Exhibit h(7)
FINANCIAL GUARANTEE AGREEMENT
FINANCIAL GUARANTEE AGREEMENT, dated as of September 17, 2002 (the
"Agreement"), among AMBAC ASSURANCE CORPORATION, a Wisconsin domiciled stock
insurance company (the "Insurer"), XXXXX XXXXXX FUND MANAGEMENT LLC, a Delaware
limited liability company (the "Adviser"), and XXXXX XXXXXX TRUST II, a
Massachusetts business trust (the "Trust"), on behalf of its series XXXXX XXXXXX
CAPITAL PRESERVATION FUND II (the "Fund").
W I T N E S S E T H:
WHEREAS, the Trust is an open-end diversified, management investment
company registered under the Investment Company Act of 1940, as amended (the
"Investment Company Act"), and the Fund, a series of the Trust, makes certain
guarantees to the shareholders of the Fund (the "Shareholders"); and
WHEREAS, the Trust has requested the Insurer, and the Insurer has
agreed, to issue a financial guarantee insurance policy (the "Policy") to insure
the Fund's guarantee that, on the Guarantee Maturity Date, shares of the Fund of
any Class of Shares may be redeemed for an amount no less than the Guarantee per
Share for that Class of Shares; and
WHEREAS, the parties hereto, among other things, desire to specify the
conditions precedent to the issuance by the Insurer of the Policy, the payment
of the premium in respect thereof, and to provide for certain other matters
related thereto;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I
DEFINITIONS
Section 1.01 General Definitions. The terms defined in this Article I
shall have the meanings provided herein for all purposes of this Agreement, in
both singular and plural form, as appropriate.
"Act of Insolvency" means, with respect to any party, (i) the
commencement by such party as debtor of any case or proceeding under any
bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law,
or such party seeking the appointment of a receiver, trustee, custodian or
similar official for such party or any substantial part of its property; (ii)
the appointment of a receiver, conservator, or manager for such party by any
government agency or authority having the jurisdiction to do so; (iii) the
commencement of any such case or proceeding against such party, which (A) is
consented to or not timely contested by such party, (B) results in the entry of
an order for relief, such an appointment, the issuance of such a protective
decree or the entry of an order having a similar effect, or (C) is not dismissed
within 72 hours, (iv) the making or offering by such party of a composition with
its creditors or a general assignment for the benefit of creditors, (v) the
admission by such party of such party's inability to pay its debts or discharge
its obligations as they become due or mature, or (vi) any governmental authority
or agency or any person, agency or entity acting under governmental authority
shall have taken any action to condemn, seize or appropriate, or to assume
custody or control of, all or any substantial part of the property of such
party.
"Acts" means the Investment Company Act and the Securities Act.
"Adverse Effect" means, (i) in respect of the Adviser, a material
adverse effect upon (x) the ability of the Adviser to perform its obligations
under this Agreement or any other Transaction Document to which it is a party,
or (y) the rights of the Insurer under the Transaction Documents, and (ii) in
respect of the Fund, a material adverse effect upon (x) the ability of the Fund
to perform its obligations under this Agreement or any other Transaction
Document to which it is a party or (y) the rights of the Insurer under the
Transaction Documents. An adverse effect on the binding nature, validity or
enforceability of this Agreement or the Direction and Undertaking Regarding
Remedies shall constitute an Adverse Effect. The determination of whether a
particular set of circumstances would reasonably be expected to have an Adverse
Effect includes a determination of both the likelihood of the occurrence of such
set of circumstances and the likelihood that such set of circumstances, if it
were to occur, would result in an Adverse Effect.
"Approved Index" means Standard & Poor's 500 SPX, Standard & Poor's 400
Midcap, and Xxxxxxx 2000.
"Bank Deposits" means any of the following having a maturity of not
more than 183 days: demand and time deposits in, certificates of deposit of, and
bankers' acceptances issued by any depository institution or trust company
incorporated under the laws of the United States of America or any state thereof
and subject to supervision and examination by federal and/or state banking
authorities so long as the commercial paper or debt obligations of such
depository institution or trust company (or, in the case of the principal
depository institution in a holding company system, the commercial paper or debt
obligations of such holding company) have a credit rating of at least "P-1" by
Moody's and at least "A-1" by S&P, in the case of commercial paper and
short-term obligations; provided that the issuer thereof must also have at the
time of such investment a long-term credit rating of at least "Aa3" by Moody's
or at least "AA-" by S&P.
"BARRA Risk Model" means the BARRA Aegis Risk Model as updated from
time to time by BARRA, Inc.
"Benchmark Sector Weight" means, with respect to a Sector, the
weighting of such Sector in the Equity Benchmark.
"Bond Floor" has the meaning provided in Section 3.05(c).
"Business Day" means any day other than a day on which banks located in
the City of New York, New York are required or authorized by law to close or on
which the New York Stock Exchange is closed for business.
"Cash" means legal tender of the United States.
"Cash Equivalents" means Bank Deposits, Commercial Paper, and
Repurchase Obligations.
"Class of Shares" means each class of shares of beneficial interest of
the Fund designated pursuant to the Declaration of Trust.
"Commercial Paper" means commercial paper having a credit rating of at
least "P-1" by Moody's and at least "A-1+" by S&P, either bearing interest or
sold at a discount from the face amount thereof, having a maturity of not more
than 183 days from the date of issuance, and issued by either (x) a corporation
incorporated under the laws of the United States of America or any state
thereof, or (y) any depository institution or trust company incorporated under
the laws of the United States of America or any state thereof and subject to
supervision and examination by federal and/or state banking authorities,
provided that the issuer thereof must also have at the time of such investment a
long-term credit rating of at least "Aa3" by Moody's or at least "AA-" by S&P.
"Commission" means the United States Securities and Exchange
Commission.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or any agreement, instrument or other undertaking
to which such Person is a party or by which it or any of its property is bound.
"Covered Call" has the meaning provided in Section 3.03(c).
"Covered Expenses" means, for any Class of Shares, the annual ordinary
fund operating expenses reflected in the Prospectus relating to such Class of
Shares that are covered and limited by the Expense Limitation Agreement.
"Covered Expenses" shall not include Investment-Related Costs or extraordinary
expenses such as litigation and other expenses not incurred in the ordinary
course of the Fund's business.
"Custodian" means State Street Bank and Trust Company, as Custodian
pursuant to the Custodian Agreement.
"Custodian Agreement" means the Custodian Contract dated as of
September 1, 1997 between the Trust (formerly known as Landmark Funds II) and
the Custodian, as amended by the Amendment to Custodian Contract dated as of
October 17, 2001, and as it may be further amended from time to time in
accordance with this Agreement.
"Daily Report" means a report in the form of the sample attached as
Schedule 1 hereto.
"Declaration of Trust" means the Trust's Amended and Restated
Declaration of Trust, dated as of September 28, 2001, as in effect from time to
time.
"Defeasance Portfolio" has the meaning provided in Section 4.02.
"Delta" means (i) with respect to an Equity Security, the meaning
provided in Section 3.03(a)(iv); (ii) with respect to an Equity Futures
Position, the meaning provided in Section 3.03(b)(ii); and (iii) with respect to
an Equity Option, the meaning provided in Section 3.03(c)(C).
"Designated Account" means the demand deposit account maintained with
the Custodian by the Trust on behalf of the Fund.
"Direction and Undertaking Regarding Remedies" means the direction from
the Board of Trustees of the Trust to the Custodian substantially in the form of
Exhibit B.
"Distribution Per Share" means, with respect to any Class of Shares, an
amount equal to the quotient of the amount of any distribution or payment by the
Fund in respect of, or allocated to, such Class of Shares that is not a Covered
Expense or an Investment-Related Cost, and shall include, without limitation,
any distribution of income, dividends, capital gains or principal to the
Shareholders of such Class of Shares and any payment of Income Taxes allocated
to such Class of Shares, divided by the number of shares of such Class of Shares
outstanding on the date of such distribution or payment.
"Effective Date" means the date on which the conditions set forth in
Section 2.03(a) are satisfied.
"Equity Benchmark" means the Xxxxxxx 3000 Index.
"Equity Call" has the meaning provided in Section 3.03(c).
"Equity Exposure" means, with respect to each Equity Investment (other
than Covered Calls), the product of its Notional Value and its Delta.
"Equity Futures" has the meaning provided in Section 3.03(b).
"Equity Option" has the meaning provided in Section 3.03(c).
"Equity Portfolio" has the meaning provided in Section 3.03.
"Equity Put" has the meaning provided in Section 3.03(c).
"Equity Securities" has the meaning provided in Section 3.03(a).
"Expense Amount" has the meaning provided in Section 3.05(c).
"Expense Limitation Agreement" means the Expense Limitation Agreement
dated as of the date hereof, between the Adviser and the Trust on behalf of the
Fund as amended from time to time in accordance with this Agreement.
"Fixed Income Derivative" has the meaning provided in Section 3.02(c).
"Fixed Income Future" has the meaning provided in Section 3.02(b).
"Fixed Income Investment" has the meaning provided in Section 3.02.
"Fixed Income Portfolio" has the meaning provided in Section 3.02.
"Fixed Income Security" has the meaning provided in Section 3.02(a).
"Fixed Income Weighted Average Duration" means, at any time, the
weighted average duration by Notional Value of the Fixed Income Portfolio.
"Fund" has the meaning set forth in the preamble.
"Fund Accounting Agent" means State Street Bank and Trust Company, as
Fund Accounting Agent.
"Fund Value" means, at any time, (x) the sum of the Market Value of the
Equity Portfolio and the Market Value of the Fixed Income Portfolio, plus (y)
all other assets of the Fund (such as dividends, interest and other
receivables), minus (z) all accrued and unpaid liabilities of the Fund.
"Gap Risk" has the meaning provided in Section 3.05(a).
"Government Authority" means any nation or government, any state or
other political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions or pertaining to
government.
"Guarantee" means the guarantee dated as of the date hereof by the Fund
in favor of the Shareholders.
"Guarantee Amount" means, as of any date, the sum of (i) the product of
(x) the Guarantee per Share applicable to the Class A Shares as of such date and
(y) the number of Class A Shares outstanding as of such date; (ii) the product
of (x) the Guarantee per Share applicable to the Class B Shares as of such date
and (y) the number of Class B Shares outstanding as of such date; and (iii) the
product of (x) the Guarantee per Share applicable to the Class L Shares as of
such date and (y) the number of Class L Shares outstanding as of such date.
"Guarantee Maturity Date" means the date that is five years after the
Inception Date, but if that date is not a Business Day, the Guarantee Maturity
Date shall be the first Business Day thereafter.
"Guarantee per Share" means, with respect to any Class of Shares, (i)
the NAV for such Class of Shares at the close of business on the Transition Date
and (ii) thereafter on any Business Day, the Guarantee per Share for such Class
of Shares on the immediately preceding Business Day divided by the sum of one
plus the quotient of (A) the amount of any Distribution Per Share with respect
to such Class of Shares effective since the immediately preceding Business Day
divided by (B) the NAV for such Class of Shares at the close of business on the
day such Distribution Per Share was effective.
"Guarantee Period" means the period commencing on and including the
Inception Date to and including the Guarantee Maturity Date.
"Inception Date" means the second Business Day after the end of the
Offering Period.
"Income Taxes" means U.S. income or excise taxes that are calculated on
the net income or undistributed net income of the Fund.
"Indemnification Agreement" means the Indemnification Agreement dated
as of the date hereof among the Insurer, the Adviser, the Trust and Xxxxxxx
Xxxxx Xxxxxx Inc.
"Independent Verification Report" has the meaning provided in Section
10.02.
"Independent Verifier" means the accounting firm of nationally-
recognized standing selected in accordance with Section 10.01.
"Independent Verifier Agreement" means the agreement between the
Adviser and the Independent Verifier pursuant to which the Independent Verifier
performs the services contemplated by Section 10.02.
