Exhibit 14.1
This booklet contains important legal information regarding Traditional IRAs,
SEP-IRAs and Xxxx IRAs. We are required to provide this to you for the purpose
of assuring that you are informed and understand the nature of an Individual
Retirement Account. Please read this booklet carefully before investing in an
Acorn IRA and keep it on file for future reference.
The Acorn Family of Funds
IRA Disclosure Statement
Custodial Agreement for a Traditional or SEP-IRA
Custodial Agreement for a Xxxx XXX
Managed by Xxxxxx Asset Management, L.P.
Contents
IRA Disclosure Statement 1
Custodial Agreement for a Traditional or SEP-IRA 12
Custodial Agreement for a Xxxx XXX 21
Acorn Investment Trust
Individual Retirement Account Disclosure Statement
We are required to give you this Disclosure Statement for the purpose of
assuring that you are informed and understand the nature of an Individual
Retirement Account ("IRA"). This disclosure statement explains the rules
governing IRAs.
Your Right to Revoke this IRA. You may revoke this IRA at any time within seven
days after the later of the date you received this Disclosure Statement or the
day you established this IRA. For purposes of revocation, it will be assumed
that you received the Disclosure Statement no later than the date of your check
or transfer direction with which you opened your IRA. If you did not receive the
Disclosure Statement until a later date, your notice of revocation should state
the date on which the Disclosure Statement was received. To revoke the IRA, you
must either mail or deliver a notice of revocation to the following address:
State Street Bank and Trust Company
Attention: Acorn Family of Funds
P.O. Box 8502
Boston, MA 02266-8502
If a notice of revocation is mailed, it will be deemed mailed on the date
of the postmark (or if sent by certified or registered mail, the date of
certification or registration) if it is deposited in the mail in the United
States, first class postage prepaid and properly addressed. If you revoke your
IRA, you are entitled to a return of the entire amount contributed.
I. Types of IRAs; Eligibility
In General. An IRA is a trust or custodial account established in the United
States for the exclusive benefit of an individual and his or her beneficiaries
and which, under Section 408(a) of the Internal Revenue Code, meets the
following requirements: annual contributions are limited as described below; the
trustee or custodian is a bank or other approved financial institution; no part
of the IRA can be invested in life insurance contracts; the individual's
interest in the IRA is nonforfeitable; the IRA's assets cannot be commingled
with other property except for certain permitted common funds; and minimum
distributions are required as described below. There are several types of IRAs,
as follows: (1) a "Traditional IRA" to which you may make contributions for
yourself or for your spouse, which may be partially or fully tax-deductible, as
described below; (2) a "Xxxx XXX" to which you may also make nondeductible
annual contributions, and the distributions from which may be excludible from
your taxable income; (3) a "Rollover IRA" which you can establish to receive
assets from a qualified plan, annuity or another IRA; (4) a "SEP-IRA" (which is
also known as a Simplified Employee Pension) which your employer can establish
for you; and (5) a "SIMPLE-IRA" (also known as a Salary Incentive Match Plan
IRA) which an employer can use for a salary reduction plan. The following is a
general description of the rules which apply to each of these types of IRAs and
who is eligible to establish them.
A. Traditional IRAs. You may contribute up to the lesser of $2,000 or 100% of
your compensation if you have not reached age 70-1/2 during the taxable year.
You may make this contribution even if you or your spouse is an active
participant in a qualified employer plan. However, as explained below, the
amount of the contribution that is deductible for federal income tax purposes
may be limited. Compensation includes wages, salary, commissions, bonuses, tips,
etc., and also includes taxable alimony or separate maintenance payments.
Compensation does not include income from interest, dividends or other earnings
or profits from property, amounts not includible in your gross income, or
deferred compensation.
Your spouse may also establish and contribute to an IRA, even if he or she
has less than $2,000 in compensation for the year, provided that you and your
spouse file a joint income tax return for the year. Under such an arrangement,
you and your spouse may qualify for a total contribution equal to the lesser of
$4,000 or 100% of your combined compensation for the taxable year. You can
determine how to divide the contribution between the two accounts but you cannot
contribute more than $2,000 annually into either one. While you cannot
contribute to your IRA in the taxable year in which you reach 70-1/2, you can
still contribute to your spouse's IRA if he or she has not reached 70-1/2. A
spousal IRA does not involve the creation of a joint account. The account of
each spouse is separately owned and treated independently from the account of
the other spouse.
1
IRA Disclosure Statement, continued
X. Xxxx IRAs. In general, the same limits that apply to contributions to
Traditional IRAs also apply to Xxxx IRAs, with the following differences. First,
you can make a contribution to a Xxxx XXX even after you have attained the age
of 70-1/2. Second, only a taxpayer whose adjusted gross income is below certain
levels is eligible to contribute to a Xxxx XXX. A single taxpayer can make a
full $2,000 contribution in a year if his adjusted gross income is not more than
$95,000. Married taxpayers who file a joint return can make a full $4,000
contribution if their combined adjusted gross income is not more than $150,000.
Partial contributions are permitted for a single taxpayer whose adjusted gross
income is between $95,000 and $110,000, or for married taxpayers who file a
joint return and whose adjusted gross income is between $150,000 and $160,000. A
married taxpayer who files an individual return can make a partial contribution
if his/her adjusted taxable income is less than $10,000. These partial
contributions are calculated in the same manner as the limitation on the
deductibility of contributions to a Traditional IRA, including the adjustments
to adjusted gross income, as described under Contributions N Deductible
Contributions on page 5.
A single $2,000 limit ($4,000 for married taxpayers filing joint returns)
applies to contributions to both Traditional IRAs and Xxxx IRAs. Thus, a single
taxpayer who is otherwise eligible to contribute to both a Traditional IRA and a
Xxxx XXX can contribute a total of $2,000, which he or she can divide between
the Traditional and the Xxxx XXX in any manner. A married couple filing a joint
return can similarly divide their maximum $4,000 total contribution between
Traditional and Xxxx IRAs. These rules apply regardless of whether the
contributions to the Traditional IRA are deductible.
If you make a contribution to either a Traditional IRA or a Xxxx XXX for a
year, you may transfer the contribution, including all income, to the other type
of IRA prior to the due date for your tax return, in which case the contribution
will be treated as if you had made it directly to the transferee IRA. For this
purpose, the due date of your tax return includes any extension of time, even
though extensions are not included for purposes of making the original
contribution.
C. Rollover IRAs. All or a portion of certain distributions from qualified
retirement plans, annuities and other IRAs may be "rolled over" tax-free without
regard to the limits on annual contributions to an IRA, but no deduction is
allowed with respect to such a contribution. There are three basic types of
rollovers: rollovers from a qualified pension or profit-sharing plan, rollovers
from another IRA, and rollovers from a tax-sheltered annuity. All distributions
must be rolled over within 60 days after you receive the distribution to receive
tax-free treatment.
From a Qualified Plan. In general, you may roll over to a Traditional IRA any
portion of a distribution that you receive from a qualified employer-sponsored
pension or profit-sharing plan (including a 401(k) plan), except that you cannot
roll over (1) one of a series of substantially equal periodic payments (such as
an annuity), (2) a minimum distribution required to be made after you reach the
age of 70-1/2, (3) the portion of a distribution that represents the return of
your own after-tax contributions or (4) beginning in 1999, a hardship withdrawal
from a 401(k) plan. If you receive a distribution of property rather than cash,
you can sell the property and roll over the sale proceeds, as long as you
complete the rollover within 60 days from the original date of distribution.
If you make a rollover from a qualified employer plan to an IRA, you may in
turn, under certain circumstances, make a rollover from the IRA into the
qualified plan of a subsequent employer. To preserve that right, however, you
must keep the rollover IRA separate from any other IRA you may have, since you
cannot make a rollover to an employer plan from an IRA to which you have made
yearly contributions.
Instead of receiving a distribution from a qualified plan and rolling it
over, you may also direct the trustee or custodian of any qualified retirement
plan to transfer a distribution from the plan directly to an IRA. If a
distribution from a plan can be rolled over, the plan is required by law to
transfer the distribution directly to an IRA, or another employer's plan, if you
so direct. If you do not direct the distribution to be transferred directly to
an IRA or another plan, the plan making the distribution will be required to
withhold 20% of the distribution for the payment of income taxes, even if you
subsequently roll over the distribution.
2
Rollover amounts you receive from a qualified employer plan may not be
deposited in your spouse's IRA, but if you should die while still a participant
in a qualified plan, in certain cases your spouse may be allowed to make a tax-
free rollover to an IRA. The amount of the death payout rolled over by a spouse
into an IRA may not subsequently be rolled over into another employer's
qualified plan or annuity. Beneficiaries other than a spouse are not allowed to
roll over distributions they receive after your death.
Money from an employer plan cannot be rolled over into a Xxxx XXX, but you
may be eligible to convert a Rollover IRA into a Xxxx XXX.
From Another IRA. In general, any distribution or withdrawal that you receive
from an IRA can be rolled over into another IRA within 60 days, except that (1)
you cannot roll over the minimum distributions you are required to receive after
age 70-1/2, (2) you can only make a rollover from one IRA to another once in any
twelve-month period, (3) a distribution from a SIMPLE-IRA that is made within
the first two years after you first begin to participate in the SIMPLE-IRA can
only be rolled over to another SIMPLE-IRA, and (4) special rules apply to
rollovers to and from Xxxx IRAs as described below. You may also request the
trustee or custodian of an IRA to make a direct transfer to the trustee or
custodian of another IRA. Such direct transfers are not limited to one per
twelve-month period. Unlike the trustees of qualified retirement plans, trustees
of IRAs are not legally required to make direct transfers, but most of them do.
Your spouse may generally roll over distributions that he or she receives from
your IRA after your death, but no beneficiaries other than your spouse may do
so.
Tax Sheltered Annuities. Tax-sheltered annuity plans, sometimes called "403(b)
plans", are retirement benefits offered by certain governmental and not-for-
profit employers, such as schools and hospitals. If you receive a distribution
from a tax-sheltered annuity plan other than in the form of an annuity, it may
generally be rolled over into an IRA under rules similar to those that apply to
distributions from qualified employer plans, as described above (including the
prohibition on rollovers of hardship withdrawals beginning in 1999). As with a
rollover distribution from an employer plan, you should keep a rollover from a
tax-sheltered annuity plan in a separate IRA account and not make any other
contributions to it (including rollovers from other types of plans) if you wish
to preserve the right to roll it over to another tax-sheltered annuity plan in
the future. Distributions from other types of governmental retirement plans may
or may not be eligible for a rollover depending on whether the employer has
chosen to comply with IRS guidelines. Distributions from voluntary deferred
compensation plans maintained by government and not-for-profit employers,
sometimes known as "Section 457 plans", are not eligible for a rollover to an
IRA.
