| Coverdell Education Savings Account Disclosure Statement | |
| Establishing an Education Savings Account | |
| Fees and Expenses | |
| Rules About Contributions | |
| Deductibility | |
| Excess Contributions | |
| Withdrawals | |
| Transfers/Rollovers | |
| Tax Matters | |
| Account Termination | |
| Coverdell Education Savings Account Custodial Agreement | |
| Privacy Notice | |
| For More Information: | |
| Access our web site at www.oakmark.com to obtain a prospectus, an application or periodic reports, or call 1-800-OAKMARK (1-800-625-6275). | |
Special Note
This Disclosure Statement describes the rules applicable to Education Savings Accounts, which first became available on January 1, 1998. These accounts were originally known as Education IRAs but the name was changed to Education Savings Accounts. This Disclosure Statement reflects changes to the tax law rules governing Education Savings Accounts made by the Economic Growth and Tax Relief Reconciliation Act of 2001 ("EGTRRA"), which are effective as of January 1, 2002. Contributions to an Education Savings Account are not tax-deductible to the person making the contribution, but withdrawals that meet certain requirements are not subject to federal income taxes when received. This makes the dividends on and growth of the investments held in an Education Savings Account tax-free for federal income tax purposes if the requirements are met.
Traditional IRAs, which have existed since 1975, are still available. Roth IRAs have been available since January 1, 1998. Both Traditional IRAs and Roth IRAs provide a tax-advantaged savings vehicle that can be used to save for higher education expenses as well as other needs, including retirement. This Disclosure Statement does not describe either Roth or Traditional IRAs. This Disclosure Statement also does not describe IRAs established in connection with a SIMPLE IRA program or a Simplified Employee Pension (SEP) plan maintained by your employer. If you wish to receive information about these IRA products, including forms and explanatory materials, or if you need information about pre-EGTRRA Education Savings Account rules, call the phone number or write the address listed at the end of this Disclosure Statement.
Establishing an Education Savings Account
This Disclosure Statement contains information about an Education Savings Custodial Account with State Street Bank and Trust Company as Custodian. An Education Savings Account provides several tax benefits. While contributions to an Education Savings Account are not deductible to the contributor, dividends on and growth of the assets held in the Education Savings Account are not subject to federal income tax. Withdrawals from an Education Savings Account are excluded from income for federal income tax purposes if used for qualified education expenses (described below). State income tax treatment of your Education Savings Account may differ from federal treatment; ask your state tax department or your personal tax advisor for details.
Regular annual contributions to Education Savings Accounts must be made in cash, on behalf of a designated individual (the "Student") who is less than 18 years old at the time of the contribution, and rollover contributions must be made on behalf of a Student who is less than age 30 at the time of the rollover. These age restrictions do not apply to a Student who is a Special Needs Student (defined below). The trustee or custodian must be a bank or other person who has been approved by the Secretary of the Treasury. Contributions may not be invested in life insurance or be commingled with other property except in a common trust or investment fund. The Student's interest in the account must be nonforfeitable at all times. Upon the death of the Student, the account may pass to a beneficiary who has been designated as such and who is a qualifying member of the Student's family (this is explained below). If the account does not pass to such a beneficiary, any balance in the account should be withdrawn by the appropriate representative of the Student's estate within 30 days of the date of death (if not so withdrawn, the taxable amount will nevertheless be treated for income tax purposes as if it had been withdrawn). You may obtain further information on Education Savings Accounts from any district office of the Internal Revenue Service.
The Donor (the person who establishes the Account) may revoke a newly established Education Savings Account at any time within seven days after the date on which he or she receives this Disclosure Statement. An Education Savings Account established more than seven days after the date of receipt of this Disclosure Statement may not be revoked. To revoke the Education Savings Account, mail or deliver a written notice of revocation to the Custodian at the address which appears at the end of this Disclosure Statement. Mailed notice will be deemed given on the date that it is postmarked (or, if sent by certified or registered mail, on the date of certification or registration). If the Education Savings Account is revoked within the seven-day period, the Donor will receive payment of the entire amount originally contributed into the Education Savings Account, without adjustment for such items as sales charges, administrative expenses or fluctuations in market value.
An Education Savings Account is established on behalf of the Student and is
controlled by the Student (or Parent). The Donor making a contribution, if not
the Student or Parent, may designate the initial investments in the Education
Savings Account, but shall have no further rights, interests or obligations
related to the Education Savings Account, except that he or she can make additional
contributions, subject to the limits described below.
The Adoption Agreement must be signed by the Donor, and any and all forms, applications,
certifications and other documents must be signed by the Parent if the Student
has not yet reached the age of majority recognized by the laws of the state
of Student's residence ("age of majority").
Note: The Custodian is under no obligation to determine whether any Parent actually holds the legal right and capacity to direct or control a Student's Education Savings Account.
Fees and Expenses
Custodian's Fees
The following is a list of the fees charged by the Custodian for maintaining
your Education Savings Account. All fees are charged per Fund account.
| Account Set Up Fee | $5.00 |
| Annual Maintenance Fee (up to a maximum of $14.00) | $7.00 |
| Termination, Rollover, or Transfer of Account to Successor Custodian | $10.00 |
• |
Fees may be paid by you directly or
the Custodian may deduct them from your Education Savings Account. |
• |
Fees may be changed upon 30 days written notice
to you. |
• |
The full annual maintenance fee will be charged
for any calendar year during which you have an Education Savings Account
with us. This fee is not prorated for periods of less than one full
year. |
• |
If provided for in the Disclosure Statement or Adoption
Agreement, termination fees are charged when your account is closed
whether the funds are distributed to you or transferred to a successor
custodian or trustee. |
• |
The Custodian may charge you for its reasonable
expenses for services not covered by its fee schedule. |
Other Charges
• |
There may be sales or other charges
associated with the purchase or redemption of shares of a Fund in
which your Education Savings Account is invested. Before investing,
be sure to read carefully the current prospectus of any Fund you are
considering as an investment for your Education Savings Account for
a description of applicable charges. |
Contributions
Who May Contribute to an Education Savings Account?