"Interest Rate Swaps" means plain vanilla interest rate swaps with
counterparties that are rated at least Aa3 by Moody's and AA- by S&P which are
documented on ISDA documentation (as appropriately modified to comply with
applicable provisions of the Investment Company Act and as is customary in the
fund industry), use commercially reasonable terms consistent with market
practice, require delivery of collateral pursuant to a credit support annex with
threshold amounts no greater than $10,000,000, provide for termination at market
or assignment at market upon counterparty downgrade below Aa3 or AA-, and are a
swap of a fixed rate for LIBOR in respect of a constant notional amount,
regardless of whether the Fund is the payor of the fixed rate or the floating
rate.
"Investment Advisers Act" means the Investment Advisers Act of 1940, as
amended.
"Investment Company Act" has the meaning provided in the recitals.
"Investment Management Agreement" means the Management Agreement dated
as of the date hereof between the Trust and the Adviser with respect to the
Fund.
"Investment-Related Costs" means interest, taxes (other than Income
Taxes), brokerage commissions, transaction fees and other investment-related
costs.
"Lien" means any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, charge, lien or security interest (statutory or other)
of any kind or nature whatsoever.
"Litigation Event" means, with respect to the Adviser or the Fund, as
applicable, the submission of any claim or the commencement of any proceedings
by or against such party in any Federal, state or local court or before any
governmental body or agency, or before any arbitrator, or the overt threat of
any such proceedings, which, if adversely determined, would reasonably be
expected to have an Adverse Effect with respect to such party.
"Loans for Temporary or Emergency Purposes" means loans that are
outstanding for not more than 60 days in an aggregate amount not exceeding five
percent of the value of the total assets of the Fund at the time the loans are
borrowed, in conformity with Section 18(g) of the Investment Company Act.
"Market Value" has (i) with respect to a Fixed Income Security, the
meaning provided in Section 3.02(a)(i); (ii) with respect to a Fixed Income
Derivative, the meaning provided in Section 3.02(c)(i); (iii) with respect to an
Equity Security, the meaning provided in Section 3.03(a)(i); and (iv) with
respect to an Equity Option, the meaning provided in Section 3.03(c)(A).
"Moody's" means Xxxxx'x Investors Service, Inc.
"NAV" means, with respect to any Class of Shares of the Fund, (a) on
the Transition Date, the net asset value per share of such Class of Shares
established by the Fund for such date and (b) on any date of determination
thereafter the quotient of (i) the excess of (x) the market value of the assets
allocated to that Class of Shares determined as of the close of regular trading
on the New York Stock Exchange by the Fund in the manner described in the
Prospectus with respect to such Class of Shares over (y) the market value of any
liabilities allocated to and/or associated with such Class of Shares determined
as of the close of regular trading on the New York Stock Exchange by the Fund in
the manner described in the Prospectus with respect to such Class of Shares
divided by (ii) the number of outstanding shares of that Class of Shares at such
time. The assets, income, gain, loss, expenses and liabilities (other than those
expenses and liabilities relating specifically to a Class of Shares) of the Fund
shall be allocated to each Class of Shares of the Fund on each date of
determination on a pro rata basis based on the NAV of such Class of Shares on
the preceding date of determination.
"Notional Value" means (i) with respect to a Fixed Income Security, the
meaning provided in Section 3.02(a)(ii); (ii) with respect to a Fixed Income
Future, the meaning provided in Section 3.02(b)(i); (iii) with respect to a
Fixed Income Derivative, the meaning provided in Section 3.02(c)(ii); (iv) with
respect to an Equity Security, the meaning provided in Section 3.03(a)(iii); (v)
with respect to an Equity Future, the meaning provided in Section 3.03(b)(i);
and (vi) with respect to an Equity Option, the meaning provided in Section
3.03(c)(B). For the avoidance of doubt, it is understood that "Notional Value"
shall in all cases be a positive number.
"NYSE" means the New York Stock Exchange.
"Offering Period" means the period during which the shares of the Fund
will be offered for sale to investors as described in the Prospectus relating to
each Class of Shares.
"Permitted Equity Futures" has the meaning provided in Section 3.03(b).
"Permitted Equity Investments" has the meaning provided in Section
3.03.
"Permitted Equity Option" has the meaning provided in Section 3.03(c).
"Permitted Equity Securities" has the meaning provided in Section
3.03(a).
"Permitted Fixed Income Derivatives" has the meaning provided in
Section 3.02(c).
"Permitted Fixed Income Futures" has the meaning provided in Section
3.02(b).
"Permitted Fixed Income Investments" has the meaning provided in
Section 3.02.
"Permitted Fixed Income Securities" has the meaning provided in Section
3.02(a).
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, limited liability
company, joint venture, Government Authority or other entity of whatever nature.
"Policy" has the meaning provided in the recitals.
"Portfolio Requirements" has the meaning provided in Section 3.01.
"Premium Fee" has the meaning provided in Section 2.04.
"Premium Payment Date" has the meaning provided in Section 2.04.
"Prospectus" means for any Class of Shares, the prospectus and
statement of additional information pursuant to which the shares of such Class
of Shares were offered for sale, as the same may be updated and in effect from
time to time in accordance with this Agreement.
"Protective Put" has the meaning provided in Section 3.03(c).
"Purchased Call" has the meaning provided in Section 3.03(c).
"Quoted Rate" means LIBOR (1 month, 3 month and 6 month), U.S. Treasury
Obligations, Prime, Commercial Paper (30, 90, 180 days) and overnight Federal
Funds.
"Registration Statement" has the meaning provided in Section
2.03(a)(v).
"Regulatory Change" means with respect to the Adviser or the Fund, as
the case may be, any change in any law, regulation or rule, or interpretation
thereof, by a Governmental Authority with respect to any statute to which such
Party is subject (including, as applicable, the Investment Company Act and the
Investment Advisers Act but excluding any statute of general application) which
has resulted in or would reasonably be expected to result in an Adverse Effect
with respect to such party.
"Regulatory Event" means with respect to the Adviser or the Fund, as
the case may be, any governmental or regulatory action that limits, suspends, or
terminates the rights, privileges or operation of such Party which has resulted
in or would reasonably be expected to result in an Adverse Effect.
"Repurchase Obligations" means unleveraged repurchase obligations, with
maturities of not more than 30 days, with respect to any U.S. Government
Security entered into with a depository institution or trust company (acting as
principal) that satisfies the criteria set forth in the definition of Bank
Deposits or entered into with a corporation (acting as principal) incorporated
under the laws of the United States of America or any state thereof whose
obligations are rated at least "P-1" by Moody's and at least "A-1+" by S&P, in
the case of short-term obligations or, in the case of long-term obligations, at
least "Aa2" by Moody's and at least "AA" by S&P.
"Requirements of Law" means, as to any Person, the charter and by-laws
or other organizational or governing document of such Person, and any law,
treaty, rule, or regulation or determination of an arbitrator or a court or
other Government Authority, in each case applicable to or binding upon such
Person or any of its property or to which such Person or any of its property is
subject.
"Risk Reducing Trades" means any transaction the effect of which is to
increase the percentage that represents Gap Risk. For the avoidance of doubt, a
transaction that increases the Gap Risk from 22.0% to 22.5% is an example of a
Risk Reducing Trade.
"Sector" means each of the Sectors set forth in the Sector
Classification System.
"Sector Classification System" means the S&P Global Industry
Classification.
"Securities Act" means the Securities Act of 1933, as amended.
"Senior Officer" has the meaning provided in Section 12.14.
"Shareholder" shall have the meaning provided in the recitals.
"Shares" means shares of beneficial interest of any class of the Fund.
"Synthetic Futures" has the meaning provided in Section 3.03(c).
"S&P" means Standard & Poor's Ratings Services, a Division of The
XxXxxx-Xxxx Companies, Inc.
"Target Equity Exposure" has the meaning provided in Section 3.05(b).
"Trade Date" has the meaning provided in Section 3.06(d).
"Transaction Documents" means this Agreement, the Guarantee, the
Policy, the Direction and Undertaking Regarding Remedies, the Indemnification
Agreement, the Investment Management Agreement, the Custodian Agreement, the
Independent Verifier Agreement (from and after its execution and delivery), the
Establishment and Designations of Series and Classes pertaining to the Fund, the
Expense Limitation Agreement and the Prospectus relating to each Class of
Shares, as each may be amended, supplemented or otherwise modified from time to
time.
"Transition Date" means the Business Day after the end of the Offering
Period.
"Trigger Event" has the meaning provided in Section 4.01.
"Unclassified Equity Securities" has the meaning provided in Section
3.04(c).
"U.S. Government Securities" means (i) U.S. Treasury obligations, and
(ii) debt obligations of the Federal Home Loan Mortgage Corp., the Federal
National Mortgage Association, and the Government National Mortgage Association.
Section 1.02 Generic Terms. All words used herein shall be construed
to be of such gender or number as the circumstances require. The words
"herein," "hereby," "hereof" and "hereto," and words of similar import, refer
to this Agreement in its entirety and not to any particular paragraph, clause
or other subdivision, unless otherwise specified, and Section and Exhibit
references are to this Agreement unless otherwise specified.
ARTICLE II
THE POLICY
Section 2.01 The Policy. The Insurer agrees to issue the Policy,
subject to the conditions hereinafter set forth herein. The Policy shall (i) be
issued on the Inception Date, and (ii) be substantially in the form of Exhibit A
hereto.
Section 2.02 Procedure for Issuance. Not later than 5:00 p.m. on the
last day of the Offering Period the Trust shall deliver to the Insurer a notice
specifying the expected Inception Date. On the Inception Date, the Trust shall
deliver to the Insurer a notice showing the following, in each case as of the
close of business on the Business Day immediately prior to the Inception Date:
(i) the NAV for each Class of Shares, and (ii) the number of issued and
outstanding shares of each Class of Shares. The notice also shall certify that
the conditions precedent in Sections 2.03(b)(i) and (ii) have been satisfied.
The Insurer shall promptly (and in any event on the Inception Date) issue and
deliver the Policy to the Custodian.
Section 2.03 Conditions Precedent to Effectiveness.
(a) The effectiveness of this Agreement is subject to the satisfaction
of the following conditions:
(i) Each Transaction Document (other than the Policy, the
Prospectus and the Independent Verifier Agreement) shall be duly
authorized, executed and delivered by each of the parties thereto and
be in full force and effect and executed counterparts of each such
Transaction Document shall have been delivered to the Insurer.
(ii) The Insurer shall have received (A) a certificate of the
Secretary or Assistant Secretary of the Adviser, dated as of the
Effective Date, as to the incumbency and signature of the officers or
other employees of the Adviser authorized to sign this Agreement on
behalf of the Adviser and certifying that attached thereto are true,
complete and correct copies of its constituent documents and
resolutions duly adopted by the Adviser authorizing the execution and
delivery of this Agreement, and (B) a good standing certificate from
the Delaware Secretary of State regarding the Adviser.
(iii) The Insurer shall have received (A) a certificate of the
Secretary or Assistant Secretary of the Trust, dated as of the
Effective Date, as to the incumbency and signature of the officers or
other employees of the Trust authorized to sign this Agreement on
behalf of the Trust, and certifying that attached thereto are true,
complete and correct copies of its resolutions duly adopted by the
Board of Trustees of the Trust authorizing the execution and delivery
of this Agreement, and (B) a copy of the Declaration of Trust certified
as of a recent date by the Secretary of the Commonwealth of
Massachusetts.
(iv) The Adviser and the Fund shall have received a
certificate of the Secretary or Assistant Secretary of the Insurer,
dated as of the Effective Date, as to the incumbency and signature of
the officers or employees of the Insurer authorized to sign this
Agreement on behalf of the Insurer.
(v) The Insurer shall have received a certificate of the
Secretary or Assistant Secretary of the Trust, dated as of the
Effective Date, certifying that (A) amendments to the Trust's
registration statement on Form N-1A with respect to each Class of
Shares of the Fund (1) have been prepared by the Trust in conformity
with the requirements of the Acts and the rules and regulations of the
Commission thereunder, and (2) have been filed with the Commission
under the Acts, (B) the most recent such amendment has become effective
or has been declared effective by the Commission, (C) true and complete
copies of such registration statement as amended with respect to the
Fund to the Effective Date are attached thereto (the "Registration
Statement"), excluding any exhibits thereto, (D) the Commission has not
issued any order preventing or suspending the use of any preliminary
prospectus relating to any Class of Shares and the Trust has not
received any notice from the Commission pursuant to Section 8(e) of the
Investment Company Act with respect to the Registration Statement, and
(E) the Registration Statement and the Prospectus with respect to each
Class of Shares of the Fund do not contain any untrue statement of a
material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein not misleading.
