (2.20)%
RATIOS AND SUPPLEMENTAL DATA:***
Expenses to average net investment assets................... .60% .62% .63% .64%
Expenses to average net assets for Common Stock............. .60% .63% .64% .65%
Net investment income to average net investment assets...... 1.80% 2.27% 2.71% 3.08%
Net investment income to average net assets for Common
Stock..................................................... 1.82% 2.31% 2.75% 3.14%
Portfolio turnover rate..................................... 83.98% 53.96% 62.28% 70.38%
Average commission rate paid................................ $.0385 $.0478
Net investment assets, end of year (000s omitted):
For Common Stock........................................ $3,391,816 $2,835,026 $2,469,149 $1,994,098
For Preferred Stock..................................... 37,637 37,637 37,637 37,637
--------- ---------- ---------- ----------
Total net investment assets................................. $3,429,453 $2,872,663 $2,506,786 $2,031,735
--------- ---------- ---------- ----------
--------- ---------- ---------- ----------
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** Assumes the exercise of outstanding warrants. Warrant exercise terms were:
December 30, 1987 to December 29, 1988 -- 7.83 shares at $2.87 per share,
December 30, 1988 to December 29, 1989 -- 8.14 shares at $2.76 per share,
December 30, 1989 to December 28, 1990 -- 8.81 shares at $2.55 per share,
December 29, 1990 to December 27, 1991 -- 9.25 shares at $2.43 per share,
December 28, 1991 to November 1, 1992 -- 9.69 shares at $2.32 per share,
November 2, 1992 to December 28, 1992 -- 11.07 shares at $2.03 per share,
December 29, 1992 to December 28, 1993 -- 11.29 shares at $1.99 per share,
December 29, 1993 to December 21, 1994 -- 11.95 shares
The total investment return based on market value measures the Corporation's performance assuming investors purchased shares of the Corporation at the market value as of the beginning of the year, invested dividends and capital gains paid as provided for in the Corporation's Automatic Dividend Investment and Cash Purchase Plan, and then sold their shares at the closing market value per share on the last day of the year. The computation does not reflect any sales commissions investors may incur in purchasing or selling shares of the Corporation. The total investment return based on net asset value is similarly computed except that the Corporation's net asset value is substituted for the corresponding market value.
'Average commission rate paid' represents the average commission paid by the Corporation to purchase or sell portfolio securities. It is determined by dividing the total commission dollars paid by the number of shares purchased and sold during the period for which commissions were paid.
INVESTMENT RETURNS, RATIOS AND SUPPLEMENTAL DATA
OUTSTANDING THROUGHOUT EACH YEAR)
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------------
1993 1992 1991 1990 1989 1988
------ ------ ------ ------ ------ ------
$28.03 $28.57 $24.60 $27.44 $23.55 $23.94
------ ------ ------ ------ ------ ------
.83 .81 .81 .81 .88 .84
1.46 1.19 5.79 (1.05) 6.78 1.01
-- -- -- -- -- --
------ ------ ------ ------ ------ ------
2.29 2.00 6.60 (.24) 7.66 1.85
(.03) (.03) (.03) (.03) (.04) (.04)
(.80) (.78) (.78) (.86) (.84) (.81)
(1.80) (.70) (1.80) (1.60) (2.55) (1.25)
(.19) (.05) (.02) (.11) (.33) (.14)
-- (.97) -- -- -- --
-- (.01) -- -- -- --
(.01) -- -- -- (.01) --
------ ------ ------ ------ ------ ------
(.54) (.54) 3.97 (2.84) 3.89 (.39)
------ ------ ------ ------ ------ ------
$27.49 $28.03 $28.57 $24.60 $27.44 $23.55
------ ------ ------ ------ ------ ------
------ ------ ------ ------ ------ ------
$27.42 $27.95 $28.48 $24.52 $27.35 $23.47
$23.75 $25.50 $27.75 $21.375 $23.00 $19.25
3.47% .61%'D' 42.98% 3.46% 37.96% 3.02%
8.95% 7.42%'D' 27.91% (.20)% 34.54% 8.58%
.66% .67% .67% .56% .55% .57%
.67% .68% .69% .57% .56% .59%
2.88% 2.86% 2.90% 3.01% 3.19% 3.33%
2.94% 2.92% 2.99% 3.07% 3.25% 3.40%
69.24% 44.35% 49.02% 41.23% 59.87% 67.39%
$2,166,212 $2,088,102 $1,833,664 $1,500,281 $1,594,505 $1,263,848
37,637 37,637 37,637 37,637 37,637 37,637
$2,203,849 $2,125,739 $1,871,301 $1,537,918 $1,632,142 $1,301,485
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at $1.88 per share, December 22, 1994 to December 27, 1995 -- 12.77 shares at $1.76 per share; December 28, 1995 to July 1, 1996 -- 13.54 shares at $1.66 per share; July 2, 1996 to December 20, 1996 -- 13.79 shares at $1.63 per share; December 21, 1996 to July 1, 1997 -- 14.69 shares at $1.53 per share; July 2, 1997 to December 19, 1997 -- 14.99 shares at $1.50 per share; and subsequently, 16.06 shares at $1.40 per share.
'D' The total investment returns for 1992 have been adjusted for the effect of the exercise of Rights (equivalent to approximately $0.97 per share), assuming full subscription by Common Stockholders.
*** The ratios of expenses to average net investment assets and net investment income to average net investment assets and to average net assets for Common Stock for all years presented do not reflect the effect of dividends paid to Preferred Stockholders.
SENIOR SECURITIES -- $2.50 CUMULATIVE PREFERRED STOCK
The following information is being presented with respect to the Corporation's $2.50 Cumulative Preferred Stock. The first column presents the number of preferred shares outstanding at the end of each of the periods presented. Asset Coverage represents the total amount of net assets of the Corporation in relation to each share of Preferred Stock outstanding as of the end of the respective periods. The involuntary liquidation preference is the amount each share of Cumulative Preferred Stock would be entitled to upon involuntary liquidation of these shares.
AVERAGE
YEAR- DAILY
END INVOLUNTARY MARKET
ASSET LIQUIDATION VALUE PER
TOTAL SHARES COVERAGE PREFERENCE SHARE (EXCLUDING
YEAR OUTSTANDING PER SHARE PER SHARE BANK LOANS)
----------------------------------- ------------ --------- ------------ ----------------
1997............................... 752,740 $4,556 $ 50 $35.62
1996............................... 752,740 3,816 50 34.28
1995............................... 752,740 3,330 50 33.37
1994............................... 752,740 2,699 50 34.12
1993............................... 752,740 2,928 50 36.17
1992............................... 752,740 2,824 50 34.97
1991............................... 752,740 2,486 50 31.51
1990............................... 752,740 2,043 50 28.62
1989............................... 752,740 2,168 50 28.61
1988............................... 752,740 1,729 50 28.49
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CAPITALIZATION AT MARCH 31, 1998
AMOUNT HELD
BY
REGISTRANT
OR FOR ITS
TITLE OF CLASS AUTHORIZED OUTSTANDING ACCOUNT
---------------------------------------------------------- ---------------- ---------------- ------------
$2.50 Cumulative Preferred Stock,
$50 par value........................................... 1,000,000 shs. 752,740 shs. - 0 - shs.
Common Stock,
$.50 par value.......................................... 129,000,000 shs.* 105,740,345 shs. - 0 - shs.
Warrants to purchase
Common Stock............................................ 14,429 wts. 14,429 wts. - 0 - wts.
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* 231,730 shares of Common Stock were reserved for issuance upon the exercise of outstanding Warrants.
TRADING AND NET ASSET VALUE INFORMATION CONCERNING
TRI-CONTINENTAL CORPORATION COMMON STOCK
The following table shows the high and low sale prices of the Corporation's Common Stock on the composite tape for issues listed on the New York Stock Exchange, the high and low net asset value and the percentage discount or premium to net asset value per share for each calendar quarter since the beginning of 1996.
DISCOUNT TO NET
MARKET PRICE NET ASSET VALUE ASSET VALUE
------------- ---------------- --------------------
1996 HIGH LOW HIGH LOW HIGH LOW
----------------------------------- ------------ ------------ ----- ----- -------- --------
1st Q.............................. 24 1/2 22 5/8 29.58 27.32 (17.17)% (17.19)%
2nd Q.............................. 25 1/4 23 3/8 30.32 28.65 (16.72)% (18.41)%
3rd Q.............................. 25 22 1/4 30.07 27.75 (16.86)% (19.82)%
4th Q.............................. 27 1/8 23 1/2 32.17 28.65 (15.68)% (17.98)%
1997
-----------------------------------
1st Q.............................. 26 1/8 23 3/4 31.19 29.05 (16.24)% (18.24)%
2nd Q.............................. 28 1/2 23 1/2 34.33 29.45 (16.98)% (20.20)%
3rd Q.............................. 29 3/4 27 1/16 35.32 33.46 (15.77)% (19.12)%
4th Q.............................. 30 1/2 24 7/8 36.80 31.41 (17.12)% (20.81)%
1998
-----------------------------------
1st Q.............................. 30 25 1/8 35.94 30.98 (16.53)% (18.90)%
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The Corporation's Common Stock has historically been traded on the market at less than net asset value. The closing market price, net asset value and percentage discount to net asset value per share of the Corporation's Common Stock on March 31, 1998 were $29.5625, $35.80 and (17.42)%, respectively.
THE CORPORATION
The Corporation is a Maryland corporation formed on December 31, 1929, by the consolidation of two predecessor corporations. Since the date of its formation, it has been engaged in business as an investment company. It is registered under the 1940 Act as a diversified, management investment company of the closed-end type and is subject to applicable regulatory and other provisions of that Act. Such registration, of course, does not involve government supervision of management, investment policies or investment practices. As indicated by its financial statements incorporated by reference herein, the Corporation's principal assets, other than cash and receivables, are its portfolio of investment securities.
INVESTMENT AND OTHER POLICIES
The Corporation invests primarily for the longer term and has no Charter restrictions with respect to such investments. Over the years, the Corporation's objective has been to produce future growth of both capital and income while providing reasonable current income. There can be no assurance that this objective will be attained in the future. While common stocks have made up the bulk of investments, assets may be held in cash or invested in all types of securities, that is, in bonds, debentures, notes, preferred and common stocks, rights and warrants (subject to limitations as set forth in the SAI), and other securities, in whatever amounts or proportions the Manager believes best suited to current and anticipated economic and market conditions.
The management's present investment policies, in respect to which it has freedom of action, are:
(1) it keeps investments in individual issuers within the limits permitted diversified companies under the 1940 Act (i.e., 75% of its total assets must be represented by cash items, government securities, securities of other investment companies, and securities of other issuers which, at the time of investment, do not exceed 5% of the Corporation's total assets at market value in the securities of any issuer and do not exceed 10% of the voting securities of any issuer);
(2) it does not make investments with a view to exercising control or management except that it has an investment in Seligman Data Corp.;
(3) it ordinarily does not invest in other investment companies, but it may purchase up to 3% of the voting securities of such investment companies, provided purchases of securities of a single investment company do not exceed in value 5% of the total assets of the Corporation and all investments in investment company securities do not exceed 10% of total assets; and
(4) it has no fixed policy with respect to portfolio turnover and purchases and sales in the light of economic, market and investment considerations. The portfolio turnover rates for the ten fiscal years ended December 31, 1997 are shown under 'Financial Highlights.'
The foregoing objective and policies may be changed by management without stockholder approval, unless such a change would change the Corporation's status from a 'diversified' to a 'non-diversified' company under the 1940 Act.
The Corporation's stated fundamental policies relating to the issuance of senior securities, the borrowing of money, the underwriting of securities of other issuers, the concentration of investments in a particular industry or groups of industries, the purchase or sale of real estate and real estate mortgage loans, the purchase or sale of commodities or commodity contracts, and the making of loans may not be
changed without a vote of stockholders. A more detailed description of the Corporation's investment policies, including a list of those restrictions on the Corporation's investment activities which cannot be changed without such a vote, appears in the SAI. Within the limits of these fundamental policies, the management has reserved freedom of action.
REPURCHASE AGREEMENTS: The Corporation may enter into repurchase agreements with respect to debt obligations which could otherwise be purchased by the Corporation. A repurchase agreement is an instrument under which the Corporation may acquire an underlying debt instrument and simultaneously obtain the commitment of the seller (a commercial bank or a broker or dealer) to repurchase the security at an agreed upon price and date within a number of days (usually not more than seven days from the date of purchase). The value of the underlying securities will be at least equal at all times to the total amount of the repurchase obligation, including the interest factor. The Corporation will make payment for such securities only upon physical delivery or evidence of book transfer to the account of the Corporation's custodian. Repurchase agreements could involve certain risks in the event of default or insolvency of the other party, including possible delays or restrictions upon the Corporation's ability to dispose of the underlying securities. The Corporation did not enter into repurchase agreements in 1997.
ILLIQUID SECURITIES: The Corporation may invest up to 15% of its net investment assets in illiquid securities, including restricted securities (i.e., securities not readily marketable without registration under the Securities Act of 1933, as amended (the '1933 Act')) and other securities that are not readily marketable. The Corporation may purchase restricted securities that can be offered and sold to 'qualified institutional buyers' under the Rule 144A of the 1933 Act, and the Manager, acting pursuant to procedures approved by the Corporation's Board of Directors, may determine, when appropriate, that specific Rule 144A securities are liquid and not subject to the 15% limitation on illiquid securities. Should this determination be made, the Manager will carefully monitor the security (focusing on such factors, among others, as trading activity and availability of information) to determine that the Rule 144A security continues to be liquid. It is not possible to predict with assurance exactly how the market for Rule 144A securities will further evolve. This investment practice could have the effect of increasing the level of illiquidity in the Corporation, if and to the extent that qualified institutional buyers become for a time uninterested in purchasing Rule 144A securities.
FOREIGN SECURITIES: The Corporation may invest in commercial paper and certificates of deposit issued by foreign banks and may invest in other securities of foreign issuers directly or through American Depositary Receipts ('ADRs'), American Depositary Shares ('ADSs'), European Depositary Receipts ('EDRs') or Global Depositary Receipts ('GDRs') (collectively, 'Depositary Receipts'). Foreign investments may be affected favorably or unfavorably by changes in currency rates and exchange control regulations. There may be less information available about a foreign company than about a U.S. company and foreign companies may not be subject to reporting standards and requirements comparable to those applicable to U.S. companies. Foreign securities may not be as liquid as U.S. securities. Securities of foreign companies may involve greater market risk than securities of U.S. companies, and foreign brokerage commissions and custody fees are generally higher than those in the United States. Investments in foreign securities may also be subject to local economic or political risks, political instability and possible nationalization of issuers. ADRs and ADSs are instruments generally issued by domestic banks or trust companies that represent the deposits of a security of a foreign issuer. ADRs and ADSs may be publicly traded on exchanges or over-the-counter in the United States and are quoted and settled in dollars at a price that generally reflects the dollar equivalent of the
home country share price. EDRs and GDRs are typically issued by foreign banks or trust companies and traded in Europe. Depositary Receipts may be issued under sponsored or unsponsored programs. In sponsored programs, the issuer has made arrangements to have its securities traded in the form of a Depositary Receipt. In unsponsored programs, the issuers may not be directly involved in the creation of the program. Although regulatory requirements with respect to sponsored and unsponsored programs are generally similar, the issuers of securities represented by unsponsored Depositary Receipts are not obligated to disclose material information in the United States and, therefore, the import of such information may not be reflected in the market value of such receipts. The Corporation may invest up to 10% of its total assets in foreign securities that it holds directly, but this 10% limit does not apply to foreign securities held through Depositary Receipts or to commercial paper and certificates of deposit issued by foreign banks.
LEVERAGE: Senior securities issued or money borrowed to raise funds for investment have a prior fixed dollar claim on the Corporation's assets and income. Any gain in the value of securities purchased or in income received in excess of the cost of the amount borrowed or interest or dividends payable causes the net asset value of the Corporation's Common Stock or the income available to it to increase more than otherwise would be the case. Conversely, any decline in the value of securities purchased or income received on them to below the asset or income claims of the senior securities or borrowed money causes the net asset value of the Common Stock or income available to it to decline more sharply than would be the case if there were no prior claim. Funds obtained through senior securities or borrowings thus create investment opportunity, but they also increase exposure to risk. This influence ordinarily is called 'leverage.' As of March 31, 1998, the only senior securities of the Corporation outstanding were 752,740 shares of its $2.50 Cumulative Preferred Stock, $50 par value. The Corporation's portfolio requires an annual return of 0.07% in order to cover dividend payments on the Preferred Stock. The following table illustrates the effect of leverage relating to presently outstanding Preferred Stock on the return available to a holder of the Corporation's Common Stock.
Assumed return on portfolio (net of expenses).................................. - 10% - 5% 0% 5% 10% Corresponding return to common stockholder... - 10.15% - 5.10% - 0.05% 5.00% 10.05% |
The purpose of the table above is to assist an investor in understanding the effects of leverage. The percentages appearing in the table do not represent actual or anticipated returns, which may be greater or less than those shown.
YEAR 2000 RISKS: The Corporation is dependent upon service providers and their computer systems for its day-to-day operations, and many of the Corporation's service providers in turn depend upon computer systems of other persons. Many computer systems currently cannot properly recognize or process date sensitive information relating to the year 2000 and beyond. The Manager and the Corporation's custodian have been evaluating the impact the year 2000 issue may have on their computer systems. They expect that any modifications to their computer systems necessary to address the year 2000 issue will be made and tested in a timely manner. They are also working with vendors and other persons whose systems are linked to theirs to obtain satisfactory assurances regarding the year 2000 issue. Seligman Data Corp., which provides certain corporate and stockholder account services to the Corporation at cost, has informed the Corporation that it does not expect that the cost to the Corporation of its services will increase materially as a result of the modifications to its computer systems necessary to prepare for the year 2000. The costs of systems remediation by persons other than
Seligman Data Corp. will not be borne directly by the Corporation. There can be no assurance that the remedial actions taken by the Corporation's service providers will be sufficient or timely. Inadequate remediation could have an adverse effect on the Corporation's operations, including pricing and securities trading and settlement, and the provision of shareholder services.
MANAGEMENT OF THE CORPORATION
THE MANAGER: In accordance with the applicable laws of the State of Maryland, the Board of Directors provides broad supervision over the affairs of the Corporation. Pursuant to a Management Agreement approved by the Board and the stockholders, the Manager manages the investment of the assets of the Corporation and administers its business and other affairs. In that connection, the Manager makes purchases and sales of portfolio securities consistent with the Corporation's investment objectives and policies.
The Manager also serves as manager of seventeen other investment companies which, together with the Corporation, make up the 'Seligman Group.' These other companies are: Seligman Capital Fund, Inc., Seligman Cash Management Fund, Inc., Seligman Common Stock Fund, Inc., Seligman Communications and Information Fund, Inc., Seligman Frontier Fund, Inc., Seligman Growth Fund, Inc., Seligman Henderson Global Fund Series, Inc., Seligman High Income Fund Series, Seligman Income Fund, Inc., Seligman Municipal Fund Series, Inc. and Seligman Municipal Series Trust, Seligman New Jersey Municipal Fund, Inc., Seligman Pennsylvania Municipal Fund Series, Seligman Portfolios, Inc., Seligman Quality Municipal Fund, Inc., Seligman Select Municipal Fund, Inc., and Seligman Value Fund Series, Inc. The address of the Manager is 100 Park Avenue, New York, NY 10017.
As compensation for the services performed and the facilities and personnel provided by the Manager, the Corporation pays to the Manager promptly after the end of each month a fee, calculated on each day during such month, equal to the Applicable Percentage of the daily net assets of the Corporation at the close of business on the previous business day. The term 'Applicable Percentage' means the amount (expressed as a percentage and rounded to the nearest one millionth of one percent) obtained by dividing (i) the Fee Amount by (ii) the Fee Base. The term 'Fee Amount' means the sum on an annual basis of:
.45 of 1% of the first $4 billion of Fee Base .425 of 1% of the next $2 billion of Fee Base .40 of 1% of the next $2 billion of Fee Base, and .375 of 1% of the Fee Base in excess of $8 billion.
The term 'Fee Base' as of any day means the sum of the net assets at the close of business on the previous day of each of the investment companies registered under the 1940 Act for which the Manager or any affiliated company acts as investment adviser or manager (including the Corporation).
Charles C. Smith, Jr., a Managing Director of the Manager since January 1, 1994, has been Portfolio Manager for the Corporation since January 1, 1995. Mr. Smith is also Vice President and Portfolio Manager of Seligman Common Stock Fund, Inc. and Seligman Income Fund, Inc., and Vice President of Seligman Portfolios, Inc. ('SPI') and Portfolio Manager of SPI's Seligman Common Stock Portfolio and Seligman Income Portfolio. Mr. Smith joined the Manager in 1985 as Vice President,
Investment Officer and was promoted to Senior Vice President, Senior Investment Officer in August 1992, and to Managing Director in January 1994.
Odette S. Galli, Senior Vice President, Investment Officer, of the Manager, has served as Co-Portfolio Manager of the Corporation since October 1996. She is also Co-Portfolio Manager of Seligman Common Stock Fund, Inc. and Seligman Common Stock Portfolio of Seligman Portfolios, Inc. Ms. Galli joined the Manager in 1993 as Vice President, Investment Officer.
The Corporation pays all its expenses other than those assumed by the Manager, including brokerage commissions, fees and expenses of independent attorneys and auditors, taxes and governmental fees, cost of stock certificates, expenses of printing and distributing prospectuses, expenses of printing and distributing reports, notices and proxy materials to stockholders, expenses of printing and filing reports and other documents with governmental agencies, expenses of stockholders' meetings, expenses of corporate data processing and related services, stockholder record keeping and stockholder account services, fees and disbursements of transfer agents and custodians, expenses of disbursing dividends and distributions, fees and expenses of directors of the Corporation not employed by the Manager or its affiliates, insurance premiums and extraordinary expenses such as litigation expenses.
The Management Agreement provides that it will continue in effect until December 29 of each year if such continuance is approved in the manner required by the 1940 Act (i.e., by a vote of a majority of the Board of Directors or of the outstanding voting securities of the Corporation and by a vote of a majority of Directors who are not parties to the Management Agreement or interested persons of any such party) and if the Manager shall not have notified the Corporation at least 60 days prior to December 29 of any year that it does not desire such continuance. The Management Agreement may be terminated by the Corporation, without penalty, on 60 days' written notice to the Manager and will terminate automatically in the event of its assignment.
Prior to March 30, 1998, the Manager was party to a Subadvisory Agreement with Seligman Henderson Co. pursuant to which Seligman Henderson Co. agreed to provide investment advisory services to the Fund in respect of foreign assets to the extent requested by the Manager. On March 30, 1998, the Subadvisory Agreement terminated in accordance with its terms. The Manager has no present plans to enter into similar subadvisory arrangements in respect of the Fund.
DESCRIPTION OF CAPITAL STOCK
(a) DIVIDEND RIGHTS: Common Stockholders are entitled to receive dividends only if and to the extent declared by the Board of Directors and only after (i) such provisions have been made for working capital and for reserves as the Board may deem advisable, (ii) full cumulative dividends at the rate of $.625 per share per quarterly dividend period have been paid on the Preferred Stock for all past quarterly periods and have been provided for the current quarterly period, and (iii) such provisions have been made for the purchase or for the redemption (at a price of $55 per share) of the Preferred Stock as the Board may deem advisable. In any event, no dividend may be declared upon the Common Stock unless, at the time of such declaration, the net assets of the Corporation, after deducting the amount of such dividend and the amount of all unpaid dividends declared on the Preferred Stock, shall be at least equal to $100 per outstanding share of Preferred Stock. The equivalent figure was $5,078.86 at March 31, 1998.
(b) VOTING RIGHTS: The Preferred Stock is entitled to two votes and the Common Stock is entitled to one vote per share at all meetings of stockholders. In the event of a default in payments of dividends on the Preferred Stock equivalent to six quarterly dividends, the Preferred Stockholders are entitled, voting separately as a class to the exclusion of Common Stockholders, to elect two additional directors, such right to continue until all arrearages have been paid and current Preferred Stock dividends are provided for. Notwithstanding any provision of law requiring any action to be taken or authorized by the affirmative vote of the holders of a designated portion of all the shares or of the shares of each class, such action shall be effective if taken or authorized by the affirmative vote of a majority of the aggregate number of the votes entitled to vote thereon, except that a class vote of Preferred Stockholders is also required to approve certain actions adversely affecting their rights. Any change in the Corporation's fundamental policies may also be authorized by the vote of 67% of the votes present at a meeting if the holders of a majority of the aggregate number of votes entitled to vote are present or represented by proxy.
Consistent with the requirements of Maryland law, the Corporation's Charter provides that the affirmative vote of two-thirds of the aggregate number of votes entitled to be cast thereon shall be necessary to authorize any of the following actions: (i) the dissolution of the Corporation; (ii) a merger or consolidation of the Corporation (in which the Corporation is not the surviving corporation) with (a) an open-end investment company or (b) a closed-end investment company, unless such closed-end investment company's Articles of Incorporation require a two-thirds or greater proportion of the votes entitled to be cast by such company's stock to approve the types of transactions covered by clauses (i) through (iv) of this paragraph; (iii) the sale of all or substantially all of the assets of the Corporation to any person (as such term is defined in the 1940 Act); or (iv) any amendment of the Charter of this Corporation which makes any class of the Corporation's stock a redeemable security (as such term is defined in the 1940 Act) or reduces the two-thirds vote required to authorize the actions listed in this paragraph. This could have the effect of delaying, deferring or preventing changes in control of the Corporation.
(c) LIQUIDATION RIGHTS: In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, after payment to the Preferred Stockholders of an amount equal to $50 per share plus dividends accrued or in arrears, the Common Stockholders are entitled, to the exclusion of the Preferred Stockholders, to share ratably in all the remaining assets of the Corporation available for distribution to stockholders.
(d) OTHER PROVISIONS: Common Stockholders do not have preemptive, subscription or conversion rights, and are not liable for further calls or assessments. The Corporation's Board of Directors (other than any directors who may be elected to represent Preferred Stockholders as described above) are classified as nearly as possible into three equal classes with a maximum three year term so that the term of one class of directors expires annually. Such classification provides continuity of experience and stability of management while providing for the election of a portion of the Board of Directors each year. Such classification could have the effect of delaying, deferring or preventing changes in control of the Corporation.
The Board of Directors may classify or reclassify any unissued stock of any class with or without par value (including Preferred Stock and Common Stock) into one or more classes of preference stock on a parity with, but not having preference or priority over, the Preferred Stock by fixing or altering before the issuance thereof the designations, preferences, voting powers, restrictions and qualifications
of, the fixed annual dividends on, the times and prices of redemption, the terms of conversion, the number and/or par value of the shares and other provisions of such stock to the full extent permitted by the laws of Maryland and the Corporation's Charter. Stockholder approval of such action is not required.
DESCRIPTION OF WARRANTS
The Corporation's Charter and Warrant certificates provide that each Warrant represents the right during an unlimited time to purchase one share of Common Stock at a price of $22.48 per share, subject to increase in the number of shares purchasable and adjustment of the price payable pursuant to provisions of the Charter requiring such adjustments whenever the Corporation issues any shares of Common Stock at a price less than the Warrant purchase price in effect immediately prior to issue. Each Warrant presently entitles the holder to purchase 16.06 shares of Common Stock at $1.40 per share. There were 14,429 Warrants outstanding at March 31, 1998. Fractional shares of Common Stock are not issued upon the exercise of Warrants. In lieu thereof, the Corporation issues scrip certificates representing corresponding fractions of the right to receive a full share of Common Stock if exchanged by the end of the second calendar year following issuance or of the proceeds of the sale of a full share if surrendered during the next four years thereafter.
COMPUTATION OF NET ASSET VALUE
Net asset value per share of Common Stock is determined by dividing the current value of the assets of the Corporation less its liabilities and the prior claim of the Preferred Stock by the total number of shares of Common Stock outstanding. Securities owned by the Corporation for which market quotations are readily available are valued at current market value or, in their absence, fair value determined in accordance with procedures approved by the Board of Directors at current market value. Securities traded on national exchanges are valued at the last sales prices, or in their absence and in the case of over-the-counter securities, a mean of bid and asked prices. United Kingdom securities and securities for which there are no recent sales transactions are valued based on quotations provided by primary market makers in such securities. Any securities for which recent market quotations are not readily available are valued at fair value determined in accordance with procedures approved by the Board of Directors. Short-term holdings maturing in 60 days or less are generally valued at amortized cost if their original maturity was 60 days or less. Short-term holdings with more than 60 days remaining to maturity will be valued at current market value until the 61st day prior to maturity, and will then be valued on an amortized cost basis based on the value of such date unless the Board determines that this amortized cost value does not represent fair market value.
All assets and liabilities initially expressed in foreign currencies will be converted into U.S. dollars by a pricing service based upon the mean of the bid and asked prices of such currencies against the U.S. dollar quoted by a major bank which is a regular participant in the institutional foreign exchange markets.
Net asset value of the Common Stock is determined daily as of the close of regular trading on the New York Stock Exchange (normally, 4:00 p.m. Eastern time) each day the New York Stock Exchange is open for trading.
DIVIDEND POLICY AND TAXES
DIVIDENDS: Dividends are paid quarterly on the Preferred Stock and on the Common Stock in amounts representing substantially all of the net investment income earned each year. Payments on the Preferred Stock are in a fixed amount, but payments on the Common Stock vary in amount, depending on investment income received and expenses of operation. Substantially all of any taxable net gain realized on investments is paid to Common Stockholders at least annually in accordance with requirements under the Internal Revenue Code of 1986, as amended (the 'Code'), and other applicable statutory and regulatory requirements. Unless Seligman Data Corp. is otherwise instructed by a Common Stockholder, dividends on the Common Stock are paid in cash and capital gain distributions are paid in book shares of Common Stock which are entered in a stockholder's Tri-Continental account as 'book credits.' Long-term gain distributions ordinarily are paid in shares of Common Stock, or, at the stockholder's option, 75% in book shares and 25% in cash, or, in the alternative, 100% in cash. Shares distributed in payment of gain distributions are valued at market price or at net asset value, whichever is lower, on the valuation date. Dividends and capital gain distributions will generally be taxable to stockholders in the year in which they are declared by the Corporation if paid before February 1 of the following year. Distributions or dividends received by a stockholder will have the effect of reducing the net asset value of the shares of the Corporation by the amount of such distributions. If the net asset value of shares is reduced below a stockholder's cost by a distribution, the distribution will be taxable as described below even though it is in effect a return of capital.
TAXES: The Corporation intends to continue to qualify and elect to be treated as a regulated investment company under the Code. As a regulated investment company, the Corporation will generally be exempt from federal income taxes on net investment income and capital gains that it distributes to stockholders provided that at least 90% of its investment income and net short-term capital gains are distributed to stockholders each year.
Dividends on Common or Preferred Stock representing net investment income and distributions of net short-term capital gains are taxable to stockholders as ordinary income, whether received in cash or invested in additional shares and, to the extent designated as derived from the Corporation's dividend income that would be eligible for the dividends received deduction if the Corporation were not a regulated investment company, they are eligible, subject to certain restrictions, for the 70% dividends received deduction for corporations. Distributions of net capital gain (i.e., the excess of net long-term capital gains over any net short-term capital losses) are taxable as long-term capital gain, whether received in cash or invested in additional shares, regardless of how long shares have been held by the stockholders. Such distributions are not eligible for the dividends received deduction allowed to corporate stockholders. Shareholders receiving distributions in the form of additional shares issued by the Fund will be treated for federal income tax purposes as having received a distribution in an amount equal to the fair market value on the date of distribution of the shares received. Individual stockholders will be subject to federal income tax on net capital gains at a maximum rate of 28% if designated as derived from the Fund's capital gains from distributions of property held for more than one year and at a maximum rate of 20% if designated as derived from the Fund's capital gains from property held for more than eighteen months.
Any gain or loss realized upon a sale or redemption of Common or Preferred Stock by a stockholder who is not a dealer in securities will generally be treated as a long-term capital gain or loss if the shares have been held for more than one year and otherwise as a short-term capital gain or loss.
Individual shareholders will be subject to federal income tax on net capital gains at a maximum rate of 28% in respect of shares held for more than one year and at a maximum rate of 20% in respect of shares held for more than eighteen months. Net capital gain of a corporate shareholder is taxed at the same rate as ordinary income. However, if shares on which a long-term capital gain distribution has been received are subsequently sold or redeemed and such shares have been held for six months or less, any loss realized will be treated as long-term capital loss to the extent that it offsets the long-term capital gain distribution. No loss will be allowed on the sale or other disposition of shares of the Fund if, within a period beginning 30 days before the date of such sale or disposition and ending 30 days after such date, the holder acquires (such as through the Automatic Dividend Investment and Cash Purchase Plan), or enters into a contract or option to acquire, securities that are substantially identical to the shares of the Fund.
The Corporation will generally be subject to an excise tax of 4% on the amount by which distributions to stockholders fall short of certain required levels, such that income or gain is not taxable to stockholders in the calendar year in which it was earned by the Corporation. Furthermore, dividends declared in October, November or December payable to stockholders of record on a specified date in such a month and paid in the following January will be treated as having been paid by the Corporation and received by each stockholder in December. Under this rule, therefore, stockholders may be taxed in one year on dividends or distributions actually received in January of the following year.
The tax treatment of the Corporation and of stockholders under the tax laws of the various states may differ from the federal tax treatment. Stockholders are urged to consult their own tax advisers regarding specific questions as to federal, state or local taxes.
THE CORPORATION IS REQUIRED TO WITHHOLD AND REMIT TO THE U.S. TREASURY 31% OF TAXABLE DIVIDENDS AND OTHER REPORTABLE PAYMENTS PAID ON AN ACCOUNT IF THE HOLDER OF THE ACCOUNT PROVIDES THE CORPORATION WITH EITHER AN INCORRECT TAXPAYER IDENTIFICATION NUMBER OR NO NUMBER AT ALL OR FAILS TO CERTIFY THAT THE STOCKHOLDER IS NOT SUBJECT TO SUCH WITHHOLDING. STOCKHOLDERS SHOULD BE AWARE THAT, UNDER REGULATIONS PROMULGATED BY THE INTERNAL REVENUE SERVICE, THE CORPORATION MAY BE FINED $50 ANNUALLY FOR EACH ACCOUNT FOR WHICH A CERTIFIED TAXPAYER IDENTIFICATION NUMBER IS NOT PROVIDED. THE CORPORATION MAY CHARGE A SERVICE FEE OF UP TO $50 FOR ACCOUNTS NOT HAVING A CERTIFIED TAXPAYER IDENTIFICATION NUMBER. CERTIFICATES WILL NOT BE ISSUED UNLESS AN ACCOUNT IS CERTIFIED.
DESCRIPTION OF INVESTMENT PLANS AND OTHER SERVICES
AUTOMATIC DIVIDEND INVESTMENT AND CASH PURCHASE PLAN
The Automatic Dividend Investment and Cash Purchase Plan is available for any Common stockholder who wishes to purchase additional shares of the Corporation's Common Stock with dividends or other cash payments on shares owned, with cash dividends paid by other corporations in which is owned stock or with cash funds. Details of the services offered under the Plan are given in the Authorization Form appearing in this Prospectus. Under the Plan, stockholders appoint the Corporation as their purchase agent to receive or invest such dividends and cash funds forwarded by stockholders for their accounts in additional shares of the Corporation's Common Stock (after deducting a service charge), as described under 'Method of Purchase' below. Funds forwarded by stockholders under the Plan should be made payable to Tri-Continental Corporation and mailed to Tri-Continental Corporation, P.O. Box 9766, Providence, RI 02940-9766. Checks for investment must be
in U.S. dollars drawn on a domestic bank. Credit card convenience checks and third party checks, i.e., checks made payable to a party other than Tri-Continental Corporation may not be used to purchase shares under this Plan. Stockholders should direct all correspondence concerning the Plan to Seligman Data Corp., 100 Park Avenue, New York, NY 10017. At present, a service fee of up to a maximum of $2.00 will be charged for each cash purchase transaction. There is no charge for Automatic Dividend Investment. As of March 31, 1998, 24,709 stockholders, owning 31,426,370 shares of Common Stock, were using the Plan. A stockholder may choose one or more of the services under the Plan and is free to change his choices (or terminate his participation) at any time by notifying Seligman Data Corp. in writing. The Plan may be amended or terminated by written notice to Planholders.
AUTOMATIC CHECK SERVICE
The Automatic Check Service enables an Automatic Dividend Investment and Cash Purchase Planholder to authorize checks to be drawn on the stockholder's regular checking account at regular intervals for fixed amounts to be invested in additional shares of Common Stock for their account. An Authorization Form to be used to start the Automatic Check Service is included in this Prospectus.
SHARE KEEPING SERVICE
Any stockholder may send certificates for shares of the Corporation's Common Stock to Seligman Data Corp. to be placed in the stockholder's account. Certificates should be sent to Seligman Data Corp., 100 Park Avenue, New York, NY 10017, with a letter requesting that they be placed in the account. The stockholder should not sign the certificates and they should be sent by certified or registered mail. Return receipt is advisable; however, this may increase mailing time. When a stockholder's certificates are received, the shares will be entered in the stockholder's Tri-Continental account as 'book credits' and shown on the Statement of Account the stockholder receives from Seligman Data Corp. Stockholders using the Share Keeping Service should keep in mind that they must have a stock certificate for delivery to a broker if they wish to sell shares. A certificate will be issued on the stockholder's written request to Seligman Data Corp., usually within two business days of the receipt of the request, and sent to the stockholder. The time it takes for a letter of request to arrive and for a certificate to be delivered by mail should be taken into consideration by stockholders who may choose to use this service.
TAX-DEFERRED RETIREMENT PLANS
Shares of the Corporation may be purchased for:
-- Individual Retirement Accounts (IRAs);
-- Savings Incentive Match Plans for Employees (SIMPLE IRAs);
-- Simplified Employee Pension Plans (SEPs);
-- Section 401(k) Plans for corporations and their employees; and
-- Money Purchase Pension and Profit Sharing Plans for sole proprietorships, partnerships and corporations.
These types of plans may be established only upon receipt of a written application form. The Corporation may register an IRA investment for which an account application has not been received as on ordinary taxable account.
For more information, write Retirement Plan Services, Seligman Data Corp.,
100 Park Avenue, New York, NY 10017. You may telephone toll-free by dialing
(800) 445-1777 from all continental United States.
Investors Fiduciary Trust Company ('IFTC') acts as trustee and custodian and performs other related services with respect to the Plans.
J. & W. SELIGMAN & CO. INCORPORATED MATCHED ACCUMULATION PLAN
The Manager has a Matched Accumulation Plan ('Profit-Sharing Plan') which provides that, through payroll deductions which may be combined with matching contributions and through any profit sharing distribution made by the Manager to the Profit-Sharing Plan, eligible employees of the Manager, Seligman Financial Services, Inc. and Seligman Services, Inc. may designate that the payroll deductions and contributions made by the Manager and invested by the Plan trustee, be invested in certain investment companies for which the Manager serves as investment adviser. One such fund consists of Common Stock of the Corporation purchased by the trustee as described under 'Method of Purchase.'
SELIGMAN DATA CORP. EMPLOYEES' THRIFT PLAN
Seligman Data Corp. has an Employees' Thrift Plan ('Thrift Plan') which provides a systematic means by which savings, through payroll deductions, of eligible employees of Seligman Data Corp. may be combined with matching contributions made by the company and invested by the Plan trustee, in certain investment companies for which the Manager serves as investment adviser, as designated by the employee. One such fund consists of Common Stock of the Corporation purchased by the trustee as described under 'Method of Purchase.'
METHOD OF PURCHASE
Purchases will be made by the Corporation from time to time on the New York Stock Exchange or elsewhere to satisfy dividend and cash purchase investments under the Automatic Dividend Investment and Cash Purchase Plan, tax-deferred retirement plans, and the investment plans noted above. Purchases will be suspended on any day when the closing price (or closing bid price if there were no sales) of the Common Stock on the New York Stock Exchange on the preceding trading day was higher than the net asset value per share (without adjustment for the exercise of Warrants remaining outstanding). If on the dividend payable date or the date shares are issuable to stockholders making Cash Purchase investments under the Plan (the 'Issuance Date'), shares previously purchased by the Corporation are insufficient to satisfy dividend or Cash Purchase investments and on the last trading day immediately preceding the dividend payable date or the Issuance Date the closing sale or bid price of the Common Stock is lower than or the same as the net asset value per share, the Corporation will continue to purchase shares until a number of shares sufficient to cover all investments by stockholders has been purchased or the closing sale or bid price of the Common Stock becomes higher than the net asset value, in which case the Corporation will issue the necessary additional shares. If on the last trading date immediately preceding the dividend payable date or Issuance Date, the closing sale or bid
price of the Common Stock was higher than the net asset value per share, and if shares of the Common Stock previously purchased on the New York Stock Exchange or elsewhere are insufficient to satisfy dividend or Cash Purchase investments, the Corporation will issue the necessary additional shares from authorized but unissued shares of the Common Stock.
Shares will be issued on the dividend payable date or the Issuance Date at a price equal to the lower of (i) the closing sale or bid price, plus commission, of the Common Stock on the New York Stock Exchange on the ex-dividend date or Issuance Date or (ii) the greater of the net asset value per share of the Common Stock on such trading day (without adjustment for the exercise of Warrants remaining outstanding) and 95% of the closing sale or bid price of the Common Stock on the New York Stock Exchange on such trading day. In the past, the Common Stock ordinarily has been priced in the market at less than net asset value per share. The Corporation may change the price at which shares of its Common Stock may be purchased from it for the Plans, if the Board of Directors determines it to be desirable, but the Board may not authorize the issuance of shares of Common Stock at a price less than net asset value without prior specific approval of stockholders or of the Securities and Exchange Commission.
The net proceeds to the Corporation from the sale of any shares of Common Stock to the Plan will be added to its general funds and will be available for additional investments and general corporate purposes. The Manager anticipates that investment of any proceeds, in accordance with the Corporation's investment objective and policies, will take up to thirty days from their receipt by the Corporation, depending on market conditions and the availability of appropriate securities, but in no event will such investment take longer than six months. Pending such investment in accordance with the Corporation's objectives and policies, the proceeds will be held in U.S. Government Securities (which term includes obligations of the United States Government, its agencies or instrumentalities) and other short-term money market instruments.
Stockholders participating in the Automatic Dividend Investment and Cash Purchase Plan who wish to terminate their participation in the Plan and whose shares are held under the Plan in book credit form may choose to receive a certificate for all or a part of their shares or to have all or a part of their shares sold for them by the Corporation and to retain unsold shares in book credit form or receive a certificate for any shares not sold. Instructions must be signed by all registered stockholders and should be sent to Seligman Data Corp., 100 Park Avenue, New York, NY 10017. Stockholders who elect to have shares sold will receive the proceeds from the sale, less any brokerage commissions. Only participants whose shares are held in book credit form may elect upon termination of their participation in the Plan to have shares sold in the above manner. Whenever the value of the shares being sold is $50,000 or more, or the proceeds are to be paid or mailed to an address or payee different from that on our records, the signature of all stockholders must be guaranteed by an eligible financial institution including, but not limited to, the following: banks, trust companies, credit unions, securities brokers and dealers, savings and loan associations and participants in the Securities Transfer Association Medallion Program (STAMP), the Stock Exchanges Medallion Program ('SEMP') and the New York Stock Exchange Medallion Signature Program ('MSP'). Notarization by a notary public is not an acceptable signature guarantee. The Corporation reserves the right to reject a signature guarantee where it is believed that the Corporation will be placed at risk by accepting such guarantee.
SYSTEMATIC WITHDRAWAL PLAN
This Plan is available for stockholders who wish to receive fixed payments from their investment in the Common Stock in any amount at specified regular intervals. A Plan may be started with shares of the Corporation's Common Stock with a market value of $5,000 or more. Shares must be held in the stockholder's account as book credits. Seligman Data Corp. acts for stockholders, makes payments to them in specified amounts on the 15th day of each month designated, and maintains their accounts. There is a charge by the agent of $1.00 per withdrawal payment for this service, which charge may be changed from time to time.
Payments under the Withdrawal Plan will be made by selling exactly enough full and fractional shares of Common Stock to cover the amount of the designated withdrawal. Sales may be made on the New York Stock Exchange, to the agent or a trustee for one of the other Plans, or elsewhere. Payments from sales of shares will reduce the amount of capital at work and dividend earning ability, and ultimately may liquidate the investment. Sales of shares may result in gain or loss for income tax purposes. Withdrawals under this Plan or any similar Plan of any other investment company, concurrent with purchases of shares of the Common Stock or of shares of any other investment company, will ordinarily be disadvantageous to the Planholder because of the payment of duplicative commission or sales loads.
STOCKHOLDER INFORMATION
Seligman Data Corp. maintains books and records for all of the Plans, and confirms transactions to Stockholders. To insure prompt delivery of checks, account statements and other information, Stockholders should notify Seligman Data Corp. immediately, in writing, of any address changes. Stockholders will be sent reports quarterly regarding the Corporation. General information about the Corporation, may be requested by writing the Corporate Communications/Investor Relations Department, J. & W. Seligman & Co. Incorporated, 100 Park Avenue, New York, NY 10017 or by telephoning the Corporate Communications/Investor Relations Department toll-free at (800) 221-7844 from all continental United States, except New York or (212) 850-1864 in New York State and in the greater New York City area. Information about a Stockholder account (other than a retirement plan account), may be requested by writing Stockholder Services, Seligman Data Corp., at the same address or by toll-free telephone by dialing (800) 874-1092 from all continental United States or 212-682-7600 outside the continental United States. For information about a retirement account, call Retirement Plan Services toll-free at (800) 445-1777 or write Retirement Plan Services, Seligman Data Corp. at the above address. Seligman Data Corp. may be telephoned Monday through Friday (except holidays) between the hours of 8:30 a.m. and 6:00 p.m. Eastern time, and calls will be answered by a service representative.
24-HOUR TELEPHONE ACCESS IS AVAILABLE BY DIALING (800) 622-4597 (WITHIN THE CONTINENTAL UNITED STATES) ON A TOUCHTONE PHONE, WHICH PROVIDES INSTANT ACCESS TO PRICE, ACCOUNT BALANCE, MOST RECENT TRANSACTION AND OTHER INFORMATION. IN ADDITION, ACCOUNT STATEMENTS AND FORM 1099-DIV MAY BE ORDERED.
ISSUANCE OF SHARES IN CONNECTION WITH ACQUISITIONS
The Corporation may issue shares of its Common Stock in exchange for the assets of another investing company in transactions in which the number of shares of Common Stock of the Corporation
to be delivered will be generally determined by dividing the current value of the seller's assets by the current per share net asset value or market price on the New York Stock Exchange of the Common Stock of the Corporation, or by an intermediate amount. In such acquisitions, the number of shares of the Corporation's Common Stock to be issued will not be determined on the basis of the market price of such Common Stock if such price is lower than its net asset value per share, except pursuant to an appropriate order of the Securities and Exchange Commission or approval by stockholders of the Corporation, as required by law. The Corporation is not presently seeking to acquire the assets of any investing company, but it may acquire the assets of companies from time to time in the future.
Some or all of the stock so issued may be sold from time to time by the recipients or their stockholders through brokers in ordinary transactions on stock exchanges at current market prices. The Corporation has been advised that such sellers may be deemed to be underwriters as that term is defined in the 1933 Act.
ADDITIONAL INFORMATION
During 1997, the Corporation had transactions in the ordinary course of business with firms and companies of which one or more directors and officers was a director and/or officer of the Corporation, and it is expected that the Corporation will continue to have transactions of such nature during the current year.
TABLE OF CONTENTS OF THE
STATEMENT OF ADDITIONAL INFORMATION
The table of contents of the SAI is as follows:
TABLE OF CONTENTS
Additional Investment Objectives and Policies................................................................ 2 Directors and Officers....................................................................................... 4 Management................................................................................................... 9 Experts...................................................................................................... 9 Custodian, Stockholder Service Agent and Dividend Paying Agent............................................... 9 Brokerage Commissions........................................................................................ 9 Incorporation of Financial Statements by Reference........................................................... 10 Independent Auditors' Report on Financial Highlights -- Senior Securities -- $2.50 Cumulative Preferred Stock...................................................... 11 Appendix..................................................................................................... 12 |
Tri-Continental Corporation AUTHORIZATION FORM
an investment you can live with FOR
To: Seligman Data Corp. AUTOMATIC DIVIDEND INVESTMENT
P.O. Box 3947 AND CASH PURCHASE PLAN
New York, New York 10008-3947 AUTOMATIC DIVIDEND INVESTMENT
AUTOMATIC INVESTMENT OF OTHER
CORPORATIONS' DIVIDENDS
CASH PURCHASE PLAN
AUTOMATIC CHECK SERVICE
Date ....................................
|
Gentlemen:
I own shares of Tri-Continental Corporation Common Stock registered as shown below:
ACCOUNT REGISTRATION
______________________________________________________________________________________________ Stockholder's Name (print or type) Stockholder's Signature* ______________________________________________________________________________________________ Co-Holder's Name Co-Holder's Signature* ______________________________________________________________________________________________ Address (street and number) Taxpayer Identification Number ______________________________________________________________________________________________ City State Zip Code Stockholder Account Number, if known |
* If shares are held or to be held in more than one name, all must sign, and plural pronouns will be implied in the text. In the case of co-holders, a joint tenancy with right of survivorship will be presumed unless otherwise specified.
Under penalties of perjury I certify that the number shown on this form is my correct Taxpayer Identification Number (Social Security Number) and that I am not subject to backup withholding either because I have not been notified that I am subject to backup withholding as a result of failure to report all interest or dividends, or the Internal Revenue Service has notified me that I am no longer subject to backup withholding. I certify that to my legal capacity to purchase or sell shares of the Corporation for my own Account, or for the Account of the organization named above. I have received a current Prospectus of the Corporation and appoint Seligman Data Corp. as my agent to act in accordance with my instructions herein.
------------------ ------------------------------------------------------------------------------------------ Date Stockholder's Signature |
I have read the Terms and Conditions of the Automatic Dividend Investment and Cash Purchase Plan and the current Prospectus, a copy of which I have received, and I wish to establish a Plan to use the Services checked below:
SERVICE(S) DESIRED
[ ] AUTOMATIC INVESTMENT OF TRI-CONTINENTAL DIVIDENDS
I wish to have my quarterly dividends invested in additional shares, and distributions from gains paid as follows:
[ ] Credited to my account in additional full and fractional shares.
[ ] Credited 75% to my account in shares and 25% paid to me in cash.
[ ] AUTOMATIC INVESTMENT OF OTHER CORPORATION'S DIVIDENDS
I intend to give orders for the payment of cash dividends from other corporations to be invested in shares of Tri-Continental Common Stock for my account.
Note: Checks in payment of dividends from other corporations should indicate your name and Tri-Continental account number. The checks should be made payable to the order of Tri-Continental Corporation and be mailed to Seligman Data Corp., P.O. Box 3936, New York, NY 10008-3936.
[ ] CASH PURCHASES
I intend to send funds from time to time to be invested in shares of Tri-Continental Common Stock for my account.
Note: Your checks should indicate your name and Tri-Continental account number. Make all checks payable to Tri-Continental Corporation and mail to Seligman Data Corp., P.O. Box 3947, New York, NY 10008-3947.
[ ] AUTOMATIC CHECK SERVICE
I have completed the Authorization Form to have pre-authorized checks drawn on my regular checking account at regular intervals for investment in shares of Tri-Continental Common Stock.
5/98
Tri-Continental Corporation AUTHORIZATION FORM
an investment you can live with FOR
AUTOMATIC CHECK SERVICE
|
To start your Automatic Check Service, fill out this form and forward it with an
unsigned bank check from your regular checking account (marked 'void') to:
Seligman Data Corp.
P.O. Box 3947
New York, New York 10008-3947
Date ......................
Gentlemen:
I own shares of Tri-Continental Corporation Common Stock, registered as shown below, which are entered in the Automatic Dividend Investment and Cash Purchase Plan.
1. Stockholder Account Number (if known)________________________________________
2. AUTOMATIC CHECK SERVICE Please arrange with my bank to draw pre-authorized checks on my regular checking account and invest $___________________________ in shares of Tri-Continental Common Stock every:
[ ] month [ ] 3 months
I have completed the 'Bank Authorization to Honor Pre-Authorized Checks' which appears below and have enclosed one of my bank checks marked 'void.' I understand that my checks will be invested on the fifth day of the month and that I must remember to deduct the amount of my investment as it is made from my checking account balance.
BANK AUTHORIZATION TO HONOR PRE-AUTHORIZED CHECKS
To:_____________________________________________________________________________
(Name of Bank)
Please honor pre-authorized checks drawn on my account by Seligman Data Corp., 100 Park Avenue, New York, NY 10017, to the order of Tri-Continental Corporation, and charge them to my checking account. Your authority to do so shall continue until you receive written notice from me revoking it. You may terminate your participation in this arrangement at any time by written notice to me. I agree that your rights with respect to each pre-authorized check shall be the same as if it were a check drawn and signed by me. I further agree that should any such check be dishonored, with or without cause, intentionally or inadvertently, you shall be held under no liability whatsoever.
____________________________________________________________________________________________________________ Checking Account No. ____________________________________________________________________________________________________________ Name(s) of Depositor(s) -- Please Print Signature(s) of Depositor(s) -- As Carried by Bank ____________________________________________________________________________________________________________ Address (Street) City State Zip Code |
5/98
[THIS PAGE INTENTIONALLY LEFT BLANK.]
TERMS AND CONDITIONS
The Automatic Dividend Investment and Cash Purchase Plan provides
Tri-Continental Common Stockholders with four ways to add to their investments:
1) with Tri-Continental dividends and distributions, 2) with cash dividends from
other corporations, 3) with cash payments, in any amount at any time, and 4)
with cash provided by pre-authorized checks through the Automatic Check Service.
A Planholder may use any or all of these Services, subject to the following
terms and conditions:
1. Seligman Data Corp. ('SDC'), as Plan service agent, will maintain accounts and confirm to Planholders, as soon as practicable after each investment, the number of shares of Common Stock acquired and credited to the accounts and the cost. Tri-Continental Corporation (the 'Corporation'), as purchase agent, will purchase shares for Planholders. All checks for dividends payable by other corporations or for cash purchase payments sent by Planholders for investment in additional shares of Tri-Continental Common Stock should be drawn to the order of Tri-Continental Corporation and mailed to Seligman Data Corp., P.O. Box 3947, New York, NY 10008-3947.
2. Funds received by the Corporation for a Planholder will be combined with funds of other Planholders and those funds may be combined with funds available under the plans for the purchase of Tri-Continental Common Stock in order to minimize brokerage commissions on shares purchased. Shares will be purchased in accordance with the current Prospectus. Dividends from other corporations and purchase cash received from Planholders or through the Automatic Check Service will be invested at least once each 30 days.
3. The cost of shares acquired for each Plan will be the average cost, including brokerage commissions and any other costs of acquisition, of all shares acquired for all Planholders in connection with a particular investment.
4. No stock certificates will be delivered for shares acquired unless the Plan account is terminated or the Planholder requests their delivery by writing to SDC. The shares acquired will be held in each Planholder's account as book credits.
5. Certificates held by a Planholder, or subsequently received, may be sent to SDC for credit to a Plan account. A certificate for any full shares held in a Plan account will be issued at a Planholder's request. The time required to obtain a certificate to sell through a broker, or for other purposes, will be that needed to send a written request to SDC to withdraw the certificate (normally two business days) and to mail the certificate to the Planholder through the U.S. Postal Service.
6. A maximum service charge of $2.00 will be deducted before each investment is made for a Plan account. There is no charge for Automatic Dividend Investment.
7. Applications for the Automatic Check Service are subject to acceptance by the Planholder's bank and SDC. SDC will prepare Automatic Check Service checks with the same magnetic ink numbers that are on a Planholder's check and will arrange with the Planholder's bank to start the Service in accordance with the Planholder's instructions. A minimum of 30 days from the date of receipt of an application by SDC is required to contact the bank and initiate the Service. If for any reason the bank is unable to honor a pre-authorized check request, the Planholder will be notified promptly.
Shares with a market value of at least two times the amount of the authorized checks must be held as book credits for the Planholder's account by SDC. If any check is dishonored or if the value of shares held by SDC in an account falls below the required minimum, the Service may be suspended. The Service may be reinstated upon written request by the Planholder including an indication that the cause of the interruption has been corrected.
If a Planholder's check is not honored by the Planholder's bank at any time, SDC is authorized to sell exactly enough full and fractional shares from the Planholder's account to equal the amount of the dishonored check.
8. A Planholder or SDC may terminate a Plan account at any time upon notice in writing before the record date of a dividend or distribution by Tri-Continental. A Plan account will terminate automatically if the Planholder sells or transfers all of the shares in the Plan account. If a Plan account is terminated, a certificate for the full shares held may be issued and sent to the Planholder, and any fractional shares may be liquidated at the Planholder's request. Terminating Planholders may elect to have all or part of their shares sold by the Corporation, if their shares are held in book credit form. If a Plan account is terminated between the record and payment dates of a dividend, the dividend payment will be made in cash.
9. In acting under this Plan, the Corporation and SDC will be liable only for willful misfeasance or gross negligence.
10. A Planholder may adopt or suspend one or more of the Plan Services by sending a revised Authorization Form or notice in writing to SDC.
11. All additional shares registered in a Planholder's name which are acquired under one or more of the Plan Services or by other means will participate automatically in each of the Plan services elected.
5/98
AN INVESTMENT YOU CAN LIVE WITH
100 Park Avenue
New York, New York 10017
INVESTMENT MANAGER
J. & W. Seligman & Co.
Incorporated
100 Park Avenue
New York, New York 10017
STOCKHOLDER SERVICE AGENT
Seligman Data Corp.
100 Park Avenue
New York, New York 10017
PORTFOLIO SECURITIES CUSTODIAN
Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
CETRI 1 5/98
AN INVESTMENT YOU CAN LIVE WITH
A MANAGEMENT TYPE
DIVERSIFIED, CLOSED-END
INVESTMENT COMPANY
COMMON STOCK
($.50 PAR VALUE)
PROSPECTUS
MAY 1, 1998
STATEMENT OF ADDITIONAL INFORMATION
May 1, 1998
TRI-CONTINENTAL CORPORATION
100 Park Avenue
New York, New York 10017
New York City Telephone: (212) 850-1864
Toll-Free Telephone: (800) 874-1092 all continental United States For Retirement Plan Information - Toll-Free Telephone: (800) 445-1777
This Statement of Additional Information is not a prospectus. This Statement of Additional Information relates to the Prospectus dated May 1, 1998, and should be read in conjunction therewith. A copy of the Prospectus may be obtained from Tri-Continental Corporation (the "Corporation") at 100 Park Avenue, New York, NY 10017.
A registration statement relating to these securities has been filed with the Securities and Exchange Commission (the "Commission"). These securities may not be sold nor any offers to buy be accepted prior to the time the registration statement becomes effective.
TABLE OF CONTENTS
Page
----
Additional Investment Objectives and
Policies....................................... 2
(See "Investment and other Policies" in the
Prospectus)
Directors and Officers......................... 4
Management..................................... 9
(See "Management of the Corporation" in the
Prospectus)
Experts....................................... 9
Custodian, Stockholder Service Agent
and Dividend Paying Agent................... 9
Brokerage Commissions......................... 9
Incorporation of Financial Statements by
Reference................................... 10
Independent Auditors' Report on
Financial Highlights - Senior Securities -
$2.50 Cumulative Preferred Stock............ 11
Appendix...................................... 12
|
ADDITIONAL INVESTMENT OBJECTIVES AND POLICIES
The investment objectives and policies of the Corporation are set forth in the Prospectus. Certain additional investment information is set forth below. Defined terms used herein and not otherwise defined shall have the meanings ascribed to them in the Prospectus.
The Corporation's stated fundamental policies, which may not be changed without a vote of stockholders are listed below; within the limits of these fundamental policies, the management has reserved freedom of action. The Corporation:
(1) may issue senior securities such as bonds, notes or other evidences of indebtedness if immediately after issuance the net assets of the Corporation provide 300% coverage of the aggregate principal amount of all bonds, notes or other evidences of indebtedness and that amount does not exceed 150% of the capital and surplus of the Corporation;
(2) may issue senior equity securities on a parity with, but not having preference or priority over, the Preferred Stock if immediately after issuance its net assets are equal to at least 200% of the aggregate amount (exclusive of any dividends accrued or in arrears) to which all shares of the Preferred Stock, then outstanding, shall be entitled as a preference over the Common Stock in the event of voluntary or involuntary liquidation, dissolution or winding up of the Corporation;
(3) may borrow money for substantially the same purposes as it may issue senior debt securities, subject to the same restrictions and to any applicable limitations prescribed by law;
(4) may engage in the business of underwriting securities either directly or through majority-owned subsidiaries subject to any applicable restrictions and limitations prescribed by law;
(5) does not intend to concentrate its assets in any one industry although it may from time to time invest up to 25% of the value of its assets, taken at market value, in a single industry;
(6) may not, with limited exceptions, purchase and sell real estate directly but may do so through majority-owned subsidiaries, so long as its real estate investments do not exceed 10% of the value of the Corporation's total assets;
(7) may not purchase or sell commodities or commodity contracts; and
(8) may make money loans (subject to restrictions imposed by law and by charter) (a) only to its subsidiaries, (b) as incidents to its business transactions or (c) for other purposes. It may lend its portfolio securities to brokers or dealers in corporate or government securities, banks or other recognized institutional borrowers of securities subject to any applicable requirements of a national securities exchange or of a governmental regulatory body against collateral consisting of cash or direct obligations of the United States, maintained on a current basis, so long as all such loans do not exceed 10% of the value of total assets, and it may make loans represented by repurchase agreements, as described in the Prospectus, so long as such loans do not exceed 10% of the value of total assets.
When securities are loaned, the Corporation receives from the borrower the equivalent of dividends or interest paid by the issuer of securities on loan and, at the same time, makes short-term investments with the cash collateral and retains the interest earned, after payment to the borrower or placing broker of a negotiated portion of such interest, or receives from the borrower an agreed upon rate of interest in the case of loans collateralized by direct obligations of the United States. The Corporation does not have the right to vote securities on loan, but would expect to terminate the loan and regain the right to vote if that were considered important with respect to the investment.
During its last three fiscal years, the Corporation did not: (a) issue senior securities; (b) borrow any money; (c) underwrite securities; (d) concentrate investments in particular industries or groups of industries; (e) purchase or sell real estate, commodities, or commodity contracts; or (f) make money loans or lend portfolio securities.
In order to take advantage of opportunities that may be provided by debt instruments of foreign issuers, the Corporation may from time to time invest up to 3% of its assets in debt securities issued or guaranteed by a foreign government or any of its political subdivisions, authorities, agencies or instrumentalities and in related forward contracts. The Manager will determine the percentage of assets invested in securities of a particular country or denominated in a particular currency in accordance with its assessment of the relative yield and appreciation potential of such securities and the relationship of a country's currency to the U.S. dollar. Currently, the Corporation will invest in securities denominated in foreign currencies or U.S. dollars of issuers located in the following countries: Australia, Austria, Belgium, Canada, Denmark, France, Germany, Hong Kong, Italy, Japan, Malaysia, Mexico, the Netherlands, New Zealand, Norway, Singapore, Spain, Sweden,
Switzerland, Thailand and the United Kingdom. An issuer of debt securities purchased by the Corporation may be domiciled in a country other than the country in whose currency the instrument is denominated. The Corporation may also invest in debt securities denominated in the European Currency Unit ("ECU"), which is a "basket" consisting of specified amounts of the currencies of certain of the economic member states of the European Community.
The Corporation's returns on foreign currency denominated debt instruments can be adversely affected by changes in the relationship between the U.S. dollar and foreign currencies. The Corporation may engage in currency exchange transactions to protect against uncertainty in the level of future exchange rates in connection with hedging and other non-speculative strategies involving specific settlement transactions or portfolio positions. The Corporation will conduct its currency exchange transactions either on a spot (i.e., cash) basis at the rate prevailing in the currency market or through forward contracts.
Rights and Warrants. The Corporation may not invest in rights and warrants if, at the time of acquisition, the investment in rights and warrants would exceed 5% of the Corporation's net assets, valued at the lower of cost or market. In addition, no more than 2% of net assets may be invested in warrants not listed on the New York or American Stock Exchanges. For purposes of this restriction, warrants acquired by the Corporation in units or attached to securities may be deemed to have been purchased without cost.
Foreign Currency Transactions. A forward foreign currency exchange contract is an agreement to purchase or sell a specific currency at a future date and at a price set at the time the contract is entered into. The Corporation will generally enter into forward foreign currency exchange contracts to fix the U.S. dollar value of a security it has agreed to buy or sell for the period between the date the trade was entered into and the date the security is delivered and paid for, or, to hedge the U.S. dollar value of securities it owns.
The Corporation may enter into a forward contract to sell or buy the amount of a foreign currency it believes may experience a substantial movement against the U.S. dollar. In this case the contract would approximate the value of some or all of the Corporation's portfolio securities denominated in such foreign currency. Under normal circumstances, the portfolio manager will limit forward currency contracts to not greater than 75% of the Corporation's portfolio position in any one country as of the date the contract is entered into. This limitation will be measured at the point the hedging transaction is entered into by the Corporation. Under extraordinary circumstances, the Manager may enter into forward currency contracts in excess of 75% of the Corporation's portfolio position in any one country as of the date the contract is entered into. The precise matching of the forward contract amounts and the value of securities involved will not generally be possible since the future value of such securities in foreign currencies will change as a consequence of market involvement in the value of those securities between the date the forward contract is entered into and the date it matures. The projection of short-term currency market movement is extremely difficult, and the successful execution of a short-term hedging strategy is highly uncertain. Under certain circumstances, the Corporation may commit up to the entire value of its assets which are denominated in foreign currencies to the consummation of these contracts. The Manager will consider the effect a substantial commitment of its assets to forward contracts would have on the investment program of the Corporation and its ability to purchase additional securities.
Except as set forth above and immediately below, the Corporation will also not enter into such forward contracts or maintain a net exposure to such contracts where the consummation of the contracts would oblige the Corporation to deliver an amount of foreign currency in excess of the value of the Corporation's portfolio securities or other assets denominated in that currency. The Corporation, in order to avoid excess transactions and transaction costs, may nonetheless maintain a net exposure to forward contracts in excess of the value of the Corporation's portfolio securities or other assets denominated in that currency provided the excess amount is "covered" by cash or liquid, high-grade debt securities, denominated in any currency, at least equal at all times to the amount of such excess. Under normal circumstances, consideration of the prospect for currency parties will be incorporated into the longer term investment decisions made with regard to overall diversification strategies. However, the Manager believes that it is important to have the flexibility to enter into such forward contracts when it determines that the best interests of the Corporation will be served.
At the maturity of a forward contract, the Corporation may either sell the portfolio security and make delivery of the foreign currency, or it may retain the security and terminate its contractual obligation to deliver the foreign currency by purchasing an "offsetting" contract obligating it to purchase, on the same maturity date, the same amount of the foreign currency.
As indicated above, it is impossible to forecast with absolute precision the market value of portfolio securities at the expiration of the forward contract. Accordingly, it may be necessary for the Corporation to purchase additional foreign currency on the spot market (and bear the expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Corporation is obligated to deliver and if a decision is made to sell the security and make delivery of the foreign currency. Conversely, it may be necessary to sell on the spot market some of the foreign currency received upon the sale of the portfolio security if its market value exceeds the amount of foreign currency the Corporation is obligated to deliver. However, the Corporation may use liquid, high-grade debt securities, denominated in any currency, to cover the amount by which the value of a forward contract exceeds the value of the securities to which it relates.
If the Corporation retains the portfolio security and engages in offsetting transactions, the Corporation will incur a gain or a loss (as described below) to the extent that there has been movement in forward contract prices. If the Corporation engages in an offsetting transaction, it may subsequently enter into a new forward contract to sell the foreign currency. Should forward prices decline during the period between the Corporation's entering into a forward contract for the sale of a foreign currency and the date it enters into an offsetting contract for the purchase of the foreign currency, the Corporation will realize a gain to the extent the price of the currency it has agreed to sell exceeds the price of the currency it has agreed to purchase. Should forward prices increase, the Corporation will suffer a loss to the extent the price of the currency it has agreed to purchase exceeds the price of the currency it has agreed to sell.
The Corporation's dealing in forward foreign currency exchange contracts will be limited to the transactions described above. Of course, the Corporation is not required to enter into forward contracts with regard to its foreign currency-denominated securities and will not do so unless deemed appropriate by the Manager. It also should be realized that this method of hedging against a decline in the value of a currency does not eliminate fluctuations in the underlying prices of the securities. It simply establishes a rate of exchange at a future date. Additionally, although such contracts tend to minimize the risk of loss due to a decline in the value of a hedged currency, at the same time, they tend to limit any potential gain which might result from an increase in the value of that currency.
Stockholders should be aware of the costs of currency conversion. Although foreign exchange dealers do not charge a fee for conversion, they do realize a profit based on the difference (the "spread") between the prices at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to the Corporation at one rate, while offering a lesser rate of exchange should the Corporation desire to resell that currency to the dealer.
Investment income received by the Corporation from sources within foreign countries may be subject to foreign income taxes withheld at the source. The United States has entered into tax treaties with many foreign countries which entitle the Corporation to a reduced rate of such taxes or exemption from taxes on such income. It is impossible to determine the effective rate of foreign tax in advance since the amounts of the Corporation's assets to be invested within various countries is not known.
DIRECTORS AND OFFICERS
A listing of the directors and officers of the Corporation and their business experience for the past five years follows. An asterisk (*) indicates directors who are "interested persons" of the Corporation (as defined by the Investment Company Act of 1940 (the "1940 Act"). Unless otherwise noted, the address of each director and officer is 100 Park Avenue, New York, NY 10017.
WILLIAM C. MORRIS* Director, Chairman of the Board, Chief
(60) Executive Officer and Chairman of the Executive
Committee
Chairman, J. & W. Seligman & Co. Incorporated,
investment managers and advisers; Chairman and
Chief Executive Officer, the Seligman Group of
Investment Companies; Chairman, Seligman
Financial Services, Inc., broker/dealer;
Seligman Services, Inc., broker/dealer; and
Carbo Ceramics Inc., ceramic proppants for oil
and gas industry; Director, Seligman Data Corp.
shareholder service agent; Kerr-McGee
Corporation, diversified energy company; and
Sarah Lawrence College; and a Member of the
Board of Governors of the Investment Company
Institute; formerly, Chairman, Seligman
Advisors, Inc., advisers; Seligman Holdings,
Inc., holding company; Seligman Securities,
Inc., broker/dealer; and J. & W. Seligman Trust
Company, trust company.
|
BRIAN T. ZINO* Director, President and Member of the Executive
(45) Committee
Director and President, J. & W. Seligman & Co.
Incorporated, investment managers and advisers;
Director or Trustee, the Seligman Group of
Investment Companies; President, the Seligman
Group of Investment Companies, except Seligman
Quality Municipal Fund, Inc. and Seligman
Select Municipal Fund, Inc.; Chairman, Seligman
Data Corp., shareholder service agent;
Director, Seligman Financial Services, Inc.,
broker/dealer; Seligman Services, Inc.,
broker/dealer; and Seligman Henderson Co.,
adviser; formerly, Director, Seligman Advisors,
Inc., advisers; Seligman Securities, Inc.,
broker/dealer and J. & W. Seligman Trust
Company, trust company.
RICHARD R. SCHMALTZ* Director and Member of the Executive Committee
(57)
Director and Managing Director, Director of
Investments, J. & W. Seligman & Co.
Incorporated; Director of Seligman Henderson
Co. and Trustee Emeritus of Colby College;
formerly, Director, Investment Research at
Neuberger & Berman from May 1993 to September
1996 and Executive Vice President of McGlinn
Capital from July 1987 to May 1993.
JOHN R. GALVIN Director
(68)
Dean, Fletcher School of Law and Diplomacy at
Tufts University; Director or Trustee, the
Seligman Group of Investment Companies;
Chairman of the American Council on Germany; a
Governor of the Center for Creative Leadership;
National Committee on U.S.-China Relations,
National Defense University; the Institute for
Defense Analysis; and Raytheon Co.,
electronics; formerly, Director, USLIFE
Corporation, life insurance; Ambassador, U.S.