| If Donor
is a Single Taxpayer or Married Filing Separately |
If Donor
is Married Filing Jointly |
Then
Donor May Make |
| |
Up to $190,000 | Full Contribution |
| More than $95,000 but less than $110,000 |
More than $190,000 but less than $220,000 |
Reduced Contribution (see explanation below) |
| $110,000 and up | $220,000 and up | Zero (No Contribution) |
| 1. | The amount by which MAGI exceeds the lower limit of the reduced contribution range: | |||||||
$197,555 - $190,000 = $7,555 |
||||||||
| 2. | Divide this by $30,000: | |||||||
|
||||||||
| 3. | Multiply this by the normal contribution limit of $2,000: | |||||||
0.25183 x $2,000 = $503.66 |
||||||||
| 4. | Subtract this from the $2,000 contribution limit: | |||||||
$2,000 - $503.66 = $1,496.34 |
This is the contribution limit.
Of course, if one Donor is prevented by these rules from making a full $2,000
contribution on behalf of a Student, another person (who is not the first Donor's
spouse) may be willing to contribute so that the full $2,000 per year that the
law allows will be added to the Student's Education Savings Account.
Note: The prior law rule saying that a contribution to an Education
Savings Account could not be made on behalf of a Student for any year when a
contribution on the Student's behalf was made to a qualified state tuition program
has been repealed. This prohibition no longer applies starting in 2002.
How Do I Determine MAGI?
For most taxpayers MAGI is the same as adjusted gross income, which is their
gross income minus those deductions which are available to all taxpayers even
if they don't itemize. (Instructions to calculate AGI are provided with income
tax Form 1040 or 1040A.) Modified AGI is simply regular AGI adjusted to include
certain amounts earned abroad. If a Donor has not earned income in any foreign
country, Guam, American Samoa, the Northern Mariana Islands or Puerto Rico,
normal AGI should be used in the calculations above.
How are Excess Contributions Penalized?
If more than the maximum is contributed to the Student's Education Savings
Account for a year, the excess is subject to a 6% penalty tax. The excess will
be subject to an additional 6% penalty tax for each subsequent year that the
excess remains the Education Savings Account.
How are Excess Contributions Corrected?
Excess contributions may be corrected without paying a 6% penalty. To do so,
the excess and any earnings on the excess must, in accordance with directions
from the Student to the Custodian, be paid to the Student before the first day
of the sixth month following the year in which the contribution was made (the
"Correction Deadline"). For calendar year taxpayers (most people), this means
no later than May 31 of the following year.
One other way to eliminate excess contributions (and possibly avoid the 6% excess
contribution penalty tax) is to contribute an amount out of the Education Savings
Account to a qualified state tuition program, if there is one available to receive
the contribution from the Education Savings Account. This must be done in the
same year that the excess contribution was made.
If you miss the deadline for either of the two ways to correct an overcontribution
mentioned above, the penalty tax of 6% of the excess is due. However, you can
avoid paying the 6% penalty in a subsequent year by undercontributing in that
year. Each dollar of undercontribution offsets a dollar of excess contribution.
Any excess contribution which is not eliminated in this way will be subject
to another 6% penalty tax in the subsequent year.
What Happens if the Excess Contribution is Not Corrected by Correction
Deadline?
Any excess contribution withdrawn after the correction deadline for the year
for which the contribution was made will subject the Student to the 6% excise
tax.
Unless an exception applies, the excess contribution and any earnings on it
withdrawn after the correction deadline will be includable in the Student's
taxable income and may be subject to a 10% withdrawal penalty.
May a Contribution be Made to a Qualified State Tuition Program in the
Same Year as a Contribution to an Education Savings Account is Made?
Yes. Under prior rules a Donor could not contribute to an Education Savings
Account in any year in which a contribution was made to a qualified state tuition
program for the same Student. (A qualified state tuition program allows taxpayers
to pay for a child's tuition in advance.) Under these prior rules, any amount
contributed to an Education Savings Account in the same year that a contribution
was made to a state prepaid tuition plan on behalf of the Student was an excess
contribution, subjecting the Student to the 6% penalty tax discussed above.
However, these prior rules do not apply to years beginning January 2, 2002.
Investments
How Are Education Savings Account Contributions Invested?
The Donor indicates the initial investment elections on the Adoption Agreement.
Thereafter, the Student controls the investment by making choices among the
available Fund(s) in accordance with the Fund rules. Investments must be in
one or more of the Fund(s) available from time to time as listed in the Adoption
Agreement for the Education Savings Account or in an investment selection form
provided with the Education Savings Account Adoption Agreement or from the Fund
Distributor or Service Company. The investments of your Education Savings Account
are directed by giving the investment instructions to the Distributor or Service
Company for the Fund(s). Since the Student controls the investment of the Education
Savings Account, he or she is responsible for the investment results achieved;
neither the Custodian, the Distributor nor the Service Company has any responsibility
for any loss or diminution in value occasioned by your exercise of investment
control. Transactions for the Education Savings Account will generally be at
the applicable public offering price or net asset value for shares of the Fund(s)
involved next established after the Distributor or the Service Company (whichever
may apply) receives proper investment instructions from you; consult the current
prospectus for the Fund(s) involved for additional information.
Before making any investment, read carefully the current prospectus for any
Fund under consideration as an investment for the Education Savings Account.
The prospectus will contain information about the Fund's investment objectives
and policies, as well as any minimum initial investment or minimum balance requirements
and any sales, redemption or other charges.
Because you control the selection of investments for your Education Savings
Account and because mutual fund shares fluctuate in value, the growth in value
of the Education Savings Account cannot be guaranteed or projected.
Are There Any Restrictions on the Use of the Education Savings Account
Assets?