(vi) The Insurer shall have received the following legal
opinions, in form and substance satisfactory to the Insurer, dated the
Effective Date: (A) the opinion of Xxxxxxx XxXxxxxxx LLP, counsel to
the Fund; and (B) the opinion of Xxxxxxxxx X. Xxxxx, the General
Counsel of the Adviser.
(vii) The Adviser shall have received the following legal
opinions, in form and substance satisfactory to the Adviser, dated the
Effective Date: (A) the opinion of Xxxxxxx XxXxxxxxx LLP, counsel to
the Fund, and (B) the opinion of Xxxxx Xxxxx, Managing Director and
General Counsel of the Insurer.
(viii) The Fund shall have received the following legal
opinions, in form and substance satisfactory to the Adviser, dated the
Effective Date: (A) the opinion of Xxxxx Xxxxx, Managing Director and
General Counsel of the Insurer, and (B) the opinion of Xxxxxxxxx X.
Xxxxx, the General Counsel of the Adviser.
(ix) All proceedings, documents, instruments and other legal
matters in connection with the transactions contemplated by this
Agreement and the other Transaction Documents shall be satisfactory in
form and substance to the Insurer, and the Insurer shall have received
such other documents in respect of any aspect or consequence of the
transactions contemplated hereby or thereby as it shall reasonably
request.
(b) The obligation of the Insurer to issue the Policy is subject to the
satisfaction of the following conditions on the Inception Date:
(i) Each of the representations and warranties made by the
Adviser and the Fund in this Agreement shall be true and correct in all
material respects on and as of such date, and the Insurer shall have
received a certification from each of the Adviser and the Fund to such
effect as to the representations and warranties made by it.
(ii) No Trigger Event shall have occurred.
(iii) No statute, rule, regulation or order shall have been
enacted, entered or deemed applicable by any Government Authority which
would make the transactions contemplated by any of the Transaction
Documents illegal or otherwise prevent the consummation thereof.
(iv) No suit, action or other proceeding, investigation, or
injunction or final judgment relating thereto, shall be pending or
threatened before any court or governmental agency in which it is
sought to restrain or prohibit or to obtain damages or other relief in
connection with any of the Transaction Documents.
(v) There shall not have been an Adverse Effect with respect
to the Adviser or the Fund since the date of this Agreement.
(vi) The Adviser shall have (a) retained an Independent
Verifier as contemplated by Section 10.01, (b) prepared a form of
Independent Verification Report covering such matters as the Adviser
and the Insurer have agreed as contemplated by Section 10.02, (c)
delivered to the Insurer a fully executed copy of the Independent
Verifer Agreement and (d) delivered to the Insurer a certificate of an
officer of the Adviser attesting to the due authorization, execution
and delivery of the Independent Verifier Agreement by the Adviser.
(vii) On the Inception Date, the Guarantee Amount shall not
exceed the sum of (i) $1,500,000,000, and (ii) the aggregate dollar
amount of exchanges from the Xxxxx Xxxxxx Capital Preservation Fund to
the Fund (such sum, the "Agreed Amount"). If, during the Offering
Period, the Fund expects to receive subscriptions for its Shares which
could result in such Guarantee Amount exceeding the Agreed Amount, then
the Fund shall consult with the Insurer. If the Insurer agrees to
increase such Agreed Amount in its sole discretion, this Agreement will
be amended accordingly.
Section 2.04 Fees. In consideration of the issuance by the Insurer of
the Policy, the Fund shall pay to the Insurer a fee in an amount equal to .75%
per annum of the average daily net assets of the Fund during each calendar month
in the Guarantee Period (the "Premium Fee"), payable monthly in arrears on the
tenth Business Day of the following calendar month with a final payment on the
Guarantee Maturity Date (each a "Premium Payment Date"). Premium Fees payable on
each Premium Payment Date will be calculated based on a 365 or 366 day year for
the actual number of days elapsed, and will be determined in accordance with the
Fund's month end average net asset policy previously described to the Insurer
(which policy shall not be modified without 30 days prior written notice to the
Insurer).
ARTICLE III
MANAGEMENT OF THE FUND
Section 3.01 General. During the Guarantee Period the Fund shall not
issue additional Shares except in connection with the reinvestment of dividends
and distributions by the Fund to its Shareholders in respect of the Shares.
Commencing on the Inception Date, the assets of the Fund shall be invested and
reinvested only in U.S. Dollar-denominated investments in accordance with the
provisions set forth in this Article III (collectively, the "Portfolio
Requirements"). The Adviser shall fairly and objectively interpret the Portfolio
Requirements, consistent with the intent thereof. The Adviser shall consult with
the Insurer as to any requirement contained herein which, in the Adviser's
reasonable opinion is not clear, including without limitation the permissibility
or classification of any investment (including any types of investment that may
be used in the market during the term of this Agreement that were not widely
used as of the date hereof), the valuation methodology applicable thereto, and
the methodology used to calculate and report to the Insurer compliance with the
Portfolio Requirements. The Adviser shall use reasonable efforts to manage the
Fund such that the Fund Value remains at least equal to the Bond Floor.
Section 3.02 Permitted Fixed Income Investments. The Fixed Income
Component of the Fund shall consist of a portfolio of Permitted Fixed Income
Securities, Permitted Fixed Income Futures, Permitted Fixed Income Derivatives,
and/or Cash (collectively, "Permitted Fixed Income Investments"). A Permitted
Fixed Income Investment held by the Fund is a "Fixed Income Investment"; Fixed
Income Investments are collectively referred to herein as the "Fixed Income
Portfolio." For the avoidance of doubt, any requirement that an investment
satisfy a credit rating criteria shall be applicable at any time and from time
to time and shall not be limited to whether the investment satisfied such credit
rating criteria as of the date of acquisition thereof.
(a) "Permitted Fixed Income Securities" means U.S. Government
Securities and Cash Equivalents; provided, however, that Permitted Fixed Income
Securities shall not include any interest-only obligation, any obligation that
bears interest at an inverse floating rate, any obligation the interest rate of
which is variable (unless such interest rate is established by reference to a
Quoted Rate plus a fixed spread, if any, and such interest rate moves
proportionally with such Quoted Rate), any obligation whose repayment is subject
to substantial non-credit related risk, including any security whose rating
assigned by S&P includes the subscript "r" or "t", or any obligation that may be
subject to call or prepayment prior to its maturity. Permitted Fixed Income
Securities must have a predetermined fixed dollar amount of principal due at
maturity that cannot vary or change. With respect to each Permitted Fixed Income
Security held by the Fund (a "Fixed Income Security"):
(i) Market Value of a Fixed Income Security during a Business
Day means its market price as of such time of determination and, at any
other time, the market price as of the close of trading on the NYSE
preceding such time of determination.
(ii) Notional Value of a Fixed Income Security means the
Market Value of such Fixed Income Security.
(b) "Permitted Fixed Income Futures" means U.S. T-Bond and U.S. T-Note
futures contracts traded on the Chicago Board of Trade and U.S. T-Xxxx futures
contracts traded on the Chicago Mercantile Exchange. With respect to each
Permitted Fixed Income Futures contract owned by the Fund (a "Fixed Income
Future"):
(i) Notional Value of a Fixed Income Future means, at any
time, the product of (x) the applicable trading unit (or multiplier) of
such Fixed Income Futures contract, and (y) market price of such Fixed
Income Futures contract.
(c) "Permitted Fixed Income Derivatives" means Interest Rate Swaps.
With respect to each Permitted Fixed Income Derivative to which the Fund is a
party (a "Fixed Income Derivative"):
(i) Market Value of a Fixed Income Derivative at any time
means its xxxx-to-market value (at replacement cost) determined in
accordance with the agreement related thereto.
(ii) Notional Value of a Fixed Income Derivative at any time
means the notional amount specified in the agreement related thereto.
Section 3.03 Permitted Equity Investments. The Equity Component of the
Fund shall consist of a portfolio of Permitted Equity Securities, Permitted
Equity Futures, Permitted Equity Options, and, solely for the purposes
contemplated by Section 3.07, U.S. Government Securities, Cash Equivalents
and/or Cash (collectively, "Permitted Equity Investments"). A Permitted Equity
Investment held by the Fund is an "Equity Investment"; Equity Investments are
collectively referred to herein as the "Equity Portfolio."
(a) "Permitted Equity Securities" means common stocks, American
depository receipts, preferred stocks, exchange-traded funds (including without
limitation Xxxxxxx 3000 i-shares and the funds traded under the following
symbols: SPDR, DIA, and QQQ) and equity real estate investment trusts; provided,
however, that Permitted Equity Securities shall not include any security that is
not listed on the New York Stock Exchange or American Stock Exchange or NASDAQ
National Market System; provided, further, however, that if any equity
securities owned by the Fund are delisted, such equity securities shall be sold
by the close of business on the second Business Day following the Business Day
on which such equity securities were delisted. With respect to Permitted Equity
Securities held by the Fund (individually, an "Equity Security" and, in the
aggregate, the "Equity Securities Portfolio"):
(i) Market Value of an Equity Security during a Business Day
means its market price as of such time of determination and, at any
other time, the market price as of the close of trading on the NYSE
preceding such time of determination.
(ii) Market Value of the Equity Securities Portfolio at any
time means the sum of the Market Values of each of the Equity
Securities.
(iii) Notional Value of an Equity Security means the Market
Value of such Equity Security.
(iv) Delta of an Equity Security means 1.
(b) "Permitted Equity Futures" means Approved Index futures contracts
traded on the Chicago Mercantile Exchange. With respect to each Permitted Equity
Futures contract owned by the Fund (each such contract, an "Equity Future"):
(i) Notional Value of an Equity Future means, at any time, the
product of (x) the applicable trading unit (or multiplier) of such
Equity Futures contract, and (y) the market price of such Equity
Futures contract.
(ii) Delta of an Equity Future means 1 if long; and -1 if short
(c) "Permitted Equity Options" means U.S. exchange-traded puts and
calls with respect to an Approved Index which are (i) Protective Puts, (ii)
Covered Calls, (iii) Synthetic Futures, or (iv) Purchased Calls. With respect to
each of the following Permitted Equity Options ("Equity Put" or "Equity Call",
as applicable, and, collectively, "Equity Options") held by the Fund:
(A) Market Value of an Equity Option during a
Business Day equals the product of (x) its market price as of
such time of determination, and (y) the multiplier applicable
to such Equity Option. At any other time, the Market Value of
an Equity Option equals the product of (xx) its market price
as of the close of trading on the NYSE preceding such time of
determination, and (yy) the multiplier applicable to such
Equity Option.
(B) Notional Value of an Equity Option means, at any
time, the product of (x) the multiplier applicable to such
Equity Option and (y) the strike price of such Equity Option.
(C) Delta of an Equity Option means the amount
calculated as the hedge ratio (i.e., the ratio of (i) the
dollar amount of change in the value of an option given a
change in price of the related underlying security or index by
$1.00, and (ii) $1.00) pursuant to the Black-Scholes option
pricing model.
(i) "Protective Put" means buying a put option with respect to
a long equity position in Permitted Equity Securities or Permitted
Equity Futures. The aggregate of the Notional Values of all Protective
Puts must at all times be less than or equal to the sum of (x) Market
Value of the Equity Securities Portfolio and (y) aggregate Notional
Value of long Equity Futures.
(ii) "Covered Call" means selling a call option with respect
to a long equity position in Permitted Equity Securities or Permitted
Equity Futures. The aggregate Notional Values of all Covered Calls must
at all times be less than or equal to the sum of (x) Market Value of
the Equity Securities Portfolio and (y) aggregate Notional Value of
long Equity Futures.