Rollovers to and from Xxxx IRAs. The rules described above generally apply to
rollovers to any type of IRA other than a Xxxx XXX, regardless of whether it was
originally established as a Rollover IRA or as a Traditional IRA, SEP-IRA, or
SIMPLE-IRA. Generally speaking, tax-free rollovers to a Xxxx XXX can only be
made from another Xxxx XXX, and a distribution from a Xxxx XXX can only be
rolled over to another Xxxx XXX (except for transfers of contributions made
before the due date for filing your tax return for the year, as described
above). However, you can roll over a distribution from a Traditional IRA (or any
other type of IRA that is not a Xxxx XXX) to a Xxxx XXX, provided that your
adjusted gross income for the year (determined prior to the rollover) does not
exceed $100,000. The same $100,000 limit applies to both single taxpayers and
married taxpayers filing joint returns; a married taxpayer who files a separate
return cannot roll over a distribution from a non-Xxxx XXX into a Xxxx XXX. A
rollover from a non-Xxxx XXX to a Xxxx XXX is not tax-free; the owner of the
non-Xxxx XXX must include the distribution in taxable income as if it were not
rolled over. However, if a rollover is made in 1998, one-fourth of the
distribution is included in income in the years 1998 through 2001. After 1998,
the entire amount must be included in income in the year received. In addition,
rollovers from a non-Xxxx XXX into a Xxxx XXX are not subject to the 10% penalty
tax described below, and are not taken into account in determining the
taxpayer's eligibility to make annual contributions to the Xxxx XXX.
3
IRA Disclosure Statement, continued
If you make a rollover from a Traditional IRA to a Xxxx XXX in 1998, you
may elect to have the entire amount of the rollover included in your 1998 income
rather than spread over four years as described above. However, even if you
elect to spread the income over four years, taxability of the amount rolled over
may be accelerated to the extent you make withdrawals during the four year
period, and may also be subject to the 10% penalty tax discussed below.
Taxability of the rollover will also be accelerated and reported in your final
tax return if you die during the four year period, unless your spouse is your
sole beneficiary and elects to continue to report the income over the remainder
of the four year period.
Strict requirements must be met to qualify for tax-free rollover treatment.
You should consult your personal tax adviser regarding rollovers to and from
your IRA.
D. Simplified Employee Pension (SEP-IRAs). An employer may adopt a SEP-IRA and
contribute to your SEP-IRA even if you are covered by another retirement plan.
The maximum contribution is 15% of your compensation (computed without regard to
the contribution) or $24,000 (or such other amount as may be prescribed by the
Secretary of the Treasury), whichever is less. The contributions are deductible
by the employer and are generally not includible in your income until you
receive distributions. You may also be able to elect to have your salary reduced
by up to $10,000 for 1998 (or such higher amount as is specified from time to
time by the Secretary of the Treasury) and to contribute the reduction to your
SEP-IRA, but only if prior to 1997 your employer had established a special type
of SEP-IRA (called a SAR-SEP) that permitted such elections. SAR-SEPs were
replaced in 1997 by SIMPLE-IRAs (discussed below), and new SAR-SEPs are not
permitted. To establish a SEP-IRA, your employer must sign a SEP-IRA plan
agreement and provide you with a copy of the agreement as well as certain
information concerning the rules applicable to such plans. Your employer can
satisfy these requirements by using Form 5305-SEP, which is issued by the
Internal Revenue Service. If you are self-employed, you may establish a SEP-IRA
for your own benefit, but you may also have to cover any other employees you
have.
E. Salary Incentive Match Plan (SIMPLE-IRAs). Before 1997, employers with up to
25 eligible employees could allow employees to elect to have a portion of their
pay withheld and contributed to a special type of SEP-IRA, called a "salary
reduction SEP", or SAR-SEP. SAR-SEPs were abolished in 1997, and a new type of
IRA, called a SIMPLE-IRA has been established instead. Although new SAR-SEPs can
no longer be established, SAR-SEPs that were in existence on December 31, 1996,
can remain in existence and continue to receive contributions in future years,
including contributions for new employees. Employers with up to 100 eligible
employees who have no other retirement plans can establish SIMPLE-IRAs.
If you wish to establish a SIMPLE-IRA for your employees, you must give all
eligible employees notice of their right to elect to defer part of their
compensation, and comply with certain other notice requirements. The Acorn IRA
Application and Transfer Form cannot be used to establish a SIMPLE-IRA. Call 1-
000-000-0000 to request the necessary forms.
F. Education IRAs.
Beginning in 1998, you may establish an Education IRA for any beneficiary who is
under the age of 18.
The rules governing Education IRAs are very different from the rules
governing other types of IRAs. In reading this Disclosure Statement, you should
not assume that any of the general discussion of IRAs applies to Education IRAs.
Acorn has a separate Education IRA booklet with the Disclosure Statement,
Custodial Agreement and forms to open an Education IRA. Call 0-000-000-0000 for
an Education IRA booklet.
II. Contributions
In General. As explained in this part, the amount of your contributions to a
Traditional IRA that you can deduct is subject to limits. All contributions and
transfers to your Acorn IRA must be in cash. Contributions to your or your
spouse's Traditional or Xxxx XXX may be made up to the due date for filing your
tax return for the taxable year (excluding extensions thereof) even if you file
before the due date. In making contributions, you must indicate the tax year to
which the contribution applies. If no tax year is designated,
4
the custodian will assume that the contribution is intended to apply to the
calendar year in which it is received. The time limit for designating the
applicable tax year is April 15. If you are the beneficiary of an IRA following
the death of the IRA owner, you may not make any additional contributions to
that IRA unless you are the surviving spouse of the IRA owner.
Contributions made by an employer to your SEP-IRA or SIMPLE-IRA for a
calendar year may be made no later than the due date of your employer's tax
return (including extensions). In making an SEP-IRA or SIMPLE-IRA contribution,
the tax year to which the contribution relates must also be specified or it will
be deemed to relate to the calendar year in which it is received. In an SEP-IRA
or SIMPLE-IRA, this designation of the tax year of a contribution must be made
by the due date for contributions described above.
Deductible Contributions. If you are single and are not an "active participant"
in a retirement plan maintained by your employer, you can deduct the full amount
of your Traditional IRA contribution up to the lesser of $2,000 or 100% of your
compensation for the year. If you are married, you can deduct the full amount of
your Traditional IRA contribution provided that neither you nor your spouse is
an "active participant" in a retirement plan maintained by your respective
employers. These plans include qualified pension, profit-sharing, stock bonus or
money purchase plans, 401(k) plans, SEP-IRAs and SIMPLE-IRAs, qualified annuity
plans, tax-sheltered annuities and custodial accounts and governmental
retirement plans (other than certain plans for reserve members of the armed
forces and volunteer firemen, and certain deferred compensation plans commonly
known as "Section 457 plan"). In general, you are considered to be an active
participant in a plan if an employer contribution or forfeiture was credited to
your account during the year in the case of a defined contribution plan or if
you have met the minimum age and service requirements, in the case of a defined
benefit plan (even if you don't actually accrue a benefit during the year). You
are considered to be an active participant in a plan if you make a contribution
to the plan during a year even if your employer does not. For active
participation, it does not matter whether any interest you have in a plan is
vested or unvested.
If you or your spouse is an active participant in a plan, the amount of the
deduction you can claim for a Traditional IRA contribution is reduced or totally
denied depending upon the amount by which your adjusted gross income for the
year exceeds the "applicable dollar amount." For 1998 contributions, the
applicable dollar amounts are $30,000 for single people and $50,000 for married
couples if the spouse who is making the contribution is an active participant.
These applicable dollar amounts are increased by an additional $1,000 for each
year from 1999 through 2002. If the spouse making the contribution is not an
active participant, but the other spouse is an active participant, the
applicable dollar amount for the spouse who is not an active participant is
$150,000. The applicable dollar amount for married individuals who file separate
tax returns is $0, unless they live apart for the entire year, in which case the
applicable dollar amount is the same as for single individuals.
If your adjusted gross income exceeds your applicable dollar amount by more
than $10,000, you may not deduct any portion of your IRA contribution. However,
if it is between $0 and $10,000 more than your applicable dollar amount, you can
claim a tax deduction for part of your contribution. To determine the amount of
the deduction, follow these steps. First, determine the amount of the
contribution you can make. If, for example, you have compensation in excess of
$2,000 you could make a $2,000 contribution to your Traditional IRA. Next,
subtract the applicable dollar amount from your adjusted gross income. If you
are single and your adjusted gross income for 1998 is $35,000, the difference
would be $5,000. Next, divide this difference by $10,000. In this example,
$5,000/$10,000 equals 50%. Accordingly, the maximum contribution to a
Traditional IRA that you can deduct is 50% of $2,000, or $1,000. If the
deduction limitation is not a multiple of $10, round the deduction to the next
higher $10. If your adjusted gross income does not exceed $40,000 if you are
single, $60,000 if you are married and an active participant, or $160,000, if
you are married to an active participant, you can deduct $200 regardless of how
5
IRA Disclosure Statement, continued
the computation comes out. (These amounts apply to 1998 contributions; after
1998, increase each limit other than the $160,000 limit by $1,000 per year.)
For this purpose, your "adjusted gross income" is the amount shown on the
appropriate line of your tax return, before you deduct your Traditional IRA
contribution, plus the following amounts that are tax-exempt: the proceeds of
any US savings bonds that you cash in to pay college expenses, any adoption
expenses paid by your employer, and amounts paid to you while working outside
the US. Married persons who file separate returns are treated as unmarried for
purposes of these rules if they did not live together at any time during the
year.
Nondeductible Contributions. Even though you may not be entitled to claim a
deduction for contributions to your Traditional IRA, you are still allowed to
make the contributions to the extent described in "Types of IRAs" above. To the
extent that the amount of your contribution exceeds the deduction limit, it is
considered a nondeductible contribution. Earnings on these contributions are not
taxed until distributed, just like the earnings on deductible contributions. It
may therefore be worthwhile making nondeductible contributions.
You are required to report the amount of your nondeductible contributions on
Form 8606 and attach it to your income tax return. You may be liable for a tax
penalty of $50 if you fail to file Form 8606, or $100 if you overstate the
amount of your nondeductible contributions.