The tax-exempt status of the Education Savings Account will be revoked if you
engage in any of the prohibited transactions listed in Section 4975 of the tax
code. Upon such revocation, the Education Savings Account is treated for income
tax purposes as if it had distributed its assets to the Student. The taxable
portion of the amount in the Education Savings Account will be subject to income
tax unless the requirements for a tax-free withdrawal are satisfied (see below).
Also, you may be subject to a 10% penalty tax on the taxable amount.
What Is A Prohibited Transaction?
Generally, a prohibited transaction is any improper use of the assets in your
Education Savings Account. Some examples of prohibited transactions are:
• |
Direct or indirect sale or exchange of property
between you and your Education Savings Account. |
• |
Transfer of any property from your Education Savings
Account to yourself or from yourself to your Education Savings Account. |
| • |
Qualified Higher Education Expenses
include expenses for tuition, books, supplies, and equipment required
for enrollment or attendance at an eligible educational institution of
any Student or expenses for special needs services in the case of a Special
Needs Student which are incurred in connection with such enrollment or
attendance. For students attending an eligible educational institution
at least half time, qualified higher education expenses also include room
and board. (Note: Room and board costs are the greater of
the room and board allowance applicable to a Student, as determined by
the eligible educational institution or for Students residing in housing
owned or operated by the eligible educational institution, the actual
invoice amount charged by the institution for the period.) Also, qualified
expenses include amounts contributed to a qualified state tuition program. |
| An Eligible Educational Institution includes
most colleges, universities, vocational schools, or other postsecondary
educational institutions. The Student should check with his or her school
to verify that it is an eligible educational institute as described in
section 481 of the Higher Education Act of 1965. |
|
| • |
Qualified Elementary and Secondary Expenses
include expenses for tuition, fees, academic tutoring, special needs services
in the case of a Special Needs Student, books, supplies, and other equipment
which are incurred in connection with the enrollment or attendance of
the Student as an elementary or secondary school student at a public,
private or religious school. Such expenses also include cost of room and
board (for boarding school), uniforms, transportation, and supplementary
items and services (including extended day programs) which are required
or provided in connection with the Student's attendance or enrollment,
and cost of purchasing computer equipment and software and related technology
(but not sports, games or hobby-related software, unless predominantly
educational in nature) or Internet access and related services, if such
technology, equipment, or services are to be used by the Student and his
or her family during any year in which the Student is in school. |
| • |
A School for these purposes is any school
which provides elementary education or secondary education (K through
12), as determined in accordance with applicable state law. The school
can be public, private or religious. |
| • |
Second, the amount of the withdrawal in a year
must not exceed your qualified education expenses for that year. |
Taxable withdrawals of dividends and gains from an Education Savings Account are treated as ordinary income. Withdrawals of taxable amounts from an Education Savings Account are not eligible for averaging treatment currently available to certain lump sum distributions from qualified employer-sponsored retirement plans, nor are such withdrawals eligible for capital gains tax treatment.In 2010, John withdraws $9,000 from his Education Savings Account, of which $4,000 is attributable to dividends or gains. John's qualified education expenses total only $7,000 for that year. Therefore, 77% ($7,000/$9,000) of the withdrawal is attributable to educational expenses. So, $3,080 (77% of $4,000) is excludable from income and the difference, $920, is includable in John's taxable income and possibly subject to the 10% penalty tax.
Any outstanding fees must be received prior to such a termination of an Education Savings Account.The date the Student's properly executed withdrawal form or instructions (as described above) withdrawing the total Education Savings Account balance is received and accepted by the Custodian.
The date the Education Savings Account ceases to qualify under the tax code. This will be deemed a termination.
The transfer of the Education Savings Account to another custodian/trustee.
The rollover of the amounts in the Education Savings Account to another custodian/trustee.
An Important Notice Concerning Customer
Privacy From State Street Bank and Trust Company: |
|
| State Street Bank and Trust Company is pleased to be the custodian for your retirement account. | |
| The trust and confidence of our customers is important to us. For this reason, we are careful in the way we handle nonpublic personal information about our customers ("Customer Information"). This Privacy Notice describes our policies and practices concerning Customer Information and how they are designed to preserve the trust of our customers. | |
| Information We Collect We may collect Customer Information from the following sources: |
|
| • |
Information we receive on applications
or other forms, such as name, address, date of birth, and social security
number |
| • |
Information relating to transactions with us, our affiliates
and others, such as the purchase and sale of securities and account balances
|
| • |
Information we receive from third parties, such as
credit reporting agencies. |
| Information We Disclose We do not disclose Customer Information about our present or former customers to third parties except as permitted by law. For example, we may disclose Customer Information in order to process a transaction or service an account, or to comply with legal requirements. |
|
|
Information Security We restrict access to Customer Information to employees and service providers who are involved in providing products and services to our customers. In addition, we maintain physical, electronic, and procedural safeguards that comply with federal standards in order to protect Customer Information. |
|
|
1. |
Any balance to the credit of the Designated Beneficiary
on the date on which such Designated Beneficiary attains age 30 shall
be distributed to the Designated Beneficiary within 30 days of such date. |
|
2. |
Any balance to the credit of the Designated Beneficiary
shall be distributed within 30 days of the date of such Designated Beneficiary's
death unless the designated death beneficiary is a family member of the
Designated Beneficiary who is under the age of 30 on the date of death.
In such a case, the family member shall become the Designated Beneficiary
as of the date of death. |
| 1. | The Depositor agrees to provide the Custodian with the information necessary for the Custodian to prepare any reports required under section 530(h). |
| 2. |
The Custodian agrees to submit reports
to the Internal Revenue Service and the Responsible Individual as prescribed
by the Internal Revenue Service. |
Notwithstanding any other articles which may be added or incorporated, the provisions of Articles I through IV will be controlling. Any additional articles that are not consistent with section 530 and related regulations will be invalid.
Article X.
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 Depositor and the Custodian whose signatures appear on the Adoption Agreement.
