1
Ex-99.h(1)
DISTRIBUTION AGREEMENT
AGREEMENT made as of the 12th day of October 1989, between
XXXXXXX XXXXX PRIME FUND, INC., a Maryland corporation (the
"Fund"), and XXXXXXX XXXXX FUNDS DISTRIBUTOR, INC., a Delaware
corporation (the "Distributor").
W I T N E S S E T H
WHEREAS, the Fund is registered under the Investment Company
Act of 1940, as amended (the "Investment Company Act"), as a
closed-end, non-diversified, management investment company and it
is affirmatively in the interest of the Fund to offer its shares
for sale continuously; and
WHEREAS, the Distributor is a securities firm engaged in the
business of selling shares of investment companies either direct-
ly to purchasers or through other securities dealers; and
WHEREAS, the Fund and the Distributor wish to enter into an
agreement with each other with respect to the continuous offering
of the Fund's shares in order to promote the growth of the Fund
and facilitate the distribution of its shares.
NOW, THEREFORE, the parties agree as follows:
Section 1. Appointment of the Distributor. The Fund
hereby appoints the Distributor as the principal underwriter and
distributor of the Fund to sell shares of common stock of the
2
Fund (sometimes herein referred to as the "shares") to the public
and hereby agrees during the term of this Agreement to sell
shares of the Fund to the Distributor on the terms and conditions
herein set forth.
Section 2. Exclusive Nature of Duties. The Distributor
shall be the exclusive representative of the Fund to act as
principal underwriter and distributor of the shares, except that:
(a) The Fund may, on written notice to the Distributor,
from time to time designate other principal underwriters and
distributors of its shares with respect to areas other than the
United States as to which the Distributor may have expressly
waived in writing its right to act as such. If such designation
is deemed exclusive, the right of the Distributor under this
Agreement to sell shares in the areas so designated shall termi-
nate, but this Agreement shall remain otherwise in full effect
until terminated in accordance with the other provisions hereof.
(b) The exclusive rights granted to the Distributor to
purchase shares from the Fund shall not apply to shares of the
Fund issued in connection with the merger or consolidation of any
other investment company or personal holding company with the
Fund or the acquisition by purchase or otherwise of all (or
substantially all) the assets or the outstanding shares of any
such company by the Fund.
2.
3
(c) Such exclusive rights also shall not apply to shares
issued by the Fund pursuant to reinvestment of dividends or
capital gains distributions.
Section 3. Purchase of Shares from the Fund.
(a) Prior to the continuous offering of the shares, com-
mencing on a date agreed on by the Fund and the Distributor, it
is contemplated that the Distributor will solicit subscriptions
for shares during a subscription period which shall last for such
period as may be agreed upon by the parties hereto. The sub-
scriptions will be payable within five business days after the
termination of the subscription period, at which time the Fund
will commence operations.
(b) After the Fund commences operations, the Fund will
commence an offering of its shares and thereafter the Distributor
shall have the right to buy from the Fund the shares needed, but
not more than the shares needed (except for clerical errors in
transmission) to fill unconditional orders for shares of the Fund
placed with the Distributor by investors or securities dealers.
The price which the Distributor shall pay for the shares so
purchased from the Fund shall be the net asset value, determined
as set forth in Section 3(d) hereof.
(c) The shares are to be resold by the Distributor to
investors at net asset value, as set forth in Section 3(d) here-
of, or to securities dealers having agreements with the Distri-
3.
4
butor upon the terms and conditions set forth in Section 7 hereof.
(d) The net asset value of shares of the Fund shall be
determined by the Fund or any agent of the Fund in accordance
with the method set forth in the prospectus of the Fund and
guidelines established by the Board of Directors.
(e) The Fund shall have the right to suspend the sale of
its shares at times when repurchase is suspended pursuant to the
conditions set forth in Section 4(b) hereof. The Fund shall also
have the right to suspend the sale of its shares if trading on
the New York Stock Exchange shall have been suspended, if a
banking moratorium shall have been declared by Federal or New
York authorities, or if there shall have been some other event,
which, in the judgment of the Fund, makes it impracticable or
inadvisable to sell the shares.