State Department for negotiations in Bosnia;
Distinguished Policy Analyst at Ohio State
University and Olin Distinguished Professor of
National Security Studies at the United States
Military Academy. From June, 1987 to June,
1992, he was the Supreme Allied Commander,
Europe and the Commander-in-Chief, United
States European Command.
Tufts University, Packard Avenue, Medford,
MA 02105.
ALICE S. ILCHMAN Director
(63)
President, Sarah Lawrence College; Director or
Trustee, the Seligman Group of Investment
Companies; and the Committee for Economic
Development; Chairman, The Rockefeller
Foundation, charitable foundation; formerly,
Trustee, The Markle Foundation, philanthropic
organization; and Director, NYNEX, telephone
company; and International Research and
Exchange Board, intellectual exchanges.
Sarah Lawrence College, Bronxville, New York
10708
FRANK A. McPHERSON Director
(65)
Director, various corporations; Director or
Trustee, the Seligman Group of Investment
Companies; Kimberly-Clark Corporation, consumer
products; Bank of Oklahoma Holding Company;
Baptist Medical Center; Oklahoma Chapter of the
Nature Conservancy; Oklahoma Medical Research
Foundation; and National Boys and Girls Clubs
of America; and a Member of the Business
Roundtable and National Petroleum Council;
formerly, Chairman of the Board and Chief
Executive Officer, Kerr-McGee Corporation,
energy; Chairman of Oklahoma City Public
Schools Foundation; and Director, Federal
Reserve System's Kansas City Reserve Bank; and
the Oklahoma City Chamber of Commerce.
123 Robert S. Kerr Avenue, Oklahoma City, OK
73102
|
JOHN E. MEROW Director
(68)
Retired Chairman and Senior Partner, Sullivan
& Cromwell, law firm; Director or Trustee, the
Seligman Group of Investment Companies; Commonwealth
Industries, Inc., manufacturer of aluminum
sheet products; the Foreign Policy Association;
the Municipal Art Society of New York; the U.S.
Council for International Business; and The New
York and Presbyterian Hospital; Chairman,
American Australian Association; and The New
York and Presbyterian Hospital Care Network,
Inc.; Vice-Chairman, the U.S.-New Zealand
Council; a Member of the American Law Institute
and the Council on Foreign Relations.
125 Broad Street, New York, NY 10004
BETSY S. MICHEL Director
(55)
Attorney; Director or Trustee, the Seligman
Group of Investment Companies; Trustee, The
Geraldine R. Dodge Foundation, charitable
foundation; and Chairman of the Board of
Trustees of St. George's School (Newport, RI);
formerly, Director, the National Association of
Independent Schools (Washington DC).
St. Bernard's Road, Gladstone, NJ 07934
JAMES C. PITNEY Director
(71)
Retired Partner, Pitney, Hardin, Kipp & Szuch,
law firm; Director or Trustee, the Seligman
Group of Investment Companies; and Director,
Public Broadcasting Service (PBS); formerly,
Director, Public Service Enterprise Group,
public utility.
Park Avenue at Morris County, P.O. Box 1945,
Morristown, NJ 07962-1945
JAMES Q. RIORDAN Director
(70)
Director, various corporations; Director or
Trustee, the Seligman Group of Investment
Companies; The Brooklyn Museum; The Brooklyn
Union Gas Company; The Committee for Economic
Development; and Public Broadcasting Service
(PBS); formerly, Co-Chairman of the Policy
Council of the Tax Foundation; Director and
Vice Chairman, Mobil Corporation; Director,
Tesoro Petroleum Companies; Dow Jones & Co.
Inc.; and Director and President, Bekaert
Corporation.
675 Third Avenue, Suite 3004, New York,
NY 10017
ROBERT L. SHAFER Director
(65)
Director, various organizations, Director or
Trustee, the Seligman Group of Investment
Companies; formerly, Vice President, Pfizer
Inc., pharmaceuticals; and Director, USLIFE
Corporation, life insurance.
235 East 42nd Street, New York, NY 10017
JAMES N. WHITSON Director
(63)
Director, Sammons Enterprises, Inc.; Director
or Trustee, the Seligman Group of Investment
Companies; C-SPAN; and CommScope, Inc.,
manufacturer of coaxial cables; formerly,
Executive Vice President and Chief Operating
Officer, Sammons Enterprises, Inc.; and
Director, Red Man Pipe and Supply Company,
piping and other materials.
5949 Sherry Lane, Suite 1900, Dallas, TX 75225
|
CHARLES C. SMITH, JR. Vice President and Portfolio Manager
(41)
Managing Director (formerly, Senior Vice
President and Senior Investment Officer), J. &
W. Seligman & Co. Incorporated, investment
managers and advisers; Vice President and
Portfolio Manager, three open-end investment
companies in the Seligman Group of Investment
Companies.
CHARLES W. KADLEC Vice President
(52)
Managing Director, J. & W. Seligman & Co.
Incorporated, investment managers and advisers;
Chief Investment Strategist, Seligman Financial
Services, Inc., broker/dealer.
LAWRENCE P. VOGEL Vice President
(41)
Senior Vice President, Finance, J. & W.
Seligman & Co. Incorporated, investment
managers and advisers; Seligman Financial
Services, Inc., broker/dealer; and Seligman
Data Corp., shareholder service agent; Vice
President, the Seligman Group of Investment
Companies and Seligman Services, Inc.,
broker/dealer; Treasurer, Seligman Henderson
Co., advisers; formerly, Senior Vice President,
Seligman Advisors, Inc., advisers; and
Treasurer, Seligman Holdings, Inc., holding
company.
FRANK J. NASTA Secretary
(33)
Senior Vice President, Law and Regulation, and
Corporate Secretary, J. & W. Seligman & Co.
Incorporated, investment managers and advisers;
Secretary, the Seligman Group of Investment
Companies; Corporate Secretary, Seligman
Financial Services, Inc., broker/dealer;
Seligman Henderson Co., advisers; Seligman
Services, Inc., broker/dealer; and Seligman
Data Corp., shareholder service agent;
formerly, Senior Vice President, Law and
Regulation, and Corporate Secretary, Seligman
Advisors, Inc., advisers; and an attorney at
Seward & Kissel, law firm.
THOMAS G. ROSE Treasurer
(40)
Treasurer, the Seligman Group of Investment
Companies; and Seligman Data Corp., shareholder
service agent.
|
Compensation Table
Pension or
Aggregate Retirement Benefits Total Compensation
Compensation Accrued as part of from Corporation and
Name and Position with Corporation from Corporation(1) Corporation Expenses Fund Complex(1)(2)
----------------------------------- ------------------- --------------------- ---------------------
William C. Morris, Director and
Chairman N/A N/A N/A
Brian T. Zino, Director and President N/A N/A N/A
Richard R. Schmaltz, Director N/A N/A N/A
Fred E. Brown, Director Emeritus** N/A N/A N/A
John R. Galvin, Director $19,600.00 N/A $69,000.00
Alice S. Ilchman, Director 18,000.00 N/A 65,000.00
Frank A. McPherson, Director 18,400.00 N/A 66,000.00
John E. Merow, Director 18,000.00 N/A 65,000.00
Betsy S. Michel, Director 19,600.00 N/A 69,000.00
James C. Pitney, Director 17,600.00 N/A 64,000.00
James Q. Riordan, Director 18,800.00 N/A 67,000.00
Robert L. Shafer, Director 18,800.00 N/A 67,000.00
James N. Whitson, Director 19,200.00(d) N/A 68,000.00(d)
|
(1) Based on remuneration received by the Directors of the Corporation for the year ended December 31, 1997. Effective January 16, 1998, the per meeting fee for Directors was increased by $1,000, which is allocated among all Funds in the Fund Complex.
(2) As defined in the Corporation's prospectus, the Seligman Group of Investment Companies consists of eighteen investment companies.
** Retired as Director and designated Director Emeritus on March 20, 1997.
(d) Deferred.
The Corporation has a compensation arrangement under which outside directors may elect to defer receiving their fees. Under this arrangement, interest is accrued on the deferred balances. The annual cost of such fees and interest is included in the director's fees and expenses and the accumulated balance thereof is included in "Liabilities" in the Corporation's financial statements. As of December 31, 1997, the total amount of deferred compensation (including interest) payable in respect of the Corporation to Mr. Whitson was $97,044. Messrs. Merow and Pitney no longer defer current compensation; however, they have accrued deferred compensation in the amounts of $126,735 and $263,955, respectively, as of December 31, 1997. The Corporation has applied for and received exemptive relief that would permit a director who has elected deferral of his or her fees to choose a rate of return equal to either (i) the interest rate on short-term Treasury bills, or (ii) the rate of return on the shares of any of the investment companies advised by the Manager, as designated by the director. The Corporation may, but is not obligated to, purchase shares of such investment companies to hedge its obligations in connection with this deferral arrangement.
Directors and officers of the Corporation are also directors, trustees and officers of some or all of the other investment companies in the Seligman Group.
The Executive Committee of the Board of Directors has the power to (a) determine the value of securities and assets owned by the Corporation, (b) elect or appoint officers of the Corporation to serve until the next meeting of the Directors succeeding such action and (c) determine the price at which shares of Common Stock of the Corporation shall be issued and sold. All action taken by the Executive Committee is recorded and reported to the Board of Directors at their meeting succeeding such action. The members of the Executive Committee consist of Mr. William C. Morris, Chairman, Richard R. Schmaltz, and Brian T. Zino, President.
HOLDINGS OF PREFERRED STOCK, COMMON STOCK AND WARRANTS:
As of March 31, 1998 holders of record of Preferred Stock totaled 630; holders of record of Common Stock totaled 43,714; and holders of record of Warrants totaled 147. Insofar as is known by the Corporation, no person owns or controls or holds, directly or indirectly, 5% or more of the outstanding equity securities, except for Cede & Co., a nominee for The Depository Trust Company, P.O. Box 20, Bowling Green Station, New York, NY 10274 who owns of record 46.48% of the Corporation's Common Stock and 74.37% of the Corporation's Preferred Stock.
As of March 31, 1998 all directors and officers of the Corporation, as a group, owned less than 1% of the Corporation's Common Stock. As of that date, no directors or officers owned any of the Corporation's Preferred Stock or Warrants. Mr. William C. Morris is Chairman and Chief Executive Officer of the Manager and Chairman of the Board and Chief Executive Officer of the Corporation. Mr. Morris owns a majority of the outstanding voting securities of the Manager.
These securities of the Corporation shown as being owned beneficially by the directors and officers include shares held by or for the benefit of members of their families or held by a trust of which a director is a trustee but in which they disclaim beneficial ownership.
MANAGEMENT
The Corporation pays the Manager for its services a management fee, calculated daily and payable monthly, equal to a percentage of the daily net assets of the Corporation. The method for determining this percentage, referred to as the management fee rate, is set forth in the Prospectus. The management fee amounted to $13,151,570 in 1997, $11,136,312 in 1996 and $9,761.731 in 1995 which was equivalent to annual rates of .40%, .41% and .42%, respectively, of the average daily net assets of the Corporation. The Manager paid fees to Seligman Henderson Co., pursuant to a subadvisory contract no longer in effect, of $1,361,562, $1,192,207 and $810,796 for the years ended December 31, 1997, 1996 and 1995, respectively.
As part of its services to the Corporation, the Manager provides the Corporation with such office space, administrative and other services and executive and other personnel as are necessary for the operations of the Corporation. The Manager also provides senior management for Seligman Data Corp., a wholly-owned subsidiary of the Corporation and certain other investment companies in the Seligman Group. The Manager pays all of the compensation of the directors of the Corporation who are employees or consultants of the Manager and its affiliates, of the officers and employees of the Corporation and of certain executive officers of Seligman Data Corp.
The Manager is a successor firm to an investment banking business founded in 1864 which has provided investment services to individuals, families, institutions and corporations. On December 23, 1988, a majority of the outstanding voting securities of the Manager were purchased by Mr. William C. Morris, and a simultaneous recapitalization of the Manager occurred. See the Appendix for a history of the Manager.
EXPERTS
Deloitte & Touche LLP, Two World Financial Center, New York, New York 10281 acts as independent auditors for the Corporation and in such capacity audits the Corporation's annual and semi-annual financial statements and financial highlights.
The financial information of the Corporation included in the Prospectus under the caption "Financial Highlights" and the financial statements incorporated by reference in this Statement of Additional Information have been so included or incorporated by reference in reliance on the reports of Deloitte & Touche LLP given upon their authority as experts in auditing and accounting.
CUSTODIAN, STOCKHOLDER SERVICE AGENT AND DIVIDEND PAYING AGENT
Seligman Data Corp., a wholly-owned subsidiary of the Corporation, acts as the stockholder service agent and dividend paying agent and performs, at cost, certain recordkeeping functions for the Corporation, maintains the records of shareholder accounts and furnishes dividend paying, redemption and related services.
Investors Fiduciary Trust Company, 801 Pennsylvania, Kansas City, Missouri 64105, serves as custodian for the Corporation. It also maintains, under the general supervision of the Manager, the accounting records and determines the net asset value for the Corporation.
BROKERAGE COMMISSIONS
The Management Agreement recognizes that in the purchase and sale of portfolio securities of the Corporation, the Manager will seek the most favorable price and execution, and, consistent with that policy, may give consideration to the research, statistical and other services furnished by brokers or dealers to the Manager for its use, as well as to the general attitude toward and support of investment companies demonstrated by such brokers or dealers. Such services include supplemental investment research, analysis and reports concerning issuers, industries and securities deemed by the Manager to be beneficial to the Corporation. In addition, the Manager is authorized to place orders with brokers who provide supplemental investment and market research and security and economic analysis although the use of such brokers may result in a higher brokerage charge to the Corporation than the use of brokers selected solely on the basis of seeking the most favorable price and execution and although such research and analysis may be useful to the Manager in connection with its services to clients other than the Corporation.
In over-the-counter markets, the Corporation deals with primary market makers unless a more favorable execution or price is believed to be obtainable. The Corporation may buy securities from or sell securities to dealers acting as principal, except dealers with which its directors and/or officers are affiliated.
When two or more of the investment companies in the Seligman Group or other investment advisory clients of the Manager desire to buy or sell the same security at the same time, the securities purchased or sold are allocated by the Manager in a manner believed to be equitable to each. There may be possible advantages or disadvantages of such transactions with respect to price or the size of positions readily obtainable or saleable.
Information as to the Corporation's portfolio turnover rate for recent years is stated under "Financial Highlights" in the Prospectus. Total brokerage commissions (not including any spreads on principal transactions on a net basis) paid by the Corporation during the years ended December 31, 1997, 1996 and 1995 were $6,815,388, $4,105,756 and $3,825,533, respectively.
INCORPORATION OF FINANCIAL STATEMENTS BY REFERENCE
The Corporation's financial statements for the year ended December 31, 1997 are herein incorporated by reference to the 1997 Annual Report to Stockholders of the Corporation (the "1997 Annual Report"), filed with the Commission pursuant to Section 30(b) of the 1940 Act and the rules and regulations thereunder. The 1997 Annual Report contains schedules of the Corporation's portfolio investments as of December 31, 1997 and certain other financial information. A copy of the 1997 Annual Report will be sent without charge to all investors who request a copy of this Statement of Additional Information.
INDEPENDENT AUDITORS' REPORT ON FINANCIAL HIGHLIGHTS - SENIOR SECURITIES -
$2.50 CUMULATIVE PREFERRED STOCK
To the Board of Directors and Security Holders of Tri-Continental Corporation:
We have previously audited, in accordance with generally accepted auditing standards, the statements of assets and liabilities, including the portfolio of investments, and the statements of capital stock and surplus of Tri-Continental Corporation as of December 31 for each of the ten years in the period ended December 31, 1997 and the related statements of operations and of changes in net investment assets, and the financial highlights for each of the years then ended (none of which are presented herein); and we expressed unqualified opinions on those financial statements.
In our opinion, the information appearing on page 6 of the Prospectus, under the caption "Senior Securities - $2.50 Cumulative Preferred Stock", for each of the ten years in the period ended December 31, 1997 is fairly stated, in all material respects, in relation to the financial statements from which it has been derived.
DELOITTE & TOUCHE LLP
New York, New York
April 13, 1998
APPENDIX
HISTORY OF J. & W. SELIGMAN & CO. INCORPORATED
Seligman's beginnings date back to 1837, when Joseph Seligman, the oldest of eight brothers, arrived in the United States from Germany. He earned his living as a pack peddler in Pennsylvania, and began sending for his brothers. The Seligmans became successful merchants, establishing businesses in the South and East.
Backed by nearly thirty years of business success - culminating in the
sale of government securities to help finance the Civil War - Joseph Seligman,
with his brothers, established the international banking and investment firm of
J. & W. Seligman & Co. In the years that followed, the Seligman Complex played a
major role in the geographical expansion and industrial development of the
United States.
THE SELIGMAN COMPLEX:
.... Prior to 1900
Helps finance America's fledgling railroads through underwriting.
Is admitted to the New York Stock Exchange in 1869. Seligman remained a member of the NYSE until 1993, when the evolution of its business made it unnecessary.
Becomes a prominent underwriter of corporate securities, including New York Mutual Gas Light Company, later part of Consolidated Edison.
Provides financial assistance to Mary Todd Lincoln and urges the Senate to award her a pension.
Is appointed U.S. Navy fiscal agent by President Grant.
Becomes a leader in raising capital for America's industrial and urban development.
...1900-1910
Helps Congress finance the building of the Panama Canal.
...1910s
Participates in raising billions for Great Britain, France and Italy, helping to finance World War I.
...1920s
Participates in hundreds of underwritings including those for some of the country's largest companies: Briggs Manufacturing, Dodge Brothers, General Motors, Minneapolis-Honeywell Regulatory Company, Maytag Company, United Artists Theater Circuit and Victor Talking Machine Company.
Forms Tri-Continental Corporation in 1929, today the nation's largest, diversified closed-end equity investment company, with over $3 billion in assets, and one of its oldest.
...1930s
Assumes management of Broad Street Investing Co. Inc., its first mutual fund, today known as Seligman Common Stock Fund, Inc.
Establishes Investment Advisory Service.
...1940s
Helps shape the Investment Company Act of 1940.
Leads in the purchase and subsequent sale to the public of Newport News Shipbuilding and Dry Dock Company, a prototype transaction for the investment banking industry.
Assumes management of National Investors Corporation, today Seligman Growth Fund, Inc.
Establishes Whitehall Fund, Inc., today Seligman Income Fund, Inc.
...1950-1989
Develops new open-end investment companies. Today, manages more than 40 mutual fund portfolios.
Helps pioneer state-specific, municipal bond funds, today managing a national and 18 state-specific municipal funds.
Establishes J. & W. Seligman Trust Company, and J. & W. Seligman Valuations Corporation.
Establishes Seligman Portfolios, Inc., an investment vehicle offered through variable annuity products.
...1990s
Introduces Seligman Select Municipal Fund, Inc. and Seligman Quality Municipal Fund, Inc., two closed-end funds that invest in high-quality municipal bonds.
In 1991 establishes a joint venture with Henderson plc, of London, known as Seligman Henderson Co., to offer global investment products.
Introduces to the public Seligman Frontier Fund, Inc., a small capitalization mutual fund.
Launches Seligman Henderson Global Fund Series, Inc., which today offers five separate series: Seligman Henderson International Fund, Seligman Henderson Global Smaller Companies Fund, Seligman Henderson Global Technology Fund, Seligman Henderson Global Growth Opportunities Fund, and Seligman Henderson Emerging Markets Growth Fund.
Launches Seligman Value Fund Series, Inc., which currently offers two separate series: Seligman Large-Cap Value Fund and Seligman Small-Cap Value Fund.
Tri-Continental Corporation
Portfolio of Investments
December 31, 1997
Shares Value
-------- ------------
COMMON STOCKS - 93.2%
AEROSPACE - 2.4%
General Dynamics Corporation 375,000 $ 32,414,063
Diversified defense contractor
United Technologies Corporation 680,000 49,512,500
Manufacturer of elevators, jet engines,
flight systems, and automotive parts
------------
$ 81,926,563
------------
AUTOMOTIVE AND RELATED - 3.3%
Chrysler Corporation 880,000 $ 30,965,000
Manufacturer of automobiles, trucks, and
related parts
Dana Corporation 400,000 19,000,000
Manufacturer and distributor of products and
systems for automotive and related markets
Eaton Corporation 217,000 19,367,250
Diversified manufacturer, including truck
transmissions and axles
Harley-Davidson Inc. 1,200,000 32,850,000
Manufacturer of motorcycles
Volkswagen AG (ADRs)* (Germany) 100,000 11,243,750
Manufacturer of automobiles
------------
$113,426,000
------------
BASIC MATERIALS - 0.9%
Aluminum Company of America 450,000 $ 31,668,750
Aluminum producer ------------
BUILDING AND CONSTRUCTION - 0.5%
Sherwin-Williams Corporation 600,000 $ 16,650,000
Manufacturer of paints and related products ------------
CHEMICALS - 2.4%
duPont (E.I.) de Nemours and Company 550,000 $ 33,034,375
Producer of chemicals
The B.F. Goodrich Company 747,000 30,953,813
Chemical manufacturer; supplier of systems
and component parts for the aerospace industry
Morton International, Inc. 550,000 18,906,250
Manufacturer and marketer of adhesives,
coatings, salt, and specialty products ------------
|
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1997
Shares Value
-------- ------------
COMMUNICATIONS - 6.6%
Alcatel Alsthom (France) 65,000 $ 8,264,772
Developer of equipment and systems for
public telecommunications
Ameritech Corporation 440,000 35,420,000
Provider of telecommunications services
Bell Atlantic Corporation 392,200 35,690,200
Telephone services in the Atlantic region
GTE Corporation 600,000 31,350,000
Provider of telephone services, systems,
and equipment
Magyar Tavkozlesi Rt. (ADRs)* "Matav" (Hungary) 240,000 6,240,000
Provider of telecommunications services
SBC Communications, Inc. 425,000 31,131,250
Provider of telephone services in the Southwest
Sprint Corporation 381,900 22,388,887
Global communications company
Telecomunicacoes Brasileiros (ADRs)
"Telebras" (Brazil) 53,800 6,264,337
Provider of telecommunications services
Telecom Italia-SpA* (Italy) 1,468,600 6,475,272
Provider of the whole spectrum of mobile
telecommunications services
Telecom Italia-SpA (Italy) 1,600,000 10,220,175
Provider of the whole spectrum of mobile
telecommunications services
WorldCom Inc.* 1,130,000 34,217,813
Diversified telecommunications company
------------
$227,662,706
------------
COMPUTER AND BUSINESS SERVICES - 6.9%
Compaq Computer Corporation 625,000 $ 35,273,437
Global PC manufacturer
Computer Associates International,Inc 412,500 21,810,937
Developer of software utilities and databases
Hewlett-Packard Company 300,000 18,750,000
Computers and peripherals
Intel Corporation 638,000 44,799,563
Manufacturer of semiconductors and
memory circuits
International Business Machines Corporation 326,000 34,087,375
Manufacturer of micro and personal computers
Microsoft Corporation* 393,000 50,782,969
Developer of computer software
WPP Group plc (UK) 2,700,000 12,018,595
Provider of worldwide marketing services
Xerox Corporation 255,200 18,836,950
Developer and marketer of document
processing products and services
------------
$236,359,826
------------
CONSUMER GOODS AND SERVICES - 11.2%
Allied Domecq plc (UK) 870,000 $ 7,903,384
International food, drink, and hospitality group
Anheuser-Busch Companies, Inc. 770,000 33,880,000
Brewery; theme park operator; manufacturer and
recycler of aluminum beverage containers
B.A.T. Industries plc (UK) 1,670,000 15,294,990
Provider of financial services and
producer of tobacco products
|
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1997
Shares Value
-------- ------------
CONSUMER GOODS AND SERVICES (continued)
Coca-Cola Company 770,000 $ 51,301,250
Manufacturer of soft drinks and
consumer products
ConAgra, Inc. 1,190,000 39,046,875
Developer and manufacturer of prepared
foods and agricultural products
PepsiCo, Inc. 1,100,000 40,081,250
Manufacturer and marketer of soft drinks
and consumer products
Philip Morris Companies, Inc. 1,415,000 64,117,187
Manufacturer of tobacco products, food,
and beverages
Procter & Gamble Company 600,000 47,887,500
Manufacturer and distributor of household
and personal care products
RJR Nabisco Holdings Corporation 1,375,000 51,562,500
Manufacturer of tobacco products and
processed foods
Sara Lee Corporation 600,000 33,787,500
Manufacturer of processed foods and ------------
consumer products $384,862,436
------------
DIVERSIFIED - 1.3%
AlliedSignal Inc. 1,090,000 $ 42,441,875
Producer of aerospace and automotive materials
Pacific Dunlop Ltd. (Australia) 1,500,000 3,176,063
Diversified manufacturer ------------
$ 45,617,938
------------
DRUGS AND HEALTH CARE - 8.3%
Abbott Laboratories 300,000 $ 19,668,750
Developer and manufacturer of diversified
health care products
American Home Products Corporation 300,000 22,950,000
Developer and manufacturer of pharmaceuticals,
food, and housewares
Bristol-Myers Squibb Company 585,000 55,355,625
Developer and manufacturer of health and
personal care products
Elan Corporation plc (ADRs)* (Ireland) 300,000 15,356,250
Developer, manufacturer, and marketer of
drug delivery systems
Johnson & Johnson 600,000 39,525,000
Manufacturer of health care products
Merck & Co., Inc. 428,400 45,517,500
Manufacturer of pharmaceuticals
Novartis AG (Switzerland) 10,300 16,696,990
Manufacturer of pharmaceuticals
Pfizer Inc. 460,000 34,298,750
Manufacturer of health care consumer products
and specialty chemicals
Schering-Plough Corporation 570,000 35,411,250
Manufacturer of pharmaceuticals and health care ------------
and personal care products $284,780,115
------------
ELECTRIC AND GAS UTILITIES - 3.6%
BG plc (ADRs) (UK) 202,940 $ 4,667,620
Gas supplier
Companhia Energetica de Minas Gerais (ADRs)
"CEMIG" (Brazil) 87,400 3,933,000
Electric utility
Electricidade de Portugal, S.A. (ADRs)* (Portugal) 279,600 10,834,500
Generator and distributor of electricity
Endesa S.A. (ADRs) (Spain) 528,000 9,603,000
Provider of electric energy
|
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1997
Shares Value
-------- ------------
ELECTRIC AND GAS UTILITIES (continued)
Huaneng Power International, Inc. (ADRs)* (China) 270,000 $ 6,260,625
Power company
Unicom Corporation 1,065,000 32,748,750
Electric utility
VEBA AG (Germany) 230,000 15,666,268
Provider of electric energy
The Williams Companies, Inc. 1,400,000 39,725,000
------------
Transporter and producer of natural gas $123,438,763
------------
ELECTRONICS - 5.9%
AMP Inc. 665,000 $ 27,930,000
Manufacturer of electronic connectors
and systems
Applied Materials, Inc.* 965,000 29,040,469
Developer, manufacturer, marketer, and
servicer of semiconductor wafer
fabrication equipment
Arrow Electronics, Inc.* 800,000 25,950,000
Distributor of electronic components
KLA-Tencor Corporation* 630,000 24,314,063
Manufacturer of wafer inspection and
metrology equipment
Motorola Inc. 325,000 18,545,312
Producer of semiconductors and
communications equipment
Philips Electronics N.V. (Netherlands) 225,000 13,612,500
Worldwide manufacturer of consumer electronics
and components
Raytheon Company 685,000 34,592,500
Producer of defense and commercial electronics
Thomas & Betts Corporation 600,000 28,350,000
Manufacturer of electronic connectors
and compoments ------------
$202,334,844
------------
ENERGY - 8.3%
Amoco Corporation 400,000 $ 34,050,000
Integrated petroleum and chemical company
Atlantic Richfield Company 250,000 20,031,250
Producer of oil; West Coast marketer
Baker Hughes Incorporated 300,000 13,087,500
Provider of products and services to explore for,
extract, recover, and process oil and gas
Exxon Corporation 1,120,000 68,530,000
Explorer and producer of natural gas, oil,
and petroleum products
Mobil Corporation 400,000 28,875,000
International oil enterprise
Royal Dutch Petroleum Company (Netherlands) 950,000 51,478,125
International oil services
Schlumberger Ltd. 200,000 16,100,000
Worldwide provider of energy services
Texaco Inc. 664,000 36,105,000
Explorer, producer, transporter, refiner, and
marketer of natural gas, oil, and
petroleum products
Total S.A. Class "B" (France) 147,583 16,066,960
International oil enterprise ------------
$284,323,835
------------
|
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1997
Shares Value
-------- ------------
ENTERTAINMENT AND LEISURE - 1.0%
Disney (Walt) Company 250,000 $ 24,765,625
Film entertainment; amusement parks;
other forms of leisure-related activities
News Corp. Ltd. (ADRs) (Australia) 260,000 5,801,250
Provider of worldwide media and
television services
News Corp. Ltd. (ADRs--Voting Preference
Shares) (Australia) 130,000 2,583,750
Provider of worldwide media and ------------
television services $ 33,150,625
------------
FINANCE AND INSURANCE - 16.8%
ABN-AMRO Holdings N.V. (Netherlands) 510,868 $ 9,957,703
Worldwide banking operator
ACE Limited 300,000 28,950,000
Provider of liability insurance
Ahmanson (H.F.) &Company 800,000 53,550,000
Provider of savings and loan services
throughout the US
American General Corporation 400,000 21,625,000
Diversified financial services provider
American International Group, Inc. 450,000 48,937,500
International insurance holding company
AXA-UAP (France) 235,209 18,206,072
Provider of financial services and insurance
BankAmerica Corporation 330,000 24,090,000
Commercial bank in California and
the Western states
Bank of Ireland (Ireland) 881,100 13,578,069
Provider of financial services
Bank of New York Company, Inc. 1,000,000 57,812,500
Commercial bank
Bayerische Vereinsbank AG (Germany) 375,000 24,187,495
Provider of universal banking services
Citicorp 200,000 25,287,500
Global commercial bank
Federal National Mortgage Association 600,000 34,237,500
Mortgage financer
First Union Corporation 700,000 35,875,000
Operator of financial centers
General Re Corporation 75,000 15,900,000
Property casualty re-insurer in the US
ING Groep N.V. (Netherlands) 437,624 18,442,186
Provider of banking and insurance services
Irish Life plc (Ireland) 700,000 3,988,856
Provider of insurance and related products
Mellon Bank Corporation 325,000 19,703,125
Provider of financial services
St. Paul Companies, Inc. 400,000 32,825,000
Property and casualty insurer
Societe Generale (France) 75,000 10,221,890
Provider of full banking and financial services
TIG Holdings, Inc. 500,000 16,593,750
Insurance provider
Travelers Incorporated 750,000 40,406,250
Provider of broad-based financial services
Zurich Versicherungs-Gesellschaft (Switzerland) 42,700 20,327,770
Provider of insurance services ------------
$574,703,166
------------
|
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1997
Shares Value
-------- ------------
MANUFACTURING AND
INDUSTRIAL EQUIPMENT - 6.6%
Deere & Company, Inc. 463,900 $ 27,051,169
Manufacturer, distributor, and financer
of farm machinery
GATX Corporation 350,000 25,396,875
Railcar leasing; equipment financing
General Electric Company 1,335,000 97,955,625
Supplier of electrical equipment and
other industrial and consumer products
Harnischfeger Industries, Inc. 477,000 16,844,062
Manufacturer and distributor of machinery
and mining equipment
Illinois Tool Works, Inc. 700,000 42,087,500
Manufacturer of fasteners, tools, and
plastic items
Mannesmann AG (Germany) 32,500 16,318,218
Manufacturer of plant and machinery equipment ------------
$225,653,449
------------
PAPER AND FOREST PRODUCTS - 2.7%
Fort James Corporation 800,000 $ 30,600,000
Producer of paper and related products
The Mead Corporation 1,200,000 33,600,000
Manufacturer of paper, lumber, and
wood products
Union Camp Corporation 500,000 26,843,750
Producer of paper products, building ------------
materials, and chemicals $ 91,043,750
------------
PUBLISHING - 0.7%
Gannett Company, Inc. 400,000 $ 24,725,000
Newspapers; radio and television broadcasting ------------
REAL ESTATE INVESTMENT TRUSTS - 0.4%
Security Capital USRealty Trust 1,000,000 $ 14,200,000
Diversified investor in real estate companies ------------
RETAIL TRADE - 2.3%
May Department Stores Company 400,000 $ 21,075,000
Department store operator
J.C. Penney Company, Inc. 306,000 18,455,625
Operator of retail department stores and
drugstores; insurance
Tesco plc (UK) 1,478,000 11,961,942
Food retailer
Wal-Mart Stores, Inc. 650,000 25,634,375
Discount retailer ------------
$ 77,126,942
------------
STEEL - 0.6%
Allegheny Teledyne Inc. 800,000 $ 20,700,000
Manufacturer of specialty metals and aviation ------------
and electronics products
TRANSPORTATION - 0.5%
Norfolk Southern Corporation 600,000 $ 18,487,500
Railroad holding company ------------
TOTAL COMMON STOCKS
(Cost: $2,340,552,810) $3,195,736,646
|
Tri-Continental Corporation
Portfolio of Investments (continued) December 31, 1997
Prin. Amt. Value
----------- ------------
US GOVERNMENT SECURITIES - 4.2%
USTreasury Notes, 6 1/4%, 4/30/2001 $15,000,000 $ 15,239,070
USTreasury Notes, 5 3/4%, 11/30/2002 35,000,000 35,043,785
USTreasury Notes, 5 7/8%, 2/15/2004 40,000,000 40,375,040
USTreasury Notes, 6 1/4%, 2/15/2007 50,000,000 51,625,050
------------
TOTAL US GOVERNMENT SECURITIES
(Cost: $141,719,531) $142,282,945
------------
CORPORATE BONDS - 0.6%
AUTOMOTIVE AND RELATED - 0.3%
Ford Motor Credit Corp., 6 1/2%, 2/28/2002 10,000,000 $ 10,080,470
------------
COMMUNICATIONS - 0.3%
TCI Communications Inc., 8%, 8/1/2005 10,000,000 $ 10,715,460
------------
TOTAL CORPORATE BONDS
(Cost: $20,006,300) $ 20,795,930
------------
CONVERTIBLE BONDS - 0.1%
(Cost: $3,500,000)
FINANCE AND INSURANCE - 0.1%
LibLife International (UK), 6 1/2%, 9/30/2004 3,500,000 $ 4,103,778
------------
TRI-CONTINENTAL FINANCIAL DIVISION++ - 0.5%
(Cost: $17,034,739) $ 17,244,952
------------
SHORT-TERM HOLDINGS - 1.1%
(Cost: $37,700,000) $ 37,700,000
------------
TOTAL INVESTMENTS - 99.7%
(Cost: $2,560,513,380) $3,417,864,251
OTHER ASSETS LESS LIABILITIES - 0.3% 11,588,669
------------
NET INVESTMENT ASSETS - 100.0% $3,429,452,920
|
Tri-Continental Corporation
Statement of Assets and Liabilities December 31, 1997
Assets:
Investments at value:
Common stocks (cost -- $2,340,552,810) ....... $3,195,736,646
US Government securities
(cost -- $141,719,531) ...................... 142,282,945
Corporate bonds (cost -- $20,006,300) ........ 20,795,930
Tri-Continental Financial Division
(cost -- $17,034,739) ...................... 17,244,952
Convertible issues (cost -- $3,500,000) ...... 4,103,778
Short-term holdings (cost -- $37,700,000) .... 37,700,000 $3,417,864,251
--------------
Cash .......................................... 32,915,071
Receivable for dividends and interest ......... 10,817,073
Receivable for securities sold ................ 1,701,351
Investment in, and expenses prepaid to,
stockholder service agent ................... 441,778
Other ......................................... 1,097,050
--------------
Total Assets .................................. $3,464,836,574
--------------
Liabilities:
Payable for securities purchased .............. $ 31,701,053
Dividends payable ............................. 470,463
Accrued expenses, taxes, and other ............ 3,212,138
------------
Total Liabilities ............................. $ 35,383,654
------------
Net Investment Assets ......................... $3,429,452,920
Preferred Stock, at $50 par value ............. 37,637,000
--------------
Net Assets for Common Stock ................... $3,391,815,920
==============
Net Assets per Share of Common Stock
(market value--$26.6875) .................... $ 32.06
============
Statement of Capital Stock and Surplus December 31, 1997
Capital Stock:
$2.50 Cumulative Preferred Stock,
$50 par value, asset coverage per
share -- $4,555.96 Shares authorized
-- 1,000,000; issued and
outstanding -- 752,740 ...................... $ 37,637,000
Common Stock, $.50 par value:
Shares authorized -- 129,000,000; issued
and outstanding -- 105,796,914 .............. 52,898,457
Surplus:
Capital surplus .............................. 2,286,719,552
Accumulated net investment loss .............. (339,509)
Undistributed net realized gain .............. 195,203,642
Net unrealized appreciation of investments ... 865,108,232
Net unrealized depreciation on
translation of assets and liabilities
denominated in foreign currencies* .......... (7,774,454)
------------
$3,429,452,920
==============
|
Tri-Continental Corporation
Statement of Operations For the Year Ended December 31, 1997
Investment Income:
Dividends .................................... $65,021,562
Interest ..................................... 13,208,997
-----------
Total Investment Income (net of foreign taxes
withheld of $712,163) ....................... $ 78,230,559
Expenses:
Management fee ............................... $13,151,570
Stockholder account and registrar services ... 3,405,670
Stockholder reports and communications ....... 989,182
Custody and related services ................. 925,000
Stockholders' meeting ........................ 322,491
Auditing and legal fees ...................... 293,125
Directors' fees and expenses ................. 228,216
Registration ................................. 84,814
Miscellaneous ................................ 118,070
-----------
Total Expenses ................................ 19,518,138
------------
Net Investment Income ......................... $ 58,712,421*
Net Realized and Unrealized Gain (Loss)
On Investments and Foreign
Currency Transactions:
Net realized gain on investments ............. $463,458,808
Net realized loss from foreign
currency transactions ....................... (6,633,164)
Net change in unrealized appreciation
of investments .............................. 210,948,617
Net change in unrealized appreciation
on translation of assets and liabilities
denominated in foreign currencies ........... (9,609,797)
------------
Net Gain on Investments and Foreign
Currency Transactions ........................ 658,164,464
------------
Increase in Net Investment Assets
From Operations .............................. $716,876,885
============
|
Tri-Continental Corporation
Statements of Changes in Net Investment Assets
Year Ended December 31,
-----------------------------------
1997 1996
--------------- ---------------
Operations:
Net investment income ........................ $ 58,712,421 $ 61,661,375
Net realized gain on investments ............. 463,458,808 273,265,510
Net realized loss from foreign currency
transactions ............................... (6,633,164) (122,163)
Net change in unrealized appreciation
of investments ............................. 210,948,617 163,203,213
Net change in unrealized appreciation on
translation of assets and liabilities
denominated in foreign currencies .......... (9,609,797) (1,863,034)
--------------- ---------------
Increase in Net Investment
Assets from Operations ..................... $ 716,876,885 $ 496,144,901
--------------- ---------------
Distributions to Stockholders:
Net investment income:
Preferred Stock (per share: $2.50 and $2.50) $ (1,881,850) $ (1,881,850)
Common Stock (per share: $.60 and $.66) .... (58,603,778) (59,457,756)
--------------- ---------------
$ (60,485,628) $ (61,339,606)
Net realized gain on investments:
Common Stock (per share: $3.447 and $2.722) (338,654,348) (246,856,282)
--------------- ---------------
Decrease in Net Investment Assets
from Distributions ......................... $ (399,139,976) $ (308,195,888)
--------------- ---------------
Capital Share Transactions:
Value of shares of Common Stock issued
at market price in gain distributions
(9,018,136 and 7,302,117 shares) ........... $ 240,732,759 $ 177,343,090
Value of shares of Common Stock issued
for investment plans (1,805,903 and
2,026,442 shares) .......................... 48,297,075 49,236,168
Cost of shares purchased for investment plans
(1,864,646 and 2,017,316 shares) ........... (49,978,136) (48,673,006)
Net proceeds from issuance of shares of
Common Stock upon exercise of
Warrants (647 and 13,447 shares) ........... 989 22,301
--------------- ---------------
Increase in Net Investment Assets
from Capital Share Transactions ............ $ 239,052,687 $ 177,928,553
--------------- ---------------
Increase in Net Investment Assets ............ $ 556,789,596 $ 365,877,566
Net Investment Assets:
Beginning of year ............................ 2,872,663,324 2,506,785,758
--------------- ---------------
End of Year (including accumulated net
investment loss and undistributed net
investment income of $(339,509) and
$1,361,782, respectively) .................. $ 3,429,452,920 $ 2,872,663,324
=============== ===============
|
Tri-Continental Corporation
Notes to Financial Statements
1. Significant Accounting Policies -- The financial statements have been prepared in conformity with generally accepted accounting principles which require management to make certain estimates and assumptions at the date of the financial statements. The following summarizes the significant accounting policies of the Corporation:
a. Security Valuation -- Investments in stocks, bonds, limited partnership interests, and short-term holdings maturing in more than 60 days are valued at current market values or, in their absence, fair value determined in accordance with procedures approved by the Board of Directors. Securities traded on national exchanges are valued at last sales prices or, in their absence and in the case of over-the-counter securities, at the mean of bid and asked prices. Short-term holdings maturing in 60 days or less are valued at amortized cost.
b. Foreign Currency Transactions -- The books and records of the Corporation are maintained in US dollars. The market value of investment securities, other assets and liabilities denominated in foreign currencies are translated into US dollars at the daily rate of exchange as reported by a pricing service. Purchases and sales of investment securities, income, and expenses are translated into US dollars at the rate of exchange prevailing on the respective dates of such transactions.
The Corporation separates that portion of the results of operations resulting from changes in the foreign exchange rates from the fluctuations arising from changes in the market prices of securities held in the portfolio. Similarly, the Corporation separates the effect of changes in foreign exchange rates from the fluctuations arising from changes in the market prices of portfolio securities sold during the period.
c. Forward Currency Contracts -- The Corporation may enter into forward currency contracts in order to hedge its exposure to changes in foreign currency exchange rates on its foreign portfolio holdings, or other amounts receivable or payable in foreign currency. A forward contract is a commitment to purchase or sell a foreign currency at a future date at a negotiated forward rate. Certain risks may arise upon entering into these contracts from the potential inability of counterparties to meet the terms of their contracts. The contracts are valued daily at current exchange rates and any unrealized gain or loss is included in net unrealized appreciation or depreciation on translation of assets and liabilities denominated in foreign currencies and forward currency contracts. The gain or loss, if any, arising from the difference between the settlement value of the forward contract and the closing of such contract is included in net realized gain or loss from foreign currency transactions.
d. Federal Taxes -- There is no provision for federal income tax. The Corporation has elected to be taxed as a regulated investment company and intends to distribute substantially all taxable net income and net gain realized.
e. Security Transactions and Related Investment Income -- Investment transactions are recorded on trade dates. Identified cost of investments sold is used for both financial statements and federal income tax purposes. Dividends receivable and payable are recorded on ex-dividend dates, except that certain dividends from foreign securities where the ex-dividend dates may have passed are recorded as soon as the Corporation is informed of the dividend. Interest income is recorded on the accrual basis.
f. Distributions to Stockholders -- The treatment for financial statement purposes of distributions made during the year from net investment income or net realized gains may differ from their ultimate treatment for federal income tax purposes. These differences are caused primarily by differences in the timing of the recognition of certain components of income, expense or capital gain, and the recharacterization of foreign exchange gains or losses to either ordinary income or realized capital gain for federal income tax purposes. Where such differences are permanent in nature, they are reclassified in the components of net investment assets based on their ultimate characterization for federal income tax purposes. Any such reclassification will have no effect on net assets, results of operations, or net asset value per share of the Corporation.
Tri-Continental Corporation
Notes to Financial Statements (continued)
2. Automatic Dividend Investment and Cash Purchase Plans -- Under the Corporation's Charter, dividends on the Common Stock cannot be declared unless net assets, after such dividends and dividends on Preferred Stock, equal at least $100 per share of Preferred Stock outstanding. The Preferred Stock is subject to redemption at the Corporation's option at any time on 30 days' notice at $55 per share (or a total of $41,400,700 for the shares outstanding) plus accrued dividends, and entitled in liquidation to $50 per share plus accrued dividends.
The Corporation, in connection with its Automatic Dividend Investment and Cash Purchase Plan and other Stockholder plans, acquires and issues shares of its own Common Stock, as needed, to satisfy Plan requirements. For the year ended December 31, 1997, 1,864,646 shares were purchased from Plan participants at a cost of $49,978,136, which represented a weighted average discount of 18.14% from the net asset value of those acquired shares. A total of 1,805,903 shares were issued to Plan participants during the year for proceeds of $48,297,075, a discount of 17.50% from the net asset value of those shares.
At December 31, 1997, 231,842 shares of Common Stock were reserved for issuance upon exercise of 14,436 Warrants, each of which entitled the holder to purchase 16.06 shares of Common Stock at $1.40 per share. Assuming the exercise of all Warrants outstanding at December 31, 1997, net investment assets would have increased by $324,579 and the net asset value of the Common Stock would have been $31.99 per share. The number of Warrants exercised during the years 1997 and 1996 was 44 and 929, respectively.
3. Purchases and Sales of Securities -- Purchases and sales of portfolio securities, excluding USGovernment obligations and short-term investments, amounted to $2,475,589,211 and $2,491,636,694, respectively; purchases and sales of USGovernment obligations amounted to $245,907,031 and $105,938,281, respectively. At December 31, 1997, the cost of investments for federal income tax purposes was substantially the same as the cost for financial reporting purposes, and the tax basis gross unrealized appreciation and depreciation of portfolio securities, including the effects of foreign currency translations, amounted to $879,986,666 and $22,635,795, respectively.
4. Short-Term Investments -- At December 31, 1997, the Corporation owned short-term investments which matured in less than seven days.
5. Management Fee, Administrative Services, and Other Transactions -- J. & W. Seligman & Co. Incorporated (the "Manager") manages the affairs of the Corporation and provides or arranges for the necessary personnel and facilities. Seligman Henderson Co. (the "Subadviser"), an entity owned 50% each by the Manager and Henderson plc, supervises and directs all or a portion of the Corporation's foreign investments.For this service, the Subadviser receives a fee from the Manager, payable monthly. Compensation of all officers of the Corporation, all directors of the Corporation who are employees or consultants of the Manager, and all personnel of the Corporation and the Manager is paid by the Manager or by Henderson plc. The Manager receives a fee, calculated daily and payable monthly, equal to a percentage of the Corporation's daily net assets at the close of business on the previous business day. The management fee rate is calculated on a sliding scale of 0.45% to 0.375%, based on average daily net assets of all the investment companies managed by the Manager. The management fee for the year ended December 31, 1997, was equivalent to an annual rate of 0.40% of the average daily net assets of the Corporation.
Seligman Data Corp., owned by the Corporation and certain associated investment companies, charged the Corporation at cost $3,373,098 for stockholder account services. The Corporation's investment in Seligman Data Corp. is recorded at a cost of $43,681.
Certain officers and directors of the Corporation are officers or directors of the Manager, the Subadviser, and/or Seligman Data Corp.
Tri-Continental Corporation
Notes to Financial Statements (continued)
The Corporation has a compensation arrangement under which directors who receive fees may elect to defer receiving such fees. Interest is accrued on the deferred balances. The annual cost of such fees and interest is included in directors' fees and expenses, and the accumulated balance thereof at December 31, 1997, of $487,734 is included in other liabilities. Deferred fees and the related accrued interest are not deductible for federal income tax purposes until such amounts are paid.
6. Restricted Securities -- At December 31, 1997, the Tri-Continental Financial Division of the Corporation was comprised of three investments that were purchased through private offerings and cannot be sold without prior registration under the Securities Act of 1933 or pursuant to an exemption therefrom. These investments are valued at fair value as determined in accordance with procedures approved by the Board of Directors of the Corporation. The acquisition dates of investments in the limited partnerships, along with their cost and values at December 31, 1997, are as follows:
Investments Acquisition Date(s) Cost Value
--------------------- ------------ -----------
Water Street Corporate Recovery
Fund I, L.P. 10/9/90 to 8/22/97 $ 234,509 $ 234,509
WCAS Capital Partners II, L.P. 12/11/90 to 9/5/97 7,367,379 6,728,259
Whitney Subordinated Debt Fund, L.P. 7/12/89 to 12/10/97 9,432,851 10,282,184
----------- -----------
Total $17,034,739 $17,244,952
=========== ===========
|
7. Quarterly Results of Operations -- Following is a summary of unaudited quarterly results of operations, in thousands of dollars except for per share amounts:
For Quarters Ended in the Year 1997
------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
-------- -------- -------- -------
Total investment income ........ $ 18,802 $ 18,929 $ 18,394 $ 22,106
Net investment income for
Common Stock ................. $ 13,753 $ 13,716 $ 12,936 $ 16,426
Per Common share ............. $ 0.14 $ 0.14 $ 0.13 $ 0.17
Net realized and unrealized
investment gain (loss) ....... $ 35,560 $433,804 $251,385 $(62,585)
Per Common share ............. $ 0.37 $ 4.49 $ 2.54 $ (0.63)
For Quarters Ended in the Year 1996
------------------------------------------
March 31 June 30 Sept. 30 Dec. 31
--------- -------- --------- --------
Total investment income ........ $ 17,998 $ 22,596 $ 20,659 $ 17,294
Net investment income for
Common Stock .................. $ 13,578 $ 17,969 $ 15,951 $ 12,282
Per Common share .............. $ 0.15 $ 0.20 $ 0.18 $ 0.13
Net realized and unrealized
investment gain ............... $151,454 $ 74,655 $ 53,426 $154,949
Per Common share .............. $ 1.68 $ 0.83 $ $ 0.59 $ 1.72
|
Tri-Continental Corporation
Financial Highlights
The Corporation's financial highlights are presented below. "Per share operating performance" data is designed to allow investors to trace the operating performance, on a per Common share basis, from the beginning net asset value to the ending net asset value, so that investors can understand what effect the individual items have on their investment, assuming it was held throughout the period. Generally, the per share amounts are derived by converting the actual dollar amounts incurred for each item, as disclosed in the financial statements, to their equivalent per Common share amounts.
"Total investment return" measures the Corporation's performance assuming that investors purchased shares of the Corporation at the market value or net asset value as of the beginning of the period, invested dividends and capital gains paid, as provided for in the Corporation's Prospectus and Automatic Dividend Investment and Cash Purchase Plan, and then sold their shares at the closing market value or net asset value per share on the last day of the period. The computations do not reflect any sales commissions investors may incur in purchasing or selling shares of the Corporation.
"Average commission rate paid" represents the average commission paid by the Corporation to purchase or sell portfolio securities. It is determined by dividing the total commission dollars paid by the number of shares purchased and sold during the period for which commissions were paid. This rate is provided for periods beginning January 1, 1996.
The ratios of expenses and net investment income to average net investment assets and to average net assets for Common Stock, for the years presented do not reflect the effect of dividends paid to Preferred Stockholders.
Year Ended December 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Per Share Operating Performance:
Net Asset Value,
Beginning of Year .................... $ 29.28 $ 27.58 $ 23.70 $ 27.49 $ 28.03
-------- -------- -------- -------- --------
Net investment income ................. .60 .68 .74 .83 .83
Net realized and unrealized
investment gain (loss) ............... 6.94 4.84 6.14 (1.69) 1.46
Net realized and unrealized gain (loss)
from foreign currency transactions ... (.17) (.02) .03 .02 --
-------- -------- -------- -------- --------
Increase (Decrease) from
Investment Operations ................ 7.37 5.50 6.91 (.84) 2.29
Dividends paid on Preferred Stock ..... (.02) (.02) (.02) (.03) (.03)
Dividends paid on Common Stock ........ (.60) (.66) (.73) (.79) (.80)
Distribution from net gain realized ... (3.45) (2.72) (2.01) (1.90) (1.80)
Issuance of Common Stock
in gain distributions ................ (.52) (.40) (.27) (.23) (.19)
Issuance of Common Stock
upon Warrant exercise ................ -- -- -- -- (.01)
-------- -------- -------- -------- --------
Net Increase (Decrease)
in Net Asset Value ................... 2.78 1.70 3.88 (3.79) (.54)
-------- -------- -------- -------- --------
Net Asset Value,
End of Year .......................... $ 32.06 $ 29.28 $ 27.58 $ 23.70 $ 27.49
======== ======== ======== ======== ========
Adjusted Net Asset Value,
End of Year* ........................ $ 31.99 $ 29.22 $ 27.52 $ 23.65 $ 27.42
Market Value, End of Year ............. $26.6875 $ 24.125 $ 22.625 $ 19.875 $ 23.75
|
Tri-Continental Corporation
Financial Highlights (continued)
Year Ended December 31,
-----------------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
Total Investment Return:
Based upon market value ................. 27.96% 21.98% 27.95% (5.07)% 3.47%
Based upon net asset value .............. 26.65% 21.45% 30.80% (2.20)% 8.95%
Ratios/Supplemental Data:
Expenses to average net investment assets .60% .62% .63% .64% .66%
Expenses to average net assets for
Common Stock .......................... .60% .63% .64% .65% .67%
Net investment income to
average net investment assets ......... 1.80% 2.27% 2.71% 3.08% 2.88%
Net investment income to average
net assets for Common Stock ........... 1.82% 2.31% 2.75% 3.14% 2.94%
Portfolio turnover rate ................. 83.98% 53.96% 62.28% 70.38% 69.24%
Average commission rate paid ............ $.0385 $.0478
Net Investment Assets,
End of Year (000s omitted):
For Common Stock ...................... $3,391,816 $2,835,026 $2,469,149 $1,994,098 $2,166,212
For Preferred Stock ................... 37,637 37,637 37,637 37,637 37,637
---------- ---------- ---------- ---------- ----------
Total Net Investment Assets ............. $3,429,453 $2,872,663 $2,506,786 $2,031,735 $2,203,849
========== ========== ========== ========== ==========
|
Tri-Continental Corporation
Report of Independent Auditors
The Board of Directors and Security Holders, Tri-Continental Corporation:
We have audited the accompanying statement of assets and liabilities, including the portfolio of investments, and the statement of capital stock and surplus of Tri-Continental Corporation as of December 31, 1997, the related statements of operations for the year then ended and of changes in net investment assets for each of the years in the two-year period then ended, and the financial highlights for each of the years in the five-year period then ended. These financial statements and financial highlights are the responsibility of the Corporation'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 December 31, 1997, by correspondence with the Corporation's custodians and brokers; where replies were not received from brokers, we performed other auditing procedures. 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, such financial statements and financial highlights present fairly, in all material respects, the financial position of Tri-Continental Corporation as of December 31, 1997, the results of its operations, the changes in its net investment assets, and the financial highlights for the respective stated periods in conformity with generally accepted accounting principles.
DELOITTE & TOUCHE LLP
New York, New York
January 30, 1998
PART C. OTHER INFORMATION
Item 24. Financial Statements and Exhibits
1. Financial Statements:
Part A: Financial Highlights for the ten years ended December 31, 1997;
Table for the ten years ended December 31, 1997 under the caption "Senior Securities - $2.50 Cumulative Preferred Stock."
Part B: The required financial statements are included in the Corporation's 1997 Annual Report, which is incorporated by reference into the Statement of Additional Information. These statements include: Portfolio of Investments at December 31, 1997; Statement of Assets and Liabilities at December 31, 1997; Statement of Capital Stock and Surplus, December 31, 1997; Statement of Operations for the year ended December 31, 1997; Statements of Changes in Net Investment Assets for the years ended December 31, 1997 and 1996; Notes to Financial Statements; Financial Highlights for the five years ended December 31, 1997; Report of Independent Auditors.
2. Exhibits: All Exhibits have been previously filed and are incorporated herein except those marked with an asterisk (*) which are filed herewith.
a. Amended and Restated Charter of Registrant.*
b. Restated By-laws of the Registrant. (Incorporated by Reference to Registrant's Form N-2 filed on April 23, 1997).
d(1) Specimen certificates of Common Stock. (Incorporated by Reference to Registrant's Post-Effective Amendment #1 filed on March 6, 1981.)
d(2) Specimen certificates of $2.50 Cumulative Preferred Stock. (Incorporated by Reference to Registrant's Post-Effective Amendment #1 filed on March 6, 1981.)
d(3) Specimen of Warrant of the Registrant. (Incorporated by Reference to Registrant's Post-Effective Amendment #1 filed on March 6, 1981.)
d(4) Form of Subscription Certificate - Subscription Right for shares of Common Stock. (Incorporated by Reference to Registrant's Registration Statement filed on September 17, 1992.)
d(5) The Registrant's Charter is the constituent instrument defining the rights of the $2.50 Cumulative Preferred Stock, par value $50, and the Common Stock of the Registrant. A copy of the Charter as now in effect is filed as Exhibit "a" to this Registration Statement.
e. Registrant's Automatic Dividend Investment and Cash Purchase Plan is set forth in Registrant's prospectus which is filed as Part A of this Registration Statement.
g(1) Amended Management Agreement between Registrant and J. & W. Seligman & Co.
Incorporated. (Incorporated by Reference to Registrant's Registration
Statement filed April 13, 1995.)
i(1) Matched Accumulation Plan of J. & W. Seligman & Co. Incorporated.
(Incorporated by reference to Exhibit 7 of Post-Effective Amendment No. 21
to the Registration Statement of Seligman Frontier Fund, Inc. (No.
2-92487), filed on January 28, 1997.)
i(2) Deferred Compensation Plan for Directors of Tri-Continental Corporation.*
j. Form of Custodian Agreement between Registrant and Investors Fiduciary Trust Company. (Incorporated by Reference to Registrant's Form N-2 filed on April 23, 1997.)
l. Opinion and Consent of Counsel.*
n. Consent of Independent Auditors.*
q(1) The Seligman Roth/Traditional IRA Information Kit.*
q(2) The Seligman Simple IRA Plan documents for employers (Incorporated by reference to Exhibit 14 of Pre- Effective Amendment No. 2 to the Registration Statement of Seligman Value Fund Series, Inc. (No. 333-20621), filed on April 17, 1997.)
q(3) The Seligman Simple IRA Plan Agreement and Disclosure Statement for participants. (Incorporated by reference to Exhibit 14 of Pre-Effective Amendment No. 2 to the Registration Statement of Seligman Value Fund, Series (No. 333-20621), filed on April 17, 1997.)
q(4) Qualified Plan and Trust Basic Plan Document.*
q(5) Flexible Standardized 401(k) Profit Sharing Plan Adoption Agreement.*
q(6) Flexible Nonstandardized Safe Harbor 401(k) Profit Sharing Plan Adoption Agreement.*
r. Financial Data Schedule meeting the requirements of Rule 483 under the Securities Act of 1933.*
Other Exhibits: Power of Attorney*
Item 25. Marketing Arrangements: Not Applicable
Item 26. Other Expenses of Issuance and Distribution:
Registration fees $13,193.45
NYSE listing fees -0-
Registrar fees -0-
Legal fees -0-
Accounting fees -0-
Miscellaneous (mailing, etc.) -0-
|
Item 27. Persons Controlled by or Under Common Control with Registrant:
Seligman Data Corp., a New York Corporation, is owned by the
Registrant and certain associated investment companies. The
Registrant's investment in Seligman Data Corp. is recorded at a
cost of $43,681.
Item 28. Number of Holders of Securities
As of March 31, 1998:
Title of Class Number of Recordholders
$2.50 Cumulative Preferred 630
Common Stock 43,714
Warrants 147
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Item 29. Indemnification:
Reference is made to the provisions of Article Eleventh of Registrant's Amended and Restated Charter filed as an exhibit to this Registration Statement and Article II, Section 14 of Registrant's Restated By-laws filed as an exhibit to the Registration Statement filed on April 23, 1997.
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 by 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.
Item 30. Business and Other Connections of Investment Adviser: J. & W.
Seligman & Co. Incorporated, a Delaware corporation ("Manager"),
is the Registrant's investment manager. The Manager also serves
as investment manager to seventeen associated investment
companies. They are Seligman Capital Fund, Inc., Seligman Cash
Management Fund, Inc., Seligman Common Stock Fund, Inc.,
Seligman Communications and Information Fund, Inc., Seligman
Frontier Fund, Inc., Seligman Growth Fund, Inc., Seligman
Henderson Global Fund Series, Inc., Seligman High Income Fund
Series, Seligman Income Fund, Inc., Seligman Municipal Fund
Series, Inc., Seligman Municipal Series Trust, Seligman New
Jersey Municipal Fund, Inc., Seligman Pennsylvania Municipal
Fund Series, Seligman Portfolios, Inc., Seligman Quality
Municipal Fund, Inc., Seligman Select Municipal Fund, Inc., and
Seligman Value Fund Series, Inc.
The Manager has an advisory service division which provides investment management or advice to private clients. The list required by this Item 28 of officers and directors of the Manager, together with information as to any other business, profession, vocation or employment of a substantial nature engaged in by such officers and directors during the past two years, is incorporated by reference to Schedules A and D of Form ADV, filed by the Manager, pursuant to the Investment Advisers Act of 1940 (SEC File No. 801-15798) which was filed on March 31, 1998.
Item 31. Location of Accounts and Records:
Custodian: Investors Fiduciary Trust Company
801 Pennsylvania
Kansas City, Missouri 64105
and
Tri-Continental Corporation
100 Park Avenue
New York, New York 10017
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Item 32. Management Services: Seligman Data Corp. ("SDC"), the
Registrant's shareholder service agent, has an agreement with
First Data Investor Services Group ("FDISG") pursuant to which
FDISG provides a data processing system for certain shareholder
accounting and recordkeeping functions performed by SDC, which
commenced in July 1990. For the last three years ended December
31, 1997, the approximate cost of these services on a yearly
basis were as follows:
1997 1996 1995
---- ---- -----
Tri-Continental Common Stock $243,200 $249,000 $252,000
Tri-Continental Preferred Stock 3,800 3,900 3,900
Tri-Continental Warrants 900 1,100 1,100
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Item 33. Undertakings:
I. The Registrant undertakes to suspend the offering of shares until the prospectus is amended if (1) subsequent to the effective date of its registration statement, the net asset value declines more than ten percent from its net asset value as of the effective date of the registration statement.
II. The Registrant undertakes:
(a) to file, during any period in which offers or sales are being made, a post-effective amendment to the registration statement:
(1) to include any prospectus required by Section 10(a)(3) of the 1933 Act;
(2) to reflect in the prospectus any facts or events after the effective da te of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement; and
(3) to include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
(b) that, for the purpose of determining any liability under the 1933 Act, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of those securities at that time shall be deemed to be the initial bona fide offering thereof.
III. The Registrant undertakes to send by first class mail or other means designed to ensure equally prompt delivery within two business days of receipt of a written or oral request, the Registrant's Statement of Additional Information.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and/or the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness of this Post-Effective Amendment pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of New York, State of New York, on the 16th day of April, 1998.
TRI-CONTINENTAL CORPORATION
(Registrant)
By: /s/ William C. Morris
-----------------------------------
William C. Morris, Chairman of
the Board*
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Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities indicated on April 16, 1998.
Signature Title
/s/ William C. Morris Chairman of the Board
------------------------------
William C. Morris* (Principal executive officer) and Director
/s/Brian T. Zino Director and President
------------------------------
Brian T. Zino
/s/ Thomas G. Rose Treasurer
------------------------------
Thomas G. Rose
John R. Galvin, Director )
Alice S. Ilchman, Director )
Frank A. McPherson, Director )
John E. Merow, Director )
Betsy S. Michel, Director ) /s/Brian T. Zino
------------------------------
James C. Pitney, Director ) * Brian T. Zino, Attorney-in-fact
James Q. Riordan, Director )
Richard R. Schmaltz, Director )
Robert L. Shafer, Director )
James N. Whitson, Director )
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TRI-CONTINENTAL CORPORATION
EXHIBIT INDEX
Form N-2 Item No. Description
24.2.a Amended and Restated Charter
24.2.i(2) Deferred Compensation Plan
24.2.1 Opinion and Consent of Counsel
24.2.n Consent of Independent Auditors
24.2.q(1) Seligman Roth/Traditional IRA Information Kit
24.2.q(4) Qualified Plan and Trust Basic Plan Document
24.2.q(5) Flexible Standardized 401(k) Profit Sharing Plan
Adoption Agreement
24.2.q(6) Flexible Nonstandardized Safe Harbor 401(k) Profit
Sharing Plan Adoption Agreement
24.2.r Financial Data Schedule
Other Exhibits Power of Attorney
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The copyright symbol shall be expressed as............................ 'c' The dagger symbol shall be expressed as............................... 'D'
AMENDED AND RESTATED
CHARTER
of
TRI-CONTINENTAL CORPORATION
TRI-CONTINENTAL CORPORATION, a Maryland corporation, having its principal office in the State of Maryland at First National Bank Building, Light and Redwood Streets, Baltimore, Maryland (hereinafter called the Corporation), hereby certifies to the State Department of Assessments and Taxation of the State of Maryland that:
FIRST: The Corporation desires to restate its Charter as in effect on the date hereof.
SECOND: The Charter of the Corporation, as heretofore amended, supplemented and restate, is hereby restated in its entirety, as follows:
CHARTER
of
TRI-CONTINENTAL CORPORATION
By virtue of an Agreement of Consolidation received for record and approved December 31, 1929, by the State Tax Commission of Maryland, Tri-Continental Corporation and Tri-Continental Allied Company Incorporated were consolidated into a single corporation, which was a new corporation under the laws of the State of Maryland, the Charter of which is and shall be as follows:
FIRST. The name of the corporation (hereinafter referred to as the Corporation) is TRI-CONTINENTAL CORPORATION.
SECOND. The Corporation possesses each and all of the rights, privileges, powers and franchises previously vested in Tri-Continental Corporation and Tri-Continental Allied Company Incorporated; and in particular, the purpose or purposes for which the Corporation is formed and the business or objects to be carried on and promoted by it, are as follows:
(1) To purchase or otherwise acquire, underwrite, hold, mortgage, pledge, sell, exchange or otherwise dispose of, and generally to deal in, full or part paid securities (which term "securities" shall for the purposes of this Article SECOND, without limitation of the generality thereof, be deemed to include any stocks, shares, bonds, debentures, notes, mortgages or other obligations, and any certificates, receipts, warrants or other instruments representing rights to receive, purchase or subscribe for the same, or representing any other rights or interests therein or in any property or assets) created or issued by any persons, firms, associations, corporations, syndicates, governments or subdivisions thereof; to issue in exchange therefor or in payment thereof in any lawful manner its own securities, or to make payment therefor by any other lawful means whatsoever; and to exercise, as owner or holder of any securities, all rights, powers and privileges in respect thereof.
(2) To acquire by purchase, exchange or otherwise, all, or any part of, or any interest in, the properties, assets, businesses and good will of any persons, firms, associations, corporations or syndicates, engaged in any businesses for which a corporation may now or hereafter be organized under the laws of Maryland; to pay for the same in cash, property or its own or other securities; to hold, operate, reorganize, liquidate, mortgage, pledge, sell, exchange or in any manner dispose of the whole or any part thereof; and in connection therewith, to assume or guarantee
performance of any liabilities, obligations or contracts of such persons, firms, associations, corporations or syndicates, and to conduct in any lawful manner the whole or any part of any business thus acquired.
(3) To the extent now or hereafter permitted by the laws of Maryland, to lend its uninvested funds from time to time to such extent, to such persons, firms, associations, corporations, syndicates, governments or subdivisions thereof, and on such terms and on such security, if any, as its Board if Directors may determine.
(4) To promote, organize, aid or assist, financially or otherwise, persons, firms, assocations, corporations or syndicates engaged in any business whatsoever, to the extent now or hereafter permitted by the laws of the State of Maryland; and to a like extent to assume, guarantee or underwrite their securities, or the principal, interest, dividends or sinking fund obligations in respect thereof, or the performance of all or any of their other obligations.
(5) To acquire, hold, use or dispose of, in any manner, any franchises, licenses, grants, concessions, patents, trade-marks, copyrights, trade-names or inventions, granted by, or existing under the laws of, any government or subdivision thereof.
(6) To borrow money for any of the purpose of the Corporation, from time to time, and without limit as to amount; to issue and sell its own securities in such amounts, on such terms and conditions, for such purposes and for such prices, now or hereafter permitted by the laws of the state of Maryland and by this Charter as its Board of Directors may determine; to secure such securities, to the extent now or hereafter permitted by the laws of said State and by this Charter, by mortgage upon, or the pledge of, or the conveyance or assignment in trust of, the whole or any part of the properties, assets, business and good will of the Corporation, then owned or thereafter acquired; and to acquire, hold, dispose of, transfer, reissue or cancel its own securities (including shares of its capital stock of any class), in any manner and to the extent now or hereafter permitted by the laws of said State and not prohibited by this Charter.
(7) To conduct its business in all its branches at one or more offices in the State of Maryland and elsewhere in any part of the world, without restriction or limit as to extent, and to acquire, use, hold, and dispose of, in any manner and for any purpose now or hereafter permitted by the laws of said State, any real or personal property, or any rights or interests therein, in said State or elsewhere, subject to the laws of the state or country in which located.
(8) To carry out all or any of the foregoing objects and purposes as principal or agent, and alone or with associates or, to the extent now or hereafter permitted by the laws of the State of Maryland, as a member of, or as the owner or holder of any stock of, or shares or interest in, any firm, association, corporation, trust or syndicate; and in connection therewith to make or enter into such deeds or contracts with any persons, firms, associations, corporations, syndicates, governments or subdivisions thereof, and to do such acts and things and to exercise such powers, as a natural person could lawfully make, enter into, do or exercise.
(9) To do any and all such further acts and things and to exercise any and all such further powers as may be necessary, appropriate, or desirable for the accomplishment, carrying out, or attainment of all or any of the foregoing purposes or objects.
The foregoing objects and purposes shall, except where otherwise expressed, be in no way limited or restricted by reference to, or inference from, the terms of any other clause of this or any other Article of this Charter, and shall each be regarded as independent, and construed as powers as well as objects and purposes.
The Corporation shall be authorized to exercise and enjoy all of the powers, rights and privileges granted to or conferred upon, corporations of a similar character by the General Laws of the State of Maryland now or hereafter in force, and the enumeration of the foregoing powers shall not be deemed to exclude or waive any powers, rights or privileges so granted or conferred; provided, however, that the Corporation shall not have the power to carry on within the State of Maryland any business whatsoever, the carrying on of which would disentitle it to be classified as an ordinary business corporation under the laws of said State; nor shall it carry on any business, or exercise any powers, in any other state, territory, district or country except to the extent that a similar corporation organized under the laws thereof could carry on or exercise the same.
THIRD. The post-office address and the place at which the principal office of the Corporation in the State of Maryland will be located is First National Bank Building, Light and Redwood Streets, Baltimore, Maryland.
The name of the Corporation's resident agent is the Corporation Trust Incorporated and its post-office address is First National Bank Building, Light and Redwood Streets, Baltimore, Maryland. Said resident agent is a corporation of the State of Maryland.
FOURTH. The number of directors is thirteen and the names of those at the time in office are:
Elliott V. Bell David H. McAlpin Thurston P. Blodgett Frederick W. Page Henry C. Breck Carl W. Painter Fred E. Brown Bayard F. Pope Howard S. Bunn Cyril J. C. Quinn Lewis A. Lapham Frances F. Randolph |
W. Paul Stillman
FIFTH. The total amount of authorized capital stock of the Corporation is 130,000,000 shares, having an aggregate per value of $114,500,000, of which 1,000,000 shares of the per value of $50 each, amounting in the aggregate to $50,000,000, are $2.50 Cumulative Preferred Stock (hereinafter called the preferred stock) and 129,000,000 shares of the par value of $0.50 each, amounting in the aggregate to $64,500,000, are Common Stock (hereinafter called the common stock). Any of such capital stock may, from time to time before the issuance thereof, be classified or reclassified by the Board of Directors as hereinafter in Article SEVENTH provided.