(iii) "Synthetic Futures" means (x) selling a synthetic
futures contract by selling a call option and buying a put option, or
(y) buying a synthetic futures contract by buying a call option and
selling a put option; provided that each such pair of contracts must be
in respect of the same underlying Approved Index, have the same strike
price, expiration date, and exercise style, and be on otherwise
identical terms.
(iv) "Purchased Call" means buying a call option in lieu of a
long equity position.
Section 3.04 Additional Portfolio Requirements.
(a) Single Issuer Limitation on Equity Securities. The aggregate Market
Value of all Equity Securities of a single issuer shall not exceed 4% of the
Market Value of the Equity Securities Portfolio; provided, however, that the
Adviser may (x) with respect to two issuers increase this limit to 7%, and (y)
with respect to an additional five (5) issuers increase this limit to 5%.
(b) Cash Equivalents. The aggregate Market Value of Cash Equivalents
shall not exceed 20% of the Fund Value; provided, however, that such 20%
limitation shall not apply during the six months immediately prior to the
Guarantee Maturity Date as and to the extent it is not possible to purchase U.S.
Government Securities due to the limited time remaining to the Guarantee
Maturity Date. For the avoidance of doubt, the preceding sentence shall not in
any way affect the obligation to eliminate Cash Equivalents from the Defeasance
Portfolio. The aggregate Market Value of Cash Equivalents (other than fully
collateralized Repurchase Obligations) attributable to any single depositary
institution, issuer or counterparty shall not exceed 3% of the Fund Value. The
aggregate Market Value of fully collateralized Repurchase Obligations
attributable to any single counterparty shall not exceed 10% of the Fund Value.
For purposes hereof, a Repurchase Obligation shall be fully collateralized if
(i) the securities collateralizing such Repurchase Obligation consist solely of
U.S. Treasury obligations, (ii) the value of the securities collateralizing such
Repurchase Obligation (reduced by the transaction costs (including loss of
interest) that the Fund could reasonably expect to incur if the seller defaults)
is at least equal to the resale price provided in the agreement evidencing such
Repurchase Obligation, and (iii) the provisions of Rule 5b-3(c)(1) under the
Investment Company Act are complied with.
(c) Equity Securities Portfolio Sector Diversification.
(i) The weighting of each Sector within the Equity Securities
Portfolio shall be a percentage that is (A) at least equal to the
lesser of (x) the Benchmark Sector Weight minus 2% or (y) 75% of the
Benchmark Sector Weight, and (B) not greater than the greater of (x)
the Benchmark Sector Weight plus 2% or (y) 125% of the Benchmark Sector
Weight.
(ii) The Market Value of Equity Securities (other than
exchange-traded funds) that are not classified by the Sector
Classification System or the Adviser shall not in the aggregate exceed
2% of the Market Value of the Equity Securities Portfolio. The Market
Value of Equity Securities that are not classified by the Sector
Classification System or the Adviser and all exchange traded funds
(collectively, "Unclassified Equity Securities"), other than Xxxxxxx
3000 i-shares, shall not in the aggregate exceed 7% of the Market Value
of the Equity Securities Portfolio. If during the term of this
Agreement, exchange-traded funds are developed that are Sector-specific
rather than based on broad market indices, each such Sector-specific
exchange-traded fund shall be classified as belonging to the Sector on
which it is based.
(iii) If the Adviser classifies an Equity Security that is not
classified by the Sector Classification System, the Adviser shall
determine the applicable Sector reasonably, in good faith and in
accordance with industry standards following prior notice to and, if
requested by the Insurer, consultation with the Insurer. The Adviser
may only classify an Equity Security if it is not classified by the
Sector Classification System.
(iv) Xxxxxxx 3000 i-shares shall not be required to be
assigned to a Sector and shall be disregarded for purposes of the tests
required by Section 3.04(c).
(d) Equity Securities Portfolio Tracking Error. The expected annualized
tracking error of the Equity Securities Portfolio as compared to the Equity
Benchmark, as measured by the BARRA Risk Model, shall not exceed five percent
(5.00%). Unclassified Equity Securities shall be disregarded for purposes of the
tests required by this Section 3.04(d).
(e) Equity Securities Portfolio Beta. The expected beta of the Equity
Securities Portfolio as compared to the Equity Benchmark, as measured by the
BARRA Risk Model, shall equal at least .8 and shall not exceed 1.2. Unclassified
Equity Securities shall be disregarded for purposes of the tests required by
this Section 3.04(e).
(f) Fixed Income Weighted Average Duration. The Fixed Income Weighted
Average Duration at any time shall not be less than 30 days prior to the
Guarantee Maturity Date and shall not be greater than 30 days following the
Guarantee Maturity Date; provided, however, that (i) at no time shall the Fixed
Income Portfolio include any instrument that matures later than the Guarantee
Maturity Date plus two years, and (ii) within the twelve months prior to the
Guarantee Maturity Date (x) the Fixed Income Weighted Average Duration shall not
exceed the period remaining until the Guarantee Maturity Date and (y) the Fixed
Income Portfolio shall not include any instrument that matures after the
Guarantee Maturity Date.
(g) Aggregate Notional Value of Equity Futures and Equity Options. The
following amount shall not exceed 30% of the Market Value of the Equity
Portfolio: (i) the sum of (x) the aggregate Notional Value of all long Equity
Futures and all long Synthetic Futures plus (y) the aggregate Notional Value of
all long Equity Calls, minus (ii) the sum of (a) the aggregate Notional Value of
all short Equity Futures and all short Synthetic Futures, plus (b) the aggregate
Notional Value of all short Equity Calls, plus (c) the aggregate Notional Value
of all Protective Puts.
(h) Net Futures Exposure and Net Short Calls. The sum of (x) the Net
Short Equity Futures Position and (y) the sum of the Notional Values of all
Covered Calls shall not exceed 25% of the Market Value of the Equity Securities
Portfolio. For this purpose, Net Short Equity Futures Position is either (i)
zero if the sum of the products of (x) Notional Value and (y) Delta for each
Equity Future and Synthetic Future is a positive number, or (ii) if such sum is
a negative number, the absolute value of such negative number.
(i) Maximum Equity Exposure; No Leverage. The product of the Notional
Value and the Delta for each Equity Investment shall not in the aggregate exceed
the Fund Value.
Section 3.05 Allocation Between Fixed Income Portfolio and Equity
Portfolio. Subject to Article IV, the Fund's assets shall be allocated between
a Fixed Income Portfolio and an Equity Portfolio by the Adviser. The Adviser
shall monitor such allocation in real time and shall maintain Gap Risk of not
less than 22.5%. For purposes of the formulas set forth below, the following
values apply at any applicable time:
FV(t) = the Fund Value as of such time(t)
bf(t) = the Bond Floor as of such time(t)
AE(t) = the Equity Exposure as of such time(t)
(a) "Gap Risk" shall be expressed as a percentage and as of any time
equals:
FV(t)-bf(t)
-----------
AE(t)
(b) "Target Equity Exposure" shall be expressed as a percentage and as
of any time equals:
FV(t)-bf(t)
4 4/9 x -----------
FV(t)
; provided that the Target Equity Exposure shall not exceed 100% and shall not
be less than 0% of the Fund Value.
(c) "Bond Floor" means, as of any time of determination, an amount
equal to the sum of (1) the product of (x) the Guarantee Amount and (y) the
offered price (expressed as a percentage of par) of the U.S. Treasury zero
coupon bonds that mature most nearly prior to the Guarantee Maturity Date, and
(2) the product of (x) the Expense Amount, and (y) the interpolated price
(expressed as a percentage of par) derived from the offered prices of the U.S.
Treasury zero coupon bonds that mature most nearly prior to and following the
date that is equidistant between the date of determination and the Guarantee
Maturity Date, rounded to the date nearer to the date of determination in the
case of an odd number of days; provided, however, that after the maturity of the
U.S. Treasury zero coupon bond that matures most nearly prior to the Guarantee
Maturity Date, the applicable percentage of par is 100%.
(d) For purposes hereof, the term "Expense Amount" means the sum of (i)
the sum of the following products with respect to each Class of Shares
outstanding (determined in each case as of the time of determination): (A) the
number of Shares of such Class outstanding, (B) the Guarantee per Share for such
Class of Shares, (C) 1.35% with respect to the Class A Shares and 2.10% with
respect to the Class B Shares and the Class L Shares, and (D) the time remaining
to the Guarantee Maturity Date, expressed as years and fractions thereof; and
(ii) the maximum amount of fees and expenses not subject to the Expense
Limitation Agreement that the Fund would owe if the Fund's assets were required
to be invested in the Defeasance Portfolio at the time of determination
(excluding contingent expenses, but including any other expenses that the Fund
will be obligated to pay on or before the Guarantee Maturity Date).
Section 3.06 Reports.
(a) The Adviser shall provide the Daily Report to the Insurer by 9:00
a.m. (New York City time) on the next Business Day.
(b) The Adviser shall provide notice to the Insurer of the failure to
maintain Gap Risk of not less than 22.5% (a "Notice of Violation") and shall
provide Notice to the Insurer of each cure of any such failure (a "Notice of
Cure"). Such notices shall be sent by the Adviser to the Insurer as promptly as
practicable, and shall be used by the Insurer to determine whether the Adviser
has complied with applicable cure periods. The Adviser shall be responsible for
establishing, to the reasonable satisfaction of the Insurer, that a violation
has been cured.
(c) If the Adviser is unable to calculate Gap Risk, then the Adviser
shall notify the Insurer and shall not enter into trades other than Risk
Reducing Trades until the Adviser is able to calculate Gap Risk. The Adviser
shall notify the Insurer when the inability to calculate Gap Risk ends.
(d) The Adviser shall cause the Fund Accounting Agent to provide to the
Insurer a copy of the records the Fund Accounting Agent maintains with respect
to the assets of the Fund as of the close of each Business Day (such Business
Day, a "Trade Date") either (x) two Business Days following the Trade Date,
together with a list of the Fund's trades during the Business Day following the
Trade Date, or (y) one Business Day following the Trade Date.
Section 3.07 Cash. For the avoidance of doubt, the parties recognize
and intend that compliance with the Portfolio Requirements may require that U.S.
Government Securities, Cash Equivalents and/or Cash, be present in the Equity
Portfolio. U.S. Government Securities, Cash Equivalents and/or Cash present in
the Equity Portfolio shall not be included in the Fixed Income Portfolio. Fixed
Income Investments present in the Equity Portfolio shall not be included in the
calculation of Fixed Income Weighed Average Duration set forth in Section
3.04(f). No Fixed Income Investment present in the Equity Portfolio shall mature
later than the Guarantee Maturity Date plus two years, and, within the twelve
months prior to the Guarantee Maturity Date, no Fixed Income Investment present
in the Equity Portfolio shall mature after the Guaranty Maturity Date.
Section 3.08 Intent. The economic intent of the Portfolio Requirements
is to limit the losses that the Fund would experience in the event of a sudden
decline of 22.5% or more in the value of the Equity Portfolio. The Fund will not
use leverage (excepting from the scope of the term "leverage", Loans for
Temporary or Emergency Purposes). To the extent that the instruments which the
Fund is permitted to invest in have implicit, embedded or synthetic leverage,
the Portfolio Requirements are intended to prevent the Adviser from using such
implicit, embedded or synthetic leverage to materially increase the loss that
the Fund would experience in the event of such a decline, compared to a fully
invested portfolio that did not include such investments.
Section 3.09 Article III Computations. All computations under this
Article III shall be made as of the close of regular trading on the NYSE on that
Business Day in accordance with the Fund's usual procedures and in compliance
with the Investment Company Act, except that compliance with Section 3.05 shall
be required on an ongoing basis during periods of regular trading on the NYSE.
For purposes of determining compliance with Section 3.05 during regular trading
on a Business Day, all calculations shall be based on values and amounts
determined as of the close of business on the preceding Business Day, except
that values of investments with respect to which market quotations are readily
available to the Adviser through an automated real time feed shall be determined
based on such market quotations to the extent available, and as to any such
quotations that cease to be available prior to the close of regular trading the
last available quotation will be used. In determining the Market Value of any
investment, the applicable market price per unit shall be multiplied by the
number of units held by the Fund. If the BARRA Risk Model is unavailable during
any period requirements based on the application thereof shall be suspended
during such period.