(f) The Fund, or any agent of the Fund designated in
writing by the Fund, shall be promptly advised of all purchase
orders for shares received by the Distributor. Any order may be
rejected by the Fund; provided, however, that the Fund will not
arbitrarily or without reasonable cause refuse to accept or
confirm orders for the purchase of shares. The Fund (or its
agent) will confirm orders upon their receipt, will make appro-
priate book entries and, upon receipt by the Fund (or its agent)
of payment therefor, will deliver deposit receipts or certifi-
xxxxx for such shares pursuant to the instructions of the Distri-
4.
5
butor. Payment shall be made to the Fund in New York Clearing
House funds. The Distributor agrees to cause such payment and
such instructions to be delivered promptly to the Fund (or its
agent).
Section 4. Repurchase of Shares by the Fund.
(a) Any of the outstanding shares may be tendered for
repurchase pursuant to a tender offer made by the Fund, and the
Fund agrees to repurchase the shares so tendered in accordance
with the requirements of the Securities Exchange Act of 1934, as
amended, and the rules thereunder and the applicable tender offer
provisions set forth in the prospectus of the Fund. The price to
be paid to repurchase the shares shall be equal to the net asset
value calculated in accordance with the provisions of Section
3(d) hereof, less the Early Withdrawal Charge (as defined in the
prospectus of the Fund), if any, set forth in the prospectus of
the Fund. All payments by the Fund hereunder shall be made in
the manner set forth below.
The Fund shall pay the total amount of the repurchase price
as defined in the above paragraph pursuant to the instructions of
the Distributor or return the tendered shares promptly following
the termination or withdrawal of the tender offer.
The proceeds of any repurchase of shares shall be paid by the
Fund as follows: (i) any applicable Early Withdrawal Charge
shall be paid to the Distributor and (ii) the balance shall be
5
6
paid to or for the account of the shareholder, in each case in
accordance with the applicable provisions of the prospectus.
(b) Repurchases of shares pursuant to a tender offer or
payment may be suspended at such times as may be determined by
the Board of Directors of the Fund as set forth in the prospectus
of the Fund.
Section 5. Duties of the Fund.
(a) The Fund shall furnish to the Distributor copies of
all information, financial statements and other papers which the
Distributor may reasonably request for use in connection with the
distribution of shares of the Fund, and this shall include, upon
request by the Distributor, one certified copy of all financial
statements prepared for the Fund by independent auditors. The
Fund shall make available to the Distributor such number of
copies of its prospectus as the Distributor shall reasonably
request.
(b) The Fund shall take, from time to time, but subject to
the necessary approval of the shareholders, all necessary action
to fix the number of authorized shares and such steps as may be
necessary to register the same under the Securities Act of 1933,
as amended (the "Securities Act"), to the end that there will be
available for sale such number of shares as the Distributor
reasonably may be expected to sell.
(c) The Fund shall use its best efforts to qualify and
maintain the qualification of an appropriate number of its shares
6
7
for sale under the securities laws of such states as the Distri-
butor and the Fund may approve. Any such qualification may be
withheld, terminated or withdrawn by the Fund at any time in its
discretion. As provided in Section 8(c) hereof, the expense of
qualification and maintenance of qualification shall be borne by
the Fund. The Distributor shall furnish such information and
other material relating to its affairs and activities as may be
required by the Fund in connection with such qualification.
(d) The Fund will furnish, in reasonable quantities upon
request by the Distributor, copies of annual and interim reports
of the Fund.
Section 6. Duties of the Distributor.
(a) The Distributor shall devote reasonable time and
effort to effect sales of shares of the Fund, but shall not be
obligated to sell any specific number of shares. The services of
the Distributor to the Fund hereunder are not to be deemed exclu-
sive and nothing herein contained shall prevent the Distributor
from entering into like arrangements with other investment com-
panies so long as the performance of its obligations hereunder is
not impaired thereby.
(b) In selling the shares of the Fund, the Distributor
shall use its best efforts in all respects duly to conform with
the requirements of all Federal and state laws relating to the
sale of such securities. Neither the Distributor nor any se-
lected dealer nor any other person is authorized by the Fund to
7.