SIXTH. A description of each class of stock of the Corporation with the preferences, voting powers, restrictions and qualifications of each class is as follows:
1. Out of the surplus or net profits of the Corporation the holders of the preferred stock shall be entitled to receive, when and as declared by the Board of Directors, dividends in cash at the rate of Two Dollars and fifty Cents ($2.50) per share per annum and no more, payable quarterly on the first days of January, April, July and October in each year, accruing from April 1, 1963, if issued on or before July 1, 1963, or if issued after July 1, 1963, from the first day of the quarterly dividend period in which issued, before any sum or sums shall be set apart for or applied to the purchase or redemption of preferred stock and before any dividend shall be declared or paid upon or set apart for, or any other distribution shall be ordered or made in respect of, the common stock; and such dividends shall be cumulative (whether or not in any dividend period or periods there shall be surplus or net profits available for the payment of such dividends), so that if in any year or years dividends upon the outstanding preferred stock at said rate shall not have been paid, dividends to the amount of such deficiency shall be paid or declared and set apart for payment before any sum or sums shall be set aside for or applied to the purchase or redemption of preferred stock and before any dividend shall be declared or paid upon or set apart for, or any other distribution shall be ordered or made in respect of, the common stock.
2. Out of any surplus or net profits of the Corporation remaining after making such provision for working capital and for reserves for any purpose as the Board of Directors of the Corporation may deem advisable, and after full cumulative dividends as aforesaid upon the preferred stock shall have been paid for all past quarterly dividend periods, and after or concurrently with making payment of or provision for full dividends on the preferred stock for the current quarterly dividend period, and after making such provision for the purchase or redemption of preferred stock as the Board of Directors may deem advisable, then, and not otherwise, the holders of the common stock shall be entitled to receive, to the exclusion of the holders of the preferred stock, such dividends, payable in cash, stock of any class or otherwise, as may from time to time be declared by the Board of Directors; provided, however, that as long as any of the preferred stock shall be outstanding, no dividend shall de declared upon the common stock, unless at the time such dividend is do declared the net assets of the Corporation as determined by the Board of Directors (whose determination in the absence of fraud shall be conclusive) remaining after deducting the amount of such dividend and the amount of any unpaid dividends there to fore or then to be declared on any other class of stock shall be at least two hundred per cent. (200%) of the aggregate amount (exclusive of any dividends accrued or in arrears) to which all shares of the preferred stock and all shares of stock on a parity with the preferred stock, then outstanding, shall be entitled as a preference over the common stock, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation.
3. The preferred stock shall be preferred over the common stock as to both earnings and assets, and in the event of any voluntary or involuntary liquidation or dissolution or winding up of the Corporation, the holders of the preferred stock shall be entitled to receive out of the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, an amount equal to the per value thereof, with all dividends accrued or in arrears, before any distribution of the assets shall be made to the holders of the common stock; but the
holders of the common stock shall be entitled, to the exclusion of preferred stock, to share ratably according to the number of shares held by each in all the assets of the Corporation remaining after such distribution to the holders of the preferred stock, and any required distribution of assets to the holders of all other shares entitled to a preference over the common stock in the event of any such liquidation, dissolution or winding up. If the assets distributable as aforesaid among the holders of the preferred stock shall be insufficient to permit the payment to such preferred stockholders of the preferential amounts aforesaid, then the entire assets of the Corporation to be distributed shall be distributed ratably among the holders of the preferred stock according to the number of shares held by each.
4. The terms "dividends accrued or in arrears" and "full cumulative dividends" whenever used in this Charter with reference to shares of the preferred stock shall be deemed to mean (whether or not in any dividend period or any part thereof in respect of which such terms are used there shall have been net profits or surplus available for the payment of such dividends) that amount which shall be equal to cumulative dividends at the rate of Two Dollars and fifty Cents ($2.50) per annum to date from the date on which such dividends became cumulative (including an amount of equal to a dividend at such rate for the elapsed portion of the current dividend period) less, in each case, the amount of all cumulative dividends paid, or deemed paid upon such shares.
5. The preferred stock at any time outstanding may be redeemed by the
Corporation, in whole at any time or in part from time to time, at its election
expressed by resolution of the Board of Directors, upon not less than thirty
(30) days' prior notice to the holders of record of the preferred stock to be
redeemed, given as hereinafter provided, at the price (herein called the
redemption price) of Fifth-five Dollars ($55) per share and dividends accrued or
in arrears to the redemption date; provided, however, that if less then all the
outstanding preferred stock is to be redeemed such redemption may be made only
after full cumulative dividends upon all the outstanding preferred stock shall
have been paid for all past quarterly dividend periods and after or concurrently
with making payment of, or declaring and setting apart for payment, full
dividends on the then outstanding preferred stock not so to be redeemed to the
end of the current dividend period; and provided further that the preferred
stock shall not be redeemable by the Corporation on or prior to May 1, 1968, in
connection with a refunding involving the issuance of preference stock bearing
an annual dividend rate lower than that of the preferred stock. If less than all
the outstanding preferred stock is to be redeemed, the redemption may be made
either by lot or pro rata, in such manner as may be prescribed by resolution of
the Board of Directors. Notice of such redemption shall be by publication at
least once in one newspaper printed in the English language and published and of
general circulation in the Borough of Manhattan, The City of New York, not less
than thirty (30) not more than sixty (60) days prior to the redemption date. A
similar notice shall be mailed by th eCorporation postage prepaid not less than
thirty (30) nor more than sixty (60) days prior to such redemption date to the
respective holders of record of the preferred stock to be redeemed at their
respective record addresses, but the mailing of such notice shall not be a
condition precedent to such redemption. From and after the date fixed in any
such notice as the date of redemption (unless default shall be made by the
Corporation in providing moneys for the payment of the redemption price pursuant
to such notice), or, if the Corporation shall so elect, from and after a date
(hereinafter called the date of deposit and which shall be prior to the date
fixed as the date of redemption) on which the
Corporation shall provide moneys for the payment of the redemption price by depositing the amount thereof for account of the holders of the preferred stock entitled thereto with a bank or trust company doing business in the Borough of Manhattan, in the City of New York, and having capital and surplus of at least Five Million Dollars ($5,000,000) pursuant to notice of such election included in the notice of redemption specifying the date on which such deposit will be made, all dividends on the preferred stock thereby called for redemption shall cease to accrue and all rights of the holders thereof as stockholders of the Corporation, except the right to receive the redemption price as hereinafter provided, shall cease and terminate. After the deposit of such amount with such bank or trust company, the respective holders of record of the preferred stock to be redeemed shall be entitled to receive the redemption price at any time upon actual delivery to such bank or trust company of certificates for the number of shares to be redeemed properly stamped for transfer (if required) and duly endorsed in blank or accompanied by proper instruments of assignment and transfer thereof duly endorsed in blank. Any moneys deposited with such a bank or trust company for the payment of the redemption price which shall remain unclaimed by the holders of the preferred stock at the end of six (6) years after the redemption date, together with any interest thereon which shall be allowed by the bank of trust company with which the deposits shall have been made, shall be paid by such bank or trust company to the Corporation. Preferred stock redeemed, or acquired for retirement, under any provision of this Charter shall not be reissued by the Corporation.
6. The Corporation shall not, without the affirmative vote of at lease two thirds in amount of such of the preferred stock as may be present in person or by proxy and voting at a meeting of the preferred stockholders called for the purpose or the written consent of the holders of at least two-thirds in amount of the preferred stock at the time outstanding, so long as any preferred stock shall be outstanding
(a) create any shares of stock having preference or priority over the preferred stock;
(b) issue any shares of stock on a prity with the preferred stock, unless immediately after the issue thereof, the net assets of the Corporation as determined by the Board of Directors (whose determination in the absence of fraud shall be conclusive) shall be equal to at least two hunder per cent. (200%) of the aggregate amount (exclusive of any dividends accrued or in arrears) to which all shares of the preferred stock, and all shares of such stock on a parity with the preferred stock, then outstanding, shall be entitled as a preference over the common stock in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation;
(c) issue, assume or guarantee any bonds, notes, or other evidence of indebtedness, whether secured or unsecured, maturing more than one year from the issue, assumption or guaranty thereof, if immediately after the date of the issue, assumption or guaranty thereof, the aggregate principal amount of all bonds, notes or other evidences of indebtedness issued, assumed or guaranteed by the Corporation and maturing more than one year from such date shall exceed one hundred and fifty per cent. (150%) of the capital and surplus of the Corporation;
(d) amend this Charter so as to change or alter the provisions thereof relating to the preferences, voting powers, restrictions and qualifications of the preferred stock.
The affirmative vote of two-thirds of the aggregate number of votes entitled to be cast thereon shall be necessary to authorize any of the following actions: (i) the dissolution of the Corporation; (ii) a merger or consolidation of the Corporation (in which the Corporation is not the surviving corporation) with (a) an open-end investment company or (b) a closed-end investment company unless such closed-end investment company's Articles of Incorporation require a two-thirds or greater proportion of the votes entitled to be cast by such company's stock to approve the types of transactions covered by clauses (i) through (iv) of this paragraph; (iii) the sale of all or substantially all of the assets of the Corporation to any person (as such term is defined in the Investment Company Act of 1940); or (iv) any amendment of this Charter which makes any class of the Corporation's stock a redeemable security (as such term is defined in the Investment Company Act of 1940) or reduces the two-thirds vote required to authorize the actions listed in this paragraph.
7. Subject to the provisions of the by-laws of the Corporation, as from time to time amended, with respect to the closing of the transfer books and the fixing of a record date for the determination of stockholders entitled to vote, at each meeting of the stockholders each holder of record of the preferred stock shall be entitles to two votes for each shares of preferred stock standing in his name on the books of the Corporations and each holder of record of the common stock shall be entitled to one vote for each share of common stock standing in his name on the books of the Corporation; provided, however, that if and whenever a default in preferred dividends, as hereinafter defined, shall exist, the holders of the outstanding preferred stock, in addition to their right to vote with the holders of the common stock in the election of the remaining directors, shall have the right, voting separately as a class, to elect two directors at the annual meeting of stockholders of the Corporation for the election of directors next succeeding the occurrence of such default, and at each such annual meeting thereafter as long, but only as long, as such default shall exist. The term of office of each such director elected by the holders of the preferred stock as aforesaid shall continue until the next annual meeting of stockholders of the Corporation for the election of directors, notwithstanding that prior to the end of such term the default in preferred dividends shall cease to exist. If, prior to the end of the term, a vacancy in the office of any such director shall occur by reason of his death, resignation, removal or disability, or for any other cause, such vacancy shall be filled for the remainder of the term in the manner provided in the by-laws of the Corporation, provided that, if such vacancy shall be filled by election by the stockholders at a meeting thereof, the holders of the then outstanding preferred stock shall have the right, voting separately as a class, to fill such vacancy for the remainder of the term, unless at the time of such election no default in preferred dividends shall exist. At any meeting of stockholders at which the holders of the preferred stocks shall be entitled to vote for the election of a director or directors as aforesaid, the holders of twenty-five percent. (25%) of the then outstanding preferred stock present in person or by proxy shall be sufficient to constitute a quorum for the election of such director or directors, and the vote of the holders of the majority of such preferred stock so present at such meeting at which there shall be a quorum, shall be sufficient to elect such director or directors. For the purpose of this paragraph 7, a "default in preferred dividends" shall be deemed to have occurred whenever, on a dividend payment date, the amount of unpaid full cumulative dividends upon the preferred stock shall be equivalent to six (6) quarterly dividends thereon or more, and, having so occurred, such default
shall be deemed to exist thereafter until, but only until, full cumulative dividends on all shares of preferred stock then outstanding to the end of the last preceding dividend period shall have been paid and the fulldividend thereon to the end of the then current dividend period shall have been paid or declared and a sum sufficient for the payment thereof set aside for such payment. Nothing herein contained shall be deemed to prevent an amendment of the by-laws of the Corporation, in the manner therein provided, which shall increase the number of directors of the Corporation so as to provide as additional places on the Board of Directors either or both the directorships to be filled by the two directors so to be elected by the holders of the preferred stock, or to prevent any other change in the number of directors of the Corporation.
8. Notwithstanding any provision of law requiring any action to be taken or authorized by the affirmative vote of the holders of a majority or other designated proportion of the shares or of the shares of each class, or to be otherwise taken or authorized by vote of the stockholders, such action shall be effective and valid if taken or authorized by the affirmative vote of a majority of the aggregate number of the votes entitled to be cast thereon, except as provided in this Charter.
9. No holder of the common stock and no holder of the preferred stock shall, as such holder, have any right to purchase or subscribe for any shares of the capital stock of the Corporation of any class or any warrant or warrants, option or options or other instruments or instruments, that shall confer upon the holder or holders thereof the right to subscribe for or purchase or receive from the Corporation any shares of the capital stock of the Corporation of any class, which it may issue or sell (whether or not such shares of capital stock shall be exchangeable for any shares of capital stock of the Corporation of any class and whether or not such shares of capital stock shall be out of unissued shares authorized by this Charter or out of any shares of capital stock of the Corporation acquired by it after the issue thereof), or any right to purchase or subscribe for any obligation which the Corporation may issue or sell that shall be convertible into, or exchangeable for, any shares of the capital stock of the Corporation of any class, or to which shall be attached or appertain any warrant or warrants, option or options or other instrument or instruments that shall confer upon the holder or holders of such obligation the right to subscribe for or purchase or receive from the Corporation any shares of its capital stock of any class, other than such right, if any, as the Board of Directors, in its discretion, may determine.
SEVENTH. A. The Board of Directors is hereby expressly authorized and empowered to classify or reclassify any unissued stock of any class of the Corporation with or without par value (including preferred stock and the common stock), into one or more classes of preference stock, on a parity with, but not having preference or priority over, the preferred stock, by fixing or altering in any one or more specified respects, from time to time before the issuance of such stock, the designations, preferences, voting powers, restrictions and qualifications of, the fixed annual dividends on, the times and prices of redemption, the terms of conversion, the number and/or par value of the shares and other provisions of, such stock, to the full extent now or hereafter permitted by the laws of the State of Maryland, but subject to the limitations or restrictions set forth in this Charter. Pursuant to the authority hereby granted to and vested in the Board of Directors, but without limiting the generality of the foregoing, the Board of Directors may, in connection with the creation of each such class of preference stock (by the classification or reclassification of any unissued stock of the Corporation as aforesaid), fix and determine, by
the resolution or resolutions providing for such classification or reclassification, the matters in respect of such class of stock set forth in the following subdivisions (a) to (i) inclusive:
(a) The designation of the stock of such class, which shall be distinctive from the designation of the stock of any other class or classes and which may contain the words "preferred stock" and/or any other descriptive words, letters or figures;
(b) The rate of fixed annual dividends on the stock of such class, which in the case of stock having a par value, shall not exceed six per cent. (6%) per share per annum upon the par value thereof, or, in the case of stock without par value, shall not exceed six per cent. (6%) per share per annum upon the amount per share to which the stock of such class is entitled as a preference over the common stock out of the assets available for distribution to the stockholders, whether from capital, surplus or earnings, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation; and whether or not the dividends on the stock of such class shall be cumulative or non-cumulative and, if cumulative, the date on or after which such dividends shall be so cumulative, provided, however, that such date shall not be prior to the first day of the dividend period during which the first stock of such class is issued; and whether or not such dividends shall be payable quarterly, half-yearly or yearly, and the dates or date in each year on which such dividends shall be so payable;
(c) Whether or not the stock of such class shall be subject to redemption, either in whole or in part, and either separately or together with all or any part of the preferred stock or the stock of any one or more other classes of preference stock, and if so subject, the manner in which such redemption shall be effected and the redemption price per share, provided that such price shall not, in the case of stock having a par value, exceed one hundred and ten percent. (110%) of the par value thereof, or in the case of stock without par value, shall not exceed one hundred and ten percent. (110%) of the amount per share to which the stock of such class is entitled as a preference over the common stock out of the assets available for distribution to the stockholders, whether from capital, surplus or earnings, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, plus, if dividends thereon are cumulative, an amount equal to all dividends accrued or in arrears in respect of such stock, or, if dividends thereon are non-cumulative, an amount equal to all dividends declared and unpaid in respect of such stock;
(d) The preference of the stock of such class over the common stock out of the assets available for distribution to the stockholders, whether from capital, surplus or earnings, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, provided that such preference shall not exceed, in the case of stock having a par value, an amount equal to one hundred per cent. (100%) of the par value thereof, or, in the case of stock without par value, shall not exceed the sum of one hundred dollars ($100) per share, plus, if dividends thereon are cumulative, an amount equal to all dividends accrued or in arrears in respect of such stock, or, if dividends thereon are non-cumulative, an amount equal to all dividends declared and unpaid in respect of such stock;
(e) Whether or not the stock of such class shall be entitled to the benefit of a sinking fund to be applied to the purchase and/or redemption thereof, and if so entitled, the amount of such fund and the manner of its application;
(f) Whether or not the stock of such class shall be convertible into, or exchangeable for, stock of the Corporation of any other class or classes, and if so convertible or exchangeable, the conversion price or prices, or the rates of exchange, and the adjustments, if any, to be made, in case of any such conversion or exchange;
(g) Whether or not the issue of any additional stock of such class or the creation and/or issue of any other class or classes of stock of the Corporation shall be subject to any limitations or restrictions, and if so, the nature and extent of such limitations or restrictions;
(h) Whether or not and to what extent the holders of the stock of such class shall be entitled to vote.
(i) Whether or not the shares of stock of such class shall have any other rights, privileges, terms or provisions differing in any respect from the rights, privileges, terms and provisions of the preferred stock or any other class or classes of preference stock of the Corporation, and if so, the nature and extent of such differences.
B. All current dividends on the preferred stock and on each class of preference stock which shall be payable on the same date shall be declared and paid pro rata, so that the amounts of such current dividends declared and paid in respect of each share of preferred stock and each share of each class of preference stock shall in all cases bear to each other the same proportions as the respective maximum dividend rates on such respective classes of stock bear to each other; but the Board of Directors may declare dividends on the preferred stock or any class of preference stock which shall be payable on a particular date, without declaring or making provision for dividends on the preferred stock or any other class or preference stock which shall be payable upon a later date or dates. If at any time there shall be any dividends accrued and in arrears on the preferred stock or on any class or classes of preference stock, no current dividend shall be paid upon the preferred stock or on any class or classes of preference stock unless the current dividends on the preferred stock and on each class of preference stock to the end of the respective current dividend periods of the several classes of stock shall have been declared and set apart for payment. No payments shall be made on account of any dividends which may be accrued and in arrears on the preferred stock or on any class or classes of preference stock, unless the current dividends on the preferred stock and on each class of preference stock to the end of the respective current dividend periods of the several classes of stock shall have been declared and set apart for payment; and all payments made on account of dividends which may be accrued and in arrears on the preferred stock and on any class or classes of preference stock shall be made pro rata in amounts proportionate to the maximum dividend rates on the respective classes of stock, and not in proportion to the amounts of dividends accrued and in arrears on such respective classes of stock. The resolution or resolutions creating any class or classes of preference stock shall contain such appropriate provisions, with respect to the payment of dividends thereon in relation to the payment of dividends on the preferred stock or on any other class or classes of preference stock,
as the Board of Directors shall determine to be necessary and proper to give effect to the foregoing provisions of this paragraph.
C. If the assets available for distribution to the stockholders, whether from capital, surplus or earnings, in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation, shall be insufficient to permit the payment in full of the preferential amounts payable in respect of the shares of preferred stock and the shares of each calls of preference stock outstanding, then the entire assets of the Corporation so distributable among the stockholders shall be distributed pro rata among such holders of preferred stock and each class of preference stock, according to the respective amounts which would be payable to them in respect of the shares held by them upon such distribution, if all amounts payable on or with respect to the stock of all such classes were paid in full.
D. The provisions of sub-paragraphs 8 and 9 of Article SIXTH shall apply with respect to the stock of any class or classes into which any of the preferred stock or common stock of the Corporation may be classified or reclassified by the Board of Directors pursuant to the authority granted by this Article SEVENTH in the same manner and to the same extent that the provisions of said sub-paragraphs 8 and 9 are applicable with respect to the preferred stock and the common stock of the Corporation.
E. Whenever the Board of Directors shall from time to time create any class or classes of stock by classifying or reclassifying any unissued stock of the Corporation by fixing or altering the designations, preferences, voting powers, restrictions and qualifications of, the fixed annual dividends on, the times and prices of redemption, the terms of conversion, the number and/or par value of the shares and other provisions of, such stock, pursuant to the authority conferred by this Article SEVENTH, and before any such stock shall be issued, a further description of such stock, with the designations, preferences, voting powers, restrictions and qualifications thereof, the fixed annual dividends thereon, the times and prices of redemption, the terms of conversion, the number and/or par value of the shares and other provisions thereof, as so fixed or altered by the Board of Directors, shall be set forth in a certificate or articles supplementary to the Charter of the Corporation which shall be executed, verified, acknowledged, filed and recorded in any manner required or permitted by the laws of the State of Maryland, and thereupon the provisions of any such certificate or articles supplementary shall become a part of the Charter of the Corporation as amended and shall be subject to amendment to the same extent provided herein for amendments to this Charter.
EIGHTH: The following provisions are hereby adopted for the purpose of defining, limiting and regulating the powers of the Corporation and of the directors and stockholders:
1. Subject to the provisions of paragraph 3 of this Article EIGHTH, the Board of Directors of the Corporation is hereby empowered from time to time to authorize the issue and sale or warrants, in bearer or registered form, or other instruments, for the purchase of shares of the stock of any class of the Corporation within such period of time, or without limit as to time, to such aggregate number of shares, and at such price or prices per share, as the Board of Directors may determine. Such warrants or other instruments may be issued separately or in connection
with the issue of any bonds, debentures, notes or other evidences of indebtedness or shares of the capital stock of any class of the Corporation and for such consideration and on such terms and conditions as the Board of Directors of the Corporation in its discretion may determine.
2. There are issued and outstanding warrants, in registered form, entitling the registered holders thereof, upon presentation and surrender of the warrants, to purchase at any time without limit as to the time shares of the common stock at the price of $22.50 per share, subject to the increase of such number of shares and the adjustment of such price as hereinafter provided.
The warrants referred to in this paragraph 2 shall be subject to the following terms and conditions:
(a) The warrant purchase price shall be twenty-two dollars and fifty cents ($22.50) per share, provided in the event that, and whenever prior to the expiration of the warrants by exercise thereof, the Corporation shall issue any shares of the common stock, in excess of 2,020,150 shares, at a price less than the warrant purchase price in effect immediately prior to such issue (such excess shares issued from time to time at such price or prices being hereinafter collectively called "additional shares"), the warrant purchase price shall thereupon be adjusted, and if more than one such issue shall be made, successively adjusted, as follows: (i) if such issue of additional shares shall not be pursuant to the reclassification or subdivision of the outstanding common stock into a greater number of shares or the payment of a dividend upon, or the making of any distribution in respect of, any stock of the Corporation paid in common stock or in stock convertible into or exchangeable for common stock, the adjusted warrant purchase price shall be determined by multiplying 2,020,150 by $22.50 and adding to the product thereby obtained a sum equal to the aggregate amount of money in dollars, or the fair value in dollars of the property or other consideration, if any, received by the Corporation upon the issue of all additional shares then or at any time theretofore issued, and dividing the resulting total by the product of (a) 2,020,105 increased by the number of all such additional shares issued or deemed to be or to have been issued otherwise than pursuant to any such reclassification, subdivision, dividend or distribution multiplied by (b) a number equal to one plus the cumulative number of additional shares and fractions thereof (calculated to the nearest one-hundredth of a share) which a holder of one share of common stock would have received pursuant to all such reclassifica-tions, subdivisions, dividends or distributions theretofore made, and the resulting quotient shall be the adjusted warrant purchase price per share and (ii) if such issue of additional shares shall be pursuant to such a reclassification, subdivision, dividend or distribution (including the reclassification or subdivision effected simultaneously with the effectiveness of this clause (ii)), the adjusted warrant purchase price shall be determined by multiplying the number of shares of common stock outstanding immmediatly prior to such issuance by the then existing warrant purchase price and dividing the product thereby obtained by the number of shares of common stock outstanding immediately after such issuance, and the resulting quotient shall be the adjusted warrant purchase price per share.. Upon each adjustment of the warrant purchase price pursuant to clause (i) above, the holder of each warrant shall thereafter be entitled, instead of purchasing the number of shares specified in his warrant at the price of $22.50 per share, to purchase at the adjusted warrant purchase price per share the number of shares calculated to the nearest one-hundredth of a share, obtained by multiplying $22.50 by the number of shares stated
to be purchasable on the face of the warrant and dividing the product so obtained by the adjusted warrant purchase price per share. Upon each adjustment of the warrant purchase price pursuant to clause (ii) above, the holder of each warrant shall thereafter be entitled to purchase, at the warrant purchase price resulting from such adjustment, the number of shares, calculated to the nearest one-hundredth of a share, obtained by multiplying the warrant purchase price in effect immediately prior to such adjustment by the number of shares purchaseable pursuant to such warrant immediately prior to such adjustment and dividing the product thereof by the warrant purchase price resulting from such adjustment.
For the purposes of this sub-paragraph (a):
(1) The term "common stock" shall be deemed to mean and include not only the 28,000,000 shares of common stock authorized by this Chapter, but also the shares of common stock of any class hereafter authorized which shall not be limited to a fixed sum or percentage in respect to the right of the holders thereof to participate in dividends, or in the distribution of assets upon a voluntary or involuntary liquidation, dissolution or winding up of the Corporation.
(2) Shares of common stock issued as a stock dividend shall be treated as additional shares but shall not be deemed to have be issued for money or cash value, and the excess number of shares of the common stock at any time issued in exchange for shares of common stock theretofore issued over the number of shares thereof surrendered on any such exchange, shall be deemed to have been issued as a stock dividend. If at any time the Corporation shall declare a cash dividend on any of the common stock and shall contemporaneously or within three months after the date of payment of such dividend give to the holders thereof the right to subscribe for additional common stock at a price which shall net the Corporation in the aggregate substantially the amount of such cash dividend so declared, such common stock so issued in respect of any such subscription shall be deemed to have been issued as a stock dividend.
(3) In case the Corporation shall issue any stock of any class or other securities convertible into common stock at a price for such common stock less than the warrant purchase price (determined as in this paragraph 2 provided) in effect immediately prior to such issue, or in case the Corporation shall issue any warrants or other instruments for the purchase of common stock at a price for such common stock less than the warrant purchase price (determined as in this paragraph 2 provided) in effect immediately prior to such issue, the maximum total number of shares of the common stock which will be issuable upon the conversion of such convertible securities or upon the exercise of such warrants or other instruments shall be treated as additional shares and deemed, for all purposes of this Article EIGHTH, to have been issued at the date of issue of such convertible securities or such warrants or other instruments, as the case may be, for the consideration received by the Corporation for such convertible securities or for the purchase price for common stock specified in such warrants or other instruments, as the case may be. Shares of common stock issuable upon the conversion of such convertible securities or upon the exercise of such warrants or other instruments as deemed to have been issued as above provided shall not be recounted when and if such shares are actually issued.
(4) In case the Corporation shall issue any additional shares for property or services, the value of such property or services shall, for the purposes hereof, be conclusively determined by the Board of Directors of the Corporation.
(5) In determining the amount received by the Corporation upon the issue of additional shares, such determination shall be made without the deduction of any reasonable commission, discount or expenses paid for underwriting or marketing, or in connection with the sale thereof.
(b) The warrant purchase price shall never exceed twenty-two dollars and fifty cents ($22.50) per share and having at any time been reduced by adjustment as above provided shall never thereafter be increased above the amount to which so reduced notwithstanding the subsequent issue of shares of common stock at a price exceeding such reduced warrant purchase price.
(c) If at any time while any of the warrants are outstanding, the Corporation shall be consolidated with, or merged into, any other corporation or corporations, or shall sell all, or substantially all, of its property, assets, business and good will, as an entirety, to another corporation or other corporations, lawful provision shall be made, as part of the terms of each such consolidation, merger or sale, that the holder of each warrant shall thereafter be entitled to purchase, in lieu of each share of the common stock otherwise purchasable upon the exercise of such warrant, but at the warrant purchase price in effect at the time of such consolidation, merger or sale, the same kind and amount of securities (including in such term, stock of any class or classes) or assets as may be issuable, distributable or payable upon such consolidation, merger or sale with respect to each share of the common stock. Lawful provision having been so made, from and after such consolidation, merger or sale, all rights of the holders of the warrants shall cease and determine (including the right to purchase shares of the common stock and all rights with respect to further adjustments of the warrant purchase price and the number of shares of common stock purchasable upon the exercise thereof) except the right to purchase during the life of the warrants such securities or assets as above provided.
(d) If the number of shares of the common stock purchasable upon the exercise of the warrants shall be required to be increased and the warrant purchase price required to be adjusted, or securities or assets other than shares of the common stock shall become purchasable in lieu of shares of the common stock upon the exercise of the warrants, then and in each such case the Corporation shall forthwith (1) file with each Warrant Agent appointed by the Corporation a certificate executed by the President or a Vice-President and attested by the Secretary or an Assistant Secretary of the Corporation, stating the increased number of shares, or specifying the kind and amount of the securities or assets, so purchasable upon the exercise of the warrants, and setting forth in reasonable detail the method of calculation and the facts (including the amount in dollars, or the fair value in dollars as determined by the Board of Directors, of any consideration received or deemed to have been received for any additional shares or convertible securities) upon which such calculation is based, and (2) cause a notice stating the fact of such increase in the number of shares so purchasable or the fact that such kind and amount of securities or assets are purchasable in lieu of each share of common stock, to be published at least once in one daily newspaper printed in the English language and published and of general circulation in the Borough of Manhattan, The City of New York. No Warrant Agent shall be under any duty to
make any investigation or inquiry as to the comments contained in any such certificate or as to the manner in which any computation was made, but may accept such certificate or report as conclusive evidence of the statements therein contained, and shall be fully protected with respect to any and all acts done or actions taken or suffered by it in reliance thereon.
(e) If the Corporation shall fix a record date or close the transfer books for the determination of the holders of the common stock entitled to receive the initial dividend or any subsequent dividend at a rate in excess of that theretofore established, or any special stock dividend or extraordinary distribution, with respect to the common stock, or to receive any rights to purchase or subscribe to additional stock of any class, or securities convertible into stock of any class of the Corporation, it shall, at least twenty days prior to such record date or such date on which the transfer books are to be closed, as the case may be, cause a notice thereof to be published at least once in one daily newspaper printed in the English language and published and of general circulation in the Borough of Manhattan, The City of New York, and shall also cause a notice thereof to be mailed to the registered holders, if any, of warrants, at their respective record addresses appearing on the books of the Corporation, except that such notice need not to be published if on such record date or such date on which the transfer books are to be closed, as the case may be, no warrants other than registered warrants shall be outstanding.
The words "special stock dividend" and "extraordinary distribution" as used in this sub-section (e) shall be deemed to mean any dividend or distribution in excess of dividends declared pursuant to the regular dividend policy at the time established by the Board of Directors, whether the same be in cash, stock or otherwise.
(f) A warrant shall be deemed to have been exercised and the person exercising the same to have become a common stockholder of record of the Corporation for the purposes of receiving dividends and for all other purposes whatsoever as of the date when the warrant is presented and surrendered to the Corporation in accordance with its terms, accompanied by payment in cash of the purchase price called for thereby.
(g) Upon each increase of the number of shares of common stock of the Corporation purchasable upon the exercise of the warrants, the increased number of shares so purchasable shall be calculated only to the nearest hundredth of one share. No fractional shares of common stock shall be issued upon the exercise of the warrants but in lieu thereof the Corporation shall issue scrip certificates in bearer or registered form representing one one-hundredth of the right to receive one share and multiples thereof and exchangeable, when surrendered together with other scrip certificates of like tenor representing in the aggregate the right to receive one or more full shares, for certificates for one or more full shares of the common stock and scrip certificates of like tenor for any excess fractions of a share. Such scrip certificates shall be issued in such form and shall be exchangeable on or before such date as the Board of Directors may determine, except that the bearers thereof shall no be entitled to vote, to receive dividends, or to exercise any other rights of a stockholder until and only to the extent that such scrip certificates are exchanged for certificates for common stock.
(h) In the event that a meeting of stockholders shall be called to consider and take action on a proposal for the voluntary dissolution of the Corporation, other than in connection with a consolidation, merger or sale of all, or substantially all, of its property, assets, business and good will as an entirety, then and in that event the Corporation shall cause a notice thereof to be published at least once in one daily newspaper printed in the English language and published and of general circulation in the Borough of Manhattan, The City of New York, at lease twenty days prior to the date fixed as a record date or the date of closing the transfer books for the determination of the stockholders entitled to vote at such meeting, and shall also cause a notice thereof to be mailed to the registered holders, if any, of the warrants, but such notice need not be published if on such record date or date of closing the transfer books no warrants other than registered warrants shall be outstanding. If such notice shall have been so given and if such voluntary dissolution shall be authorized at such meeting or any adjournment thereof, then from and after the date on which such voluntary dissolution shall have been duly authorized by the stockholders, the purchase rights represented by the warrants and all other rights with respect thereto shall cease and determine.
3. Of the authorized common stock, an amount sufficient to provide for the exercise of any warrants and other instruments for the purpose thereof issued and then outstanding pursuant to this Charter shall at all times be reserved for such purpose. Neither any common stock nor any warrants or other instruments for the purchase of the common stock shall at any time be issued unless and until (a) the amount of the authorized unissued common stock shall at least equal the amount thereof required, after such issue of the common stock or warrants or other instruments, to be reserved for the purpose of providing for the exercise of all warrants and other instruments for the purpose of common stock then outstanding and (b) the Corporation shall have taken effective corporate action to provide for the issue of such reserved common stock upon the exercise of all such warrants and other instruments.
4. Subject to such limitations and restrictions as may be set forth in the by-laws of the Corporation, the Board of Directors of the Corporation, is hereby empowered to authorize the issue from time to time of
(a) all or any part of the total authorized number of shares of stock of the Corporation of any class, and any securities convertible into shares of its stock of any class, in each case for such consideration as the Board of Directors may from time to time deem advisable subject to the provisions of paragraph 3 of this Article EIGHTH;
(b) the number of shares of stock of any class called for by any warrants or other instruments for the purchase thereof issued and outstanding pursuant to this Charter, at the price per share (not less than par for stock having a par value) determined as provided in such warrants or other instruments and upon the exercise thereof in accordance with the terms thereof.
5. The Board of Directors may determine by resolution prior to the issue of any shares of the capital stock of the Corporation without par value that only a part of the consideration or of the value
thereof to be received for such shares shall be contributed as capital and that the excess shall be surplus; and, on payment for such shares, the part of such consideration or of the value thereof so contributed as capital shall be capital and the excess shall be surplus. Against any such surplus there may be charged any losses at any time incurred by the Corporation, and also any dividends or other distributions made to the holders of its stock of any class except as provided in paragraph 2 of Article SIXTH. The capital of the Corporation may be increased and its surplus decreased from time to time by resolution of the Board of Directors transferring the whole or any part of the surplus to the capital account.
6. The by-laws of the Corporation may fix the number of directors at a number greater or less than that named in this Charter, provided that in no case shall the number of directors be less than three, and may authorize the Board of Directors, by the vote of a majority of the entire Board of Directors, to increase the number of directors fixed by this Charter or by the by-laws within a limit specified in the by-laws, and to fill the vacancies created by any such increase in the number of directors. Unless otherwise provided by the by-laws of the Corporation, the directors of the Corporation need not be stockholders therein.
7. The Board of Directors shall have power, if authorized by the by-laws, to designate by resolution or resolutions adopted by a majority of the whole Board of Directors, one or more committees, each committee to consist of two or more of the directors of the Corporation, which, to the extent provided in said resolutions or in the by-laws of the Corporation and permitted by the laws of Maryland, shall have and may exercise any or all of the powers of the Board of Directors in the management of the business and affairs of the Corporation, and may have power to authorize the seal of the Corporation to be affixed to all papers which may require it.
8. The Board of Directors shall, subject to the laws of Maryland, have power to determine from time to time whether and to what extent and at what time and places and under what conditions and regulations any accounts and books of the Corporation, or any of them, shall be open to the inspection of the stockholders; and no stockholder shall have any right to inspect any account or book or document of the Corporation, except as conferred by the laws of Maryland, unless and until authorized so to do by resolution of the Board of Directors, or of the stockholders.
9. Any director, or any officer elected or appointed by the Board of Directors or by any committee of said Board or by the stockholders or otherwise, may be removed at anytime, with or without cause, in such lawful manner as may be provided in the by-laws of the Corporation.
10. If the by-laws so provide, the Board of Directors of the Corporation shall have power to hold their meetings, to have an office or offices and, subject to the provisions of the laws of Maryland, to keep the books of the Corporation, outside of said State at such places as may from time to time be designated by them.
11. Subject to the provisions of sub-paragraph (c) of paragraph 6 of article SIXTH, the Board of Directors shall have power to borrow or raise money, from time to time and without limit, and upon any terms, for any corporate purposes; and, subject to the laws of the State of Maryland, to authorize the creation, issue, assumption or guaranty of bonds, notes or other evidences of indebtedness for moneys to borrowed, to include therein such provisions as to redeemability,
convertibility or otherwise, as the Board of Directors, in its sole discretion, may determine and to secure the payment of principal, interest or sinking fund in respect thereof by mortgage upon, or the pledge of, or the conveyance or assignment in trust of, the whole or any part of the properties, assets and good will of the Corporation then owned or thereafter acquired.
12. In addition to the powers and authorities hereinbefore or by statute expressly conferred upon them, the Board of Directors may exercise all such powers and do all such acts and things as may be exercised or done by the Corporation, subject, nevertheless, to the express provisions of the laws of Maryland, of this Charter, and of the by-aws of the Corporation.
13. Shares of stock in other corporation shall be voted by such officer or officers of the Corporation as the Board of Directors shall designate for that purpose, or by a proxy or proxies thereunto duly authorized by the Board of Directors, except as otherwise ordered by vote of the holders of a majority of the shares of the capital stock of the Corporation outstanding and entitled to vote in respect thereto.
14. Any director individually, or any firm of which any director may be a member, or any corporation of which any director may be an officer, director, or holder of any amount of its capital stock, may be a party to, or may be pecuniarily or otherwise interested in, any contract or transaction of the Corporation, and in the absence of fraud no contract or other transaction shall be thereby affected or invalidated; provided that in case a director, or a firm of which a director is a member, is so interested, such fact shall be disclosed or shall have been known to the Board of Directors or a majority thereof. Any director of the Corporation who is also a director or officer or holder of any amount of the capital stock of such other corporation or who, or the firm of which he is a member, is so interested, may be counted in determining the existence of a quorum at any meeting of the Board of Directors of the Corporation which shall authorize any such contract or transaction, and may vote thereat to authorize any such contract or transaction, with like force and effect as if he were not such director, or officer, or holder of the capital stock of such other corporation, or not so interested or a member of a firm so interested.
15. Any contract, transaction or act of the Corporation or of the directors which shall be ratified by stockholders present and entitled to exercise a majority of the voting power exercised at any annual meeting or at any special meeting called for such purpose, a quorum being present, shall so far as permitted by law be as valid and as binding as though ratified by every stockholder of the Corporation.
NINTH. From time to time any of the provision of this Charter (including, without limiting the generality of the foregoing, any of the terms of any of the outstanding stocks of the Corporation by classification, reclassification or otherwise, and any of the terms of the outstanding warrants) may be amended, altered or repealed, and other provisions authorized by the statutes of the State of Maryland at the time in force may be added or inserted in the manner at the time prescribed by said statutes or authorized by this Charter, and all rights at any time conferred upon the stockholders or warrant holders of the Corporation by this Charter are granted subject to the provisions of this Article NINTH, provided, however, that without the consent of the holders of a majority in amount of the warrants at the time outstanding of the class affected,
given in the manner hereinbelow provided, no such amendment may alter, amend or repeal the provisions of Paragraph 2 of Article EIGHTH with respect to any warrants then outstanding, but this provision shall not be deemed to require the consent of the holders of outstanding warrants to any amendment of any provision of this Charter other than so specified.
The consent of such holders of warrants to such amendment either may be given in writing without a meeting or may be given at a meeting of such warrant holders called for the purpose, of which notice shall have been given by publication in one daily newspaper of general circulation published in the Borough of Manhattan, the City of New York, and one newspaper of general circulation published in the City of Baltimore, Maryland, once a week for two successive weeks, the first publication to be not less than ten days nor more than thirty days prior to the date of such meeting, but such notice need not be published if at the time no warrants other than registered warrants shall be outstanding. A copy of such notice shall also be mailed not less than ten days before the date of such meeting to each holder of any registered warrant at his last address, if any, appearing on the registry books.
TENTH A director or officer of the Corporation shall not be liable to the Corporation or its shareholders for monetary damages for breach of fiduciary duty as a Director or Officer, except to the extent such exemption from liability or limitation thereof is not permitted by law (including the Investment Company Act of 1940) as currently in effect or as the same may hereafter be amended).
No amendment, modification or repeal of this Article Tenth shall adversely affect any right or protection of a director or officer that exists at the time of such amendment modification or repeal.
ELEVENTH Indemnification of Directors, Officers and Employees. The Corporation shall indemnify to the fullest extent permitted by law (including the Investment Company Act of 1940) as currently in effect or as the same may hereafter be amended, any person made or threatened to be made a party to any action, suit or proceeding, whether criminal, civil, administrative or investigative, by reason of the fact that such person or such person's testator or intestate is or was a Director, Officer or employee of the Corporation or serves or served at the request of the Corporation any other enterprise as a Director, Officer or employee. To the fullest extent permitted by law (including the Investment Company Act of 1940) as currently in effect or as the same may hereafter be amended, expenses incurred by any such person in defending any such action, suit or proceeding shall be paid or reimbursed by the Corporation promptly upon receipt by it of an undertaking of such person to repay such expenses if it shall ultimately be determined that such person is not entitled to be indemnified by the Corporation. The rights provided to any person by this Article shall be enforceable against the Corporation by such person who shall be presumed to have relied upon it in serving or continuing to serve as a Director, Officer or employee as provided above. No amendment of this Article Thirteenth shall impair the rights of any person arising at any time with respect to events occurring prior to such amendment. For purposes of this Article Thirteenth, the term "Corporation" shall include any predecessor of the Corporation and any constituent corporation (including any constituent of a constituent) absorbed by the Corporation in a consolidation or merger; the term "other
enterprise" shall include any corporation, partnership, joint venture, trust or employee benefit plan; service "at the request of the Corporation" shall include service as a Director, Officer or employee of the Corporation which imposes duties on, or involves services by, such Director, Officer or employee with respect to an employee benefit plan, its participants or beneficiaries; any excise taxes assessed on a person with respect to an employee benefit plan shall be deemed to be indemnifiable expenses; and action by a person with respect to any employee benefit plan which such person reasonably believes to be in the interest of the participants and beneficiaries of such plan shall be deemed to be action not opposed to the best interests of the Corporation.
THIRD: The foregoing restated Charter contains all of the provisions of the Charter of the Corporation as in effect on the date hereof.
FOURTH: The Board of Directors of the Corporation, at a meeting thereof duly convened and held on August 13, 1963, duly adopted a resolution restating the Charter of the Corporation as set forth in Paragraph SECOND above, by a vote of the majority of the entire Board of Directors.
FIFTH: No amendment of the Charter of the Corporation is being affected by these Articles of Restatement of the Charter except as permitted by section 13 of the Maryland Corporations Law.
IN WITNESS WHEREOF, TRI-CONTINENTAL CORPORATION has caused these presents to be signed in its name and on its behalf by its President or one of its Vice-Presidents and its corporate seal to be hereunto affixed and duly attested by its Secretary, on October 22, 1963.
TRI-CONTINENTAL CORPORATION,
by /s/ Thurston P. Blodgett
-------------------------
(Corporate seal)
Attest:
/s/ H. M. Baird Voorhis
-------------------------
H. M. Baird Voorhis
Secretary
|
STATE OF NEW YORK, ]
] ss.:
COUNTY OF NEW YORK, ]
|
I HEREBY CERTIFY that on October 22, 1963, before me the subscriber, a notary public of the State of New York in and for the County of New York, personally appeared THURSTON P. BLODGETT , Vice-President of Tri-Continental Corporation, a Maryland corporation, and in the name and on behalf of said corporation acknowledged the foregoing Articles of Restatement of the Charter of Tri-Continental Corporation to be the corporate act of said corporation; and at the same time personall M. BAIRD VOORHIS who made oath in due form of law that he was secretary of the meeting of the Board of Directors of said corporation at which the adoption of said Articles of Restatement was approved, and that the matters of fact set forth therein are true to the best of his knowledge, information and belief.
WITNESS my hand and notorial seal, the day and year first above written.
/s/ Edward W. Servio
-----------------------------
Notary Public
|
EDWARD W. SERVIO
Notary Public, State of New York
No. 30-8923950
Qualified in Nassau County
Certificate filed with N. Y. Co. Clerk
Commission Expires March 30, 1964
DEFERRED COMPENSATION PLAN FOR DIRECTORS
OF
TRI-CONTINENTAL CORPORATION
("FUND")
1. Election to Defer Payments. Any member of the Board of Directors (herein, a "Director") of the Fund may elect to have payment of that Director's annual retainer or meeting fees or both for Board service deferred as provided in this Plan. The election shall be made in writing prior to, and to take effect from, the beginning of a calendar year. For any Director in the year in which this Plan is adopted or for a person elected a director in other than the last calendar month of a year, the election shall be made within 30 days after that event and prior to, and to take effect from, the beginning of the calendar quarter next ensuing after that event. Elections shall continue in effect until terminated in writing, any such termination to take effect on the first day of the calendar year beginning after receipt of the notice of termination. An election shall be irrevocable as to payments deferred in conformity with that election.
2. Deferred Payment Account. Each deferred retainer or fee shall be credited at the time when it otherwise would have been payable to an account to be established in the name of the Director on the books of the Fund (the "Deferred Payment Account") adjusted for notional investment experience as hereinafter described.
3. Return on Deferred Payment Account Balance. (a) For purposes of measuring the investment return on his Deferred Payment Account, the Director may elect to have the aggregate amount of his deferred compensation (or a specified portion thereof) receive a return (i) at a rate equal to the return earned on three-month U.S. Treasury Bills at the beginning of each calendar quarter (the "Treasury Bill Rate") and such interest shall be credited to the account quarterly at the end of each calendar quarter, or (ii) at a rate of return (positive or negative) equal to the rate of return on the shares of any of the registered investment companies managed by J. & W. Seligman & Co. Incorporated ("Seligman") or any other entity controlling, controlled by, or under common control with (as such terms are defined in the Investment Company Act of 1940) Seligman (each, a "Notional Fund"), assuming reinvestment of dividends and distributions from the Notional Funds. (b) A Director may amend his designation of investment return as of the end of each calendar quarter by giving written notice to the President of the Fund at least 30 days prior to the end of such calendar quarter. A timely change to a Director's designation of investment return shall become effective on the first day of the calendar quarter following receipt by the President of the Fund (the "President").
4. Notional Investment Experience. Amounts credited to a Deferred Payment Account shall be periodically adjusted for notional investment experience. In each case such notional investment experience shall be determined by treating the Deferred Payment Account as though an equivalent dollar amount had been invested and reinvested in one or more of the Notional Funds. The Notional Funds used as a basis for determining notional investment experience with respect to any Director's Deferred Payment Account shall be designated by the Director in writing by instrument of election substantially in the form attached hereto as Exhibit C and may be changed prospectively by similar written election effective as of the first day of any calendar quarter. The President may from time to time limit the Notional Funds available for purposes of such election. If at any time any Notional Fund that has previously been
designated by a Director as a notional investment shall cease to exist or shall be unavailable for any reason, or if the Director fails to designate one or more Notional Funds pursuant to this Section 4, the President may, at his discretion and upon notice to the Director, treat any amounts notionally invested in such Notional Fund (whether representing past amounts credited to a Director's Deferred Payment Account or subsequent fee deferrals or both) as having been invested at the Treasury Bill Rate, only until such time as the Director shall have made another investment election in accordance with the foregoing procedures. Deferred Payment Accounts shall continue to be adjusted for notional investment experience until distributed in full in accordance with the distribution method elected by the Director pursuant to Section 5 hereof.
5. Payment of Deferred Amounts. All amounts credited to an account pursuant to any election by the Director made as provided in Section 1 hereof shall be paid to the Director
(a) in, or beginning in, the calendar year following the calendar year in which the Director ceases to be a Director of the Fund, or
(b) in, or beginning in, the calendar year following the earlier of the calendar year in which the Director ceases to be a Director of the Fund or attains age 70,
and shall be paid
(c) in a lump sum payable on the first day of the calendar year in which payment is to be made, or
(d) in 10 or fewer installments, payable on the first day of each year commencing with the calendar year in which payment is to begin, all as the Director shall specify in making the election. If the payment is to be made in installments, the amount of each installment shall be equal to a fraction of the total of the amounts in the account at the date of the payment the numerator of which shall be one and the denominator of which shall be the then remaining number of unpaid installments (including the installment then to be paid). If the Director dies at any time before all amounts in the account have been paid, such amounts shall be paid at that time in a lump sum to the beneficiary or beneficiaries designated by the Director in writing to receive such payments or in the absence of such a designation to the estate of the Director.
The Board of Directors may, in the case of an unforseeable emergency, at its sole discretion accelerate the payment of any unpaid amount for any or all Directors. For purposes of this paragraph, an unforseeable emergency is severe financial hardship to the Director resulting from a sudden and unexpected illness or accident of the Director or of a dependent (as defined in section 152(a) of the Internal Revenue Code) of the Director, loss of the Director's property due to casualty, or other similar extraordinary and unforseeable circumstances arising as a result of events beyond the control of the Director. Payment due to an unforseeable emergency may not be made to the extent that such hardship is or may be relieved (i) through reimbursement or compensation by insurance or otherwise; (ii) by liquidation of the Director's assets, to the extent the liquidation of such assets would not itself cause severe financial hardship, or (iii) by cessation of deferrals under the Plan. Examples of what are not considered to be unforseeable emergencies include the need to send a Director's child to college or the desire to purchase a home. Withdrawals of amounts because of an unforseeable emergency are only permitted to the extent reasonably necessary to satisfy the emergency need.
6. Assignment. No deferred amount or unpaid portion thereof may be assigned or transferred by the Director except by will or the laws of descent and distribution.
7. Withholding Taxes. The Fund shall deduct from all payments any federal, state or local taxes and other charges required by law to be withheld with respect to such payments.
8. Nature of Rights; Nonalienation. A Director's rights to deferred payment under the Plan shall be solely those of an unsecured general creditor of the Fund, and any payments by the Fund pursuant to the Plan will be made solely from the Fund's general assets and property. The Fund will be under no obligation to purchase, hold or dispose of any investment for the specific benefit of any Director but, if the Fund should choose to purchase shares of any Notional Fund in order to cover all or a portion of its obligations under the Plan, then such investments will continue to be a part of the general assets and property of the Fund. A Director's rights under the Plan may not be transferred, assigned, pledged or otherwise alienated, and any attempt by the Director to do so shall be null and void.
9. Status of Director. Nothing in the Plan nor any election hereunder shall be construed as conferring on any Director the right to remain a Director of the Fund or to receive fees at any particular rate.
10. Amendment and Acceleration. The Board of Directors may at any time at its sole discretion amend or terminate this Plan, provided that no such amendment or termination shall adversely affect the right of Directors to receive deferred amounts credited to their account.
11. Administration. The Plan shall be administered by the President or by such person or persons as the President may designate to carry out administrative functions hereunder. The President shall have complete discretion to interpret and administer the Plan in accordance with its terms, and his determinations shall be binding on all persons.
Amended as of March 19, 1998
EXHIBIT A
SELIGMAN INVESTMENT COMPANIES
DEFERRED COMPENSATION PLAN
ELECTION FORM
Pursuant to the Deferred Compensation Plan for Directors, as amended as of March 19, 1998, (the "Plan") adopted by each of the Seligman Investment Companies (the "Funds"), I hereby elect to have ___% of my annual retainer fees and ___% of my meeting fees for service to the Funds deferred as provided in the Plan. This election will take effect at such time as is provided in section 1 of the Plans, and shall continue in effect until terminated in writing, any such termination to take effect of the first day of the next calendar year beginning after receipt of the notice of termination.
The Deferred Compensation Plan Return Designation Form attached hereto indicates the percentage of each of the above amounts that should earn the designated returns. Such designations shall remain in effect until changed by submission of a new form as provided in the Plan.
All amounts deferred with respect to any Fund and the earnings thereon made pursuant to any election by me shall be credited to an account for my benefit and shall be paid to me:
Check (a) or (b)
------ (a) in, or beginning in, the calendar year following the calendar year in which I cease to be a director of the Fund, or
------ (b) in, or beginning in, the calendar year following the earlier of the
calendar year in which I cease to be a director of the Fund or
attain age 70,
and shall be paid
Check (c) or (d)
------ (c) in a lump sum payable on the first day of the calendar year in which payment is to be made, or
------ (d) in 10 or fewer installments, payable on the first day of each year commencing with the calendar year in which payment is to begin.
If (d) is selected, enter number of annual installments -------.
If the payment is to be made in installments, the amount of each installment shall be equal to a fraction of the total of the amounts in the account at the date of the payment the numerator of which shall be one and the denominator of which shall be the then remaining number of unpaid installments (including the installment then to be paid). If I die at any time before all amounts in the account have been paid, such amounts shall be paid at that time in a lump sum to the beneficiary or beneficiaries designated by me on the attached Beneficiary Designation Form or in the absence of such a designation to my estate.
EXHIBIT B
DEFERRED COMPENSATION PLAN
BENEFICIARY DESIGNATION FORM
I hereby designate the following beneficiary or beneficiaries to receive at my death the amounts held in my Deferred Payment Accounts from my participation in the Deferred Compensation Plans for Directors/Trustees of all registered investment companies advised by J. & W. Seligman & Co. Incorporated for which I serve as a director or trustee (the "Plans").
A. Primary Beneficiary(ies)
1. Name:__________________________________ % Share:_______________________
Address:_______________________________________________________________
Relationship:______________ DOB:_______ Social Security #:_____________
Trustee Name and Date (if beneficiary is a trust):_____________________
Trustee of Trust:______________________________________________________
2. Name: ________________________________________% Share:_________________
Address:_______________________________________________________________
Relationship:______________ DOB:_______ Social Security #:_____________
Trustee Name and Date (if beneficiary is a trust):_____________________
Trustee of Trust:______________________________________________________
B. Contingent Beneficiary(ies)
1. Name: ________________________________________% Share:_________________
Address:_______________________________________________________________
Relationship:______________ DOB:_______ Social Security #:_____________
Trustee Name and Date (if beneficiary is a trust):_____________________
Trustee of Trust:______________________________________________________
2. Name: ________________________________________% Share:_________________
Address:_______________________________________________________________
Relationship:______________ DOB:_______ Social Security #:_____________
Trustee Name and Date (if beneficiary is a trust):_____________________
Trustee of Trust:______________________________________________________
I understand that I may revoke or amend the above designation at any time. I understand that payment will be made to my Contingent Beneficiary(ies) only if there is no surviving Primary Beneficiary(ies). I further understand that if I am not survived by any Primary or Contingent Beneficiaries, payment will be made to my estate as set forth under the Plans.
___________________________ ___________________________________
Date Signature
___________________________________
Participant's Name Printed
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EXHIBIT C
SELIGMAN INVESTMENT COMPANIES
DEFERRED COMPENSATION PLANS
RETURN DESIGNATION FORM
I elect to have my deferred compensation for all registered investment companies advised by J. & W. Seligman & Co. Incorporated for which I serve as a Director or Trustee deemed to be invested as specified below:
-------------------------------------------------------------------------------
% Allocation
% Allocation for accumulated
for future fees balances
-------------------------------------------------------------------------------
At the prevailing three-month U.S. Treasury
Bill Rate
-------------------------------------------------------------------------------
Seligman Capital Fund, Inc.
-------------------------------------------------------------------------------
Seligman Cash Management Fund, Inc.
-------------------------------------------------------------------------------
Seligman Common Stock Fund, Inc.
-------------------------------------------------------------------------------
Seligman Communications and Information Fund, Inc.
-------------------------------------------------------------------------------
Seligman Frontier Fund, Inc.
-------------------------------------------------------------------------------
Seligman Growth Fund, Inc.
-------------------------------------------------------------------------------
Seligman Henderson Global Fund Series, Inc. -
Seligman Henderson Emerging Markets Growth Fund
-------------------------------------------------------------------------------
Seligman Henderson Global Fund Series, Inc. -
Seligman Henderson Global Growth Opportunities Fund
-------------------------------------------------------------------------------
Seligman Henderson Global Fund Series, Inc. -
Seligman Henderson Global Smaller Companies Fund
-------------------------------------------------------------------------------
Seligman Henderson Global Fund Series, Inc. -
Seligman Henderson Global Technology Fund
-------------------------------------------------------------------------------
Seligman Henderson Global Fund Series, Inc. -
Seligman Henderson International Fund
-------------------------------------------------------------------------------
Seligman High Income Fund Series -
Seligman High-Yield Bond Series
-------------------------------------------------------------------------------
Seligman High Income Fund Series -
Seligman U.S. Government Securities Series
-------------------------------------------------------------------------------
Seligman Income Fund, Inc.
-------------------------------------------------------------------------------
Seligman Value Fund Series, Inc. -
Seligman Large-Cap Value Fund
-------------------------------------------------------------------------------
Seligman Value Fund Series, Inc. -
Seligman Small-Cap Value Fund
-------------------------------------------------------------------------------
Tri-Continental Corporation
-------------------------------------------------------------------------------
Total 100% 100%
-------------------------------------------------------------------------------
|
I acknowledge that I may amend this Return Designation in the manner, and at such time as permitted, under the Plans. Furthermore, I acknowledge that in certain circumstances, and pursuant to Section 4 of the Plans, the President may at his discretion, and upon notice to me, disregard the designations made above and cause all or a portion of my Deferred Account to receive a return equal to the prevailing three-month U.S. Treasury Bill Rate.
SULLIVAN & CROMWELL
NEW YORK TELEPHONE: (212) 558-4000
TELEX: 62694 (INTERNATIONAL) 127816 (DOMESTIC) 125 BROAD STREET, NEW YORK 10004-2498
CABLE ADDRESS: LADYCOURT, NEW YORK __________
FACSIMILE: (212) 558-3588 (125 Broad Street) 375 PARK AVENUE, NEW YORK 10152
1701 PENNSYLVANIA AVE, N.W. WASHINGTON, D.C. 20006-5805
444 SOUTH FLOWER STREET, LOS ANGELES 90071-2901
8, PLACE VENDOME, 75001 PARIS
ST. OLAVE'S HOUSE, 9a IRONMONGER LANE, LONDON EC2V 8EY
101 COLLINS STREET, MELBOURNE 3000
2-1, MARUNOUCHI I-CHOME, CHIYODA-KU, TOKYO 100
NINE QUEEN'S ROAD, CENTRAL, HONG KONG
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April 14, 1998
Tri-Continental Corporation,
100 Park Avenue,
New York, New York 10017.
Dear Sirs:
In connection with the registration under the Securities Act of 1933, as amended (the "Act"), of 2,000,000 shares (the "Securities") of Common Stock, par value $0.50 per share, of Tri-Continental Corporation, a Maryland corporation (the "Corporation"), we, as your counsel, have examined such corporate records, certificates and other documents, and such questions of law, as we have considered necessary or appropriate for the purposes of this opinion.
Upon the basis of such examination, we advise you that, in our opinion, when the registration statement relating to the Securities (the "Registration Statement") has become effective under the Act, the terms of the sale of the Securities have been duly established in conformity with Corporation's Articles of Incorporation and By-Laws, and the Securities have been duly issued and sold as contemplated by the Registration Statement, the Securities will be validly issued, fully paid and nonassessable.
Tri-Continental Corporation -2-
The foregoing opinion is limited to the Federal laws of the United States and the General Corporation Law of the State of Maryland, and we are expressing no opinion as to the effect of the laws of any other jurisdiction.
We have relied as to certain matters on information obtained from public officials, officers of the Corporation and other sources believed by us to be responsible.
We hereby consent to the filing of this opinion as an exhibit to the Registration Statement. In giving such consent, we do not thereby admit that we are in the category of persons whose consent is required under Section 7 of the Act.
Very truly yours,
SULLIVAN & CROMWELL
CONSENT OF INDEPENDENT AUDITORS
Tri-Continental Corporation:
We consent to the use in Amendment No. 27 to Investment Company Act No. 811-266 of our report dated January 30, 1998, appearing in the Annual Report to Shareholders for the year ended December 31, 1997, incorporated by reference in the Statement of Additional Information, and to the references to us under the captions "Financial Highlights" in the Prospectus and "Experts" in the Statement of Additional Information which are also part of such Registration Statement.
Deloitte & Touche LLP
New York, New York
April 13, 1998
COMBINED TRADITIONAL/ROTH PACKAGE
INVESTORS FIDUCIARY TRUST COMPANY
DST
INVESTORS FIDUCIARY TRUST COMPANY
TRADITIONAL OR ROTH
INDIVIDUAL RETIREMENT ACCOUNT
INFORMATION KIT
(EFFECTIVE JANUARY 1, 1998)
Seligman IRA Information Kit
INTRODUCTION
What's New In The World Of IRAs?
An Individual Retirement Account ("IRA") has always provided an attractive means to save money for the future on a tax-advantaged basis. Recent changes to Federal tax law have now made the IRA an even more flexible investment and savings vehicle. Among the new changes is the creation of the Roth Individual Retirement Account ("Roth IRA"), which will be available for use after January 1, 1998. Under a Roth IRA, the earnings and interest on an individual's nondeductible contributions grow without being taxed, and distributions may be tax-free under certain circumstances. Most taxpayers (except for those with very high income levels) will be eligible to contribute to a Roth IRA. A Roth IRA can be used instead of a Traditional IRA, to replace an existing Traditional IRA, or complement a Traditional IRA you wish to continue maintaining.
Taxpayers with adjusted gross income of up to $100,000 are eligible to convert existing IRAs into Roth IRAs. The details on conversion are found in the description of Roth IRAs in this booklet.
Congress has also made significant changes to Traditional IRAs. First, Congress increased the income levels at which IRA holders who participate in employer-sponsored retirement plans can make deductible Traditional IRA contributions. Also, the rules for deductible contributions by an IRA holder whose spouse is a participant in an employer-sponsored retirement plan have been liberalized. Second, the 10% penalty tax for premature withdrawals (before age 59_) will no longer apply in the case of withdrawals to pay certain higher education expenses or certain first-time homebuyer expenses.
What's in This Kit?
In this Kit you will find detailed information about Roth IRAs and about the changes that have been made to Traditional IRAs. You will also find everything you need to establish and maintain either a Traditional or Roth IRA, or to convert all or part of an existing Traditional IRA to a Roth IRA.
The first section of this Kit contains the instructions and forms you will need to open a new Traditional or Roth IRA, to transfer from another IRA to a Investors Fiduciary Trust IRA, or to convert a Traditional IRA to a Roth IRA.
The second section of this Kit contains our Universal IRA Disclosure Statement. The Disclosure Statement is divided into three parts:
Part One describes the basic rules and benefits which are specifically applicable to your Traditional IRA.
Part Two describes the basic rules and benefits which are specifically applicable to your Roth IRA.
Part Three describes important rules and information applicable to all IRAs.
The third section of this Kit contains two IRA Custodial Agreements.
Part One contains the Custodial Agreement applicable to Traditional IRAs.
Part Two contains the Custodial Agreement applicable to Roth IRAs.
This Universal Individual Retirement Custodial Account Kit contains information and forms for both Traditional IRAs and Roth IRAs. However, you may use the Adoption Agreement in this Kit to establish only one Traditional IRA or one Roth IRA; separate Adoption Agreements must be completed if you want to establish multiple (Roth or Traditional) IRA accounts.
What's the Difference Between a Traditional IRA and a Roth IRA?
With a Traditional IRA, an individual can contribute up to $2,000 per year and may be able to deduct the contribution from taxable income, reducing income taxes. Taxes on investment growth and dividends are deferred until the money is withdrawn. Withdrawals are taxed as additional ordinary income when received. Nondeductible contributions, if any, are withdrawn tax-free. Withdrawals before age 59_ are assessed a 10% penalty in addition to income tax, unless an exception applies.
With a Roth IRA, the contribution limits are essentially the same as Traditional IRAs, but there is no tax deduction for contributions. All dividends and investment growth in the account are tax-free. Most important with a Roth IRA: there is no income tax on qualified withdrawals from your Roth IRA. Additionally, unlike a Traditional IRA, there is no prohibition on making contributions to Roth IRAs after turning age 70_, and there's no requirement that you begin making minimum withdrawals at that age.
The following chart highlights some of the major differences between a Traditional IRA and a Roth IRA:
================================================================================================================================
Characteristics Traditional Roth
IRA IRA
--------------------------------------------------------------------------------------------------------------------------------
Eligibility Individuals (and their spouses) who Individuals (and their spouses) who
receive compensation receive compensation under the maximum limit
Individuals age 70_ and over may not Individuals age 70_ and over may
contribute contribute
--------------------------------------------------------------------------------------------------------------------------------
Tax Treatment of Contributions Subject to limitations, contributions No deduction permitted for amounts
are deductible contributed
--------------------------------------------------------------------------------------------------------------------------------
Contribution Limits Individuals may contribute up to $2,000 Individuals may generally contribute
annually (or 100% of compensation, if less) up to $2,000 (or 100% of compensation,
Deductibility depends on income level if less)
for individuals who are active Ability to contribute phases out at
participants in an employer-sponsored income levels of $95,000 to $110,000
retirement plan (individual taxpayer) and $150,000 to
$160,000 (married taxpayers)
Overall limit for contributions to all
IRAs (Traditional and Roth combined) is
$2,000 annually (or 100% of compensation,
if less)
--------------------------------------------------------------------------------------------------------------------------------
Earnings Earnings and interest are not taxed Earnings and interest are not taxed
while held in your IRA while held in your IRA
--------------------------------------------------------------------------------------------------------------------------------
Rollover/Conversions Individual may rollover amounts held Rollovers from other Roth IRAs or
in employer-sponsored retirement Traditional IRAs only
arrangements (401(k), SEP IRA, etc.) Amounts rolled over (or converted)
tax free to Traditional IRA from another Traditional IRA are
subject to income tax in the year
rolled over or converted
Tax on amounts rolled over or converted
in 1998 is spread over four year period
(1998-2001)
--------------------------------------------------------------------------------------------------------------------------------
Withdrawals Total (principal + earnings) taxable Not taxable as long as a qualified
as income in year withdrawn (except distribution-generally, account open
for any prior non-deductible contributions) for 5 years, and age 59_
Minimum withdrawals must begin after Minimum withdrawals not required
age 70_ after age 70_
================================================================================================================================
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Is a Roth or a Traditional IRA Right For Me?
We cannot act as your legal or tax advisor and so we cannot tell you which kind of IRA is right for you. The information contained in this Kit is intended to provide you with the basic information and material you will need if you decide whether a Traditional or Roth IRA is better for you, or if you want to convert an existing Traditional IRA to a Roth IRA. We suggest that you consult with your accountant, lawyer or other tax advisor, or with a qualified financial planner, to determine whether you should open a Traditional or Roth IRA or convert any or all of an existing Traditional IRA to a Roth IRA. Your tax advisor can also advise you as to the state tax consequences that may affect whether a Traditional or Roth IRA is right for you.
SEPs and SIMPLEs.
The Investors Fiduciary Trust Traditional IRA may be used in connection with a simplified employee pension (SEP) plan maintained by your employer. To establish a Traditional IRA as part of your Employer's SEP plan, complete the Adoption Agreement for a Traditional IRA, indicating in the proper box that the IRA is part of a SEP plan. A Roth IRA should not be used in connection with a SEP plan.
A Roth IRA may not be used as part of an employer SIMPLE IRA plan. A Traditional IRA may be used, but only after an individual has been participating for two or more years (for the first two years, only a special SIMPLE IRA may be used). SIMPLE IRA plans were added by the 1996 tax law to provide an easy and inexpensive way for small employers to provide retirement benefits for their employees. If you are interested in a SIMPLE IRA plan at your place of employment, call or write to the number or address given at the end of the Disclosure Statement portion of this Kit.
Other Points to Note.
The Disclosure Statement in this Kit provides you with the basic information that you should know about Investors Fiduciary Trust Company Traditional IRAs and Roth IRAs. The Disclosure Statement provides general information about the governing rules for these IRAs and the benefits and features offered through each type of IRA. However, the Investors Fiduciary Trust Company Adoption Agreement and the Custodial Agreement, are the primary documents controlling the terms and conditions of your personal Investors Fiduciary Trust Company Traditional or Roth IRA, and these shall govern in the case of any difference with the Disclosure Statement.
You or your when used throughout this Kit refer to the person for whom the Investors Fiduciary Trust Company Traditional or Roth IRA is established, except that the person who establishes the IRA is called the "Depositor" in the IRA agreements. A Roth IRA is either an Investors Fiduciary Trust Company Roth IRA or any Roth IRA established by any other financial institution. A Traditional IRA is any non-Roth IRA offered by Investors Fiduciary Trust Company or any other financial institution for annual contributions and rollovers, other than a SIMPLE IRA or an Education IRA (these may not be created using the forms in this kit).
The Seligman IRA Disclosure Statement Traditional IRAs & Roth IRAs
Part One: Description of Traditional IRAs
SPECIAL NOTE
Part One of the Disclosure Statement describes the rules applicable to Traditional IRAs beginning January 1, 1998. IRAs described in these pages are called "Traditional IRAs" to distinguish them from the new "Roth IRAs" first available starting in 1998. Roth IRAs are described in Part Two of this Disclosure Statement.
For Traditional IRA contributions for 1997 (including contributions made up to April 15, 1998 but designated as contributions for 1997), there are different rules for determining the deductibility of your contribution on your federal tax return. For contributions for 1997, the "active participant" limits on deductibility (described below) apply if either spouse is an active participant in an employer-sponsored plan. Also, the adjusted gross income ("AGI") levels for partially deductible or nondeductible Traditional IRA contributions (described below) are lower for 1997 ($25,000 for single taxpayers, with no deduction if your AGI is above $35,000; and $40,000 for married taxpayers filing jointly, with no deduction if your AGI is above $50,000). Also, the exceptions to the 10% early withdrawal penalty for withdrawals to pay certain higher education or first-time homebuyer expenses do not apply to withdrawals in 1997.
This Part One of the Disclosure Statement describes Traditional IRAs. It does not describe Roth IRAs, a new type of IRA available starting in 1998. Contributions to a Roth IRA are not deductible (regardless of your AGI), but withdrawals that meet certain requirements are not subject to federal income tax, so that dividends and investment growth on amounts held in the Roth IRA can escape federal income tax. Please see Part Two of this Disclosure Statement if you are interested in learning more about Roth IRAs or are adopting a Roth IRA.
Traditional IRAs described in this Disclosure Statement may be used as part of a simplified employee pension (SEP) plan maintained by your employer. Under a SEP your employer may make contributions to your Traditional IRA, and these contributions may exceed the normal limits on Traditional IRA contributions. This Disclosure Statement does not describe IRAs established in connection with a SIMPLE IRA program maintained by your employer. Employers provide special explanatory materials for accounts established as part of a SIMPLE IRA program. Traditional IRAs may be used as rollover IRAs in connection with a SIMPLE IRA program, but for the first two years of participation a special SIMPLE IRA (not a Traditional IRA) is required.
YOUR TRADITIONAL IRA
This Part One contains information about your Traditional Individual Retirement Custodial Account with Seligman. A Traditional IRA gives you several tax benefits. Earnings on the assets held in your Traditional IRA are not subject to federal income tax until withdrawn by you. You may be able to deduct all or part of your Traditional IRA contribution on your federal income tax return. State income tax treatment of your Traditional IRA may differ from federal treatment; ask your state tax department or your personal tax advisor for details.