Section 3.10 Transition Period. Notwithstanding any other provision of
this Agreement, during the first seven Business Days of the Guarantee Period,
Sections 3.04(b) through and including 3.04(h) shall not apply.
ARTICLE IV
TRIGGER EVENTS
Section 4.01 Trigger Events. (a) The following events shall constitute
Trigger Events hereunder:
(i) Any failure to maintain Gap Risk of not less than 22.5%,
unless the Adviser notifies the Insurer upon becoming aware of such
failure and is using best efforts to cure such failure (to the
reasonable satisfaction of the Insurer) and such failure is cured by
the end of the following Business Day;
(ii) Any failure to provide a Daily Report to the Insurer
within two hours following notice by the Insurer to the Adviser of the
Insurer's non-receipt thereof, unless the Adviser is using best efforts
to cure such failure (as determined by the Insurer in good faith) and
such failure is cured by the end of such Business Day;
(iii) Any violation of Sections 3.01, 3.02, 3.03, 3.04, 3.05
or 3.06 that is not expressly provided for in clause (i) or (ii) above
unless cured by the end of the third Business Day following the
Business Day on which such violation occurred;
(iv) Fund Value is less than or equal to 101% of the Bond
Floor at any time;
(v) The Fund shall fail to pay the Premium Fee as provided in
Section 2.04 and such failure shall continue unremedied for a period of
two Business Days following notice by the Insurer to the Fund and to
the Adviser;
(vi) Any representation or warranty made by the Adviser or the
Trust on behalf of the Fund herein shall have been incorrect or
misleading in any material respect when made;
(vii) The Adviser or the Trust on behalf of the Fund shall
fail to perform any obligation under this Agreement or the Transaction
Documents that is not expressly provided for in clause (i), (ii), (iii)
or (v) above, which failure could reasonably be expected to have an
Adverse Effect and such violation, if capable of being remedied, shall
continue unremedied for a period of 30 days after notice shall have
been given by the Insurer to such party requiring that such default be
cured;
(viii) Either Xxxxx'x or S&P suspends or withdraws the short-
or long-term rating of Citigroup Inc., or downgrades the senior
unsecured rating of Citigroup Inc. to or below Baa1 or BBB+; provided,
however, that if Xxxxx'x or S&P revises its rating categories or if a
successor rating agency is designated under the following proviso, the
Insurer shall determine in good faith the equivalent rating under the
revised or successor system and shall notify the Adviser and the Fund
of its determination; and provided, further, however that if Xxxxx'x or
S&P ceases its rating operations, the Insurer may, by notice to the
Adviser and the Fund, replace such rating agency that maintains a
rating of senior unsecured debt of Citigroup Inc. or elect to have only
one rating agency specified herein; or
(ix) The occurrence of any of the following: (i) except as
otherwise permitted by Section 8.01 hereof, the Adviser takes any
action to authorize or effect its resignation or takes or fails to take
any action the effect of which is more likely than not to result in the
resignation or removal of the Adviser; (ii) a Regulatory Event,
Litigation Event or any other event, if it is more likely than not that
such event will result in the resignation or removal of the Adviser, as
reasonably determined by the Insurer after consultation with the
Adviser; or (iii) an Act of Insolvency occurs with respect to the
Adviser.
(b) If an event has occurred and is continuing, which, if not cured or
waived would give rise to a Trigger Event, then the Adviser may only enter into
Risk Reducing Trades and shall consult with the Insurer and provide to the
Insurer a description of the manner in which the Adviser intends to cure such
event, the Adviser's assessment of the likelihood of success, the time the
Adviser expects to elapse before such event is cured, and such other information
as the Insurer may request.
(c) If a Trigger Event occurs and is continuing then, at the election
of the Insurer, the Insurer shall have the right to direct the Custodian to
invest the Fund's assets in the Defeasance Portfolio pursuant to the Direction
and Undertaking Regarding Remedies. The Insurer shall notify the Adviser of the
Insurer's exercise of remedies pursuant to this Section 4.01(c).
(d) In the event of an occurrence on any Business Day of a Trigger
Event under Section 4.01(a)(i) with respect to which the Adviser has failed to
give the notice contemplated thereby, then, subject to the Daily Report
confirming that the Gap Risk is less than 22.5%, the Insurer shall direct the
Custodian to invest the Fund's assets in the Defeasance Portfolio pursuant to
the Direction and Undertaking Regarding Remedies.
Section 4.02 Defeasance Portfolio. If the Insurer exercises remedies
provided by Section 4.01(c) or Section 4.01(d), the Insurer shall instruct the
Custodian to invest the assets of the Fund in a Defeasance Portfolio.
"Defeasance Portfolio" means an earmarked portfolio of investments consisting of
(i) zero coupon U.S. Treasury bonds having a par amount equal to the Guarantee
Amount and that mature on a date as close to the Guarantee Maturity Date as
practicable but in any event no later than the Guarantee Maturity Date, and,
following the maturity of such zero coupon U.S. Treasury bonds, Cash, (ii) a
portfolio of zero coupon U.S. Treasury bonds that mature on various dates which
correspond as closely as reasonably practicable to the expected payment dates of
the expected fees and expenses of the Fund, and (iii) Cash. To the extent the
Fund Value exceeds 101% of the Bond Floor, the Insurer shall direct the
Custodian to take instruction from the Adviser with respect to the investment of
any such excess subject to the condition that such excess may only be invested
in Permitted Fixed Income Securities, Permitted Equity Securities, Permitted
Equity Options that are Purchased Calls, and/or Cash, it being understood that
the investing of such excess shall in no event create any liability which could
affect the Defeasance Portfolio.
ARTICLE V
LIMITATION OF LIABILITY
Section 5.01 Limitation of Liability of Adviser. Solely if there is a
breach of this Agreement arising out of the willful misconduct of the Adviser,
the Insurer shall have all of the rights and remedies available to it against
the Adviser at law and in equity. The Insurer shall have no claim against the
Adviser hereunder for any breach hereof that did not arise out of the willful
misconduct of the Adviser. For the avoidance of doubt, "willful misconduct"
shall not be limited to actions but shall also include failures to act. Nothing
in this Section 5.01 shall limit the Insurer's rights and remedies with respect
to a Trigger Event as expressly set forth in Section 4.01(c) and Section
4.01(d).
Section 5.02 Limitations as to the Fund. The Insurer shall have no
claim against the Fund hereunder for any breach hereof that did not arise out of
(i) the failure of the Fund to pay the Premium Fee in accordance with Section
2.04, or (ii) the willful misconduct of the Fund. The sole remedies that the
Insurer shall have against the Fund in the event of such a breach shall be (x)
to pursue a claim against the Fund for failure to pay the Premium Fee, if the
breach hereof is the Fund's failure to pay the Premium Fee in accordance with
Section 2.04, and (y) to exercise the Insurer's rights and remedies with respect
to a Trigger Event as expressly set forth in Section 4.01(c) and Section
4.01(d). In no event shall the Insurer set off against, decline to pay, or
otherwise withhold amounts payable under the Policy. Nothing in this Section
5.02 shall be construed to limit the Insurer's rights under Article IV.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.01 Representations and Warranties of the Adviser. To induce
the Insurer to enter into this Agreement and to issue the Policy, the Adviser
hereby represents and warrants to the Insurer as follows, on and as of the date
hereof:
(a) The Adviser (i) is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware,
(ii) has the power and authority, and the legal right, to own its assets and to
transact the business in which it is engaged, (iii) is duly qualified to do
business and is in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification except where the failure to so qualify would not have an Adverse
Effect and (iv) is in compliance with all Requirements of Law except where
non-compliance would not have an Adverse Effect.
(b) The Adviser has the power and authority, and the legal right, to
execute, deliver and perform the Transaction Documents to which it is a party
and has taken all necessary action required by applicable Requirements of Law to
authorize the execution, delivery and performance of the Transaction Documents
to which it is a party. Except as has been obtained, no consent or authorization
of, filing with, or other act by or in respect of, any Government Authority or
any other Person is required in connection with the execution, delivery,
performance, validity or enforceability by or against the Adviser of the
Transaction Documents to which it is a party. This Agreement has been, and each
other Transaction Document to which the Adviser is a party will be, duly
executed and delivered on behalf of the Adviser. This Agreement constitutes, and
each other Transaction Document to which the Adviser is a party, when executed
and delivered, will constitute, a legal, valid and binding obligation of the
Adviser enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(c) The execution, delivery and performance of the Transaction
Documents to which the Adviser is a party will not violate any Requirement of
Law or Contractual Obligation of the Adviser and will not result in, or require,
the creation or imposition of any Lien on any of its property, assets or
revenues except where such violation or Lien would not reasonably be expected to
have an Adverse Effect. The Adviser is not in violation of any Contractual
Obligation, except where such violation would not reasonably be expected to have
an Adverse Effect.
(d) No litigation, proceeding or investigation of or before any
arbitrator or Governmental Authority is pending or, to the Adviser's knowledge,
threatened (i) asserting the invalidity or unenforceability of any of the
Transaction Documents, (ii) seeking to prevent the consummation of any of the
transactions contemplated by the Transaction Documents or (iii) seeking any
determination or ruling that would reasonably be expected to have an Adverse
Effect.
(e) The Adviser is duly registered with the Commission as an investment
adviser under the Investment Advisers Act; and there does not exist any
proceeding or any facts or circumstances the existence of which could adversely
affect the registration of the Adviser with the Commission; the Adviser is not
prohibited by any provision of the Investment Advisers Act or the Investment
Company Act, or the respective rules and regulations thereunder, from acting as
an investment adviser of the Fund as contemplated hereunder.
(f) There has been no event, condition, action or omission since the
Adviser's financial statements for the fiscal year ended December 31, 2001 which
were furnished to the Insurer which would reasonably be expected to have an
Adverse Effect, other than such events, conditions, actions or omissions which
have been specifically disclosed in writing to the Insurer.
(g) The most recent balance sheets of the Adviser, commencing with the
fiscal year ended December 31, 2001, and the related statements of earnings of
the Adviser, have been prepared in accordance with GAAP and present fairly in
all material respects the financial condition of the Adviser as at the date
thereof and the results of its operations for the period then ended except for
omissions that would not have an Adverse Effect.
(h) To the best of the Adviser's knowledge, all factual information
prepared and furnished by or on behalf of the Adviser to the Insurer (whether
prepared by the Adviser or any other Person) for purposes of or in connection
with this Agreement, any Transaction Document or any transaction contemplated
hereby or thereby is true and accurate in all material respects on the date as
of which such information is dated or certified and such information taken as a
whole does not omit to state any material fact necessary to make such
information in the context in which it is furnished not misleading.
(i) To the best of the Adviser's knowledge, no statute, rule,
regulation or order has been enacted or deemed applicable by any Government
Authority which would make the transactions contemplated by the Transaction
Documents illegal or otherwise prevent the consummation thereof.
Section 6.02 Representations and Warranties of the Trust for itself and
the Fund. The Trust on behalf of itself and the Fund hereby represents and
warrants to the Insurer as follows, on and as of the date hereof:
(a) The Trust (i) is a business trust duly organized, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts; (ii)
has the power and authority, and the legal right, to own its assets and to
transact the business in which it is engaged; (iii) is duly qualified to do
business and is in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification except where the failure to so qualify would not have an Adverse
Effect; and (iv) is in compliance with all Requirements of Law except where
non-compliance would not have an Adverse Effect. The Fund has been duly
established as a series of the Trust.
(b) The Trust has the power and authority, and the legal right, to
execute, deliver and perform on behalf of the Fund the Transaction Documents to
which it is a party and has taken all necessary action required by applicable
Requirements of Law to authorize the execution, delivery and performance of the
Transaction Documents to which it is a party. No consent or authorization of,
filing with, or other act by or in respect of, any Government Authority or any
other Person is required in connection with the execution, delivery,
performance, validity or enforceability by or against the Fund of the
Transaction Documents to which it is a party, other than the filing under the
Acts of the Registration Statement and the Prospectus and filings in accordance
with Blue Sky laws. The Transaction Documents to which the Fund is a party have
been duly executed and delivered on behalf of the Fund and each such agreement
constitutes a legal, valid and binding obligation of the Trust on behalf of the
Fund enforceable against the Fund in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(c) The execution, delivery and performance by the Trust on behalf of
the Fund of the Transaction Documents to which it is a party will not violate
any Requirement of Law or Contractual Obligation of the Fund and will not result
in, or require, the creation or imposition of any Lien on any of its property,
assets or revenues except where such violation or Lien would not have an Adverse
Effect.