Contributions to a Xxxx XXX or Education IRA are not deductible under any
circumstances.
III. Investment and Holding of Contributions
Contributions to your IRA, and the earnings thereon, are invested at your
election in shares of any Acorn fund, each a series of Acorn Investment Trust, a
no-load mutual fund managed by Xxxxxx Asset Management, L.P., or in the shares
of any other mutual fund made available by Acorn for investment.
All the funds eligible for investment by your IRA are available in a
telephone exchange plan. In order to enroll in the exchange plan, indicate your
election on the IRA Application. When your exchange plan is established, you can
request a prospectus for any eligible fund and you will then be able to exchange
by telephoning State Street Bank and Trust Company. IRA planholders may not use
check-writing redemption privileges offered by the money fund.
If you wish to add to your IRA plan by putting money into an eligible fund
other than one of the Acorn Funds, please call Acorn for instructions.
The assets in your account are held in a custodial account exclusively for
your benefit and the benefit of such beneficiaries as you may designate in
writing delivered to the Custodian. The balance in your IRA represents a
separate account which is clearly identified as your property and generally may
not be combined for investment with the property of another individual. Your
right to the entire balance in your account is nonforfeitable. No part of the
assets of your account may be invested in life insurance contracts or in
collectibles such as works of art, antiques, coins, stamps, etc.
IV. Distributions From Your IRA
Distributions During Your Life. The law permits distributions to be made from an
IRA without penalty at any time after you attain age 59 1/2, and requires that
distributions commence (except from a Xxxx XXX) no later than April 1 following
the calendar year in which you attain age 70 1/2. Distributions may be in the
form of a single payment or, in accordance with regulations, in substantially
equal monthly, quarterly or annual payments over your life or the joint lives of
you and your designated beneficiary, or over a period certain not extending
beyond your life expectancy or the joint and last survivor life expectancy of
you and your designated beneficiary. However, if your beneficiary is not your
spouse, the law imposes an additional requirement called the minimum
distribution incidental benefit requirement. In general, this requirement puts a
further limit on the maximum payout period. This further limit is based on a
table in the income tax regulations, and if this limit applies to you, you
should consult your tax adviser to determine your minimum distribution.
In general, your life expectancy, your surviving spouse's life expectancy
after your death, and your and your
6
xxxxxx's joint and last survivor life expectancies will all be recalculated
each year based upon your (and your spouse's, if applicable) age attained during
that year. However, you can also elect to have your (and your spouse's) life
expectancies fixed in the year in which distributions are required to begin,
which may be advantageous in some circumstances. On the other hand, if your
beneficiary is someone other than your surviving spouse, your and your
beneficiary's joint and last survivor life expectancy will ordinarily not be
recalculated each year, although you may elect to have it recalculated. Each of
the elections described above must be made before the date on which
distributions are required to commence, and will be irrevocable after that date.
You should consult a qualified tax adviser to determine whether you should make
any of these elections.
If you direct distributions over your life or the joint lives of you and
your designated beneficiary, the Custodian will purchase an immediate annuity
contract from an insurance company you choose with your IRA and your payments
will be made under the annuity. You must provide a completed annuity application
from the insurance company of your choosing. Any distribution instructions must
specify the reason for the distribution. Examples of such reasons are: premature
distributions (i.e. distributions before age 59 1/2), rollovers, disability,
death, normal (59 1/2 or over), excess contribution returns and other.
Distributions After Your Death. If you die on or after the April 1 following the
year in which you reach age 70 1/2, the balance of your IRA (other than a Xxxx
XXX) must be distributed to your designated beneficiary at least as rapidly as
under the method of distribution in effect before your death.
If you die before the April 1 following the year in which you reach age
70 1/2, the entire balance of the account (including a Xxxx XXX) must be
distributed by December 31 of the year in which the 5th anniversary of your
death occurs. This rule also applies to a Xxxx XXX, regardless of your age at
death. 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 or life
expectancy beginning no later than December 31 of the year following the year in
which you die. If the beneficiary is your spouse, those installment payments
from a Traditional IRA don't have to begin until the later of December 31 of the
year following the year in which you die or December 31 of the year in which you
would have reached age 70 1/2. 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 either a Traditional or Xxxx XXX (or the
remaining part of such interest, if distribution has already begun) as his or
her own IRA subject to the normal IRA distribution requirements. In such a case,
your spouse will be considered to be the covered individual under the IRA. 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.
V. Income and Penalty Taxes
Income Tax Treatment of IRAs. Income tax on deductible IRA contributions and
earnings on both deductible and nondeductible IRA contributions are generally
deferred until you receive distributions. If you have made both deductible and
nondeductible contributions to IRAs you maintain, a portion of each distribution
you receive from any IRA (whether or not it is the one to which you made
nondeductible contributions) will be considered to be a return of nondeductible
contributions and therefore not included in your income for tax purposes. The
balance of each distribution will be taxed as ordinary income regardless of its
original source. The amount of any distribution which is considered to be a
return of nondeductible contributions (and therefore not taxed) is determined by
multiplying the amount of the distribution by a fraction. The numerator of the
fraction is the aggregate amount of nondeductible contributions you have made to
all of your IRAs over the years and the denominator is the balance in all your
IRAs at the end of the year (after adding back any distributions you received
during the year). The aggregate amount which can be excluded from income for all
years cannot exceed the amount of nondeductible contributions that you made in
those years. You must attach Form 8606
7
IRA Disclosure Statement, continued
to your tax return for any year in which you receive distributions if you have
made any nondeductible contributions to an IRA.
Taxable distributions from your account are taxed as ordinary income
regardless of their original source. They are not eligible for special tax
treatment that may apply to lump sum distributions from qualified employer
plans.
Nontaxable Distributions from Xxxx IRAs.
Unlike most IRAs, "qualified distributions" from a Xxxx XXX are not subject to
tax at all, either on the original contribution or on any accumulated income. In
order to be a "qualified distribution", a distribution from a Xxxx XXX (1) may
not be made until after the end of the fifth year beginning with the first year
in which either you or your spouse first make a contribution to a Xxxx XXX, and
(2) must either be made after you attain the age of 59 1/2, after you have
become permanently disabled, to your beneficiary after your death, or must be
used to pay qualified first time homebuyer expenses, as described in the section
on penalty taxes below. The five year requirement is satisfied five years after
you or your spouse make your first contribution to any Xxxx XXX, even if it is
not the same Xxxx XXX that you are receiving the distribution from. If you
receive distributions from a Xxxx XXX that are not qualified distributions, such
distributions will first be treated as nontaxable returns of your contributions,
and the excess will be taxed as ordinary income.
Penalty Tax for Premature Distributions.
Your IRA is intended to provide income for you upon retirement. Accordingly, the
law generally imposes a penalty on premature distributions. If you receive a
taxable distribution from the IRA before reaching age 59 1/2, a nondeductible
10% penalty will be imposed on the portion of the distribution which is included
in your gross income. This penalty is in addition to any income tax you must pay
on the distribution itself. If you receive a distribution from a SIMPLE-IRA
during the first two years after you begin to participate, the penalty tax is
25% rather than 10%. The penalty generally does not apply to the extent that the
distribution is considered a return of nondeductible contributions or a return
of an excess contribution which is permitted tax-free (see below). If you make a
taxable rollover from a Traditional IRA to a Xxxx XXX and then take a
distribution during the five year period described in the preceding section, the
portion of the distribution that is allocated to the rollover will be subject to
the 10% penalty tax even though it is not otherwise taxable (unless one of the
exceptions to the 10% penalty applies). For purposes of the 10% penalty tax,
distributions from a Xxxx XXX are treated as made first from contributions other
than rollovers from Traditional IRAs, then from rollovers from Traditional IRAs,
and finally from income. The penalty also will not apply if the distribution is
made due to your permanent disability or death; if the distribution is one of a
series of substantially equal periodic payments made over your life (or life
expectancy) or over the joint lives (or life expectancies) of you and your
beneficiary; or if the total amount of distributions you receive during a year
do not exceed the sum of the following: (1) the amount of tax-deductible medical
expenses you incur during the year (or the amount that you could deduct if you
itemized your deductions); (2) the amount of medical insurance premiums that you
pay after you have been receiving unemployment compensation for at least 12
weeks, provided that you don't receive the distribution after you have been re-
employed for at least 60 days; (3) the amount that you pay for "qualified higher
education expenses" (described in Acorn's separate booklet on Education IRAs)
for you, your spouse, or your children or grandchildren; and (4) "qualified
first time homebuyer expenses." A "qualified first time homebuyer expense" is
any amount that you pay (including settlement, financing and closing expenses)
for the purchase or construction of a principal residence for you, or one of
your or your spouse's children, grandchildren, or ancestors, provided that the
person whose residence is purchased or built (and his or her spouse) has not
owned a principal residence in the past two years. The total amount that you can
treat as qualified first-time homebuyer expenses during your lifetime (either
for purposes of avoiding tax on a distribution from a Xxxx XXX or avoiding the
10% penalty on a premature distribution) is $10,000. This lifetime $10,000 limit
applies to the person making the IRA withdrawal, not the person who is buying or
building the residence. Finally, the penalty does not apply
8
to the extent that the distribution is rolled over to another IRA or (if
permitted) qualified plan.
Penalty Tax for Excess Contributions.
Contributions to an IRA above the permissible limits are nondeductible and are
subject to an annual nondeductible excise tax of 6% of the amount of such excess
contributions for each year that the excess is not withdrawn or eliminated. The
tax is paid by the person for whose benefit the IRA is established. If the
person who contributed the excess takes no deduction for it and withdraws the
excess amount plus the net earnings attributable to such excess on or before the
due date (including extensions) for filing the federal income tax return for the
year for which the contribution was made, the 6% excise tax will not be applied
but the 10% tax on premature distributions will be applied to the amount of net
earnings.
Generally, if the excess is withdrawn after the due date (including
extensions) for filing the tax return for the year for which the contribution
was made, not only will the excess contribution be subject to the 6% excise tax,
but the amount of such excess and the net income attributable to it will also be
includible in income; and you will also be subject to the previously mentioned
10% penalty tax on premature distributions if you do not qualify for one of the
exceptions. The law provides, however, that if an individual has made a
contribution (excluding rollover amounts) to an IRA for a year which does not
exceed the maximum deductible limit for the year, all or part of which is an
excess contribution for which he did not claim a deduction, and he does not
correct the excess contribution before the due date (including extensions) for
filing his tax return for the year, he nevertheless may withdraw the excess
amount contributed (without the net income attributable thereto) at any time
without incurring the 10% penalty tax on premature distributions or being
required to include the amount withdrawn in income. The 6% excise tax will be
imposed even in this special situation for the year of the excess contribution
and each subsequent year until the excess is withdrawn or eliminated.