Be sure to read Part Three of this Disclosure Statement for important additional information, including information on how to revoke your Traditional or Roth IRA, investments and prohibited transactions, fees and expenses, and certain tax requirements.
ELIGIBILITY
What are the eligibility requirements for a Traditional IRA?
You are eligible to establish and contribute to a Traditional IRA for a year if:
You received compensation (or earned income if you are self employed) during the year for personal services you rendered. If you received taxable alimony, this is treated like compensation for IRA purposes.
You did not reach age 70_ during the year.
Can I Contribute to a Traditional IRA for my Spouse?
For each year before the year when your spouse attains age 70, you can contribute to a separate Traditional IRA for your spouse, regardless of whether your spouse had any compensation or earned income in that year. This is called a "spousal IRA." To make a contribution to a Traditional IRA for your spouse, you must file a joint tax return for the year with your spouse. For a spousal IRA, your spouse must set up a different Traditional IRA, separate from yours, to which you contribute.
CONTRIBUTIONS
When Can I Make Contributions to a Traditional IRA?
You may make a contribution to your existing Traditional IRA or establish a new Traditional IRA for a taxable year by the due date (not including any extensions) for your federal income tax return for the year. Usually this is April 15 of the following year.
How Much Can I Contribute to my Traditional IRA?
For each year when you are eligible (see above), you can contribute up to the lesser of $2,000 or 100% of your compensation (or earned income, if you are self-employed). However, under the tax laws, all or a portion of your contribution may not be deductible.
If you and your spouse have spousal Traditional IRAs, each spouse may contribute up to $2,000 to his or her IRA for a year as long as the combined compensation of both spouses for the year (as shown on your joint income tax return) is at least $4,000. If the combined compensation of both spouses is less than $4,000, the spouse with the higher amount of compensation may contribute up to that spouse's compensation amount, or $2,000 if less. The spouse with the lower compensation amount may contribute any amount up to that spouse's compensation plus any excess of the other spouse's compensation over the other spouse's IRA contribution. However, the maximum contribution to either spouse's Traditional IRA is $2,000 for the year.
If you (or your spouse) establish a new Roth IRA and make contributions to both your Traditional IRA and a Roth IRA, the combined limit on contributions to each of your (or your spouse's) Traditional IRA and Roth IRA for a single calendar year is $2,000.
How Do I Know if my Contribution is Tax Deductible?
If your adjusted gross income exceeds a minimum level, the deductibility of your contribution depends upon whether you are an active participant in any employer-sponsored retirement plan. If you are not an active participant, the entire contribution to your Traditional IRA is deductible.
If you are an active participant in an employer-sponsored plan, your Traditional IRA contribution may still be completely or partly deductible on your tax return. This depends on the amount of your income (see below).
Similarly, the deductibility of a contribution to a Traditional IRA for your spouse depends upon whether your spouse is an active participant in any employer-sponsored retirement plan. If your spouse is not an active participant, the contribution to your spouse's Traditional IRA will be deductible. If your spouse is an active participant, the Traditional IRA contribution will be completely, partly or not deductible depending upon your combined income.
An exception to the preceding rules applies to high-income married taxpayers, where one spouse is an active participant in an employer-sponsored retirement plan and the other spouse is not. A contribution to the non-active participant spouse's Traditional IRA will be only partly deductible at an adjusted gross income level on the joint tax return of $150,000, and the deductibility will be phased out as described below over the next $10,000 so that there will be no deduction at all with an adjusted gross income level of $160,000 or higher.
How do I Determine My or My Spouse's "Active Participant" status?
Your (or your spouse's) Form W-2 should indicate if you (or your spouse) were an active participant in an employer-sponsored retirement plan for a year. If you have a question, you should ask your employer or the plan administrator.
In addition, regardless of income level, your spouse's "active participant" status will not affect the deductibility of your contributions to your Traditional IRA if you and your spouse file separate tax returns for the taxable year and you lived apart at all times during the taxable year.
What are the Deduction Restrictions for Active Participants?
If you (or your spouse) are an active participant in an employer plan during a year, the contribution to your Traditional IRA (or your spouse's Traditional IRA) may be completely, partly or not deductible depending upon your filing status and your amount of adjusted gross income ("AGI"). If AGI is any amount up to the lower limit, the contribution is fully deductible. If your AGI falls between the lower limit and the upper limit, the contribution is partly deductible. If your AGI falls above the upper limit, the contribution is not deductible.
FOR ACTIVE PARTICIPANTS - 1998
--------------------------------------------------------------------------------------
If You Are If You Are Then Your Traditional
Single Married Filing Jointly IRA Contribution Is
--------------------------------------------------------------------------------------
--------------------------------------------------------------------------------------
Up to Up to Fully
Lower Limit Lower Limit Deductible
($30,000 for 1998) ($50,000 for 1998)
--------------------------------------------------------------------------------------
Adjusted More than Lower Limit More than Lower Limit Partly
Gross But less than but less than Deductible
Income Upper Limit Upper Limit
(AGI) Level ($40,000 for 1998) ($60,000 for 1998)
--------------------------------------------------------------------------------------
Upper Limit or more Upper Limit or more Not
Deductible
--------------------------------------------------------------------------------------
|
The Lower Limit and the Upper Limit will change for 1999 and later years. The Lower Limit and Upper Limit for these years are shown in the following table. Substitute the correct Lower Limit and Upper Limit in the table above to determine deductibility in any particular year. (Note: if you are married but filing separate returns, your Lower Limit is always zero and your Upper Limit is always $10,000).
TABLE OF LOWER AND UPPER LIMITS
--------------------------------------------------------------------------
Year Single Married
Filing Jointly
--------------------------------------------------------------------------
Lower Limit Upper Limit Lower Limit Upper Limit
--------------------------------------------------------------------------
1999 $31,000 $41,000 $51,000 $61,000
2000 $32,000 $42,000 $52,000 $62,000
2001 $33,000 $43,000 $53,000 $63,000
2002 $34,000 $44,000 $54,000 $64,000
2003 $40,000 $50,000 $60,000 $70,000
2004 $45,000 $55,000 $65,000 $75,000
2005 $50,000 $60,000 $70,000 $80,000
2006 $50,000 $60,000 $75,000 $85,000
2007 and $50,000 $60,000 $80,000 $100,000
Later
--------------------------------------------------------------------------
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How do I Calculate my Deduction if I Fall in the "Partly Deductible" Range?
If your AGI falls in the partly deductible range, you must calculate the portion of your contribution that is deductible. To do this, multiply your contribution by a fraction. The numerator is the amount by which your AGI exceeds the lower limit (for 1998: $30,000 if single, or $50,000 if married filing jointly). The denominator is $10,000 (note that the denominator for married joint filers is $20,000 starting in 2007). Subtract this from your contribution and then round down to the nearest $10. The deductible amount is the greater of the amount calculated or $200 (provided you contributed at least $200). If your contribution was less than $200, then the entire contribution is deductible.
For example, assume that you make a $2,000 contribution to your Traditional IRA in 1998, a year in which you are an active participant in your employer's retirement plan. Also assume that your AGI is $57,555 and you are married, filing jointly. You would calculate the deductible portion of your contribution this way:
1. The amount by which your AGI exceeds the lower limit of the partly- deductible range:
($57,555-$50,000) = $7,555
2. Divide this by $10,000: $ 7,555
------- = 0.7555
$10,000
|
3. Multiply this by your contribution limit:
0.7555 x $2,000 = $1,511
4. Subtract this from your contribution:
($2,000 - $1,551) = $489
5. Round this down to the nearest $10: = $480
6. Your deductible contribution is the greater of this amount or $200.
Even though part or all of your contribution is not deductible, you may still contribute to your Traditional IRA (and your spouse may contribute to your spouse's Traditional IRA) up to the limit on contributions. When you file your tax return for the year, you must designate the amount of non-deductible contributions to your Traditional IRA for the year. See IRS Form 8606. Failure to file Form 8606 may result in a penalty of $50.
How Do I Determine My AGI?
AGI is your gross income minus those deductions which are available to all taxpayers even if they don't itemize. Instructions to calculate your AGI are provided with your income tax Form 1040 or 1040A.
What Happens if I Contribute more than Allowed to my Traditional IRA?
The maximum contribution you can make to a Traditional IRA generally is $2,000 or 100% of compensation or earned income, whichever is less. Any amount contributed to the IRA above the maximum is considered an "excess contribution." The excess is calculated using your contribution limit, not the deductible limit. An excess contribution is subject to excise tax of 6% for each year it remains in the IRA.
How can I Correct an Excess Contribution?
Excess contributions may be corrected without paying a 6% penalty. To do so, you must withdraw the excess and any earnings on the excess before the due date (including extensions)
for filing your federal income tax return for the year for which you made the excess contribution. A deduction should not be taken for any excess contribution. Earnings on the amount withdrawn must also be withdrawn. The earnings must be included in your income for the tax year for which the contribution was made and may be subject to a 10% premature withdrawal tax if you have not reached age 59_
What Happens if I Don't Correct the Excess Contribution by the Tax Return Due Date?
Any excess contribution withdrawn after the tax return due date (including any extensions) for the year for which the contribution was made will be subject to the 6% excise tax. There will be an additional 6% excise tax for each year the excess remains in your account.
Under limited circumstances, you may correct an excess contribution after tax filing time by withdrawing the excess contribution (leaving the earnings in the account). This withdrawal will not be includable in income nor will it be subject to any premature withdrawal penalty if (1) your contributions to all Traditional IRAs do not exceed $2,000 and (2) you did not take a deduction for the excess amount (or you file an amended return (Form 1040X) which removes the excess deduction).
How are Excess Contributions Treated if None of the Preceding Rules Apply?
Unless an excess contribution qualifies for the special treatment outlined above, the excess contribution and any earnings on it withdrawn after tax filing time will be includable in taxable income and may be subject to a 10% premature withdrawal penalty. No deduction will be allowed for the excess contribution for the year in which it is made.
Excess contributions may be corrected in a subsequent year to the extent that you contribute less than your maximum amount. As the prior excess contribution is reduced or eliminated, the 6% excise tax will become correspondingly reduced or eliminated for subsequent tax years. Also, you may be able to take an income tax deduction for the amount of excess that was reduced or eliminated, depending on whether you would be able to take a deduction if you had instead contributed the same amount.
Are the Earnings on My Traditional IRA Funds Taxed?
Any dividends on or growth of the investments held in your Traditional IRA are generally exempt from federal income taxes and will not be taxed until withdrawn by you, unless the tax exempt status of your Traditional IRA is revoked or you pledge your IRA as security for a loan (this is described in Part Three of this Disclosure Statement).
TRANSFERS/ROLLOVERS
Can I Transfer or Roll Over a Distribution I Receive from my Employer's Retirement Plan into a Traditional IRA?
Almost all distributions from employer plans or 403(b) arrangements (for employees of tax-exempt employers) are eligible for rollover to a Traditional IRA. The main exceptions are
payments over the lifetime or life expectancy of the participant (or participant and a designated beneficiary),
installment payments for a period of 10 years or more,
required distributions (generally the rules require distributions starting at age 70_ or for certain employees starting at retirement, if later), and
payments of employee after-tax contributions.
If you are eligible to receive a distribution from a tax qualified retirement plan as a result of, for example, termination of employment, plan discontinuance, or retirement, all or part of the distribution may be transferred directly into your Traditional IRA. Your employer may elect to issue you a check made out to the new trustee or custodian instead of paying the new trustee or custodian directly. In either case, this is a called a "direct rollover." Or, you may receive the distribution and make a regular rollover to your Traditional IRA within 60 days. By making a direct rollover or a regular rollover, you can defer income taxes on the amount rolled over until you subsequently make withdrawals from your IRA.
The maximum amount you may roll over is the amount of employer contributions and earnings distributed. You may not roll over any after-tax employee contributions you made to the employer retirement plan. If you are over age 70_ and are required to take minimum distributions under the tax laws, you may not roll over any amount required to be distributed to you under the minimum distribution rules. Also, if you are receiving periodic payments over your or your and your designated beneficiary's life expectancy or for a period of at least 10 years, you may not roll over these payments. A rollover to a Traditional IRA must be completed within 60 days after the distribution from the employer retirement plan to be valid.
NOTE: A qualified plan administrator or 403(b) sponsor MUST WITHHOLD 20% OF YOUR DISTRIBUTION for federal income taxes UNLESS you elect a direct rollover. Your plan or 403(b) sponsor is required to provide you with information about direct and traditional rollovers and withholding taxes before you receive your distribution and must comply with your directions to make a direct rollover.
The rules governing rollovers are complicated. Be sure to consult your tax advisor or the IRS if you have a question about rollovers.
Once I Have Rolled Over a Plan Distribution into a Traditional IRA, Can I Subsequently Roll Over into another Employer's Qualified Retirement Plan?
Yes. Part or all of an eligible distribution received from a qualified plan may be transferred from the Traditional IRA holding it to another qualified plan. However, the IRA must have no assets other than those which were previously distributed to you from the qualified plan. Specifically, the IRA cannot contain any contributions by you (or your spouse). Also, the new qualified plan must accept rollovers. Similar rules apply to Traditional IRAs established with rollovers from 403(b) arrangements, except that only another 403(b) arrangement may accept the rollover.
Can I Make a Traditional Rollover from my Traditional IRA to another Traditional IRA?
You may make a rollover from one Traditional IRA to another Traditional IRA you have or you establish to receive the rollover. Such a rollover must be completed within 60 days after the withdrawal from your first Traditional IRA. After making a traditional rollover from one Traditional IRA to another, you must wait a full year (365 days) before you can make another such rollover. (However, you can instruct a Traditional IRA custodian to transfer amounts directly to another Traditional IRA custodian; such a direct transfer does not count as a rollover.)
What Happens If I Combine Rollover Contributions With My Normal Contributions In One IRA?
If you wish to make both a normal annual contribution and a rollover contribution, you may wish to open two separate Traditional IRAs by completing two Adoption Agreements and two sets of forms. You should consult a tax advisor before making your annual contribution to the IRA you established with rollover contributions (or make a rollover contribution to the IRA to which you make your annual contributions). This is because combining your annual contributions and rollover contributions originating from an employer plan distribution would prohibit the future rollover out of the IRA into another qualified plan. If despite this, you still wish to combine a rollover contribution and the IRA holding your annual contributions, you should establish the account as a Traditional IRA on the Adoption Agreement (not a Rollover IRA or Direct Rollover IRA) and make the contributions to that account.
How Do Rollovers Affect my Contribution or Deduction Limits?
Rollover contributions, if properly made, do not count toward the maximum contribution. Also, rollovers are not deductible and they do not affect your deduction limits as described above.
What About Converting My Traditional IRA to a Roth IRA?
The rules for converting a Traditional IRA to a new Roth IRA, or making a rollover from a Traditional IRA to a new Roth IRA, are described in Part Two below.
WITHDRAWALS
When can I make withdrawals from my Traditional IRA?
You may withdraw from your Traditional IRA at any time. However, withdrawals before age 59_ may be subject to a 10% penalty tax in addition to regular income taxes (see below).
When must I start making withdrawals?
If you have not withdrawn your entire IRA by the April 1 following the year in which you reach 70_, (your "required beginning date") you must make minimum withdrawals in order to avoid penalty taxes. The rule allowing certain employees to postpone distributions from an employer qualified plan until actual retirement (even if this is after age 70_) does not apply to Traditional IRAs.
You can take a lump-sum payment or choose one of several periodic payment programs allowed by law, including life annuities. Generally, the law permits you to receive your IRA in installments over a period not extending beyond your life expectancy or the joint life and last survivor expectancy of you and your designated beneficiary. Life expectancies are determined in accordance with the IRS tables. Generally, the minimum amount you are required to take each year is determined by multiplying the balance of your IRA as of the end of the preceding year by a fraction, the numerator of which is 1 and the denominator of which is your life expectancy (or the joint life expectancy of you and your beneficiary) determined as of the year in which you reach age 70_ reduced by one for each whole year since you reached age 70_. However, your life expectancy (and your spouse's if he or she is your beneficiary) will be recalculated each year if you have not made and election not to have recalculation apply. The life expectancy of a beneficiary who isn't your spouse may not be recalculated. If life expectancies are being recalculated, the minimum distribution is determined by dividing the balance in the IRA at the end of the preceding year by the life expectancy determined as of attained ages in the year in question. If your beneficiary is not your spouse, distributions must also meet a separate minimum test called the minimum incidental death benefit rule. The minimum withdrawal rules are complex. Consult your tax advisor or IRS Publication 590 for assistance.
If you withdraw less than required, the penalty tax is 50% of the difference between the minimum withdrawal amount and your actual withdrawals during a year. The IRS may waive or reduce the penalty tax if you can show that your failure to make the required minimum withdrawals was due to reasonable cause and you are taking reasonable steps to remedy the problem.
Distribution on and after your death. If you die after your required beginning date, the balance in your IRA will continue to be distributed to your designated beneficiaries at least as rapidly as under the method of distribution being used prior to your death.
If you die before the distribution of your interest has begun, the entire balance of the account must be distributed by December 31 of the year in which the 5th anniversary of your death occurs. However, distribution need not be made within this 5-year period if your beneficiary receives payments over a period measured by his or her life expectancy beginning no later than December 31 of the year following the year in which you die, or, if your beneficiary is your spouse, distribution may be delayed until December 31 of the year in which you would have attained age 70_. In addition, a distribution need not be made within 5 years of your death if your spouse is your beneficiary and he or she elects to treat the entire interest in the IRA (or remaining part of such interest if distribution has already begun) as his or her own IRA subject to the regular IRA distribution requirements. In such case, your spouse will be considered to be the owner of the IRA and may elect a new form of payment based on the spouse's (and any beneficiary's) life expectancy. This election is considered to have been made if your spouse makes a regular IRA contribution to this IRA, makes a rollover to or from this IRA or fails to elect any of the above distribution provisions. If you die before the entire IRA has been distributed to you and your spouse is not your beneficiary, no additional cash contributions or rollover contributions may be accepted by the IRA and your beneficiary may NOT elect to be considered the owner of the IRA.
How Are Withdrawals From My Traditional IRA Taxed?
Amounts withdrawn by you are includable in your gross income in the taxable year that you receive them, and are taxable as ordinary income. Lump sum withdrawals from a Traditional IRA are not eligible for averaging treatment currently available to certain lump sum distributions from qualified employer retirement plans.
Since the purpose of a Traditional IRA is to accumulate funds for retirement, your receipt or use of any portion of your Traditional IRA before you attain age 59_ generally will be considered as an early withdrawal and subject to a 10% penalty tax.
The 10% penalty tax for early withdrawal will not apply if:
The distribution was a result of your death or disability.
The purpose of the withdrawal is to pay certain higher education expenses for yourself or your spouse, child, or grandchild. Qualifying expenses include tuition, fees, books, supplies and equipment required for attendance at a post-secondary educational institution. Room and board expenses may qualify if the student is attending at least half-time. The expenses must be incurred for education furnished in academic periods beginning after December 31, 1997.
The withdrawal is used to pay eligible first-time homebuyer expenses. These are the costs of purchasing, building or rebuilding a principal residence (including customary settlement, financing or closing costs). The purchaser may be you, your spouse, or a child, grandchild, parent or grandparent of you or your spouse. An individual is considered a "first-time homebuyer" if the individual (or the individual's spouse, if married) did not have an ownership interest in a principal residence during the two-year period immediately preceding the acquisition in question. The withdrawal must be used for eligible expenses within 120 days after the withdrawal. (If there is an unexpected delay, or cancellation of the home acquisition, a withdrawal may be redeposited as a rollover).
There is a lifetime limit on eligible first-time homebuyer expenses of $10,000 per individual.
The distribution is one of a scheduled series of substantially equal periodic payments for your life or life expectancy (or the joint lives or life expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments, the 10% penalty tax may apply. The 10% penalty will not apply if you make no change in the series of payments until the end of five years or until you reach age 59_, whichever is later. If you make a change before then the penalty will apply. For example, if you begin receiving payments at age 50 under a withdrawal program providing for substantially equal payments over your life expectancy, and at age 58 you elect to receive the remaining amount in your Traditional IRA in a lump-sum, the 10% penalty tax will apply to the lump sum and to the amounts previously paid to you before age 59_.
The distribution does not exceed the amount of your deductible medical expenses for the year (generally speaking, medical expenses paid during a year are deductible if they are greater than 7?% of your adjusted gross income for that year).
The distribution does not exceed the amount you paid for health insurance coverage for yourself, your spouse and dependents. This exception applies only if you have been unemployed and received federal or state unemployment compensation payments for at least 12 weeks; this exceptio applies to distributions during the year in which you received the unemployment compensation and during the following year, but not to any distributions received after you have been reemployed for at least 60 days.
How are Nondeductible Contributions Taxed When They are Withdrawn?
A withdrawal of nondeductible contributions (not including earnings) will be tax-free. However, if you made both deductible and nondeductible contributions to your Traditional IRA, then each distribution will be treated as partly a return of your nondeductible contributions (not taxable) and partly a distribution of deductible contributions and earnings (taxable). The nontaxable amount is the portion of the amount withdrawn which bears the same ratio as your total nondeductible Traditional IRA contributions bear to the total balance of all your Traditional IRAs (including rollover IRAs and SEPs, but not including Roth IRAs).
For example, assume that you made the following Traditional IRA contributions:
Year Deductible Nondeductible
---- ---------- -------------
1995 $2,000
1996 $2,000
1997 $1,000 $1,000
1998 $1,000
------ ------
$5,000 $2,000
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In addition assume that your Traditional IRA has total investment earnings through 1998 of $1,000. During 1998 you withdraw $500. Your total account balance as of 12-31-98 is $7,500 as shown below.
Deductible Contributions $5,000
Nondeductible Contributions $2,000
Earnings On IRA $1,000
Less 1998 Withdrawal $ 500
------
Total Account Balance as of 12/31/98 $7,500
|
To determine the nontaxable portion of your 1998 withdrawal, the total 1998 withdrawal ($500) must be multiplied by a fraction. The numerator of the fraction is the total of all nondeductible contributions remaining in the account before the 1998 withdrawal ($2,000). The denominator is the total account balance as of 12-31-98 ($7,500) plus the 1998 withdrawal ($500) or $8,000. The calculation is:
Total Remaining
Nondeductible Contributions $2,000 x $500 = $ 125
--------------------------- ------
Total Account Balance $8,000
|
Thus, $125 of the $500 withdrawal in 1998 will not be included in your taxable income. The remaining $375 will be taxable for 1998. In addition, for future calculations the remaining nondeductible contribution total will be $2,000 minus $125, or $1,875.
A loss in your Traditional IRA investment may be deductible at the time of the withdrawal. You should consult
your tax advisor for further details on the appropriate calculation for this deduction if applicable.
Is there a penalty tax on certain large withdrawals or accumulations in my IRA?
Earlier tax laws imposed a "success" penalty equal to 15% of withdrawals from all retirement accounts (including IRAs, 401(k) or other employer retirement plans, 403(b) arrangements and others) in a year exceeding a specified amount (initially $150,000 per year). Also, there was a 15% estate tax penalty on excess accumulations remaining in IRAs and other tax-favored arrangements upon your death. These 15% penalty taxes have been repealed.
Important: Please see Part Three below which contains important information applicable to all Seligman IRAs.
Part Two: Description of Roth IRAs
SPECIAL NOTE
Part Two of the Disclosure Statement describes the rules generally applicable to Roth IRAs beginning January 1, 1998.
Roth IRAs are a new kind of IRA available for the first time in 1998. Contributions to a Roth IRA for 1997 are not permitted. Contributions to a Roth IRA are not tax-deductible, but withdrawals that meet certain requirements are not subject to federal income taxes. This makes the dividends on and growth of the investments held in your Roth IRA tax-free for federal income tax purposes if the requirements are met.
This Part Two does not describe Traditional IRAs. If you wish to review information about Traditional IRAs, or are adopting a Traditional IRA, please see Part One of this Disclosure Statement.
This Disclosure Statement also does not describe IRAs established in connection with a SIMPLE IRA program or a Simplified Employee Pension (SEP) plan maintained by your employer. Roth IRAs may not be used in connection with a SIMPLE IRA program or a SEP plan.
YOUR ROTH IRA
Your Roth IRA gives you several tax benefits. While contributions to a Roth IRA are not deductible, dividends on and growth of the assets held in your Roth IRA are not subject to federal income tax. Withdrawals by you from your Roth IRA are excluded from your income for federal income tax purposes if certain requirements (described below) are met. State income tax treatment of your Roth IRA may differ from federal treatment; ask your state tax department or your personal tax advisor for details.
Be sure to read Part Three of this Disclosure Statement for important additional information, including information on how to revoke your Roth IRA, investments and prohibited transactions, fees and expenses and certain tax requirements.
ELIGIBILITY
What are the eligibility requirements for a Roth IRA?
Starting with 1998, you are eligible to establish and contribute to a Roth IRA for a year if you received compensation (or earned income if you are self employed) during the year for personal services you rendered. If you received taxable alimony, this is treated like compensation for IRA purposes.
In contrast to a Traditional IRA, with a Roth IRA you may continue making contributions after you reach age 70_.
Assets of a Roth IRA must always be kept separate from and cannot be combined with assets of a Traditional IRA. You must designate the IRA as a Roth IRA by completing a separate adoption agreement at the time the Roth IRA is established. The IRS also recommends establishing a separate Roth IRA for annual contributions if you have a Roth Conversion IRA.
Can I Contribute to Roth IRA for my Spouse?
Starting with 1998, if you meet the eligibility requirements you can not only contribute to your own Roth IRA, but also to a separate Roth IRA for your spouse out of your compensation or earned income, regardless of whether your spouse had any compensation or earned income in that year. This is called a "spousal Roth IRA." To make a contribution to a Roth IRA for your spouse, you must file a joint tax return for the year with your spouse. For a spousal Roth IRA, your spouse must set up a different Roth IRA, separate from yours, to which you contribute.
Of course, if your spouse has compensation or earned income, your spouse can establish his or her own Roth IRA and make contributions to it in accordance with the rules and limits described in this Part Two of the Disclosure Statement.
CONTRIBUTIONS
When Can I Make Contributions to a Roth IRA?
You may make a contribution to your Roth IRA or establish a new Roth IRA for a taxable year by the due date (not including any extensions) for your federal income tax return for the year. Usually this is April 15 of the following year. For example, you will have until April 15, 1999 to establish and make a contribution to a Roth IRA for 1998.
Caution: Since Roth IRAs are available starting January 1, 1998, you may not make a contribution by April 15, 1998 to a Roth IRA for 1997.
How Much Can I Contribute to my Roth IRA?
For each year when you are eligible (see above), you can contribute up to the lesser of $2,000 or 100% of your compensation (or earned income, if you are self-employed).
Annual contributions may be made only to a Roth IRA annual contribution account which does not contain converted or transferred funds from a Traditional IRA.
Your Roth IRA limit is reduced by any contributions for the same year to a Traditional IRA. For example, assuming you have at least $2,000 in compensation or earned income, if you contribute $500 to your Traditional IRA for 1998, your maximum Roth IRA contribution for 1998 will be $1,500.
If you and your spouse have spousal Roth IRAs, each spouse may contribute up to $2,000 to his or her Roth IRA for a year as long as the combined compensation of both spouses for the year (as shown on your joint income tax return) is at least $4,000. If the combined compensation of both spouses is less than $4,000, the spouse with the higher amount of compensation may contribute up to that spouse's compensation amount, or $2,000 if less. The spouse with the lower compensation amount may contribute any amount up to that spouse's compensation plus any excess the other spouse's compensation over the other spouse's Roth IRA contribution. However, the maximum contribution to either spouse's Roth IRA is $2,000 for the year.
As noted above, the spousal Roth IRA limits are reduced by any contributions for the same calendar year to a Traditional IRA maintained by you or your spouse.
For taxpayers with high income levels, the contribution limits may be reduced or not permitted at all (see below).
Are Contributions to a Roth IRA Tax Deductible?
Contributions to a Roth IRA are not deductible. This is a major difference between Roth IRAs and Traditional IRAs. Contributions to a Traditional IRA may be deductible on your federal income tax return depending on whether or not you are an active participant in an employer-sponsored plan and on your income level.
Are the Earnings on my Roth IRA Funds Taxed?
Any dividends on or growth of investments held in your Roth IRA are generally exempt from federal income taxes and will not be taxed until withdrawn by you, unless the tax exempt status of your Roth IRA is revoked or you pledge your Roth IRA as security for a loan. If the withdrawal qualifies as a tax-free withdrawal (see below), amounts reflecting earnings or growth of assets in your Roth IRA will not be subject to federal income tax.
Which is Better, a Roth IRA or a Traditional IRA?
If you are eligible for both types of IRAs, this will depend upon your individual situation. A Roth IRA may be better if you are an active participant in an employer-sponsored plan and your adjusted gross income is too high to make a deductible IRA contribution (but not too high to make a Roth IRA contribution). Also, the benefits of a Roth IRA vs. a Traditional IRA may depend upon a number of other factors including: your current income tax bracket vs. your expected income tax bracket when you make withdrawals from your IRA, whether you expect to be able to make nontaxable withdrawals from your Roth IRA (see below), how long you expect to leave your contributions in the IRA, whether you would like your beneficiaries to receive non-taxable payments after your death, how much you expect the IRA to earn in the meantime, and possible future tax law changes.
Consult a qualified tax or financial advisor for assistance on this question.
Are there Any Restrictions on Contributions to my Roth IRA?
Taxpayers with very high income levels may not be able to contribute to a Roth IRA at all, or their contribution may be limited to an amount less than $2,000. This depends upon your filing status and the amount of your adjusted gross income (AGI). The following table shows how the contribution limits are restricted:
ROTH IRA CONTRIBUTION LIMITS
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If You Are If You Are Then You May Make
Single Taxpayer Married Filing Jointly
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Up to Up to Full
$95,000 $150,000 Contribution
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Adjusted More than $95,000 More than $150,000 Reduced Contribution (see
Gross but less than but less than explanation below)
Income $110,000 $160,000
(AGI) Level
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$110,000 $160,000 Zero (No Contribution)
and up and up
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Note: If you are a married taxpayer filing separately, the IRS model IRA, which assumes pending legislation will be enacted, provides that the maximum Roth contribution limit phases out at adjusted gross income levels up to $10,000.
How do I Calculate my Limit if I Fall in the "Reduced Contribution" Range?
If your AGI falls in the reduced contribution range, you must calculate your contribution limit. To do this, multiply your normal contribution limit ($2,000 or your compensation if less) by a fraction. The numerator is the amount by which your AGI exceeds the lower limit of the reduced contribution range ($95,000 if single, or $150,000 if married filing jointly). The denominator is $15,000 (single taxpayers) or $10,000 (married filing jointly). Subtract this from your normal limit and then round up to the nearest $10. The contribution limit is the greater of the amount calculated or $200.
For example, assume that your AGI for the year is $157,555 and you are married, filing jointly. You would calculate your Roth IRA contribution limit this way:
1. The amount by which your AGI exceeds the lower limit of the reduced contribution deductible range:
($157,555-$150,000) = $7,555
3. Multiply this by $2,000 (or your compensation for the year, if less):
0.7555 x $2,000 = $1,511
4. Subtract this from your $2,000 limit:
($2,000 - $1,551) = $489
5. Round this up to the nearest $10 = $490
6. Your contribution limit is the greater of this amount or $200.
Remember, your Roth IRA contribution limit of $2,000 is reduced by any contributions for the same year to a Traditional IRA. If you fall in the reduced contribution range, the reduction formula applies to the Roth IRA contribution limit left after subtracting your contribution for the year to a Traditional IRA.
How Do I Determine My AGI?
AGI is your gross income minus those deductions which are available to all taxpayers even if they don't itemize. Instructions to calculate your AGI are provided with your income tax Form 1040 or 1040A.
There are two additional rules when calculating AGI for purposes of Roth IRA contribution limits. First, if you are making a deductible contribution for the year to a Traditional IRA, your AGI is reduced by the amount of the deduction. Second, if you are converting a Traditional IRA to a Roth IRA in a year (see below), the amount includable in your income as a result of the conversion is not considered AGI when computing your Roth IRA contribution limit for the year or eligibility to convert a Traditional IRA to a Roth IRA. (Note: a bill pending in Congress might affect the first rule -- consult your tax advisor or the IRS for the latest developments.)
What Happens if I Contribute more than Allowed to my Roth IRA?
The maximum contribution you can make to a Roth IRA generally is $2,000 or 100% of compensation or earned income, whichever is less. As noted above, your maximum is reduced by the amount of any contribution to a Traditional IRA for the same year and may be further reduced if you have high AGI. Any amount contributed to the Roth IRA above the maximum is considered an "excess contribution."
An excess contribution is subject to excise tax of 6% for each year it remains in the Roth IRA.
How can I Correct an Excess Contribution?
Excess contributions may be corrected without paying a 6% penalty. To do so, you must withdraw the excess and any earnings on the excess before the due date (including extensions) for filing your federal income tax return for the year for which you made the excess contribution. Earnings on the amount withdrawn must also be withdrawn. The earnings must be included in your income for the tax year for which the contribution was made and may be subject to a 10% premature withdrawal tax if you have not reached age 59_ (unless an exception to the 10% penalty tax applies).
What Happens if I Don't Correct the Excess Contribution by the Tax Return Due Date?
Any excess contribution withdrawn after the tax return due date (including any extensions) for the year for which the contribution was made will be subject to the 6% excise tax. There will be an additional 6% excise tax for each year the excess remains in your account.
Unless an excess contribution qualifies for the special treatment outlined above, the excess contribution and any earnings on it withdrawn after tax filing time will be includable in taxable income and may be subject to a 10% premature withdrawal penalty.
You may reduce the excess contributions by making a withdrawal equal to the excess. Earnings need not be withdrawn. To the extent that no earnings are withdrawn, the withdrawal will not be subject to income taxes or possible penalties for premature withdrawals before age 59_. Excess contributions may also be corrected in a subsequent year to the extent that you contribute less than your Roth IRA contribution limit for the subsequent year. As the prior excess contribution is reduced or eliminated, the 6% excise tax will become correspondingly reduced or eliminated for subsequent tax years.
CONVERSION OF EXISTING TRADITIONAL IRA
Can I convert an Existing Traditional IRA into a Roth IRA?
Yes, starting in 1998 you can convert an existing Traditional IRA into a Roth IRA if you meet the adjusted gross income (AGI) limits described below. Conversion may be accomplished either by establishing a Roth IRA and then transferring the amount in your Traditional IRA you wish to convert to the new Roth IRA. Or, if you want to convert an existing Traditional IRA with Investors Fiduciary Trust as custodian to a Roth IRA, you may give us directions to convert.
You are eligible to convert a Traditional IRA to a Roth IRA if, for the year of the conversion, your AGI is $100,000 or less. The same limit applies to married and single taxpayers, and the limit is not indexed to cost-of-living increases. Married taxpayers are eligible to convert a Traditional IRA to a Roth IRA only if they file a joint income tax return; married taxpayers filing separately are not eligible to convert.
Note: No contributions other than Roth IRA conversion contributions made during the same tax year should be deposited in a single Roth IRA conversion account.
Caution: You should be extremely cautious in converting an existing IRA into a Roth IRA early in a year if there is any possibility that your AGI for the year will exceed $100,000. Although a bill pending in Congress would permit you to transfer amounts back to your Traditional IRA if your AGI exceeds $100,000, under the current rules, if you have already converted during a year and you turn out to have more than $100,000 of AGI, there may be adverse tax results for you. Consult your tax advisor or the IRS for the latest developments.
What are the Tax Results from Converting?
The taxable amount in your Traditional IRA you convert to a Roth IRA will be considered taxable income on your federal income tax return for the year of the conversion. All amounts in a Traditional IRA are taxable except for your prior non-deductible contributions to the Traditional IRA.
If you make the conversion during 1998, the taxable income is spread over four years. In other words, you would include one quarter of the taxable amount on your federal income tax return for 1998, 1999, 2000 and 2001.
Should I convert my Traditional IRA to a Roth IRA?
Only you can answer this question, in consultation with your tax or financial advisors. A number of factors, including the following, may be relevant. Conversion may be advantageous if you expect to leave the converted funds on deposit in your Roth IRA for at least five years and to be able to withdraw the funds under circumstances that will not be taxable or if you want to defer income and make it possible for your beneficiaries to receive distributions without paying income tax (see below). The benefits of converting will also depend on whether you expect to be in the same tax bracket when you withdraw from your Roth IRA as you are now. Also, conversion is based upon an assumption that Congress will not change the tax rules for withdrawals from Roth IRAs in the future, but this cannot be guaranteed.
TRANSFERS/ROLLOVERS
Can I Transfer or Roll Over a Distribution I Receive from my Employer's Retirement Plan into a Roth IRA?
Distributions from qualified employer-sponsored retirement plans or 403(b) arrangements (for employees of tax-exempt employers) are not eligible for rollover or direct transfer to a Roth IRA. However, in certain circumstances it may be possible to make a direct rollover of an eligible distribution to a Traditional IRA and then to convert the Traditional IRA to Roth IRA (see above). Consult your tax or financial advisor for further information on this possibility.
Can I Make a Rollover from my Roth IRA to another Roth IRA?
You may make a rollover from one Roth IRA to another Roth IRA you have or you establish to receive the rollover. Such a rollover must be completed within 60 days after the withdrawal from your first Roth IRA. After making a rollover from one Roth IRA to another, you must wait a full year (365 days) before you can make another such rollover. (However, you can instruct a Roth IRA custodian to transfer amounts directly to another Roth IRA custodian; such a direct transfer does not count as a rollover.)
How Do Rollovers Affect my Roth IRA Contribution Limits?
Rollover contributions, if properly made, do not count toward the maximum contribution. Also, you may make a rollover from one Roth IRA to another even during a year when you are not eligible to contribute to a Roth IRA (for example, because your AGI for that year is too high).
WITHDRAWALS
When can I make withdrawals from my Roth IRA?
You may withdraw from your Roth IRA at any time. If the withdrawal meets the requirements discussed below, it is tax-free. This means that you (or your beneficiaries) pay no federal income tax even though the withdrawal includes earnings or gains on your contributions while they were held in your Roth IRA.
When must I start making withdrawals?
There are no rules on when you must start making withdrawals from your Roth IRA or on minimum required withdrawal amounts for any particular year during your lifetime. Unlike Traditional IRAs, you are not required to start making withdrawals from a Roth IRA by the April 1 following the year in which you reach age 70-1/2.
After your death, there are IRS rules on the timing and amount of distributions. In general, the amount in your Roth IRA must be distributed by the end of the fifth year after your death. However, distributions to a designated beneficiary that begin by the end of the year following the year of your death and that are paid over the life expectancy of the beneficiary satisfy the rules. Also, if your surviving spouse is your designated beneficiary, the spouse may defer the start of distributions until you would have reached age 70 _ had you lived.
Your surviving spouse may also be able to roll the Roth IRA into his or her own Roth IRA after your death, thereby avoiding the need to take lifetime distributions. Consult your personal tax advisor about whether this is possible at the time of death.
What are the requirements for a tax-free withdrawal?
To be tax-free, a withdrawal from your Roth IRA must meet two requirements. First, the Roth IRA must have been open for 5 or more years before the withdrawal. Second, at least one of the following conditions must be satisfied:
You are age 59_ or older when you make the withdrawal.
The withdrawal is made by your beneficiary after you die.
You are disabled (as defined in IRS rules) when you make the withdrawal.
You are using the withdrawal to cover eligible first time homebuyer expenses. These are the costs of purchasing, building or rebuilding a principal residence (including customary settlement, financing or closing costs). The purchaser may be you, your spouse or a child, grandchild, parent or grandparent of you or your spouse. An individual is considered a "first-time homebuyer" if the individual (or the individual's spouse, if married) did not have an ownership interest in a principal residence during the two-year period immediately preceding the acquisition in question. The withdrawal must be used for eligible expenses within 120 days after the withdrawal (if there is an unexpected delay, or cancellation of the home acquisition, a withdrawal may be redeposited as a rollover).
There is a lifetime limit on eligible first-time homebuyer expenses of $10,000 per individual.
For a Roth IRA that you set up with amounts rolled over or converted from a Traditional IRA, the 5 year period begins with the year in which the conversion or rollover was made. (Note: a bill pending in Congress might affect this rule -- consult your tax advisor or the IRS for the latest developments.)
For a Roth IRA that you started with a normal contribution, the 5 year period starts with the year for which you make the initial normal contribution.
How Are Withdrawals From My Roth IRA Taxed if the Tax-Free Requirements are not Met?
If the qualified withdrawal requirements are not met, a withdrawal consisting of your own prior contribution amounts to your Roth IRA will not be considered taxable income in the year you receive it, nor will the 10% penalty apply. To the extent that the nonqualified withdrawal consists of dividends or gains while your contributions were held in your Roth IRA, the withdrawal is includable in your gross income in the taxable year you receive it, and may be subject to the 10% withdrawal penalty. All amounts withdrawn from your Roth IRA are considered withdrawals of your contributions until you have withdrawn the entire amount you have contributed. After that, all amounts withdrawn are considered taxable withdrawals of dividends and gains.
Note that, for purposes of determining what portion of any distribution is includable in income, all of your Roth IRA accounts could be considered as one single account. Amounts withdrawn from any one Roth IRA account are deemed to be withdrawn from contributions first. Since all your Roth IRAs are considered to be one account for this purpose, withdrawals from Roth IRA accounts are not considered to be from earnings or interest until an amount equal to all contributions made to all of an individual's Roth IRA accounts is withdrawn. The following example illustrates this:
A single individual contributes $1,000 a year to his Seligman Roth IRA account and $1,000 a year to the Brand X Roth IRA account over a period of ten years. At the end of 10 years his account balances are as follows:
Principal Earnings
Contributions
Seligman Roth IRA $10,000 $10,000
Brand X Roth IRA $10,000 $10,000
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Total $20,000 $20,000
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At the end of 10 years, this person has $40,000 in both Roth IRA accounts, of which $20,000 represents his contributions (aggregated) and $20,000 represents his earnings (aggregated). This individual, who is 40, withdraws $15,000 from his Brand X Roth IRA (not a qualified withdrawal). We look to the aggregate amount of all principal contributions - in this case $20,000 - to determine if the withdrawal is from contributions, and thus non-taxable. In this example, there is no ($0) taxable income as a result of this withdrawal because the $15,000 withdrawal is less than the total amount of aggregated contributions ($20,000). If this individual then withdrew $15,000 from his Seligman Roth IRA, $5,000 would not be taxable (the remaining aggregate contributions) and $10,000 would be treated as taxable income for the year of the withdrawal, subject to regular income taxes and the 10% premature withdrawal penalty (unless an exception applies).
Note: "Technical corrections" legislation now pending in Congress and expected to be passed, will change the rules and the results discussed above for Roth Conversion IRAs. Under the proposed legislation, in general, separate Roth IRAs established for annual contributions and conversions for separate years are not aggregated as explained above to determine the tax on withdrawals. In addition, the legislation would subject amounts withdrawn from a Roth IRA after rollover and conversion from a Traditional IRA and within a five-year period following conversion to the additional 10% penalty tax discussed
below. An additional 10% penalty could apply if there was a conversion in 1998 and the four-year income inclusion rule applies. It is therefore advisable to create separate Roth IRAs for conversions and for future annual Roth IRA contributions. See your tax advisor for more information and the latest developments.
Taxable withdrawals of dividends and gains from a Roth IRA are treated as ordinary income. Withdrawals of taxable amounts from a Roth IRA are not eligible for averaging treatment currently available to certain lump sum distributions from qualified employer-sponsored retirement plans, nor are such withdrawals eligible for taxable gains tax treatment.
Your receipt of any taxable withdrawal from your Roth IRA before you attain age 59_ generally will be considered as an early withdrawal and subject to a 10% penalty tax.
The 10% penalty tax for early withdrawal will not apply if any of the following exceptions applies:
The withdrawal was a result of your death or disability.
The withdrawal is one of a scheduled series of substantially equal periodic payments for your life or life expectancy (or the joint lives or life expectancies of you and your beneficiary).
If there is an adjustment to the scheduled series of payments, the 10% penalty tax will apply. For example, if you begin receiving payments at age 50 under a withdrawal program providing for substantially equal payments over your life expectancy, and at age 58 you elect to withdraw the remaining amount in your Roth IRA in a lump-sum, the 10% penalty tax will apply to the lump sum and to the amounts previously paid to you before age 59_ to the extent they were includable in your taxable income.
The withdrawal is used to pay eligible higher education expenses. The expenses must be incurred for education furnished in academic periods beginning after December 31, 1997. These are expenses for tuition, fees, books, and supplies required to attend an institution for post-secondary education. Room and board expenses are also eligible for a student attending at least half-time. The student may be you, your spouse, or your child or grandchild. However, expenses that are paid for with a scholarship or other educational assistance payment are not eligible expenses.
The withdrawal is used to cover eligible first time homebuyer expenses (as described above in the discussion of tax-free withdrawals).
The withdrawal does not exceed the amount of your deductible medical expenses for the year (generally speaking, medical expenses paid during a year are deductible if they are greater than 7?% of your adjusted gross income for that year).
The withdrawal does not exceed the amount you paid for health insurance coverage for yourself, your spouse and dependents. This exception applies only if you have been unemployed and received federal or state unemployment compensation payments for at least 12 weeks; this exception applies to distributions during the year in which you received the unemployment compensation and during the following year, but not to any distributions received after you have been re-employed for at least 60 days.
What About the 15 percent Penalty Tax?
The rule imposing a 15% penalty tax on very large withdrawals from tax-favored arrangements (including IRAs, 403(b) arrangements and qualified employer-sponsored plans), or on excess amounts remaining in such tax-favored arrangements at your death, has been repealed. This 15% tax no longer applies.
Important: The discussion of the tax rules for Roth IRAs in this Disclosure Statement is based upon the best available information. However, Roth IRAs are new under the tax laws, and the IRS has not issued regulations or rulings on the operation and tax treatment of Roth IRA accounts. Also, if enacted, legislation now pending in Congress will change some of the rules. Therefore, you should consult your tax advisor for the latest developments or for advice about how maintaining a Roth IRA will affect your personal tax or financial situation.
Also, please see Part Three below which contains important information applicable to all Seligman IRAs.
Part Three: Rules for All IRAs (Traditional and Roth)
GENERAL INFORMATION
IRA Requirements
All IRAs must meet certain requirements. Contributions (other than rollover contributions) must be made in cash. The IRA trustee or custodian must be a bank, savings and loan, or other person who has been approved by the Secretary of the Treasury. Your contributions may not be invested in life insurance or collectibles or be commingled with other property except in a common trust or investment fund. Your interest in the account must be nonforfeitable at all times. You may obtain further information on IRAs from any district office of the Internal Revenue Service or by referring to IRS Publication 590.
May I Revoke My IRA?
You may revoke a newly established Traditional or Roth IRA at any time within seven days after the date on which you receive this Disclosure Statement. A Traditional or Roth IRA established more than seven days after the date of your receipt of this Disclosure Statement may not be revoked.
To revoke your Traditional or Roth IRA, mail or deliver a written notice of revocation to Seligman Retirement Services at the address which appears at the end of this Disclosure Statement. Mailed notice will be deemed given on the date that it is postmarked (or, if sent by certified or registered mail, on the date of certification or registration). If you revoke your Traditional or Roth IRA within the seven-day period, you are entitled to a return of the entire amount you originally contributed into your Traditional or Roth IRA, without adjustment for such items as sales charges, administrative expenses or fluctuations in market value.
INVESTMENTS
How Are My IRA Contributions Invested?
You control the investment and reinvestment of contributions to your Traditional or Roth IRA. Investments must be in one or more of the Fund(s) available from time to time as listed in the Adoption Agreement for your Traditional or Roth IRA or in an investment selection form provided with your Adoption Agreement or from the Fund Distributor or Service Company. You direct the investment of your IRA by giving your investment instructions to the Distributor or Service Company for the Fund(s). Since you control the investment of your Traditional or Roth IRA, you are responsible for any losses; neither the Custodian, the Distributor nor the Service Company has any responsibility for any loss or diminution in value occasioned by your exercise of investment control. Transactions for your Traditional or Roth IRA will generally be at the applicable public offering price or net asset value for shares of the Fund(s) involved next established after the Distributor or the Service Company (whichever may apply) receives proper investment instructions from you; consult the current prospectus for the Fund(s) involved for additional information.
Before making any investment, read carefully the current prospectus for any Fund you are considering as an investment for your Traditional IRA or Roth IRA. The prospectus will contain information about the Fund's investment objectives and policies, as well as any minimum initial investment or minimum balance requirements and any sales, redemption or other charges.
Because you control the selection of investments for your Traditional or Roth IRA and because mutual fund shares fluctuate in value, the growth in value of your Traditional or Roth IRA cannot be guaranteed or projected.
Are There Any Restrictions on the Use of my IRA Assets?
The tax-exempt status of your Traditional or Roth IRA will be revoked if you engage in any of the prohibited transactions listed in Section 4975 of the tax code. Upon such revocation, your Traditional or Roth IRA is treated as distributing its assets to you. The taxable portion of the amount in your IRA will be subject to income tax (unless, in the case of a Roth IRA, the requirements for a tax-free withdrawal are satisfied). Also, you may be subject to a 10% penalty tax on the taxable amount as a premature withdrawal if you have not yet reached the age of 59_.
Any investment in a collectible (for example, rare stamps) by your Traditional or Roth IRA is treated as a withdrawal; the only exception involves certain types of government-sponsored coins or certain types of precious metal bullion.
What Is A Prohibited Transaction?
Generally, a prohibited transaction is any improper use of the assets in your Traditional or Roth IRA. A prohibited transaction causes loss of the entire IRA's tax exempt status. Some examples of prohibited transactions are:
Direct or indirect sale or exchange of property between you and your Traditional or Roth IRA.
Transfer of any property from your Traditional or Roth IRA to yourself or from yourself to your Traditional or Roth IRA.
You may not use as security for a loan or borrow from your Traditional or Roth IRA. A special rule applies if you pledge any IRA assets as security for a loan. Any portion of your Traditional or Roth IRA used as security for a loan will be treated as a distribution in the year in which the money is borrowed. This amount may be taxable and you may also be subject to the 10% premature withdrawal penalty on the taxable amount.
FEES AND EXPENSES
Custodian's Fees
The fees charged by the Custodian for maintaining either a Traditional IRA or a Roth IRA are listed in the Adoption Agreement.
General Fee Policies
Fees may be paid by you directly, or the Custodian may deduct them from your Traditional or Roth IRA.
Fees may be changed upon 30 days written notice to you.
The full annual maintenance fee will be charged for any calendar year during which you have a Traditional or Roth IRA with us. This fee is not prorated for periods of less than one full year.
If provided for in this Disclosure Statement or the Adoption Agreement, termination fees are charged when your account is closed whether the funds are distributed to you or transferred to a successor custodian or trustee.
The Custodian may charge you for its reasonable expenses for services not covered by its fee schedule, provided they are disclosed to you in advance.
Other Charges
There may be sales or other charges associated with the purchase or redemption of shares of a Fund in which your Traditional IRA or Roth IRA is invested. Before investing, be sure to read carefully the current prospectus of any Fund you are considering as an investment for your Traditional IRA or Roth IRA for a description of applicable charges.
TAX MATTERS
What IRA Reports does the Custodian Issue?
The Custodian will report all withdrawals to the IRS and the recipient on the appropriate form. For reporting purposes, a direct transfer of assets to a successor custodian or trustee is not considered a withdrawal.
The Custodian will report to the IRS the year-end value of your account and the amount of any rollover (including conversions of a Traditional IRA to a Roth IRA) or regular contribution made during a calendar year, as well as the tax year for which a contribution is made. Unless the Custodian receives an indication from you to the contrary, it will treat any amount as a contribution for the tax year in which it is received. It is most important that a contribution between January and April 15th for the prior year be clearly designated as such.
What Tax Information Must I Report to the IRS?
You must file Form 5329 with the IRS for each taxable year for which you made an excess contribution or you take a premature withdrawal that is subject to the 10% penalty tax, or you withdraw less than the minimum amount required from your Traditional IRA. If your beneficiary fails to make required minimum withdrawals from your Traditional or Roth IRA after your death, your beneficiary may be subject to an excise tax and be required to file Form 5329.
For Traditional IRAs, you must also report each nondeductible contribution to the IRS by designating it a nondeductible contribution on your tax return. Use Form 8606. In addition, for any year in which you make a nondeductible contribution or take a withdrawal, you must include additional information on your tax return. The information required includes: (1) the amount of your nondeductible contributions for that year; (2) the amount of withdrawals from Traditional IRAs in that year; (3) the amount by which your total nondeductible contributions for all the years exceed the total amount of your distributions previously excluded from gross income; and (4) the total value of all your Traditional IRAs as of the end of the year. If you fail to report any of this information, the IRS will assume that all your contributions were deductible. This will result in the taxation of the portion of your withdrawals that should be treated as a nontaxable return of your nondeductible contributions. A $50 penalty may be assessed for each failure to fill out Form 8606.
Which Withdrawals Are Subject to Withholding?
Roth IRA
Federal income tax will be withheld at a flat rate of 10% of any taxable withdrawal from your Roth IRA, unless you elect not to have tax withheld. Withdrawals from a Roth IRA are not subject to the mandatory 20% income tax withholding that applies to most distributions from qualified plans or 403(b) accounts that are not directly rolled over to another plan or IRA.
Traditional IRA
Federal income tax will be withheld at a flat rate of 10% from any withdrawal from your Traditional IRA, unless you elect not to have tax withheld. Withdrawals from a Traditional IRA are not subject to the mandatory 20% income tax withholding that applies to most distributions from qualified plans or 403(b) accounts that are not directly rolled over to another plan or IRA.
ACCOUNT TERMINATION
You may terminate your Traditional IRA or Roth IRA at any time after its establishment by sending a completed withdrawal form, or a transfer authorization form, to:
Retirement Plan Services c/o Seligman Data Corp.
100 Park Avenue
New York, NY 10017
Your Traditional IRA or Roth IRA with Seligman will terminate upon the first to occur of the following:
The date your properly executed withdrawal form (as described above) withdrawing your total Traditional IRA or Roth IRA balance is received and accepted by the Custodian or, if later, the termination date specified in the withdrawal form.
The date the Traditional IRA or Roth IRA ceases to qualify under the tax code. This will be deemed a termination.
The transfer of the Traditional IRA or Roth IRA to another custodian/trustee.
The rollover of the amounts in the Traditional IRA or Roth IRA to another custodian/trustee.
Any outstanding fees must be received prior to such a termination of your account.
The amount you receive from your IRA upon termination of the account (other than by transfer to a successor custodian/trustee) will be treated as a withdrawal, and thus the rules relating to Traditional IRA or Roth IRA withdrawals will apply. For example, if the IRA is terminated before you reach age 59_, the 10% early withdrawal penalty may apply to the taxable amount you receive.
IRA DOCUMENTS
Traditional IRA
The terms contained in Articles I to VII of Part One of the Seligman Traditional Individual Retirement Custodial Account document have been promulgated by the IRS in Form 5305-A (IRA Form I) for use in establishing a Traditional IRA Custodial Account that meets the requirements of Code Section 408(a) for a valid Traditional IRA. This IRS approval relates only to the form of Articles I to VII and is not an approval of the merits of the Traditional IRA or of any investment permitted by the Traditional IRA.
Roth IRA
The terms contained in Articles I through VII of (IRA Form II) of the Seligman Roth Individual Retirement Account Custodial Agreement have been promulgated by the IRS in Form 5305-RA (IRA Form II) for use in establishing a Roth IRA Custodial Account that meets the requirements of Code Section 408A for a valid Roth IRA. This IRS approval relates only to the form of Articles I to VII and is not an approval of the merits of the Roth IRA or any investment permitted by the Roth IRA.
ADDITIONAL INFORMATION
You must use a separate adoption agreement and IRS Form for Traditional and Roth IRAs, and if you wish to establish different types of Roth IRAs. For additional information you may write to the following address or call the following telephone number.
Retirement Plan Services Seligman Data Corp.
100 Park Avenue
New York, NY 10017
800-445-1777
Seligman IRA Custodial Agreement Form I: Provisions applicable to Traditional IRAs Provisions
The following provisions of Articles I to VII are in the form promulgated by the Internal Revenue Service in Form 5305-A for use in establishing an individual retirement custodial account.
Article I.
The Custodian may accept additional cash contributions on behalf of the Depositor for a tax year of the Depositor. The total cash contributions are limited to $2,000 for the tax year unless the contribution is a rollover contribution described in section 402(c), 403(a)(4), 403(b)(8), 408(d)(3), or an employer contribution to a simplified employee pension plan as described in section 408(k).
Article II.
The Depositor's interest in the balance in the custodial account is nonforfeitable.
Article III.
1. No part of the custodial funds may be invested in life insurance contracts, nor may the assets of the custodial account be commingled with other property except in a common trust fund or common investment fund (within the meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3), which provides an exception for certain gold, silver and platinum
coins, coins issued under the laws of any state, and certain bullion.
Article IV.
1. Notwithstanding any provisions of this agreement to the contrary, the distribution of the Depositor's interest in the custodial account shall be made in accordance with the following requirements and shall otherwise comply with section 408(a)(6) and Proposed Regulations section 1.408-8, including the incidental death benefit provisions of Proposed Regulations section 1.401(a)(9)-2, the provisions of which are incorporated by reference.
2. Unless otherwise elected by the time distributions are required to begin to the Depositor under paragraph 3, or to the surviving spouse under paragraph 4, other than in the case of a life annuity, life expectancies shall be recalculated annually. Such election shall be irrevocable as to the Depositor and the surviving spouse and shall apply to all subsequent years. The life expectancy of a non-spouse beneficiary may not be recalculated.
3. The Depositor's entire interest in the custodial account must be, or begin to be, distributed by the Depositor's required beginning date, the April 1 following the calendar year end in which the Depositor reaches age 70_. By that date, the Depositor may elect, in a manner acceptable to the Custodian, to have the balance in the custodial account distributed in:
(a) A single-sum payment.
(b) An annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal monthly, quarterly, or annual payments over the joint and last survivor lives of the Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period that may not be longer than the Depositor's life expectancy.
(e) Equal or substantially equal annual payments over a specified period that may not be longer than the joint life and last survivor expectancy of the Depositor and his or her designated beneficiary.
4. If the Depositor dies before his or her entire interest is distributed to him or her, the entire remaining interest will be distributed as follows:
(a) If the Depositor dies on or after distribution of his or her interest has begun, distribution must continue to be made in accordance with paragraph 3.
(b) If the Depositor dies before distribution of his or her interest has begun, the entire remaining interest will, at the election of the Depositor or, if the Depositor has not so elected, at the election of the beneficiary or beneficiaries, either
(i) Be distributed by the December 31 of the year containing the fifth anniversary of the Depositor's death, or
(ii) Be distributed in equal or substantially equal payments over the life or life expectancy of the designated beneficiary or beneficiaries starting by December 31 of the year following the year of the Depositor's death. If, however, the beneficiary is the Depositor's surviving spouse, then this distribution is not required to begin before December 31 of the year in which the Depositor would have turned age 70.
(c) Except where distribution in the form of an annuity meeting the requirements of section 408(b)(3) and its related regulations has irrevocably commenced, distributions are treated as having begun on the Depositor's required beginning date, even though payments may actually ha been made before that date.
(d) If the Depositor dies before his or her entire interest has been distributed and if the beneficiary is other than the surviving spouse, no additional cash
contributions or rollover contributions may be accepted in the account.
5. In the case of distribution over life expectancy in equal or substantially equal annual payments, to determine the minimum annual payment for each year, divide the Depositor's entire interest in the custodial account as of the close of business on December 31 of the preceding year by the life expectancy of the Depositor (or the joint life and last survivor expectancy of the Depositor and the Depositor's designated beneficiary, or the life expectancy of the designated beneficiary, whichever applies.) In the case of distributions under paragraph 3, determine the initial life expectancy (or joint life and last survivor expectancy) using the attained ages of the Depositor and designated beneficiary as of their birthdays in the year the Depositor reaches age 70_. In the case of a distribution in accordance with paragraph 4(b)(ii), determine life expectancy using the attained age of the designated beneficiary as of the beneficiary's birthday in the year distributions are required to commence.
6. The owner of two or more individual retirement accounts may use the "alternative method" described in Notice 88-38, 1988-1 C.B. 524, to satisfy the minimum distribution requirements described above. This method permits an individual to satisfy these requirements by taking from one individual retirement account the amount required to satisfy the requirement for another.
Article V.
1. The Depositor agrees to provide the Custodian with information necessary for the Custodian to prepare any reports required under section 408(i) and Regulations sections 1.408-5 and 1.408-6.
2. The Custodian agrees to submit reports to the Internal Revenue Service and the Depositor as prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other articles which may be added or incorporated, the provisions of Articles I through III and this sentence will be controlling. Any additional articles that are not consistent with section 408(a) and the related regulations will be invalid.
Article VII.
This agreement will be amended from time to time to comply with the provisions of the Code and related regulations. Other amendments may be made with the consent of the persons whose signatures appear on the Adoption Agreement.
Article VIII.
1. As used in this Article VIII the following terms have the following meanings:
"Account" or "Custodial Account" means the individual retirement account established hereunder as a Traditional Individual Retirement Account, as specified by the Depositor. See Section 24 below.
"Custodian" means Investors Fiduciary Trust Company.
"Fund" means any registered investment company which is advised, sponsored or distributed by Seligman Financial Services; provided, however, that such a mutual fund or registered investment company must be legally offered for sale in the state of the Depositor's residence.
"Distributor" means the entity which has a contract with the Fund(s) to serve as distributor of the shares of such Fund(s).
In any case where there is no Distributor, the duties assigned hereunder to the Distributor may be performed by the Fund(s) or by an entity that has a contract to perform management or investment advisory services for the Fund(s).
"Service Company" means any entity employed by the Custodian or the Distributor, including the transfer agent for the Fund(s), to perform various administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned hereunder to the Service Company will be performed by the Distributor (if any) or by an entity specified in the second preceding paragraph.
"Sponsor" means Seligman Financial Services.
2. The Depositor may revoke the Custodial Account established hereunder by mailing or delivering a written notice of revocation to the Custodian within seven days after the Depositor receives the Disclosure Statement related to the Custodial Account. Mailed notice is treated as given to the Custodian on date of the postmark (or on the date of Post Office certification or registration in the case of notice sent by certified or registered mail). Upon timely revocation, the Depositor's initial contribution will be returned, without adjustment for administrative expenses, commissions or sales charges, fluctuations in market value or other changes.
The Depositor may certify in the Adoption Agreement that the Depositor received the Disclosure Statement related to the Custodial Account at least seven days before the Depositor signed the Adoption Agreement to establish the Custodial Account, and the Custodian may rely upon such certification.
3. All contributions to the Custodial Account shall be in cash or if rollover IRAs, in cash or shares of mutual funds available for investment and shall be invested and reinvested in full and fractional shares of one or more Funds. Such investments shall be made in such proportions and/or in such amounts as Depositor from time to time in the Adoption Agreement or by other written notice to Seligman Retirement Services c/o Seligman Data Corp. (in such form as may be acceptable to Seligman) may direct.
The Service Company shall be responsible for promptly transmitting all investment directions by the Depositor for the purchase or sale of shares of one or more Funds hereunder to the Funds' transfer agent for execution. However, if investment directions with respect to the investment of any contribution hereunder are not received from the Depositor as required or, if received, are unclear or incomplete in the opinion of the Service Company, the contribution will be returned to the Depositor, or will be held uninvested (or invested in a money market fund if available) pending clarification or completion by the Depositor, in either case without liability for interest or for loss of income or appreciation. If any other directions or other orders by the Depositor with respect to the sale or purchase of shares of one or more Funds for the Custodial Account are unclear or incomplete in the opinion of the Service Company, the Service Company will
refrain from carrying out such investment directions or from executing any such sale or purchase, without liability for loss of income or for appreciation or depreciation of any asset, pending receipt of clarification or completion from the Depositor.
All investment directions by Depositor will be subject to any minimum initial or additional investment or minimum balance rules applicable to a Fund as described in its prospectus.
All dividends and capital gains or other distributions received on the shares of any Fund held in the Depositor's Account shall be (unless received in additional shares) reinvested in full and fractional shares of such Fund (or of any other Fund offered by the Sponsor, if so directed).
4. Subject to the minimum initial or additional investment, minimum balance and other exchange rules applicable to a Fund, the Depositor may at any time direct the Service Company to exchange all or a specified portion of the shares of a Fund in the Depositor's Account for shares and fractional shares of one or more other Funds. The Depositor shall give such directions by written notice acceptable to the Service Company, and the Service Company will process such directions as soon as practicable after receipt thereof (subject to the second paragraph of Section 3 of this Article VIII).
5. Any purchase or redemption of shares of a Fund for or from the Depositor's Account will be effected at the public offering price or net asset value of such Fund (as described in the then effective prospectus for such Fund) next established after the Service Company has transmitted the Depositor's investment directions to the transfer agent for the Fund(s).
Any purchase, exchange, transfer or redemption of shares of a Fund for or from the Depositor's Account will be subject to any applicable sales, redemption or other charge as described in the then effective prospectus for such Fund.
6. The Service Company shall maintain adequate records of all purchases or sales of shares of one or more Funds for the Depositor's Custodial Account. Any account maintained in connection herewith shall be in the name of the Custodian for the benefit of the Depositor. All assets of the Custodial Account shall be registered in the name of the Custodian or of a suitable nominee. The books and records of the Custodian shall show that all such investments are part of the Custodial Account.
The Custodian shall maintain or cause to be maintained adequate records reflecting transactions of the Custodial Account. In the discretion of the Custodian, records maintained by the Service Company with respect to the Account hereunder will be deemed to satisfy the Custodian's recordkeeping responsibilities therefor. The Service Company agrees to furnish the Custodian with any information the Custodian requires to carry out the Custodian's recordkeeping responsibilities.
7. Neither the Custodian nor any other party providing services to the Custodial Account will have any responsibility for rendering advice with respect to the investment and reinvestment of Depositor's Custodial Account, nor shall such parties be liable for any loss or diminution in value which results from Depositor's exercise of investment control over his Custodial Account. Depositor shall have and exercise exclusive responsibility for and control over the investment of the assets of his Custodial Account, and neither Custodian nor any other such party shall have any duty to question his directions in that regard or to advise him regarding the purchase, retention or sale of shares of one or more Funds for the Custodial Account.
8. The Depositor may in writing appoint an investment advisor with respect to the Custodial Account on a form acceptable to the Custodian and the Service Company. The investment advisor's appointment will be in effect until written notice to the contrary is received by the Custodian and the Service Company. While an investment advisor's appointment is in effect, the investment advisor may issue investment directions or may issue orders for the sale or purchase of shares of one or more Funds to the Service Company, and the Service Company will be fully protected in carrying out such investment directions or orders to the same extent as if they had been given by the Depositor.
9. The Custodian reserves the right to let you elect whether or not life expectancies will be recalculated in connection with required minimum distributions from your IRA, provided, however, that we give you notice of our election. Alternatively, the Custodian may require recalculation to the extent legally applicable.
As described in Article IV, Section 3, or this Agreement, you may make an election to begin receiving payments from your IRA in a manner that satisfies the required minimum distribution rules no later than April 1 of the year following the year you reach age 70_. (This is called the "required beginning date.") If you fail to make such an election by your required beginning date, we can do any one of the following:
make no payment until you give us a proper payment request;
pay your entire IRA to you in a single sum payment; or
calculate your required minimum distribution from your IRA each year based on your single life expectancy (not recalculated) and pay those distributions to you until you direct otherwise.
The Custodian will not be liable for any penalties or taxes related to your failure to take a distribution. Consistent with Article VIII, Section 10, the Custodian is not obligated to make any distributions absent a specific written direction, in a form acceptable to and filed with Custodian, for the Depositor or designated beneficiary to do so.
Except in the case of the Depositor's death or disability (as defined in section 72(m)(7) of the Code), or the attainment of age 59_, before distributing an amount from the account, the Custodian may require from the Depositor a declaration of the Depositor's intention as to the disposition of the amount distributed. The Custodian may at its option require each (monthly, quarterly, semiannually, etc.) distribution in an installment series to meet certain minimum amounts, which may necessitate the distribution of amounts greater than otherwise required under Article IV.
10. The Custodian assumes (and shall have) no responsibility to make any distribution except upon the written order of Depositor (or Beneficiary if Depositor is deceased) containing such information as the Custodian may reasonably request. Also, before making any distribution (except if no instructions have been received by the required beginning date of the Custodial Account), Custodian shall be furnished with any and all applications, certificates, tax waivers, signature guarantees and other documents (including proof of any legal representative's authority) deemed necessary or advisable by Custodian, but Custodian shall not be responsible for complying with any order or instruction which appears on its face to be genuine, or for refusing to comply if not satisfied it is genuine, and Custodian
has no duty of further inquiry. Any distributions from the Account may be mailed, first-class postage prepaid, to the last known address of the person who is to receive such distribution, as shown on the Custodian's records, and such distribution shall to the extent thereof completely discharge the Custodian's liability for such payment.
11. (a) The Depositor may designated and re-designate his beneficiary or
beneficiaries in writing on a form provided by the Custodian for such
purpose. The Custodian may in its discretion limit the designation of
beneficiary to those contemplated in the form provided, or may permit
the Depositor to provide his or her own form, subject tot the
Custodian's review and written acceptance. Upon the Depositor's death,
such beneficiary(ies) shall be entitled to the balance in the
Custodial account of the Depositor. Such designation may be changed or
revoked only by written instrument filed with the Custodian. The
Custodian may rely upon the last written designation received by it,
which shall supersede all prior designations. If the beneficiary(ies)
should predecease the Depositor, the designation shall be ineffective.
Subject to the provisions of the law, if another designation is not
made, or if no designation is in effect at the time of the Depositor's
death, a married Depositor's beneficiary shall be his or her surviving
spouse, and an unmarried Depositor's beneficiary shall be the
Depositor's estate.
(b) Notwithstanding anything to the contrary in paragraph 11(a) above,
upon the Depositor's death, a surviving spouse beneficiary may
designate and re-designate his or her beneficiary or beneficiaries in
writing on a form provided (or accepted) by the Custodian for such
purpose. a manner similar to that provided for the Depositor above,
such beneficiary(ies) shall be entitled to the balance in the
Custodial account upon the death of the surviving spouse.
(c) Where there is more than one beneficiary designated, distributions
from the Custodial account shall be made in the manner specified in
the Designation of Beneficiary section of the Application or, in the
absence of any such specification, distributions shall be made pro
rata among those beneficiaries who are alive at the time of the
distribution.
12. (a) The Depositor agrees to provide information to the Custodian at
such time and in such manner as may be necessary for the Custodian to
prepare any reports required under Section 408(i) or Section
408A(d)(3)(E) of the Code and the regulations thereunder or otherwise.
(b) The Custodian or the Service Company will submit reports to the
Internal Revenue Service and the Depositor at such time and manner and
containing such information as is prescribed by the Internal Revenue
Service.
(c) The Depositor, Custodian and Service Company shall furnish to each
other such information relevant to the Custodial Account as may be
required under the Code and any regulations issued or forms adopted by
the Treasury Department thereunder or as may otherwise be necessary
for administration of the Custodial Account.
(d) The Depositor shall file any reports to the Internal Revenue Service
which are required of him by law (including Form 5329), and neither
the Custodian nor Service Company shall have any duty to advise
Depositor concerning or monitor Depositor's compliance with such
requireme
13. (a) Depositor consents in advance to amendments by the Custodian,
provided (i) the Custodian does not change the investments available
under this Custodial Agreement and (ii) the Custodian amends in the
same manner all agreements comparable to this one, having the same
Custodian permitting comparable investments, and under which such
power has been delegated to it; this includes the power to amend
retroactively if necessary or appropriate in the opinion of the
Custodian in order to conform this Custodial Account to pertinent
provisions of the Code and other laws or successor provisions of law,
or to obtain a governmental ruling that such requirements are met, to
adopt a prototype or master form of agreement in substitution for this
Agreement, or as otherwise may be advisable in the opinion of the
Custodian. Any amendment by the Custodian shall be communicated in
writing to Depositor, and Depositor shall be deemed to have consented
thereto unless, within 30 days after such communication to Depositor
is mailed, Depositor either (i) gives Custodian a written order for a
complete distribution or transfer of the Custodial Account, or (ii)
removes the Custodian and appoints a successor under Section 17 below.