(d) No litigation, proceeding or investigation of or before any
arbitrator or Governmental Authority is pending or, to the Fund's knowledge,
threatened by or against the Fund or against any of its properties or revenues
(i) asserting the invalidity or unenforceability of this Agreement, (ii) seeking
to prevent the consummation of any of the transactions contemplated by the
Transaction Documents to which it is a party or (iii) seeking any determination
or ruling that could reasonably be expected to have an Adverse Effect.
(e) The Fund has been operated in compliance in all material respects
with the Investment Company Act and the rules and regulations thereunder except
where non-compliance would not have an Adverse Effect.
(f) The Trust is duly registered with the Commission as an open-end,
management investment company under the Investment Company Act. The Fund is a
"diversified" fund within the meaning of the Investment Company Act.
(g) To the best of the Trust's knowledge, all factual information
prepared and furnished by or on behalf of the Fund to the Insurer (whether
prepared by the Fund or any other Person) for purposes of or in connection with
this Agreement, any Transaction Document or any transaction contemplated hereby
or thereby is true and accurate in all material respects on the date as of which
such information is dated or certified and such information taken as a whole
does not omit to state any material fact necessary to make such information in
the context in which it is furnished not misleading.
ARTICLE VII
COVENANTS
Section 7.01 Covenants of the Adviser. The Adviser hereby covenants and
agrees that through the Guarantee Maturity Date or the earlier termination of
this Agreement pursuant to Section 11.01:
(a) it shall not amend, supplement, modify, terminate or agree to any
waiver with respect to any of the Transaction Documents (other than the
Prospectus), without the prior written consent of the Insurer, which consent
shall not be unreasonably withheld or delayed;
(b) other than in connection with the reinvestment of dividends or
other distributions, it shall not allow the offering or sale of the shares of
the Fund after the Offering Period;
(c) it shall notify the Insurer promptly (i) of any request or proposed
request by the Commission for an amendment to the Registration Statement with
respect to any Class of Shares of the Fund or a supplement to the Prospectus
with respect to any Class of Shares of the Fund, or (ii) of the issuance by the
Commission of any stop-order suspending the effectiveness of the Registration
Statement with respect to any Class of Shares of the Fund or the initiation or
threat of any such stop-order proceeding;
(d) it shall provide to the Insurer such additional information with
respect to the Fund as the Insurer may from time to time reasonably request;
(e) prior to or simultaneously upon filing with the Commission any
amendment to the Registration Statement with respect to any Class of Shares of
the Fund or supplement to the Prospectus with respect to any Class of Shares of
the Fund, it shall furnish a copy thereof to the Insurer, provided, however,
that the Adviser shall obtain the prior written consent of the Insurer before
filing any such amendment or supplement that affects the Insurer, which consent
shall not be unreasonably withheld or delayed;
(f) it shall comply in all material respects with the terms and
conditions of the Transaction Documents to which it is a party and shall provide
the Insurer with written notice promptly upon becoming aware of any material
breach by it of the provisions of any such agreements;
(g) it shall provide to the Insurer copies of its quarterly financial
statements and audited annual financial statements within 60 days following the
end of each fiscal quarter and 90 days following the end of each fiscal year;
(h) it shall comply in all material respects with the terms and
provisions of all applicable laws, including the Acts and the Investment
Advisers Act, with respect to the Fund, except where the failure to comply does
not have an Adverse Effect, and it shall obtain and maintain all licenses,
permits, charters and registrations which are necessary to the conduct of its
business or where the failure to obtain and maintain the same would reasonably
be expected to have an Adverse Effect;
(i) The Adviser shall promptly inform the Insurer in writing of the
occurrence of any of the following events of which it has knowledge: any
Litigation Event, Regulatory Change, Regulatory Event or other event that would
reasonably be expected to have an Adverse Effect;
(j) The Adviser shall promptly and fully perform all of its obligations
(i) under each Transaction Documents to which it is a party, and (ii) under each
other agreement, instrument or contract by which it is bound, except to the
extent that such nonperformance would not reasonably be expected to have an
Adverse Effect. The Adviser shall take all action necessary to preserve its
existence and ensure that the Transaction Documents remain in full force and
effect;
(k) The Adviser shall keep or cause to be kept in reasonable detail
books and records of account of its business in relation to the Fund, including
without limitation electronic information with respect thereto, in form and
detail customary in the industry and sufficient to satisfy the Adviser's
obligation to provide to the Insurer the information referred to herein; and
(l) The Adviser shall not include any material relating to the Insurer
or describing the terms of the Policy or this Agreement in any marketing
materials used by or on behalf of the Adviser or the Fund unless such material
has been approved in writing by Ambac prior to its inclusion in such marketing
materials, such approval not to be unreasonably withheld or delayed.
Section 7.02 Covenants of the Fund. The Trust on behalf of the Fund
hereby covenants and agrees that through the Guarantee Maturity Date or the
earlier termination of this Agreement pursuant to Section 11.01:
(a) within 90 days of the end of the Fund's fiscal year, it shall
provide to the Insurer the financial statements for the Fund with respect to
such fiscal year, audited by independent public accountants;
(b) after the Offering Period, other than in connection with the
redemption of shares by a Shareholder or the reinvestment of dividends or other
distributions, it shall not change the number of outstanding shares of the Fund;
(c) it shall comply in all material respects with the terms and
conditions of the Transaction Documents to which it is a party and shall provide
the Insurer with written notice promptly upon becoming aware of any material
breach by it of the provisions of any such agreements;
(d) it shall not amend, supplement or otherwise modify, or agree to any
waiver with respect to any of the Transaction Documents (other than the
Prospectus) without the prior written consent of the Insurer, which consent
shall not be unreasonably withheld or delayed;
(e) it shall not change in any material respect the manner in which the
assets of the Fund are allocated to any Class of Shares of the Fund without the
prior written consent of the Insurer, which consent shall not be unreasonably
withheld or delayed;
(f) prior to taking any action to terminate the Custodian, the Fund
shall notify the Insurer and, in the event that the Custodian shall terminate
the Custodian Agreement with respect to the Fund, the Fund shall notify the
Insurer and engage a successor Custodian; provided, however, that the Fund shall
not engage as successor Custodian any Custodian who does not agree to be bound
by the Direction and Undertaking Regarding Remedies;
(g) it shall comply in all material respects with the terms and
provisions of the Acts with respect to the Fund except where the failure so to
comply would not have an Adverse Effect and would not have a material adverse
effect upon the Insurer; and
(h) it shall provide to the Insurer such additional information with
respect to the Fund as the Insurer may from time to time reasonably request.
ARTICLE VIII
FURTHER AGREEMENTS
Section 8.01 Reinsurance and Assignments. The Insurer shall have the
right to give participations in its rights under this Agreement and to enter
into contracts of reinsurance with respect to the Policy, provided that the
Insurer agrees that any such disposition will not alter or affect in any way
whatsoever the Insurer's direct obligations hereunder and under the Policy. The
Adviser shall have the right to assign its rights and obligations under this
Agreement to an affiliate of the Adviser, provided that there would be no change
of control (meaning an event or events that would constitute an "assignment"
under or for purposes of the Investment Company Act or Investment Advisers Act)
as a result of such assignment, the assignee assumes all of the Adviser's
obligations hereunder, and the Adviser gives written notice of such assignment
to the Insurer. Except as expressly provided above in this Section 8.01, none of
the Insurer, the Adviser or the Fund may assign its obligations under this
Agreement without the prior written consent of the other parties to the
Agreement.
Section 8.02 Fund Liability. Any other provision to the contrary
notwithstanding, any liability of the Trust under this Agreement or in
connection with the transactions contemplated herein shall be discharged only
out of the assets of the Fund. This Agreement has been and any other agreement
or instrument executed and delivered in connection herewith shall have been,
executed by an officer of the Trust acting under the Declaration of Trust, and
the obligations of the Trust under this Agreement or any other such agreement or
instrument are not binding upon any of the Trustees, officers or Shareholders
personally.
Section 8.03 Liability of the Insurer. The Adviser and the Fund agree
that neither the Insurer, nor any of its officers, trustees/directors or
employees shall be liable or responsible for (a) the use which may be made of
the Policy by any Person or for any acts or omissions of another Person in
connection therewith or (b) the validity, sufficiency, accuracy or genuineness
of any documents delivered to the Insurer, or of any endorsement(s) thereon,
even if such documents should in fact prove to be in any or all respects
invalid, insufficient, fraudulent or forged. In furtherance and not in
limitation of the foregoing, the Insurer may accept documents that appear on
their face to be in order, without responsibility for further investigation.
ARTICLE IX
CONFIDENTIALITY
Section 9.01 Confidentiality. Subject to Section 9.02, the Insurer
agrees not to disclose or use for any purpose other than the administration of
this Agreement, the exercise of its rights hereunder or legitimate corporate
purposes relating to this Agreement (including any corporate purposes relating
to the characterization or treatment of the rights and obligations hereunder for
accounting, insurance, rating agency or other similar purposes) (x) any
information regarding the specific investments of the Fund ("Trading
Information") or (y) other information (including without limitation proprietary
information as to systems, software and trading methods) ("Other Information")
provided by the Adviser or the Trust to the Insurer hereunder unless (i) such
information was or becomes generally available to the public other than as a
result of the Insurer's breach of this Article IX; or (ii) such information is
required to be disclosed pursuant to applicable law or in connection with any
legal proceedings.
Section 9.02 Trading Information and Other Information.
(a) Notwithstanding Section 9.01, the Insurer may disclose Trading
Information and Other Information in connection with the Insurer's hedging and
reinsurance arrangements to recipients ("Permitted Recipients") if such
Permitted Recipients represent and warrant to the Insurer that such Permitted
Recipients will treat such information as confidential information. The Adviser
and the Fund agree that the Insurer and any Permitted Recipient will satisfy
their obligation to treat such information as confidential information by (i)
restricting access to such information to the investment officers and compliance
officers who require access to such information for monitoring, hedging,
administration and compliance purposes, (ii) obtaining the agreement of such
investment officers and compliance officers to keep such information
confidential on the terms of Section 9.01, and (iii) complying with the other
requirements of an appropriate institutional compliance procedure with respect
to the investment activities of such investment officers and compliance officers
which procedure is reasonably designed to achieve compliance with applicable
law.
(b) Notwithstanding Section 9.01, the Insurer may disclose Other
Information to those of its officers, employees, directors, representatives,
agents, outside counsel, and independent auditors who need to see such
information in connection with administration of the Agreement, the exercise of
the Insurer's rights hereunder, or legitimate corporate purposes so long as such
persons agree to keep such information confidential on the terms contained in
Section 9.01.
Section 9.03 Independent Verifier. This Article IX shall not apply to
the Independent Verifier. The confidentiality arrangements among the Adviser,
the Trust and the Independent Verifier shall be set forth in the Independent
Verifier Agreement.
ARTICLE X
THE INDEPENDENT VERIFIER
Section 10.01 Retention of Independent Verifier. The Adviser shall, no
later than the Inception Date, retain, at the Adviser's expense, an accounting
firm of nationally-recognized standing, as Independent Verifier. If the
Independent Verifier selected in accordance with this Section 10.01 fails to
perform its duties to the Insurer's reasonable satisfaction, then, upon the
Insurer's request, the Adviser shall select another accounting firm of
nationally-recognized standing to act as Independent Verifier and provide the
Independent Verification Report.
Section 10.02 Responsibilities of Independent Verifier. The Independent
Verifier shall, on a periodic basis perform such procedures with respect to the
information provided to the Insurer pursuant to Article III as the Insurer and
the Adviser shall agree prior to the Inception Date and report its finding to
the Insurer (the "Independent Verification Report").