Article XI.
| 1. | As used in this Custodial Agreement the following terms have the following meanings: |
| "Account" or "Custodial Account" means the Coverdell Education Savings
Account established using the terms of this Agreement and the Adoption Agreement
signed by or on behalf of the Student. The term "Student" means the person designated as such in the Adoption Agreement (or on a form acceptable to the Custodian for use in connection with the Custodial Account, and filed with the Custodian). The individual who is the "Student" (as used in this Article XI) and the individual who is the "Designated Beneficiary" (as used in Articles I through X) are the same. The Student may, in writing on such form as may be acceptable to the Custodian designate another person, who is a "family member" of the Student (with in the meaning of section 529(e)(2) of the Code) who is under the age of 30 (or who is a Special Needs Student of any age) as the successor Designated Beneficiary and Student with respect to the Custodial Account hereunder, and thereafter such individual will be the Designated Beneficiary and the Student for purposes of Articles I through X and Article XI respectively. A "Special Needs Student" is a Student who, because of a physical, mental, or emotional condition (including a demonstrable learning disability) requires additional time to complete his or her education. Any requirements for a "Special Needs Student" specified in IRS regulations or rulings (if any) defining this term also must be satisfied. The term "Donor" means the person or entity designated as such in the Adoption Agreement (or on a form acceptable to the Custodian for use in connection with the Custodial Account, and filed with the Custodian.) The individual or entity who is the "Donor" (as used in this Article XI) and the individual or entity who is the "Depositor" (as used in Articles I through XI) are the same. "Custodian" means State Street Bank and Trust Company. The term "Parent" means the person designated as such in the Adoption Agreement (or a form acceptable to the Custodian for use in connection with the Custodial Account). The individual who is the "Parent" (as used in this Article XI) and the individual who is the "Responsible Individual" (as used in Articles I through XI) are the same. The individual designated and serving as Parent at any time may be changed as provided in Article VI or Section 9(d) of this Article XI, or under such other circumstances and in accordance with such procedures as the Custodian may agree to. "Fund" means any registered investment company which is specified in the Adoption Agreement, or which is advised, sponsored or distributed by the Sponsor; provided, however, that such a mutual fund or registered investment company must be legally offered for sale in the state of the Student's residence. "Distributor" means the entity which has a contract with the Fund(s) to serve as distributor of the shares of such Fund(s). In any case where there is no Distributor, the duties assigned hereunder to the Distributor may be performed by the Fund(s) or by an entity that has a contract to perform management or investment advisory services for the Fund(s). "Service Company" means any entity employed by the Custodian or the Distributor, including the transfer agent for the Fund(s), to perform various administrative duties of either the Custodian or the Distributor. In any case where there is no Service Company, the duties assigned hereunder to the Service Company will be performed by the Distributor (if any) or by an entity specified in the second preceding paragraph. "Sponsor" means Harris Associates Investment Trust. |
|
| 2. | (a) Subject to the last paragraph of this Section 2(a), the Donor may
revoke the Custodial Account established hereunder by mailing or delivering
a written notice of revocation to the Custodian within seven days after
the Donor first receives the Disclosure Statement related to the Custodial
Account. Mailed notice is treated as given to the Custodian on date of the
postmark (or on the date of Post Office certification or registration in
the case of notice sent by certified or registered mail). Upon timely revocation,
the Donor 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 Donor may certify in the Adoption Agreement that the Donor received the Disclosure Statement related to the Custodial Account at least seven days before signing the Adoption Agreement to establish the Custodial Account, and the Custodian may rely on such certification. (b) After making a contribution to the Custodial Account for the benefit of the Student, and specifying the initial investment elections and the initial designated beneficiary, all rights and obligations to, in and for the Account shall irrevocably inure to, and be enjoyed and exercised by, Student, and Donor shall have no such rights or obligations (unless Donor and Student or Parent are the same person or unless Donor revokes the Account in accordance with subsection (a) above). The Donor must sign the Adoption Agreement, and, for purposes of maintaining the Account, the Parent (identified in the Adoption Agreement) must execute all forms, applications, certifications and other documents on behalf of any Student who has not yet attained the age of majority as recognized by the laws of the Student's state of residence ("age of majority"). Any right, power, responsibility, authority or requirement given to the Student under this Agreement or any related document shall be exercised or carried out by such Parent on behalf of any Student who has not yet attained the age of majority. The Custodian's acceptance of the Account on behalf of a minor Student is expressly conditioned upon the Parent's acceptance of the rights and responsibilities accorded hereunder, and all parties hereto so acknowledge. Upon attainment of the age of majority under the laws of the Student's state of residence at such time, the Student may advise the Custodian in writing (accompanied by such documentation as the Custodian may require) that he or she is assuming sole responsibility to exercise all rights, powers, obligations, responsibilities, authorities or requirements associated with the Account. Upon such notice to the Custodian, the Student shall have and shall be responsible for all of the foregoing, the Custodian will deal solely with the Student as the person controlling the administration of the Account, and Parent shall thereafter have or exercise none of the foregoing. (Absent such written notice by Student, Custodian shall be under no obligation to acknowledge Student's right to exercise such powers and authority and may continue to rely on Parent to exercise such powers and authority.) |
| 3. | All contributions to the Custodial Account shall be invested and reinvested
in full and fractional shares of one or more Funds. All such shares shall
be issued and accounted for as book entry shares, and no physical shares
or share certificates shall be issued. Such investments shall initially
be made in such proportions and/or in such amounts as are specified in the
Adoption Agreement or by other written notice to the Service Company (in
such form as may be acceptable to the Service Company) may direct. Subsequent exchanges among Funds shall be made in accordance with written instructions from the Student. The Service Company shall be responsible for promptly transmitting all investment directions by the Student for the purchase or sale of shares of one or more Funds hereunder to the Funds' transfer agent for execution. However, if investment directions with respect to the investment of any contribution hereunder are not received initially from the Donor or thereafter from the Student as required or, if received, are unclear or incomplete in the opinion of the Service Company, the contribution may be paid to the Student, or may be held uninvested (or invested in a money market fund if available) pending clarification or completion by the Donor or the Student, as the case may be, in either case without liability for interest, depreciation in value or loss of income or appreciation. If any other directions or other orders by the Student with respect to the sale or purchase of shares of one or more Funds for the Custodial Account are unclear or incomplete in the opinion of the Service Company, the Service Company will refrain from carrying out such investment directions or from executing any such sale or purchase, without liability for loss of income or for appreciation or for depreciation of any asset, pending receipt of clarification or completion from the Student. All initial investment directions by the Donor or subsequent investment directions by the Student will be subject to any minimum initial or additional investment or minimum balance rules applicable to a Fund as described in its prospectus. All dividends and capital gains or other distributions received on the shares of any Fund held in the Account shall be (unless received in additional shares) reinvested in full and fractional shares of such Fund (or any other Fund offered by the Sponsor, if so directed). In the event that any Fund held in the Custodial Account is liquidated or is otherwise made unavailable by the Sponsor as a permissible investment for a Custodial Account hereunder, the liquidation or other proceeds of such Fund shall be invested in accordance with the instructions of the Student; if the Student does not give such instructions, or if such instructions are unclear or incomplete in the opinion of the Service Company, the Service Company may invest such liquidation or other proceeds in such other Fund (including a money market fund if available) as the Sponsor designates, and neither the Service Company nor the Custodian will have any responsibility for such investment. |
| 4. | Subject to the minimum initial or additional investment, minimum balance and other exchange rules applicable to a Fund, the Student may at any time direct the Service Company to exchange all or a specified portion of the shares of a Fund in the Account for shares and fractional shares of one or more other Funds. The Student shall give such directions by written notice acceptable to the Service Company, and the Service Company will process such directions as soon as practicable after receipt thereof (subject to the second paragraph of Section 3 of this Article XI.) |
| 5. | Any purchase or redemption of shares of a Fund for or from the Account
will be effected at the public offering price or net asset value of such
Fund (as described in the then effective prospectus for such Fund) next
established after the Service Company has transmitted the Student's investment
directions to the transfer agent for the Fund(s). |
| 6. | The Service Company shall maintain adequate records of all purchases or
sales of shares of one or more Funds for the Student's Custodial Account.
Any Account maintained in connection herewith shall be in the name of the
Custodian for the benefit of the Student. All assets of the Custodial Account
shall be registered in the name of the Custodian or of a suitable nominee.
The books and records of the Custodian shall show that all such investments
are part of the Custodial Account. The Custodian shall maintain or cause to be maintained adequate records reflecting transactions of the Custodial Account. In the discretion of the Custodian, records maintained by the Service Company with respect to the Account hereunder will be deemed to satisfy the Custodian's record-keeping responsibilities therefor. The Service Company agrees to furnish the Custodian with any information the Custodian requires to carry out the Custodian's recordkeeping responsibilities. |
| 7. | Neither the Custodian nor any other party providing services to the Custodial Account will have any responsibility for rendering advice with respect to the investment and reinvestment of the Custodial Account, nor shall such parties be liable for any loss or diminution in value which results from the Donor's initial or the Student's subsequent exercise of investment control over the Account. Donor will have and exercise exclusive responsibility for the initial investment of the assets of the Account. Thereafter Student shall have and exercise exclusive responsibility for and control over the investment of the assets of the Account. Neither Custodian nor any other party shall have any duty to question directions in that regard or to advise regarding the purchase, retention or sale of shares of one or more Funds for the Custodial Account. |
| 8. | The Student may in writing appoint an investment advisor with respect
to the Custodial Account on a form acceptable to the Custodian and the Service
Company. The investment advisor's appointment will be in effect until written
notice to the contrary is received by the Custodian and the Service Company.
While an investment advisor's appointment is in effect, the investment advisor
may issue investment directions or may issue orders for the sale or purchase
of shares of one or more Funds to the Service Company, and the Service Company
will be fully protected in carrying out such investment directions or orders
to the same extent as if they had been given by the Student. The Student's appointment of any investment advisor will also be deemed to be instructions to the Custodian and the Service Company to pay such investment advisor's fees to the investment advisor from the Custodial Account hereunder without additional authorization by the Student or the Custodian. |
| 9. | (a) Distribution of the assets of the Custodial Account shall be made
at such time and to such person or entity as the Student shall elect by
written order to the Custodian. The Student will be responsible for (and
the Custodian will have no responsibility for) including and reporting any
distribution from the Account in the gross income of the Student in a manner
consistent with the requirements of Code section 72 and Code Section 530
(which sections provide that distributions shall be considered to consist
partly of principal contributions and partly of earnings and appreciation
(or depreciation) in value) and any other applicable Code requirements.
In general, the portion of a withdrawal considered to be principal is not subject to income tax, and the portion considered to be earnings and appreciation is generally subject to income tax and a potential penalty tax unless such withdrawal is used to pay the qualified education expenses of the Student (as defined in Code Section 530) and such qualified education expenses for the tax year are not less than the aggregate withdrawals from the Account during the tax year. In addition, such Code sections provide that, if the aggregate withdrawals exceed the qualified education expenses for the Student for that year, the amount that must be included as income for tax purposes is determined by first determining the ratio that the qualified education expenses bear to the actual withdrawal. The portion of the withdrawal that is potentially subject to taxation - the amount of earnings or appreciation - is then multiplied by that percentage amount. The resultant sum is the amount excludable from income. Notwithstanding the foregoing general information about the tax treatment of distributions from the Account, the Student will be responsible for properly reporting and, to the extent applicable, paying income taxes or applicable penalties on, any distribution from the Account. (b) Student acknowledges that any distribution of a taxable amount from the Custodial Account (except for distributions specified in Code Section 530, including distribution on account of Student's disability or death, return of an "excess contribution" referred to in Code Section 530(d)(4)(C), a "rollover" from this Custodial Account, or distributions made on account of a qualified scholarship, allowance or payment described in Code section 25A(g)(2)), may subject Student to an additional tax on distributions under Code Section 530(d)(4). For these purposes, Student will be considered disabled if Student can prove, as provided in Code Section 72(m)(7), that Student is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or be of long-continued and indefinite duration. Neither the Custodian nor any other party providing services to the Custodial Account assumes any responsibility for monitoring or approving the purposes for which such distributions are used, nor for the tax treatment accorded any distribution from the Custodial Account; such responsibility rests solely with the person ordering or receiving the distribution. (c) Any balance remaining in the Account when the Student attains age 30 is, pursuant to Code Section 530, to be distributed to the Student. The Student has the responsibility to notify the Custodian to make such distribution and the Student will be responsible for any tax consequences of not so directing the Custodian. However, the Custodian may, based upon its records, make a distribution to the Student upon the Student's attaining age 30, and/or the Custodian may report the balance in the Account at such time as a "deemed distribution" and thereafter maintain the Account as a taxable account (not an Education Savings Account), and/or the Custodian may take any other action required by law or by the IRS, and the Custodian will have no responsibility for any of the foregoing actions. This Section 9(c) shall not apply if the Student is a Special Needs Student. The Custodian may rely on any statement or certification (in the Adoption Agreement or other writing) filed with the Custodian to the effect that the Student is a Special Needs Student. (d) Upon the death of the Student, if a member of the Student's family (as defined in Code Section 529) who is under age 30 at the time of the Student's death or a Special Needs Student is the designated beneficiary for the Account, the Account will continue to be maintained as an Education Savings Account for the benefit of the designated beneficiary (who thereupon will be entitled to be treated as the Student hereunder; and, upon proper notification to the Custodian of the original Student's death, the Custodian will treat the designated beneficiary as the Student for purposes of administering the Account). If the designated beneficiary at the time of the Student's death is not a family member of the Student who is either under age 30 or a Special Needs Student, the designated beneficiary will be entitled to receive the remaining balance in the Account and any withdrawal by such designated beneficiary will be a taxable distribution (and reported as such by the Custodian in accordance with applicable regulations). If not withdrawn by the designated beneficiary within 30 days after the Student's death, the balance in the Account will be reported by the Custodian as a "deemed distribution" to the designated beneficiary in accordance with applicable regulations, and the Custodian may thereafter maintain the Account as a taxable account (not an Education Savings Account). If there is no designated beneficiary, any balance remaining in the Account will be distributed to the Student's estate in the manner required by Code Section 530, and the Custodian will have no responsibility for making such a distribution, or for not making such distribution in the absence of instructions to do so from the legal representative of the Student's estate, and/or the Custodian may report the balance in the Student's Account at death as a "deemed distribution" and thereafter maintain the Account as a taxable account, and the Custodian will have no responsibility for so doing. The Parent (in the event the deceased Student was a minor at the time of death) or the executor or other representative of the Student's estate (if the deceased Student was not a minor at the time of death) has the responsibility to notify the Custodian of the Student's death as soon as practicable. In the event that the Custodian continues to maintain the Account as an Education Savings Account for the benefit of the designated beneficiary under the first sentence of the preceding paragraph, the deceased Student's Parent will continue to be the Parent for purposes of the Account and to discharge the rights and responsibilities of the Student hereunder until the designated beneficiary (as the new Student for the Account) reaches the age of majority in the state of his or her residence and notifies the Custodian in accordance with this Agreement that the Student is assuming control of the Account. However, the Parent may in writing to the Custodian designate a new Parent, providing such information concerning a new Parent and such acceptance of designation by the new Parent as the Custodian may request, the Custodian will thereupon treat the new Parent as the Parent for purposes of administration of the Account. |
| 10. | The Custodian assumes (and shall have) no responsibility to make any distribution or process any withdrawal request except upon the written order of Student containing such information as the Custodian may reasonably request (provided that the Custodian may make distributions on its own initiative to the extent specifically provided for in Section 9 of this Article XI). Also, before making any distribution or honoring any assignment of the Custodial Account, Custodian shall be furnished with any and all applications, certificates, tax waivers, signature guarantees and other documents (including proof of any legal representative's authority) deemed necessary or advisable by Custodian, but Custodian shall not be responsible for complying with any order or instruction which appears on its face to be genuine, or for refusing to comply if not satisfied it is genuine and in good order, and Custodian has no duty of further inquiry. Any distributions from the Account may be mailed, first-class postage prepaid, to the last known address of the person or entity who is to receive such distribution, as shown on the Custodian's records, and such distribution shall to the extent thereof completely discharge the Custodian's liability for such payment. |
| 11. | (a) The Student agrees to provide information to the Custodian at such
time and in such manner as may be necessary for the Custodian to prepare
any reports required under Section 530(h) or other provision of the Code.
(b) The Custodian or the Service Company will submit reports to the Internal Revenue Service and the Student at such time and manner and containing such information as is prescribed by the Internal Revenue Service. (c) The Student, Custodian and Service Company shall furnish to each other such information relevant to the Custodial Account as may be required under the Code and any regulations issued or forms adopted by the Internal Revenue Service thereunder or as may otherwise be necessary for the administration of the Custodial Account. (d) The Student and/or the Donor shall file any reports to the Internal Revenue Service which are required of either of them by law, and neither the Custodian nor Service Company shall have any duty to advise either concerning or monitor either's compliance with such requirement. |
| 12. | (a) Student retains the right to amend this Custodial Account document
in any respect at any time, effective on a stated date which shall be at
least 60 days after giving written notice of the amendment (including its
exact terms) to Custodian by registered or certified mail, unless Custodian
waives notice as to such amendment. If the Custodian does not wish to continue
serving as such under this Custodial Account document as so amended, it
may resign in accordance with Section 16 below. (b) Student delegates to the Custodian the Student's right so to amend, provided (i) the Custodian does not change the investments available under the Custodial Agreement (other than an amendment to reflect any change in the Funds available hereunder made by the Sponsor) and (ii) the Custodian amends in the same manner all agreements comparable to this one, having the same Custodian, permitting comparable investments, and under which such power has been delegated to it; this includes the power to amend retroactively if necessary or appropriate in the opinion of the Custodian in order to conform this Custodial Account to pertinent provisions of the Code and other laws or successor provisions of law, or to obtain a governmental ruling that such requirements are met, to adopt a prototype or master form of agreement in substitution for this Agreement, or as otherwise may be advisable in the opinion of the Custodian. Such an amendment by the Custodian shall be communicated in writing to Student, and Student shall be deemed to have consented thereto unless, within 30 days after such communication to Student is mailed, Student either (i) gives Custodian a written order for a complete distribution or transfer of the Custodial Account, or (ii) removes the Custodian and appoints a successor under Section 16 below. Pending the adoption of any amendment necessary or desirable to conform this Custodial Account document to the requirements of the Code, or any amendment thereto or to any applicable provision of the regulations or rulings thereunder, the Custodian and the Service Company may operate the Student's Custodial Account in accordance with such requirements to the extent that the Custodian and/or the Service Company deem necessary to preserve the tax benefits of the Account or otherwise necessary to meet all legal requirements, and the Custodian and/or Service Company shall have no liability for so doing. (c) Notwithstanding the provisions of subsections (a) and (b) above, no amendment shall increase the responsibilities or duties of Custodian without its prior written consent. (d) This Section 12 shall not be construed to restrict the Custodian's right to substitute fee schedules in the manner provided by Section 15 below, and no such substitution shall be deemed to be an amendment of this Agreement. |
| 13. | (a) Custodian shall terminate the Custodial Account if this Agreement
is terminated or if, within 30 days (or such longer time as Custodian may
agree) after resignation or removal of Custodian under Section 16, Student
or Sponsor, as the case may be, has not appointed a successor which has
accepted such appointment. Termination of the Custodial Account shall be
effected by distributing all assets thereof in a single payment in cash
or in kind to Student, subject to Custodian's right to reserve funds as
provided in Section 16. (b) Upon termination of the Custodial Account, this Custodial Account document shall have no further force and effect (except for Sections 14(f), 16(b) and (c) hereof which shall survive the termination of the Custodial Account and this document), and Custodian shall be relieved from all further liability hereunder or with respect to the Custodial Account and all assets thereof so distributed. |
| 14. | (a) In its discretion, the Custodian may appoint one or more contractors
or service providers to carry out any of its functions and may compensate
them from the Custodial Account for expenses attendant to those functions. (b) The Service Company shall be responsible for receiving all instructions, notices, forms and remittances from Student and for dealing with or forwarding the same to the transfer agent for the Fund(s). (c) The parties do not intend to confer any fiduciary duties on Custodian or Service Company (or any other party providing services to the Custodial Account), and none shall be implied. Neither shall be liable (or assumes any responsibility) for the collection of contributions, the proper amount, time or tax treatment of any contribution to the Custodial Account or the propriety of any contributions under this Agreement, or the purpose, time, amount (including any required distribution amounts), tax treatment or propriety of any distribution hereunder, which matters are the sole responsibility of Student. (d) Not later than 60 days after the close of each calendar year (or after the Custodian's resignation or removal), the Custodian or Service Company shall file with Student a written report or reports reflecting the transactions effected by it during such period and the assets of the Custodial Account at its close. Upon the expiration of 60 days after such a report is sent to Student, the Custodian or Service Company shall be forever released and discharged from all liability and accountability to anyone with respect to transactions shown in or reflected by such report except with respect to any such acts or transactions as to which Student shall have filed written objections with the Custodian or Service Company within such 60day period. (e) The Service Company shall deliver, or cause to be delivered, to Student all notices, prospectuses, financial statements and other reports to shareholders, proxies and proxy soliciting materials relating to the shares of the Funds(s) credited to the Custodial Account. No shares shall be voted, and no other action shall be taken pursuant to such documents, except upon receipt of adequate written instructions from Student. (f) Student and Parent shall always fully indemnify Service Company, Sponsor, Distributor, the Fund(s) and Custodian, and shall defend and save them harmless from any and all liability whatsoever which may arise either (i) in connection with this Agreement and the matters which it contemplates, except that which arises directly out of the Service Company's, Distributor's, Fund's, Sponsor's or Custodian's bad faith, gross negligence or willful misconduct, (ii) with respect to making or failing to make any distribution, other than for failure to make distribution in accordance with an order therefor which is in good order and in full compliance with Section 9, or (iii) actions taken or omitted in good faith by such parties. Neither Service Company nor Custodian shall be obligated or expected to commence or defend any legal action or proceeding in connection with this Agreement or such matters unless agreed upon by that party and Student, and unless fully indemnified for so doing to that party's satisfaction. The Custodian's acceptance of the contributions to this Account is expressly conditioned upon Parent's and Student's agreement with the foregoing, and with all other provisions of this Agreement. Exercise of any right, duty or responsibility by Parent (or Student, as the case may be) in connection with the Student's account shall be deemed to constitute acceptance of this condition. (g) The Custodian and Service Company shall each be responsible solely for performance of those duties expressly assigned to it in this Agreement, and neither assumes any responsibility as to duties assigned to anyone else hereunder or by operation of law. (h) The Custodian and Service Company may each conclusively rely upon and shall be protected in acting upon any written order from Student, or any investment advisor appointed under Section 8, or any other notice, request, consent, certificate or other instrument or paper believed by it to be genuine and to have been properly executed, and so long as it acts in good faith, in taking or omitting to take any other action in reliance thereon. In addition, Custodian will carry out the requirements of any apparently valid court order relating to the Custodial Account and will incur no liability or responsibility for so doing. |
| 15. | (a) The Custodian, in consideration of its services under this Agreement,
shall receive the fees specified on the applicable fee schedule. The fee
schedule originally applicable shall be the one specified in the Adoption
Agreement or Disclosure Statement, as applicable. The Custodian may substitute
a different fee schedule at any time upon 30 days' written notice to Student.