Pending the adoption of any amendment necessary or desirable to
conform this Custodial Account document to the requirements of any
amendment to any applicable provision of the Internal Revenue Code or
regulations or rulings thereunder, the Custodian and the Service
Company may operate the Depositor's Custodial Account in accordance
with such requirements to the extent that the Custodian and/or the
Service Company deem necessary to preserve the tax benefits of the
Account.
(b) Notwithstanding the provisions of subsections (a) and (b) above, no
amendment shall increase the responsibilities or duties of Custodian
without its prior written consent.
(c) This Section 13 shall not be construed to restrict the Custodian's
right to substitute fee schedules in the manner provided by Section 16
below, and no such substitution shall be deemed to be an amendment of
this Agreement.
14. (a) Custodian shall terminate the Custodial Account if this Agreement
is terminated or if, within 60 days (or such longer time as Custodian
may agree) after resignation or removal of Custodian under Section 17,
Depositor or Sponsor, as the case may be, has not appointed a
successor which has accepted such appointment. Termination of the
Custodial Account shall be effected by distributing all assets thereof
in
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a single payment in cash or in kind to Depositor, subject to
Custodian's right to reserve funds as provided in Section 17.
(b) Upon termination of the Custodial Account, this custodial account
document shall have no further force and effect (except for Sections
15(f), 17(b) and (c) hereof which shall survive the termination of the
Custodial Account and this document), and Custodian shall be relieve
from all further liability hereunder or with respect to the Custodial
Account and all assets thereof so distributed.
15. (a) In its discretion, the Custodian may appoint one or more
contractors or service providers to carry out any of its functions and
may compensate them from the Custodial Account for expenses attendant
to those functions. In the event of such appointment, all rights and
privileges of the Custodian under this Agreement shall pass through to
such contractors or service providers who shall be entitled to enforce
them as if a named party, provided, however that the Custodian shall
remain a bank or other IRS-approved custodian.
(b) The Service Company shall be responsible for receiving all
instructions, notices, forms and remittances from Depositor and for
dealing with or forwarding the same to the transfer agent for the
Fund(s).
(c) The parties do not intend to confer any fiduciary duties on Custodian
or Service Company (or any other party providing services to the
Custodial Account), and none shall be implied. Neither shall be liable
(or assumes any responsibility) for the collection of contributions,
proper amount, time or tax treatment of any contribution to the
Custodial Account or the propriety of any contributions under this
Agreement, or the purpose, time, amount (including any minimum
distribution amounts) under election filed by the Depositor, tax
treatment or propriety of any distribution hereunder, which matters
are the sole responsibility of Depositor and Depositor's Beneficiary.
(d) Not later than May 31 after the close of each calendar year (or after
the Custodian's resignation or removal), the Custodian or Service
Company shall file with Depositor a written report or reports
reflecting the transactions effected by it during such period and the
assets the Custodial Account at its close. Upon the expiration of 60
days after such a report is sent to Depositor (or Beneficiary), the
Custodian or Service Company shall be forever released and discharged
from all liability and accountability to anyone with respect to
transactions shown in or reflected by such report except with respect
to any such acts or transactions as to which Depositor shall have
filed written objections with the Custodian or Service Company within
such 60 day period.
(e) The Service Company shall deliver, or cause to be delivered, to
Depositor all notices, prospectuses, financial statements and other
reports to shareholders, proxies and proxy soliciting materials
relating to the shares of the Funds(s) credited to the Custodial
Account. No s shall be voted, and no other action shall be taken
pursuant to such documents, except upon receipt of adequate written
instructions from Depositor.
(f) Depositor shall always fully indemnify Service Company, Distributor,
the Fund(s), Sponsor and Custodian and save them harmless from any and
all liability whatsoever which may arise either (i) in connection with
this Agreement and the matters which it contemplates, except tha which
arises directly out of the Service Company's, Distributor's, Fund's,
Sponsor's or Custodian's bad faith, gross negligence or willful
misconduct, (ii) with respect to making or failing to make any
distribution, other than for failure to make distribution in
accordance with an order therefor which is in full compliance with
Section 10, or (iii) actions taken or omitted in good faith by such
parties. Neither Service Company nor Custodian shall be obligated or
expected to commence or defend any legal action or proceeding in
connection with this Agreement or such matters unless agreed upon by
that party and Depositor, and unless fully indemnified for so doing to
that party's satisfaction.
(g) The Custodian and Service Company shall each be responsible solely for
performance of those duties expressly assigned to it in this
Agreement, and neither assumes any responsibility as to duties
assigned to anyone else hereunder or by operation of law.
(h) The Custodian and Service Company may each conclusively rely upon and
shall be protected in acting upon any written order from Depositor or
Beneficiary, or any investment advisor appointed under Section 8, or
any other notice, request, consent, certificate or other instrumen
paper believed by it to be genuine and to have been properly executed,
and so long as it acts in good faith, in taking or omitting to take
any other action in reliance thereon. In addition, Custodian will
carry out the requirements of any apparently valid court order
relating to the Custodial Account and will incur no liability or
responsibility for so doing.
16. (a) The Custodian, in consideration of its services under this
Agreement, shall receive the fees specified on the applicable fee
schedule. The fee schedule originally applicable shall be the one
specified in the Adoption Agreement or Disclosure Statement, as
applicable. The Custodian may substitute a different fee schedule at
any time upon 30 days' written notice to Depositor. The Custodian
shall, with prior notice to the Depositor, also receive reasonable
fees for any services not contemplated by any applicable fee schedule
and either deemed by it to be necessary or desirable or requested by
Depositor.
(b) Any income, gift, estate and inheritance taxes and other taxes of any
kind whatsoever, including transfer taxes incurred in connection with
the investment or reinvestment of the assets of the Custodial Account,
that may be levied or assessed in respect to such assets, and al other
administrative expenses incurred by the Custodian in the performance
of its duties (including fees for legal services rendered to
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it in connection with the Custodial Account) shall be charged to the
Custodial Account.
(c) All such fees and taxes and other administrative expenses charged to
the Custodial Account shall be collected either from the amount of any
contribution or distribution to or from the Account, or (at the option
of the person entitled to collect such amounts) to the extent possible
under the circumstances by the conversion into cash of sufficient
shares of one or more Funds held in the Custodial Account (without
liability for any loss incurred thereby). Notwithstanding the
foregoing, the Custodian or Service Company may make demand upon the
Depositor for payment of the amount of such fees, taxes and other
administrative expenses. Fees which remain outstanding after 60 days
may be subject to a collection charge.
17. (a) Upon 60 days' prior written notice to the Custodian, Depositor or
Seligman Retirement Services, as the case may be, may remove it from
its office hereunder. Such notice, to be effective, shall designate a
successor custodian and shall be accompanied by the successor's
written acceptance. The Custodian also may at any time resign upon 60
days' prior written notice to Seligman Retirement Services c/o
Seligman Data Corp., whereupon the Sponsor shall notify the Depositor
(or Beneficiary) and shall appoint a successor to the Custodian.
(b) The successor custodian shall be a bank, savings and loan, insured
credit union, or other person satisfactory to the Secretary of the
Treasury under Code Section 408(a)(2). Upon receipt by Custodian of
written acceptance by its successor of such successor's appointment,
Custodian shall transfer and pay over to such successor the assets of
the Custodial Account and all records (or copies thereof) of Custodian
pertaining thereto, provided that the successor custodian agrees not
to dispose of any such records without the Custodian's consent.
Custodian 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
Custodial Account or on or against the Custodian, with any balance of
such reserve remaining after the payment of all such items to be paid
over to the successor custodian.
(c) Any Custodian shall not be liable for the acts or omissions of its
predecessor or its successor.
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18. References herein to the "Internal Revenue Code" or "Code" and sections thereof shall mean the same as amended from time to time, including successors to such sections.
19. Except where otherwise specifically required in this Agreement, any notice from Custodian to any person provided for in this Agreement shall be effective if sent by first-class mail to such person at that person's last address on the Custodian's records.
20. Depositor or Depositor's Beneficiary shall not have the right or power to anticipate any part of the Custodial Account or to sell, assign, transfer, pledge or hypothecate any part thereof. The Custodial Account shall not be liable for the debts of Depositor or Depositor's Beneficiary or subject to any seizure, attachment, execution or other legal process in respect thereof except to the extent required by law. At no time shall it be possible for any part of the assets of the Custodial Account to be used for or diverted to purposes other than for the exclusive benefit of the Depositor or his/her Beneficiary except to the extent required by law.
21. When accepted by the Custodian, this Agreement is accepted in and shall be construed and administered in accordance with the laws of the state where the principal offices of the Custodian are located. Any action involving the Custodian brought by any other party must be brought in a state or federal court in such state.
This Agreement is intended to qualify under Code Section 408(a) as an individual retirement Custodial Account and to entitle Depositor to the retirement savings deduction under Code Section 219 if available.
If any provision hereof is subject to more than one interpretation or any term used herein is subject to more than one construction, such ambiguity shall be resolved in favor of that interpretation or construction which is consistent with the intent expressed in whichever of the two preceding sentences is applicable.
However, the Custodian shall not be responsible for whether or not such intentions are achieved through use of this Agreement, and Depositor is referred to Depositor's attorney for any such assurances.
22. Depositor should seek advice from Depositor's attorney regarding the legal consequences (including but not limited to federal and state tax matters) of entering into this Agreement, contributing to the Custodial Account, and ordering Custodian to make distributions from the Account. Depositor acknowledges that Custodian and Service Company (and any company associated therewith) will not render such advice.
23. If any provision of any document governing the Custodial Account provides for notice, instructions or other communications from one party to another in writing, to the extent provided for in the procedures of the Custodian, Service Company or another party, any such notice, instructions or other communications may be given by telephonic, computer, other electronic or other means, and the requirement for written notice will be deemed satisfied.
24. The legal documents governing the Custodial Account are as follows:
(a) An Adoption Agreement in which the Depositor designates the Custodial Account as a Traditional IRA (a separate account will be established for such IRA). Once Custodial Account may not serve as a Roth IRA and a Traditional IRA (through the use of sub-accounts or otherwise).
25. Articles I through VII of Part One of this Agreement are in the form promulgated by the Internal Revenue Service as Form 5305-A. It is anticipated that, if and when the Internal Revenue Service promulgates changes to Form 5305-A, the Custodian will amend this Agreement correspondingly.
26. If the Depositor maintains an Individual Retirement Account under Code section 408(a), Depositor may convert or transfer such other IRA to a Roth IRA under Code section 408A using the terms of Form II and a separate Adoption Agreement
by completing and executing the Adoption Agreement and giving suitable directions to the Custodian and the custodian or trustee of such other IRA. Alternatively, the Depositor may convert or transfer such other IRA to a Roth IRA by use of a reply card or by telephonic, computer or electronic means in accordance with procedures adopted by the Custodian or Service Company intended to meet the requirements of Code section 408A, and the Depositor will be deemed to have executed the Adoption Agreement and adopted the provisions of this Agreement and the Adoption Agreement in accordance with such procedures.
27. The Depositor acknowledges that he or she has received and read the current prospectus for each Fund in which his or her Account is invested and the Individual Retirement Account Disclosure Statement related to the Account. The Depositor represents under penalties of perjury that his or her Social Security number (or other Taxpayer Identification Number) as stated in the Adoption Agreement is correct.
Form II: Provisions applicable to Roth IRAs
The following provisions of Article I to VII are in the form promulgated by the Internal Revenue Service in Form 5305-RA for use in establishing a Roth Individual Retirement Custodial Account.
Article I.
1. If this Roth IRA is not designated as a Roth Conversion IRA, then, except in the case of a rollover contribution described in section 408A(e), the Custodian will accept only cash contributions and only up to a maximum amount of $2,000 for any tax year of the Depositor.
2. If this Roth IRA is designated as a Roth Conversion IRA, no contributions other than IRA Conversion Contributions made during the same tax year will be accepted.
Article II.
The $2,000 limit described in Article I is gradually reduced to $0 between certain levels of adjusted gross income (AGI). For a single Depositor, the $2,000 annual contribution is phased out between AGI of $95,000 and $110,000; for a married Depositor who files jointly, between AGI of $150,000 and $160,000; and for a married Depositor who files separately, between $0 and $10,000. In case of a conversion, the Custodian will not accept IRA Conversion Contributions in a tax year if the depositor's AGI for that tax year exceeds $100,000 or if the Depositor is married and files a separate return. Adjusted gross income is defined in section 408A(c)(3) and does not include IRA Conversion Contributions.
Article III.
The Depositor's interest in the balance in the custodial account is nonforfeitable.
Article IV.
1. No part of the custodial funds may be invested in life insurance contracts, nor may the assets of the custodial account be commingled with other property except in a common trust fund or common investment fund (within the meaning of section 408(a)(5)).
2. No part of the custodial funds may be invested in collectibles (within
the meaning of section 408(m)) except as otherwise permitted by section
408(m)(3), which provides an exception for certain gold, silver and platinum
coins, coins issued under the laws of any state, and certain bullion.
Article IV.
1. If the Depositor dies before his or her entire interest is distributed to him or her and the Depositor's surviving spouse is not the sole beneficiary, the entire remaining interest will, at the election of the Depositor or, if the Depositor has not so elected, at the election of the beneficiary or beneficiaries, either:
(a) Be distributed by December 31 of the year containing the fifth anniversary of the Depositor's death, or
(b) Be distributed over the life expectancy of the designated beneficiary starting no later than December 31 of the year following the year of the Depositor's death.
If distributions do no begin by the date described in (b), distribution method (a) will apply.
2. In the case of distribution method 1.(b) above, to determine the minimum annual payment for each year, divide the Depositor's entire interest in the custodial account as of the close of business on December 31 of the preceding year by the life expectancy of the designated beneficiary using the attained age of the designated beneficiary as of the beneficiary's birthday in the year distributions are required to commence and subtract 1 for each subsequent year.
3. If the Depositor's spouse is the sole beneficiary on the Depositor's date of death, such spouse will then be treated as the Depositor.
Article V.
1. The Depositor agrees to provide the Custodian with information necessary for the Custodian to prepare any reports required under sections 408(i) and 408A(d)(3)(E), and Regulations sections 1.408-5 and 1.408-6, and under guidance published by the Internal Revenue Service.
2. The Custodian agrees to submit reports to the Internal Revenue Service and the Depositor prescribed by the Internal Revenue Service.
Article VI.
Notwithstanding any other articles which may be added or incorporated, the provisions of Articles I through IV and this sentence will be controlling. Any additional articles that are not consistent with section 408A, the related regulations, and other published guidance will be invalid.
Article VII.
This agreement will be amended from time to time to comply with the provisions of the Code, related regulations, and other published guidance. Other amendments may be made with the consent of the persons whose signatures appear on the Account Application.
Article VIII.
1. As used in this Article VIII the following terms have the following meanings:
"Account" or "Custodial Account" means the individual retirement account established hereunder as a Roth Individual Retirement Account as specified by the Depositor. See Section 24 below.
"Custodian" means Investors Fiduciary Trust Company.
"Fund" means any registered investment company which is advised, sponsored or distributed by Seligman Financial Services; provided, however, that such a mutual fund or registered investment company must be legally offered for sale in the state of the Depositor's residence.
"Distributor" means the entity which has a contract with the Fund(s) to serve as distributor of the shares of such Fund(s).
In any case where there is no Distributor, the duties assigned hereunder to the Distributor may be performed by the Fund(s) or by an entity that has a contract to perform management or investment advisory services for the Fund(s).
"Service Company" means any entity employed by the Custodian or the Distributor, including the transfer agent for the Fund(s), to perform various administrative duties of either the Custodian or the Distributor.
In any case where there is no Service Company, the duties assigned hereunder to the Service Company will be performed by the Distributor (if any) or by an entity specified in the second preceding paragraph.
"Sponsor" means Seligman Financial Services.
2. The Depositor may revoke the Custodial Account established hereunder by mailing or delivering a written notice of revocation to the Custodian within seven days after the Depositor receives the Disclosure Statement related to the Custodial Account. Mailed notice is treated as given to the Custodian on date of the postmark (or on the date of Post Office certification or registration in the case of notice sent by certified or registered mail). Upon timely revocation, the Depositor's initial contribution will be returned, without adjustment for administrative expenses, commissions or sales charges, fluctuations in market value or other changes.
The Depositor may certify in the Adoption Agreement that the Depositor received the Disclosure Statement related to the Custodial Account at least seven days before the Depositor signed the Adoption Agreement to establish the Custodial Account, and the Custodian may rely upon such certification.
3. All contributions to the Custodial Account shall be in cash or if rollover IRAs, in cash or shares of mutual funds available for investment and shall be invested and reinvested in full and fractional shares of one or more Funds. Such investments shall be made in such proportions and/or in such amounts as Depositor from time to time in the Adoption Agreement or by other written notice to Seligman Retirement Services c/o Seligman Data Corp. (in such form as may be acceptable to Seligman) may direct.
The Service Company shall be responsible for promptly transmitting all investment directions by the Depositor for the purchase or sale of shares of one or more Funds hereunder to the Funds' transfer agent for execution. However, if investment directions with respect to the investment of any contribution hereunder are not received from the Depositor as required or, if received, are unclear or incomplete in the opinion of the Service Company, the contribution will be returned to the Depositor, or will be held uninvested (or invested in a money market fund if available) pending clarification or completion by the Depositor, in either case without liability for interest or for loss of income or appreciation. If any other directions or other orders by the Depositor with respect to the sale or purchase of shares of one or more Funds for the Custodial Account are unclear or incomplete in the opinion of the Service Company, the Service Company will refrain from carrying out such investment directions or from executing any such sale or purchase, without liability for loss of income or for appreciation or depreciation of any asset, pending receipt of clarification or completion from the Depositor.
All investment directions by Depositor will be subject to any minimum initial or additional investment or minimum balance rules applicable to a Fund as described in its prospectus.
All dividends and capital gains or other distributions received on the shares of any Fund held in the Depositor's Account shall be (unless received in additional shares) reinvested in full and fractional shares of such Fund (or of any other Fund offered by the Sponsor, if so directed).
4. Subject to the minimum initial or additional investment, minimum balance and other exchange rules applicable to a Fund, the Depositor may at any time direct the Service Company to exchange all or a specified portion of the shares of a Fund in the Depositor's Account for shares and fractional shares of one or more other Funds. The Depositor shall give such directions by written notice acceptable to the Service Company, and the Service Company will process such directions as soon as practicable after receipt thereof (subject to the second paragraph of Section 3 of this Article VIII).
5. Any purchase or redemption of shares of a Fund for or from the Depositor's Account will be effected at the public offering price or net asset value of such Fund (as described in the then effective prospectus for such Fund) next established after the Service Company has transmitted the Depositor's investment directions to the transfer agent for the Fund(s).
Any purchase, exchange, transfer or redemption of shares of a Fund for or from the Depositor's Account will be subject to any applicable sales, redemption or other charge as described in the then effective prospectus for such Fund.
6. The Service Company shall maintain adequate records of all purchases or sales of shares of one or more Funds for the Depositor's Custodial Account. Any account maintained in connection herewith shall be in the name of the Custodian for the benefit of the Depositor. All assets of the Custodial Account shall be registered in the name of the Custodian or of a suitable nominee. The books and records of the Custodian shall show that all such investments are part of the Custodial Account.
The Custodian shall maintain or cause to be maintained adequate records reflecting transactions of the Custodial Account. In the discretion of the Custodian, records maintained by the Service Company with respect to the Account hereunder will be deemed to satisfy the Custodian's recordkeeping responsibilities therefor. The Service Company agrees to furnish the Custodian with any information the Custodian requires to carry out the Custodian's recordkeeping responsibilities.
7. Neither the Custodian nor any other party providing services to the Custodial Account will have any responsibility for rendering advice with respect to the investment and reinvestment of Depositor's Custodial Account, nor shall such parties be liable for any loss or diminution in value which results from Depositor's exercise of investment control over his Custodial Account. Depositor shall have and exercise exclusive responsibility for and control over the investment of the assets of his Custodial Account, and neither Custodian nor any other such party shall have any duty to question his directions in that regard or to advise him regarding the purchase, retention or sale of shares of one or more Funds for the Custodial Account.
8. The Depositor may in writing appoint an investment advisor with respect to the Custodial Account on a form acceptable to the Custodian and the Service Company. The investment advisor's appointment will be in effect until written notice to the contrary is
received by the Custodian and the Service Company. While an investment advisor's appointment is in effect, the investment advisor may issue investment directions or may issue orders for the sale or purchase of shares of one or more Funds to the Service Company, and the Service Company will be fully protected in carrying out such investment directions or orders to the same extent as if they had been given by the Depositor.
9. Except in the case of the Depositor's death or disability (as defined in section 72(m)(7) of the Code), or the attainment of age 59_, before distributing an amount from the account, the Custodian may require from the Depositor a declaration of the Depositor's intention as to the disposition of the amount distributed. The Custodian may at its option require each (monthly, quarterly, semiannually, etc.) distribution in an installment series to meet certain minimum amounts, which may necessitate the distribution of amounts greater than otherwise required under Article IV.
10. The Custodian assumes (and shall have) no responsibility to make any distribution except upon the written order of Depositor (or Beneficiary if Depositor is deceased) containing such information as the Custodian may reasonably request. Custodian shall be furnished with any and all applications, certificates, tax waivers, signature guarantees and other documents (including proof of any legal representative's authority) deemed necessary or advisable by Custodian, but Custodian shall not be responsible for complying with any order or instruction which appears on its face to be genuine, or for refusing to comply if not satisfied it is genuine, and Custodian has no duty of further inquiry. Any distributions from the Account may be mailed, first-class postage prepaid, to the last known address of the person who is to receive such distribution, as shown on the Custodian's records, and such distribution shall to the extent thereof completely discharge the Custodian's liability for such payment.
11. (a) The Depositor may designate and re-designate his beneficiary
or beneficiaries in writing on a form provided by the Custodian
for such purpose. The Custodian may in its discretion limit the
designation of beneficiary to those contemplated in the form
provided, or may permit the Depositor to provide his or her own
form, subject tot the Custodian's review and written acceptance.
Upon the Depositor's death, such beneficiary(ies) shall be
entitled to the balance in the Custodial account of the
Depositor. Such designation may be changed or revoked only by
written instrument filed with the Custodian. The Custodian may
rely upon the last written designation received by it, which
shall supersede all prior designations. If the beneficiary(ies)
should predecease the Depositor, the designation shall be
ineffective. Subject to the provisions of the law, if another
designation is not made, or if no designation is in effect at the
time of the Depositor's death, a married Depositor's beneficiary
shall be his or her surviving spouse, and an unmarried
Depositor's beneficiary shall be the Depositor's estate.
(b) Notwithstanding anything to the contrary in paragraph 11 above,
upon the Depositor's death, to the extent permitted by the law at
that time, a surviving spouse beneficiary may designate and
re-designate his or her beneficiary or beneficiaries in writing
on a form provided (o accepted) by the Custodian for such
purpose. In a manner similar to that provided for the Depositor
in paragraph 11 above, such beneficiary(ies) shall be entitled to
the balance in the Custodial account upon the death of the
surviving spouse.
(c) Where there is more than one beneficiary designated,
distributions from the Custodial account shall be made in the
manner specified in the Designation of Beneficiary section of the
Application or, in the absence of any such specification,
distributions shall be made pro rata among those beneficiaries
who are alive at the time of the distribution.
12. (a) The Depositor agrees to provide information to the Custodian
at such time and in such manner as may be necessary for the
Custodian to prepare any reports required under Section 408(i) or
Section 408A(d)(3)(E) of the Code and the regulations thereunder
or otherwise.
(b) The Custodian or the Service Company will submit reports to the
Internal Revenue Service and the Depositor at such time and
manner and containing such information as is prescribed by the
Internal Revenue Service.
(c) The Depositor, Custodian and Service Company shall furnish to
each other such information relevant to the Custodial Account as
may be required under the Code and any regulations issued or
forms adopted by the Treasury Department thereunder or as may
otherwise be necessary for administration of the Custodial
Account.
(d) The Depositor shall file any reports to the Internal Revenue
Service which are required of him by law (including Form 5329),
and neither the Custodian nor Service Company shall have any duty
to advise Depositor concerning or monitor Depositor's compliance
with such requirement.
13. (a) Depositor consents in advance to amendments by the Custodian,
provided (i) the Custodian does not change the investments
available under this Custodial Agreement and (ii) the Custodian
amends in the same manner all agreements comparable to this one,
having the same Custodian permitting comparable investments, and
under which such power has been delegated to it; this includes
the power to amend retroactively if necessary or appropriate in
the opinion of the Custodian in order to conform this Custodial
Account to pertinent provisions of the Code and other laws or
successor provisions of law, or to obtain a governmental ruling
that such requirements are met, to adopt a prototype or master
form of agreement in substitution for this Agreement, or as
otherwise may be advisable in the opinion of the Custodian. Any
amendment by the Custodian shall be communicated in writing to
Depositor, and Depositor shall be deemed to have consented
thereto unless, within 60 days after such communication to
Depositor is mailed, Depositor either (i) gives Custodian a
written order for a complete distribution or transfer of the
Custodial Account, or (ii) removes the Custodian and appoints a
successor under Section 17 below.
Pending the adoption of any amendment necessary or desirable to
conform this Custodial Account document to the requirements of
any amendment to any applicable provision of the Internal Revenue
Code or regulations or rulings thereunder, the Custodian and the
Service Company may operate the Depositor's Custodial Account in
accordance with such
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requirements to the extent that the Custodian and/or the Service
Company deem necessary to preserve the tax benefits of the
Account.
(b) Notwithstanding the provisions of subsections (a) and (b) above,
no amendment shall increase the responsibilities or duties of
Custodian without its prior written consent.
(c) This Section 13 shall not be construed to restrict the
Custodian's right to substitute fee schedules in the manner
provided by Section 16 below, and no such substitution shall be
deemed to be an amendment of this Agreement.
14. (a) Custodian shall terminate the Custodial Account if this
Agreement is terminated or if, within 60 days (or such longer
time as Custodian may agree) after resignation or removal of
Custodian under Section 17, Depositor or Sponsor, as the case may
be, has not appointed a successor which has accepted such
appointment. Termination of the Custodial Account shall be
effected by distributing all assets thereof in a single payment
in cash or in kind to Depositor, subject to Custodian's right to
reserve funds as provided in Section 17.
(b) Upon termination of the Custodial Account, this custodial account
document shall have no further force and effect (except for
Sections 15(f), 17(b) and (c) hereof which shall survive the
termination of the Custodial Account and this document), and
Custodian shall be relieve from all further liability hereunder
or with respect to the Custodial Account and all assets thereof
so distributed.
15. (a) In its discretion, the Custodian may appoint one or more
contractors or service providers to carry out any of its
functions and may compensate them from the Custodial Account for
expenses attendant to those functions. In the event of such
appointment, all rights and privileges of the Custodian under
this Agreement shall pass through to such contractors or service
providers who shall be entitled to enforce them as if a named
party, provided, however that the Custodian shall remain a bank
or other IRS-approved custodian.
(b) The Service Company shall be responsible for receiving all
instructions, notices, forms and remittances from Depositor and
for dealing with or forwarding the same to the transfer agent for
the Fund(s).
(c) The parties do not intend to confer any fiduciary duties on
Custodian or Service Company (or any other party providing
services to the Custodial Account), and none shall be implied.
Neither shall be liable (or assumes any responsibility) for the
collection of contributions, proper amount, time or tax treatment
of any contribution to the Custodial Account or the propriety of
any contributions under this Agreement, or the purpose, time,
amount which matters are the sole responsibility of Depositor and
Depositor's Beneficiary.
(d) Not later than May 31 after the close of each calendar year (or
after the Custodian's resignation or removal), the Custodian or
Service Company shall file with Depositor a written report or
reports reflecting the transactions effected by it during such
period and the assets the Custodial Account at its close. Upon
the expiration of 60 days after such a report is sent to
Depositor (or Beneficiary), the Custodian or Service Company
shall be forever released and discharged from all liability and
accountability to anyone with respect to transactions shown in or
reflected by such report except with respect to any such acts or
transactions as to which Depositor shall have filed written
objections with the Custodian or Service Company within such 60
day period.
(e) The Service Company shall deliver, or cause to be delivered, to
Depositor all notices, prospectuses, financial statements and
other reports to shareholders, proxies and proxy soliciting
materials relating to the shares of the Funds(s) credited to the
Custodial Account. No s shall be voted, and no other action shall
be taken pursuant to such documents, except upon receipt of
adequate written instructions from Depositor.
(f) Depositor shall always fully indemnify Service Company,
Distributor, the Fund(s), Sponsor and Custodian and save them
harmless from any and all liability whatsoever which may arise
either (i) in connection with this Agreement and the matters
which it contemplates, except tha which arises directly out of
the Service Company's, Distributor's, Fund's, Sponsor's or
Custodian's bad faith, gross negligence or willful misconduct,
(ii) with respect to making or failing to make any distribution,
other than for failure to make distribution in accordance with an
order therefor which is in full compliance with Section 10, or
(iii) actions taken or omitted in good faith by such parties.
Neither Service Company nor Custodian shall be obligated or
expected to commence or defend any legal action or proceeding in
connection with this Agreement or such matters unless agreed upon
by that party and Depositor, and unless fully indemnified for so
doing to that party's satisfaction.
(g) The Custodian and Service Company shall each be responsible
solely for performance of those duties expressly assigned to it
in this Agreement, and neither assumes any responsibility as to
duties assigned to anyone else hereunder or by operation of law.
(h) The Custodian and Service Company may each conclusively rely upon
and shall be protected in acting upon any written order from
Depositor or Beneficiary, or any investment advisor appointed
under Section 8, or any other notice, request, consent,
certificate or other instrumen paper believed by it to be genuine
and to have been properly executed, and so long as it acts in
good faith, in taking or omitting to take any other action in
reliance thereon. In addition, Custodian will carry out the
requirements of any apparently valid court order relating to the
Custodial Account and will incur no liability or responsibility
for so doing.
16. (a) The Custodian, in consideration of its services under this
Agreement, shall receive the fees specified on the applicable fee
schedule. The fee schedule originally applicable shall be the one
specified in the Adoption Agreement or Disclosure Statement, as
applicable. The Custodian may substitute a different fee schedule
at any time upon 30 days' written notice to Depositor.
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The Custodian shall, with prior notice to the Depositor, also
receive reasonable fees for any services not contemplated by any
applicable fee schedule and either deemed by it to be necessary
or desirable or requested by Depositor.
(b) Any income, gift, estate and inheritance taxes and other taxes of
any kind whatsoever, including transfer taxes incurred in
connection with the investment or reinvestment of the assets of
the Custodial Account, that may be levied or assessed in respect
to such assets, and al other administrative expenses incurred by
the Custodian in the performance of its duties (including fees
for legal services rendered to it in connection with the
Custodial Account) shall be charged to the Custodial Account.
(c) All such fees and taxes and other administrative expenses charged
to the Custodial Account shall be collected either from the
amount of any contribution or distribution to or from the
Account, or (at the option of the person entitled to collect such
amounts) to the extent possible under the circumstances by the
conversion into cash of sufficient shares of one or more Funds
held in the Custodial Account (without liability for any loss
incurred thereby). Notwithstanding the foregoing, the Custodian
or Service Company may make demand upon the Depositor for payment
of the amount of such fees, taxes and other administrative
expenses. Fees which remain outstanding after 60 days may be
subject to a collection charge.
17. (a) Upon 60 days' prior written notice to the Custodian,
Depositor or Seligman Retirement Services c/o Seligman Data
Corp., as the case may be, may remove it from its office
hereunder. Such notice, to be effective, shall designate a
successor custodian and shall be accompanied by the successor's
written acceptance. The Custodian also may at any time resign
upon 60 days' prior written notice to Seligman Retirement
Services c/o Seligman Data Corp., whereupon the Sponsor shall
notify the Depositor (or Beneficiary) and shall appoint a
successor to the Custodian.
(b) The successor custodian shall be a bank, savings and loan,
insured credit union, or other person satisfactory to the
Secretary of the Treasury under Code Section 408(a)(2). Upon
receipt by Custodian of written acceptance by its successor of
such successor's appointment, Custodian shall transfer and pay
over to such successor the assets of the Custodial Account and
all records (or copies thereof) of Custodian pertaining thereto,
provided that the successor custodian agrees not to dispose of
any such records without the Custodian's consent. Custodian 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 Custodial
Account or on or against the Custodian, with any balance of such
reserve remaining after the payment of all such items to be paid
over to the successor custodian.
(c) Any Custodian shall not be liable for the acts or omissions of
its predecessor or its successor.
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18. References herein to the "Internal Revenue Code" or "Code" and sections thereof shall mean the same as amended from time to time, including successors to such sections.
19. Except where otherwise specifically required in this Agreement, any notice from Custodian to any person provided for in this Agreement shall be effective if sent by first-class mail to such person at that person's last address on the Custodian's records.
20. Depositor or Depositor's Beneficiary shall not have the right or power to anticipate any part of the Custodial Account or to sell, assign, transfer, pledge or hypothecate any part thereof. The Custodial Account shall not be liable for the debts of Depositor or Depositor's Beneficiary or subject to any seizure, attachment, execution or other legal process in respect thereof except to the extent required by law. At no time shall it be possible for any part of the assets of the Custodial Account to be used for or diverted to purposes other than for the exclusive benefit of the Depositor or his/her Beneficiary except to the extent required by law.
21. When accepted by the Custodian, this Agreement is accepted in and shall be construed and administered in accordance with the laws of the state where the principal offices of the Custodian are located. Any action involving the Custodian brought by any other party must be brought in a state or federal court in such state.
If in the Adoption Agreement Depositor designates that the Custodial Account is a Roth IRA, this Agreement is intended to qualify under Code Section 408A as a Roth individual retirement Custodial Account and to entitle Depositor to the tax-free withdrawal of amounts from the Custodi Account to the extent permitted in such Code section.
If any provision hereof is subject to more than one interpretation or any term used herein is subject to more than one construction, such ambiguity shall be resolved in favor of that interpretation or construction which is consistent with the intent expressed in whichever of the two preceding sentences is applicable.
However, the Custodian shall not be responsible for whether or not such intentions are achieved through use of this Agreement, and Depositor is referred to Depositor's attorney for any such assurances.
22. Depositor should seek advice from Depositor's attorney regarding the legal consequences (including but not limited to federal and state tax matters) of entering into this Agreement, contributing to the Custodial Account, and ordering Custodian to make distributions from the Account. Depositor acknowledges that Custodian and Service Company (and any company associated therewith) will not render such advice.
23. If any provision of any document governing the Custodial Account provides for notice, instructions or other communications from one party to another in writing, to the extent provided for in the procedures of the Custodian, Service Company or another party, any such notice, instructions or other communications may be given by telephonic, computer, other electronic or other means, and the requirement for written notice will be deemed satisfied.
24. The legal documents governing the Custodial Account are as follows:
(a) An Adoption Agreement in which the Depositor designates the Custodial Account as a Roth IRA (a separate account will be established for such IRA). Once Custodial Account may not serve as a Roth IRA and a Traditional IRA (through the use of sub-accounts or otherwise). The IRS recommends that separate
"regular" Roth IRAs and Conversion Roth IRAs should also be established in order to avoid tax problems under pending legislation.
25. Articles I through VII of Part Two of this Agreement are in the form promulgated by the Internal Revenue Service as Form 5305-RA. It is anticipated that if and when the Internal Revenue Service promulgates changes to Form 5305-RA, the Custodian will amend this Agreement correspondingly.
26. If the Depositor maintains an Individual Retirement Account under Code section 408(a), Depositor may convert or transfer such other IRA to a Roth IRA under Code section 408A using the terms of a separate Form II and the Adoption Agreement by completing and executing the Adoption Agreement and giving suitable directions to the Custodian and the custodian or trustee of such other IRA. Alternatively, the Depositor may convert or transfer such other IRA to a Roth IRA by use of a reply card or by telephonic, computer or electronic means in accordance with procedures adopted by the Custodian or Service Company intended to meet the requirements of Code section 408A, and the Depositor will be deemed to have executed the Adoption Agreement and adopted the provisions of this Agreement and the Adoption Agreement in accordance with such procedures.
27. The Depositor acknowledges that he or she has received and read the current prospectus for each Fund in which his or her Account is invested and the Individual Retirement Account Disclosure Statement related to the Account. The Depositor represents under penalties of perjury that his or her Social Security number (or other Taxpayer Identification Number) as stated in the Adoption Agreement is correct.
BASIC PLAN DOCUMENT 04
TABLE OF CONTENTS
SECTION ONE: DEFINITIONS 1.01 Adoption Agreement ............................................. 1 1.02 Basic Plan Document ............................................ 1 1.03 Beneficiary .................................................... 1 1.04 Break in Eligibility Service ................................... 1 1.05 Break in Vesting Service ....................................... 1 1.06 Code ........................................................... 1 1.07 Compensation ................................................... 1 1.08 Custodian ...................................................... 3 1.09 Disability ..................................................... 3 1.10 Early Retirement Age ........................................... 3 1.11 Earned Income .................................................. 3 1.12 Effective Date ................................................. 3 1.13 Eligibility Computation Period ................................. 3 1.14 Employee ....................................................... 3 1.15 Employer ....................................................... 3 1.16 Employer Contribution .......................................... 3 1.17 Employment Commencement Date ................................... 3 1.18 Employer Profit Sharing Contribution ........................... 3 1.19 Entry Dates .................................................... 4 1.20 ERISA .......................................................... 4 1.21 Forfeiture ..................................................... 4 1.22 Fund ........................................................... 4 1.23 Highly Compensated Employee .................................... 4 1.24 Hours of Service ............................................... 4 1.25 Individual Account ............................................. 5 1.26 Investment Fund ................................................ 5 1.27 Key Employee ................................................... 5 1.28 Leased Employee ................................................ 5 1.29 Nondeductible Employee Contributions ........................... 5 1.30 Normal Retirement Age .......................................... 6 1.31 Owner-Employee ................................................. 6 1.32 Participant .................................................... 6 1.33 Plan ........................................................... 6 1.34 Plan Administrator ............................................. 6 1.35 Plan Year ...................................................... 6 1.36 Prior Plan ..................................................... 6 1.37 Prototype Sponsor .............................................. 6 1.38 Qualifying Participant ......................................... 6 1.39 Related Employer ............................................... 6 1.40 Related Employer Participation Agreement ....................... 6 1.41 Self-Employed Individual ....................................... 6 1.42 Separate Fund .................................................. 6 1.43 Taxable Wage Base .............................................. 6 1.44 Termination of Employment ...................................... 6 1.45 Top-Heavy Plan ................................................. 7 1.46 Trustee ........................................................ 7 1.47 Valuation Date ................................................. 7 1.48 Vested ......................................................... 7 1.49 Year of Eligibility Service .................................... 7 1.50 Year of Vesting Service ........................................ 7 |
SECTION TWO: ELIGIBILITY AND PARTICIPATION
2.01 Eligibility To Participate ...................................... 7
2.02 Plan Entry ...................................................... 7
2.03 Transfer to or From Ineligible Class ............................ 8
2.04 Return as a Participant After Break in Eligibility Service ...... 8
2.05 Determinations Under This Section ............................... 8
2.06 Terms of Employment ............................................. 8
2.07 Special Rules Where Elapsed Time Method Is Being Used ........... 8
2.08 Election Not To Participate ..................................... 9
SECTION THREE: CONTRIBUTIONS
3.01 Employer Contributions .......................................... 9
3.02 Nondeductible Employee Contributions ............................ 11
3.03 Rollover Contributions .......................................... 12
3.04 Transfer Contributions .......................................... 12
3.05 Limitation on Allocations ....................................... 12
SECTION FOUR: INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 Individual Accounts ............................................. 16
4.02 Valuation of Fund ............................................... 16
4.03 Valuation of Individual Accounts ................................ 16
4.04 Modification of Method for Valuing Individual Accounts .......... 17
4.05 Segregation of Assets ........................................... 17
4.06 Statement of Individual Accounts ................................ 17
SECTION FIVE: TRUSTEE OR CUSTODIAN
5.01 Creation of Fund ................................................ 17
5.02 Investment Authority ............................................ 17
5.03 Financial Organization Custodian or Trustee Without
Full Trust Powers ............................................... 17
5.04 Financial Organization Trustee With Full Trust
Powers and Individual Trustee ................................... 18
5.05 Division of Fund Into Investment Funds .......................... 19
5.06 Compensation and Expenses ....................................... 19
5.07 Not Obligated to Question Data .................................. 20
5.08 Liability For Withholding on Distributions ...................... 20
5.09 Resignation or Removal of Trustee (or Custodian) ................ 20
5.10 Degree of Care - Limitations of Liability ....................... 20
5.11 Indemnification of Prototype Sponsor and Trustee (or Custodian) . 20
5.12 Investment Managers ............................................. 21
5.13 Matters Relating to Insurance ................................... 21
5.14 Direction of Investments by Participant ......................... 22
SECTION SIX: VESTING AND DISTRIBUTION
6.01 Distribution To Participant ..................................... 22
6.02 Form of Distribution to a Participant ........................... 25
6.03 Distributions Upon the Death of a Participant ................... 26
6.04 Form of Distribution to Beneficiary ............................. 26
6.05 Joint and Survivor Annuity Requirements ......................... 27
6.06 Distribution Requirements ....................................... 30
6.07 Annuity Contracts ............................................... 33
6.08 Loans to Participants ........................................... 33
6.09 Distribution in Kind ............................................ 34
6.10 Direct Rollovers of Eligible Rollover Distributions ............. 34
6.11 Procedure for Missing Participants or Beneficiaries ............. 35
SECTION SEVEN: CLAIMS PROCEDURE
7.01 Filing a Claim for Plan Distributions ........................... 35
7.02 Denial of Claim ................................................. 35
7.03 Remedies Available .............................................. 35
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SECTION EIGHT: PLAN ADMINISTRATOR
8.01 Employer is Plan Administrator ................................... 36
8.02 Powers and Duties of the Plan Administrator ...................... 36
8.03 Expenses and Compensation ........................................ 37
8.04 Information from Employer ........................................ 37
SECTION NINE: AMENDMENT AND TERMINATION
9.01 Right of Prototype Sponsor to Amend the Plan ..................... 37
9.02 Right of Employer to Amend the Plan .............................. 37
9.03 Limitation on Power to Amend ..................................... 37
9.04 Amendment of Vesting Schedule .................................... 38
9.05 Permanency ....................................................... 38
9.06 Method and Procedure for Termination ............................. 38
9.07 Continuance of Plan by Successor Employer ........................ 38
9.08 Failure of Plan Qualification .................................... 38
SECTION TEN: MISCELLANEOUS
10.01 State Community Property Laws .................................... 38
10.02 Headings ......................................................... 38
10.03 Gender and Number ................................................ 39
10.04 Plan Merger or Consolidation ..................................... 39
10.05 Standard of Fiduciary Conduct .................................... 39
10.06 General Undertaking Of All Parties ............................... 39
10.07 Agreement Binds Heirs, Etc. ...................................... 39
10.08 Determination Of Top-Heavy Status ................................ 39
10.09 Special Limitations for Owner-Employees .......................... 40
10.10 Inalienability of Benefits ....................................... 41
10.11 Cannot Eliminate Protected Benefits .............................. 41
SECTION ELEVEN: 401(k) PROVISIONS
11.100 Definitions ...................................................... 41
11.101 Actual Deferral Percentage (ADP) ................................. 41
11.102 Aggregate Limit .................................................. 42
11.103 Average Contribution Percentage (ACP) ............................ 42
11.104 Contributing Participant ......................................... 42
11.105 Contribution Percentage .......................................... 42
11.106 Contribution Percentage Amounts .................................. 42
11.107 Elective Deferrals ............................................... 42
11.108 Eligible Participant ............................................. 42
11.109 Excess Aggregate Contributions ................................... 42
11.110 Excess Contributions ............................................. 43
11.111 Excess Elective Deferrals ........................................ 43
11.112 Matching Contribution ............................................ 43
11.113 Qualified Nonelective Contributions .............................. 43
11.114 Qualified Matching Contributions ................................. 43
11.115 Qualifying Contributing Participant .............................. 43
11.200 Contributing Participant ......................................... 43
11.201 Requirements to Enroll as a Contributing Participant ............. 43
11.202 Changing Elective Deferral Amounts ............................... 43
11.203 Ceasing Elective Deferrals ....................................... 44
11.204 Return as a Contributing Participant After
Ceasing Elective Deferrals ....................................... 44
11.205 Certain One-Time Irrevocable Elections ........................... 44
11.300 Contributions .................................................... 44
11.301 Contributions By Employer ........................................ 44
11.302 Matching Contributions ........................................... 44
11.303 Qualified Nonelective Contributions .............................. 44
11.304 Qualified Matching Contributions ................................. 44
11.305 Nondeductible Employee Contributions ............................. 45
11.400 Nondiscrimination Testing ........................................ 45
11.401 Actual Deferral Percentage Test (ADP) ............................ 45
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11.402 Limits on Nondeductible Employee Contributions and
Matching Contributions ........................................... 46
11.500 Distribution Provisions .......................................... 47
11.501 General Rule ..................................................... 47
11.502 Distribution Requirements ........................................ 47
11.503 Hardship Distribution ............................................ 48
11.504 Distribution of Excess Elective Deferrals ........................ 48
11.505 Distribution of Excess Contributions ............................. 48
11.506 Distribution of Excess Aggregate Contributions ................... 49
11.507 Recharacterization ............................................... 50
11.508 Distribution of Elective Deferrals if Excess Annual Additions .... 50
11.600 Vesting .......................................................... 50
11.601 100% Vesting on Certain Contributions ............................ 50
11.602 Forfeitures and Vesting of Matching Contributions ................ 50
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1.01 ADOPTION AGREEMENT Means the document executed by the Employer through which it adopts the Plan and Trust and thereby agrees to be bound by all terms and conditions of the Plan and Trust.
1.02 BASIC PLAN DOCUMENT Means this prototype Plan and Trust document.
1.03 BENEFICIARY Means the individual or individuals designated pursuant to Section 6.03(A) of the Plan.
1.04 BREAK IN ELIGIBILITY SERVICE Means a 12 consecutive month period which coincides with an Eligibility Computation Period during which an Employee fails to complete more than 500 Hours of Service (or such lesser number of Hours of Service specified in the Adoption Agreement for this purpose).
1.05 BREAK IN VESTING SERVICE
Means a Plan Year (or other vesting computation period described in
Section 1.50) during which an Employee fails to complete more than 500
Hours of Service (or such lesser number of Hours of Service specified
in the Adoption Agreement for this purpose).
1.06 CODE
Means the Internal Revenue Code of 1986 as amended from time-to-time.
1.07 COMPENSATION
A. Basic Definition For Plan Years beginning on or after January 1, 1989, the following definition of Compensation shall apply:
As elected by the Employer in the Adoption Agreement (and if no election is made, W-2 wages will be deemed to have been selected), Compensation shall mean one of the following:
1. W-2 wages. Compensation is defined as information required
to be reported under Sections 6041 and 6051, and 6052 of the
Code (Wages, tips and other compensation as reported on Form
W-2). Compensation is defined as wages within the meaning of
Section 3401(a) of the Code and all other payments of
compensation to an Employee by the Employer (in the course
of the Employer's trade or business) for which the Employer
is required to furnish the Employee a written statement
under Sections 6041(d) and 6051(a)(3), and 6052 of the Code.
Compensation must be determined without regard to any rules
under Section 3401(a) that limit the remuneration included
in wages based on the nature or location of the employment
or the services performed (such as the exception for
agricultural labor in Section 3401(a)(2)).
2. Section 3401(a) wages. Compensation is defined as wages within the meaning of Section 3401(a) of the Code, for the purposes of income tax withholding at the source but determined without regard to any rules that limit the remuneration included in wages based on the nature or location of the employment or the services performed (such as the exception for agricultural labor in Section 3401(a)(2)).
3. 415 safe-harbor compensation. Compensation is defined as wages, salaries, and fees for professional services and other amounts received (without regard to whether or not an amount is paid in cash) for personal services actually rendered in the course of employment with the Employer maintaining the Plan to the extent that the amounts are includible in gross income (including, but not limited to, commissions paid salesmen, compensation for services on the basis of a percentage of profits, commissions on insurance premiums, tips, bonuses, fringe benefits, and reimbursements or other expense allowances under a nonaccountable plan (as described in 1.62-2(c)), and excluding the following:
a. Employer contributions to a plan of deferred compensation which are not includible in the Employee's gross income for the taxable year in which contributed, or employer contributions under a simplified employee pension plan to the extent such contributions are deductible by the Employee, or any distributions from a plan of deferred compensation;
b. 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;
c. Amounts realized from the sale, exchange or other disposition of stock acquired under a qualified stock option; and
d. Other amounts which received special tax benefits, or contributions made by the Employer (whether or not under a salary reduction agreement) towards the purchase of an annuity contract described in Section 403(b) of the Code (whether or not the contributions are actually excludable from the gross income of the Employee).
For any Self-Employed Individual covered under the Plan, Compensation will mean Earned Income.
B. Determination Period And Other Rules Compensation shall include only that Compensation which is actually paid to the Participant during the determination period. Except as provided elsewhere in this Plan, the determination period shall be the Plan Year unless the Employer has selected another period in the Adoption Agreement. If the Employer makes no election, the determination period shall be the Plan Year.
Unless otherwise indicated 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 includible in the gross income of the Employee under Sections 125, 402(e)(3), 402(h)(1)(B) or 403(b) of the Code.
Where this Plan is being adopted as an amendment and restatement to bring a Prior Plan into compliance with the Tax Reform Act of 1986, such Prior Plan's definition of Compensation shall apply for Plan Years beginning before January 1, 1989.
C. Limits On Compensation For years beginning after December 31, 1988 and before January 1, 1994, the annual Compensation of each Participant taken into account for determining all benefits provided under the Plan for any determination period shall not exceed $200,000. This limitation shall be adjusted by the Secretary at the same time and in the same manner as under Section 415(d) of the Code, except that the dollar increase in effect on January 1 of any calendar year is effective for Plan Years beginning in such calendar year and the first adjustment to the $200,000 limitation is effective on January 1, 1990.
For Plan Years beginning on or after January 1, 1994, the annual Compensation of each Participant taken into account for determining all benefits provided under the Plan for any Plan Year shall not exceed $150,000, as adjusted for increases in the cost-of-living in accordance with Section 401(a)(17)(B) of the Internal Revenue Code. The cost-of-living adjustment in effect for a calendar year applies to any determination period beginning in such calendar year.
If the period for determining Compensation used in calculating an Employee's allocation for a determination period is a short Plan Year (i.e., shorter than 12 months), the annual Compensation limit is an amount equal to the otherwise applicable annual Compensation limit multiplied by a fraction, the numerator of which is the number of months in the short Plan Year, and the denominator of which is 12.
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 19 before the close of the year. If, as a result of the application of such rules the adjusted $200,000 limitation is exceeded, then (except for purposes of determining the portion of Compensation up to the integration level, if this Plan provides for permitted disparity), the limitation shall be prorated among the affected individuals in proportion to each such individual's Compensation as determined under this Section prior to the application of this limitation.
If Compensation for any prior determination period is taken into account in determining an Employee's allocations or benefits for the current determination period, the Compensation for such prior determination period is subject to the applicable annual Compensation limit in effect for that prior period. For this purpose, in determining allocations in Plan Years beginning on or after January 1, 1989, the annual Compensation limit in effect for determination periods beginning before that date is $200,000. In addition, in determining allocations in Plan Years beginning on or after January 1, 1994, the annual Compensation limit in effect for determination periods beginning before that date is $150,000.
1.08 CUSTODIAN Means an entity specified in the Adoption Agreement as Custodian or any duly appointed successor as provided in Section 5.09.
1.09 DISABILITY Unless the Employer has elected a different definition in the Adoption Agreement, Disability means the inability to engage in any substantial, gainful activity by reason of any medically determinable physical or mental impairment that 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 12 months. The permanence and degree of such impairment shall be supported by medical evidence.
1.10 EARLY RETIREMENT AGE Means the age specified in the Adoption Agreement. The Plan will not have an Early Retirement Age if none is specified in the Adoption Agreement.
1.11 EARNED INCOME Means 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 by the Employer 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.
1.12 EFFECTIVE DATE Means the date the Plan becomes effective as indicated in the Adoption Agreement. However, as indicated in the Adoption Agreement, certain provisions may have specific effective dates. Further, where a separate date is stated in the Plan as of which a particular Plan provision becomes effective, such date will control with respect to that provision.
1.13 ELIGIBILITY COMPUTATION PERIOD An Employee's initial Eligibility Computation Period shall be the 12 consecutive month period commencing on the Employee's Employment Commencement Date. The Employee's subsequent Eligibility Computation Periods shall be the 12 consecutive month periods commencing on the anniversaries of his or her Employment Commencement Date; provided, however, if pursuant to the Adoption Agreement, an Employee is required to complete one or less Years of Eligibility Service to become a Participant, then his or her subsequent Eligibility Computation Periods shall be the Plan Years commencing with the Plan Year beginning during his or her initial Eligibility Computation Period. An Employee does not complete a Year of Eligibility Service before the end of the 12 consecutive month period regardless of when during such period the Employee completes the required number of Hours of Service.
1.14 EMPLOYEE Means any person employed by an Employer maintaining the Plan or of 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 in the previous paragraph as provided in Section 414(n) or (o) of the Code.
1.15 EMPLOYER Means any corporation, partnership, sole-proprietorship or other entity named in the Adoption Agreement and any successor who by merger, consolidation, purchase or otherwise assumes the obligations of the Plan. A partnership is considered to be the Employer of each of the partners and a sole-proprietorship is considered to be the Employer of a sole proprietor. Where this Plan is being maintained by a union or other entity that represents its member Employees in the negotiation of collective bargaining agreements, the term Employer shall mean such union or other entity.
1.16 EMPLOYER CONTRIBUTION Means the amount contributed by the Employer each year as determined under this Plan.
1.17 EMPLOYMENT COMMENCEMENT DATE An Employee's Employment Commencement date means the date the Employee first performs an Hour of Service for the Employer.
1.18 EMPLOYER PROFIT SHARING CONTRIBUTION Means an Employer Contribution made pursuant to the Section of the Adoption Agreement titled "Employer Profit Sharing Contributions." The Employer may make Employer Profit Sharing Contributions without regard to current or accumulated earnings or profits.
1.19 ENTRY DATES Means the first day of the Plan Year and the first day of the seventh month of the Plan Year, unless the Employer has specified different dates in the Adoption Agreement.
1.20 ERISA Means the Employee Retirement Income Security Act of 1974 as amended from time-to-time.
1.21 FORFEITURE Means that portion of a Participant's Individual Account derived from Employer Contributions which he or she is not entitled to receive (i.e., the nonvested portion).
1.22 FUND
Means the Plan assets held by the Trustee for the Participants' exclusive benefit.
1.23 HIGHLY COMPENSATED EMPLOYEE The term Highly Compensated Employee includes highly compensated active employees and highly compensated former employees.
A highly compensated active employee includes any Employee who performs service for the Employer during the determination year and who, during the look-back year: (a) received Compensation from the Employer in excess of $75,000 (as adjusted pursuant to Section 415(d) of the Code); (b) received Compensation from the Employer in excess of $50,000 (as adjusted pursuant to Section 415(d) of the Code) and was a member of the top-paid group for such year; or (c) was an officer of the Employer and received Compensation during such year that is greater than 50% of the dollar limitation in effect under Section 415(b)(1)(A) of the Code. The term Highly Compensated Employee also includes: (a) Employees who are both described in the preceding sentence if the term "determination year" is substituted for the term "look-back year" and the Employee is one of the 100 Employees who received the most Compensation from the Employer during the determination year; and (b) Employees who are 5% owners at any time during the look-back year or determination year.
If no officer has satisfied the Compensation requirement of (c) above during either a determination year or look-back year, the highest paid officer for such year shall be treated as a Highly Compensated Employee.
For this purpose, the determination year shall be the Plan Year. The look-back year shall be the 12 month period immediately preceding the determination year.
A highly compensated former employee includes any Employee who separated from service (or was deemed to have separated) prior to the determination year, performs no service for the Employer during the determination year, and was a highly compensated active employee for either the separation year or any determination year ending on or after the Employee's 55th birthday.
If an Employee is, during a determination year or look-back year, a family member of either a 5% owner who is an active or former Employee or a Highly Compensated Employee who is one of the 10 most Highly Compensated Employees ranked on the basis of Compensation paid by the Employer during such year, then the family member and the 5% owner or top 10 Highly Compensated Employee shall be aggregated. In such case, the family member and 5% owner or top 10 Highly Compensated Employee shall be treated as a single Employee receiving Compensation and Plan contributions or benefits equal to the sum of such Compensation and contributions or benefits of the family member and 5% owner or top 10 Highly Compensated Employee. For purposes of this Section, family member includes the spouse, lineal ascendants and descendants of the Employee or former Employee and the spouses of such lineal ascendants and descendants.
The determination of who is a Highly Compensated Employee, including the determinations of the number and identity of Employees in the top-paid group, the top 100 Employees, the number of Employees treated as officers and the Compensation that is considered, will be made in accordance with Section 414(q) of the Code and the regulations thereunder.
1.24 HOURS OF SERVICE - Means
A. Each hour for which an Employee is paid, or entitled to payment,
for the performance of duties for the Employer. These hours will
be credited to the Employee for the computation period in which
the duties are performed; and
B. Each hour for which an Employee is paid, or entitled to payment, by the Employer on account of a period of time during which no duties are performed (irrespective of whether the employment relationship has terminated) due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence. No more than 501 Hours of Service will be credited under this paragraph for any single continuous period (whether or not such period occurs in a single computation period). Hours under this paragraph shall be calculated and credited pursuant to Section 2530.200b-2 of the Department of Labor Regulations which is incorporated herein by this reference; and
C. Each hour for which back pay, irrespective of mitigation of damages, is either awarded or agreed to by the Employer. The same Hours of Service will not be credited both under paragraph (A) or paragraph (B), as the case may be, and under this paragraph (C). These hours will be credited to the Employee for the computation period or periods to which the award or agreement pertains rather than the computation period in which the award, agreement, or payment is made.
D. Solely for purposes of determining whether a Break in Eligibility
Service or a Break in Vesting Service has occurred in a
computation period (the computation period for purposes of
determining whether a Break in Vesting Service has occurred is
the Plan Year or other vesting computation period described in
Section 1.50), an individual who is absent from work for
maternity or paternity reasons shall receive credit for the Hours
of Service which would otherwise have been credited to such
individual but for such absence, or in any case in which such
hours cannot be determined, 8 Hours of Service per day of such
absence. For purposes of this paragraph, an absence from work for
maternity or paternity reasons means an absence (1) by reason of
the pregnancy of the individual, (2) by reason of a birth of a
child of the individual, (3) by reason of the placement of a
child with the individual in connection with the adoption of such
child by such individual, or (4) for purposes of caring for such
child for a period beginning immediately following such birth or
placement. The Hours of Service credited under this paragraph
shall be credited (1) in the Eligibility Computation Period or
Plan Year or other vesting computation period described in
Section 1.50 in which the absence begins if the crediting is
necessary to prevent a Break in Eligibility Service or a Break in
Vesting Service in the applicable period, or (2) in all other
cases, in the following Eligibility Computation Period or Plan
Year or other vesting computation period described in Section
1.50.
E. Hours of Service will be credited for employment with other members of an affiliated service group (under Section 414(m) of the Code), a controlled group of corporations (under Section 414(b) of the Code), or a group of trades or businesses under common control (under Section 414(c) of the Code) of which the adopting Employer is a member, and any other entity required to be aggregated with the Employer pursuant to Section 414(o) of the Code and the regulations thereunder.
Hours of Service will also be credited for any individual considered an Employee for purposes of this Plan under Code Sections 414(n) or 414(o) and the regulations thereunder.
F. Where the Employer maintains the plan of a predecessor employer, service for such predecessor employer shall be treated as service for the Employer.
G. The above method for determining Hours of Service may be altered as specified in the Adoption Agreement.
1.25 INDIVIDUAL ACCOUNT Means the account established and maintained under this Plan for each Participant in accordance with Section 4.01.
1.26 INVESTMENT FUND Means a subdivision of the Fund established pursuant to Section 5.05.
1.27 KEY EMPLOYEE Means any person who is determined to be a Key Employee under Section 10.08.
1.28 LEASED EMPLOYEE
Means any person (other than an Employee of the recipient) who
pursuant to an agreement between the recipient and any other person
("leasing organization") has performed services for the recipient (or
for the recipient and related persons determined in accordance with
Section 414(n)(6) of the Code) on a substantially full time basis for
a period of at least one year, and such services are of a type
historically performed by Employees in the business field of the
recipient Employer. Contributions or benefits provided a Leased
Employee by the leasing organization which are attributable to
services performed for the recipient Employer shall be treated as
provided by the recipient Employer.
A Leased Employee shall not be considered an Employee of the recipient if: (1) such employee is covered by a money purchase pension plan providing: (a) a nonintegrated employer contribution rate of at least 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 Section 125, Section 402(e)(3), Section 402(h)(1)(B) or Section 403(b) of the Code, (b) immediate participation, and (c) full and immediate vesting; and (2) Leased Employees do not constitute more than 20% of the recipient's nonhighly compensated work force.
1.29 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS Means any contribution made to the Plan by or on behalf of a Participant that is included in the Participant's gross income in the year in which made and that is maintained under a separate account to which earnings and losses are allocated.
1.30 NORMAL RETIREMENT AGE Means the age specified in the Adoption Agreement. However, if the Employer enforces a mandatory retirement age which is less than the Normal Retirement Age, such mandatory age is deemed to be the Normal Retirement Age. If no age is specified in the Adoption Agreement, the Normal Retirement Age shall be age 65.
1.31 OWNER - EMPLOYEE Means an individual who is a sole proprietor, or who is a partner owning more than 10% of either the capital or profits interest of the partnership.
1.32 PARTICIPANT Means any Employee or former Employee of the Employer who has met the Plan's eligibility requirements, has entered the Plan and who is or may become eligible to receive a benefit of any type from this Plan or whose Beneficiary may be eligible to receive any such benefit.
1.33 PLAN
Means the prototype defined contribution plan adopted by the Employer. The Plan consists of this Basic Plan Document plus the corresponding Adoption Agreement as completed and signed by the Employer.
1.34 PLAN ADMINISTRATOR Means the person or persons determined to be the Plan Administrator in accordance with Section 8.01.
1.35 PLAN YEAR Means the 12 consecutive month period which coincides with the Employer's fiscal year or such other 12 consecutive month period as is designated in the Adoption Agreement.
1.36 PRIOR PLAN Means a plan which was amended or replaced by adoption of this Plan document as indicated in the Adoption Agreement.
1.37 PROTOTYPE SPONSOR Means the entity specified in the Adoption Agreement that makes this prototype plan available to employers for adoption.
1.38 QUALIFYING PARTICIPANT
Means a Participant who has satisfied the requirements described in
Section 3.01(B)(2) to be entitled to share in any Employer
Contribution (and Forfeitures, if applicable) for a Plan Year.
1.39 RELATED EMPLOYER Means an employer that may be required to be aggregated with the Employer adopting this Plan for certain qualification requirements under Sections 414(b), (c), (m) or (o) of the Code (or any other employer that has ownership in common with the Employer). A Related Employer may participate in this Plan if so indicated in the Section of the Adoption Agreement titled "Employer Information" or if such Related Employer executes a Related Employer Participation Agreement.
1.40 RELATED EMPLOYER PARTICIPATION AGREEMENT Means the agreement under this prototype Plan that a Related Employer may execute to participate in this Plan.
1.41 SELF-EMPLOYED INDIVIDUAL Means an individual who has Earned Income for the taxable year from the trade or business for which the Plan is established; also, an individual who would have had Earned Income but for the fact that the trade or business had no net profits for the taxable year.
1.42 SEPARATE FUND Means a subdivision of the Fund held in the name of a particular Participant representing certain assets held for that Participant. The assets which comprise a Participant's Separate Fund are those assets earmarked for him or her and those assets subject to the Participant's individual direction pursuant to Section 5.14.
1.43 TAXABLE WAGE BASE Means, with respect to any taxable year, the contribution and benefit base in effect under Section 230 of the Social Security Act at the beginning of the Plan Year.
1.44 TERMINATION OF EMPLOYMENT A Termination of Employment of an Employee of an Employer shall occur whenever his or her status as an Employee of such Employer ceases for any reason other than death. An Employee who does not return to work for the Employer on or before the expiration of an authorized leave of absence from such Employer shall be deemed to have incurred a Termination of Employment when such leave ends.
1.45 TOP-HEAVY PLAN This Plan is a Top-Heavy Plan for any Plan Year if it is determined to be such pursuant to Section 10.08.
1.46 TRUSTEE Means an individual, individuals or corporation specified in the Adoption Agreement as Trustee or any duly appointed successor as provided in Section 5.09. Trustee shall mean Custodian in the event the financial organization named as Trustee does not have full trust powers.
1.47 VALUATION DATE Means the date or dates as specified in the Adoption Agreement. If no date is specified in the Adoption Agreement, the Valuation Date shall be the last day of the Plan Year and each other date designated by the Plan Administrator which is selected in a uniform and nondiscriminatory manner when the assets of the Fund are valued at their then fair market value.
1.48 VESTED Means nonforfeitable, that is, a claim which is unconditional and legally enforceable against the Plan obtained by a Participant or the Participant's Beneficiary to that part of an immediate or deferred benefit under the Plan which arises from a Participant's Years of Vesting Service.
1.49 YEAR OF ELIGIBILITY SERVICE Means a 12 consecutive month period which coincides with an Eligibility Computation Period during which an Employee completes at least 1,000 Hours of Service (or such lesser number of Hours of Service specified in the Adoption Agreement for this purpose). An Employee does not complete a Year of Eligibility Service before the end of the 12 consecutive month period regardless of when during such period the Employee completes the required number of Hours of Service.
1.50 YEAR OF VESTING SERVICE Means a Plan Year during which an Employee completes at least 1,000 Hours of Service (or such lesser number of Hours of Service specified in the Adoption Agreement for this purpose). Notwithstanding the preceding sentence, where the Employer so indicates in the Adoption Agreement, vesting shall be computed by reference to the 12 consecutive month period beginning with the Employee's Employment Commencement Date and each successive 12 month period commencing on the anniversaries thereof.
In the case of a Participant who has 5 or more consecutive Breaks in Vesting Service, all Years of Vesting Service after such Breaks in Vesting Service will be disregarded for the purpose of determining the Vested portion of his or her Individual Account derived from Employer Contributions that accrued before such breaks. Such Participant's prebreak service will count in vesting the postbreak Individual Account derived from Employer Contributions only if either:
(A) such Participant had any Vested right to any portion of his or her Individual Account derived from Employer Contributions at the time of his or her Termination of Employment; or
(B) upon returning to service, the number of consecutive Breaks in Vesting Service is less than his or her number of Years of Vesting Service before such breaks.
Separate subaccounts will be maintained for the Participant's prebreak and postbreak portions of his or her Individual Account derived from Employer Contributions. Both subaccounts will share in the gains and losses of the Fund.
Years of Vesting Service shall not include any period of time excluded from Years of Vesting Service in the Adoption Agreement.
In the event the Plan Year is changed to a new 12-month period, Employees shall receive credit for Years of Vesting Service, in accordance with the preceding provisions of this definition, for each of the Plan Years (the old and new Plan Years) which overlap as a result of such change.
SECTION TWO ELIGIBILITY AND PARTICIPATION
2.01 ELIGIBILITY TO PARTICIPATE Each Employee of the Employer, except those Employees who belong to a class of Employees which is excluded from participation as indicated in the Adoption Agreement, shall be eligible to participate in this Plan upon the satisfaction of the age and Years of Eligibility Service requirements specified in the Adoption Agreement.
2.02 PLAN ENTRY
A. If this Plan is a replacement of a Prior Plan by amendment or restatement, each Employee of the Employer who was a Participant in said Prior Plan before the Effective Date shall continue to be a Participant in this Plan.
B. An Employee will become a Participant in the Plan as of the Effective Date if the Employee has met the eligibility requirements of Section 2.01 as of such date. After the Effective Date, each Employee shall become a Participant on the first Entry Date following the date the Employee satisfies the eligibility requirements of Section 2.01 unless otherwise indicated in the Adoption Agreement.
C. The Plan Administrator shall notify each Employee who becomes eligible to be a Participant under this Plan and shall furnish the Employee with the application form, enrollment forms or other documents which are required of Participants. The eligible Employee shall execute such forms or documents and make available such information as may be required in the administration of the Plan.
2.03 TRANSFER TO OR FROM INELIGIBLE CLASS If an Employee who had been a Participant becomes ineligible to participate because he or she is no longer a member of an eligible class of Employees, but has not incurred a Break in Eligibility Service, such Employee shall participate immediately upon his or her return to an eligible class of Employees. If such Employee incurs a Break in Eligibility Service, his or her eligibility to participate shall be determined by Section 2.04.
An Employee who is not a member of the eligible class of Employees will become a Participant immediately upon becoming a member of the eligible class provided such Employee has satisfied the age and Years of Eligibility Service requirements. If such Employee has not satisfied the age and Years of Eligibility Service requirements as of the date he or she becomes a member of the eligible class, such Employee shall become a Participant on the first Entry Date following the date he or she satisfies those requirements unless otherwise indicated in the Adoption Agreement.
2.04 RETURN AS A PARTICIPANT AFTER BREAK IN ELIGIBILITY SERVICE
A. Employee Not Participant Before Break - If an Employee incurs a Break in Eligibility Service before satisfying the Plan's eligibility requirements, such Employee's Years of Eligibility Service before such Break in Eligibility Service will not be taken into account.
B. Nonvested Participants - In the case of a Participant who does not have a Vested interest in his or her Individual Account derived from Employer Contributions, Years of Eligibility Service before a period of consecutive Breaks in Eligibility Service will not be taken into account for eligibility purposes if the number of consecutive Breaks in Eligibility Service in such period equals or exceeds the greater of 5 or the aggregate number of Years of Eligibility Service before such break. Such aggregate number of Years of Eligibility Service will not include any Years of Eligibility Service disregarded under the preceding sentence by reason of prior breaks.
If a Participant's Years of Eligibility Service are disregarded pursuant to the preceding paragraph, such Participant will be treated as a new Employee for eligibility purposes. If a Participant's Years of Eligibility Service may not be disregarded pursuant to the preceding paragraph, such Participant shall continue to participate in the Plan, or, if terminated, shall participate immediately upon reemployment.
C. Vested Participants - A Participant who has sustained a Break in Eligibility Service and who had a Vested interest in all or a portion of his or her Individual Account derived from Employer Contributions shall continue to participate in the Plan, or, if terminated, shall participate immediately upon reemployment.
2.05 DETERMINATIONS UNDER THIS SECTION The Plan Administrator shall determine the eligibility of each Employee to be a Participant. This determination shall be conclusive and binding upon all persons except as otherwise provided herein or by law.
2.06 TERMS OF EMPLOYMENT Neither the fact of the establishment of the Plan nor the fact that a common law Employee has become a Participant shall give to that common law Employee any right to continued employment; nor shall either fact limit the right of the Employer to discharge or to deal otherwise with a common law Employee without regard to the effect such treatment may have upon the Employee's rights under the Plan.
2.07 SPECIAL RULES WHERE ELAPSED TIME METHOD IS BEING USED This Section 2.07 shall apply where the Employer has indicated in the Adoption Agreement that the elapsed time method will be used. When this Section applies, the definitions of year of service, break in service and hour of service in this Section will replace the definitions of Year of Eligibility Service, Year of Vesting Service, Break in Eligibility Service, Break in Vesting Service and Hours of Service found in the Definitions Section of the Plan (Section One).
For purposes of determining an Employee's initial or continued eligibility to participate in the Plan or the Vested interest in the Participant's Individual Account balance derived from Employer Contributions, (except for periods of service which may be disregarded on account of the "rule of parity" described in Sections 1.50 and 2.04) an Employee will receive credit for the aggregate of all time period(s) commencing with the Employee's first day of employment or reemployment and ending on the date a break in service begins. The first day of employment or reemployment is the first day the
Employee performs an hour of service. An Employee will also receive credit for any period of severance of less than 12 consecutive months. Fractional periods of a year will be expressed in terms of days.