The rules discussed above generally apply, with some special rules and
exceptions, to Xxxx IRAs, SEP-IRAs and SIMPLE-IRAs as well as Traditional IRAs.
The law also allows you to withdraw tax-free and without penalty an excess
contribution, regardless of the amount, made with respect to a rollover
contribution (including an attempted rollover contribution), if the excess
contribution occurred because you reasonably relied on erroneous information
required to be supplied by the plan, trust or institution making the
distribution that was the subject of the rollover.
As an alternative to withdrawing excess contributions made to an IRA, such
amounts may be eliminated by making reduced contributions for subsequent years;
however, you will be required to pay the 6% excise tax on the amount of the
excess for the year of the contribution and for each subsequent year until the
amount of the excess is deducted in a later year for which you have not
contributed the maximum deductible amount. If a contribution is made to your
account in an amount less than the permissible limit in order to correct an
excess contribution for a previous year for which you did not claim a deduction,
you may under certain circumstances, taking into account the limits on
contributions, be allowed to treat the amount of the reduction in the current
year's contribution as an additional contribution for the current taxable year.
Penalty Tax for Under-Distribution.
If after April 1 following the year in which you attain age 70 1/2, the amount
distributed from any type of IRA other than a Xxxx XXX or Education IRA is less
than the minimum amount required by law to be distributed, a 50% excise tax may
be imposed on any such deficiency. The minimum amount required by law to be
distributed is generally based on your life expectancy or the joint and survivor
life expectancy of you and your beneficiary. However, if your beneficiary is not
your spouse, the law imposes an additional requirement, which is called the
minimum distribution incidental benefit requirement. In general, this
requirement is designed to prevent you from naming a beneficiary who is much
younger than yourself in order to extend your payout period. You should consult
your tax adviser to determine your minimum distribution. This excise tax may
also apply to any type of IRA, including a Xxxx XXX, if your beneficiary fails
to take the minimum required distri-
9
IRA Disclosure Statement, continued
bution in any year after your death, as described above.
The Internal Revenue Service may waive the penalty tax for under-distribution
if the deficiency was due to reasonable error and reasonable steps are being
taken to correct the deficiency.
Prohibited Transactions and Pledging Account Assets. If during any taxable year
you engage in a so-called "prohibited transaction" with respect to your IRA, the
account will lose its tax-exempt status. In this event, the fair market value of
all account assets, valued as of the first day of such taxable year, will be
deemed distributed to you and the taxable portion will be includible in your
gross income for the year. The applicable 10% (or 25%) penalty for premature
distributions may also apply if you do not qualify for one of the exceptions.
These prohibited transactions generally include any type of financial
transaction between the IRA and you or your beneficiary, including borrowing or
lending money, buying, selling, or renting property, paying compensation, or a
transaction that indirectly benefits you or your beneficiary personally.
Prohibited transactions may also involve members of your family, companies in
which you have an interest, the sponsoring employer in the case of a SEP-IRA or
SIMPLE-IRA, any person who provides services to the IRA, and certain affiliates
of such persons. However, prohibited transactions involving persons other than
you or your beneficiary result in penalty taxes on the person involved, rather
than disqualification of the IRA. If you pledge your account or any portion
thereof as security for a loan, such pledged portion will be deemed distributed
to you and, to the extent that it does not represent a return of nondeductible
contributions, includible in your gross income. If you have not yet attained age
59 1/2, an additional tax equal to 10% of the amount pledged will be imposed on
such funds includible in gross income. If your spouse engages in a prohibited
transaction with respect to his or her account, the results will be the same.
Any portion of an IRA used to purchase an endowment contract or collectible is
also treated as distributed.
VI. Miscellaneous
Federal Income Tax Withholding. Taxable distributions from an IRA to the covered
individual or to a beneficiary are subject to federal income tax withholding
unless the covered individual or beneficiary elects to have no withholding
apply. The current withholding rate required by the Internal Revenue Code is 10%
for lump sum payments, and regular wage withholding rates for annuities or other
periodic payments. Additional information concerning withholding and election
forms will be available no later than at the time a distribution is requested.
Federal Estate and Gift Taxes. Generally, your IRA will be included in your
estate for federal estate tax purposes. If your spouse is your beneficiary, your
IRA may qualify for a deduction for purposes of that tax. An election under an
IRA to have a distribution payable to a beneficiary on the death of the covered
individual will not be treated as a gift subject to federal gift tax. The amount
that you contribute to an Education IRA for a beneficiary will generally be
treated as a gift to that beneficiary when the contribution is made, and no
additional gift will occur when distributions are paid to the beneficiary.
Reports to the Internal Revenue Service.
As described above, you are required to attach Form 8606 to your return for any
year in which you made nondeductible contributions, or receive distributions
after making nondeductible contributions. You are required to file Form 5329
with the IRS if you owe one of the IRA penalty taxes. These are the taxes on
excess contributions, premature distributions, prohibited transactions and
under-distributions after age 70 1/2, as described above.
Social Security and Self-Employment Taxes. Contributions to a Traditional IRA
are not deductible for purposes of the social security (FICA) and self-
employment taxes. Contributions to a SEP-IRA by your employer are not subject to
social security tax unless you elected to reduce your current compensation to
receive the contributions under a SAR-SEP established prior to 1997. The amount
10
that you elect to defer under a SIMPLE-IRA is subject to social security tax,
but the contributions made by your employer are not.
Financial Information. The growth in value of the mutual fund shares held in
your account can neither be guaranteed nor projected.
Custodian Fees. State Street Bank and Trust Company as the Custodian of your IRA
currently charges an acceptance fee of $5.00 per account, and an annual
maintenance fee of $10.00 per account, per fund in which you have an investment.
An additional $10.00 fee is charged for each disbursement, other than an
automatic installment payout. Note that Spousal IRAs require separate accounts.
Each spouse's account is subject to the above fees.
If you do not add the $5.00 acceptance fee to your initial contribution, it
will be deducted from your account. The $10.00 annual maintenance fee will be
deducted from your account, unless paid separately when billed in November.
The Custodian may change any of the above fees from time to time.
IRS Approval Status. Acorn uses prototype Forms 5305-A and 5305-RA, which have
been promulgated and approved by the Internal Revenue Service, for the
establishment of Traditional and Xxxx IRAs, respectively. The approval of the
IRS relates only to forms used and not to the merits of your account or an
investment in any of the Acorn funds. Further information concerning IRAs can be
obtained from any district office of the IRS.
October 15, 1998
11
Custodial Agreement for a Traditional or SEP-IRA
Form 5305-A
(Revised January 1998)
Department of the Treasury
Internal Revenue Service
Acorn Investment Trust
Custodial Agreement for a Traditional or SEP-IRA
(Under Section 408(a) of the Internal Revenue Code)
(January 1, 1998)
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 provision 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 nonspouse 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, April 1 follow-
ing the calendar year end in which the Depositor reaches age 70 1/2. By that
date, the Depositor may elect, in a manner acceptable to the Custodian, to have
the balance in the custodial account distributed in:
(a) A single sum payment.
(b) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the life of the Depositor.
(c) An annuity contract that provides equal or substantially equal monthly,
quarterly, or annual payments over the joint and last survivor lives of the
Depositor and his or her designated beneficiary.
(d) Equal or substantially equal annual payments over a specified period that
may not be longer than the 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
12
so elected, at the election of the beneficiary or beneficiaries, either
(i) Be distributed by 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 reached age 70 1/2.
(c) Except where distribution in the form of an annuity meeting the
requirements of section 408(b)(3) and its related regulations has irrevocably
commenced, distributions are treated as having begun on the Depositor's
required beginning date, even though payments may actually have been made
before that date.
(d) If the Depositor dies before his or her entire interest has been
distributed and if the beneficiary is other than the surviving spouse, no
additional cash contributions or rollover contributions may be accepted in the
account.
5. In the case of a 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 1/2. In the case
of a distribution in accordance with paragraph 4(b)(ii), determine life
expectancy using the attained age of the designated beneficiary as of the
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 section 1.408-5 and 1.408-6.
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 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 below.
Article VIII
1. Form of Contributions. All contributions and transfers shall be made only
in cash.
2. Investment of Contributions.
(a) As directed by the Depositor in writing, all contributions shall be used by
the Custodian to purchase Fund Shares. All income dividends and capital gains
distributions shall be reinvested in shares of the Fund which declared such
dividends or distributions unless the Depositor elects in writing, in
accordance with an opportunity to do so provided by the Fund declaring the
dividend or distribution, to apply such dividend or distribution to purchase
other Fund Shares available under this Agreement.
13
Custodial Agreement for a Traditional or SEP-IRA, continued
(b) A Telephone Exchange Plan ("Exchange Plan"), as described in the
prospectus(es) of the Funds is available hereunder. After the Custodian
receives an Exchange Plan authorization deemed by the Custodian to be in proper
form, the Custodian, upon receipt of telephonic instructions from any person
representing himself to be the Depositor, may redeem any Fund Shares held by
the Custodian on behalf of the Depositor and apply the proceeds toward the
purchase of any other Fund Shares available hereunder, subject to and in
accordance with the terms and conditions of the Exchange Plan. The Custodian
shall be entitled to rely and act upon such telephonic instructions, and
neither the Custodian, the Trust, any other Fund whose shares are available
hereunder nor their officers, trustees, directors, employees or agents shall be
liable for any liability, cost or expense for acting on any such instructions.
In directing any exchange pursuant to the Exchange Plan, the Depositor
represents that he has obtained a current prospectus of the Fund into which the
switch is to be made. The Depositor authorizes and directs the Custodian to
respond to any telephonic inquiries relating to the status of shares owned,
including but not limited to the number of shares held. The Depositor agrees
that the authorizations, directions and restrictions contained herein will
continue until the Custodian receives written notice of any change or
revocation. The Depositor agrees and understands that the Funds and the
Custodian reserve the right to refuse any telephonic instructions.
(c) All Fund Shares acquired by the Custodian shall be registered in the name
of the Custodian or its nominee.