The Custodian shall also receive reasonable fees for any services not contemplated
by any applicable fee schedule and either deemed by it to be necessary or
desirable or requested by Student. (b) Any income, gift, estate and inheritance taxes and other taxes of any kind whatsoever, including transfer taxes incurred in connection with the investment or reinvestment of the assets of the Custodial Account, that may be levied or assessed in respect to such assets, and all other administrative expenses incurred by the Custodian in the performance of its duties (including fees for legal services rendered to it in connection with the Custodial Account) shall be charged to the Custodial Account. If the Custodian is required to pay any such amount, the Student shall promptly upon notice thereof reimburse the Custodian. (c) All such fees and taxes and other administrative expenses charged to the Custodial Account shall be collected either from the amount of any contribution or distribution to or from the Account, or (at the option of the person entitled to collect such amounts) to the extent possible under the circumstances by the conversion into cash of sufficient shares of one or more Funds held in the Custodial Account (without liability for any loss incurred thereby). Notwithstanding the foregoing, the Custodian or Service Company may make demand upon the Student for payment of the amount of such fees, taxes and other administrative expenses. Fees which remain outstanding after 60 days may be subject to a collection charge. |
| 16. | (a) Upon 30 days' prior written notice to the Custodian, Student or Sponsor,
as the case may be, may remove it from its office hereunder. Such notice,
to be effective, shall designate a successor custodian and shall be accompanied
by the successor's written acceptance. The Custodian also may, but is not
required to, at any time resign upon 30 days' prior written notice to Sponsor,
whereupon Sponsor shall notify the Student, and shall appoint a successor
to the Custodian. In connection with its resignation hereunder, the Custodian
may, but is not required to, designate a successor custodian by written
notice to the Student, or Sponsor and the Student or Sponsor will be deemed
to have consented to such successor unless the Student or Sponsor designates
a different successor custodian and provides written notice thereof together
with such different successor's written acceptance by such date as the Custodian
specifies in its original notice to the Student or Sponsor (provided that
the Student will have a minimum 30 days to designate a different successor). (b) The successor custodian shall be a bank, insured credit union, or other person satisfactory to the Secretary of the Treasury under Code Section 530(b)(1)(B). Upon receipt by Custodian of written acceptance by its successor of such successor's appointment, Custodian shall transfer and pay over to such successor the assets of the Custodial Account and all records (or copies thereof) of Custodian pertaining thereto, provided that the successor custodian agrees not to dispose of any such records without the Custodian's consent. Custodian is authorized, however, to reserve such sum of money or property as it may deem advisable for payment of all its fees, compensation, costs, and expenses, or for payment of any other liabilities constituting a charge on or against the assets of the Custodial Account or on or against the Custodian, with any balance of such reserve remaining after the payment of all such items to be paid over to the successor custodian. (c) Any Custodian shall not be liable for the acts or omissions of its predecessor or its successor. |
| 17. | References herein to the "Internal Revenue Code" or "Code" and sections thereof shall mean the same as amended from time to time, including successors to such sections. |
| 18. | Except where otherwise specifically required in this Agreement, any notice from Custodian to any person provided for in this Agreement shall be effective if sent by first-class mail to such person at that person's last address on the Custodian's records. |
| 19. | Student shall not have the right or power to anticipate any part of the Custodial Account or to sell, assign, transfer, pledge or hypothecate any part thereof. The Custodial Account shall not be liable for the debts of Student or subject to any seizure, attachment, execution or other legal process in respect thereof except to the extent required by law. At no time shall it be possible for any part of the assets of the Custodial Account to be used for or diverted to purposes other than for the exclusive benefit of the Student except to the extent required by law. |
| 20. | When accepted by the Custodian, this Agreement is accepted in and shall
be construed and administered in accordance with the laws of the state where
the principal office of the Custodian is located. Any action involving the
Custodian brought by any other party must be brought in such state. This Agreement is intended to qualify under Code Section 530 as an Education Savings Account and to entitle Student to the tax benefits thereof, and if any provision hereof is subject to more than one interpretation or any term used herein is subject to more than one construction, such ambiguity shall be resolved in favor of that interpretation or construction which is consistent with that intent. However, the Custodian shall not be responsible for whether or not such intentions are achieved through use of this Agreement, and Student is referred to Student's attorney for any such assurances. |
| 21. | Student (or Donor) should seek advice from Student's (or Donor's) attorney regarding the legal consequences (including but not limited to federal and state tax matters) of entering into this Agreement, making contributions to the Custodial Account, and ordering Custodian to make distributions from the Account. Student (and Donor) acknowledges that Custodian and Service Company (and any company associated therewith) are prohibited by law from rendering such advice. |
| 22. | If any provision of any document governing the Custodial Account provides for notice, instructions or other communication from one party to another in writing, to the extent provided for in the procedures of the Custodian, Service Company or another party, any such notice, instructions or other communications may be given by telephonic, computer, other electronic or other means, and the requirement for written notice will be deemed satisfied. |
| 23. | This Agreement and the Adoption Agreement signed by Student or Donor (as either may be amended) are the documents governing the Student's Custodial Account. Articles I through X are in the form promulgated by the Internal Revenue Service in Form 5305-EA for use in establishing and maintaining an Education Savings Account under Code Section 530. If the Internal Revenue Service amends such form, the Custodian will amend this Agreement accordingly, and the Student specifically consents to such amendment in accordance with Section 12(b) hereof. In addition, if there is any change in the legal requirements applicable to Education Savings Accounts, pending the adoption by the Internal Revenue Service of a revised Form 5305-EA, the Account may be operated in accordance with such changed legal requirements, notwithstanding that such operation may be in conflict with the unrevised version of Form 5305-EA. |
| 24. | The Donor and/or Student acknowledges that he or she has received and read the current prospectus for each Fund in which the Account is invested and the Coverdell Education Savings Account Disclosure Statement related to the Account. The Donor and Student each represent under penalties of perjury that his or her Social Security number (or other Taxpayer Identification Number) as stated in the Adoption Agreement is correct. |