For purposes of this Section, hour of service will mean each hour for which an Employee is paid or entitled to payment for the performance of duties for the Employer. Break in service is a period of severance of at least 12 consecutive months. Period of severance is a continuous period of time during which the Employee is not employed by the Employer. Such period begins on the date the Employee retires, quits or is discharged, or if earlier, the 12 month anniversary of the date on which the Employee was otherwise first absent from service.
In the case of an individual who is absent from work for maternity or
paternity reasons, the 12 consecutive month period beginning on the
first anniversary of the first date of such absence shall not
constitute a break in service. For purposes of this paragraph, an
absence from work for maternity or paternity reasons means an absence
(1) by reason of the pregnancy of the individual, (2) by reason of the
birth of a child of the individual, (3) by reason of the placement of
a child with the individual in connection with the adoption of such
child by such individual, or (4) for purposes of caring for such child
for a period beginning immediately following such birth or placement.
Each Employee will share in Employer Contributions for the period beginning on the date the Employee commences participation under the Plan and ending on the date on which such Employee severs employment with the Employer or is no longer a member of an eligible class of Employees.
If the Employer is a member of an affiliated service group (under
Section 414(m) of the Code), a controlled group of corporations (under
Section 414(b) of the Code), a group of trades or businesses under
common control (under Section 414(c) of the Code), or any other entity
required to be aggregated with the Employer pursuant to Section 414(o)
of the Code, service will be credited for any employment for any
period of time for any other member of such group. Service will also
be credited for any individual required under Section 414(n) or
Section 414(o) to be considered an Employee of any Employer aggregated
under Section 414(b), (c), or (m) of the Code.
2.08 ELECTION NOT TO PARTICIPATE This Section 2.08 will apply if this Plan is a nonstandardized plan and the Adoption Agreement so provides. If this Section applies, then an Employee or a Participant may elect not to participate in the Plan for one or more Plan Years. The Employer may not contribute for an Employee or Participant for any Plan Year during which such Employee's or Participant's election not to participate is in effect. Any election not to participate must be in writing and filed with the Plan Administrator.
The Plan Administrator shall establish such uniform and nondiscriminatory rules as it deems necessary or advisable to carry out the terms of this Section, including, but not limited to, rules prescribing the timing of the filing of elections not to participate and the procedures for electing to re-participate in the Plan.
An Employee or Participant continues to earn credit for vesting and eligibility purposes for each Year of Vesting Service or Year of Eligibility Service he or she completes and his or her Individual Account (if any) will share in the gains or losses of the Fund during the periods he or she elects not to participate.
SECTION THREE CONTRIBUTIONS
3.01 EMPLOYER CONTRIBUTIONS
A. Obligation to Contribute - The Employer shall make contributions
to the Plan in accordance with the contribution formula specified
in the Adoption Agreement. If this Plan is a profit sharing plan,
the Employer shall, in its sole discretion, make contributions
without regard to current or accumulated earnings or profits.
B. Allocation Formula and the Right to Share in the Employer Contribution -
1. General - The Employer Contribution for any Plan Year will be allocated or contributed to the Individual Accounts of Qualifying Participants in accordance with the allocation or contribution formula specified in the Adoption Agreement. The Employer Contribution for any Plan Year will be allocated to each Participant's Individual Account as of the last day of that Plan Year.
Any Employer Contribution for a Plan Year must satisfy
Section 401(a)(4) and the regulations thereunder for such
Plan Year.
2. Qualifying Participants - A Participant is a Qualifying Participant and is entitled to share in the Employer Contribution for any Plan Year if the Participant was a Participant on at least one day during the Plan Year and satisfies any additional conditions specified in the Adoption Agreement. If this Plan is a standardized plan, unless the Employer specifies more favorable conditions in the Adoption Agreement, a Participant will not be a qualifying Participant for a Plan Year if he or she incurs a Termination of Employment during such Plan Year with not more than 500 Hours of Service if he or she is not an Employee on the last day of the Plan Year. The
determination of whether a Participant is entitled to share in the Employer Contribution shall be made as of the last day of each Plan Year.
3. Special Rules for Integrated Plans - This Plan may not allocate contributions based on an integrated formula if the Employer maintains any other plan that provides for allocation of contributions based on an integrated formula that benefits any of the same Participants. If the Employer has selected the integrated contribution or allocation formula in the Adoption Agreement, then the maximum disparity rate shall be determined in accordance with the following table.
MAXIMUM DISPARITY RATE
Top-Heavy Nonstandardized and
Integration Level Money Purchase Profit Sharing Non-Top-Heavy Profit Sharing
--------------------------------------------------------------------------------------------
Taxable Wage Base (TWB) 5.7% 2.7% 5.7%
More than $0 but not more
than 20% of TWB 5.7% 2.7% 5.7%
More than 20% of TWB but
not more than 80% of TWB 4.3% 1.3% 4.3%
More than 80% of TWB but
not more than TWB 5.4% 2.4% 5.4%
|
C. Allocation of Forfeitures - Forfeitures for a Plan Year which arise as a result of the application of Section 6.01(D) shall be allocated as follows:
1. Profit Sharing Plan - If this is a profit sharing plan,
unless the Adoption Agreement indicates otherwise,
Forfeitures shall be allocated in the manner provided in
Section 3.01(B) (for Employer Contributions) to the
Individual Accounts of Qualifying Participants who are
entitled to share in the Employer Contribution for such Plan
Year. Forfeitures shall be allocated as of the last day of
the Plan Year during which the Forfeiture arose (or any
subsequent Plan Year if indicated in the Adoption
Agreement).
2. Money Purchase Pension and Target Benefit Plan - If this Plan is a money purchase plan or a target benefit plan, unless the Adoption Agreement indicates otherwise, Forfeitures shall be applied towards the reduction of Employer Contributions to the Plan. Forfeitures shall be allocated as of the last day of the Plan Year during which the Forfeiture arose (or any subsequent Plan Year if indicated in the Adoption Agreement).
D. Timing of Employer Contribution - The Employer Contribution for each Plan Year shall be delivered to the Trustee (or Custodian, if applicable) not later than the due date for filing the Employer's income tax return for its fiscal year in which the Plan Year ends, including extensions thereof.
E. Minimum Allocation for Top-Heavy Plans - The contribution and allocation provisions of this Section 3.01(E) shall apply for any Plan Year with respect to which this Plan is a Top-Heavy Plan.
1. Except as otherwise provided in (3) and (4) below, 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 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
$200,000 ($150,000 for Plan Years beginning after December
31, 1993), (increased by any cost of living adjustment made
by the Secretary of Treasury or the Secretary's delegate) 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. The Employer may, in the Adoption Agreement,
limit the Participants who are entitled to receive the
minimum allocation. 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 (a) the Participant's failure to complete 1,000 Hours of
Service (or any equivalent provided in the Plan), or (b) the
Participant's failure to make mandatory Nondeductible
Employee Contributions to the Plan, or (c) Compensation less
than a stated amount.
2. For purposes of computing the minimum allocation, Compensation shall mean Compensation as defined in Section 1.07 of the Plan and shall exclude any amounts contributed by the Employer pursuant to a salary
reduction agreement and which is not includible in the gross income of the Employee under Sections 125, 402(e)(3), 402(h)(1)(B) or 403(b) of the Code even if the Employer has elected to include such contributions in the definition of Compensation used for other purposes under the Plan.
3. The provision in (1) above shall not apply to any Participant who was not employed by the Employer on the last day of the Plan Year.
4. The provision in (1) above shall not apply to any Participant to the extent the Participant is covered under any other plan or plans of the Employer and the Employer has provided in the adoption agreement that the minimum allocation or benefit requirement applicable to Top-Heavy Plans will be met in the other plan or plans.
5. The minimum allocation required under this Section 3.01(E) and Section 3.01(F)(1) (to the extent required to be nonforfeitable under Code Section 416(b)) may not be forfeited under Code Section 411(a)(3)(B) or 411(a)(3)(D).
F. Special Requirements for Paired Plans - The Employer maintains paired plans if the Employer has adopted both a standardized profit sharing plan and a standardized money purchase pension plan using this Basic Plan Document.
1. Minimum Allocation - When the paired plans are top-heavy, the top-heavy requirements set forth in Section 3.01(E)(1) of the Plan shall apply.
a. Same eligibility requirements. In satisfying the
top-heavy minimum allocation requirements set forth in
Section 3.01(E) of the Plan, if the Employees
benefiting under each of the paired plans are
identical, the top-heavy minimum allocation shall be
made to the money purchase pension plan.
b. Different eligibility requirements. In satisfying the
top-heavy minimum allocation requirements set forth in
Section 3.01(E) of the Plan, if the Employees
benefiting under each of the paired plans are not
identical, the top-heavy minimum allocation will be
made to both of the paired plans.
A Participant is treated as benefiting under the Plan for any Plan Year during which the Participant received or is deemed to receive an allocation in accordance with Section 1.410(b)-3(a).
2. Only One Plan Can Be Integrated - If the Employer maintains paired plans, only one of the Plans may provide for the disparity in contributions which is permitted under Section 401(l) of the Code. In the event that both Adoption Agreements provide for such integration, only the money purchase pension plan shall be deemed to be integrated.
G. Return of the Employer Contribution to the Employer Under Special Circumstances - Any contribution made by the Employer because of a mistake of fact must be returned to the Employer within one year of the contribution.
In the event that the Commissioner of Internal Revenue determines that the Plan is not initially qualified under the Code, any contributions made incident to that initial qualification by the Employer must be returned to the Employer within one year after the date the initial qualification is denied, but only if the application for 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.
In the event that a contribution made by the Employer under this Plan is conditioned on deductibility and is not deductible under Code Section 404, the contribution, to the extent of the amount disallowed, must be returned to the Employer within one year after the deduction is disallowed.
H. Omission of Participant
1. If the Plan is a money purchase plan or a target benefit plan and, if in any Plan Year, any Employee who should be included as a Participant is erroneously omitted and discovery of such omission is not made until after a contribution by the Employer for the year has been made and allocated, the Employer shall make a subsequent contribution to include earnings thereon, with respect to the omitted Employee in the amount which the Employer would have contributed with respect to that Employee had he or she not been omitted.
2. If the Plan is a profit sharing plan, and if in any Plan Year, any Employee who should be included as a Participant is erroneously omitted and discovery of such omission is not made until after the Employer Contribution has been made and allocated, then the Plan Administrator must re-do the allocation (if a correction can be made) and inform the Employee. Alternatively, the Employer may choose to contribute for the omitted Employee the amount to include earnings thereon, which the Employer would have contributed for the Employee.
3.02 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS
This Plan will not accept Nondeductible Employee Contributions and matching contributions for Plan Years beginning after the Plan Year in which this Plan is adopted by the Employer. Nondeductible Employee Contributions for Plan Years beginning after December 31, 1986, together with any matching contributions as defined in Section 401(m) of the Code, will be limited so as to meet the nondiscrimination test of Section 401(m) of the Code.
A separate account will be maintained by the Plan Administrator for the Nondeductible Employee Contributions of each Participant.
A Participant may, upon a written request submitted to the Plan Administrator withdraw the lesser of the portion of his or her Individual Account attributable to his or her Nondeductible Employee Contributions or the amount he or she contributed as Nondeductible Employee Contributions.
Nondeductible Employee Contributions and earnings thereon will be nonforfeitable at all times. No Forfeiture will occur solely as a result of an Employee's withdrawal of Nondeductible Employee Contributions.
The Plan Administrator will not accept deductible employee contributions which are made for a taxable year beginning after December 31, 1986. Contributions made prior to that date will be maintained in a separate account which will be nonforfeitable at all times. The account will share in the gains and losses of the Fund in the same manner as described in Section 4.03 of the Plan. No part of the deductible employee contribution account will be used to purchase life insurance. Subject to Section 6.05, joint and survivor annuity requirements (if applicable), the Participant may withdraw any part of the deductible employee contribution account by making a written application to the Plan Administrator.
3.03 ROLLOVER CONTRIBUTIONS If so indicated in the Adoption Agreement, an Employee may contribute a rollover contribution to the Plan. The Plan Administrator may require the Employee to submit a written certification that the contribution qualifies as a rollover contribution under the applicable provisions of the Code. If it is later determined that all or part of a rollover contribution was ineligible to be rolled into the Plan, the Plan Administrator shall direct that any ineligible amounts, plus earnings attributable thereto, be distributed from the Plan to the Employee as soon as administratively feasible.
A separate account shall be maintained by the Plan Administrator for each Employee's rollover contributions which will be nonforfeitable at all times. Such account will share in the income and gains and losses of the Fund in the manner described in Section 4.03 and shall be subject to the Plan's provisions governing distributions.
The Employer may, in a uniform and nondiscriminatory manner, only allow Employees who have become Participants in the Plan to make rollover contributions.
3.04 TRANSFER CONTRIBUTIONS
If so indicated in the Adoption Agreement, the Trustee (or Custodian,
if applicable) may receive any amounts transferred to it from the
trustee or custodian of another plan qualified under Code Section
401(a). If it is later determined that all or part of a transfer
contribution was ineligible to be transferred into the Plan, the Plan
Administrator shall direct that any ineligible amounts, plus earnings
attributable thereto, be distributed from the Plan to the Employee as
soon as administratively feasible.
A separate account shall be maintained by the Plan Administrator for each Employee's transfer contributions which will be nonforfeitable at all times. Such account will share in the income and gains and losses of the Fund in the manner described in Section 4.03 and shall be subject to the Plan's provisions governing distributions. Notwithstanding any provision of this Plan to the contrary, to the extent that any optional form of benefit under this Plan permits a distribution prior to the Employee's retirement, death, Disability, or severance from employment, and prior to Plan termination, the optional form of benefit is not available with respect to benefits attributable to assets (including the post-transfer earnings thereon) and liabilities that are transferred, within the meaning of Section 414(l) of the Internal Revenue Code, to this Plan from a money purchase pension plan qualified under Section 401(a) of the Internal Revenue Code (other than any portion of those assets and liabilities attributable to voluntary employee contributions).
The Employer may, in a uniform and nondiscriminatory manner, only allow Employees who have become Participants in the Plan to make transfer contributions.
3.05 LIMITATION ON ALLOCATIONS
A. If the Participant does not participate in, and has never participated in another qualified plan maintained by the Employer 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, or a simplified employee pension plan, as defined in Section 408(k) of the Code, maintained by the Employer, which provides an annual addition as defined in Section 3.08(E)(1), the following rules shall apply:
1. The amount of annual additions which may be credited to the Participant's Individual 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 Individual Account would cause the annual additions for the limitation year to exceed the maximum permissible amount, the amount contributed or allocated will be reduced so that the annual additions for the limitation year will equal the maximum permissible amount.
2. 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.
3. 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.
4. If pursuant to Section 3.05(A)(3) or as a result of the allocation of Forfeitures there is an excess amount, the excess will be disposed of as follows:
a. Any Nondeductible Employee Contributions, to the extent they would reduce the excess amount, will be returned to the Participant;
b. If after the application of paragraph (a) an excess amount still exists, and the Participant is covered by the Plan at the end of the limitation year, the excess amount in the Participant's Individual 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;
c. If after the application of paragraph (b) an excess amount still exists, and the Participant is not covered by the Plan at the end of a 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;
d. If a suspense account is in existence at any time during a limitation year pursuant to this Section, it will not participate in the allocation of the Fund'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' Individual Accounts before any Employer Contributions or any Nondeductible Employee Contributions may be made to the Plan for that limitation year. Excess amounts may not be distributed to Participants or former Participants.
B. 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 maintained by the Employer, an individual medical account maintained by the Employer, or a simplified employee pension maintained by the Employer that provides an annual addition as defined in Section 3.05(E)(1), during any limitation year, the following rules apply:
1. The annual additions which may be credited to a Participant's Individual 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 Individual Account under the other qualified master or prototype plans, welfare benefit funds, individual medical accounts and simplified employee pensions for the same limitation year. If the annual additions with respect to the Participant under other qualified master or prototype defined contribution plans, welfare benefit funds, individual medical accounts and simplified employee pensions 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 Individual 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 qualified master or prototype defined contribution plans, welfare benefit funds, individual medical accounts and simplified employee pensions in the aggregate are equal to or greater than the maximum permissible amount, no amount will be contributed or allocated to the Participant's Individual Account under this Plan for the limitation year.
2. 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 3.05(A)(2).
3. 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.
4. If, pursuant to Section 3.05(B)(3) 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 simplified employee pension will be deemed to have been allocated first, followed by annual additions to a welfare benefit fund or individual medical account, regardless of the actual allocation date.
5. If an excess amount was allocated to a Participant on an allocation date of this Plan which coincides with an allocation date of another plan, the excess amount attributed to this Plan will be the product of,
a. the total excess amount allocated as of such date, times
b. the ratio of (i) the annual additions allocated to the Participant for the limitation year as of such date under this Plan to (ii) the total annual additions allocated to the Participant for the limitation year as of such date under this and all the other qualified prototype defined contribution plans.
6. Any excess amount attributed to this Plan will be disposed in the manner described in Section 3.05(A)(4).
C. 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 Individual Account under this Plan for any limitation year will be limited in accordance with Sections 3.05(B)(1) through 3.05(B)(6) as though the other plan were a master or prototype plan unless the Employer provides other limitations in the Section of the Adoption Agreement titled "Limitation on Allocation - More Than One Plan."
D. If the Employer maintains, or at any time maintained, a qualified defined benefit plan covering any Participant in this Plan, the sum of the Participant's defined benefit plan fraction and defined contribution plan fraction will not exceed 1.0 in any limitation year. The annual additions which may be credited to the Participant's Individual Account under this Plan for any limitation year will be limited in accordance with the Section of the Adoption Agreement titled "Limitation on Allocation - More Than One Plan."
E. The following terms shall have the following meanings when used in this Section 3.05:
1. Annual additions: The sum of the following amounts credited to a Participant's Individual Account for the limitation year:
a. Employer Contributions,
b. Nondeductible Employee Contributions,
c. Forfeitures,
d. amounts allocated, after March 31, 1984, to an
individual medical account, as defined in Section
415(l)(2) of the Code, which is part of a pension or
annuity plan maintained by the Employer are treated as
annual additions to a defined contribution plan. Also
amounts derived from contributions paid or accrued
after December 31, 1985, in taxable years ending after
such date, which are attributable to post-retirement
medical benefits, allocated to the separate account of
a key employee, as defined in Section 419A(d)(3) of the
Code, under a welfare benefit fund, as defined in
Section 419(e) of the Code, maintained by the Employer
are treated as annual additions to a defined
contribution plan, and
e. allocations under a simplified employee pension.
For this purpose, any excess amount applied under Section 3.05(A)(4) or 3.05(B)(6) in the limitation year to reduce Employer Contributions will be considered annual additions for such limitation year.
2. Compensation: Means Compensation as defined in Section 1.07
of the Plan except that Compensation for purposes of this
Section 3.05 shall not include any amounts contributed by
the Employer pursuant to a salary reduction agreement and
which is not includible in the gross income of the Employee
under Sections 125, 402(e)(3), 402(h)(1)(B) or 403(b) of the
Code even if the Employer has elected to include such
contributions in the definition of Compensation used for
other purposes under the Plan. Further, any other exclusion
the Employer has elected (such as the exclusion of certain
types of pay or pay earned before the Employee enters the
Plan) will not apply for purposes of this Section.
Notwithstanding the preceding sentence, Compensation for a Participant in a defined contribution plan who is permanently and totally 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.
3. 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 125% of the dollar limitation
determined for the limitation year under Section 415(b) and
(d) of the Code or 140% of the 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 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.
4. Defined contribution dollar limitation: $30,000 or if greater, one-fourth of the defined benefit dollar limitation set forth in Section 415(b)(1) of the Code as in effect for the limitation year.
5. 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 employee contributions to all defined benefit plans, whether or not terminated, maintained by the Employer, and the annual additions attributable to all welfare benefit funds, as defined in Section 419(e) of the Code, individual medical accounts, and simplified employee pensions, 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 125% of the dollar limitation determined under Section 415(b) and (d) of the Code in effect under Section 415(c)(1)(A) of the Code or 35% of the Participant's Compensation for such year.
If the Employee was a Participant as of the end of the first day of the first limitation year beginning after December 31, 1986, in one or more defined contribution plans maintained by the Employer which were in existence on May 6, 1986, the numerator of this fraction will be adjusted if the sum of this fraction and the defined benefit fraction would otherwise exceed 1.0 under the terms of this Plan. Under the adjustment, an amount equal to the product of (1) the excess of the sum of the fractions over 1.0 times (2) the denominator of this fraction, will be permanently subtracted from the numerator of this fraction. The adjustment is calculated using the fractions as they would be computed as of the end of the last limitation year beginning before January 1, 1987, and disregarding any changes in the terms and conditions of the Plan made after May 5, 1986, but using the Section 415 limitation applicable to the first limitation year beginning on or after January 1, 1987.
The annual addition for any limitation year beginning before January 1, 1987, shall not be recomputed to treat all Nondeductible Employee Contributions as annual additions.
6. Employer: For purposes of this Section 3.05, 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)), all
commonly controlled trades or businesses (as defined in
Section 414(c) as modified by Section 415(h)) or affiliated
service groups (as defined in Section 414(m)) of which the
adopting Employer is a part, and any other entity required
to be aggregated with the Employer pursuant to regulations
under Section 414(o) of the Code.
7. Excess amount: The excess of the Participant's annual additions for the limitation year over the maximum permissible amount.
8. Highest average compensation: The average compensation for the three consecutive years of service with the Employer that produces the highest average.
9. Limitation year: A calendar year, or the 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 12-consecutive month period, the new limitation year must begin on a date within the limitation year in which the amendment is made.
10. Master or prototype plan: A plan the form of which is the subject of a favorable opinion letter from the Internal Revenue Service.
11. Maximum permissible amount: The maximum annual addition that may be contributed or allocated to a Participant's Individual Account under the Plan for any limitation year shall not exceed the lesser of:
a. the defined contribution dollar limitation, or
b. 25% of the Participant's Compensation for the
limitation year.
The compensation limitation referred to in (b) shall not
apply to any contribution for medical benefits (within the
meaning of Section 401(h) or Section 419A(f)(2) of the Code)
which is otherwise treated as an annual addition under
Section 415(l)(1) or 419A(d)(2) of the Code.
If a short limitation year is created because of an amendment changing the limitation year to a different 12-consecutive month period, the maximum permissible amount will not exceed the defined contribution dollar limitation multiplied by the following fraction:
12. 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:
a. the Participant will continue employment until Normal Retirement Age under the Plan (or current age, if later), and
b. the Participant's Compensation for the current limitation year and all other relevant factors used to determine benefits under the Plan will remain constant for all future limitation years.
Straight life annuity means an annuity payable in equal installments for the life of the Participant that terminates upon the Participant's death.
SECTION FOUR INDIVIDUAL ACCOUNTS OF PARTICIPANTS AND VALUATION
4.01 INDIVIDUAL ACCOUNTS
A. The Plan Administrator shall establish and maintain an Individual
Account in the name of each Participant to reflect the total
value of his or her interest in the Fund. Each Individual Account
established hereunder shall consist of such subaccounts as may be
needed for each Participant including:
1. a subaccount to reflect Employer Contributions and
Forfeitures allocated on behalf of a Participant;
2. a subaccount to reflect a Participant's rollover
contributions;
3. a subaccount to reflect a Participant's transfer
contributions;
4. a subaccount to reflect a Participant's Nondeductible
Employee Contributions; and
5. a subaccount to reflect a Participant's deductible employee
contributions.
B. The Plan Administrator may establish additional accounts as it may deem necessary for the proper administration of the Plan, including, but not limited to, a suspense account for Forfeitures as required pursuant to Section 6.01(D).
4.02 VALUATION OF FUND The Fund will be valued each Valuation Date at fair market value.
4.03 VALUATION OF INDIVIDUAL ACCOUNTS
A. Where all or a portion of the assets of a Participant's
Individual Account are invested in a Separate Fund for the
Participant, then the value of that portion of such Participant's
Individual Account at any relevant time equals the sum of the
fair market values of the assets in such Separate Fund, less any
applicable charges or penalties.
B. The fair market value of the remainder of each Individual Account is determined in the following manner:
1. First, the portion of the Individual Account invested in each Investment Fund as of the previous Valuation Date is determined. Each such portion is reduced by any withdrawal made from the applicable Investment Fund to or for the benefit of a Participant or the Participant's Beneficiary, further reduced by any amounts forfeited by the Participant pursuant to Section 6.01(D) and further reduced by any transfer to another Investment Fund since the previous Valuation Date and is increased by any amount transferred from another Investment Fund since the previous Valuation Date. The resulting amounts are the net Individual Account portions invested in the Investment Funds.
2. Secondly, the net Individual Account portions invested in each Investment Fund are adjusted upwards or downwards, pro rata (i.e., ratio of each net Individual Account portion to the sum of all net Individual Account portions) so that the sum of all the net Individual Account portions invested in an Investment Fund will equal the then fair market value of the Investment Fund. Notwithstanding the previous sentence, for the first Plan Year only, the net Individual Account portions shall be the sum of all contributions made to each Participant's Individual Account during the first Plan Year.
3. Thirdly, any contributions to the Plan and Forfeitures are allocated in accordance with the appropriate allocation provisions of Section 3. For purposes of Section 4, contributions made by the Employer for any Plan Year but after that Plan Year will be considered to have been made on the last day of that Plan Year regardless of when paid to the Trustee (or Custodian, if applicable).
Amounts contributed between Valuation Dates will not be credited with investment gains or losses until the next following Valuation Date.
4. Finally, the portions of the Individual Account invested in each Investment Fund (determined in accordance with (1), (2) and (3) above) are added together.
4.04 MODIFICATION OF METHOD FOR VALUING INDIVIDUAL ACCOUNTS If necessary or appropriate, the Plan Administrator may establish different or additional procedures (which shall be uniform and nondiscriminatory) for determining the fair market value of the Individual Accounts.
4.05 SEGREGATION OF ASSETS If a Participant elects a mode of distribution other than a lump sum, the Plan Administrator may place that Participant's account balance into a segregated Investment Fund for the purpose of maintaining the necessary liquidity to provide benefit installments on a periodic basis.
4.06 STATEMENT OF INDIVIDUAL ACCOUNTS No later than 270 days after the close of each Plan Year, the Plan Administrator shall furnish a statement to each Participant indicating the Individual Account balances of such Participant as of the last Valuation Date in such Plan Year.
SECTION FIVE TRUSTEE OR CUSTODIAN
5.01 CREATION OF FUND By adopting this Plan, the Employer establishes the Fund which shall consist of the assets of the Plan held by the Trustee (or Custodian, if applicable) pursuant to this Section 5. Assets within the Fund may be pooled on behalf of all Participants, earmarked on behalf of each Participant or be a combination of pooled and earmarked. To the extent that assets are earmarked for a particular Participant, they will be held in a Separate Fund for that Participant.
No part of the corpus or income of the Fund may be used for, or diverted to, purposes other than for the exclusive benefit of Participants or their Beneficiaries.
5.02 INVESTMENT AUTHORITY Except as provided in Section 5.14 (relating to individual direction of investments by Participants), the Employer, not the Trustee (or Custodian, if applicable), shall have exclusive management and control over the investment of the Fund into any permitted investment. Notwithstanding the preceding sentence, a Trustee may make an agreement with the Employer whereby the Trustee will manage the investment of all or a portion of the Fund. Any such agreement shall be in writing and set forth such matters as the Trustee deems necessary or desirable.
5.03 FINANCIAL ORGANIZATION CUSTODIAN OR TRUSTEE WITHOUT FULL TRUST POWERS This Section 5.03 applies where a financial organization has indicated in the Adoption Agreement that it will serve, with respect to this Plan, as Custodian or as Trustee without full trust powers (under applicable law). Hereinafter, a financial organization Trustee without full trust powers (under applicable law) shall be referred to as a Custodian. The Custodian shall have no discretionary authority with respect to the management of the Plan or the Fund but will act only as directed by the entity who has such authority.
A. Permissible Investments - The assets of the Plan shall be invested only in those investments which are available through the Custodian in the ordinary course of business which the Custodian may legally hold in a qualified plan and which the Custodian chooses to make available to Employers for qualified plan investments. Notwithstanding the preceding sentence, the Prototype Sponsor may, as a condition of making the Plan available to the Employer, limit the types of property in which the assets of the Plan may be invested.
B. Responsibilities of the Custodian - The responsibilities of the Custodian shall be limited to the following:
1. To receive Plan contributions and to hold, invest and reinvest the Fund without distinction between principal and interest; provided, however, that nothing in this Plan shall require the Custodian to maintain physical custody of stock certificates (or other indicia of ownership of any type of asset) representing assets within the Fund;
2. To maintain accurate records of contributions, earnings, withdrawals and other information the Custodian deems relevant with respect to the Plan;
3. To make disbursements from the Fund to Participants or Beneficiaries upon the proper authorization of the Plan Administrator; and
4. To furnish to the Plan Administrator a statement which reflects the value of the investments in the hands of the Custodian as of the end of each Plan Year and as of any other times as the Custodian and Plan Administrator may agree.
C. Powers of the Custodian - Except as otherwise provided in this Plan, the Custodian shall have the power to take any action with respect to the Fund which it deems necessary or advisable to discharge its responsibilities under this Plan including, but not limited to, the following powers:
1. To invest all or a portion of the Fund (including idle cash balances) in time deposits, savings accounts, money market accounts or similar investments bearing a reasonable rate of interest in the Custodian's own savings department or the savings department of another financial organization;
2. To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges or subscription rights and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to pay any assessment or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities or other property;
3. To hold securities or other property of the Fund in its own name, in the name of its nominee or in bearer form; and
4. 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.
5.04 FINANCIAL ORGANIZATION TRUSTEE WITH FULL TRUST POWERS AND INDIVIDUAL TRUSTEE This Section 5.04 applies where a financial organization has indicated in the Adoption Agreement that it will serve as Trustee with full trust powers. This Section also applies where one or more individuals are named in the Adoption Agreement to serve as Trustee(s).
A. Permissible Investments - The Trustee may invest the assets of the Plan in property of any character, real or personal, including, but not limited to the following: stocks, including shares of open-end investment companies (mutual funds); bonds; notes; debentures; options; limited partnership interests; mortgages; real estate or any interests therein; unit investment trusts; Treasury Bills, and other U.S. Government obligations; common trust funds, combined investment trusts, collective trust funds or commingled funds maintained by a bank or similar financial organization (whether or not the Trustee hereunder); savings accounts, time deposits or money market accounts of a bank or similar financial organization (whether or not the Trustee hereunder); annuity contracts; life insurance policies; or in such other investments as is deemed proper without regard to investments authorized by statute or rule of law governing the investment of trust funds but with regard to ERISA and this Plan.
Notwithstanding the preceding sentence, the Prototype Sponsor may, as a condition of making the Plan available to the Employer, limit the types of property in which the assets of the Plan may be invested.
B. Responsibilities of the Trustee - The responsibilities of the Trustee shall be limited to the following:
1. To receive Plan contributions and to hold, invest and reinvest the Fund without distinction between principal and interest; provided, however, that nothing in this Plan shall require the Trustee to maintain physical custody of stock certificates (or other indicia of ownership) representing assets within the Fund;
2. To maintain accurate records of contributions, earnings, withdrawals and other information the Trustee deems relevant with respect to the Plan;
3. To make disbursements from the Fund to Participants or Beneficiaries upon the proper authorization of the Plan Administrator; and
4. To furnish to the Plan Administrator a statement which reflects the value of the investments in the hands of the Trustee as of the end of each Plan Year and as of any other times as the Trustee and Plan Administrator may agree.
C. Powers of the Trustee - Except as otherwise provided in this Plan, the Trustee shall have the power to take any action with respect to the Fund which it deems necessary or advisable to discharge its responsibilities under this Plan including, but not limited to, the following powers:
1. To hold any securities or other property of the Fund in its own name, in the name of its nominee or in bearer form;
2. To purchase or subscribe for securities issued, or real property owned, by the Employer or any trade or business under common control with the Employer but only if the prudent investment and diversification requirements of ERISA are satisfied;
3. To sell, exchange, convey, transfer or otherwise dispose of any securities or other property held by the Trustee, by private contract or at public auction. No person dealing with the Trustee shall be bound to see to the application of the purchase money or to inquire into the validity, expediency, or propriety of any such sale or other disposition, with or without advertisement;
4. To vote upon any stocks, bonds, or other securities; to give general or special proxies or powers of attorney with or without power of substitution; to exercise any conversion privileges or subscription rights and to make any payments incidental thereto; to oppose, or to consent to, or otherwise participate in, corporate reorganizations or other changes affecting corporate securities, and to delegate discretionary powers, and to pay any assessments or charges in connection therewith; and generally to exercise any of the powers of an owner with respect to stocks, bonds, securities or other property;
5. To invest any part or all of the Fund (including idle cash balances) in certificates of deposit, demand or time deposits, savings accounts, money market accounts or similar investments of the Trustee (if the Trustee is a bank or similar financial organization), the Prototype Sponsor or any affiliate of such Trustee or Prototype Sponsor, which bear a reasonable rate of interest;
6. To provide sweep services without the receipt by the Trustee of additional compensation or other consideration (other than reimbursement of direct expenses properly and actually incurred in the performance of such services);
7. To hold in the form of cash for distribution or investment such portion of the Fund as, at any time and from time-to-time, the Trustee shall deem prudent and deposit such cash in interest bearing or noninterest bearing accounts;
8. 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;
9. To settle, compromise, or submit to arbitration any claims, debts, or damages due or owing to or from the Plan, to commence or defend suits or legal or administrative proceedings, and to represent the Plan in all suits and legal and administrative proceedings;
10. To employ suitable agents and counsel, to contract with agents to perform administrative and recordkeeping duties and to pay their reasonable expenses, fees and compensation, and such agent or counsel may or may not be agent or counsel for the Employer;
11. To cause any part or all of the Fund, without limitation as to amount, to be commingled with the funds of other trusts (including trusts for qualified employee benefit plans) by causing such money to be invested as a part of any pooled, common, collective or commingled trust fund (including any such fund described in the Adoption Agreement) heretofore or hereafter created by any Trustee (if the Trustee is a bank), by the Prototype Sponsor, by any affiliate bank of such a Trustee or by such a Trustee or the Prototype Sponsor, or by such an affiliate in participation with others; the instrument or instruments establishing such trust fund or funds, as amended, being made part of this Plan and trust so long as any portion of the Fund shall be invested through the medium thereof; and
12. Generally to do all such acts, execute all such instruments, initiate such proceedings, and exercise all such rights and privileges with relation to property constituting the Fund as if the Trustee were the absolute owner thereof.
5.05 DIVISION OF FUND INTO INVESTMENT FUNDS The Employer may direct the Trustee (or Custodian) from time-to-time to divide and redivide the Fund into one or more Investment Funds. Such Investment Funds may include, but not be limited to, Investment Funds representing the assets
under the control of an investment manager pursuant to Section 5.12 and Investment Funds representing investment options available for individual direction by Participants pursuant to Section 5.14. Upon each division or redivision, the Employer may specify the part of the Fund to be allocated to each such Investment Fund and the terms and conditions, if any, under which the assets in such Investment Fund shall be invested.
5.06 COMPENSATION AND EXPENSES The Trustee (or Custodian, if applicable) shall receive such reasonable compensation as may be agreed upon by the Trustee (or Custodian) and the Employer. The Trustee (or Custodian) shall be entitled to reimbursement by the Employer for all proper expenses incurred in carrying out his or her duties under this Plan, including reasonable legal, accounting and actuarial expenses. If not paid by the Employer, such compensation and expenses may be charged against the Fund.
All taxes of any kind that may be levied or assessed under existing or future laws upon, or in respect of, the Fund or the income thereof shall be paid from the Fund.
5.07 NOT OBLIGATED TO QUESTION DATA The Employer shall furnish the Trustee (or Custodian, if applicable) and Plan Administrator the information which each party deems necessary for the administration of the Plan including, but not limited to, changes in a Participant's status, eligibility, mailing addresses and other such data as may be required. The Trustee (or Custodian) and Plan Administrator shall be entitled to act on such information as is supplied them and shall have no duty or responsibility to further verify or question such information.
5.08 LIABILITY FOR WITHHOLDING ON DISTRIBUTIONS The Plan Administrator shall be responsible for withholding federal income taxes from distributions from the Plan, unless the Participant (or Beneficiary, where applicable) elects not to have such taxes withheld. The Trustee (or Custodian) or other payor may act as agent for the Plan Administrator to withhold such taxes and to make the appropriate distribution reports, if the Plan Administrator furnishes all the information to the Trustee (or Custodian) or other payor it may need to do withholding and reporting.
5.09 RESIGNATION OR REMOVAL OF TRUSTEE (OR CUSTODIAN) The Trustee (or Custodian, if applicable) may resign at any time by giving 30 days advance written notice to the Employer. The resignation shall become effective 30 days after receipt of such notice unless a shorter period is agreed upon.
The Employer may remove any Trustee (or Custodian) at any time by giving written notice to such Trustee (or Custodian) and such removal shall be effective 30 days after receipt of such notice unless a shorter period is agreed upon. The Employer shall have the power to appoint a successor Trustee (or Custodian).
Upon such resignation or removal, if the resigning or removed Trustee (or Custodian) is the sole Trustee (or Custodian), he or she shall transfer all of the assets of the Fund then held by such Trustee (or Custodian) as expeditiously as possible to the successor Trustee (or Custodian) after paying or reserving such reasonable amount as he or she shall deem necessary to provide for the expense in the settlement of the accounts and the amount of any compensation due him or her and any sums chargeable against the Fund for which he or she may be liable. If the Funds as reserved are not sufficient for such purpose, then he or she shall be entitled to reimbursement from the successor Trustee (or Custodian) out of the assets in the successor Trustee's (or Custodian's) hands under this Plan. If the amount reserved shall be in excess of the amount actually needed, the former Trustee (or Custodian) shall return such excess to the successor Trustee (or Custodian).
Upon receipt of the transferred assets, the successor Trustee (or Custodian) shall thereupon succeed to all of the powers and responsibilities given to the Trustee (or Custodian) by this Plan.
The resigning or removed Trustee (or Custodian) shall render an accounting to the Employer and unless objected to by the Employer within 30 days of its receipt, the accounting shall be deemed to have been approved and the resigning or removed Trustee (or Custodian) shall be released and discharged as to all matters set forth in the accounting. Where a financial organization is serving as Trustee (or Custodian) and it is merged with or bought by another organization (or comes under the control of any federal or state agency), that organization shall serve as the successor Trustee (or Custodian) of this Plan, but only if it is the type of organization that can so serve under applicable law.
Where the Trustee or Custodian is serving as a nonbank trustee or custodian pursuant to Section 1.401-12(n) of the Income Tax Regulations, the Employer will appoint a successor Trustee (or Custodian) upon notification by the Commissioner of Internal Revenue that such substitution is required because the Trustee (or Custodian) has failed to comply with the requirements of Section 1.401-12(n) or is not keeping such records or making such returns or rendering such statements as are required by forms or regulations.
5.10 DEGREE OF CARE - LIMITATIONS OF LIABILITY The Trustee (or Custodian) shall not be liable for any losses incurred by the Fund by any direction to invest communicated by the Employer, Plan Administrator, investment manager appointed pursuant to Section 5.12 or any Participant or Beneficiary. The Trustee (or Custodian) shall be under no liability for distributions made or other action taken or not
taken at the written direction of the Plan Administrator. It is specifically understood that the Trustee (or Custodian) shall have no duty or responsibility with respect to the determination of matters pertaining to the eligibility of any Employee to become a Participant or remain a Participant hereunder, the amount of benefit to which a Participant or Beneficiary shall be entitled to receive hereunder, whether a distribution to Participant or Beneficiary is appropriate under the terms of the Plan or the size and type of any policy to be purchased from any insurer for any Participant hereunder or similar matters; it being understood that all such responsibilities under the Plan are vested in the Plan Administrator.
5.11 INDEMNIFICATION OF PROTOTYPE SPONSOR AND TRUSTEE (OR CUSTODIAN) Notwithstanding any other provision herein, and except as may be otherwise provided by ERISA, the Employer shall indemnify and hold harmless the Trustee (or Custodian, if applicable) and the Prototype Sponsor, their officers, directors, employees, agents, their heirs, executors, successors and assigns, from and against any and all liabilities, damages, judgments, settlements, losses, costs, charges, or expenses (including legal expenses) at any time arising out of or incurred in connection with any action taken by such parties in the performance of their duties with respect to this Plan, unless there has been a final adjudication of gross negligence or willful misconduct in the performance of such duties.
Further, except as may be otherwise provided by ERISA, the Employer will indemnify the Trustee (or Custodian) and Prototype Sponsor from any liability, claim or expense (including legal expense) which the Trustee (or Custodian) and Prototype Sponsor shall incur by reason of or which results, in whole or in part, from the Trustee's (or Custodian's) or Prototype Sponsor's reliance on the facts and other directions and elections the Employer communicates or fails to communicate.
5.12 INVESTMENT MANAGERS
A. Definition of Investment Manager - The Employer may appoint one
or more investment managers to make investment decisions with
respect to all or a portion of the Fund. The investment manager
shall be any firm or individual registered as an investment
adviser under the Investment Advisers Act of 1940, a bank as
defined in said Act or an insurance company qualified under the
laws of more than one state to perform services consisting of the
management, acquisition or disposition of any assets of the Plan.
B. Investment Manager's Authority - A separate Investment Fund shall be established representing the assets of the Fund invested at the direction of the investment manager. The investment manager so appointed shall direct the Trustee (or Custodian, if applicable ) with respect to the investment of such Investment Fund. The investments which may be acquired at the direction of the investment manager are those described in Section 5.03(A) (for Custodians) or Section 5.04(A) (for Trustees).
C. Written Agreement - The appointment of any investment manager shall be by written agreement between the Employer and the investment manager and a copy of such agreement (and any modification or termination thereof) must be given to the Trustee (or Custodian).
The agreement shall set forth, among other matters, the effective date of the investment manager's appointment and an acknowledgement by the investment manager that it is a fiduciary of the Plan under ERISA.
D. Concerning the Trustee (or Custodian) - Written notice of each appointment of an investment manager shall be given to the Trustee (or Custodian) in advance of the effective date of such appointment. Such notice shall specify which portion of the Fund will constitute the Investment Fund subject to the investment manager's direction. The Trustee (or Custodian) shall comply with the investment direction given to it by the investment manager and will not be liable for any loss which may result by reason of any action (or inaction) it takes at the direction of the investment manager.
5.13 MATTERS RELATING TO INSURANCE
A. If a life insurance policy is to be purchased for a Participant,
the aggregate premium for certain life insurance for each
Participant must be less than a certain percentage of the
aggregate Employer Contributions and Forfeitures allocated to a
Participant's Individual Account at any particular time as
follows:
1. Ordinary Life Insurance - For purposes of these incidental insurance provisions, ordinary life insurance contracts are contracts with both nondecreasing death benefits and nonincreasing premiums. If such contracts are purchased, less than 50% of the aggregate Employer Contributions and Forfeitures allocated to any Participant's Individual Account will be used to pay the premiums attributable to them.
2. Term and Universal Life Insurance - No more than 25% of the aggregate Employer Contributions and Forfeitures allocated to any Participant's Individual Account will be used to pay the premiums on term life insurance contracts, universal life insurance contracts, and all other life insurance contracts which are not ordinary life.
3. Combination - The sum of 50% of the ordinary life insurance premiums and all other life insurance premiums will not exceed 25% of the aggregate Employer Contributions and Forfeitures allocated to any Participant's Individual Account.
If this Plan is a profit sharing plan, the above incidental benefits limits do not apply to life insurance contracts purchased with Employer Contributions and Forfeitures that have been in the Participant's Individual Account for at least 2 full Plan Years, measured from the date such contributions were allocated.
B. Any dividends or credits earned on insurance contracts for a Participant shall be allocated to such Participant's Individual Account.
C. Subject to Section 6.05, the contracts on a Participant's life will be converted to cash or an annuity or distributed to the Participant upon commencement of benefits.
D. The Trustee (or Custodian, if applicable) shall apply for and will be the owner of any insurance contract(s) purchased under the terms of this Plan. The insurance contract(s) must provide that proceeds will be payable to the Trustee (or Custodian), however, the Trustee (or Custodian) shall be required to pay over all proceeds of the contract(s) to the Participant's designated Beneficiary in accordance with the distribution provisions of this Plan. A Participant's spouse will be the designated Beneficiary of the proceeds in all circumstances unless a qualified election has been made in accordance with Section 6.05. Under no circumstances shall the Fund retain any part of the proceeds. In the event of any conflict between the terms of this Plan and the terms of any insurance contract purchased hereunder, the Plan provisions shall control.
E. The Plan Administrator may direct the Trustee (or Custodian) to sell and distribute insurance or annuity contracts to a Participant (or other party as may be permitted) in accordance with applicable law or regulations.
5.14 DIRECTION OF INVESTMENTS BY PARTICIPANT If so indicated in the Adoption Agreement, each Participant may individually direct the Trustee (or Custodian, if applicable) regarding the investment of part or all of his or her Individual Account. To the extent so directed, the Employer, Plan Administrator, Trustee (or Custodian) and all other fiduciaries are relieved of their fiduciary responsibility under Section 404 of ERISA.
The Plan Administrator shall direct that a Separate Fund be established in the name of each Participant who directs the investment of part or all of his or her Individual Account. Each Separate Fund shall be charged or credited (as appropriate) with the earnings, gains, losses or expenses attributable to such Separate Fund. No fiduciary shall be liable for any loss which results from a Participant's individual direction. The assets subject to individual direction shall not be invested in collectibles as that term is defined in Section 408(m) of the Code.
The Plan Administrator shall establish such uniform and
nondiscriminatory rules relating to individual direction as it deems
necessary or advisable including, but not limited to, rules describing
(1) which portions of Participant's Individual Account can be
individually directed; (2) the frequency of investment changes; (3)
the forms and procedures for making investment changes; and (4) the
effect of a Participant's failure to make a valid direction.
The Plan Administrator may, in a uniform and nondiscriminatory manner, limit the available investments for Participants' individual direction to certain specified investment options (including, but not limited to, certain mutual funds, investment contracts, deposit accounts and group trusts). The Plan Administrator may permit, in a uniform and nondiscriminatory manner, a Beneficiary of a deceased Participant or the alternate payee under a qualified domestic relations order (as defined in Section 414(p) of the Code) to individually direct in accordance with this Section.
SECTION SIX VESTING AND DISTRIBUTION
6.01 DISTRIBUTION TO PARTICIPANT
A. Distributable Events
1. Entitlement to Distribution - The Vested portion of a
Participant's Individual Account shall be distributable to
the Participant upon (1) the occurrence of any of the
distributable events specified in the Adoption Agreement;
(2) the Participant's Termination of Employment after
attaining Normal Retirement Age; (3) the termination of the
Plan; and (4) the Participant's Termination of Employment
after satisfying any Early Retirement Age conditions.
If a Participant separates from service before satisfying the Early Retirement Age requirement, but has satisfied the service requirement, the Participant will be entitled to elect an early retirement benefit upon satisfaction of such age requirement.
2. Written Request: When Distributed - A Participant entitled to distribution who wishes to receive a distribution must submit a written request to the Plan Administrator. Such request shall be made upon a form provided by
the Plan Administrator. Upon a valid request, the Plan Administrator shall direct the Trustee (or Custodian, if applicable) to commence distribution no later than the time specified in the Adoption Agreement for this purpose and, if not specified in the Adoption Agreement, then no later than 90 days following the later of:
a. the close of the Plan Year within which the event occurs which entitles the Participant to distribution; or
b. the close of the Plan Year in which the request is received.
3. Special Rules for Withdrawals During Service - If this is a profit sharing plan and the Adoption Agreement so provides, a Participant may elect to receive a distribution of all or part of the Vested portion of his or her Individual Account, subject to the requirements of Section 6.05 and further subject to the following limits:
a. Participant for 5 or more years. An Employee who has been a Participant in the Plan for 5 or more years may withdraw up to the entire Vested portion of his or her Individual Account.
b. Participant for less than 5 years. An Employee who has been a Participant in the Plan for less than 5 years may withdraw only the amount which has been in his or her Individual Account attributable to Employer Contributions for at least 2 full Plan Years, measured from the date such contributions were allocated. However, if the distribution is on account of hardship, the Participant may withdraw up to his or her entire Vested portion of the Participant's Individual Account. For this purpose, hardship shall have the meaning set forth in Section 6.01(A)(4) of the Code.
4. Special Rules for Hardship Withdrawals - If this is a profit sharing plan and the Adoption Agreement so provides, a Participant may elect to receive a hardship distribution of all or part of the Vested portion of his or her Individual Account, subject to the requirements of Section 6.05 and further subject to the following limits:
a. Participant for 5 or more years. An Employee who has been a Participant in the Plan for 5 or more years may withdraw up to the entire Vested portion of his or her Individual Account.
b. Participant for less than 5 years. An Employee who has been a Participant in the Plan for less than 5 years may withdraw only the amount which has been in his or her Individual Account attributable to Employer Contributions for at least 2 full Plan Years, measured from the date such contributions were allocated.
For purposes of this Section 6.01(A)(4) and Section 6.01(A)(3) hardship is defined as an immediate and heavy financial need of the Participant where such Participant lacks other available resources. The following are the only financial needs considered immediate and heavy: expenses incurred or necessary for medical care, described in Section 213(d) of the Code, of the Employee, the Employee's spouse or dependents; the purchase (excluding mortgage payments) of a principal residence for the Employee; payment of tuition and related educational fees for the next 12 months of post-secondary education for the Employee, the Employee's spouse, children or dependents; or the need to prevent the eviction of the Employee from, or a foreclosure on the mortgage of, the Employee's principal residence.
A distribution will be considered as necessary to satisfy an immediate and heavy financial need of the Employee only if:
1) The employee has obtained all distributions, other than hardship distributions, and all nontaxable loans under all plans maintained by the Employer;
2) The distribution is not in excess of the amount of an immediate and heavy financial need (including amounts necessary to pay any federal, state or local income taxes or penalties reasonably anticipated to result from the distribution).
5. One-Time In-Service Withdrawal Option - If this is a profit sharing plan and the Employer has elected the one-time in-service withdrawal option in the Adoption Agreement, then Participants will be permitted only one in-service withdrawal during the course of such Participants employment with the Employer. The amount which the Participant can withdraw will be limited to the lesser of the amount determined under the limits set forth in Section 6.01(A)(3) or the percentage of the Participant's Individual Account specified by the Employer in the Adoption Agreement. Distributions under this Section will be subject to the requirements of Section 6.05.
6. Commencement of Benefits - Notwithstanding any other provision, 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:
a. the Participant attains Normal Retirement Age;
b. occurs the 10th anniversary of the year in which the Participant commenced participation in the Plan; or
c. the Participant incurs a Termination of Employment.
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 6.02(B) of the Plan, shall be deemed to be an election to defer commencement of payment of any benefit sufficient to satisfy this Section.
B. Determining the Vested Portion - In determining the Vested portion of a Participant's Individual Account, the following rules apply:
1. Employer Contributions and Forfeitures - The Vested portion of a Participant's Individual Account derived from Employer Contributions and Forfeitures is determined by applying the vesting schedule selected in the Adoption Agreement (or the vesting schedule described in Section 6.01(C) if the Plan is a Top-Heavy Plan).
2. Rollover and Transfer Contributions - A Participant is fully Vested in his or her rollover contributions and transfer contributions.
3. Fully Vested Under Certain Circumstances - A Participant is fully Vested in his or her Individual Account if any of the following occurs:
a. the Participant reaches Normal Retirement Age;
b. the Plan is terminated or partially terminated; or
c. there exists a complete discontinuance of contributions under the Plan.
Further, unless otherwise indicated in the Adoption Agreement, a Participant is fully Vested if the Participant dies, incurs a Disability, or satisfies the conditions for Early Retirement Age (if applicable).
4. Participants in a Prior Plan - If a Participant was a participant in a Prior Plan on the Effective Date, his or her Vested percentage shall not be less than it would have been under such Prior Plan as computed on the Effective Date.
C. Minimum Vesting Schedule for Top-Heavy Plans - The following vesting provisions apply for any Plan Year in which this Plan is a Top-Heavy Plan.
Notwithstanding the other provisions of this Section 6.01 or the vesting schedule selected in the Adoption Agreement (unless those provisions or that schedule provide for more rapid vesting), a Participant's Vested portion of his or her Individual Account attributable to Employer Contributions and Forfeitures shall be determined in accordance with the vesting schedule elected by the Employer in the Adoption Agreement (and if no election is made the 6 year graded schedule will be deemed to have been elected) as described below:
6 YEAR GRADED 3 YEAR CLIFF
Years of Years of
Vesting Service Vested Percentage Vesting Service Vested Percentage
--------------- ----------------- --------------- -----------------
1 0 1 0
2 20 2 0
3 40 3 100
4 60
5 80
6 100
|
This minimum vesting schedule applies to all benefits within the meaning of Section 411(a)(7) of the Code, except those attributable to Nondeductible Employee Contributions including benefits accrued before the effective date of Section 416 of the Code and benefits accrued before the Plan became a Top-Heavy Plan. Further, no decrease in a Participant's Vested percentage may occur in the event the Plan's status as a Top-Heavy Plan changes for any Plan Year. However, this Section 6.01(C) does not apply to the Individual Account of any Employee who does not have an Hour of Service after the Plan has initially become a Top-Heavy Plan and such Employee's Individual Account attributable to Employer Contributions and Forfeitures will be determined without regard to this Section.
If this Plan ceases to be a Top-Heavy Plan, then in accordance with the above restrictions, the vesting schedule as selected in the Adoption Agreement will govern. If the vesting schedule under the Plan shifts in or out of top-heavy status, such shift is an amendment to the vesting schedule and the election in Section 9.04 applies.
D. Break in Vesting Service and Forfeitures - If a Participant incurs a Termination of Employment, any portion of his or her Individual Account which is not Vested shall be held in a suspense account. Such suspense account shall share in any increase or decrease in the fair market value of the assets of the Fund in accordance with Section 4 of the Plan. The disposition of such suspense account shall be as follows:
1. Breaks in Vesting Service - If a Participant neither
receives nor is deemed to receive a distribution pursuant to
Section 6.01(D)(3) or (4) and the Participant returns to the
service of the Employer before incurring 5 consecutive
Breaks in Vesting Service, there shall be no Forfeiture and
the amount in such suspense account shall be recredited to
such Participant's Individual Account.
2. Five Consecutive Breaks in Vesting Service - If a Participant neither receives nor is deemed to receive a distribution pursuant to Section 6.01(D)(3) or (4) and the Participant does not return to the service of the Employer before incurring 5 consecutive Breaks in Vesting Service, the portion of the Participant's Individual Account which is not Vested shall be treated as a Forfeiture and allocated in accordance with Section 3.01(C).
3. Cash-out of Certain Participants - If the value of the Vested portion of such Participant's Individual Account derived from Nondeductible Employee Contributions and Employer Contributions does not exceed $3,500, the Participant shall receive a distribution of the entire Vested portion of such Individual Account and the portion which is not Vested shall be treated as a Forfeiture and allocated in accordance with Section 3.01(C). For purposes of this Section, if the value of the Vested portion of a Participant's Individual Account is zero, the Participant shall be deemed to have received a distribution of such Vested Individual Account. A Participant's Vested Individual 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.
4. Participants Who Elect to Receive Distributions - If such Participant elects to receive a distribution, in accordance with Section 6.02(B), of the value of the Vested portion of his or her Individual Account derived from Nondeductible Employee Contributions and Employer Contributions, the portion which is not Vested shall be treated as a Forfeiture and allocated in accordance with Section 3.01(C).
5. Re-employed Participants - If a Participant receives or is deemed to receive a distribution pursuant to Section 6.01(D)(3) or (4) above and the Participant resumes employment covered under this Plan, the Participant's Employer-derived Individual Account balance will be restored to the amount on the date of distribution if the Participant repays to the Plan the full amount of the distribution attributable to Employer Contributions before the earlier of 5 years after the first date on which the Participant is subsequently re-employed by the Employer, or the date the Participant incurs 5 consecutive Breaks in Vesting Service following the date of the distribution.
Any restoration of a Participant's Individual Account pursuant to Section 6.01(D)(5) shall be made from other Forfeitures, income or gain to the Fund or contributions made by the Employer.
E. Distribution Prior to Full Vesting - If a distribution is made to a Participant who was not then fully Vested in his or her Individual Account derived from Employer Contributions and the Participant may increase his or her Vested percentage in his or her Individual Account, then the following rules shall apply:
1. a separate account will be established for the Participant's interest in the Plan as of the time of the distribution, and
2. at any relevant time the Participant's Vested portion of the separate account will be equal to an amount ("X") determined by the formula: X=P (AB + (R x D)) - (R x D) where "P" is the Vested percentage at the relevant time, "AB" is the separate account balance at the relevant time; "D" is the amount of the distribution; and "R" is the ratio of the separate account balance at the relevant time to the separate account balance after distribution.
6.02 FORM OF DISTRIBUTION TO A PARTICIPANT
A. Value of Individual Account Does Not Exceed $3,500 - If the value
of the Vested portion of a Participant's Individual Account
derived from Nondeductible Employee Contributions and Employer
Contributions does not exceed $3,500, distribution from the Plan
shall be made to the Participant in a single lump sum in lieu of
all other forms of distribution from the Plan as soon as
administratively feasible.
B. Value of Individual Account Exceeds $3,500
1. If the value of the Vested portion of a Participant's Individual Account derived from Nondeductible Employee Contributions and Employer Contributions exceeds (or at the time of any prior distribution exceeded) $3,500, and the Individual Account is immediately distributable, the Participant and the Participant's spouse (or where either the Participant or the spouse died, the survivor) must consent to any distribution of such Individual Account. The consent of the Participant and the Participant's spouse shall be obtained in writing within the
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 Individual Account 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) of the Code, and shall be provided no less than 30 days and no more than 90 days prior to the annuity starting date.
If a distribution is one to which Sections 401(a)(11) and 417 of the Internal Revenue Code do not apply, such distribution may commence less than 30 days after the notice required under Section 1.411(a)-11(c) of the Income Tax Regulations is given, provided that:
a. the Plan Administrator clearly informs the Participant that the Participant has a right to a period of at least 30 days after receiving the notice to consider the decision of whether or not to elect a distribution (and, if applicable, a particular distribution option), and
b. the Participant, after receiving the notice, affirmatively elects a distribution.
Notwithstanding the foregoing, only the Participant need consent to the commencement of a distribution in the form of a qualified joint and survivor annuity while the Individual Account 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 Individual Account 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.
An Individual Account is immediately distributable if any part of the Individual Account 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 62.
2. 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 Vested portion of a Participant's Individual Account shall not include amounts attributable to accumulated deductible employee contributions within the meaning of Section 72(o)(5)(B) of the Code.
C. Other Forms of Distribution to Participant - If the value of the Vested portion of a Participant's Individual Account exceeds $3,500 and the Participant has properly waived the joint and survivor annuity, as described in Section 6.05, the Participant may request in writing that the Vested portion of his or her Individual Account be paid to him or her in one or more of the following forms of payment: (1) in a lump sum; (2) in installment payments over a period not to exceed the life expectancy of the Participant or the joint and last survivor life expectancy of the Participant and his or her designated Beneficiary; or (3) applied to the purchase of an annuity contract.
Notwithstanding anything in this Section 6.02 to the contrary, a Participant cannot elect payments in the form of an annuity if the Retirement Equity Act safe harbor rules of Section 6.05(F) apply.
6.03 DISTRIBUTIONS UPON THE DEATH OF A PARTICIPANT
A. Designation of Beneficiary - Spousal Consent - Each Participant
may designate, upon a form provided by and delivered to the Plan
Administrator, one or more primary and contingent Beneficiaries
to receive all or a specified portion of the Participant's
Individual Account in the event of his or her death. A
Participant may change or revoke such Beneficiary designation
from time to time by completing and delivering the proper form to
the Plan Administrator.
In the event that a Participant wishes to designate a primary Beneficiary who is not his or her spouse, his or her spouse must consent in writing to such designation, and the spouse's consent must acknowledge the effect of such designation and be witnessed by a notary public or plan representative. Notwithstanding this consent requirement, if the Participant establishes to the satisfaction of the Plan Administrator that such written consent may not be obtained because there is no spouse or the spouse cannot be located, no consent shall be required. Any change of Beneficiary will require a new spousal consent.
B. Payment to Beneficiary - If a Participant dies before the Participant's entire Individual Account has been paid to him or her, such deceased Participant's Individual Account shall be payable to any surviving Beneficiary designated by the Participant, or, if no Beneficiary survives the Participant, to the Participant's estate.
C. Written Request: When Distributed - A Beneficiary of a deceased Participant entitled to a distribution who wishes to receive a distribution must submit a written request to the Plan Administrator. Such request shall be made upon a form provided by the Plan Administrator. Upon a valid request, the Plan Administrator shall direct the Trustee (or Custodian) to commence distribution no later than the time specified in the Adoption Agreement for this purpose and if not specified in the Adoption Agreement, then no later than 90 days following the later of:
1. the close of the Plan Year within which the Participant dies; or
2. the close of the Plan Year in which the request is received.
6.04 FORM OF DISTRIBUTION TO BENEFICIARY
A. Value of Individual Account Does Not Exceed $3,500 - If the value
of the Participant's Individual Account derived from
Nondeductible Employee Contributions and Employer Contributions
does not exceed $3,500, the Plan Administrator shall direct the
Trustee (or Custodian, if applicable) to make a distribution to
the Beneficiary in a single lump sum in lieu of all other forms
of distribution from the Plan.
B. Value of Individual Account Exceeds $3,500 - If the value of a Participant's Individual Account derived from Nondeductible Employee Contributions and Employer Contributions exceeds $3,500 the preretirement survivor annuity requirements of Section 6.05 shall apply unless waived in accordance with that Section or unless the Retirement Equity Act safe harbor rules of Section 6.05(F) apply. However, a surviving spouse Beneficiary may elect any form of payment allowable under the Plan in lieu of the preretirement survivor annuity. Any such payment to the surviving spouse must meet the requirements of Section 6.06.
C. Other Forms of Distribution to Beneficiary - If the value of a Participant's Individual Account exceeds $3,500 and the Participant has properly waived the preretirement survivor annuity, as described in Section 6.05 (if applicable) or if the Beneficiary is the Participant's surviving spouse, the Beneficiary may, subject to the requirements of Section 6.06, request in writing that the Participant's Individual Account be paid as follows: (1) in a lump sum; or (2) in installment payments over a period not to exceed the life expectancy of such Beneficiary.
6.05 JOINT AND SURVIVOR ANNUITY REQUIREMENTS
A. The provisions of this Section shall apply to any Participant who
is credited with at least one Hour of Eligibility Service with
the Employer on or after August 23, 1984, and such other
Participants as provided in Section 6.05(G).
B. Qualified Joint and Survivor Annuity - Unless an optional form of benefit is selected pursuant to a qualified election within the 90-day period ending on the annuity starting date, a married Participant's Vested account balance will be paid in the form of a qualified joint and survivor annuity and an unmarried Participant's Vested account balance will be paid in the form of a life annuity. The Participant may elect to have such annuity distributed upon attainment of the earliest retirement age under the Plan.
C. 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.
D. Definitions
1. Election Period - The period which begins on the first day of the Plan Year in which the Participant attains age 35 and ends on the date of the Participant's death. If a Participant separates from service prior to the first day of the Plan Year in which age 35 is attained, with respect to the account balance as of the date of separation, the election period shall begin on the date of separation.
Pre-age 35 waiver - A Participant who will not yet attain age 35 as of the end of any current Plan Year may make 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 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 6.05(E)(1). Qualified preretirement survivor annuity coverage will be automatically reinstated as of the first day of the Plan Year in which the Participant attains age 35. Any new waiver on or after such date shall be subject to the full requirements of this Section 6.05.
2. Earliest Retirement Age - The earliest date on which, under the Plan, the Participant could elect to receive retirement benefits.
3. Qualified Election - 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: (a) the Participant's spouse consents in writing to the election, (b) the election designates a specific Beneficiary, including any class of beneficiaries or any contingent beneficiaries, which may not be changed without spousal consent (or the spouse expressly permits designations by the Participant without any further spousal consent); (c) the spouse's consent acknowledges the effect of the election; and (d) the spouse's consent is witnessed by a plan representative or notary public. Additionally, a Participant's waiver of the qualified joint and survivor annuity shall not be effective unless the election designates a form of benefit payment which may not be changed without spousal consent (or the spouse expressly permits designations by the Participant without any further spousal consent). If it is established to the satisfaction of a plan representative that there is no spouse or that the spouse cannot be located, a waiver will be deemed a qualified election.
Any consent by a spouse obtained under this provision (or establishment that the consent of a spouse may not be obtained) shall be effective only with respect to such spouse. A consent that permits designations by the Participant without any requirement of further consent by such spouse must acknowledge that the spouse has the right to limit consent to a specific Beneficiary, and a specific form of benefit where applicable, and that the spouse voluntarily elects to relinquish either or both of such rights. A revocation of a prior 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 6.05(E) below.
4. 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 is not less than 50% and not more than 100% of the amount of the annuity which is payable during the joint lives of the Participant and the spouse and which is the amount of benefit which can be purchased with the Participant's vested account balance. The percentage of the survivor annuity under the Plan shall be 50% (unless a different percentage is elected by the Employer in the Adoption Agreement).
5. 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.
6. Annuity Starting Date - The first day of the first period for which an amount is paid as an annuity or any other form.
7. Vested Account Balance - The aggregate value of the Participant's Vested account balances derived from Employer and Nondeductible Employee Contributions (including rollovers), whether Vested before or upon death, including the proceeds of insurance contracts, if any, on the Participant's life. The provisions of this Section 6.05 shall apply to a Participant who is Vested in amounts attributable to Employer Contributions, Nondeductible Employee Contributions (or both) at the time of death or distribution.
E. Notice Requirements
1. In the case of a qualified joint and survivor annuity, the Plan Administrator shall no less than 30 days and not more than 90 days prior to the annuity starting date provide each Participant a written explanation of: (a) the terms and conditions of a qualified joint and survivor annuity; (b) the Participant's right to make and the effect of an election to waive the qualified joint and survivor annuity form of benefit; (c) the rights of a Participant's spouse; and (d) the right to make, and the effect of, a revocation of a previous election to waive the qualified joint and survivor annuity.
2. In the case of a qualified preretirement annuity as described in Section 6.05(C), 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 Section 6.05(E)(1) applicable to a qualified joint and survivor annuity.
The applicable period for a Participant is whichever of the
following periods ends last: (a) the period beginning with
the first day of the Plan Year in which the Participant
attains age 32 and ending with the close of the Plan Year
preceding the Plan Year in which the Participant attains age
35; (b) a reasonable period ending after the individual
becomes a Participant; (c) a reasonable period ending after
Section 6.05(E)(3) ceases to apply to the Participant; and
(d) a reasonable period ending after this Section 6.05 first
applies to the Participant. Notwithstanding the foregoing,
notice must be provided within a reasonable period ending
after separation from service in the case of a Participant
who separates from service before attaining age 35.
For purposes of applying the preceding paragraph, a reasonable period ending after the enumerated events described in (b), (c) and (d) is the end of the two-year period beginning one year prior to the date the applicable event occurs, and ending one year after that date. In the case of a Participant who separates from service before the Plan Year in which age 35 is attained, notice shall be provided within the two-year period beginning one year prior to separation and ending one year after separation. If such a Participant thereafter returns to employment with the Employer, the applicable period for such Participant shall be redetermined.
3. Notwithstanding the other requirements of this Section 6.05(E), the respective notices prescribed by this Section 6.05(E), need not be given to a Participant if (a) the Plan "fully subsidizes" the costs of a qualified joint and survivor annuity or qualified preretirement survivor annuity, and (b) 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 Section 6.05(E)(3), 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.
F. Retirement Equity Act Safe Harbor Rules
1. If the Employer so indicates in the Adoption Agreement, this
Section 6.05(F) shall apply to a Participant in a profit
sharing plan, and shall always apply 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:
a. the Participant does not or cannot elect payments in the form of a life annuity; and
b. on the death of a Participant, the Participant's Vested account balance will be paid to the Participant's surviving spouse, but if there is no surviving spouse, or if the surviving spouse has consented in a manner conforming to a qualified election, then to the Participant's designated Beneficiary. The surviving spouse may elect to have distribution of the Vested account balance commence within the 90-day period following the date of the Participant's death. The account balance shall be adjusted for gains or losses occurring after the Participant's death in accordance with the provisions of the Plan governing the adjustment of account balances for other types of distributions. This Section 6.05(F) 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 Section 401(a)(11) and Section 417 of the code. If this Section 6.05(F) is operative, then the provisions of this Section 6.05 other than Section 6.05(G) shall be inoperative.
2. The Participant may waive the spousal death benefit described in this Section 6.05(F) at any time provided that no such waiver shall be effective unless it satisfies the conditions of Section 6.05(D)(3) (other than the notification requirement referred to therein) that would apply to the Participant's waiver of the qualified preretirement survivor annuity.
3. For purposes of this Section 6.05(F), 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 6.05(D)(7).
G. Transitional Rules
1. Any living Participant not receiving benefits on August 23, 1984, who would otherwise not receive the benefits prescribed by the previous subsections of this Section 6.05 must be given the opportunity to elect to have the prior subsections of this Section apply if such Participant is credited with at least one Hour of Service under this Plan or a predecessor plan in a Plan Year beginning on or after January 1, 1976, and such Participant had at least 10 Years of Vesting Service when he or she separated from service.
2. Any living Participant not receiving benefits on August 23, 1984, who was credited with at least one Hour of Service under this Plan or a predecessor plan on or after September 2, 1974, and who is not otherwise credited with any service in a Plan Year beginning on or after January 1, 1976, must be given the opportunity to have his or her benefits paid in accordance with Section 6.05(G)(4).
3. The respective opportunities to elect (as described in
Section 6.05(G)(1) and (2) 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.
4. Any Participant who has elected pursuant to Section
6.05(G)(2) and any Participant who does not elect under
Section 6.05(G)(1) or who meets the requirements of Section
6.05(G)(1) except that such Participant does not have at
least 10 Years of Vesting Service when he or she separates
from service, shall have his or her benefits distributed in
accordance with all of the following requirements if
benefits would have been payable in the form of a life
annuity:
a. Automatic Joint and Survivor Annuity - If benefits in the form of a life annuity become payable to a married Participant who:
(1) begins to receive payments under the Plan on or after Normal Retirement Age; or
(2) dies on or after Normal Retirement Age while still working for the Employer; or
(3) begins to receive payments on or after the qualified early retirement age; or
(4) separates from service on or after attaining Normal Retirement 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 6 months before the Participant attains qualified early retirement age and ends not more than 90 days before the commencement of benefits. Any election hereunder will be in writing and may be changed by the Participant at any time.
b. Election of Early Survivor Annuity - A Participant who is employed after attaining the qualified early retirement age will be given the opportunity to elect, during the election period, to have a survivor annuity payable on death. If the Participant elects the survivor annuity, payments under such annuity must not be less than the payments which would have been made to the spouse under the qualified joint and survivor annuity if the Participant had retired on the day before his or her death. Any election under this provision will be in writing and may be changed by the Participant at any time. The election period begins on the later of (1) the 90th day before the Participant attains the qualified early retirement age, or (2) the date on which participation begins, and ends on the date the Participant terminates employment.
c. For purposes of Section 6.05(G)(4):
1. Qualified early retirement age is the latest of:
a. the earliest date, under the Plan, on which the Participant may elect to receive retirement benefits,
b. the first day of the 120th month beginning before the Participant reaches Normal Retirement Age, or
c. the date the Participant begins participation.
2. Qualified joint and survivor annuity is an annuity
for the life of the Participant with a survivor
annuity for the life of the spouse as described in
Section 6.05(D)(4) of this Plan.
6.06 DISTRIBUTION REQUIREMENTS
A. General Rules
1. Subject to Section 6.05 Joint and Survivor Annuity
Requirements, the requirements of this Section 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
Section 6.06 apply to calendar years beginning after
December 31, 1984.
2. All distributions required under this Section 6.06 shall be determined and made in accordance with the Income Tax Regulations under Section 401(a)(9), including the minimum distribution incidental benefit requirement of Section 1.401(a)(9)-2 of the proposed regulations.
B. 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.
C. 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):
1. the life of the Participant,
2. the life of the Participant and a designated Beneficiary,
3. a period certain not extending beyond the life expectancy of the Participant, or
4. a period certain not extending beyond the joint and last survivor expectancy of the Participant and a designated Beneficiary.
D. Determination of Amount to be Distributed Each Year - If the Participant's interest is to be distributed in other than a single sum, the following minimum distribution rules shall apply on or after the required beginning date:
1. Individual Account
a. If a Participant's benefit is to be distributed over
(1) a period not extending beyond the life expectancy
of the Participant or the joint life and last survivor
expectancy of the Participant and the Participant's
designated Beneficiary or (2) a period not extending
beyond the life expectancy of the designated
Beneficiary, the amount required to be distributed for
each calendar year, beginning with distributions for
the first distribution calendar year, must at least
equal the quotient obtained by dividing the
Participant's benefit by the applicable life
expectancy.
b. For calendar years beginning before January 1, 1989, if the Participant's spouse is not the designated Beneficiary, the method of distribution selected must assure that at least 50% of the present value of the amount available for distribution is paid within the life expectancy of the Participant.
c. 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 Income Tax Regulations. Distributions after the death of the Participant shall be distributed using the applicable life expectancy in Section 6.05(D)(1)(a) above as the relevant divisor without regard to proposed regulations 1.401(a)(9)-2.
d. The minimum distribution required for the Participant's first distribution calendar year must be made on or before the Participant's required beginning date. The minimum distribution for other calendar years, including the minimum distribution for the distribution calendar year in which the Employee's required beginning date occurs, must be made on or before December 31 of that distribution calendar year.
2. 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 regulations thereunder.
E. Death Distribution Provisions
1. 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.
2. Distribution Beginning After Death - If the Participant dies before distribution of his or her interest begins, distribution of the Participant's entire interest shall be completed by December 31 of the calendar year containing the fifth anniversary of the Participant's death except to the extent that an election is made to receive distributions in accordance with (a) or (b) below:
a. if any portion of the Participant's interest is payable to a designated Beneficiary, distributions may be made over the life or over a period certain not greater than the life expectancy of the designated Beneficiary commencing on or before December 31 of the calendar year immediately following the calendar year in which the Participant died;
b. if the designated Beneficiary is the Participant's surviving spouse, the date distributions are required to begin in accordance with (a) above shall not be earlier than the later of (1) December 31 of the calendar year immediately following the calendar year in which the Participant dies or (2) December 31 of the calendar year in which the Participant would have attained age 70 1/2.
If the Participant has not made an election pursuant to this Section 6.05(E)(2) 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 6.05(E)(2), 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.
3. For purposes of Section 6.06(E)(2) above, if the surviving spouse dies after the Participant, but before payments to such spouse begin, the provisions of Section 6.06(E)(2), with the exception of paragraph (b) therein, shall be applied as if the surviving spouse were the Participant.
4. For purposes of this Section 6.06(E), 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.
5. For purposes of this Section 6.06(E), distribution of a
Participant's interest is considered to begin on the
Participant's required beginning date (or, if Section
6.06(E)(3) above is applicable, the date distribution is
required to begin to the surviving spouse pursuant to
Section 6.06(E)(2) above). If distribution in the form of an
annuity irrevocably commences to the Participant before the
required beginning date, the date distribution is considered
to begin is the date distribution actually commences.
F. Definitions
1. 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 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.
2. Designated Beneficiary - The individual who is designated as the Beneficiary under the Plan in accordance with Section 401(a)(9) of the Code and the regulations thereunder.
3. 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 6.05(E) above.
4. Life Expectancy - 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.
Unless otherwise elected by the Participant (or spouse, in the case of distributions described in Section 6.05(E)(2)(b) 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 nonspouse Beneficiary may not be recalculated.
5. Participant's Benefit
a. The account balance as of the last valuation date in the valuation calendar year (the calendar year immediately preceding the distribution 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.
b. Exception for second distribution calendar year. For purposes of paragraph (a) 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.
6. Required Beginning Date
a. General Rule - The required beginning date of a Participant is the first day of April of the calendar year following the calendar year in which the Participant attains age 70 1/2.
b. Transitional Rules - The required beginning date of a Participant who attains age 70 1/2 before January 1, 1988, shall be determined in accordance with (1) or (2) below:
(1) Non 5% Owners - The required beginning date of a Participant who is not a 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 70 1/2 occurs.
(2) 5% Owners - The required beginning date of a Participant who is a 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 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 5% owner, or the calendar year in which the Participant retires.
The required beginning date of a Participant who is not a 5% owner who attains age 70 1/2 during 1988 and who has not retired as of January 1, 1989, is April 1, 1990.
c. 5% Owner - A Participant is treated as a 5% owner for purposes of this Section 6.06(F)(6) if such Participant is a 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 66 1/2 or any subsequent Plan Year.
d. Once distributions have begun to a 5% owner under this
Section 6.06(F)(6) they must continue to be
distributed, even if the Participant ceases to be a 5%
owner in a subsequent year.
G. Transitional Rule
1. Notwithstanding the other requirements of this Section 6.06 and subject to the requirements of Section 6.05, Joint and Survivor Annuity Requirements, distribution on behalf of any Employee, including a 5% owner, may be made in accordance with all of the following requirements (regardless of when such distribution commences):
a. The distribution by the Fund is one which would not have qualified such Fund under Section 401(a)(9) of the Code as in effect prior to amendment by the Deficit Reduction Act of 1984.
b. The distribution is in accordance with a method of distribution designated by the Employee whose interest in the Fund is being distributed or, if the Employee is deceased, by a Beneficiary of such Employee.
c. Such designation was in writing, was signed by the Employee or the Beneficiary, and was made before January 1, 1984.
d. The Employee had accrued a benefit under the Plan as of December 31, 1983.
e. The method of distribution designated by the Employee or the Beneficiary specifies the time at which distribution will commence, the period over which distributions will be made, and in the case of any distribution upon the Employee's death, the Beneficiaries of the Employee listed in order of priority.
2. 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.
3. 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 Sections 6.06(G)(1)(a) and (e).
4. If a designation is revoked, any subsequent distribution must satisfy the requirements of Section 401(a)(9) of the Code and the regulations thereunder. If a designation is revoked subsequent to the date distributions are required to begin, the Plan must distribute by the end of the calendar year following the calendar year in which
the revocation occurs the total amount not yet distributed which would have been required to have been distributed to satisfy 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 Income Tax Regulations. Any changes in the designation will be considered to be a revocation of the designation. However, the mere substitution or addition of another Beneficiary (one not named in the designation) under the designation will not be considered to be a revocation of the designation, so long as such substitution or addition does not alter the period over which distributions are to be made under the designation, directly or indirectly (for example, by altering the relevant measuring life). In the case in which an amount is transferred or rolled over from one plan to another plan, the rules in Q&A J-2 and Q&A J-3 shall apply.
6.07 ANNUITY CONTRACTS Any annuity contract distributed under the Plan (if permitted or required by this Section 6) must be nontransferable. The terms of any annuity contract purchased and distributed by the Plan to a Participant or spouse shall comply with the requirements of the Plan.
6.08 LOANS TO PARTICIPANTS
If the Adoption Agreement so indicates, a Participant may receive a
loan from the Fund, subject to the following rules:
A. Loans shall be made available to all Participants on a reasonably
equivalent basis.
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 Vested portion of a Participant's Individual Account.
E. A Participant must obtain the consent of his or her spouse, if any, to the use of the Individual Account as security for the loan. Spousal consent shall be obtained no earlier than the beginning of the 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. Notwithstanding the foregoing, no spousal consent is necessary if, at the time the loan is secured, no consent would be required for a distribution under Section 417(a)(2)(B). In addition, spousal consent is not required if the Plan or the Participant is not subject to Section 401(a)(11) at the time the Individual Account is used as security, or if the total Individual Account subject to the security is less than or equal to $3,500.
F. In the event of default, foreclosure on the note and attachment of security will not occur until a distributable event occurs in the Plan. Notwithstanding the preceding sentence, a Participant's default on a loan will be treated as a distributable event and as soon as administratively feasible after the default, the Participant's Vested Individual Account will be reduced by the lesser of the amount in default (plus accrued interest) or the amount secured. If this Plan is a 401(k) plan, then to the extent the loan is attributable to a Participant's Elective Deferrals, Qualified Nonelective Contributions or Qualified Matching Contributions, the Participant's Individual Account will not be reduced unless the Participant has attained age 59 1/2 or has another distributable event. A Participant will be deemed to have consented to the provision at the time the loan is made to the Participant.
G. No loans will 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 5% of the outstanding stock of the corporation.
If a valid spousal consent has been obtained in accordance with 6.08(E), then, notwithstanding any other provisions of this Plan, the portion of the Participant's Vested Individual Account used as a security interest held by the Plan by reason of a loan outstanding to the Participant shall be taken into account for purposes of determining the amount of the account balance payable at the time of death or distribution, but only if the reduction is used as repayment of the loan. If less than 100% of the Participant's Vested Individual Account (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 Individual Account by the amount of the security used as repayment of the loan, and then determining the benefit payable to the surviving spouse.
To avoid taxation to the Participant, no loan to any Participant can be made to the extent that such loan when added to the outstanding balance of all other loans to the Participant would exceed the lesser of (a) $50,000 reduced by the excess (if any) of the highest outstanding balance of loans during the one year period ending on the day before the loan is made, over the outstanding balance of loans from the Plan on the date the loan is made, or (b) 50% of the present value of the nonforfeitable Individual Account of the Participant or, if greater, the total Individual Account up to $10,000. 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. 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 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. An assignment or pledge of any portion of the Participant's interest in the Plan and a loan, pledge, or assignment with respect to any insurance contract purchased under the Plan, will be treated as a loan under this paragraph.
The Plan Administrator shall administer the loan program in accordance with a written document. Such written document shall include, at a minimum, the following: (i) the identity of the person or positions authorized to administer the Participant loan program; (ii) the procedure for applying for loans; (iii) the basis on which loans will be approved or denied; (iv) limitations (if any) on the types and amounts of loans offered; (v) the procedure under the program for determining a reasonable rate of interest; (vi) the types of collateral which may secure a Participant loan; and (vii) the events constituting default and the steps that will be taken to preserve Plan assets in the event of such default.
6.09 DISTRIBUTION IN KIND The Plan Administrator may cause any distribution under this Plan to be made either in a form actually held in the Fund, or in cash by converting assets other than cash into cash, or in any combination of the two foregoing ways.
6.10 DIRECT ROLLOVERS OF ELIGIBLE ROLLOVER DISTRIBUTIONS
A. Direct Rollover Option
This Section applies to distributions made on or after January 1,
1993. Notwithstanding any provision of the Plan to the contrary
that would otherwise limit a distributee's election under this
Section, 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 that is equal to at least $500
paid directly to an eligible retirement plan specified by the
distributee in a direct rollover.
B. Definitions
1. 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:
a. any distribution that is one of a series of substantially equal periodic payments (not less frequently than annually) made for the life (or life expectancy) of the distributee or the joint lives (or joint life expectancies) of the distributee and the distributee's designated Beneficiary, or for a specified period of ten years or more;
b. any distribution to the extent such distribution is required under Section 401(a)(9) of the Code;
c. the portion of any other distribution that is not includible in gross income (determined without regard to the exclusion for net unrealized appreciation with respect to employer securities); and
d. any other distribution(s) that is reasonably expected to total less than $200 during a year.
2. 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.
3. 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.
4. Direct rollover - A direct rollover is a payment by the Plan to the eligible retirement plan specified by the distributee.
6.11 PROCEDURE FOR MISSING PARTICIPANTS OR BENEFICIARIES
The Plan Administrator must use all reasonable measures to locate
Participants or Beneficiaries who are entitled to distributions from
the Plan. In the event that the Plan Administrator cannot locate a
Participant or Beneficiary who is entitled to a distribution from the
Plan after using all reasonable measures to locate him or her, the
Plan Administrator may, consistent with applicable laws, regulations
and other pronouncements under ERISA, use any reasonable procedure to
dispose of distributable plan assets, including any of the following:
(1) establish a bank account for and in the name of
the Participant or Beneficiary and transfer the assets to such bank account, (2) purchase an annuity contract with the assets in the name of the Participant or Beneficiary, or (3) after the expiration of 5 years after the benefit becomes payable, treat the amount distributable as a Forfeiture and allocate it in accordance with the terms of the Plan and if the Participant or Beneficiary is later located, restore such benefit to the Plan.
SECTION SEVEN CLAIMS PROCEDURE
7.01 FILING A CLAIM FOR PLAN DISTRIBUTIONS A Participant or Beneficiary who desires to make a claim for the Vested portion of the Participant's Individual Account shall file a written request with the Plan Administrator on a form to be furnished to him or her by the Plan Administrator for such purpose. The request shall set forth the basis of the claim. The Plan Administrator is authorized to conduct such examinations as may be necessary to facilitate the payment of any benefits to which the Participant or Beneficiary may be entitled under the terms of the Plan.
7.02 DENIAL OF CLAIM Whenever a claim for a Plan distribution by any Participant or Beneficiary has been wholly or partially denied, the Plan Administrator must furnish such Participant or Beneficiary written notice of the denial within 60 days of the date the original claim was filed. This notice shall set forth the specific reasons for the denial, specific reference to pertinent Plan provisions on which the denial is based, a description of any additional information or material needed to perfect the claim, an explanation of why such additional information or material is necessary and an explanation of the procedures for appeal.
7.03 REMEDIES AVAILABLE
The Participant or Beneficiary shall have 60 days from receipt of the
denial notice in which to make written application for review by the
Plan Administrator. The Participant or Beneficiary may request that
the review be in the nature of a hearing. The Participant or
Beneficiary shall have the right to representation, to review
pertinent documents and to submit comments in writing. The Plan
Administrator shall issue a decision on such review within 60 days
after receipt of an application for review as provided for in Section
7.02. Upon a decision unfavorable to the Participant or Beneficiary,
such Participant or Beneficiary shall be entitled to bring such
actions in law or equity as may be necessary or appropriate to protect
or clarify his or her right to benefits under this Plan.
SECTION EIGHT PLAN ADMINISTRATOR
8.01 EMPLOYER IS PLAN ADMINISTRATOR
A. The Employer shall be the Plan Administrator unless the managing
body of the Employer designates a person or persons other than
the Employer as the Plan Administrator and so notifies the
Trustee (or Custodian, if applicable). The Employer shall also be
the Plan Administrator if the person or persons so designated
cease to be the Plan Administrator. The Employer may establish an
administrative committee that will carry out the Plan
Administrator's duties. Members of the administrative committee
may allocate the Plan Administrator's duties among themselves.
B. If the managing body of the Employer designates a person or persons other than the Employer as Plan Administrator, such person or persons shall serve at the pleasure of the Employer and shall serve pursuant to such procedures as such managing body may provide. Each such person shall be bonded as may be required by law.
8.02 POWERS AND DUTIES OF THE PLAN ADMINISTRATOR
A. The Plan Administrator may, by appointment, allocate the duties
of the Plan Administrator among several individuals or entities.
Such appointments shall not be effective until the party
designated accepts such appointment in writing.
B. The Plan Administrator shall have the authority to control and manage the operation and administration of the Plan. The Plan Administrator shall administer the Plan for the exclusive benefit of the Participants and their Beneficiaries in accordance with the specific terms of the Plan.
C. The Plan Administrator shall be charged with the duties of the general administration of the Plan, including, but not limited to, the following:
1. To determine all questions of interpretation or policy in a
manner consistent with the Plan's documents and the Plan
Administrator's construction or determination in good faith
shall be conclusive and binding on all persons except as
otherwise provided herein or by law. Any interpretation or
construction shall be done in a nondiscriminatory manner and
shall be consistent with the intent that the Plan shall
continue to be deemed a qualified plan under the terms of
Section 401(a) of the Code, as amended from time-to-time,
and shall comply with the terms of ERISA, as amended from
time-to-time;
2. To determine all questions relating to the eligibility of Employees to become or remain Participants hereunder;
3. To compute the amounts necessary or desirable to be contributed to the Plan;
4. To compute the amount and kind of benefits to which a Participant or Beneficiary shall be entitled under the Plan and to direct the Trustee (or Custodian, if applicable) with respect to all disbursements under the Plan, and, when requested by the Trustee (or Custodian), to furnish the Trustee (or Custodian) with instructions, in writing, on matters pertaining to the Plan and the Trustee (or Custodian) may rely and act thereon;
5. To maintain all records necessary for the administration of the Plan;
6. To be responsible for preparing and filing such disclosure and tax forms as may be required from time-to-time by the Secretary of Labor or the Secretary of the Treasury; and
7. To furnish each Employee, Participant or Beneficiary such notices, information and reports under such circumstances as may be required by law.
D. The Plan Administrator shall have all of the powers necessary or appropriate to accomplish his or her duties under the Plan, including, but not limited to, the following:
1. To appoint and retain such persons as may be necessary to carry out the functions of the Plan Administrator;
2. To appoint and retain counsel, specialists or other persons as the Plan Administrator deems necessary or advisable in the administration of the Plan;
3. To resolve all questions of administration of the Plan;
4. To establish such uniform and nondiscriminatory rules which it deems necessary to carry out the terms of the Plan;
5. To make any adjustments in a uniform and nondiscriminatory manner which it deems necessary to correct any arithmetical or accounting errors which may have been made for any Plan Year; and
6. To correct any defect, supply any omission or reconcile any inconsistency in such manner and to such extent as shall be deemed necessary or advisable to carry out the purpose of the Plan.
8.03 EXPENSES AND COMPENSATION All reasonable expenses of administration including, but not limited to, those involved in retaining necessary professional assistance may be paid from the assets of the Fund. Alternatively, the Employer may, in its discretion, pay any or all such expenses. Pursuant to uniform and nondiscriminatory rules that the Plan Administrator may establish from time-to-time, administrative expenses and expenses unique to a particular Participant may be charged to a Participant's Individual Account or the Plan Administrator may allow Participants to pay such fees outside of the Plan. The Employer shall furnish the Plan Administrator with such clerical and other assistance as the Plan Administrator may need in the performance of his or her duties.
8.04 INFORMATION FROM EMPLOYER To enable the Plan Administrator to perform his or her duties, the Employer shall supply full and timely information to the Plan Administrator (or his or her designated agents) on all matters relating to the Compensation of all Participants, their regular employment, retirement, death, Disability or Termination of Employment, and such other pertinent facts as the Plan Administrator (or his or her agents) may require. The Plan Administrator shall advise the Trustee (or Custodian, if applicable) of such of the foregoing facts as may be pertinent to the Trustee's (or Custodian's) duties under the Plan. The Plan Administrator (or his or her agents) is entitled to rely on such information as is supplied by the Employer and shall have no duty or responsibility to verify such information.
SECTION NINE AMENDMENT AND TERMINATION
9.01 RIGHT OF PROTOTYPE SPONSOR TO AMEND THE PLAN
A. The Employer, by adopting the Plan, expressly delegates to the
Prototype Sponsor the power, but not the duty, to amend the Plan
without any further action or consent of the Employer as the
Prototype Sponsor deems necessary for the purpose of adjusting
the Plan to comply with all laws and regulations governing
pension or profit sharing plans. Specifically, it is understood
that the amendments may be made unilaterally by the Prototype
Sponsor. However, it shall be understood that the Prototype
Sponsor shall be under no obligation to amend the Plan documents
and the Employer expressly waives any rights or claims against
the Prototype Sponsor for not exercising this power to amend. For
purposes of Prototype Sponsor amendments, the mass submitter
shall be recognized as the agent of the Prototype Sponsor. If the
Prototype 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.
B. An amendment by the Prototype Sponsor shall be accomplished by giving written notice to the Employer of the amendment to be made. The notice shall set forth the text of such amendment and the date such amendment is to be effective. Such amendment shall take effect unless within the 30 day period after such notice is provided, or within such shorter period as the notice may specify, the Employer gives the Prototype Sponsor written notice of refusal to consent to the amendment. Such written notice of refusal shall have the effect of withdrawing the Plan as a prototype plan and shall cause the Plan to be considered an individually designed plan. The right of the Prototype Sponsor to cause the Plan to be amended shall terminate should the Plan cease to conform as a prototype plan as provided in this or any other section.
9.02 RIGHT OF EMPLOYER TO AMEND THE PLAN
The Employer may (1) change the choice of options in the Adoption
Agreement; (2) 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
(3) add certain model amendments published by the Internal Revenue
Service which specifically provide that their adoption will not cause
the Plan to be treated as individually designed. An Employer that
amends the Plan for any other reason, including a waiver of the
minimum funding requirement under Section 412(d) of the Code, will no
longer participate in this prototype plan and will be considered to
have an individually designed plan.
An Employer who wishes to amend the Plan to change the options it has chosen in the Adoption Agreement must complete and deliver a new Adoption Agreement to the Prototype Sponsor and Trustee (or Custodian, if applicable). Such amendment shall become effective upon execution by the Employer and Trustee (or Custodian).
The Employer further reserves the right to replace the Plan in its entirety by adopting another retirement plan which the Employer designates as a replacement plan.
9.03 LIMITATION ON POWER TO AMEND 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 Individual Account 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 Individual Account 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 Vested percentage (determined as of such date) of such Employee's Individual Account derived from Employer Contributions will not be less than the percentage computed under the Plan without regard to such amendment.
9.04 AMENDMENT OF VESTING SCHEDULE 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 Vested 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 3 Years of Vesting Service with the Employer may elect, within the time set forth below, to have the Vested percentage computed under the Plan without regard to such amendment.
For Participants who do not have at least 1 Hour of Service in any Plan Year beginning after December 31, 1988, the preceding sentence shall be applied by substituting "5 Years of Vesting Service" for "3 Years of Vesting Service" where such language appears.
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 the later of:
A. 60 days after the amendment is adopted;
B. 60 days after the amendment becomes effective; or
C. 60 days after the Participant is issued written notice of the amendment by the Employer or Plan Administrator.
9.05 PERMANENCY The Employer expects to continue this Plan and make the necessary contributions thereto indefinitely, but such continuance and payment is not assumed as a contractual obligation. Neither the Adoption Agreement nor the Plan nor any amendment or modification thereof nor the making of contributions hereunder shall be construed as giving any Participant or any person whomsoever any legal or equitable right against the Employer, the Trustee (or Custodian, if applicable) the Plan Administrator or the Prototype Sponsor except as specifically provided herein, or as provided by law.
9.06 METHOD AND PROCEDURE FOR TERMINATION
The Plan may be terminated by the Employer at any time by appropriate action of its managing body. Such termination shall be effective on the date specified by the Employer. The Plan shall terminate if the Employer shall be dissolved, terminated, or declared bankrupt. Written notice of the termination and effective date thereof shall be given to the Trustee (or Custodian), Plan Administrator, Prototype Sponsor, Participants and Beneficiaries of deceased Participants, and the required filings (such as the Form 5500 series and others) must be made with the Internal Revenue Service and any other regulatory body as required by current laws and regulations. Until all of the assets have been distributed from the Fund, the Employer must keep the Plan in compliance with current laws and regulations by (a) making appropriate amendments to the Plan and (b) taking such other measures as may be required.
9.07 CONTINUANCE OF PLAN BY SUCCESSOR EMPLOYER Notwithstanding the preceding Section 9.06, a successor of the Employer may continue the Plan and be substituted in the place of the present Employer. The successor and the present Employer (or, if deceased, the executor of the estate of a deceased Self-Employed Individual who was the Employer) must execute a written instrument authorizing such substitution and the successor must complete and sign a new plan document.
9.08 FAILURE OF PLAN QUALIFICATION If the Plan fails to retain its qualified status, the Plan will no longer be considered to be part of a prototype plan, and such Employer can no longer participate under this prototype. In such event, the Plan will be considered an individually designed plan.
SECTION TEN MISCELLANEOUS
10.01 STATE COMMUNITY PROPERTY LAWS The terms and conditions of this Plan shall be applicable without regard to the community property laws of any state.
10.02 HEADINGS The headings of the Plan have been inserted for convenience of reference only and are to be ignored in any construction of the provisions hereof.
10.03 GENDER AND NUMBER Whenever any words are used herein in the masculine gender they shall be construed as though they were also used in the feminine gender in all cases where they would so apply, and whenever any words are used herein in the singular form they shall be construed as though they were also used in the plural form in all cases where they would so apply.
10.04 PLAN MERGER OR CONSOLIDATION In the case of any merger or consolidation of the Plan with, or transfer of assets or liabilities of such Plan to, any other plan, each Participant shall be entitled to receive benefits immediately after the merger, consolidation, or transfer (if the Plan had then terminated) which are equal to or greater than the benefits he or she would have been entitled to receive immediately before the merger, consolidation, or transfer (if the Plan had then terminated). The Trustee (or Custodian) has the authority to enter into merger agreements or agreements to directly transfer the assets of this Plan but only if such agreements are made with trustees or custodians of other retirement plans described in Section 401(a) of the Code.
10.05 STANDARD OF FIDUCIARY CONDUCT The Employer, Plan Administrator, Trustee and any other fiduciary under this Plan shall discharge their duties with respect to this Plan solely in the interests of Participants and their Beneficiaries and with the care, skill, prudence and diligence under the circumstances then prevailing that a prudent man acting in like capacity and familiar with such matters would use in the conduct of an enterprise of a like character and with like aims. No fiduciary shall cause the Plan to engage in any transaction known as a "prohibited transaction" under ERISA.
10.06 GENERAL UNDERTAKING OF ALL PARTIES All parties to this Plan 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 this Plan and any of its provisions.
10.07 AGREEMENT BINDS HEIRS, ETC. This Plan shall be binding upon the heirs, executors, administrators, successors and assigns, as those terms shall apply to any and all parties hereto, present and future.
10.08 DETERMINATION OF TOP-HEAVY STATUS
A. For any Plan Year beginning after December 31, 1983, this Plan is
a Top-Heavy Plan if any of the following conditions exist:
1. If the top-heavy ratio for this Plan exceeds 60% and this Plan is not part of any required aggregation group or permissive aggregation group of plans.
2. If this Plan is part of a required aggregation group of plans but not part of a permissive aggregation group and the top-heavy ratio for the group of plans exceeds 60%.
3. If this Plan is a part of a required aggregation group and part of a permissive aggregation group of plans and the top-heavy ratio for the permissive aggregation group exceeds 60%.
For purposes of this Section 10.08, the following terms shall have the meanings indicated below:
B. Key Employee - Any Employee or former Employee (and the
Beneficiaries of such Employee) who at any time during the
determination period was an officer of the Employer if such
individual's annual compensation exceeds 50% of the dollar
limitation under Section 415(b)(1)(A) of the Code, an owner (or
considered an owner under Section 318 of the Code) of one of the
10 largest interests in the Employer if such individual's
compensation exceeds 100% of the dollar limitation under Section
415(c)(1)(A) of the Code, a 5% owner of the Employer, or a 1%
owner of the Employer who has an annual compensation of more than
$150,000. 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 Section
125, Section 402(e)(3), Section 402(h)(1)(B) or Section 403(b) of
the Code. The determination period is the Plan Year containing
the determination date and the 4 preceding Plan Years.
The determination of who is a Key Employee will be made in accordance with Section 416(i)(1) of the Code and the regulations thereunder.
C. Top-heavy ratio
1. If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer has not maintained any defined benefit plan which during the 5-year period ending on the determination date(s) has or has had accrued benefits, the top-heavy ratio for this Plan alone or for the required or permissive aggregation group as appropriate is a fraction, the numerator of which is the sum of the account balances of all Key Employees as of the determination date(s) (including any part of any account balance distributed in the 5-year period ending on the determination date(s)), and the denominator of which is the sum of all account balances (including any part of any account balance distributed in the 5-year period ending on the determination date(s)), both computed in accordance with Section 416 of the Code and the regulations thereunder. Both the numerator and the denominator of the top-heavy ratio are increased to reflect any contribution not actually made as of the determination date, but which is required to be taken into account on that date under Section 416 of the Code and the regulations thereunder.
2. If the Employer maintains one or more defined contribution plans (including any simplified employee pension plan) and the Employer maintains or has maintained one or more defined benefit plans which during the 5-year period ending on the determination date(s) has or has had any accrued benefits, the top-heavy ratio for any required or permissive aggregation group as appropriate is a fraction, the numerator of which is the sum of account balances under the aggregated defined contribution plan or plans for all Key Employees, determined in accordance with (1) above, and the present value of accrued benefits under the aggregated defined benefit plan or plans for all Key Employees as of the determination date(s), and the denominator of which is the sum of the account balances under the aggregated defined contribution plan or plans for all Participants, determined in accordance with (1) above, and the present value of accrued benefits under the defined benefit plan or plans for all Participants as of the determination date(s), all determined in accordance with Section 416 of the Code and the regulations thereunder. The accrued benefits under a defined benefit plan in both the numerator and denominator of the top-heavy ratio are increased for any distribution of an accrued benefit made in the 5-year period ending on the determination date.
3. For purposes of (1) and (2) above, the value of account balances and the present value of accrued benefits will be determined as of the most recent valuation date that falls within or ends with the 12-month period ending on the determination date, except as provided in Section 416 of the Code and the regulations thereunder for the first and second plan years of a defined benefit plan. The account balances and accrued benefits of a Participant (a) who is not a Key Employee but who was a Key Employee in a Prior Year, or (b) who has not been credited with at least one Hour of Service with any employer maintaining the plan at any time during the 5-year period ending on the determination date will be disregarded. The calculation of the top-heavy ratio, and the extent to which distributions, rollovers, and transfers are taken into account will be made in accordance with Section 416 of the Code and the regulations thereunder. Deductible employee contributions will not be taken into account for purposes of computing the top-heavy ratio. When aggregating plans the value of account balances and accrued benefits will be calculated with reference to the determination dates that fall within the same calendar year.
The accrued benefit of a Participant other than a Key Employee shall be determined under (a) the method, if any, that uniformly applies for accrual purposes under all defined benefit plans maintained by the Employer, or
(b) if there is no such method, as if such benefit accrued not more rapidly than the slowest accrual rate permitted under the fractional rule of Section 411(b)(1)(C) of the Code.
4. Permissive aggregation group: The required aggregation group of plans plus any other plan or plans of the Employer which, when considered as a group with the required aggregation group, would continue to satisfy the requirements of Sections 401(a)(4) and 410 of the Code.
5. Required aggregation group: (a) Each qualified plan of the Employer in which at least one Key Employee participates or participated at any time during the determination period (regardless of whether the Plan has terminated), and (b) any other qualified plan of the Employer which enables a plan described in (a) to meet the requirements of Sections 401(a)(4) or 410 of the Code.
6. Determination date: For any Plan Year subsequent to the first Plan Year, the last day of the preceding Plan Year. For the first Plan Year of the Plan, the last day of that year.
7. Valuation date: For purposes of calculating the top-heavy ratio, the valuation date shall be the last day of each Plan Year.
8. Present value: For purposes of establishing the "present value" of benefits under a defined benefit plan to compute the top-heavy ratio, any benefit shall be discounted only for mortality and interest based on the interest rate and mortality table specified for this purpose in the defined benefit plan, unless otherwise indicated in the Adoption Agreement.
10.09 SPECIAL LIMITATIONS FOR OWNER-EMPLOYEES If this Plan provides contributions or benefits for one or more Owner-Employees who control both the business for which this Plan is established and one or more other trades or businesses, this Plan and the plan established for other trades or businesses must, when looked at as a single plan, satisfy Sections 401(a) and (d) of the Code for the employees of those trades or businesses.
If the Plan provides contributions or benefits for one or more Owner-Employees who control one or more other trades or businesses, the employees of the other trades or businesses must be included in a plan which satisfies 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.
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 trade or business which is controlled must be as favorable as those provided for him or her under the most favorable plan of the trade or business which is not controlled.
For purposes of the preceding paragraphs, 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:
(1) own the entire interest in a unincorporated trade or business, or
(2) in the case of a partnership, own more than 50% of either the capital interest or the profit interest in the partnership.
For purposes of the preceding sentence, an Owner-Employee, or two or more Owner-Employees, shall be treated as owning any interest in a partnership which is owned, directly or indirectly, by a partnership which such Owner-Employee, or such two or more Owner-Employees, are considered to control within the meaning of the preceding sentence.
10.10 INALIENABILITY 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.
Generally, a domestic relations order cannot be a qualified domestic relations order until January 1, 1985. However, in the case of a domestic relations order entered before such date, the Plan Administrator:
(1) shall treat such order as a qualified domestic relations order if such Plan Administrator is paying benefits pursuant to such order on such date, and
(2) may treat any other such order entered before such date as a qualified domestic relations order even if such order does not meet the requirements of Section 414(p) of the Code.
Notwithstanding any provision of the Plan to the contrary, a distribution to an alternate payee under a qualified domestic relations order shall be permitted even if the Participant affected by such order is not otherwise entitled to a distribution and even if such Participant has not attained earliest retirement age as defined in Section 414(p) of the Code.
10.11 CANNOT ELIMINATE PROTECTED BENEFITS Pursuant to Section 411(d)(6) of the Code, and the regulations thereunder, the Employer cannot reduce, eliminate or make subject to Employer discretion any Section 411(d)(6) protected benefit. Where this Plan document is being adopted to amend another plan that contains a protected benefit not provided for in this document, the Employer may attach a supplement to the Adoption Agreement that describes such protected benefit which shall become part of the Plan.
SECTION ELEVEN 401(k) PROVISIONS
In addition to Sections 1 through 10, the provisions of this Section
11 shall apply if the Employer has established a 401(k) cash or
deferred arrangement (CODA) by completing and signing the appropriate
Adoption Agreement.
11.100 DEFINITIONS The following words and phrases when used in the Plan with initial capital letters shall, for the purposes of this Plan, have the meanings set forth below unless the context indicates that other meanings are intended.
11.101 ACTUAL DEFERRAL PERCENTAGE (ADP)
Means, for a specified group of Participants for a Plan Year, the
average of the ratios (calculated separately for each Participant in
such group) of (1) the amount of Employer Contributions actually paid
over to the Fund on behalf of such Participant for the Plan Year to
(2) the Participant's Compensation for such Plan Year (taking into
account only that Compensation paid to the Employee during the portion
of the Plan Year he or she was an eligible Participant, unless
otherwise indicated in the Adoption Agreement). For purposes of
calculating the ADP, Employer Contributions on behalf of any
Participant shall include: (1) any Elective Deferrals made pursuant to
the Participant's deferral election, (including Excess Elective
Deferrals of Highly Compensated Employees), but excluding (a) Excess
Elective Deferrals of Non-highly Compensated Employees that arise
solely from Elective Deferrals made under the Plan or plans of this
Employer and (b) Elective Deferrals that are taken into account in the
Contribution Percentage test (provided the ADP test is satisfied both
with and without exclusion of these Elective Deferrals); and (2) at
the election of the Employer, Qualified Nonelective Contributions and
Qualified Matching Contributions. For purposes of computing Actual
Deferral Percentages, an Employee who would be a Participant but for
the failure to make Elective Deferrals shall be treated as a
Participant on whose behalf no Elective Deferrals are made.
11.102 AGGREGATE LIMIT Means the sum of (1) 125% of the greater of the ADP of the Participants who are not Highly Compensated Employees for the Plan Year or the ACP of the Participants who are not Highly Compensated Employees under the Plan subject to Code Section 401(m) for the Plan Year beginning with or within the Plan Year of the CODA; and (2) the lesser of 200% or two plus the lesser of such ADP or ACP. "Lesser" is substituted for "greater" in "(1)" above, and "greater" is substituted for "lesser" after "two plus the" in "(2)" if it would result in a larger Aggregate Limit.
11.103 AVERAGE CONTRIBUTION PERCENTAGE (ACP) Means the average of the Contribution Percentages of the Eligible Participants in a group.
11.104 CONTRIBUTING PARTICIPANT Means a Participant who has enrolled as a Contributing Participant pursuant to Section 11.201 and on whose behalf the Employer is contributing Elective Deferrals to the Plan (or is making Nondeductible Employee Contributions).
11.105 CONTRIBUTION PERCENTAGE
Means the ratio (expressed as a percentage) of the Participant's
Contribution Percentage Amounts to the Participant's Compensation for
the Plan Year (taking into account only the Compensation paid to the
Employee during the portion of the Plan Year he or she was an eligible
Participant, unless otherwise indicated in the Adoption Agreement).
11.106 CONTRIBUTION PERCENTAGE AMOUNTS
Means the sum of the Nondeductible Employee Contributions, Matching
Contributions, and Qualified Matching Contributions made under the
Plan on behalf of the Participant for the Plan Year. Such Contribution
Percentage Amounts shall not include Matching Contributions that are
forfeited either to correct Excess Aggregate Contributions or because
the contributions to which they relate are Excess Deferrals, Excess
Contributions, Excess Aggregate Contributions or excess annual
additions which are distributed pursuant to Section 11.508. If so
elected in the Adoption Agreement, the Employer may include Qualified
Nonelective Contributions in the Contribution Percentage Amount. The
Employer also may elect to use Elective Deferrals in the Contribution
Percentage Amounts so long as the ADP test is met before the Elective
Deferrals are used in the ACP test and continues to be met following
the exclusion of those Elective Deferrals that are used to meet the
ACP test.
11.107 ELECTIVE DEFERRALS
Means any Employer Contributions made to the Plan at the election of
the Participant, in lieu of cash compensation, and shall include
contributions made pursuant to a salary reduction agreement or other
deferral mechanism. With respect to any taxable year, a Participant's
Elective Deferral is the sum of all Employer contributions made on
behalf of such Participant pursuant to an election to defer under any
qualified CODA as described in Section 401(k) of the Code, any
simplified employee pension cash or deferred arrangement as described
in Section 402(h)(1)(B), any eligible deferred compensation plan under
Section 457, any plan as described under Section 501(c)(18), and any
Employer contributions made on the behalf of a Participant for the
purchase of an annuity contract under Section 403(b) pursuant to a
salary reduction agreement. Elective Deferrals shall not include any
deferrals properly distributed as excess annual additions.
No Participant shall be permitted to have Elective Deferrals made under this Plan, or any other qualified plan maintained by the Employer, during any taxable year, in excess of the dollar limitation contained in Section 402(g) of the Code in effect at the beginning of such taxable year.
Elective Deferrals may not be taken into account for purposes of satisfying the minimum allocation requirement applicable to Top-Heavy Plans described in Section 3.01(E).
11.108 ELIGIBLE PARTICIPANT Means any Employee who is eligible to make a Nondeductible Employee Contribution or an Elective Deferral (if the Employer takes such contributions into account in the calculation of the Contribution Percentage), or to receive a Matching Contribution (including Forfeitures thereof) or a Qualified Matching Contribution.
If a Nondeductible Employee Contribution is required as a condition of participation in the Plan, any Employee who would be a Participant in the Plan if such Employee made such a contribution shall be treated as an Eligible Participant on behalf of whom no Nondeductible Employee Contributions are made.
11.109 EXCESS AGGREGATE CONTRIBUTIONS Means, with respect to any Plan Year,
the excess of:
A. The aggregate Contribution Percentage Amounts taken into account
in computing the numerator of the Contribution Percentage
actually made on behalf of Highly Compensated Employees for such
Plan Year, over
B. The maximum Contribution Percentage Amounts permitted by the ACP test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of their Contribution Percentages beginning with the highest of such percentages).
Such determination shall be made after first determining Excess Elective Deferrals pursuant to Section 11.111 and then determining Excess Contributions pursuant to Section 11.110.
11.110 EXCESS CONTRIBUTIONS
Means, with respect to any Plan Year, the excess of:
A. The aggregate amount of Employer Contributions actually taken
into account in computing the ADP of Highly Compensated Employees
for such Plan Year, over
B. The maximum amount of such contributions permitted by the ADP test (determined by reducing contributions made on behalf of Highly Compensated Employees in order of the ADPs, beginning with the highest of such percentages).
11.111 EXCESS ELECTIVE DEFERRALS Means those Elective Deferrals that are includible in a Participant's gross income under Section 402(g) of the Code to the extent such Participant's Elective Deferrals for a taxable year exceed the dollar limitation under such Code section. Excess Elective Deferrals shall be treated as annual additions under the Plan, unless such amounts are distributed no later than the first April 15 following the close of the Participant's taxable year.
11.112 MATCHING CONTRIBUTION Means an Employer Contribution made to this or any other defined contribution plan on behalf of a Participant on account of an Elective Deferral or a Nondeductible Employee Contribution made by such Participant under a plan maintained by the Employer.
Matching Contributions may not be taken into account for purposes of satisfying the minimum allocation requirement applicable to Top-Heavy Plans described in Section 3.01(E).
11.113 QUALIFIED NONELECTIVE CONTRIBUTIONS Means contributions (other than Matching Contributions or Qualified Matching Contributions) made by the Employer and allocated to Participants' Individual Accounts that the Participants may not elect to receive in cash until distributed from the Plan; that are nonforfeitable when made; and that are distributable only in accordance with the distribution provisions that are applicable to Elective Deferrals and Qualified Matching Contributions.
Qualified Nonelective Contribution may be taken into account for purposes of satisfying the minimum allocation requirement applicable to Top-Heavy Plans described in Section 3.01(E).
11.114 QUALIFIED MATCHING CONTRIBUTIONS Means Matching Contributions which are subject to the distribution and nonforfeitability requirements under Section 401(k) of the Code when made.
11.115 QUALIFYING CONTRIBUTING PARTICIPANT Means a Contributing Participant who satisfies the requirements described in Section 11.302 to be entitled to receive a Matching Contribution (and Forfeitures, if applicable) for a Plan Year.
11.200 CONTRIBUTING PARTICIPANT
11.201 REQUIREMENTS TO ENROLL AS A CONTRIBUTING PARTICIPANT
A. Each Employee who satisfies the eligibility requirements
specified in the Adoption Agreement may enroll as a Contributing
Participant as of any subsequent Entry Date (or earlier if
required by Section 2.03) specified in the Adoption Agreement for
this purpose. A Participant who wishes to enroll as a
Contributing Participant must complete, sign and file a salary
reduction agreement (or agreement to make Nondeductible Employee
Contributions) with the Plan Administrator.
B. Notwithstanding the times set forth in Section 11.201(A) as of which a Participant may enroll as a Contributing Participant, the Plan Administrator shall have the authority to designate, in a nondiscriminatory manner, additional enrollment times during the 12 month period beginning on the Effective Date (or the date that Elective Deferrals may commence, if later) in order that an orderly first enrollment might be completed. In addition, if the Employer has indicated in the Adoption Agreement that Elective Deferrals may be based on bonuses, then Participants shall be afforded a reasonable period of time prior to the issuance of such bonuses to elect to defer them into the Plan.
11.202 CHANGING ELECTIVE DEFERRAL AMOUNTS A Contributing Participant may modify his or her salary reduction agreement (or agreement to make Nondeductible Employee Contributions) to increase or decrease (within the limits placed on Elective Deferrals (or Nondeductible Employee Contributions) in the Adoption Agreement) the amount of his or her Compensation deferred into the Plan. Such modification may only be made as of the dates specified in the Adoption Agreement for this purpose, or as of any other more frequent date(s) if the Plan Administrator permits in a uniform and nondiscriminatory manner. A Contributing Participant who desires to make such a modification shall complete, sign and file a new salary reduction agreement (or agreement to make Nondeductible Employee Contribution) with the Plan Administrator. The Plan Administrator may prescribe such uniform and nondiscriminatory rules it deems appropriate to carry out the terms of this Section.
11.203 CEASING ELECTIVE DEFERRALS
A Participant may cease Elective Deferrals (or Nondeductible Employee
Contributions) and thus withdraw as a Contributing Participant as of
the dates specified in the Adoption Agreement for this purpose (or as
of any other date if the Plan Administrator so permits in a uniform
and nondiscriminatory manner) by revoking the authorization to the
Employer to make Elective Deferrals (or Nondeductible Employee
Contributions) on his or her behalf. A Participant who desires to
withdraw as a Contributing Participant shall give written notice of
withdrawal to the Plan Administrator at least thirty days (or such
lesser period of days as the Plan Administrator shall permit in a
uniform and nondiscriminatory manner) before the effective date of
withdrawal. A Participant shall cease to be a Contributing Participant
upon his or her Termination of Employment, or an account of
termination of the Plan.
11.204 RETURN AS A CONTRIBUTING PARTICIPANT AFTER CEASING ELECTIVE
DEFERRALS
A Participant who has withdrawn as a Contributing Participant under
Section 11.203 (or because the Participant has taken a hardship
withdrawal pursuant to Section 11.503) may not again become a
Contributing Participant until the dates set forth in the Adoption
Agreement for this purpose, unless the Plan Administrator, in a
uniform and nondiscriminatory manner, permits withdrawing Participants
to resume their status as Contributing Participants sooner.
11.205 CERTAIN ONE-TIME IRREVOCABLE ELECTIONS This Section 11.205 applies where the Employer has indicated in the Adoption Agreement that an Employee may make a one-time irrevocable election to have the Employer make contributions to the Plan on such Employee's behalf. In such event, an Employee may elect, upon the Employee's first becoming eligible to participate in the Plan, to have contributions equal to a specified amount or percentage of the Employee's Compensation (including no amount of Compensation) made by the Employer on the Employee's behalf to the Plan (and to any other plan of the Employer) for the duration of the Employee's employment with the Employer. Any contributions made pursuant to a one-time irrevocable election described in this Section are not treated as made pursuant to a cash or deferred election, are not Elective Deferrals and are not includible in an Employee's gross income.
The Plan Administrator shall establish such uniform and nondiscriminatory procedures as it deems necessary or advisable to administer this provision.
11.300 CONTRIBUTIONS
11.301 CONTRIBUTIONS BY EMPLOYER The Employer shall make contributions to the Plan in accordance with the contribution formulas specified in the Adoption Agreement.
11.302 MATCHING CONTRIBUTIONS The Employer may elect to make Matching Contributions under the Plan on behalf of Qualifying Contributing Participants as provided in the Adoption Agreement. To be a Qualifying Contributing Participant for a Plan Year, the Participant must make Elective Deferrals (or Nondeductible Employee Contributions, if the Employer has agreed to match such contributions) for the Plan Year, satisfy any age and Years of Eligibility Service requirements that are specified for Matching Contributions in the Adoption Agreement and also satisfy any additional conditions set forth in the Adoption Agreement for this purpose. In a uniform and nondiscriminatory manner, the Employer may make Matching Contributions at the same time as it contributes Elective Deferrals or at any other time as permitted by laws and regulations.
11.303 QUALIFIED NONELECTIVE CONTRIBUTIONS The Employer may elect to make Qualified Nonelective Contributions under the Plan on behalf of Participants as provided in the Adoption Agreement.
In addition, in lieu of distributing Excess Contributions as provided in Section 11.505 of the Plan, or Excess Aggregate Contributions as provided in Section 11.506 of the Plan, and to the extent elected by the Employer in the Adoption Agreement, the Employer may make Qualified Nonelective Contributions on behalf of Participants who are not Highly Compensated Employees that are sufficient to satisfy either the Actual Deferral Percentage test or the Average Contribution Percentage test, or both, pursuant to regulations under the Code.
11.304 QUALIFIED MATCHING CONTRIBUTIONS The Employer may elect to make Qualified Matching Contributions under the Plan on behalf of Participants as provided in the Adoption Agreement.
11.305 NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS Notwithstanding Section 3.02, if the Employer so allows in the Adoption Agreement, a Participant may contribute Nondeductible Employee Contributions to the Plan.
If the Employer has indicated in the Adoption Agreement that Nondeductible Employee Contributions will be mandatory, then the Employer shall establish uniform and nondiscriminatory rules and procedures for Nondeductible Employee Contributions as it deems necessary and advisable including, but not limited to, rules describing in amounts or percentages of Compensation Participants may or must contribute to the Plan.
A separate account will be maintained by the Plan Administrator for the Nondeductible Employee Contributions for each Participant.
A Participant may, upon a written request submitted to the Plan Administrator, withdraw the lesser of the portion of his or her Individual Account attributable to his or her Nondeductible Employee Contributions or the amount he or she contributed as Nondeductible Employee Contributions.
Nondeductible Employee Contributions and earnings thereon will be nonforfeitable at all times. No Forfeiture will occur solely as a result of an Employee's withdrawal of Nondeductible Employee Contributions.
11.400 NONDISCRIMINATION TESTING
11.401 ACTUAL DEFERRAL PERCENTAGE TEST (ADP)
A. Limits on Highly Compensated Employees - The Actual Deferral Percentage (hereinafter "ADP") for Participants who are Highly Compensated Employees for each Plan Year and the ADP for Participants who are not Highly Compensated Employees for the same Plan Year must satisfy one of the following tests:
1. The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Participants who are not Highly Compensated Employees for the same Plan Year multiplied by 1.25; or
2. The ADP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ADP for Participants who are not Highly Compensated Employees for the same Plan Year multiplied by 2.0
provided that the ADP for Participants who are Highly Compensated Employees does not exceed the ADP for Participants who are not Highly Compensated Employees by more than 2 percentage points.
B. Special Rules
1. The ADP for any Participant who is a Highly Compensated Employee for the Plan Year and who is eligible to have Elective Deferrals (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if treated as Elective Deferrals for purposes of the ADP test) allocated to his or her Individual Accounts under two or more arrangements described in Section 401(k) of the Code, that are maintained by the Employer, shall be determined as if such Elective Deferrals (and, if applicable, such Qualified Nonelective Contributions or Qualified Matching Contributions, or both) were made under a single arrangement. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different Plan Years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under regulations under Section 401(k) of the Code.
2. In the event that this Plan satisfies the requirements of Sections 401(k), 401(a)(4), or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such sections of the Code only if aggregated with this Plan, then this Section 11.401 shall be applied by determining the ADP of Employees as if all such plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated in order to satisfy Section 401(k) of the Code only if they have the same Plan Year.
3. For purposes of determining the ADP of a Participant who is a 5% owner or one of the 10 most highly paid Highly Compensated Employees, the Elective Deferrals (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if treated as Elective Deferrals for purposes of the ADP test) and Compensation of such Participant shall include the Elective Deferrals (and, if applicable, Qualified Nonelective Contributions and Qualified Matching Contributions, or both) and Compensation for the Plan Year of family members (as defined in Section 414(q)(6) of the Code). Family members, with respect to such Highly Compensated Employees, shall be disregarded as separate Employees in determining the ADP both for Participants who are not Highly Compensated Employees and for Participants who are Highly Compensated Employees.
4. For purposes of determining the ADP test, Elective Deferrals, Qualified Nonelective Contributions and Qualified Matching Contributions must be made before the last day of the 12 month period immediately following the Plan Year to which contributions relate.
5. The Employer shall maintain records sufficient to demonstrate satisfaction of the ADP test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in such test.
6. The determination and treatment of the ADP amounts of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury.
7. If the Employer elects to take Qualified Matching Contributions into account as Elective Deferrals for purposes of the ADP test, then (subject to such other requirements as may be prescribed by the Secretary of the Treasury) unless otherwise indicated in the Adoption Agreement, only the amount of such Qualified Matching Contributions that are needed to meet the ADP test shall be taken into account.
8. In the event that the Plan Administrator determines that it is not likely that the ADP test will be satisfied for a particular Plan Year unless certain steps are taken prior to the end of such Plan Year, the Plan Administrator may require Contributing Participants who are Highly Compensated Employees to reduce their Elective Deferrals for such Plan Year in order to satisfy that requirement. Said reduction shall also be required by the Plan Administrator in the event that the Plan Administrator anticipates that the Employer will not be able to deduct all Employer Contributions from its income for Federal income tax purposes.
11.402 LIMITS ON NONDEDUCTIBLE EMPLOYEE CONTRIBUTIONS AND MATCHING
CONTRIBUTIONS
A. Limits on Highly Compensated Employees - The Average Contribution
Percentage (hereinafter "ACP") for Participants who are Highly
Compensated Employees for each Plan Year and the ACP for
Participants who are not Highly Compensated Employees for the
same Plan Year must satisfy one of the following tests:
1. The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Participants who are not Highly Compensated Employees for the same Plan Year multiplied by 1.25; or
2. The ACP for Participants who are Highly Compensated Employees for the Plan Year shall not exceed the ACP for Participants who are not Highly Compensated Employees for the same Plan Year multiplied by 2, provided
that the ACP for the Participants who are Highly Compensated Employees does not exceed the ACP for Participants who are not Highly Compensated Employees by more than 2 percentage points.
B. Special Rules
1. Multiple Use - If one or more Highly Compensated Employees participate in both a CODA and a plan subject to the ACP test maintained by the Employer and the sum of the ADP and ACP of those Highly Compensated Employees subject to either or both tests exceeds the Aggregate Limit, then, as elected in the Adoption Agreement, the ACP or the ADP of those Highly Compensated Employees who also participate in a CODA will be reduced (beginning with such Highly Compensated Employee whose ACP (or ADP, if elected) is the highest) so that the limit is not exceeded. The amount by which each Highly Compensated Employee's Contribution Percentage Amounts (or ADP, if elected) is reduced shall be treated as an Excess Aggregate Contribution (or Excess Contribution, if elected). The ADP and ACP of the Highly Compensated Employees are determined after any corrections required to meet the ADP and ACP tests. Multiple use does not occur if the ADP and ACP of the Highly Compensated Employees does not exceed 1.25 multiplied by the ADP and ACP of the Participants who are not Highly Compensated Employees.
2. For purposes of this Section 11.402, the Contribution Percentage for any Participant who is a Highly Compensated Employee and who is eligible to have Contribution Percentage Amounts allocated to his or her Individual Account under two or more plans described in Section 401(a) of the Code, or arrangements described in Section 401(k) of the Code that are maintained by the Employer, shall be determined as if the total of such Contribution Percentage Amounts was made under each plan. If a Highly Compensated Employee participates in two or more cash or deferred arrangements that have different plan years, all cash or deferred arrangements ending with or within the same calendar year shall be treated as a single arrangement. Notwithstanding the foregoing, certain plans shall be treated as separate if mandatorily disaggregated under regulations under Section 401(m) of the Code.
3. In the event that this Plan satisfies the requirements of Sections 401(m), 401(a)(4) or 410(b) of the Code only if aggregated with one or more other plans, or if one or more other plans satisfy the requirements of such Sections of the Code only if aggregated with this Plan, then this Section shall be applied by determining the Contribution Percentage of Employees as if all such plans were a single plan. For Plan Years beginning after December 31, 1989, plans may be aggregated in order to satisfy Section 401(m) of the Code only if they have the same Plan Year.
4. For purposes of determining the Contribution Percentage of a Participant who is a 5% owner or one of the 10 most highly paid Highly Compensated Employees, the Contribution Percentage Amounts and Compensation of such Participant shall include the Contribution Percentage Amounts and Compensation for the Plan Year of family members, (as defined in Section 414(q)(6) of the Code). Family members, with respect to Highly Compensated Employees, shall be disregarded as separate Employees in determining the Contribution Percentage both for Participants who are not Highly Compensated Employees and for Participants who are Highly Compensated Employees.
5. For purposes of determining the Contribution Percentage test, Nondeductible Employee Contributions are considered to have been made in the Plan Year in which contributed to the Fund. Matching Contributions and Qualified Nonelective Contributions will be considered made for a Plan Year if made no later than the end of the 12 month period beginning on the day after the close of the Plan Year.
6. The Employer shall maintain records sufficient to demonstrate satisfaction of the ACP test and the amount of Qualified Nonelective Contributions or Qualified Matching Contributions, or both, used in such test.
7. The determination and treatment of the Contribution Percentage of any Participant shall satisfy such other requirements as may be prescribed by the Secretary of the Treasury.
8. If the Employer elects to take Qualified Nonelective Contributions into account as Contribution Percentage Amounts for purposes of the ACP test, then (subject to such other requirements as may be prescribed by the Secretary of the Treasury) unless otherwise indicated in the Adoption Agreement, only the amount of such Qualified Nonelective Contributions that are needed to meet the ACP test shall be taken into account.
9. If the Employer elects to take Elective Deferrals into account as Contribution Percentage Amounts for purposes of the ACP test, then (subject to such other requirements as may be prescribed by the Secretary of the Treasury) unless otherwise indicated in the Adoption Agreement, only the amount of such Elective Deferrals that are needed to meet the ACP test shall be taken into account.
11.500 DISTRIBUTION PROVISIONS
11.501 GENERAL RULE
Distributions from the Plan are subject to the provisions of Section 6
and the provisions of this Section 11. In the event of a conflict
between the provisions of Section 6 and Section 11, the provisions of
Section 11 shall control.
11.502 DISTRIBUTION REQUIREMENTS
Elective Deferrals, Qualified Nonelective Contributions, and Qualified
Matching Contributions, and income allocable to each are not
distributable to a Participant or his or her Beneficiary or
Beneficiaries, in accordance with such Participant's or Beneficiary or
Beneficiaries' election, earlier than upon separation from service,
death or disability.
Such amounts may also be distributed upon:
A. Termination of the Plan without the establishment of another defined contribution plan, other than an employee stock ownership plan (as defined in Section 4975(e) or Section 409 of the Code) or a simplified employee pension plan as defined in Section 408(k).
B. The disposition by a corporation to an unrelated corporation of substantially all of the assets (within the meaning of Section 409(d)(2) of the Code used in a trade or business of such corporation if such corporation continues to maintain this Plan after the disposition, but only with respect to Employees who continue employment with the corporation acquiring such assets.
C. The disposition by a corporation to an unrelated entity of such
corporation's interest in a subsidiary (within the meaning of
Section 409(d)(3) of the Code) if such corporation continues to
maintain this Plan, but only with respect to Employees who
continue employment with such subsidiary.
D. The attainment of age 59 1/2 in the case of a profit sharing plan.
E. If the Employer has so elected in the Adoption Agreement, the hardship of the Participant as described in Section 11.503.
All distributions that may be made pursuant to one or more of the
foregoing distributable events are subject to the spousal and
Participant consent requirements (if applicable) contained in
Section 401(a)(11) and 417 of the Code. In addition,
distributions after March 31, 1988, that are triggered by any of
the first three events enumerated above must be made in a lump
sum.
11.503 HARDSHIP DISTRIBUTION
A. General - If the Employer has so elected in the Adoption
Agreement, distribution of Elective Deferrals (and any earnings
credited to a Participant's account as of the end of the last
Plan Year, ending before July 1, 1989) may be made to a
Participant in the event of hardship. For the purposes of this
Section, hardship is defined as an immediate and heavy financial
need of the Employee where such Employee lacks other available
resources. Hardship distributions are subject to the spousal
consent requirements contained in Sections 401(a)(11) and 417 of
the Code.
B. Special Rules
1. The following are the only financial needs considered immediate and heavy: expenses incurred or necessary for medical care, described in Section 213(d) of the Code, of the Employee, the Employee's spouse or dependents; the purchase (excluding mortgage payments) of a principal residence for the Employee; payment of tuition and related educational fees for the next 12 months of post-secondary education for the Employee, the Employee's spouse, children or dependents; or the need to prevent the eviction of the Employee from, or a foreclosure on the mortgage of, the Employee's principal residence.
2. A distribution will be considered as necessary to satisfy an immediate and heavy financial need of the Employee only if:
a. The Employee has obtained all distributions, other than hardship distributions, and all nontaxable loans under all plans maintained by the Employer;
b. All plans maintained by the Employer provide that the Employee's Elective Deferrals (and Nondeductible Employee Contributions) will be suspended for 12 months after the receipt of the hardship distribution;
c. The distribution is not in excess of the amount of an immediate and heavy financial need (including amounts necessary to pay any Federal, state or local income taxes or penalties reasonably anticipated to result from the distribution); and
d. All plans maintained by the Employer provide that the Employee may not make Elective Deferrals for the Employee's taxable year immediately following the taxable year of the hardship distribution in excess of
the applicable limit under Section 402(g) of the Code for such taxable year less the amount of such Employee's Elective Deferrals for the taxable year of the hardship distribution.
11.504 DISTRIBUTION OF EXCESS ELECTIVE DEFERRALS
A. General Rule - A Participant may assign to this Plan any Excess Elective Deferrals made during a taxable year of the Participant by notifying the Plan Administrator on or before the date specified in the Adoption Agreement of the amount of the Excess Elective Deferrals to be assigned to the Plan. A Participant is deemed to notify the Plan Administrator of any Excess Elective Deferrals that arise by taking into account only those Elective Deferrals made to this Plan and any other plans of the Employer.
Notwithstanding any other provision of the Plan, Excess Elective Deferrals, plus any income and minus any loss allocable thereto, shall be distributed no later than April 15 to any Participant to whose Individual Account Excess Elective Deferrals were assigned for the preceding year and who claims Excess Elective Deferrals for such taxable year.
B. Determination of Income or Loss - Excess Elective Deferrals shall be adjusted for any income or loss up to the date of distribution. The income of loss allocable to Excess Elective Deferrals is the sum of: (1) income or loss allocable to the Participant's Elective Deferral account for the taxable year multiplied by a fraction, the numerator of which is such Participant's Elective Deferrals for the year and the denominator is the Participant's Individual Account balance attributable to Elective Deferrals without regard to any income or loss occurring during such taxable year; and (2) 10% of the amount determined under (1) multiplied by the number of whole calendar months between the end of the Participant's taxable year and the date of distribution, counting the month of distribution if distribution occurs after the 15th of such month. Notwithstanding the preceding sentence, the Plan Administrator may compute the income or loss allocable to Excess Elective Deferrals in the manner described in Section 4 (i.e., the usual manner used by the Plan for allocating income or loss to Participants' Individual Accounts), provided such method is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year.
11.505 DISTRIBUTION OF EXCESS CONTRIBUTIONS
A. General Rule - Notwithstanding any other provision of this Plan, Excess Contributions, plus any income and minus any loss allocable thereto, shall be distributed no later than the last day of each Plan Year to Participants to whose Individual Accounts such Excess Contributions were allocated for the preceding Plan Year. If such excess amounts are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a 10% excise tax will be imposed on the Employer maintaining the Plan with respect to such amounts. Such distributions shall be made to Highly Compensated Employees on the basis of the respective portions of the Excess Contributions attributable to each of such Employees. Excess Contributions of Participants who are subject to the family member aggregation rules shall be allocated among the family members in proportion to the Elective Deferrals (and amounts treated as Elective Deferrals) of each family member that is combined to determine the combined ADP.
Excess Contributions (including the amounts recharacterized) shall be treated as annual additions under the Plan.
B. Determination of Income or Loss - Excess Contributions shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Contributions is the sum of: (1) income or loss allocable to Participant's Elective Deferral account (and, if applicable, the Qualified Nonelective Contribution account or the Qualified Matching Contributions account or both) for the Plan Year multiplied by a fraction, the numerator of which is such Participant's Excess Contributions for the year and the denominator is the Participant's Individual Account balance attributable to Elective Deferrals (and Qualified Nonelective Contributions or Qualified Matching Contributions, or both, if any of such contributions are included in the ADP test) without regard to any income or loss occurring during such Plan Year; and (2) 10% of the amount determined under (1) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the 15th of such month. Notwithstanding the preceding sentence, the Plan Administrator may compute the income or loss allocable to Excess Contributions in the manner described in Section 4 (i.e., the usual manner used by the Plan for allocating income or loss to Participants' Individual Accounts), provided such method is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year.
C. Accounting for Excess Contributions - Excess Contributions shall be distributed from the Participant's Elective Deferral account and Qualified Matching Contribution account (if applicable) in proportion to the Participant's Elective Deferrals and Qualified Matching Contributions (to the extent used in the ADP test) for the Plan Year. Excess Contributions shall be distributed from the Participant's Qualified Nonelective Contribution account only to the extent that such Excess Contributions exceed the balance in the Participant's Elective Deferral account and Qualified Matching Contribution account.
11.506 DISTRIBUTION OF EXCESS AGGREGATE CONTRIBUTIONS
A. General Rule - Notwithstanding any other provision of this Plan, Excess Aggregate Contributions, plus any income and minus any loss allocable thereto, shall be forfeited, if forfeitable, or if not forfeitable, distributed no later than the last day of each Plan Year to Participants to whose accounts such Excess Aggregate Contributions were allocated for the preceding Plan Year. Excess Aggregate Contributions of Participants who are subject to the family member aggregation rules shall be allocated among the family members in proportion to the Employee and Matching Contributions (or amounts treated as Matching Contributions) of each family member that is combined to determine the combined ACP. If such Excess Aggregate Contributions are distributed more than 2 1/2 months after the last day of the Plan Year in which such excess amounts arose, a 10% excise tax will be imposed on the Employer maintaining the Plan with respect to those amounts.
Excess Aggregate Contributions shall be treated as annual additions under the Plan.
B. Determination of Income or Loss - Excess Aggregate Contributions shall be adjusted for any income or loss up to the date of distribution. The income or loss allocable to Excess Aggregate Contributions is the sum of: (1) income or loss allocable to the Participant's Nondeductible Employee Contribution account, Matching Contribution account (if any, and if all amounts therein are not used in the ADP test) and, if applicable, Qualified Nonelective Contribution account and Elective Deferral account for the Plan Year multiplied by a fraction, the numerator of which is such Participant's Excess Aggregate Contributions for the year and the denominator is the Participant's Individual Account balance(s) attributable to Contribution Percentage Amounts without regard to any income or loss occurring during such Plan Year; and (2) 10% of the amount determined under (1) multiplied by the number of whole calendar months between the end of the Plan Year and the date of distribution, counting the month of distribution if distribution occurs after the 15th of such month. Notwithstanding the preceding sentence, the Plan Administrator may compute the income or loss allocable to Excess Aggregate Contributions in the manner described in Section 4 (i.e., the usual manner used by the Plan for allocating income or loss to Participants' Individual Accounts), provided such method is used consistently for all Participants and for all corrective distributions under the Plan for the Plan Year.
C. Forfeitures of Excess Aggregate Contributions - Forfeitures of Excess Aggregate Contributions may either be reallocated to the accounts of Contributing Participants who are not Highly Compensated Employees or applied to reduce Employer Contributions, as elected by the Employer in the Adoption Agreement.
D. Accounting for Excess Aggregate Contributions - Excess Aggregate Contributions shall be forfeited, if forfeitable or distributed on a pro rata basis from the Participant's Nondeductible Employee Contribution account, Matching Contribution account, and Qualified Matching Contribution account (and, if applicable, the Participant's Qualified Nonelective Contribution account or Elective Deferral account, or both).
11.507 RECHARACTERIZATION A Participant may treat his or her Excess Contributions as an amount distributed to the Participant and then contributed by the Participant to the Plan. Recharacterized amounts will remain nonforfeitable and subject to the same distribution requirements as Elective Deferrals. Amounts may not be recharacterized by a Highly Compensated Employee to the extent that such amount in combination with other Nondeductible Employee Contributions made by that Employee would exceed any stated limit under the Plan on Nondeductible Employee Contributions.
Recharacterization must occur no later than two and one-half months after the last day of the Plan Year in which such Excess Contributions arose and is deemed to occur no earlier than the date the last Highly Compensated Employee is informed in writing of the amount recharacterized and the consequences thereof. Recharacterized amounts will be taxable to the Participant for the Participant's tax year in which the Participant would have received them in cash.
11.508 DISTRIBUTION OF ELECTIVE DEFERRALS IF EXCESS ANNUAL ADDITIONS Notwithstanding any other provision of the Plan, a Participant's Elective Deferrals shall be distributed to him or her to the extent that the distribution will reduce an excess annual addition (as that term is described in Section 3.05 of the Plan).
11.600 VESTING
11.601 100% VESTING ON CERTAIN CONTRIBUTIONS
The Participant's accrued benefit derived from Elective Deferrals, Qualified Nonelective Contributions, Nondeductible Employee Contributions, and Qualified Matching Contributions is nonforfeitable. Separate accounts for Elective Deferrals, Qualified Nonelective Contributions, Nondeductible Employee Contributions, Matching Contributions, and Qualified Matching Contributions will be maintained for each Participant. Each account will be credited with the applicable contributions and earnings thereon.
11.602 FORFEITURES AND VESTING OF MATCHING CONTRIBUTIONS Matching Contributions shall be Vested in accordance with the vesting schedule for Matching Contributions in the Adoption Agreement. In any event, Matching Contributions shall be fully Vested at Normal Retirement Age, upon the complete or partial termination of the profit sharing plan, or upon the complete discontinuance of Employer Contributions. Notwithstanding any other provisions of the Plan, Matching Contributions or Qualified Matching Contributions must be forfeited if the contributions to which they relate are Excess Elective Deferrals, Excess Contributions, Excess Aggregate Contributions or excess annual additions which are distributed pursuant to Section 11.508. Such Forfeitures shall be allocated in accordance with Section 3.01(C).
When a Participant incurs a Termination of Employment, whether a Forfeiture arises with respect to Matching Contributions shall be determined in accordance with Section 6.01(D).
Flexible Standardized 401(k) Profit Sharing Plan
ADOPTION AGREEMENT
SECTION 1. EMPLOYER INFORMATION
Name of Employer________________________________________________________________
Address_________________________________________________________________________
City____________________________________ State__________________ Zip____________
Telephone________________ Employer's Federal Tax Identification Number__________
Type of Business (Check only one) [ ] Sole Proprietorship [ ] Partnership
[ ] C Corporation [ ] S Corporation
[ ] Other (Specify)_____________________________________________________________
[ ] Check here if Related Employers may participate in this Plan and attach a Related Employer Participation Agreement for each Related Employer who will participate in this Plan.
Business Code___________________
Name of Plan____________________________________________________________________
Name of Trust (if different from Plan name)_____________________________________
Plan Sequence Number ___________ (Enter 001 if this is the first qualified plan the Employer has ever maintained, enter 002 if it is the second, etc.)
Trust Identification Number (if applicable)_______________
Account Number (Optional)_________________
SECTION 2. EFFECTIVE DATES
Complete Parts A and B
Part A. General Effective Dates (Check and Complete Option 1 or 2):
Option 1: [ ] This is the initial adoption of a profit sharing plan by
the Employer.
The Effective Date of this Plan is _____________________ .
NOTE: The effective date is usually the first day of the
Plan Year in which this Adoption Agreement is signed.
Option 2: [ ] This is an amendment and restatement of an existing profit
sharing plan (a Prior Plan).
The Prior Plan was initially effective on ______________ .
The Effective Date of this amendment and restatement
is _____________________ .
NOTE: The effective date is usually the first day of the
Plan Year in which this Adoption Agreement is signed.
Part B. Commencement of Elective Deferrals:
Elective Deferrals may commence on _____________________ .
NOTE: This date may be no earlier than the date this Adoption Agreement
is signed because Elective Deferrals cannot be made retroactively.
SECTION 3. RELEVANT TIME PERIODS Complete Parts A through C
Part A. Employer's Fiscal Year:
The Employer's fiscal year ends (Specify month and date)________________
Part B. Plan Year Means:
Option 1: [ ] The 12-consecutive month period which coincides with the Employer's fiscal year.
Option 2: [ ] The calendar year.
Option 3: [ ] Other 12-consecutive month period (Specify)_______________ NOTE: If no option is selected, Option 1 will be deemed to be selected. If the initial Plan Year is less than 12 months (a short Plan Year) specify such Plan Year's beginning and ending dates
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
Part C. Limitation Year Means:
Option 1: [ ] The Plan Year.
Option 2: [ ] The calendar year.
Option 3: [ ] Other 12-consecutive month period (Specify)_______________ NOTE: If no option is selected, Option 1 will be deemed to be selected.
SECTION 4. ELIGIBILITY REQUIREMENTS Complete Parts A through F
Part A. Years of Eligibility Service Requirement:
1. Elective Deferrals.
An Employee will be eligible to become a Contributing Participant in
the Plan (and thus be eligible to make Elective Deferrals) and
receive Matching Contributions (including Qualified Matching
Contributions, if applicable) after completing ________ (enter 0, 1
or any fraction less than 1) Years of Eligibility Service.
2. Employer Profit Sharing Contributions.
An Employee will be eligible to become a Participant in the Plan for
purposes of receiving an allocation of any Employer Profit Sharing
Contribution made pursuant to Section 10 of the Adoption Agreement
after completing ________ (enter 0, 1, 2 or any fraction less than 2)
Years of Eligibility Service.
NOTE: If more than 1 year is selected for Item 2, the immediate 100%
vesting schedule of Section 12 will automatically apply for
contributions described in such item. If either item is left blank, the
Years of Eligibility Service required for such item will be deemed to be
0. If a fraction is selected, an Employee will not be required to
complete any specified number of Hours of Service to receive credit for
a fractional year. If a single Entry Date is selected in Section 4, Part
F for an item, the Years of Eligibility Service required for such item
cannot exceed 1 1/2 (1/2 for Elective Deferrals).
Part B. Age Requirement:
1. Elective Deferrals.
An Employee will be eligible to become a Contributing Participant
(and thus be eligible to make Elective Deferrals) and receive
Matching Contributions (including Qualified Matching Contributions,
if applicable) after attaining age ________ (no more than 21).
2. Employer Profit Sharing Contributions.
An Employee will be eligible to become a Participant in the Plan for
purposes of receiving an allocation of any Employer Profit Sharing
Contribution made pursuant to Section 10 of the Adoption Agreement
after attaining age ________ (no more than 21).
NOTE: If either of the above items in this Section 4, Part B is left blank, it will be deemed there is no age requirement for such item. If a single Entry Date is selected in Section 4, Part F for an item, no age requirement can exceed 20 1/2 for such item.
Part C. Employees Employed As of Effective Date:
Will all Employees employed as of the Effective Date of this Plan who
have not otherwise met the requirements of Part A or Part B above be
considered to have met those requirements as of the Effective Date?
[ ] Yes [ ]No
NOTE: If a box is not checked for any item in this Section 4, Part C, "No" will be deemed to be selected.
Part D. Exclusion of Certain Classes of Employees:
All Employees will be eligible to become Participants in the Plan except:
a. [ ] Those 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 and if two percent or less of the Employees who are covered pursuant to that agreement are professionals as defined in Section 1.410(b)-9 of the regulations. 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.
b. [ ] Those Employees who are non-resident aliens (within the meaning of Section 7701(b)(1)(B) of the Code) and who received no earned income (within the meaning of Section 911(d)(2) of the Code) from the Employer which constitutes income from sources within the United States (within the meaning of Section 861(a)(3) of the Code).
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Part E. Hours Required For Eligibility Purposes:
1. __________ Hours of Service (no more than 1,000) shall be required to
constitute a Year of Eligibility Service.
2. __________ Hours of Service (no more than 500 but less than the
number specified in Section 4, Part E, Item 1, above) must be
exceeded to avoid a Break in Eligibility Service.
3. For purposes of determining Years of Eligibility Service, Employees
shall be given credit for Hours of Service with the following
predecessor employer(s): (Complete if applicable)
Part F. Entry Dates:
The Entry Dates for participation shall be (Choose one):
Option 1: [ ] The first day of the Plan Year and the first day of the
seventh month of the Plan Year.
Option 2: [ ] Other (Specify)___________________________________________
NOTE: If no option is selected, Option 1 will be deemed to be selected. Option 2 can be selected for an item only if the eligibility requirements and Entry Dates are coordinated such that each Employee will become a Participant in the Plan no later than the earlier of: (1) the first day of the Plan Year beginning after the date the Employee satisfies the age and service requirements of Section 410(a) of the Code; or (2) 6 months after the date the Employee satisfies such requirements.
SECTION 5. METHOD OF DETERMINING SERVICE
Complete Part A or B
Part A. Hours of Service Equivalencies:
Service will be determined on the basis of the method selected below.
Only one method may be selected. The method selected will be applied to
all Employees covered under the Plan. (Choose one):
Option 1: [ ] On the basis of actual hours for which an Employee is paid
or entitled to payment.
Option 2: [ ] On the basis of days worked. An Employee will be credited
with 10 Hours of Service if under Section 1.24 of the Plan
such Employee would be credited with at least 1 Hour of
Service during the day.
Option 3: [ ] On the basis of weeks worked. An Employee will be credited
with 45 Hours of Service if under Section 1.24 of the Plan
such Employee would be credited with at least 1 Hour of
Service during the week.
Option 4: [ ] On the basis of months worked. An Employee will be
credited with 190 Hours of Service if under Section 1.24
of the Plan such Employee would be credited with at least
1 Hour of Service during the month.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
This Section 5, Part A will not apply if the Elapsed Time Method of
Section 5, Part B is selected.
Part B. Elapsed Time Method:
In lieu of tracking Hours of Service of Employees, will the elapsed time
method described in Section 2.07 of the Plan be used? (Choose one)
Option 1: [ ] No.
Option 2: [ ] Yes.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
SECTION 6. ELECTIVE DEFERRALS
Part A. Authorization of Elective Deferrals:
Will Elective Deferrals be permitted under this Plan? (Choose one)
Option 1: [ ] Yes.
Option 2: [ ] No.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Complete the remainder of Section 6 only if Option 1 is selected.
Part B. Limits on Elective Deferrals:
If Elective Deferrals are permitted under the Plan, a Contributing
Participant may elect under a salary reduction agreement to have his or
her Compensation reduced by an amount as described below (Choose one):
Option 1: [ ] An amount equal to a percentage of the Contributing
Participant's Compensation from _______ % to _______ % in
increments of _______ %.
Option 2:x[ ] An amount of the Contributing Participant's Compensation
not less than _______________ and not more than
_______________ .
The amount of such reduction shall be contributed to the Plan by the
Employer on behalf of the Contributing Participant. For any taxable
year, a Contributing Participant's Elective Deferrals shall not exceed
the limit contained in Section 402(g) of the Code in effect at the
beginning of such taxable year.
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Part C. Elective Deferrals Based on Bonuses:
Instead of or in addition to making Elective Deferrals through payroll
deduction, may a Contributing Participant elect to contribute to the
Plan, as an Elective Deferral, part or all of a bonus rather than
receive such bonus in cash? (Choose one)
Option 1: [ ] Yes.
Option 2: [ ] No.
NOTE: If no option is selected, Option 2 will be deemed to be selected.
Part D. Return As A Contributing Participant After Ceasing Elective Deferrals:
A Participant who ceases Elective Deferrals by revoking a salary reduction agreement may return as a Contributing Participant as of such times established by the Plan Administrator in a uniform and nondiscriminatory manner.
Part E. Changing Elective Deferral Amounts:
A Contributing Participant may modify a salary reduction agreement to prospectively increase or decrease the amount of his or her Elective Deferrals as of such times established by the Plan Administrator in a uniform and nondiscriminatory manner.
SECTION 7. MATCHING CONTRIBUTIONS
Part A. Authorization of Matching Contributions:
Will the Employer make Matching Contributions to the Plan on behalf of
Qualifying Contributing Participants? (Choose one)
Option 1: [ ] Yes, but only with respect to a Contributing
Participant's Elective Deferrals.
Option 2: [ ] Yes, but only with respect to a Participant's
Nondeductible Employee Contributions.
Option 3: [ ] Yes, with respect to both Elective Deferrals and
Nondeductible Employee Contributions.
Option 4: [ ] No.
NOTE: If no option is selected, Option 4 will be deemed to be selected.
Complete the remainder of Section 7 only if Option 1, 2 or 3 is
selected.
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Part C. Limit on Matching Contributions:
Notwithstanding the Matching Contribution formula specified above, no Matching Contribution will be made with respect to a Contributing Participant's Elective Deferrals (and/or Nondeductible Employee Contributions, if applicable) in excess of ________ or ________% of such Contributing Participant's Compensation.
Part D. Qualifying Contributing Participants:
A Contributing Participant who satisfies the eligibility requirements described in Section 4 will be a Qualifying Contributing Participant and thus entitled to share in Matching Contributions for any Plan Year only if the Participant is a Contributing Participant and satisfies the following additional conditions (Check one or more Options):
Option 1: [ ] No Additional Conditions.
Option 2: [ ] Hours of Service Requirement. The Contributing Participant completes at least ________ (not more than 500) Hours of Service during the Plan Year. However, this condition will be waived for the following reasons (Check at least one):
[ ] The Contributing Participant's Death.
[ ] The Contributing Participant's Termination of Employment after having incurred a Disability.
[ ] The Contributing Participant's Termination of Employment after having reached Normal Retirement Age.
[ ] This condition will not be waived.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
SECTION 8. QUALIFIED NONELECTIVE CONTRIBUTIONS
Part A. Authorization of Qualified Nonelective Contributions:
Will the Employer make Qualified Nonelective Contributions to the Plan?
(Choose One)
Option 1: [ ] Yes.
Option 2: [ ] No.
If the Employer elects to make Qualified Nonelective Contributions, then the amount, if any, of such contribution to the Plan for each Plan Year shall be an amount determined by the Employer.
NOTE: If no option is selected, Option 1 will be deemed to be selected. Complete the remainder of Section 8 only if Option 1 is selected.
Part B. Participants Entitled to Qualified Nonelective Contributions:
Allocation of Qualified Nonelective Contributions shall be made to the Individual Accounts of (Choose one):
Option 1: [ ] Only Participants who are not Highly Compensated Employees.
Option 2: [ ] All Participants.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part C. Allocation of Qualified Nonelective Contributions:
Allocation of Qualified Nonelective Contributions to Participants entitled thereto shall be made (Choose one):
Option 1: [ ] In the ratio which each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for such Plan Year.
Option 2: [ ] In the ratio which each Participant's Compensation not in excess of _____________ for the Plan Year bears to the total Compensation of all Participants not in excess of _____________ for such Plan Year.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
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SECTION 9. QUALIFIED MATCHING CONTRIBUTIONS
Part A. Authorization of Qualified Matching Contributions:
Will the Employer make Qualified Matching Contributions to the Plan on behalf of Qualifying Contributing Participants? (Choose one)
Option 1: [ ] Yes, but only with respect to a Contributing Participant's Elective Deferrals.
Option 2: [ ] Yes, but only with respect to a Participant's Nondeductible Employee Contributions.
Option 3: [ ] Yes, with respect to both Elective Deferrals and Nondeductible Employee Contributions.
Option 4: [ ] No.
NOTE: If no option is selected, Option 3 will be deemed to be selected. Complete the remainder of Section 9 only if Option 1, 2 or 3 is selected.
Part B. Qualified Matching Contribution Formula:
If the Employer will make Qualified Matching Contributions, then the amount of such Qualified Matching Contributions made on behalf of a Qualifying Contributing Participant each Plan Year shall be (Choose one):
Option 1: [ ] An amount equal to ________% of such Contributing Participant's Elective Deferral (and/or Nondeductible Employee Contribution, if applicable).
Option 2: [ ] An amount equal to the sum of ________% of the portion of such Contributing Participant's Elective Deferral (and/or Nondeductible Employee Contribution, if applicable) which does not exceed ________% of the Contributing Participant's Compensation plus ________% of the portion of such Contributing Participant's Elective Deferral (and/or Nondeductible Employee Contribution, if applicable) which exceeds ________% of the Contributing Participant's Compensation.
Option 3: [ ] Such amount, if any, as determined by the Employer in its sole discretion, equal to that percentage of the Elective Deferrals (and/or Nondeductible Employee Contribution, if applicable) of each Contributing Participant entitled thereto which would be sufficient to cause the Plan to satisfy the Actual Contribution Percentage tests (described in Section 11.402 of the Plan) for the Plan Year.
NOTE: If no option is selected, Option 3 will be deemed to be selected.
Part C. Participants Entitled to Qualified Matching Contributions:
Qualified Matching Contributions, if made to the Plan, will be made on behalf of (Choose one):
Option 1: [ ] Only Contributing Participants who make Elective Deferrals who are not Highly Compensated Employees.
Option 2: [ ] All Contributing Participants who make Elective Deferrals.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part D. Limit on Qualified Matching Contributions:
Notwithstanding the Qualified Matching Contribution formula specified above, the Employer will not match a Contributing Participant's Elective Deferrals (and/or Nondeductible Employee Contribution, if applicable) in excess of ____________ or ________% of such Contributing Participant's Compensation.
SECTION 10. EMPLOYER PROFIT SHARING CONTRIBUTIONS
Complete Parts A, B and C
Part A. Contribution Formula:
For each Plan Year the Employer will contribute an Amount to be determined from year to year.
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Part B. Allocation Formula (Choose one):
Option 1: [ ] Pro Rata Formula. Employer Profit Sharing Contributions shall be allocated to the Individual Accounts of Qualifying Participants in the ratio that each Qualifying Participant's Compensation for the Plan Year bears to the total Compensation of all Qualifying Participants for the Plan Year.
Option 2: [ ] Integrated Formula. Employer Profit Sharing Contributions shall be allocated as follows (Start with Step 3 if this Plan is not a Top-Heavy Plan):
Step 1. Employer Profit Sharing Contributions shall first be allocated pro rata to Qualifying Participants in the manner described in Section 10, Part B, Option 1. The percent so allocated shall not exceed 3% of each Qualifying Participant's Compensation.
Step 2. Any Employer Profit Sharing Contributions remaining after the allocation in Step 1 shall be allocated to each Qualifying Participant's Individual Account in the ratio that each Qualifying Participant's Compensation for the Plan Year in excess of the integration level bears to all Qualifying Participants' Compensation in excess of the integration level, but not in excess of 3%.
Step 3. Any Employer Profit Sharing Contributions remaining after the allocation in Step 2 shall be allocated to each Qualifying Participant's Individual Account in the ratio that the sum of each Qualifying Participant's total Compensation and Compensation in excess of the integration level bears to the sum of all Qualifying Participants' total Compensation and Compensation in excess of the integration level, but not in excess of the profit sharing maximum disparity rate as described in Section 3.01(B)(3) of the Plan.
Step 4. Any Employer Profit Sharing Contributions remaining after the allocation in Step 3 shall be allocated pro rata to Qualifying Participants in the manner described in Section 10, Part B, Option 1.
The integration level shall be (Choose one):
Suboption (a): [ ] The Taxable Wage Base.
Suboption (b): [ ] _______________ (a dollar amount less than the Taxable Wage Base).
Suboption (c): [ ] ________% (not more than 100%) of the Taxable Wage Base.
NOTE: If no option is selected, Suboption (a) will be deemed to be selected.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part C. Qualifying Participants:
A Participant will be a Qualifying Participant and thus entitled to share in the Employer Profit Sharing Contribution for any Plan Year only if the Participant is a Participant on at least one day of such Plan Year and satisfies the following additional conditions (Check one or more Options):
Option 1: [ ] No Additional Conditions.
Option 2: [ ] Hours of Service Requirement. The Participant completes at least _________ (not more than 500) Hours of Service during the Plan Year. However, this condition will be waived for the following reasons (Check at least one):
[ ] The Participant's Death.
[ ] The Participant's Termination of Employment after having incurred a Disability.
[ ] The Participant's Termination of Employment after having reached Normal Retirement Age.
[ ] This condition will not be waived.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
SECTION 11. COMPENSATION Complete Parts A through D
Part A. Basic Definition:
Compensation will mean all of each Participant's (Choose one):
Option 1: [ ] W-2 wages.
Option 2: [ ] Section 3401(a) wages.
Option 3: [ ] 415 safe-harbor compensation.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
Part B. Measuring Period for Compensation:
Compensation shall be determined over the following applicable period (Choose one):
Option 1: [ ] The Plan Year.
Option 2: [ ] The calendar year ending with or within the Plan Year.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part C. Inclusion of Elective Deferrals:
Does Compensation include Employer Contributions made pursuant to a salary reduction agreement which are not includible in the gross income of the Employee under Sections 125, 402(e)(3), 402(h)(1)(B), and 403(b) of the Code?
[ ] Yes [ ] No
NOTE: If neither box is checked, "Yes" will be deemed to be selected.
Part D. Pre-Entry Date Compensation:
For the Plan Year in which an Employee enters the Plan, the Employee's Compensation which shall be taken into account for purposes of the Plan shall be (Choose one):
Option 1: [ ] The Employee's Compensation only from the time the Employee became a Participant in the Plan.
Option 2: [ ] The Employee's Compensation for the whole of such Plan Year.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
SECTION 12. VESTING AND FORFEITURES Complete Parts A through G
Part A. Vesting Schedule For Employer Profit Sharing Contributions. A
Participant shall become Vested in his or her Individual Account derived from Profit Sharing Contributions made pursuant to Section 10 of the Adoption Agreement as follows (Choose one):
---------------------------------------------------------------------------------------------------------------
YEARS OF VESTED PERCENTAGE
VESTING SERVICE Option 1 [ ] Option 2 [ ] Option 3 [ ] Option 4 [ ] Option 5 [ ] (Complete if Chosen)
---------------------------------------------------------------------------------------------------------------
1 0% 0% 100% 0% --------- %
2 0% 20% 100% 0% --------- %
3 0% 40% 100% 20% --------- % (not less than 20%)
4 0% 60% 100% 40% --------- % (not less than 40%)
5 100% 80% 100% 60% --------- % (not less than 60%)
6 100% 100% 100% 80% --------- % (not less than 80%)
7 100% 100% 100% 100% --------- % (not less than 100%)
|
Part B. Vesting Schedule For Matching Contributions. A Participant shall become Vested in his or her Individual Account derived from Matching Contributions made pursuant to Section 7 of the Adoption Agreement as follows (Choose one):
---------------------------------------------------------------------------------------------------------------
YEARS OF VESTED PERCENTAGE
VESTING SERVICE Option 1 [ ] Option 2 [ ] Option 3 [ ] Option 4 [ ] Option 5 [ ] (Complete if Chosen)
---------------------------------------------------------------------------------------------------------------
1 0% 0% 100% 0% --------- %
2 0% 20% 100% 0% --------- %
3 0% 40% 100% 20% --------- % (not less than 20%)
4 0% 60% 100% 40% --------- % (not less than 40%)
5 100% 80% 100% 60% --------- % (not less than 60%)
6 100% 100% 100% 80% --------- % (not less than 80%)
7 100% 100% 100% 100% --------- % (not less than 100%)
|
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
Part C. Hours Required For Vesting Purposes:
1. __________ Hours of Service (no more than 1,000) shall be required to constitute a Year of Vesting Service.
2. __________ Hours of Service (no more than 500 but less than the number specified in Section 12, Part C, Item 1, above) must be exceeded to avoid a Break in Vesting Service.
3. For purposes of determining Years of Vesting Service, Employees shall be given credit for Hours of Service with the following predecessor employer(s): (Complete if applicable)
Part D. Exclusion of Certain Years of Vesting Service:
All of an Employee's Years of Vesting Service with the Employer are counted to determine the vesting percentage in the Participant's Individual Account except (Check any that apply):
[ ] Years of Vesting Service before the Employee reaches age 18.
[ ] Years of Vesting Service before the Employer maintained this Plan or a predecessor plan.
Part E. Allocation of Forfeitures of Employer Profit Sharing Contributions:
Forfeitures of Employer Profit Sharing Contributions shall be (Choose one):
Option 1: [ ] Allocated to the Individual Accounts of the Participants specified below in the manner as described in Section 10,
Part B (for Employer Profit Sharing Contributions).
The Participants entitled to receive allocations of such
Forfeitures shall be (Choose one):
Suboption (a): [ ] Only Qualifying Participants.
Suboption (b): [ ] All Participants.
Option 2: [ ] Applied to reduce Employer Profit Sharing Contributions (Choose one):
Suboption (a): [ ] For the Plan Year for which the Forfeiture arises.
Suboption (b): [ ] For any Plan Year subsequent to the Plan Year for which the Forfeiture arises.
Option 3: [ ] Applied first to the payment of the Plan's administrative expenses and any excess applied to reduce Employer Profit Sharing Contributions (Choose one):
Suboption (a): [ ] For the Plan Year for which the Forfeiture arises.
Suboption (b): [ ] For any Plan Year subsequent to the Plan Year for which the Forfeitures arises.
NOTE: If no option is selected, Option 1 and Suboption (a) will be deemed to be selected.
Part F. Allocation of Forfeitures of Matching Contributions:
Forfeitures of Matching Contributions shall be (Choose one):
Option 1: [ ] Allocated, after all other Forfeitures under the Plan, to each Participant's Individual Account in the ratio which each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for such Plan Year.
The Participants entitled to receive allocations of such Forfeitures shall be (Choose one):
Suboption (a): [ ] Only Qualifying Contributing Participants.
Suboption (b): [ ] Only Qualifying Participants.
Suboption (c): [ ] All Participants.
Option 2: [ ] Applied to reduce Matching Contributions (Choose one):
Suboption (a): [ ] For the Plan Year for which the Forfeiture arises.
Suboption (b): [ ] For any Plan Year subsequent to the Plan Year for which the Forfeiture arises.
Option 3: [ ] Applied first to the payment of the Plan's administrative expenses and any excess applied to reduce Matching Contributions (Choose one):
Suboption (a): [ ] For the Plan Year for which the Forfeiture arises.
Suboption (b): [ ] For any Plan Year subsequent to the Plan Year for which the Forfeitures arises.
NOTE: If no option is selected, Option 1 and Suboption (a) will be deemed to be selected.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
Part G. Allocation of Forfeitures of Excess Aggregate Contributions:
Forfeitures of Excess Aggregate Contributions shall be (Choose one):
Option 1: [ ] Allocated, after all other Forfeitures under the Plan, to each Contributing Participant's Matching Contribution account in the ratio which each Contributing Participant's Compensation for the Plan Year bears to the total Compensation of all Contributing Participants for such Plan Year. Such Forfeitures will not be allocated to the account of any Highly Compensated Employee.
Option 2: [ ] Applied to reduce Matching Contributions (Choose one):
Suboption (a): [ ] For the Plan Year for which the Forfeiture arises.
Suboption (b): [ ] For any Plan Year subsequent to the Plan Year for which the Forfeiture arises.
Option 3: [ ] Applied first to the payment of the Plan's administrative expenses and any excess applied to reduce Matching Contributions (Choose one):
Suboption (a): [ ] For the Plan Year for which the Forfeiture arises.
Suboption (b): [ ] For any Plan Year subsequent to the Plan Year for which the Forfeitures arises.
NOTE: If no option is selected, Option 2 and Suboption (a) will be deemed to be selected.
SECTION 13. NORMAL RETIREMENT AGE AND EARLY RETIREMENT AGE
Part A. The Normal Retirement Age under the Plan shall be (Check and complete one option):
Option 1: [ ] Age 65.
Option 2: [ ] Age ________ (not to exceed 65).
Option 3: [ ] The later of age ________ (not to exceed 65) or the ________ (not to exceed 5th) anniversary of the first day of the first Plan Year in which the Participant commenced participation in the Plan.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part B. Early Retirement Age (Choose one option):
Option 1: [ ] An Early Retirement Age is not applicable under the Plan.
Option 2: [ ] Age ________ (not less than 55 nor more than 65).
Option 3: [ ] A Participant satisfies the Plan's Early Retirement Age conditions by attaining age ________ (not less than 55) and completing ________ Years of Vesting Service.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
SECTION 14. DISTRIBUTIONS
Distributable Events. Answer each of the following items. A. Termination of Employment Before Normal Retirement Age. May a Participant who has not reached Normal Retirement Age request a distribution from the Plan upon Termination of Employment? [ ] Yes [ ] No B. Disability. May a Participant who has incurred a Disability request a distribution from the Plan? [ ] Yes [ ] No C. Attainment of Normal Retirement Age. May a Participant who has attained Normal Retirement Age but has not incurred a Termination of Employment request a distribution from the Plan? [ ] Yes [ ] No D. Attainment of Age 59 1/2. Will Participants who have attained age 59 1/2 be permitted to withdraw Elective Deferrals while still employed by the Employer? [ ] Yes [ ] No E. Hardship Withdrawals of Elective Deferrals. Will Participants be permitted to withdraw Elective Deferrals on account of hardship pursuant to Section 11.503 of the Plan? [ ] Yes [ ] No F. In-Service Withdrawals. Will Participants be permitted to request a distribution during service pursuant to Section 6.01(A)(3) of the Plan? [ ] Yes [ ] No G. Hardship Withdrawals. Will Participants be permitted to make hardship withdrawals pursuant to Section 6.01(A)(4) of the Plan? [ ] Yes [ ] No H. Withdrawals of Rollover or Transfer Contributions. Will Employees be permitted to withdraw their Rollover or Transfer Contributions at any time? [ ] Yes [ ] No |
NOTE: If a box is not checked for an item, "Yes" will be deemed to be selected for that item. Section 411(d)(6) of the Code prohibits the elimination of protected benefits. In general, protected benefits include the forms and timing of payout options. If the Plan is being adopted to amend and replace a Prior Plan that permitted a distribution option described above, you must answer "Yes" to that item.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 15. JOINT AND SURVIVOR ANNUITY
Part A. Retirement Equity Act Safe Harbor:
Will the safe harbor provisions of Section 6.05(F) of the Plan apply?
(Choose only one option)
Option 1: [ ] Yes.
Option 2: [ ] No.
NOTE: You must select "No" if you are adopting this Plan as an amendment and restatement of a Prior Plan that was subject to the joint and survivor annuity requirements.
Part B. Survivor Annuity Percentage: (Complete only if your answer in Section 15, Part A is "No.")
The survivor annuity portion of the Joint and Survivor Annuity shall be a percentage equal to ________% (at least 50% but no more than 100%) of the amount paid to the Participant prior to his or her death.
SECTION 16. OTHER OPTIONS
Answer "Yes" or "No" to each of the following questions by checking the
appropriate box.
If a box is not checked for a question, the answer will be deemed to be "No."
A. Loans: Will loans to Participants pursuant to Section 6.08 of the Plan be permitted? [ ] Yes [ ] No B. Insurance: Will the Plan allow for the investment in insurance policies pursuant to Section 5.13 of the Plan? [ ] Yes [ ] No C. Employer Securities: Will the Plan allow for the investment in qualifying Employer securities or qualifying Employer real property? [ ] Yes [ ] No D. Rollover Contributions: Will Employees be permitted to make rollover contributions to the Plan pursuant to Section 3.03 of the Plan? [ ] Yes [ ] No |
[ ] Yes, but only after becoming a Participant.
E. Transfer Contributions: Will Employees be permitted to
make transfer contributions to the Plan pursuant to
Section 3.04 of the Plan? [ ] Yes [ ] No
[ ] Yes, but only
after becoming
a Participant.
F. Nondeductible Employee Contributions: Will Employees be permitted to make Nondeductible Employee Contributions pursuant to Section 11.305 of the Plan? [ ] Yes [ ] No Check here if such contributions will be mandatory. [ ]
G. Will Participants be permitted to direct the investment of their Plan assets pursuant to Section 5.14 of the
Plan? [ ] Yes [ ] No
SECTION 17. LIMITATION ON ALLOCATIONS
More Than One Plan
|
If you maintain or ever maintained another qualified plan (other than a paired
standardized money purchase pension plan using the same Basic Plan Document as
this Plan) in which any Participant in this Plan is (or was) a Participant or
could become a Participant, you must complete this section. You must also
complete this section if you maintain 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.
Part A. Individually Designed Defined Contribution Plan:
If the Participant is covered under another qualified defined contribution plan maintained by the Employer, other than a master or prototype plan:
1. [ ] The provisions of Section 3.05(B)(1) through 3.05(B)(6) of the Plan will apply as if the other plan were a master or prototype plan.
2. [ ] Other method. (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.)
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
Part B. Defined Benefit Plan:
If the Participant is or has ever been a participant in a defined benefit plan maintained by the Employer, the Employer will provide below the language which will satisfy the 1.0 limitation of Section 415(e) of the Code.
1. [ ] If the projected annual addition to this Plan to the account of a Participant for any limitation year would cause the 1.0 limitation of Section 415(e) of the Code to be exceeded, the annual benefit of the defined benefit plan for such limitation year shall be reduced so that the 1.0 limitation shall be satisfied.
If it is not possible to reduce the annual benefit of the
defined benefit plan and the projected annual addition to
this Plan to the account of a Participant for a limitation year
would cause the 1.0 limitation to be exceeded, the Employer shall
reduce the Employer Contribution which is to be allocated to this
Plan on behalf of such Participant so that the 1.0 limitation
will be satisfied. (The provisions of Section 415(e) of the Code
are incorporated herein by reference under the authority of
Section 1106(h) of the Tax Reform Act of 1986.)
2. [ ] Other method. (Provide language describing another method. Such language must preclude Employer discretion.)
SECTION 18. TOP-HEAVY MINIMUM
Complete Parts A and B
Part A. Minimum Allocation or Benefit:
For any Plan Year with respect to which this Plan is a Top-Heavy Plan, any minimum allocation required pursuant to Section 3.01(E) of the Plan shall be made (Choose one):
Option 1: [ ] To this Plan.
Option 2: [ ] To the following other plan maintained by the Employer
(Specify name and plan number of plan)
Option 3: [ ] In accordance with the method described on an attachment to this Adoption Agreement. (Attach language describing the method that will be used to satisfy Section 416 of the Code. Such method must preclude Employer discretion.)
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part B. Top-Heavy Vesting Schedule:
Pursuant to Section 6.01(C) of the Plan, the vesting schedule that will apply when this Plan is a Top-Heavy Plan (unless the Plan's regular vesting schedule provides for more rapid vesting) shall be (Choose one):
Option 1: [ ] 6 Year Graded.
Option 2: [ ] 3 Year Cliff.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
SECTION 19. PROTOTYPE SPONSOR
Name of Prototype Sponsor_______________________________________________________
Address_________________________________________________________________________
Telephone Number________________________________________________________________
Permissible Investments
The assets of the Plan shall be invested only in those investments described below (To be completed by the Prototype Sponsor):
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 20. TRUSTEE OR CUSTODIAN
Option A: [ ] Financial Organization as Trustee or Custodian
Check One: [ ] Custodian, [ ] Trustee without full trust powers, or
[ ] Trustee with full trust powers
Financial Organization__________________________________________________________
Signature_______________________________________________________________________
Type Name_______________________________________________________________________
Collective or Commingled Funds
List any collective or commingled funds maintained by the financial organization Trustee in which assets of the Plan may be invested (Complete if applicable).
Option B: [ ] Individual Trustee(s) Signature_____________________________ Signature_____________________________ Type Name_____________________________ Type Name_____________________________ Signature_____________________________ Signature_____________________________ Type Name_____________________________ Type Name_____________________________ |
SECTION 21. RELIANCE
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 a paired standardized money purchase pension plan using the same Basic Plan Document as this Plan) may not rely on the opinion letter issued by the National Office of the Internal Revenue Service as evidence that this Plan is qualified under Section 401 of the Internal Revenue Code. If the Employer who adopts or maintains multiple plans wishes to obtain reliance that his or her plan(s) are qualified, application for a determination letter should be made to the appropriate Key District Director of Internal Revenue.
The Employer may not rely on the opinion letter issued by the National Office of
the Internal Revenue Service as evidence that this Plan is qualified under
Section 401 of the Code unless the terms of the Plan, as herein adopted or
amended, that pertain to the requirements of Sections 401(a)(4), 401(a)(17),
401(l), 401(a)(5), 410(b) and 414(s) of the Code, as amended by the Tax Reform
Act of 1986, or later laws, (a) are made effective retroactively to the first
day of the first Plan Year beginning after December 31, 1988 (or such later date
on which these requirements first become effective with respect to this Plan);
or (b) are made effective no later than the first day on which the Employer is
no longer entitled, under regulations, to rely on a reasonable, good faith
interpretation of these requirements, and the prior provisions of the Plan
constitute such an interpretation.
This Adoption Agreement may be used only in conjunction with Basic Plan Document No. 04.
SECTION 22. EMPLOYER SIGNATURE Important: Please read before signing
I am an authorized representative of the Employer named above and I state the following:
1. I acknowledge that I have relied upon my own advisors regarding the completion of this Adoption Agreement and the legal tax implications of adopting this Plan.
2. I understand that my failure to properly complete this Adoption Agreement may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any amendments made to the Plan and will notify me should it discontinue or abandon the Plan.
4. I have received a copy of this Adoption Agreement and the corresponding Basic Plan Document.
Signature for Employer_____________________ Date Signed_______________________
Type Name__________________________________ Title_____________________________
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
Flexible Nonstandardized Safe Harbor 401(k) Profit Sharing Plan
ADOPTION AGREEMENT
SECTION 1. EMPLOYER INFORMATION
Name of Employer _______________________________________________________________
Address ________________________________________________________________________
City ____________________________ State ________________ Zip __________________
Telephone ____________ Employer's Federal Tax Identification Number ____________
Type of Business (Check only one)
[ ] Sole Proprietorship [ ] Partnership [ ] C Corporation [ ] S Corporation
[ ] Other (Specify) ____________________________________________________________
[ ] Check here if Related Employers may participate in this Plan and attach a Related Employer Participation Agreement for each Related Employer who will participate in this Plan.
Business Code __________________________________________________________________
Name of Plan ___________________________________________________________________
Name of Trust (if different from Plan name) ____________________________________
Plan Sequence Number _______ (Enter 001 if this is the first qualified plan the Employer has ever maintained, enter 002 if it is the second, etc.)
Trust Identification Number (if applicable)____________
Account Number (Optional) _____________________________
SECTION 2. EFFECTIVE DATES
Complete Parts A and B
Part A. General Effective Dates (Check and Complete Option 1 or 2):
Option 1: [ ] This is the initial adoption of a profit sharing plan
by the Employer.
The Effective Date of this Plan is _____________________ .
NOTE: The effective date is usually the first day of the
Plan Year in which this Adoption Agreement is signed.
Option 2: [ ] This is an amendment and restatement of an existing profit sharing plan (a Prior Plan).
The Prior Plan was initially effective on ______________ .
The Effective Date of this amendment and
restatement is _____________________ .
NOTE: The effective date is usually the first day of the
Plan Year in which this Adoption Agreement is signed.
Part B. Commencement of Elective Deferrals:
Elective Deferrals may commence on _____________________ .
NOTE: This date may be no earlier than the date this Adoption Agreement is signed because Elective Deferrals cannot be made retroactively.
SECTION 3. RELEVANT TIME PERIODS Complete Parts A through C
Part A. Employer's Fiscal Year:
The Employer's fiscal year ends (Specify month and date) _______________
Part B. Plan Year Means:
Option 1: [ ] The 12-consecutive month period which coincides with the Employer's fiscal year.
Option 2: [ ] The calendar year.
Option 3: [ ] Other 12-consecutive month period (Specify) ______________
NOTE: If no option is selected, Option 1 will be deemed to be selected.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
Part C. Limitation Year Means:
Option 1: [ ] The Plan Year.
Option 2: [ ] The calendar year.
Option 3: [ ] Other 12-consecutive month period (Specify) ______________ NOTE: If no option is selected, Option 1 will be deemed to be selected.
SECTION 4. ELIGIBILITY REQUIREMENTS Complete Parts A through G
Part A. Years of Eligibility Service Requirement:
1. Elective Deferrals. An Employee will be eligible to become a Contributing Participant in the Plan (and thus be eligible to make Elective Deferrals) and receive Matching Contributions (including Qualified Matching Contributions, if applicable) after completing ________ (enter 0, 1 or any fraction less than 1) Years of Eligibility Service.
2. Employer Profit Sharing Contributions. An Employee will be eligible to become a Participant in the Plan for purposes of receiving an allocation of any Employer Profit Sharing Contribution made pursuant to Section 10 of the Adoption Agreement after completing ________ (enter 0, 1, 2 or any fraction less than 2) Years of Eligibility Service.
NOTE: If more than 1 year is selected for Item 2, the immediate 100%
vesting schedule of Section 12 will automatically apply for
contributions described in such item. If either item is left blank, the
Years of Eligibility Service required for such item will be deemed to be
0. If a fraction is selected, an Employee will not be required to
complete any specified number of Hours of Service to receive credit for
a fractional year. If a single Entry Date is selected in Section 4, Part
G for an item, the Years of Eligibility Service required for such item
cannot exceed 1 1/2 (1/2 for Elective Deferrals).
Part B. Age Requirement:
1. Elective Deferrals. An Employee will be eligible to become a Contributing Participant (and thus be eligible to make Elective Deferrals) and receive Matching Contributions (including Qualified Matching Contributions, if applicable) after attaining age ________ (no more than 21).
2. Employer Profit Sharing Contributions. An Employee will be eligible to become a Participant in the Plan for purposes of receiving an allocation of any Employer Profit Sharing Contribution made pursuant to Section 10 of the Adoption Agreement after attaining age ________ (no more than 21).
NOTE: If either of the above items in this Section 4, Part B is left blank, it will be deemed there is no age requirement for such item. If a single Entry Date is selected in Section 4, Part G for an item, no age requirement can exceed 20 1/2 for such item.
Part C. Employees Employed As of Effective Date:
Will all Employees employed as of the Effective Date of this Plan who
have not otherwise met the requirements of Part A or Part B above be
considered to have met those requirements as of the Effective Date?
[ ] Yes [ ] No
NOTE: If a box is not checked in this Section 4, Part C, "No" will be deemed to be selected.
Part D. Exclusion of Certain Classes of Employees:
All Employees will be eligible to become Participants in the Plan except:
a. [ ] Those 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 and if two percent or less of the Employees who are covered pursuant to that agreement are professionals as defined in Section 1.410(b)-9 of the regulations. 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.
b. [ ] Those Employees who are non-resident aliens (within the meaning of Section 7701(b)(1)(B) of the Code) and who received no earned income (within the meaning of Section 911(d)(2) of the Code) from the Employer which constitutes income from sources within the United States (within the meaning of Section 861(a)(3) of the Code).
c. [ ] Those Employees of a Related Employer that has not executed a Related Employer Participation Agreement.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
Part E. Election Not To Participate:
May an Employee or a Participant elect not to participate in this Plan pursuant to Section 2.08 of the Plan?
Option 1: [ ] Yes.
Option 2: [ ] No.
NOTE: If no option is selected, Option 2 will be deemed to be selected.
Part F. Hours Required For Eligibility Purposes:
1. __________ Hours of Service (no more than 1,000) shall be required to constitute a Year of Eligibility Service.
2. __________ Hours of Service (no more than 500 but less than the number specified in Section 4, Part F, Item 1, above) must be exceeded to avoid a Break in Eligibility Service.
Part G. Entry Dates:
The Entry Dates for participation shall be (Choose one):
Option 1: [ ] The first day of the Plan Year and the first day of the seventh month of the Plan Year.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Option 2 can be selected only if the eligibility requirements and
Entry Dates are coordinated such that each Employee will become a
Participant in the Plan no later than the earlier of: (1) the first
day of the Plan Year beginning after the date the Employee satisfies
the age and service requirements of Section 410(a) of the Code; or
(2) 6 months after the date the Employee satisfies such requirements.
SECTION 5. METHOD OF DETERMINING SERVICE
Complete Part A or B
Part A. Hours of Service Equivalencies:
Service will be determined on the basis of the method selected below. Only one method may be selected. The method selected will be applied to all Employees covered under the Plan. (Choose one):
Option 1: [ ] On the basis of actual hours for which an Employee is paid or entitled to payment.
Option 2: [ ] On the basis of days worked. An Employee will be credited with 10 Hours of Service if under Section 1.24 of the Plan such Employee would be credited with at least 1 Hour of Service during the day.
Option 3: [ ] On the basis of weeks worked. An Employee will be credited with 45 Hours of Service if under Section 1.24 of the Plan such Employee would be credited with at least 1 Hour of Service during the week.
Option 4: [ ] On the basis of months worked. An Employee will be credited with 190 Hours of Service if under Section 1.24 of the Plan such Employee would be credited with at least 1 Hour of Service during the month.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
This Section 5, Part A will not apply if the Elapsed Time Method of
Section 5, Part B is selected.
Part B. Elapsed Time Method:
In lieu of tracking Hours of Service of Employees, will the elapsed time method described in Section 2.07 of the Plan be used? (Choose one)
Option 1: [ ] No.
Option 2: [ ] Yes.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 6. ELECTIVE DEFERRALS
Part A. Authorization of Elective Deferrals:
Will Elective Deferrals be permitted under this Plan? (Choose one)
Option 1: [ ] Yes.
Option 2: [ ] No.
NOTE: If no option is selected, Option 1 will be deemed to be selected. Complete the remainder of Section 6 only if Option 1 is selected.
Part B. Limits on Elective Deferrals:
If Elective Deferrals are permitted under the Plan, a Contributing Participant may elect under a salary reduction agreement to have his or her Compensation reduced by an amount as described below (Choose one):
Option 1: [ ] An amount equal to a percentage of the Contributing Participant's Compensation from _______% to _______% in increments of _______%.
Option 2: [ ] An amount of the Contributing Participant's Compensation not less than _______________ and not more than _______________ .
The amount of such reduction shall be contributed to the Plan by the Employer on behalf of the Contributing Participant. For any taxable year, a Contributing Participant's Elective Deferrals shall not exceed the limit contained in Section 402(g) of the Code in effect at the beginning of such taxable year.
Part C. Elective Deferrals Based on Bonuses:
Instead of or in addition to making Elective Deferrals through payroll deduction, may a Contributing Participant elect to contribute to the Plan, as an Elective Deferral, part or all of a bonus rather than receive such bonus in cash? (Choose one)
Option 1: [ ] Yes.
Option 2: [ ] No.
NOTE: If no option is selected, Option 2 will be deemed to be selected.
Part D. Return As A Contributing Participant After Ceasing Elective Deferrals:
A Participant who ceases Elective Deferrals by revoking a salary reduction agreement may return as a Contributing Participant as of such times established by the Plan Administrator in a uniform and nondiscriminatory manner.
Part E. Changing Elective Deferral Amounts:
A Contributing Participant may modify a salary reduction agreement to prospectively increase or decrease the amount of his or her Elective Deferrals as of such times established by the Plan Administrator in a uniform and nondiscriminatory manner.
Part F. Claiming Excess Elective Deferrals:
Participants who claim Excess Elective Deferrals for the preceding calendar year must submit their claims in writing to the Plan Administrator by (Choose one):
Option 1: [ ] March 1.
Option 2: [ ] Other (Specify a date not later than April 15) ___________
NOTE: If no option is selected, Option 1 will be deemed to be selected.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 7. MATCHING CONTRIBUTIONS
Part A. Authorization of Matching Contributions:
Will the Employer make Matching Contributions to the Plan on behalf of Qualifying Contributing Participants? (Choose one)
Option 1 [ ]: Yes, but only with respect to a Contributing Participant's Elective Deferrals.
Option 2: [ ] Yes, but only with respect to a Participant's Nondeductible Employee Contributions.
Option 3: [ ] Yes, with respect to both Elective Deferrals and Nondeductible Employee Contributions.
Option 4: [ ] No.
NOTE: If no option is selected, Option 4 will be deemed to be selected. Complete the remainder of Section 7 only if Option 1, 2 or 3 is selected.
Part B. Matching Contribution Formula:
If the Employer will make Matching Contributions, then the amount of such Matching Contributions made on behalf of a Qualifying Contributing Participant each Plan Year shall be (Choose one):
Option 1: [ ] An amount equal to __________% of such Contributing Participant's Elective Deferral (and/or Nondeductible Employee Contribution, if applicable).
Option 2: [ ] An amount equal to the sum of __________% of the portion of such Contributing Participant's Elective Deferral (and/or Nondeductible Employee Contribution, if applicable) which does not exceed __________% of the Contributing Participant's Compensation plus __________% of the portion of such Contributing Participant's Elective Deferral (and/or Nondeductible Employee Contribution, if applicable) which exceeds __________% of the Contributing Participant's Compensation.
Option 3: [ ] Such amount, if any, equal to that percentage of each Contributing Participant's Elective Deferral (and/or Nondeductible Employee Contribution, if applicable) which the Employer, in its sole discretion, determines from year to year.
NOTE: If Option 4 is selected, the formula specified can only allow Matching Contributions to be made with respect to a Contributing Participant's Elective Deferrals (and/or Nondeductible Employee Contribution, if applicable).
Part C. Limit on Matching Contributions:
Notwithstanding the Matching Contribution formula specified above, no Matching Contribution will be made with respect to a Contributing Participant's Elective Deferrals (and/or Nondeductible Employee Contributions) in excess of _________________ or ________% of such Contributing Participant's Compensation.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
Part D. Qualifying Contributing Participants:
A Contributing Participant who satisfies the eligibility requirements described in Section 4 will be a Qualifying Contributing Participant and thus entitled to share in Matching Contributions for any Plan Year only if the Participant is a Contributing Participant and satisfies the following additional conditions (Check one or more Options):
Option 1: [ ] No Additional Conditions.
Option 2: [ ] Hours of Service Requirement. The Contributing Participant completes at least ________ Hours of Service during the Plan Year. However, this condition will be waived for the following reasons (Check at least one):
[ ] The Contributing Participant's Death.
[ ] The Contributing Participant's Termination of Employment after having incurred a Disability.
[ ] The Contributing Participant's Termination of Employment after having reached Normal Retirement Age.
[ ] This condition will not be waived.
Option 3: [ ] Last Day Requirement. The Participant is an Employee of the Employer on the last day of the Plan Year. However, this condition will be waived for the following reasons (Check at least one):
[ ] The Contributing Participant's Death.
[ ] The Contributing Participant's Termination of Employment after having incurred a Disability.
[ ] The Contributing Participant's Termination of Employment after having reached Normal Retirement Age.
[ ] This condition will not be waived.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
SECTION 8. QUALIFIED NONELECTIVE CONTRIBUTIONS
Part A. Authorization of Qualified Nonelective Contributions:
Will the Employer make Qualified Nonelective Contributions to the Plan?
(Choose One)
Option 1: [ ] Yes.
Option 2: [ ] No.
If the Employer elects to make Qualified Nonelective Contributions, then the amount, if any, of such contribution to the Plan for each Plan Year shall be an amount determined by the Employer.
NOTE: If no option is selected, Option 1 will be deemed to be selected. Complete the remainder of Section 8 only if Option 1 is selected.
Part B. Participants Entitled to Qualified Nonelective Contributions:
Allocation of Qualified Nonelective Contributions shall be made to the Individual Accounts of (Choose one):
Option 1: [ ] Only Participants who are not Highly Compensated Employees.
Option 2: [ ] All Participants.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part C. Allocation of Qualified Nonelective Contributions:
Allocation of Qualified Nonelective Contributions to Participants entitled thereto shall be made (Choose one):
Option 1: [ ] In the ratio which each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for such Plan Year.
Option 2: [ ] In the ratio which each Participant's Compensation not in excess of _____________ for the Plan Year bears to the total Compensation of all Participants not in excess of _____________ for such Plan Year.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 9. QUALIFIED MATCHING CONTRIBUTIONS
Part A. Authorization of Qualified Matching Contributions:
Will the Employer make Qualified Matching Contributions to the Plan on behalf of Qualifying Contributing Participants? (Choose one)
Option 1: [ ] Yes, but only with respect to a Contributing Participant's Elective Deferrals.
Option 2: [ ] Yes, but only with respect to a Participant's Nondeductible Employee Contributions.
Option 3: [ ] Yes, with respect to both Elective Deferrals and Nondeductible Employee Contributions.
Option 4: [ ] No.
NOTE: If no option is selected, Option 3 will be deemed to be selected. Complete the remainder of Section 9 only if Option 1, 2 or 3 is selected.
Part B. Qualified Matching Contribution Formula:
If the Employer will make Qualified Matching Contributions, then the amount of such Qualified Matching Contributions made on behalf of a Qualifying Contributing Participant each Plan Year shall be (Choose one):
Option 1: [ ] An amount equal to ________% of such Contributing Participant's Elective Deferral (and/or Nondeductible Employee Contribution, if applicable).
Option 2: [ ] An amount equal to the sum of ________% of the portion of such Contributing Participant's Elective Deferral (and/or Nondeductible Employee Contribution, if applicable) which does not exceed ________% of the Contributing Participant's Compensation plus ________% of the portion of such Contributing Participant's Elective Deferral (and/or Nondeductible Employee Contribution, if applicable) which exceeds ________% of the Contributing Participant's Compensation.
Option 3: [ ] Such amount, if any, as determined by the Employer in its sole discretion, equal to that percentage of the Elective Deferrals (and/or Nondeductible Employee Contribution, if applicable) of each Contributing Participant entitled thereto which would be sufficient to cause the Plan to satisfy the Actual Contribution Percentage tests (described in Section 11.402 of the Plan) for the Plan Year.
NOTE: If no option is selected, Option 3 will be deemed to be selected.
Part C. Participants Entitled to Qualified Matching Contributions:
Qualified Matching Contributions, if made to the Plan, will be made on behalf of (Choose one):
Option 1: [ ] Only Contributing Participants who make Elective Deferrals who are not Highly Compensated Employees.
Option 2: [ ] All Contributing Participants who make Elective Deferrals.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part D. Limit on Qualified Matching Contributions:
Notwithstanding the Qualified Matching Contribution formula specified above, the Employer will not match a Contributing Participant's Elective Deferrals (and/or Nondeductible Employee Contribution, if applicable) in excess of ____________ or ________% of such Contributing Participant's Compensation.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 10. EMPLOYER PROFIT SHARING CONTRIBUTIONS
Complete Parts A, B and C
Part A. Contribution Formula:
For each Plan Year the Employer will contribute an Amount to be determined from year to year.
Part B. Allocation Formula (Choose one):
Option 1: [ ] Pro Rata Formula. Employer Profit Sharing Contributions shall be allocated to the Individual Accounts of Qualifying Participants in the ratio that each Qualifying Participant's Compensation for the Plan Year bears to the total Compensation of all Qualifying Participants for the Plan Year.
Option 2: [ ] Integrated Formula. Employer Profit Sharing Contributions shall be allocated as follows (Start with Step 3 if this Plan is not a Top-Heavy Plan):
Step 1. Employer Profit Sharing Contributions shall first be allocated pro rata to Qualifying Participants in the manner described in Section 10, Part B, Option 1. The percent so allocated shall not exceed 3% of each Qualifying Participant's Compensation.
Step 2. Any Employer Profit Sharing Contributions remaining after the allocation in Step 1 shall be allocated to each Qualifying Participant's Individual Account in the ratio that each Qualifying Participant's Compensation for the Plan Year in excess of the integration level bears to all Qualifying Participants' Compensation in excess of the integration level, but not in excess of 3%.
Step 3. Any Employer Profit Sharing Contributions remaining after the allocation in Step 2 shall be allocated to each Qualifying Participant's Individual Account in the ratio that the sum of each Qualifying Participant's total Compensation and Compensation in excess of the integration level bears to the sum of all Qualifying Participants' total Compensation and Compensation in excess of the integration level, but not in excess of the profit sharing maximum disparity rate as described in Section 3.01(B)(3) of the Plan.
Step 4. Any Employer Profit Sharing Contributions remaining after the allocation in Step 3 shall be allocated pro rata to Qualifying Participants in the manner described in Section 10, Part B, Option 1.
The integration level shall be (Choose one):
Suboption (a): [ ] The Taxable Wage Base.
Suboption (b): [ ] _______________ (a dollar amount less than the Taxable Wage Base).
Suboption (c): [ ] ________% (not more than 100%) of the Taxable Wage Base.
NOTE: If no option is selected, Suboption (a) will be deemed to be selected.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part C. Qualifying Participants:
A Participant will be a Qualifying Participant and thus entitled to share in the Employer Profit Sharing Contribution for any Plan Year only if the Participant is a Participant on at least one day of such Plan Year and satisfies the following additional conditions (Check one or more Options):
Option 1: [ ] No Additional Conditions.
Option 2: [ ] Hours of Service Requirement. The Participant completes at least _________ Hours of Service during the Plan Year. However, this condition will be waived for the following reasons (Check at least one):
[ ] The Participant's Death.
[ ] The Participant's Termination of Employment after having incurred a Disability.
[ ] The Participant's Termination of Employment after having reached Normal Retirement Age.
[ ] This condition will not be waived.
Option 3: [ ] Last Day Requirement. The Participant is an Employee of the Employer on the last day of the Plan Year. However, this condition will be waived for the following reasons (Check at least one):
[ ] The Participant's Death.
[ ] The Participant's Termination of Employment after having incurred a Disability.
[ ] The Participant's Termination of Employment after having reached Normal Retirement Age.
[ ] This condition will not be waived.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 11. COMPENSATION Complete Parts A through E
Part A. Basic Definition:
Compensation will mean all of each Participant's (Choose one):
Option 1: [ ] W-2 wages.
Option 2: [ ] Section 3401(a) wages.
Option 3: [ ] 415 safe-harbor compensation.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part B. Measuring Period for Compensation:
Compensation shall be determined over the following applicable period (Choose one):
Option 1: [ ] The Plan Year.
Option 2: [ ] The calendar year ending with or within the Plan Year.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part C. Inclusion of Elective Deferrals:
Does Compensation include Employer Contributions made pursuant to a salary reduction agreement which are not includible in the gross income of the Employee under Sections 125, 402(e)(3), 402(h)(1)(B) and 403(b) of the Code?
[ ] Yes [ ] No
NOTE: If neither box is checked, "Yes" will be deemed to be selected.
Part D. Pre-Entry Date Compensation:
For the Plan Year in which an Employee enters the Plan, the Employee's Compensation which shall be taken into account for purposes of the Plan shall be (Choose one):
Option 1: [ ] The Employee's Compensation only from the time the Employee became a Participant in the Plan.
Option 2: [ ] The Employee's Compensation for the whole of such Plan Year.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part E. Exclusions From Compensation:
Compensation shall not include the following (Check any that apply):
NOTE: No exclusions from Compensation are permitted if the integrated allocation formula in Section 10, Part B is selected.
SECTION 12. VESTING AND FORFEITURES Complete Parts A through G
Part A. Vesting Schedule For Employer Profit Sharing Contributions. A
Participant shall become Vested in his or her Individual Account derived from Profit Sharing Contributions made pursuant to Section 10 of the Adoption Agreement as follows (Choose one):
================================================================================================================
YEARS OF VESTED PERCENTAGE
VESTING SERVICE Option 1 [ ] Option 2 [ ] Option 3 [ ] Option 4 [ ] Option 5 [ ] (Complete if Chosen)
----------------------------------------------------------------------------------------------------------------
1 0% 0% 100% 0% _________ %
2 0% 20% 100% 0% _________ %
3 0% 40% 100% 20% _________ % (not less than 20%)
4 0% 60% 100% 40% _________ % (not less than 40%)
5 100% 80% 100% 60% _________ % (not less than 60%)
6 100% 100% 100% 80% _________ % (not less than 80%)
7 100% 100% 100% 100% _________ % (not less than 100%)
NOTE: If no option is selected, Option 3 will be deemed to be selected.
================================================================================================================
|
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
Part B. Vesting Schedule For Matching Contributions. A Participant shall become Vested in his or her Individual Account derived from Matching Contributions made pursuant to Section 7 of the Adoption Agreement as follows (Choose one):
================================================================================================================
YEARS OF VESTED PERCENTAGE
VESTING SERVICE Option 1 [ ] Option 2 [ ] Option 3 [ ] Option 4 [ ] Option 5 [ ] (Complete if Chosen)
----------------------------------------------------------------------------------------------------------------
1 0% 0% 100% 0% _________ %
2 0% 20% 100% 0% _________ %
3 0% 40% 100% 20% _________ % (not less than 20%)
4 0% 60% 100% 40% _________ % (not less than 40%)
5 100% 80% 100% 60% _________ % (not less than 60%)
6 100% 100% 100% 80% _________ % (not less than 80%)
7 100% 100% 100% 100% _________ % (not less than 100%)
NOTE: If no option is selected, Option 3 will be deemed to be selected.
================================================================================================================
|
Part C. Hours Required For Vesting Purposes:
1. __________ Hours of Service (no more than 1,000) shall be required to constitute a Year of Vesting Service.
2. __________ Hours of Service (no more than 500 but less than the number specified in Section 12, Part C, Item 1, above) must be exceeded to avoid a Break in Vesting Service.
Part D. Exclusion of Certain Years of Vesting Service:
All of an Employee's Years of Vesting Service with the Employer are counted to determine the vesting percentage in the Participant's Individual Account except (Check any that apply):
[ ] Years of Vesting Service before the Employee reaches age 18.
[ ] Years of Vesting Service before the Employer maintained this Plan or a predecessor plan.
Part E. Allocation of Forfeitures of Employer Profit Sharing Contributions:
Forfeitures of Employer Profit Sharing Contributions shall be (Choose one):
Option 1: [ ] Allocated to the Individual Accounts of the
Participants specified below in the manner as described in
Section 10, Part B (for Employer Profit Sharing
Contributions).
The Participants entitled to receive allocations of such Forfeitures shall be (Choose one):
Suboption (a): [ ] Only Qualifying Participants.
Suboption (b): [ ] All Participants.
Option 2: [ ] Applied to reduce Employer Profit Sharing Contributions (Choose one):
Suboption (a): [ ] For the Plan Year for which the Forfeiture arises.
Suboption (b): [ ] For any Plan Year subsequent to the Plan Year for which the Forfeiture arises.
Option 3: [ ] Applied first to the payment of the Plan's administrative expenses and any excess applied to reduce Employer Profit Sharing Contributions (Choose one):
Suboption (a): [ ] For the Plan Year for which the Forfeiture arises.
Suboption (b): [ ] For any Plan Year subsequent to the Plan Year for which the Forfeitures arises.
NOTE: If no option is selected, Option 1 and Suboption (a) will be deemed to be selected.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
Part F. Allocation of Forfeitures of Matching Contributions:
Forfeitures of Matching Contributions shall be (Choose one):
Option 1: [ ] Allocated, after all other Forfeitures under the Plan, to each Participant's Individual Account in the ratio which each Participant's Compensation for the Plan Year bears to the total Compensation of all Participants for such Plan Year.
The Participants entitled to receive allocations of such Forfeitures shall be (Choose one):
Suboption (a): [ ] Only Qualifying Contributing Participants.
Suboption (b): [ ] Only Qualifying Participants.
Suboption (c): [ ] All Participants.
Option 2: [ ] Applied to reduce Matching Contributions (Choose one):
Suboption (a): [ ] For the Plan Year for which the Forfeiture arises.
Suboption (b): [ ] For any Plan Year subsequent to the Plan Year for which the Forfeiture arises.
Option 3: [ ] Applied first to the payment of the Plan's administrative expenses and any excess applied to reduce Matching Contributions (Choose one):
Suboption (a): [ ] For the Plan Year for which the Forfeiture arises.
Suboption (b): [ ] For any Plan Year subsequent to the Plan Year for which the Forfeitures arises.
NOTE: If no option is selected, Option 1 and Suboption (a) will be deemed to be selected.
Part G. Allocation of Forfeitures of Excess Aggregate Contributions:
Forfeitures of Excess Aggregate Contributions shall be (Choose one):
Option 1: [ ] Allocated, after all other Forfeitures under the Plan, to each Contributing Participant's Matching Contribution account in the ratio which each Contributing Participant's Compensation for the Plan Year bears to the total Compensation of all Contributing Participants for such Plan Year. Such Forfeitures will not be allocated to the account of any Highly Compensated Employee.
Option 2: [ ] Applied to reduce Matching Contributions (Choose one):
Suboption (a): [ ] For the Plan Year for which the Forfeiture arises.
Suboption (b): [ ] For any Plan Year subsequent to the Plan Year for which the Forfeiture arises.
Option 3: [ ] Applied first to the payment of the Plan's administrative expenses and any excess applied to reduce Matching Contributions (Choose one):
Suboption (a): [ ] For the Plan Year for which the Forfeiture arises.
Suboption (b): [ ] For any Plan Year subsequent to the Plan Year for which the Forfeitures arises.
NOTE: If no option is selected, Option 2 and Suboption (a) will be deemed to be selected.
SECTION 13. NORMAL RETIREMENT AGE AND EARLY RETIREMENT AGE
Part A. The Normal Retirement Age under the Plan shall be (Check and complete one option):
Option 1: [ ] Age 65.
Option 2: [ ] Age ________ (not to exceed 65).
Option 3: [ ] The later of age ________ (not to exceed 65) or the ________ (not to exceed 5th) anniversary of the first day of the first Plan Year in which the Participant commenced participation in the Plan.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
Part B. Early Retirement Age (Choose one option):
Option 1: [ ] An Early Retirement Age is not applicable under the Plan.
Option 2: Age ________ (not less than 55 nor more than 65).
Option 3: [ ] A Participant satisfies the Plan's Early Retirement Age conditions by attaining age ________ (not less than 55) and completing ________ Years of Vesting Service.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
SECTION 14. DISTRIBUTIONS
Distributable Events. Answer each of the following items.
A. Termination of Employment Before Normal Retirement Age. May a Participant who has not reached Normal Retirement Age request a distribution from the Plan? [ ] Yes [ ]No
B. Disability. May a Participant who has incurred a Disability request a distribution from the Plan? [ ] Yes [ ]No
C. Attainment of Normal Retirement Age. May a Participant who has attained Normal Retirement Age but has not incurred a Termination of Employment request a distribution from the Plan? [ ] Yes [ ]No
D. Attainment of Age 59 1/2. Will Participants who have attained age 59 1/2 be permitted to withdraw Elective Deferrals while still employed by the Employer? [ ] Yes [ ]No
E. Hardship Withdrawals of Elective Deferrals. Will Participants be permitted to withdraw Elective Deferrals on account of hardship pursuant to Section 11.503 of the Plan? [ ] Yes [ ]No
F. In-Service Withdrawals. Will Participants be permitted to request a distribution during service pursuant to Section 6.01(A)(3) of the Plan? [ ] Yes [ ]No
G. Hardship Withdrawals. Will Participants be permitted to make hardship withdrawals pursuant to Section 6.01(A)(4) of the Plan? [ ] Yes [ ]No
H. Withdrawals of Rollover or Transfer Contributions. Will Employees be permitted to withdraw their Rollover or Transfer Contributions at any time? [ ] Yes [ ]No
NOTE: If a box is not checked for an item, "Yes" will be deemed to be selected for that item. Section 411(d)(6) of the Code prohibits the elimination of protected benefits. In general, protected benefits include the forms and timing of payout options. If the Plan is being adopted to amend and replace a Prior Plan that permitted a distribution option described above, you must answer "Yes" to that item.
SECTION 15. JOINT AND SURVIVOR ANNUITY
Part A. Retirement Equity Act Safe Harbor:
Will the safe harbor provisions of Section 6.05(F) of the Plan apply?
(Choose only one option)
Option 1: [ ] Yes.
Option 2: [ ] No.
NOTE: You must select "No" if you are adopting this Plan as an amendment and restatement of a Prior Plan that was subject to the joint and survivor annuity requirements.
Part B. Survivor Annuity Percentage: (Complete only if your answer in
Section 15, Part A is "No.")
The survivor annuity portion of the Joint and Survivor Annuity shall be a percentage equal to ________% (at least 50% but no more than 100%) of the amount paid to the Participant prior to his or her death.
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 16. OTHER OPTIONS
Answer "Yes" or "No" to each of the following questions
by checking the appropriate box.
If a box is not checked for a question, the answer will be deemed to be "No."
A. Loans: Will loans to Participants pursuant to
Section 6.08 of the Plan be permitted? [ ] Yes [ ] No
B. Insurance: Will the Plan allow for the investment
in insurance policies pursuant to Section 5.13 of
the Plan? [ ] Yes [ ] No
C. Employer Securities: Will the Plan allow for the
investment in qualifying Employer securities or
qualifying Employer real property? [ ] Yes [ ] No
D. Rollover Contributions: Will Employees be
permitted to make rollover contributions to the
Plan pursuant to Section 3.03 of the Plan? [ ] Yes [ ] No
[ ] Yes, but only after
becoming a
Participant.
E. Transfer Contributions: Will Employees be
permitted to make transfer contributions to the
Plan pursuant to Section 3.04 of the Plan? [ ] Yes [ ] No
[ ] Yes, but only after
becoming a
Participant.
F. Nondeductible Employee Contributions: Will
Employees be permitted to make Nondeductible
Employee Contributions pursuant to Section 11.305
of the Plan? [ ] Yes [ ] No
Check here if such contributions
will be mandatory. [ ]
G. Will Participants be permitted to direct the
investment of their Plan assets pursuant to
Section 5.14 of the Plan? [ ] Yes [ ] No
SECTION 17. LIMITATION ON ALLOCATIONS
More Than One Plan
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If you maintain or ever maintained another qualified plan in which any Participant in this Plan is (or was) a Participant or could become a Participant, you must complete this section. You must also complete this section if you maintain 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.
Part A. Individually Designed Defined Contribution Plan:
If the Participant is covered under another qualified defined contribution plan maintained by the Employer, other than a master or prototype plan:
1. [ ] The provisions of Section 3.05(B)(1) through 3.05(B)(6) of the Plan will apply as if the other plan were a master or prototype plan.
Part B. Defined Benefit Plan:
If the Participant is or has ever been a participant in a defined benefit plan maintained by the Employer, the Employer will provide below the language which will satisfy the 1.0 limitation of Section 415(e) of the Code.
1. [ ] If the projected annual addition to this Plan to the account of a Participant for any limitation year would cause the 1.0 limitation of Section 415(e) of the Code to be exceeded, the annual benefit of the defined benefit plan for such limitation year shall be reduced so that the 1.0 limitation shall be satisfied.
If it is not possible to reduce the annual benefit of the defined benefit plan and the projected annual addition to this Plan to the account of a Participant for a limitation year would cause the 1.0 limitation to be exceeded, the Employer shall reduce the Employer Contribution which is to be allocated to this Plan on behalf of such Participant so that the 1.0 limitation will be satisfied. (The provisions of Section 415(e) of the Code are incorporated herein by reference under the authority of Section 1106(h) of the Tax Reform Act of 1986.)
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 18. TOP-HEAVY MINIMUM
Complete Parts A and B
Part A. Minimum Allocation or Benefit:
For any Plan Year with respect to which this Plan is a Top-Heavy Plan, any minimum allocation required pursuant to Section 3.01(E) of the Plan shall be made (Choose one):
Option 1: [ ] To this Plan.
Option 3: [ ] In accordance with the method described on an attachment to this Adoption Agreement. (Attach language describing the method that will be used to satisfy Section 416 of the Code. Such method must preclude Employer discretion.)
NOTE: If no option is selected, Option 1 will be deemed to be selected.
Part B. Top-Heavy Vesting Schedule:
Pursuant to Section 6.01(C) of the Plan, the vesting schedule that will apply when this Plan is a Top-Heavy Plan (unless the Plan's regular vesting schedule provides for more rapid vesting) shall be (Choose one):
Option 1: [ ] 6 Year Graded.
Option 2: [ ] 3 Year Cliff.
NOTE: If no option is selected, Option 1 will be deemed to be selected.
SECTION 19. PROTOTYPE SPONSOR
Name of Prototype Sponsor ______________________________________________________
Address ________________________________________________________________________
Telephone Number _______________________________________________________________
Permissible Investments
SECTION 20. TRUSTEE OR CUSTODIAN
Option A: [ ] Financial Organization as Trustee or Custodian
Check One: [ ] Custodian, [ ] Trustee without full trust powers, or
[ ] Trustee with full trust powers
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Financial Organization _________________________________________________________
Signature ______________________________________________________________________
Type Name ______________________________________________________________________
Collective or Commingled Funds
Option B: [ ] Individual Trustee(s) Signature ___________________________ Signature _____________________________ Type Name ___________________________ Type Name _____________________________ Signature ___________________________ Signature _____________________________ Type Name ___________________________ Type Name _____________________________ |
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
SECTION 21. RELIANCE
The Employer may not rely on an opinion letter issued by the National Office of
the Internal Revenue Service as evidence that the Plan is qualified under
Section 401 of the Internal Revenue Code. In order to obtain reliance with
respect to plan qualification, the Employer must apply to the appropriate Key
District office for a determination letter.
This Adoption Agreement may be used only in conjunction with Basic Plan Document No. 04.
SECTION 22. EMPLOYER SIGNATURE Important: Please read before signing
I am an authorized representative of the Employer named above and I state the following:
1. I acknowledge that I have relied upon my own advisors regarding the completion of this Adoption Agreement and the legal tax implications of adopting this Plan.
2. I understand that my failure to properly complete this Adoption Agreement may result in disqualification of the Plan.
3. I understand that the Prototype Sponsor will inform me of any amendments made to the Plan and will notify me should it discontinue or abandon the Plan.
4. I have received a copy of this Adoption Agreement and the corresponding Basic Plan Document.
Signature for Employer _________________________ Date Signed ___________________
Type Name ______________________________________ Title _________________________
'c' 1996 Universal Pensions, Inc., Brainerd, MN 56401
| ARTICLE 6 |
| MULTIPLIER: 1000 |
| PERIOD TYPE | 12 MOS |
| FISCAL YEAR END | DEC 31 1997 |
| PERIOD END | DEC 31 1997 |
| INVESTMENTS AT COST | 2,560,513 |
| INVESTMENTS AT VALUE | 3,417,864 |
| RECEIVABLES | 12,917 |
| ASSETS OTHER | 34,056 |
| OTHER ITEMS ASSETS | 0 |
| TOTAL ASSETS | 3,464,837 |
| PAYABLE FOR SECURITIES | 31,701 |
| SENIOR LONG TERM DEBT | 0 |
| OTHER ITEMS LIABILITIES | 3,683 |
| TOTAL LIABILITIES | 35,384 |
| SENIOR EQUITY | 37,637 |
| PAID IN CAPITAL COMMON | 2,339,618 |
| SHARES COMMON STOCK | 105,797 |
| SHARES COMMON PRIOR | 96,837 |
| ACCUMULATED NII CURRENT | (340) |
| OVERDISTRIBUTION NII | 0 |
| ACCUMULATED NET GAINS | 195,204 |
| OVERDISTRIBUTION GAINS | 0 |
| ACCUM APPREC OR DEPREC | 857,334 |
| NET ASSETS | 3,429,453 |
| DIVIDEND INCOME | 65,021 |
| INTEREST INCOME | 13,209 |
| OTHER INCOME | 72 |
| EXPENSES NET | (19,518) |
| NET INVESTMENT INCOME | 58,784 |
| REALIZED GAINS CURRENT | 456,754 |
| APPREC INCREASE CURRENT | 201,339 |
| NET CHANGE FROM OPS | 716,877 |
| EQUALIZATION | 0 |
| DISTRIBUTIONS OF INCOME | (60,486) |
| DISTRIBUTIONS OF GAINS | (338,654) |
| DISTRIBUTIONS OTHER | 0 |
| NUMBER OF SHARES SOLD | 1,154 |
| NUMBER OF SHARES REDEEMED | (1,865) |
| SHARES REINVESTED | 9,671 |
| NET CHANGE IN ASSETS | 556,790 |
| ACCUMULATED NII PRIOR | 1,362 |
| ACCUMULATED GAINS PRIOR | 77,104 |
| OVERDISTRIB NII PRIOR | 0 |
| OVERDIST NET GAINS PRIOR | 0 |
| GROSS ADVISORY FEES | 13,152 |
| INTEREST EXPENSE | 0 |
| GROSS EXPENSE | 19,518 |
| AVERAGE NET ASSETS | 3,267,384 |
| PER SHARE NAV BEGIN | 29.28 |
| PER SHARE NII | .60 |
| PER SHARE GAIN APPREC | 6.25 |
| PER SHARE DIVIDEND | (.62) |
| PER SHARE DISTRIBUTIONS | (3.45) |
| RETURNS OF CAPITAL | 0 |
| PER SHARE NAV END | 32.06 |
| EXPENSE RATIO | .60 |
| AVG DEBT OUTSTANDING | 0 |
| AVG DEBT PER SHARE | 0 |
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned director of TRI-CONTINENTAL CORPORATION, a Maryland corporation, which proposes to file with the Securities and Exchange Commission an Amendment to Registration Statement on Form N-1A and further amendments thereto, as necessary, under the Securities Act of 1933 and the Investment Company Act of 1940, as amended, hereby constitutes and appoints William C. Morris and Brian T. Zino, and each of them individually, his attorneys-in-fact and agent, with full power of substitution and resubstitution, for in his name and stead, in his capacity as such director, to sign and file such Amendment to Registration Statement or further amendments thereto, and any and all applications or other documents to be filed with the Securities and Exchange Commission pertaining thereto, with full power and authority to do and perform all acts and things requisite and necessary to be done on the premises.
Executed this 1st day of April, 1998.
/s/ Richard R. Schmaltz (L.S.)
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Richard R. Schmaltz
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