3. Beneficiaries; Distributions to Minors.
(a) A Depositor shall have the right by written notice to the Custodian to
designate one or more beneficiaries to receive any amount to which the
Depositor may be entitled in the event of his death before the complete
distribution of his interest, and to change any such beneficiary. Such
designation or change shall be on the Beneficiary Form provided by the Trust,
and shall be effective only when filed with the Custodian before the death of
the Depositor. Such designation may include contingent or successive
beneficiaries. If no such designation is in effect on a Depositor's death, or
if no designated beneficiary is living on the date any payment becomes due
after the Depositor's death, such payment shall be made to the executor or
administrator of the Depositor's estate. However, if after the Depositor's
death, his surviving spouse is receiving payments over a specified period, the
surviving spouse may designate a beneficiary to receive the balance of the
Custodial Account, if any, on his or her death in accordance with the foregoing
rules.
(b) If any person to whom all or a portion of the Depositor's interest is
payable is a minor, payment of the minor's interest shall be made on behalf of
the minor to the person designated by the Depositor in the Beneficiary Form to
receive the minor's interest as Custodian under the Massachusetts Uniform
Transfers to Minors Act or similar statute. If any person to whom all or a
portion of the Depositor's interest is payable is a minor and if either the
Depositor has not so designated a person to receive the minor's interest as
such Custodian, or the person so designated is unable to act (because of
incapacity, failing or declining to act, death or otherwise), the Custodian
shall:
(i) Distribute the interest to the legal guardian of such minor; or
(ii) If no guardian has been appointed, designate an adult member of the
minor's family, a guardian or a trust company (including the Custodian), as
those terms are defined in the Massachusetts Uniform Transfers to Minors Act
or similar statute, as custodian for such minor under the Massachusetts
Uniform Transfers to Minors Act or similar statute and distribute such
minor's interest to the person so designated. The person designated as
custodian under the Massachusetts Uniform Transfers to Minors Act or similar
statute shall hold, manage and distribute such property in accordance with
the provisions of such statute including, if such statute so requires, a
total distribution prior to age 21. The distribution of the Depositor's
interest to the
14
guardian or the person designated as custodian under the Massachusetts
Uniform Transfers to Minors Act or similar statute shall be a full discharge
of the Custodian to the extent of the distribution so made.
(c) The determination of the Custodian as to the person entitled to receive any
distribution from the Custodial Account following the death of the Depositor,
if made in good faith, shall be conclusive and binding on all persons claiming
an interest in the Custodial Account; provided that nothing provided herein
shall be construed to preclude the Custodian from filing an action in the
nature of interpleader or other appropriate proceeding in a court of competent
jurisdiction to determine the person entitled to receive such distribution. Any
expenses incurred by the Custodian in determining the person entitled to
receive a distribution from the Custodial Account, including without limitation
attorneys fees in any such action, shall be reimbursed from the Custodial
Account.
4. Inalienability of Benefits. The benefits provided hereunder shall not be
subject to alienation, assignment, garnishment, attachment, execution or levy of
any kind of any attempt to cause such benefits to be so subjected shall not be
recognized except to the extent as may be required by law.
5. Distributions to Surviving Spouse. If distributions from the Custodial
Account are to be made to the Depositor's surviving spouse, or to a trust of
which the Depositor's surviving spouse is the income beneficiary, the amount
which the surviving spouse (or such trust) is entitled to receive in each year
shall not be less than the income of the Custodial Account (or of the portion of
the Custodial Account with respect to which the surviving spouse or such trust
is the beneficiary) for such year, as determined under section 2056(b)(7) of the
Code.
6. Minimum Distributions; Election not to Recalculate Life Expectancies. The
following provisions supplement the provisions of Article IV with respect to
minimum required distributions, and shall control over the provisions of Article
IV in the event of any inconsistency. All paragraph references in this paragraph
6 are to paragraphs of Article IV unless otherwise provided.
(a) If the Depositor fails to withdraw the entire balance in the Custodial
Account by the April 1 of the year following the year in which he attains age
70 1/2, he shall be deemed to have elected to receive payments under paragraph
3(d) or, if he has a designated beneficiary (as determined under Part D of
Proposed Regulations section 1.401(a)(9)-1) under paragraph 3(e). A beneficiary
shall be deemed to have elected the method described in paragraph 4(b)(ii) if
either he withdraws the minimum amount required for the first year under the
method described in paragraph 4(b)(ii) and does not specifically elect the
method described in paragraph 4(b)(i) by the end of such year, or if the date
specified in paragraph 4(b)(i) occurs first and he has not withdrawn the entire
balance in the Custodial Account by that time; otherwise, the beneficiary shall
be deemed to have elected the method described in paragraph 4(b)(i).
(b) If there is more than one beneficiary entitled to receive distributions on
equal priority upon the death of the Depositor or a prior beneficiary then, to
the extent permitted by Proposed Regulations section 1.401(a)(9)-1, Q&A H-2,
and subject to such requirements and limitations as the Custodian may
establish, the Custodial Account may be divided into separate accounts for
purposes of Article IV and this paragraph. Whenever distributions after the
death of the Depositor are to be made to the Depositor's surviving spouse and
to one or more beneficiaries other than the surviving spouse, and any provision
of Article IV, this paragraph 6, or the minimum distribution requirements
provides different treatment for the portion of the Custodial Account to be
distributed to the surviving spouse, then such portion, and the income earned
thereon, shall be separated and treated as a separate Custodial Account with
respect to such surviving spouse.
(c) Notwithstanding the references to "equal or substantially equal" payments,
if the Depositor or a beneficiary is receiving distributions under paragraph
3(d), 3(e), or 4(b)(ii), he may withdraw amounts that exceed the minimum amount
required by paragraph 5 in any year,
15
Custodial Agreement for a Traditional or SEP-IRA, continued
provided that any excess shall not be credited against the minimum amount
required to be withdrawn in subsequent years. Withdrawals may also be made at
irregular intervals, provided that the minimum amount required for each year
shall be withdrawn by the last day of such year, except that the minimum amount
for the year in which the Depositor attains age 70 1/2, but no subsequent year,
may be withdrawn by April 1 of the following year.
(d) In lieu of the methods of recalculating life expectancies annually as
specified in paragraph 2, the Depositor may elect for purposes of paragraph
3(d) or 3(e), and the Depositor's surviving spouse may elect for purposes of
paragraph 4(b)(ii), to have his life expectancy, or his and his designated
beneficiary's joint and last survivor life expectancy, or the surviving
spouse's life expectancy, initially calculated in the year specified in
paragraph 5 and thereafter reduced by one year in each subsequent year. All
elections described in this paragraph 6(d) shall be made in writing in
accordance with procedures established by the Custodian and the Proposed
Regulations or successors thereto. Such elections must be made and, if made,
shall be irrevocable after the date upon which distributions are required to
commence under paragraph 3 or 4(b)(ii).
(e) All references to the Proposed Regulations section 1.401(a)(9)-1 and
1.401(a)(9)-2 contained in Article IV and this paragraph 6 include the
applicable provisions of Proposed Regulations section 1.408-8 applying such
Proposed Regulations to individual retirement accounts, any subsequent
amendments to any such Proposed Regulations, and the applicable provisions of
the permanent Regulations, when issued, all of which are incorporated by
reference and shall control over any contrary provision of this Agreement.
Reference to specific provisions of the Proposed Regulations shall not be
construed to limit reference to other provisions where appropriate in the
interpretation of Article IV and this paragraph 6.
(f) For all purposes of Article IV and this paragraph 6, life expectancy and
joint-life and last-survivor expectancy are calculated based on information
provided by the Depositor (or the Depositor's authorized agent, beneficiary,
executor, or administrator) using the expected return multiples under Treasury
Regulations Section 1.72-9. The Custodian will not be liable for errors in such
calculations resulting Form its reliance on such information.
(g) Notwithstanding anything herein to the contrary, all distributions shall be
made by the Custodian in such manner and in such amounts as may be specified in
written instructions received from time to time by the Depositor or the
beneficiary, as the case may be and all such instructions shall be deemed to
constitute a certification by the Depositor or beneficiary that the
distribution so directed is one that the Depositor or beneficiary is permitted
to receive. In addition, the Custodian shall have no liability with respect to
any distribution from the Account in accordance with the directions of the
Depositor or beneficiary or the failure to make a distribution in the absence
of such instructions or any consequences thereof including, but not limited to,
excise and other taxes and penalties which might accrue or be assessed, nor
shall the Custodian be under any duty to make any inquiry or investigation with
respect thereto. If any assets held on the Depositor's behalf in a Custodial
Account are transferred directly to a trustee or Custodian of another
individual retirement account described in Code Section 408(a) established for
the Depositor, it shall be the Depositor's responsibility to ensure that any
requested minimum distribution required by Article IV is made prior to giving
the Custodian such transfer instructions.
(h) Any annuity contract purchased for the Depositor pursuant to this Agreement
shall be immediately distributed to the Depositor, and the custodial
relationship shall terminate upon such distribution.
7. Administration.
(a) Except as otherwise provided in this Agreement, the Custodian shall, as
directed in writing, on behalf of the Depositor:
(i) Receive contributions pursuant to the provisions
16
of the Agreement;
(ii) Hold, invest and reinvest the contributions in Fund Shares;
(iii) Register any property in the Custodial Account in the name of the
Custodian or its nominee; and
(iv) Make distributions from the Custodial Account in cash or in Fund Shares
pursuant to the provisions of this Agreement.
(b) In addition to the provisions of Article V, the Custodian shall deliver or
cause to be executed and delivered to the Depositor all notices, prospectuses,
financial statements, proxies and proxy soliciting material relating to assets
credited to the custodial account. No Fund Shares shall be voted, and no other
action shall be taken pursuant to such documents, except upon receipt of
adequate written instructions from the Depositor.
(c) The Custodian shall keep accurate and detailed account of its receipts,
investments and disbursements. As soon as practicable after the end of each
calendar year, and whenever required by regulations adopted under the Act or
the Code, the Custodian shall file with the Depositor a written report of the
Custodian's transactions relating to the Custodial Account during the period
from the last previous accounting, and shall file such other reports with the
Internal Revenue Service as may be required of the Custodian by regulation.
(d) Unless the Depositor sends the Custodian written objection to a report
within 60 days after its receipt, the Depositor shall be deemed to have
approved such report, and in such case the Custodian shall be forever released
and discharged with respect to all matters and things included therein. The
Custodian may seek a judicial settlement of its accounts. In any such
proceeding the only necessary party thereto in addition to the Custodian shall
be the Depositor unless otherwise required by law.