Section 10.03 Adviser Cooperation. The Adviser shall cooperate fully
with the Independent Verifier to facilitate the fulfillment of the Independent
Verifier's responsibilities.
ARTICLE XI
TERMINATION
Section 11.01 Termination. (a) Subject to paragraph (b) below, this
Agreement shall terminate (i) on the Guarantee Maturity Date if no amounts are
payable under the Policy, or (ii) thereafter, upon payment by the Insurer of all
amounts due under the Policy to the Designated Account.
(b) This Agreement may be terminated by the Trust by written notice to
the Insurer at any time (i) prior to the Inception Date, if the Board has
determined to liquidate the Fund, (ii) upon the occurrence of an Act of
Insolvency with respect to the Insurer, or (iii) if the credit rating of the
Insurer is suspended, withdrawn or downgraded to or below A1 by Xxxxx'x or A+ by
S&P. If the Trust so terminates this Agreement, the Trust shall notify the
Fund's shareholders of such termination and such notice shall state that the
Trust has released the Insurer from all liability under the Policy. The Trust
shall provide a copy of such notice to the Insurer. From and after such
termination, the Fund shall have no obligation to pay the Premium Fee (except as
to amounts thereof accrued on a daily interpolated basis prior to such
termination), and the Insurer shall have no liability under the Policy.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Amendments and Waivers. No amendment or waiver of any
provision of this Agreement nor consent to any departure therefrom, shall in any
event be effective unless in writing and signed by all of the parties hereto;
provided that any waiver so granted shall extend only to the specific event or
occurrence so waived and not to any other similar event or occurrence which
occurs subsequent to the date of such waiver.
Section 12.02 Notices. (a) Except to the extent otherwise expressly
provided herein, all notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (and if, sent by mail,
certified or registered, return receipt requested) or facsimile transmission
and, unless otherwise expressly provided herein, shall be deemed to have been
duly given or made when delivered by hand, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of facsimile
transmission, upon verbal telephone confirmation of receipt, addressed as
follows:
If to the Adviser:
Xxxxx Xxxxxx Fund Management LLC
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx Xxxxx, Head of Mutual Fund Fiduciary
Oversight Group
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Citigroup Asset Management
000 Xxxxx Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx, General Counsel-Global
Mutual Funds
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Fund:
Xxxxx Xxxxxx Capital Preservation Fund II
c/o Citigroup Asset Management
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: President
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with copies to:
Citigroup Asset Management
000 Xxxxx Xxxxxxxx Xxxxx
Xxxxxxxx, Xxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxxxx, General Counsel-Global
Mutual Funds
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Xxxxx Xxxxxx Fund Management LLC
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxx Xxxxx, Head of Mutual Fund Fiduciary
Oversight Group
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Xxxxxxx XxXxxxxxx LLP
000 Xxxxxxx Xxxxxx
Xxxxxx, XX 00000
Attention: Xxxxx X. Xxxxxx, Esq.
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Insurer:
Ambac Assurance Corporation
Xxx Xxxxx Xxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Managing Director, Structured Finance and
Credit Derivatives
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
or such other address and/or addresses (and with copies to such persons) as
shall be specified in writing by any such party to the others.
(b) Notices permitted or required to be given pursuant to Section 3.06
and Section 4.01 hereof shall be given as set forth in Schedule 3 hereto.
Section 12.03 No Waiver, Remedies and Severability. No failure on the
part of the Insurer to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right. Except to the extent provided in Section 5.01 and Section 5.02,
the remedies herein provided are cumulative and not exclusive of any remedies
provided by law. The parties further agree that the holding by any court of
competent jurisdiction that any remedy pursued by the Insurer hereunder is
unavailable or unenforceable shall not affect in any way the ability of the
Insurer to pursue any other remedy available to it. In the event any provision
of this Agreement shall be held invalid or unenforceable by any court of
competent jurisdiction, the parties hereto agree that such holding shall not
invalidate or render unenforceable any other provision hereof.
Section 12.04 Payments. All payments to the Insurer hereunder shall be
made in lawful currency of the United States in immediately available funds and
shall be made prior to 2:00 p.m. (New York City time) on the date such payment
is due by wire transfer to the account designated by the Insurer by notice to
the Fund and the Adviser.
Whenever any payment under this Agreement shall be stated to
be due on a day which is not a Business Day, such payment shall be made on the
next succeeding Business Day, and such extension of time shall in such cases be
included in computing interest or fees, if any, in connection with such payment.
Section 12.05 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (including
Section 5-1401 of the New York General Obligations Law but excluding all other
choice of law and conflicts of law rules).
Section 12.06 Submission to Jurisdiction, Waiver of Jury Trial. THE
INSURER, THE ADVISER AND THE TRUST HEREBY IRREVOCABLY SUBMIT TO THE
NON-EXCLUSIVE JURISDICTION OF ANY NEW YORK STATE OR FEDERAL COURT SITTING IN THE
BOROUGH OF MANHATTAN IN THE CITY OF NEW YORK IN ANY ACTION OR PROCEEDING ARISING
OUT OF OR RELATING TO THE AGREEMENT, AND THE INSURER, THE ADVISER AND THE TRUST
HEREBY IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR PROCEEDING
MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT. THE
INSURER, THE ADVISER AND THE TRUST HEREBY IRREVOCABLY WAIVE, TO THE FULLEST
EXTENT THAT THEY MAY LEGALLY DO SO, THE DEFENSE OF AN INCONVENIENT FORUM TO THE
MAINTENANCE OF SUCH ACTION OR PROCEEDING. THE INSURER, THE ADVISER AND THE TRUST
AGREE THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE
AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY
OTHER MANNER PROVIDED BY LAW.
THE INSURER, THE ADVISER AND THE TRUST HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE ANY RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN RESPECT
OF ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH,
THIS AGREEMENT, OR ANY COURSE OF CONDUCT, COURSE OF DEALING, STATEMENTS (WHETHER
ORAL OR WRITTEN) OR ACTIONS OF THE PARTIES HERETO. EACH OF THE INSURER, THE
ADVISER AND THE TRUST ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND
SUFFICIENT CONSIDERATION FOR THIS PROVISION AND THAT THIS PROVISION IS A
MATERIAL INDUCEMENT FOR SUCH PARTIES ENTERING INTO THIS AGREEMENT.
Section 12.07 Counterparts. This Agreement may be executed in
counterparts of the parties hereto, and each such counterpart shall be
considered an original and all such counterparts shall constitute one and the
same instrument.
Section 12.08 Paragraph Headings. The headings of paragraphs contained
in this Agreement are provided for convenience only. They form no part of this
Agreement and shall not affect its construction or interpretation.
Section 12.09 Survival. All representations, warranties and covenants
contained herein shall survive the execution and delivery of this Agreement and
the Policy, and the Termination Date.
Section 12.10 Reliance on Information. In making a determination as to
whether a Trigger Event has occurred, the Insurer shall be entitled to rely on
reports published or broadcast by media sources believed by the Insurer to be
generally reliable and on information provided to the Insurer by any other
source believed by the Insurer to be generally reliable, provided that the
Insurer reasonably and in good faith believes such information to be accurate
and has taken such steps as may be reasonable in the circumstances to attempt to
verify such information.
Section 12.11 Time of the Essence. Time is of the essence under this
Agreement.
Section 12.12 No Third-Party Rights. Nothing in this Agreement, express
or implied, shall or is intended to confer any rights upon any Person other than
the parties hereto or their respective successors or assigns, including, without
limitation, any Shareholder.
Section 12.13 Further Assurances. The parties hereto shall, upon the
request of the Insurer or the Adviser, from time to time, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, within a
reasonable period following such request, such amendments or supplements hereto
and such further instruments and take such further action as may be reasonably
necessary to effectuate the intention, performance and provisions of the
Transaction Documents.
Section 12.14 Concerning Knowledge. When used herein, a reference to
the "knowledge" of the Adviser or the Fund means the actual knowledge of a
Senior Officer of such Person of the matter in question, and not just the facts
giving rise to the matter. For purposes hereof, the term Senior Officer means
(i) in the case of the Adviser, an officer who is a Director or occupies a more
senior position, and (ii) in the case of the Fund, the President, any
Vice-President, the Treasurer or the Secretary of the Fund.
Section 12.15 No Additional Trust Created. Nothing herein or in the
Policy shall be deemed to create a trust other than that created by the
Declaration of Trust in respect of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement,
all as of the day and year first above mentioned.
AMBAC ASSURANCE CORPORATION, as Insurer
By: /s/ Xxxxxx Xxxx
-----------------------------------------
Name: Xxxxxx Xxxx
Title: First Vice President
XXXXX XXXXXX FUND MANAGEMENT LLC, as Adviser
By: /s/ Xxxxxxxxx X Xxxxx
-----------------------------------------
Name: Xxxxxxxxx X Xxxxx
Title: Secretary
XXXXX XXXXXX TRUST II, on behalf of its series
Xxxxx Xxxxxx Capital Preservation Fund II
By: /s/ X. X. Xxxxxx
-----------------------------------------
Name: X. X. Xxxxxx
Title: President
EXHIBIT A
Ambac Assurance Corporation
Xxx Xxxxx Xxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attn: General Counsel
FINANCIAL GUARANTY INSURANCE POLICY
Policy Number: [_________]
Insured Amount: The Guarantee Amount on the Guarantee Maturity Date.
Insured Obligation: The Guarantee, dated as of September 17, 2002,
by the Xxxxx Xxxxxx Capital Preservation Fund II (the
"Fund"), a series of Xxxxx Xxxxxx Trust II (the "Trust"), in
favor of the holders of Class A, Class B and Class L Shares
(the "Shareholders") of the Fund.
Beneficiary: The Trust, on behalf of the Fund, for the benefit of
the Shareholders.
Ambac Assurance Corporation ("Ambac"), a Wisconsin stock insurance company, in
consideration of the payment of the Premium and subject to the terms of this
financial guarantee insurance policy (the "Policy"), hereby agrees
unconditionally and irrevocably to pay to the Beneficiary, by deposit to the
Designated Account, that portion of the Insured Amount which shall become Due
for Payment but shall be Unpaid by Reason of Nonpayment, up to the Maximum
Amount.
Ambac will make any such payments which are due under this Policy to the
Beneficiary no later than the close of business on the second Business Day
following Receipt by Ambac of a valid Notice of Claim. Payments due under this
Policy will be satisfied by payment by Ambac to the account specified in the
relevant Notice of Claim. Payment to such account shall discharge the
obligations of Ambac under this Policy to the extent of such payment. Once
payment of the Insured Amount has been made in the manner referred to above,
Ambac shall have no further obligation under this Policy.
This Policy is not cancelable by Ambac for any reason, including the failure of
Ambac to receive payment of any Premium due in respect of this Policy. This
Policy does not insure against any risk other than Nonpayment.
This Policy shall terminate (i) on the fifth Business Day following the
Guarantee Maturity Date if Ambac shall not have received a valid Notice of
Claim, (ii) upon payment by Ambac of the Insured Amount to the Designated
Account if Ambac receives a valid Notice of Claim within five Business Days
following the Guarantee Maturity Date, or (iii) on the date the Trust terminates
this Policy by notice to Ambac pursuant to the Financial Guarantee Agreement.
The insurance provided by this Policy is not covered by the Property/Casualty
Insurance Security Fund specified in Article 76 of the New York Insurance Law.
Any capitalized terms not defined herein shall have the meaning given to such
terms in Appendix A hereto.
This Policy shall be governed by the laws of the state of New York, including
all matters of construction, validity and performance (including Section 5-1401
of the New York General Obligations Law but excluding all other choice-of-law
and conflicts-of-law rules).
In witness whereof, Ambac has caused this Policy to be duly executed on its
behalf by a duly authorized officer of Ambac.
--------------------------------
Authorized Officer
Dated: Effective Date: [______], 0000
XXXXXXXX A
DEFINITIONS
"Adviser" means Xxxxx Xxxxxx Fund Management LLC, as Adviser to the
Fund.
"Business Day" means any day other than a day on which banks located in
the City of New York, New York are required or authorized by law to close or on
which the New York Stock Exchange is closed for business.