8
those contained in the registration statement or related prospec-
tus and any sales literature specifically approved by the Fund.
(c) The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of
sales to investors and selected dealers, the collection of
amounts payable by investors and selected dealers on such sales,
and the cancellation of unsettled transactions, as may be neces-
sary to comply with the requirements of the National Association
of Securities Dealers, Inc. (the "NASD"), as such requirements
may from time to time exist.
Section 7. Selected Dealer Agreements.
(a) The Distributor shall have the right to enter into
selected dealer agreements with securities dealers of its choice
("selected dealers") for the sale of the shares; provided, that
the Fund shall approve the forms of agreements with dealers.
Shares sold to selected dealers shall be for resale by such
dealers only at net asset value determined as set forth in
Section 3(d) hereof. The form of agreement with selected dealers
to be used during the subscription period described in Section
3(a) is attached hereto as Exhibit A and the initial form of
agreement with selected dealers to be used in the continuous
offering of the shares is attached hereto as Exhibit B.
(b) Within the United States, the Distributor shall offer
8.
9
and sell shares only to such selected dealers as are members in
good standing of the NASD.
Section 8. Payment of Expenses.
(a) The Fund shall bear all costs and expenses of the
Fund, including fees and disbursements of its counsel and audi-
tors, in connection with the preparation and filing of any re-
quired registration statements and/or prospectuses under the
Investment Company Act and the Securities Act, and all amendments
and supplements thereto, and in connection with any fees and
expenses incurred with respect to any filings with the NASD and
preparing and mailing annual and interim reports and proxy mate-
rials to shareholders (including but not limited to the expense
of setting in type any such registration statements, prospec-
tuses, annual or interim reports or proxy materials).
(b) The Distributor shall be responsible for any payments
made to selected dealers as reimbursement for their expenses
associated with payments of sales commissions to financial con-
sultants. In addition, after the prospectuses and annual and
interim reports have been prepared and set in type, the
Distributor shall bear the costs and expenses of printing and
distributing any copies thereof which are to be used in
connection with the offering of shares to selected dealers or
investors pursuant to this Agreement. The Distributor shall bear
the costs and expenses of preparing, printing and distributing
any other literature used by the Distributor or furnished by it
9.
10
for use by selected dealers in connection with the offering of
the shares for sale to the public and any expenses of advertising
incurred by the Distributor in connection with such offering.
(c) The Fund shall bear the cost and expenses of qualifi-
cation of the shares for sale pursuant to this Agreement, and, if
necessary or advisable in connection therewith, of qualifying the
Fund as a broker or dealer, in such states of the United States
or other jurisdictions as shall be selected by the Fund and the
Distributor pursuant to Section 5(c) hereof and the cost and
expenses payable to each such state for continuing qualification
therein until the Fund decides to discontinue such qualification
pursuant to Section 5(c) hereof.
Section 9. Indemnification.
(a) The Fund shall indemnify and hold harmless the Distri-
butor and each person, if any, who controls the Distributor
against any loss, liability, claim, damage or expense (including
the reasonable cost of investigating or defending any alleged
loss, liability, claim, damage or expense and reasonable counsel
fees incurred in connection therewith), as incurred, arising by
reason of any person acquiring any shares, which may be based on
the Securities Act, or on any other statute or at common law, on
the ground that the registration statement or related prospectus,
as from time to time amended and supplemented, or an annual or
interim report to shareholders of the Fund, includes an untrue
statement of a material fact or omits to state a material fact
10.
11
required to be stated therein or necessary in order to make the
statements therein not misleading, unless such statement or
omission was made in reliance upon, and in conformity with,
information furnished to the Fund in connection therewith by or
on behalf of the Distributor; provided, however, that in no case
(i) is the indemnity of the Fund in favor of the Distributor and
any such controlling persons to be deemed to protect such
Distributor or any such controlling persons thereof against any
liability to the Fund or its shareholders to which the
Distributor or any such controlling persons would otherwise be
subject by reason of willful misfeasance, bad faith or gross
negligence in the performance of their duties or by reason of the
reckless disregard of their obligations and duties under this
Agreement; or (ii) is the Fund to be liable under its indemnity
agreement contained in this paragraph with respect to any claim
made against the Distributor or any such controlling persons.,
unless the Distributor or such controlling persons, as the case
may be, shall have notified the Fund in writing within a
reasonable time after the summons or other first legal process
giving information of the nature of the claim shall have been
served upon the Distributor or such controlling persons (or after
the Distributor or such controlling persons shall have received
notice of such service on any designated agent), but failure to
notify the Fund of any such claim shall not relieve it from any
liability which it may have to the person against whom such
11.
12
action is brought otherwise than on account of its indemnity
agreement contained in this paragraph. The Fund will be entitled
to participate at its own expense in the defense, or, if it so
elects, to assume the defense of any suit brought to enforce any
such liability, but if the Fund elects to assume the defense,
such defense shall be conducted by counsel chosen by it and
satisfactory to the Distributor or such controlling person or
persons, defendant or defendants in the suit. In the event the
Fund elects to assume the defense of any such suit and retain
such counsel, the Distributor or such controlling person or
persons, defendant or defendants in the suit, shall bear the fees
and expenses, as incurred, of any additional counsel retained by
them, but, in case the Fund does not elect to assume the defense
of any such suit, it will reimburse the Distributor or such
controlling person or persons, defendant or defendants in the
suit, for the reasonable fees and expenses, as incurred, of any
counsel retained by them. The Fund shall promptly notify the
Distributor of the commencement of any litigation or proceedings
against it or any of its officers or Directors in connection with
the issuance or sale of any of the shares.
(b) The Distributor shall indemnify and hold harmless the
Fund and each of its Directors and officers and each person, if
any, who controls the Fund against any loss, liability, claim,
damage or expense, as incurred, described in the foregoing
indemnity contained in subsection (a) of this Section, but only
12.
13
with respect to statements or omissions made in reliance upon,
and in conformity with, information furnished to the Fund in
writing by or on behalf of the Distributor for use in connection
with the registration statement or related prospectus, as from
time to time amended, or the annual or interim reports to
shareholders. In case any action shall be brought against the
Fund or any person so indemnified, in respect of which indemnity
may be sought against the Distributor, the Distributor shall have
the rights and duties given to the Fund, and the Fund and each
person so indemnified shall have the rights and duties given to
the Distributor by the provisions of subsection (a) of this
Section 9.
Section 10. Duration and Termination of this Agreement.
This Agreement shall become effective as of the date first above
written and shall remain in force until September 30, 1991 and
thereafter, but only so long as such continuance is specifically
approved at least annually by (i) the Directors, or by the vote
of a majority of the outstanding voting securities of the Fund,
and (ii) by the vote of a majority of those Directors who are not
parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on
such approval.
This Agreement may be terminated at any time, without the
payment of any penalty, by the Directors or by vote of a majority
of the outstanding voting securities of the Fund, or by the
13.
14
Distributor, on sixty days' written notice to the other party.
This Agreement shall automatically terminate in the event of its
assignment.
The terms "vote of a majority of the outstanding voting
securities," "assignment," "affiliated person" and "interested
person," when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act.
Section 11. Amendments of this Agreement. This Agreement
may be amended by the parties only if such amendment is specifi-
cally approved by (i) the Directors, or by the vote of a majority
of outstanding voting securities of the Fund, and (ii) by the
vote of a majority of those Directors of the Fund who are not
parties to this Agreement or interested persons of any such party
cast in person at a meeting called for the purpose of voting on
such approval.
Section 12. Governing Law. The provisions of this Agree-
ment shall be construed and interpreted in accordance with the
laws of the State of New York as at the time in effect and the
applicable provisions of the Investment Company Act. To the
14.
15
extent that the applicable law of the State of New York, or any
of the provisions herein, conflict with the applicable provisions
of the Investment Company Act, the latter shall control.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
XXXXXXX XXXXX PRIME FUND, INC.
By
---------------------------------
ATTEST:
----------------
Secretary
XXXXXXX XXXXX FUNDS DISTRIBUTOR, INC.
By
---------------------------------
ATTEST:
----------------
Secretary
15.