(e) The Custodian shall have no duties whatsoever except such duties as are
specifically provided for herein, and no implied covenant or obligation shall
be read into this Agreement against the Custodian. The Custodian shall not be
liable for a mistake in judgment, for any action taken, or any failure to act,
in good faith, or for any loss that is not a result of its gross negligence,
except as expressly required by the Act and regulations promulgated thereunder.
In performing its duties under this Agreement, the Custodian may hire agents,
experts and attorneys and may delegate discretionary powers to, and rely upon
information and advice furnished by, such agents, experts and attorneys.
(f) The Depositor agrees to indemnify and hold the Custodian harmless from and
against any liability that the Custodian may incur in the administration of the
Custodial Account, unless arising from the Custodian's own gross negligence or
willful misconduct.
(g) The Custodian shall be under no duty to question any direction of the
Depositor with respect to the investment of contributions, or to make
suggestions to the Depositor with respect to the investment, retention or
disposition of any contributions or assets held in the Custodial Account.
(h) The Custodian shall pay out of the Custodial Account expenses of
administration, including the fees of counsel employed by the Custodian, taxes,
if any, and its fees for maintaining the Custodial Account, which are set forth
in the Disclosure Statement but may be revised from time to time by the
Custodian and the Trust. The Custodian may sell Fund Shares and use the
proceeds of sale to pay the foregoing fees and expenses.
(i) The Custodian may resign as Custodian of any Xxxxxxxxx's Custodial Account
or as Custodian of all accounts adopted under the provisions of this Plan, in
either case upon 30 days' prior notice to the Trust and 30 days' prior notice
to each Depositor who will be affected by such resignation. If the Trust or the
Depositor does not appoint a successor Custodian within 30 days after the
mailing of such notice, the Custodian will terminate the Custodial Account.
(j) The Depositor shall be solely and fully responsible for all taxes and
penalties which might accrue or be assessed with respect to any excess
contributions, premature distributions or distributions which are below
17
Custodial Agreement for a Traditional or SEP-IRA, continued
the annual minimum distribution required.
(k) The Custodian shall be entitled to receive and may charge against the
Director's Custodial Account such reasonable compensation for its services in
accordance with its fee schedule as from time to time in effect, and shall also
be entitled to reimbursement of its expenses as Custodian under this Agreement.
The Custodian will notify the Depositor in writing of any change in its fee
schedule.
(l) This Agreement and the Custodial Account created hereby shall be subject to
the applicable laws, rules and regulations, as the same may from time to time
be amended, of the Federal government and the Commonwealth of Massachusetts and
the agencies and instrumentalities of each having jurisdiction thereof, and
shall be governed by and construed, administered and enforced according to the
law of the Commonwealth of Massachusetts. All contributions to the Custodial
Account shall be deemed to take place in the Commonwealth of Massachusetts.
(m) The Custodian and Depositor hereby waive and agree to waive right to trial
by jury in an action or proceeding instituted in respect to this Custodial
Account. The Depositor further agrees that the venue of any litigation between
him and the Custodian with respect to the Custodial Account shall be in the
County of Suffolk, Commonwealth of Massachusetts.
(n) All communications or notices required or permitted to be given herein
shall be deemed to be given upon receipt by the Custodian at P. O. Box 8502,
Boston, MA 02266-8502, by the Trust at 000 X. Xxxxxx Xx., Xxxxx 0000, Xxxxxxx,
XX, 00000, or the Depositor at his most recent address shown in the Custodian's
records. The Depositor agrees to advise the Custodian promptly, in writing, of
any change of address.
(o) Subject to the last paragraph of this subparagraph (o), 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 first receives the Disclosure Statement related to the Custodial
Account. Mailed notice is treated as given to the Custodian on the 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 will receive a payment equal to the initial contribution, without
adjustment for administrative expenses, commissions or sales charges,
fluctuations in market value or other changes. The Depositor may certify in the
Application that the Depositor received the Disclosure Statement related to the
Custodial Account at least seven days before signing the Application to
establish the Custodial Account, and the Custodian may rely on such
certification.
(p) The Depositor may in writing appoint an investment advisor with respect to
the Custodial Account on a form acceptable to the Custodian and the Trust. The
investment advisor's appointment will be in effect until written notice to the
contrary is received by the Custodian and the Trust. 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 Trust, and the Trust and its agents 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. The Depositor's appointment of any
investment advisor will also be deemed to be instructions to the Custodian and
the Trust to pay such investment advisor's fees to the investment advisor from
the Custodial Account hereunder without additional authorization by the
Depositor or the Custodian.
8. The Trust
(a) The Depositor delegates to the Trust the power with respect to this
Agreement: (i) to remove the Custodian and select a successor Custodian; and
(ii) to amend this Agreement as provided in paragraph 9.
(b) The powers herein delegated to the Trust shall be exercised by such officer
thereof as the Trust may designate from time to time, and shall be exercised
only when similarly exercised with respect to all other Depositors establishing
IRA accounts.
(c) Neither the Trust nor any officer, director, trustee,
18
board, committee, employee or member of the Trust shall incur any liability of
any nature to the Depositor or beneficiary or other person in connection with
any act done or omitted to be done in good faith in the exercise of any power
or authority herein delegated to the Trust.
(d) If the Trust shall hereafter determine that it is no longer desirable for
the Trust to continue to exercise any of the powers hereby delegated to the
Trust, it may relieve itself of any further responsibilities hereunder by
notice in writing to the Depositor and the Custodian at least 60 days before
the date on which the Trust proposes to discontinue the exercise of the powers
delegated to it.
9. Amendment and Termination.
(a) The Depositor delegates to the Trust the power to amend this Agreement
(including retroactive amendment). A copy of any such amendment shall be
furnished to the Custodian, and no such amendment shall have the effect of
increasing the duties or obligations of the Custodian until it has been
approved by the Custodian. A copy of any such amendment shall also be furnished
to the Depositor, but no delay in furnishing such copy shall affect the
effectiveness of such amendment.
(b) The Depositor may amend his/her Application (including retroactive
amendment) by submitting to the Custodian (i) a copy of such amended
Application, and (ii) evidence satisfactory to the Custodian that the Agreement
as amended by such amended Application will continue to qualify as an
Individual Retirement Account under the provisions of section 408(a) of the
Code.
(c) No amendment shall be effective if it would cause or permit (i) any part of
the Custodial Account to be diverted to any purpose that is not for the
exclusive benefit of the Depositor and his beneficiaries; (ii) the Depositor to
be deprived of any portion of his interest in the Custodial Account, unless
such action is taken in order to satisfy qualification requirements under the
Code; or (iii) the imposition of an additional duty on the Custodian without
its written consent.
(d) The Depositor reserves the right to terminate his adoption of this
Agreement by instrument in writing signed by him and filed with the Custodian.
(e) In the event that the assets of any investment company (including any
series of the Trust) in which the Custodial Account is invested are transferred
to or acquired by any other investment company or other commingled investment
fund which is a permissible investment for an individual retirement account, by
merger or otherwise, the Trust may make such amendments to this Agreement, or
take such other action, as it may determined to be necessary or appropriate to
accomplish such transaction and the exchange of Fund Shares for shares or other
appropriate units of ownership in such successor fund. The consent of the
Depositor shall not be required for any such amendment or action, but the
Depositor shall be promptly notified thereof, and shall have the right to
withdraw the funds in the Custodial Account without fee, charge, load or
penalty of any kind.
10. Definitions.
Whenever used in this Agreement, the following terms shall have the meanings set
forth below unless otherwise expressly provided herein:
(a) Act. The Employee Retirement Income Security Act of 1974, as amended from
time to time.
(b) Agreement. This Custodial Agreement for a Regular or SEP-IRA Account,
including the Application, as amended from time to time.
(c) Application. The IRA Application Form, constituting an agreement between
the Depositor and the Custodian, by which the Depositor adopts this Agreement
(d) Code. The Internal Revenue Code of 1986, as amended from time to time.
Reference to a section of the Code shall include that section and any
comparable section or sections of any future legislation that amends,
supplements or supersedes that section.
(e) Custodial Account. The account established for the Depositor pursuant to
this Agreement.
(f) Custodian. The bank named in the Application.
(g) Depositor. The individual who adopts this Agreement as provided therein.
(h) Fund Shares. Shares issued by the Trust or shares of any other regulated
investment company for which the
19
Custodial Agreement for a Traditional or SEP-IRA, continued
Custodian acts as transfer agent and which may be available hereunder from time
to time pursuant to an agreement between the Custodian and the Trust. No Fund
shall be available for investment under this Agreement (i) before the date the
prospectus for that Fund discloses its availability, (ii) with respect to any
Depositor who resides in any state or other jurisdiction in which shares of the
Fund are not available for sale, or (iii) with respect to any Depositor not
eligible to purchase Fund shares directly, when sales of Fund shares are
restricted.
(i) Trust. Acorn Investment Trust, a regulated investment company.
11. Conflict in Provisions. To the extent that any of the provisions of Article
VIII shall conflict with the provisions of Articles IV, V, or VII, the
provisions of Article VIII shall prevail.
12. Loss of Exemption. If the Custodian receives notice that the Custodial
Account has lost its tax-exempt status under section 408(a) of the Code for any
reason, including by reason of a transaction prohibited by section 4975 of the
Code, the Custodian shall distribute to the Depositor the entire balance in the
Account, in cash or in kind, in the sole discretion of the Custodian no later
than 90 days after the date the Custodian receives such notice.
20
Custodial Agreement for a Xxxx XXX
Form 5305-RA
(January 1998)
Department of the Treasury
Internal Revenue Service
Acorn Investment Trust
Custodial Agreement for a Xxxx XXX
(Under Section 408A of the Internal Revenue Code)
(January 1, 1998)
Article I
1. If this Xxxx XXX is not designated as a Xxxx 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 Xxxx XXX is designated as a Xxxx 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 Xxxxxxxxx who files jointly, between AGI of $150,000 and $160,000;
and for a married Xxxxxxxxx who files separately, between $0 and $10,000. In the
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 V
1. If the Depositor dies before his or her entire interest is distributed to
him or her and the grantor'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 the 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 not begin by the death described in (b),
distribution method (a) will apply.
2. In the case of a distribution method 1.(b) above, to determine the minimum
annual payment for each year, divide the grantor's entire interest in the trust
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 VI
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.
21
Custodial Agreement for a Xxxx XXX, continued
2. The Custodian agrees to submit reports to the Internal Revenue Service and
the Depositor prescribed by the Internal Revenue Service.
Article VII
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 VIII
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 below.
Article IX
1. Form of Contributions. Except as provided in Paragraph 2 of Article I, all
contributions and transfers shall be made only in cash.
2. Investment of Contributions.
(a) As directed by the Depositor in writing, all contributions shall be used by
the Custodian to purchase Fund Shares. All income dividends and capital gains
distributions shall be reinvested in shares of the Fund which declared such
dividends or distributions unless the Depositor elects in writing, in
accordance with an opportunity to do so provided by the Fund declaring the
dividend or distribution, to apply such dividend or distribution to purchase
other Fund Shares available under this Agreement.
(b) A Telephone Exchange Plan ("Exchange Plan"), as described in the
prospectus(es) of the Funds is available hereunder. After the Custodian
receives an Exchange Plan authorization deemed by the Custodian to be in proper
form, the Custodian, upon receipt of telephonic instructions from any person
representing himself to be the Depositor, may redeem any Fund Shares held by
the Custodian on behalf of the Depositor and apply the proceeds toward the
purchase of any other Fund Shares available hereunder, subject to and in
accordance with the terms and conditions of the Exchange Plan. The Custodian
shall be entitled to rely and act upon such telephonic instructions, and
neither the Custodian, the Trust, any other Fund whose shares are available
hereunder nor their officers, trustees, directors, employees or agents shall be
liable for any liability, cost or expense for acting on any such instructions.
In directing any exchange pursuant to the Exchange Plan, the Depositor
represents that he has obtained a current prospectus of the Fund into which the
switch is to be made. The Depositor authorizes and directs the Custodian to
respond to any telephonic inquiries relating to the status of shares owned,
including but not limited to the number of shares held. The Depositor agrees
that the authorizations, directions and restrictions contained herein will
continue until the Custodian receives written notice of any change or
revocation. The Depositor agrees and understands that the Funds and the
Custodian reserve the right to refuse any telephonic instructions.
(c) All Fund Shares acquired by the Custodian shall be registered in the name
of the Custodian or its nominee.
3. Beneficiaries; Distributions to Minors.
(a) A Depositor shall have the right by written notice to the Custodian to
designate one or more beneficiaries to receive any amount to which the
Depositor may be entitled in the event of his death before the complete
distribution of his interest, and to change any such beneficiary. Such
designation or change shall be on the Beneficiary Form provided by the Trust,
and shall be effective only when filed with the Custodian before the death of
the Depositor. Such designation may include contingent or successive
beneficiaries. If no such designation is in effect on a Depositor's death, or
if no designated beneficiary is living on the date any payment becomes due
after the Depositor's death, such payment shall be made to the executor or
administrator of the Depositor's estate. However, if after the Depositor's
death, his surviving spouse is receiving pay-
22
ments over a specified period, the surviving spouse may designate a beneficiary
to receive the balance of the Custodial Account, if any, on his or her death in
accordance with the foregoing rules.
(b) If any person to whom all or a portion of the Depositor's interest is
payable is a minor, payment of the minor's interest shall be made on behalf of
the minor to the person designated by the Depositor in the Beneficiary Form to
receive the minor's interest as Custodian under the Massachusetts Uniform
Transfers to Minors Act or similar statute. If any person to whom all or a
portion of the Depositor's interest is payable is a minor and if either the
Depositor has not so designated a person to receive the minor's interest as
such Custodian, or the person so designated is unable to act (because of
incapacity, failing or declining to act, death or otherwise), the Custodian
shall:
(i) Distribute the interest to the legal guardian of such minor; or
(ii) If no guardian has been appointed, designate an adult member of the
minor's family, a guardian or a trust company (including the Custodian), as
those terms are defined in the Massachusetts Uniform Transfers to Minors Act
or similar statute, as custodian for such minor under the Massachusetts
Uniform Transfers to Minors Act or similar statute and distribute such
minor's interest to the person so designated. The person designated as
custodian under the Massachusetts Uniform Transfers to Minors Act or similar
statute shall hold, manage and distribute such property in accordance with
the provisions of such statute including, if such statute so requires, a
total distribution prior to age 21. The distribution of the Depositor's
interest to the guardian or the person designated as custodian under the
Massachusetts Uniform Transfers to Minors Act or similar statute shall be a
full discharge of the Custodian to the extent of the distribution so made.
(c) The determination of the Custodian as to the person entitled to receive any
distribution from the Custodial Account following the death of the Depositor,
if made in good faith, shall be conclusive and binding on all persons claiming
an interest in the Custodial Account; provided that nothing provided herein
shall be construed to preclude the Custodian from filing an action in the
nature of interpleader or other appropriate proceeding in a court of competent
jurisdiction to determine the person entitled to receive such distribution. Any
expenses incurred by the Custodian in determining the person entitled to
receive a distribution from the Custodial Account, including without limitation
attorneys fees in any such action, shall be reimbursed from the Custodial
Account.
4. Inalienability of Benefits. The benefits provided hereunder shall not be
subject to alienation, assignment, garnishment, attachment, execution or levy of
any kind of any attempt to cause such benefits to be so subjected shall not be
recognized except to the extent as may be required by law.
5. Distributions to Surviving Spouse. If distributions from the Custodial
Account are to be made to the Depositor's surviving spouse, or to a trust of
which the Depositor's surviving spouse is the income beneficiary, the amount
which the surviving spouse (or such trust) is entitled to receive in each year
shall not be less than the income of the Custodial Account (or of the portion of
the Custodial Account with respect to which the surviving spouse or such trust
is the beneficiary) for such year, as determined under section 2056(b)(7) of the
Code.
6. Minimum Distributions; Election not to Recalculate Life Expectancies. The
following provisions supplement the provisions of Article V with respect to
minimum required distributions to a beneficiary following the death of the
Depositor, and shall control over the provisions of Article V in the event of
any inconsistency. All paragraph references in this paragraph 6 are to
paragraphs of Article V unless otherwise provided.
(a) A beneficiary shall be deemed to have elected the method described in
paragraph 1(b) if either he withdraws the minimum amount required for the first
year under the method described in paragraph 1(b) and does
23
Custodial Agreement for a Xxxx XXX, continued
not specifically elect the method described in paragraph 1(a) by the end of
such year, or if the date specified in paragraph 1(a) occurs first and he has
not withdrawn the entire balance in the Custodial Account by that time;
otherwise, the beneficiary shall be deemed to have elected the method described
in paragraph 1(a).
(b) If there is more than one beneficiary entitled to receive distributions on
equal priority upon the death of the Depositor or a prior beneficiary then, to
the extent permitted by Proposed Regulations section 1.401(a)(9)-1, Q&A H-2,
and subject to such requirements and limitations as the Custodian may
establish, the Custodial Account may be divided into separate accounts for
purposes of Article V and this paragraph.
(c) Notwithstanding the references to "equal or substantially equal" payments,
if a beneficiary is receiving distributions under paragraph 1(b), he may
withdraw amounts that exceed the minimum amount required by paragraph 2 in any
year, provided that any excess shall not be credited against the minimum amount
required to be withdrawn in subsequent years. Withdrawals may also be made at
irregular intervals, provided that the minimum amount required for each year
shall be withdrawn by the last day of such year.
(d) Notwithstanding paragraph (3), a surviving spouse of a deceased Depositor
may elect not to be treated as the Depositor, but instead to be subject to
paragraph (1), in which event the required starting date for the method
provided in paragraph 1(b) shall be the later of the date specified therein or
December 31 of the year in which the Depositor would have attained the age of
70 1/2. In addition, a surviving spouse may, in lieu of the method specified in
paragraph 2, elect to have his or her life expectancy determined each year on
the basis of his or her age attained in such year. All elections described in
this paragraph 6(d) shall be made in writing referring explicitly to this
paragraph 6(d) and in accordance with procedures established by the Custodian
and the Proposed Regulations or successors thereto. Such elections must be made
and, if made, shall be irrevocable after the date upon which distributions are
required to commence under paragraph 1.
(e) All references to the Proposed Regulations section 1.401(a)(9)-1 contained
in Article V and this paragraph 6 include the applicable provisions of Proposed
Regulations section 1.408-8 applying such Proposed Regulations to individual
retirement accounts, any subsequent amendments to any such Proposed
Regulations, and the applicable provisions of the permanent Regulations, when
issued, all of which are incorporated by reference and shall control over any
contrary provision of this Agreement. Reference to specific provisions of the
Proposed Regulations shall not be construed to limit reference to other
provisions where appropriate in the interpretation of Article V and this
paragraph 6.
(f) For all purposes of Article IV and this paragraph 6, life expectancy and
joint-life and last-survivor expectancy are calculated based on information
provided by the Depositor (or the Depositor's authorized agent, beneficiary,
executor, or administrator) using the expected return multiples under Treasury
Regulations Section 1.72-9. The Custodian will not be liable for errors in such
calculations resulting Form its reliance on such information.
(g) Notwithstanding anything herein to the contrary, all distributions shall be
made by the Custodian in such manner and in such amounts as may be specified in
written instructions received from time to time by the Depositor or the
beneficiary, as the case may be and all such instructions shall be deemed to
constitute a certification by the Depositor or beneficiary that the
distribution so directed is one that the Depositor or beneficiary is permitted
to receive. In addition, the Custodian shall have no liability with respect to
any distribution from the Account in accordance with the directions of the
Depositor or beneficiary or the failure to make a distribution in the absence
of such instructions or any consequences thereof including, but not limited to,
excise and other taxes and penalties which
24
might accrue or be assessed, nor shall the Custodian be under any duty to make
any inquiry or investigation with respect thereto.
(h) Any annuity contract purchased for the Depositor pursuant to this Agreement
shall be immediately distributed to the Depositor, and the custodial
relationship shall terminate upon such distribution.
7. Administration.
(a) Except as otherwise provided in this Agreement, the Custodian shall, as
directed in writing, on behalf of the Depositor:
(i) Receive contributions pursuant to the provisions of the Agreement;
(ii) Hold, invest and reinvest the contributions in Fund Shares;
(iii) Register any property in the Custodial Account in the name of the
Custodian or its nominee; and
(iv) Make distributions from the Custodial Account in cash or in Fund Shares
pursuant to the provisions of this Agreement.
(b) In addition to the provisions of Article VI, the Custodian shall deliver or
cause to be executed and delivered to the Depositor all notices, prospectuses,
financial statements, proxies and proxy soliciting material relating to assets
credited to the custodial account. No Fund Shares shall be voted, and no other
action shall be taken pursuant to such documents, except upon receipt of
adequate written instructions from the Depositor.
(c) The Custodian shall keep accurate and detailed account of its receipts,
investments and disbursements. As soon as practicable after the end of each
calendar year, and whenever required by regulations adopted under the Act or
the Code, the Custodian shall file with the Depositor a written report of the
Custodian's transactions relating to the Custodial Account during the period
from the last previous accounting, and shall file such other reports with the
Internal Revenue Service as may be required of the Custodian by regulation.
(d) Unless the Depositor sends the Custodian written objection to a report
within 60 days after its receipt, the Depositor shall be deemed to have
approved such report, and in such case the Custodian shall be forever released
and discharged with respect to all matters and things included therein. The
Custodian may seek a judicial settlement of its accounts. In any such
proceeding the only necessary party thereto in addition to the Custodian shall
be the Depositor unless otherwise required by law.
(e) The Custodian shall have no duties whatsoever except such duties as are
specifically provided for herein, and no implied covenant or obligation shall
be read into this Agreement against the Custodian. The Custodian shall not be
liable for a mistake in judgment, for any action taken, or any failure to act,
in good faith, or for any loss that is not a result of its gross negligence,
except as expressly required by the Act and regulations promulgated thereunder.
In performing its duties under this Agreement, the Custodian may hire agents,
experts and attorneys and may delegate discretionary powers to, and rely upon
information and advice furnished by, such agents, experts and attorneys.
(f) The Depositor agrees to indemnify and hold the Custodian harmless from and
against any liability that the Custodian may incur in the administration of the
Custodial Account, unless arising from the Custodian's own gross negligence or
willful misconduct.
(g) The Custodian shall be under no duty to question any direction of the
Depositor with respect to the investment of contributions, or to make
suggestions to the Depositor with respect to the investment, retention or
disposition of any contributions or assets held in the Custodial Account.
(h) The Custodian shall pay out of the Custodial Account expenses of
administration, including the fees of counsel employed by the Custodian, taxes,
if any, and its fees for maintaining the Custodial Account, which are set forth
in the Disclosure Statement but may be revised from time to time by the
Custodian and the Trust. The Custodian may sell Fund Shares and use the
proceeds of sale to pay the foregoing fees and expenses.
25
Custodial Agreement for a Xxxx XXX, continued
(i) The Custodian may resign as Custodian of any Xxxxxxxxx's Custodial Account
or as Custodian of all accounts adopted under the provisions of this Plan, in
either case upon 30 days' prior notice to the Trust and 30 days' prior notice
to each Depositor who will be affected by such resignation. If the Trust or the
Depositor does not appoint a successor Custodian within 30 days after the
mailing of such notice, the Custodian will terminate the Custodial Account.
(j) The Depositor shall be solely and fully responsible for all taxes and
penalties which might accrue or be assessed with respect to any excess
contributions, premature distributions or distributions which are below the
annual minimum distribution required.
(k) The Custodian shall be entitled to receive and may charge against the
Depositor's Custodial Account such reasonable compensation for its services in
accordance with its fee schedule as from time to time in effect, and shall also
be entitled to reimbursement of its expenses as Custodian under this Agreement.
The Custodian will notify the Depositor in writing of any change in its fee
schedule.
(l) This Agreement and the Custodial Account created hereby shall be subject to
the applicable laws, rules and regulations, as the same may from time to time
be amended, of the Federal government and the Commonwealth of Massachusetts and
the agencies and instrumentalities of each having jurisdiction thereof, and
shall be governed by and construed, administered and enforced according to the
law of the Commonwealth of Massachusetts. All contributions to the Custodial
Account shall be deemed to take place in the Commonwealth of Massachusetts.
(m) The Custodian and Depositor hereby waive and agree to waive right to trial
by jury in an action or proceeding instituted in respect to this Custodial
Account. The Depositor further agrees that the venue of any litigation between
him and the Custodian with respect to the Custodial Account shall be in the
County of Suffolk, Commonwealth of Massachusetts.
(n) All communications or notices required or permitted to be given herein
shall be deemed to be given upon receipt by the Custodian at P. O. Box 8502,
Boston, MA 02266-8502, by the Trust at 000 X. Xxxxxx Xx., #0000, Xxxxxxx, XX,
00000, or the Depositor at his most recent address shown in the Custodian's
records. The Depositor agrees to advise the Custodian promptly, in writing, of
any change of address.
(o) Subject to the last paragraph of this subparagraph (o), 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 first receives the Disclosure Statement related to the Custodial
Account. Mailed notice is treated as given to the Custodian on the 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 will receive a payment equal to the initial contribution, without
adjustment for administrative expenses, commissions or sales charges,
fluctuations in market value or other changes. The Depositor may certify in the
Application that the Depositor received the Disclosure Statement related to the
Custodial Account at least seven days before signing the Application to
establish the Custodial Account, and the Custodian may rely on such
certification.
(p) The Depositor may in writing appoint an investment advisor with respect to
the Custodial Account on a form acceptable to the Custodian and the Trust. The
investment advisor's appointment will be in effect until written notice to the
contrary is received by the Custodian and the Trust. 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 Trust, and the Trust and its agents 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. The Depositor's appointment of any
investment advisor will also be deemed to be instructions to
26
the Custodian and the Trust to pay such investment advisor's fees to the
investment advisor from the Custodial Account hereunder without additional
authorization by the Depositor or the Custodian.
8. The Trust
(a) The Depositor delegates to the Trust the power with respect to this
Agreement: (i) to remove the Custodian and select a successor Custodian; and
(ii) to amend this Agreement as provided in paragraph 9.
(b) The powers herein delegated to the Trust shall be exercised by such officer
thereof as the Trust may designate from time to time, and shall be exercised
only when similarly exercised with respect to all other Depositors establishing
IRA accounts.
(c) Neither the Trust nor any officer, director, trustee, board, committee,
employee or member of the Trust shall incur any liability of any nature to the
Depositor or beneficiary or other person in connection with any act done or
omitted to be done in good faith in the exercise of any power or authority
herein delegated to the Trust.
(d) If the Trust shall hereafter determine that it is no longer desirable for
the Trust to continue to exercise any of the powers hereby delegated to the
Trust, it may relieve itself of any further responsibilities hereunder by
notice in writing to the Depositor and the Custodian at least 60 days before
the date on which the Trust proposes to discontinue the exercise of the powers
delegated to it.
9. Amendment and Termination.
(a) The Depositor delegates to the Trust the power to amend this Agreement
(including retroactive amendment). A copy of any such amendment shall be
furnished to the Custodian, and no such amendment shall have the effect of
increasing the duties or obligations of the Custodian until it has been
approved by the Custodian. A copy of any such amendment shall also be furnished
to the Depositor, but no delay in furnishing such copy shall affect the
effectiveness of such amendment.
(b) The Depositor may amend his/her Application (including retroactive
amendment) by submitting to the Custodian (i) a copy of such amended
Application, and (ii) evidence satisfactory to the Custodian that the Agreement
as amended by such amended Application will continue to qualify as a Xxxx
Individual Retirement Account under the provisions of section 408A of the Code.
(c) No amendment shall be effective if it would cause or permit (i) any part of
the Custodial Account to be diverted to any purpose that is not for the
exclusive benefit of the Depositor and his beneficiaries; (ii) the Depositor to
be deprived of any portion of his interest in the Custodial Account, unless
such action is taken in order to satisfy qualification requirements under the
Code; or (iii) the imposition of an additional duty on the Custodian without
its written consent.
(d) The Depositor reserves the right to terminate his adoption of this
Agreement by instrument in writing signed by him and filed with the Custodian.
(e) In the event that the assets of any investment company (including any
series of the Trust) in which the Custodial Account is invested are transferred
to or acquired by any other investment company or other commingled investment
fund which is a permissible investment for an individual retirement account, by
merger or otherwise, the Trust may make such amendments to this Agreement, or
take such other action, as it may determined to be necessary or appropriate to
accomplish such transaction and the exchange of Fund Shares for shares or other
appropriate units of ownership in such successor fund. The consent of the
Depositor shall not be required for any such amendment or action, but the
Depositor shall be promptly notified thereof, and shall have the right to
withdraw the funds in the Custodial Account without fee, charge, load or
penalty of any kind.
10. Definitions.
Whenever used in this Agreement, the following terms shall have the meanings set
forth below unless otherwise expressly provided herein:
(a) Act. The Employee Retirement Income Security Act of 1974, as amended from
time to time.
27
Custodial Agreement for a Xxxx XXX, continued
(b) Agreement. This Custodial Agreement for a Xxxx XXX Account, including the
Application, as amended from time to time.
(c) Application. The IRA Application Form, constituting an agreement between
the Depositor and the Custodian, by which the Depositor adopts this Agreement.
(d) Code. The Internal Revenue Code of 1986, as amended from time to time.
Reference to a section of the Code shall include that section and any
comparable section or sections of any future legislation that amends,
supplements or supersedes that section.
(e) Custodial Account. The account established for the Depositor pursuant to
this Agreement.
(f) Custodian. The bank named in the Application.
(g) Depositor. The individual who adopts this Agreement as provided therein.
(h) Fund Shares. Shares issued by the Trust or shares of any other regulated
investment company for which the Custodian acts as transfer agent and which may
be available hereunder from time to time pursuant to an agreement between the
Custodian and the Trust. No Fund shall be available for investment under this
Agreement (i) before the date the prospectus for that Fund discloses its
availability, (ii) with respect to any Depositor who resides in any state or
other jurisdiction in which shares of the Fund are not available for sale, or
(iii) with respect to any Depositor not eligible to purchase Fund shares
directly, when sales of Fund shares are restricted.
(i) Trust. Acorn Investment Trust, a regulated investment company.
11. Conflict in Provisions. To the extent that any of the provisions of Article
IX shall conflict with the provisions of Articles V, VI, or VIII, the provisions
of Article IX shall prevail.
12. Loss of Exemption. If the Custodian receives notice that the Custodial
Account has lost its tax-exempt status under section 408A of the Code for any
reason, including by reason of a transaction prohibited by section 4975 of the
Code, the Custodian shall distribute to the Depositor the entire balance in the
Account, in cash or in kind, in the sole discretion of the Custodian no later
than 90 days after the date the Custodian receives such notice.
28
Acorn
____________________
Family of Funds
WAM Brokerage Services, L.L.C.
P.O. Box 8502
Boston, MA 02266-8502
0-000-000-0000
IRAS1098