"Class of Shares" means, as applicable, the Class A, Class B and Class
L shares of beneficial interest of the Fund designated pursuant to the Trust's
Amended and Restated Declaration of Trust dated as of September 28, 2001.
"Covered Expenses" means, for any Class of Shares, the annual ordinary
fund operating expenses reflected in the Prospectus relating to such Class of
Shares that are covered and limited by the Expense Limitation Agreement, dated
as of September 17, 2002, between the Trust and the Adviser, as it may be
amended from time to time in accordance with the terms thereof. "Covered
Expenses" shall not include Investment-Related Costs or extraordinary expenses
such as litigation and other expenses not incurred in the ordinary course of the
Fund's business.
"Designated Account" means the demand deposit account maintained with
the Custodian by the Trust on behalf of the Fund.
"Distribution Per Share" means, with respect to any Class of Shares, an
amount equal to the quotient of the amount of any distribution or payment by the
Fund in respect of, or allocated to, such Class of Shares that is not a Covered
Expense or an Investment-Related Cost, and shall include, without limitation,
any distribution of income, dividends, capital gains or principal to the
Shareholders of such Class of Shares and any payment of Income Taxes allocated
to such Class of Shares, divided by the number of shares of such Class of Shares
outstanding on the date of such distribution or payment.
"Due for Payment" means, in relation to the Insured Obligation, the
occurrence of the Guarantee Maturity Date.
"Financial Guarantee Agreement" means the Financial Guarantee
Agreement, dated as of September 17, 2002, among the Adviser, the Trust and
Ambac, as it may be amended from time to time in accordance with the terms
thereof.
"Guarantee Amount" means, as of any date, the sum of (i) the product of
(x) the Guarantee per Share applicable to the Class A Shares as of such date and
(y) the number of Class A Shares outstanding as of such date; (ii) the product
of (x) the Guarantee per Share applicable to the Class B Shares as of such date
and (y) the number of Class B Shares outstanding as of such date; and (iii) the
product of (x) the Guarantee per Share applicable to the Class L Shares as of
such date and (y) the number of Class L Shares outstanding as of such date.
"Guarantee Maturity Date" means the date that is five years after the
Inception Date, but if that date is not a Business Day, the Guarantee Maturity
Date shall be the first Business Day thereafter.
"Guarantee per Share" means, with respect to any Class of Shares, (i)
the NAV for such Class of Shares at the close of business on the Transition Date
and (ii) thereafter on any Business Day, the Guarantee per Share for such Class
of Shares on the immediately preceding Business Day divided by the sum of one
plus the quotient of (A) the amount of any Distribution Per Share with respect
to such Class of Shares effective since the immediately preceding Business Day
divided by (B) the NAV for such Class of Shares at the close of business on the
day such Distribution Per Share was effective.
"Inception Date" means the date hereof.
"Income Taxes" means U.S. income or excise taxes that are calculated on
the net income or undistributed net income of the Fund.
"Investment-Related Costs" means interest, taxes (other than Income
Taxes), brokerage commissions, transaction fees and other investment-related
costs.
"Maximum Amount" means, as of the Guarantee Maturity Date, the excess
of (a) the Guarantee Amount on the Guarantee Maturity Date, over (b) the sum of
(i) the product of (x) the NAV for the Class A Shares as of the Guarantee
Maturity Date and (y) the number of Class A Shares outstanding on such date;
plus (ii) the product of (x) the NAV for the Class B Shares as of the Guarantee
Maturity Date and (y) the number of Class B Shares outstanding on such date;
plus (iii) the product of (x) the NAV for the Class L Shares as of the Guarantee
Maturity Date and (y) the number of Class L Shares outstanding on such date.
"NAV" means, with respect to any Class of Shares of the Fund, (a) on
the Transition Date, the net asset value per share of such Class of Shares
established by the Fund for such date and (b) on any date of determination
thereafter the quotient of (i) the excess of (x) the market value of the assets
allocated to that Class of Shares determined as of the close of regular trading
on the New York Stock Exchange by the Fund in the manner described in the
Prospectus with respect to such Class of Shares over (y) the market value of any
liabilities allocated to and/or associated with such Class of Shares determined
as of the close of regular trading on the New York Stock Exchange by the Fund in
the manner described in the Prospectus with respect to such Class of Shares
divided by (ii) the number of outstanding shares of that Class of Shares at such
time. The assets, income, gain, loss, expenses and liabilities (other than those
expenses and liabilities relating specifically to a Class of Shares) of the Fund
shall be allocated to each Class of Shares of the Fund on each date of
determination on a pro rata basis based on the NAV of such Class of Shares on
the preceding date of determination.
"Notice of Claim" means a Notice of Claim and Certificate in the form
attached as Appendix B to this Policy, duly executed by the Beneficiary.
"Offering Period" means the period during which the shares of the Fund
will be offered for sale to investors as described in the Prospectus relating to
each Class of Shares.
"Prospectus" means for any Class of Shares, the prospectus and
statement of additional information pursuant to which the shares of such Class
of Shares were offered for sale, as the same may be updated and in effect from
time to time in accordance with the Financial Guarantee Agreement.
"Premium" means the premium payable in consideration for the issuance
of this Policy.
"Receipt" means actual delivery of an original to Ambac at the office
indicated on the first page of this Policy or at the new address provided as
contemplated below, Attn: General Counsel, on a Business Day. Delivery on a day
that is not a Business Day or after 5:00 p.m., New York City time, shall be
deemed to be Receipt on the next succeeding Business Day. Delivery by facsimile
shall not be complete until orally confirmed at the appropriate telephone number
set forth above. If Ambac's offices are relocated subsequent to the date hereof
while the Policy is in effect, Ambac shall notify the Fund and the Beneficiary
of Ambac's new address and telephone and facsimile numbers.
"Transition Date" means the Business Day after the end of the Offering
Period.
"Unpaid by Reason of Nonpayment" means the failure of the Fund to pay
to the Designated Account an amount such that the amount in clause (b) of the
definition of Maximum Amount is at least equal to the Guarantee Amount to which
Shareholders are entitled on the Guarantee Maturity Date if the Shareholders
redeem on such date.
APPENDIX B
NOTICE OF CLAIM AND CERTIFICATE
Ambac Assurance Corporation
Xxx Xxxxx Xxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: General Counsel
The undersigned hereby certifies to Ambac Assurance Corporation
("Ambac"), with reference to financial guaranty insurance policy No. [_________]
dated [_____], 2002 (the "Policy") issued by Ambac in respect of the shares of
Xxxxx Xxxxxx Trust II, Series Xxxxx Xxxxxx Capital Preservation Fund II (the
"Fund"), that:
(i) The undersigned, for the benefit of holders of Class A, Class B and
Class L Shares (the "Shareholders") of the Fund, is the Beneficiary of
the Policy.
(ii) There has not heretofore been a demand for the Insured Amount under the
Policy.
(iii) The Beneficiary, for the benefit of the Shareholders, is making a claim
under the Policy for the Insured Amount, in an amount not more than the
Maximum Amount.
(iv) The Beneficiary, on behalf of the Shareholders, demands payment of
$_________, and directs that payment under the Policy be deposited to
the Designated Account by bank wire transfer of federal or other
immediately available funds two (2) Business Day after receipt by Ambac
of this Notice of Claim in accordance with the terms of the Policy. The
account number of the Designated Account is [___________].
Unless the context otherwise requires, capitalized terms used in this
Notice of Claim and Certificate and not defined herein shall have the respective
meanings provided in the Policy.
ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE
COMPANY OR OTHER PERSON FILES AN APPLICATION FOR INSURANCE OR STATEMENT OF CLAIM
CONTAINING ANY MATERIALLY FALSE INFORMATION, OR CONCEALS FOR THE PURPOSE OF
MISLEADING, INFORMATION CONCERNING ANY FACT MATERIAL THERETO, COMMITS A
FRAUDULENT INSURANCE ACT, WHICH IS A CRIME AND SHALL ALSO BE SUBJECT TO A CIVIL
PENALTY NOT TO EXCEED FIVE THOUSAND DOLLARS AND THE STATED VALUE OF THE CLAIM
FOR EACH SUCH VIOLATION.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
Notice of Claim and Certificate this [ ] day of [ ], [ ].
XXXXX XXXXXX TRUST II, on behalf of its series
Xxxxx Xxxxxx Capital Preservation Fund II
By: ___________________________________________
Name:
Title:
CC: State Street Bank and Trust Company, as Custodian
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxx, Senior Vice President, JPB/3S
EXHIBIT B
Xxxxx Xxxxxx Trust II
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
September 17, 0000
Xxxxx Xxxxxx Xxxx and Trust Company
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxx, Senior Vice President, JPB/3S
Re: Xxxxx Xxxxxx Trust II - Instructions Under the Custodian Contract
Ladies and Gentlemen:
Pursuant to the terms of the Custodian Contract dated as of September
1, 1997 (as amended, the "Contract"), between Xxxxx Xxxxxx Trust II (formerly
known as Landmark Funds II) (the "Trust") and State Street Bank and Trust
Company (the "Custodian"), the undersigned Trust hereby authorizes and directs
the Custodian to follow and act upon any instructions delivered from time to
time to the Custodian by Ambac Assurance Corporation ("Ambac") with respect to
the assets of the Trust's series designated Xxxxx Xxxxxx Capital Preservation
Fund II (the "Fund") (each, an "Ambac Instruction").
Each Ambac Instruction shall be deemed to constitute "Proper
Instructions" pursuant to Section 6 of the Contract. Further, this letter itself
constitutes a "Proper Instruction" pursuant to Section 6 of the Contract and
shall be a standing instruction, effective as of the date of this letter and
until the Trust and Ambac jointly instruct the Custodian otherwise in writing.
In the event that the Custodian receives any Ambac Instruction which,
in the reasonable belief of the Custodian, conflicts in any way (in whole or in
part) with any other outstanding instruction to the Custodian regarding the
Fund's assets issued by the Trust, an investment advisor to the Trust or the
Fund or any other party (each, an "Other Instruction"), the Custodian shall be
entitled to rely upon the Ambac Instruction and further, the Custodian is hereby
authorized and directed to disregard the Other Instruction and instead, follow
and act upon the Ambac Instruction.
The Trust hereby confirms to and agrees with the Custodian that, as a
condition of any obligation of the Custodian hereunder, the Trust shall at all
times do, make, execute and deliver (and shall likewise use its best efforts to
cause Ambac to do, make, execute and deliver) all such additional and further
acts, instruments and documents as the Custodian may at any time reasonably
request (each in form and substance satisfactory to the Custodian) in connection
with these instructions and any Ambac Instruction including, without limitation,
the execution and delivery of (a) so-called Authorized Signer Lists regarding
each of the Trust's and Ambac's officers duly authorized by the Trust's Board;
(b) funds transfer security procedure documentation regarding each of the Trust
and Ambac; and (c) remote access services documentation.
The undersigned Trust hereby acknowledges that, except as may arise
from the Custodian's own negligence or willful misconduct, the Custodian shall
be without liability to the Trust for any loss, liability, claim or expense
resulting from or caused by the Custodian's acting in accordance with this
letter of instruction and/or any Ambac Instruction, and/or the Custodian's
disregarding any Other Instruction. The Trust, on behalf of the Fund, agrees to
indemnify the Custodian for any loss, liability, claim or expense incurred by
the Custodian, except as may arise from the Custodian's own negligence or
willful misconduct, in connection with actions omitted or taken by the Custodian
pursuant to each of this letter of instruction and/or any Ambac Instruction.
Please sign below to evidence your receipt of this letter and to
acknowledge that, as Custodian, you will follow, pursuant to the terms of this
instruction letter and in accordance with the governing standard of care set
forth in the Contract, any Ambac Instruction.
XXXXX XXXXXX Trust II
On behalf of its series Xxxxx Xxxxxx Capital
Preservation Fund II
By: /s/ X. X. Xxxxxx
-----------------------------------------
Name: X. X. Xxxxxx
Title: President
Acknowledged and Agreed:
STATE STREET BANK AND TRUST COMPANY
By:
------------------------------
Name:
Title:
