EXHIBIT (G)(2)
SECURITIES LENDING AND REPURCHASE AGREEMENT SERVICES
CLIENT ADDENDUM
THIS AGREEMENT for securities lending and/or reverse repurchase agreement
services is made, effective as of --------------------, 20----, by and between
the PRINCIPAL PRESERVATION PORTFOLIOS, INC. ("Principal") and UNION BANK OF
CALIFORNIA, NATIONAL ASSOCIATION ("Bank") and is an addendum to the agreement
for custody services (Custodian Agreement (Foreign and Domestic Securities) or
Institutional Custody Services Agreement) by and between Principal and Bank
dated -------------------, 20---, (referred to hereinafter as the "Custodian
Agreement"). Capitalized terms not otherwise defined herein shall have the same
meanings herein as in the Custodian Agreement.
Principal and Bank agree as follows:
I. APPOINTMENT OF BANK; ELIGIBLE COUNTERPARTIES
1. Appointment of Bank as Agent. Principal hereby authorizes Bank to act as
agent for Principal in securities lending transactions and, if Principal is not
a Plan (as defined in Exhibit G), in reverse repurchase agreement transactions
with respect to securities deposited with or held by Bank pursuant to the
Custodian Agreement. Bank's duties and responsibilities shall be only those set
forth in this Addendum and the Custodian Agreement, or as otherwise agreed to by
Bank in writing. Further, Principal authorizes Bank to delegate Bank's duties
as agent hereunder to a subagent(s).
2. Eligible Borrowers/Buyers. Bank may lend securities only to such
securities brokers and dealers or other person or entities as are listed in the
attached Exhibit A, as amended from time to time ("Borrowers"), unless and until
otherwise instructed in writing by Principal. If Principal is a Plan (as
defined in Exhibit G) Bank may lend securities only to: (a) a brokerdealer
registered under the Securities Exchange Act of 1934 (the " 1934 Act"); (b) a
brokerdealer exempted from registration under Section 15(a)(1) of the 1934 Act
as a dealer in exempted Government Securities (as defined in Section 3(a)(12) of
the 0000 Xxx); or (c) a bank Bank may engage in reverse repurchase agreement
transactions on Principal's behalf with only those brokers and dealers or other
persons or entities as are listed on the attached Exhibit A, as amended from
time to time ("Buyers"), unless and until otherwise instructed in writing by
Principal. All securities lending transactions and reverse repurchase agreement
transactions entered into by Bank hereunder shall be entered into pursuant to
related agreements between the Borrowers or Buyers, as the case may be, and Bank
on behalf of Principal. Principal's execution of Exhibits A, B, and C or any
amendment to Exhibits A, B, or C shall constitute Principal's representation and
agreement that it has received, read, and understood the terms of each such
agreement in respect of each Borrower or Buyer, as the case may be, listed
thereon. Principal hereby (i) represents and warrants to Bank (which
representations shall be deemed repeated at and as of all times when this
Addendum is in effect) that Principal has the power and authority, and has taken
all necessary action, to enter into this Addendum and each such agreement, and
to perform the obligations of a lender or seller, as the case may be, under such
transactions, and to authorize Bank to execute and deliver each such agreement
on Principal's behalf and to enter into such transactions and to perform the
obligations of a lender or seller, as the case may be, under such transactions
on behalf of Principal, and (ii) authorizes Bank to execute and deliver each
such agreement on Principal's behalf and to enter into any transaction of a
nature contemplated by any such agreement on behalf of Principal and to perform
the obligations of a lender or seller, as the case may be, under such
transactions on behalf of Principal and (iii) has furnished or will furnish Bank
with evidence satisfactory to Bank that Principal has all necessary authority to
enter into this Addendum and each of the transactions contemplated hereby.
Bank shall have full unlimited power and authority to perform each and every act
or thing it may in its discretion deem necessary or appropriate in respect of
any Securities Lending Agreement (as defined below) or Reverse Repurchase
Agreement (as defined below) or any securities loan or any reverse repurchase
agreement transaction. Bank shall be fully indemnified by Principal for engaging
in repurchase agreement and securities lending transactions on behalf of
Principal, with respect to any or all securities deposited with or held by Bank,
with any Borrower.
II. SECURITIES LENDING TRANSACTIONS
1. Loans; Securities Loan Agreement. Principal hereby authorizes Bank, as
agent for Principal, to lend, from time to time in its discretion, securities of
Principal at any time on deposit with or held by Bank. Principal acknowledges
and agrees that any securities lending agreement (each, a "Securities Lending
Agreement") may take the form of a master agreement covering a series of
securities loan transactions between a Borrower and Bank as lender on behalf of
Principal and other accounts for which Bank provides similar services as
securities lending agent. There can be no assurance that the activities of any
such other account pursuant to any such agreement, or by Bank in respect of any
such other account, will not have an adverse effect on Principal or on the
rights of Principal in respect of any securities loan. Principal further
acknowledges that it will not be entitled to participate in any dividend
reinvestment programs with respect to securities that are on loan on the
applicable record date.
Bank shall not in any event be liable to Principal or anyone else in respect of
any delay or failure of any other person (including any Borrower or any other
lender) to comply with the provisions of the Securities Lending Agreement.
2. Marking to Market. Bank shall use reasonable efforts to exercise the right
to demand additional Collateral (as defined in the Securities Lending Agreement)
in accordance with the terms of the Securities Lending Agreement. Bank's only
responsibility in this regard is to use such efforts to make such demand. In
valuing Collateral or Loaned Securities (as defined in the Securities Lending
Agreement) for this purpose, Bank shall utilize computer pricing services
available to it, including those within its regular accounting system, and shall
not be responsible for the accuracy of such pricing services and shall have no
responsibility for valuing Collateral or Loaned Securities for which such
pricing services do not provide any valuation.
3. Collateral. Collateral received by Bank in connection with a loan of
securities hereunder shall be held by Bank separate and apart from Bank's own
funds and securities. The amount of Collateral (as such term is defined in the
Securities Lending Agreement) transferred to Bank by any Borrower at any time
may be an amount calculated to meet the obligations of such Borrower in respect
of any or all loans to Borrower by Principal and any one or more other clients
of Bank, whether entered into pursuant to the same loan or Securities Lending
Agreement or more than one such loan or agreement, and may be an amount
calculated net of amounts of Collateral required at the time to be delivered by
Principal and any one or more such other clients to such Borrower pursuant to
any such Securities Lending Agreements. In addition, the amount of Collateral
transferred by Bank to any Borrower at any time may be an amount calculated to
meet the obligations of Principal and any one or more other clients of Bank to
such Borrower in respect of any or all loans to Borrower, whether entered into
pursuant to the same Securities Lending Agreement or more than one such
agreement, and may be an amount calculated net of amounts of Collateral required
at the time to be delivered by such Borrower to Principal or one or more such
other clients pursuant to any such Securities Lending Agreements. Bank shall in
good faith allocate or reallocate (including without limitation in respect of
any return of Collateral to any Borrower) any Collateral held by it or received
by it from any Borrower among Principal and Bank's clients and in respect of any
or all of such loans in such manner and on such bases as Bank in its discretion
may from time to time determine, and shall be fully indemnified by Principal
with respect to such allocations and reallocations. As a result of the
foregoing, the nature or amount of Collateral credited to the account of
Principal in respect of any Borrower or any securities loan or loans will vary
and may be different from or less than the nature or amount of Collateral which
might have been held by it or credited to its account if it had entered into
such loan or loans directly with such Borrower or if Bank had entered into such
loan or loans with such Borrower as agent solely for Principal.
Bank may, in its discretion, subject to the applicable requirements of the
federal Employee Retirement Income Security Act of 1974, as amended ("ERISN'),
invest and reinvest any Cash Collateral (as defined in the Securities Lending
Agreement) on behalf of Principal in investments specified in Exhibit D as it
may be amended from time to time, including, without limitation, units of any
investment company managed or advised by Bank, UnionBanCal Corporation ("UNBU),
HghMark Capital Management, Inc. ("HCW), their subsidiaries or affiliates and/or
for which Bank, UNBC, HCM, their subsidiaries or affiliates act as custodian,
shareholder, servicing agent, or subtransfer agent or provide other services for
a fee, includingwithout limitation, the IEghMark Funds. Principal acknowledges
that Bank, UNBC, HCM, their subsidiaries or affiliates will receive fees for
such services in addition to the fees payable under this Addendum. A mutual
fund fee disclosure statement will be delivered to Principal for review prior to
investment in any such HighMark Funds. Bank may invest any or all of such Cash
Collateral in any one or more of such investments, including any such 11ighMark
Funds, on any basis Bank determines appropriate. Bank shall be entitled to pay
or retain from any amounts held by Bank on Principal's account from time to time
in respect of any securities loan (i) all Cash Collateral Fees and other sums
required to be paid in accordance with a Securities Lending Agreement, and (ii)
Bank's compensation or other amounts incurred by it or owed to it in respect of
its services in lending securities hereunder.
Principal acknowledges and agrees that any income or gains and losses from
investing and reinvesting any Cash Collateral delivered by a Borrower to the
Bank pursuant to a Securities Lending Agreement shall be at Principal's risk and
for Principal's account.
4. Distributions on Loaned Securities. Bank shall pay to or for the account
of Principal, in accordance with Principal's reasonable instructions, any
amounts it receives from a Borrower which represent interest, dividends, and
other distributions made with respect to any Loaned Securities (as defined in
the Securities Lending Agreement) and which are determined by Bank to be for
Principal's account.
5. Term of Loans; Termination of Loans; Default. Bank shall have full
discretion to determine the term of any securities lending transaction entered
into by Bank on Principal's behalf hereunder subject to any guidelines provided
to it in writing by Principal and agreed to by Bank, and shall in no event incur
any liability for entering into any such transaction on behalf of Principal for
a term equal to the maximum available (or permitted pursuant to such
guidelines), regardless of any change in market conditions or in the financial
condition of the Borrower or any other person. Bank may in its discretion
terminate any loan of securities pursuant to the provisions of the Securities
Lending Agreement based on such factors as it in its discretion deems relevant,
but shall in no event have any liability for its failure to take steps to
terminate any transaction on any date or at any time unless instructed, with
reasonable notice, by Principal. Bank shall in no event have any responsibility
for taking steps to terminate any securities lending transaction before its
maturity (unless instructed, with reasonable notice, to do so by Principal),
regardless of any change in market conditions or in the financial condition of
the Borrower or any other person. In the event Bank receives actual notice of
an Event of Default (as defined in the Securities Lending Agreement) by a
Borrower under the Securities Lending Agreement, it shall notify Principal
thereof as soon as reasonably practicable and may in its discretion (but shall
in no event be obligated to) exercise any rights or remedies given the Lender
under the Securities Lending Agreement until instructed by Principal otherwise,
provided that Bank shall in no event incur any liability or its exercise or its
failure to exercise any such rights or remedies under any circumstances.
6. Termination of Lending Authority. Principal, or if Principal is a Plan (as
defined in Exhibit G), the Authorizing Fiduciary designated in Exhibit G, may
terminate Bank's authority to lend securities by thirty (3 0) days' or if
Principal is a planfive (5) days' written notice to Bank and may direct Bank to
terminate any outstanding securities loans, which Bank shall do in accordance
with provisions of the Securities Lending Agreement. In the event Principal or
Authorizing Fiduciary terminates Bank's authority to lend securities hereunder,
the provisions of this Addendum relating to securities loans, including
provisions relating to Bank's compensation, shall remain in effect with respect
to all securities loans outstanding on the effective date of termination, until
termination thereof in accordance with the Securities Lending Agreement.
III. REVERSE REPURCHASE AGREEMENT TRANSACTIONS
1. Reverse Repurchase Agreement Transactions; Reverse Repurchase Agreements.
Principal hereby authorizes Bank, as agent for Principal, to engage from time to
time, in its discretion, in reverse repurchase agreement transactions with
Buyers with respect to securities of Principal at any time on deposit with or
held by Bank; provided, however, that if Principal is a Plan (as defined in
Exhibit G), Bank may not engage in any such reverse repurchase agreements and
this Section III shall not apply. Principal acknowledges and agrees that any
reverse repurchase agreement (each a "Master Repurchase Agreement") may take the
form of a master agreement covering a series of reverse repurchase agreement
transactions between a Buyer and Bank as seller on behalf of Principal and other
accounts administered through Bank's Trust Department. There can be no
assurance that the activities of any other such account pursuant to any such
agreement, or by Bank in respect of any such other account, will not have an
adverse effect on Principal or on the rights of Principal with respect to any
such reverse repurchase agreement transaction.
Bank shall not in any event be liable to Principal or anyone else in respect of
any delay or failure of any other person (including any Buyer or any other
seller) to comply with the provisions of the Master Repurchase Agreement.
2. Marking to Market. Bank shall use all reasonable efforts to exercise
Principal's right to require margin maintenance under the Master Repurchase
Agreement. Bank's only responsibility in this regard is to use such efforts to
make demand for such margin maintenance. In valuing Collateral or Loaned
Securities for this purpose, Bank shall utilize computer pricing services
available to it, including those within its regular accounting system, and shall
not be responsible for the accuracy of such pricing services and shall have no
responsibility for valuing Collateral or Loaned Securities for which such
pricing services do not provide any valuation.
3. Investment of Cash. Cash received by Bank in connection with reverse
repurchase agreement transactions hereunder shall be held by Bank separate and
apart from Bank's own funds and securities. The amount of the Purchase Price or
any amount with respect to a Margin Excess (as such terms are defined in the
Master Repurchase Agreements) transferred to Bank by any Buyer at any time may
be an amount calculated to meet the obligations of such Buyer in respect of any
or all sales to Buyer by Principal and any one or more other clients of Bank,
whether entered into pursuant to the same reverse repurchase agreement
transaction or Master Repurchase Agreement, and may be an amount calculated net
of amounts of the Repurchase Price (as such term is defined in the Master
Repurchase Agreement) required at the time to be delivered by Principal and any
one or more such other clients to such Buyer pursuant to any such Master
Repurchase Agreements. In addition, the amount of the Repurchase Price or any
amount with respect to a Margin Deficit (as such term is defined in the Master
Repurchase Agreement) transferred by Bank to any Buyer at any time may be an
amount calculated to meet the obligations of Principal and any one or more other
clients of Bank to such Buyer in respect of any or all sales to such Buyer,
whether entered into pursuant to the same Master Repurchase Agreement or more
than one such agreement, and may be an amount calculated net of amounts of the
Purchase Price required at the time to be delivered by such Buyer to Principal
or one or more such other clients pursuant to any such Master Repurchase
Agreements. Bank shall in good faith allocate or reallocate (including without
limitation in respect of any payment of any Repurchase Price to any Buyer) any
Purchase Price and any amount with respect to a Margin Excess held by it or
received by it from any Buyer among Principal and Bank's clients and in respect
of any or all of such reverse repurchase agreement transactions in such manner
and on such bases as Bank in its discretion may from time to time determine, and
shall be fully indemnified by Principal with respect to such allocations and
reallocations. As a result of the foregoing, the nature or amount of the
Purchase Price and any amount with respect to a Margin Excess credited to the
account of Principal in respect of any Buyer or any reverse repurchase agreement
transaction or transactions will vary and may be different from or less than the
nature or amount of the Purchase Price and any amount with respect to a Margin
Excess which might have been held by it or credited to its account if it had
entered into such reverse repurchase transaction or transactions directly with
such Buyer or if Bank had entered into such reverse repurchase agreement
transaction with such Buyer as agent solely for Principal.
Bank may in its discretion invest and reinvest cash received by Bank on behalf
of Principal in connection with reverse repurchase agreement transactions for
the benefit of and at the risk of Principal in investments specified in Exhibit
D, as it may be amended from time to time, including without limitation in any
way, I1ighMark Funds for which Bank provides investment advice, custody and
other administrative services. Principal acknowledges that Bank shall receive
fees from 11ighMark Funds in addition to the fees earned under this Addendum.
Bank may invest any or all of such cash in any one or more of such investments,
including such HighMark Funds, on any basis Bank determines appropriate. Bank
shall be entitled to pay or retain from any amounts held by Bank for Principal's
account from time to time in respect of any reverse repurchase agreement
transaction (i) the Repurchase Price, any amount necessary to correct a Margin
Deficit, and other sums required to be paid in accordance with a Master
Repurchase Agreement, a ' nd (ii) Bank's compensation and other amounts incurred
by it or owed to it in respect of its services with respect to reverse
repurchase agreement transactions hereunder.
4. Distributions on Securities Subject to Reverse Repurchase Agreements. Bank
shall pay to or for the account of Principal, in accordance with Principal's
reasonable instructions, any amounts received from a Buyer or its agent which
represent interest, dividends or other distributions on Purchased Securities (as
such term is defined in the Master Repurchase Agreement) and which are
determined by Bank to be for Principal's account.
5. Tern of Reverse Repurchase Agreement Transactions; Termination of Reverse
Repurchase Agreement Transactions; Default. Bank shall have full discretion to
determine the term of any reverse repurchase agreement transaction entered into
by Bank on Principal's behalf hereunder subject to any guidelines provided to it
in writing by Principal and agreed to by Bank, and shall in no event incur any
liability for entering into any such reverse repurchase agreement transaction on
behalf of Principal for a term equal to the maximum available (or permitted
pursuant to such guidelines), regardless of any change in market conditions or
in the financial condition of the Buyer or any other person. Bank may in its
discretion terminate any reverse repurchase agreement transaction pursuant to
the provisions of the Master Repurchase Agreement based on such factors as it in
its discretion deems relevant, but shall in no event have any liability for its
failure to terminate any transaction on any date or at any time unless
instructed, with reasonable notice, by Principal. Bank shall in no event have
any responsibility for taking steps to terminate any reverse repurchase
agreement transaction before its maturity (unless instructed, with reasonable
notice, to do so by Principal), regardless of any change in market conditions or
in the financial condition of the Buyer or any other person. In the event Bank
receives actual notice of an Event of Default (as defined in the Master
Repurchase Agreement) by a Buyer under the Master Repurchase Agreement, it shall
notify Principal thereof as soon as reasonably practicable and may in its
discretion (but shall in no event be obligated to) exercise any rights or
remedies given the seller under the Master Repurchase Agreement until instructed
by Principal otherwise, provided that Bank shall in no event incur any liability
for its failure to exercise any such rights or remedies under any circumstances.
6. Termination of Authority to Enter into Reverse Repurchase Agreements.
Principal may terminate Bank's authority to enter into reverse repurchase
agreement transactions by thirty (30) days'written notice to Bank and may direct
Bank to terminate any outstanding reverse repurchase agreement transaction,
which Bank shall do in accordance with provisions of the Master Repurchase
Agreement. In the event Principal terminates Bank's authority to enter into
reverse repurchase agreement transactions hereunder, the provisions of this
Addendum relating to reverse repurchase agreements, including provisions
relating to Bank's compensation, shall remain in effect with respect to all
reverse repurchase agreement transactions outstanding on the effective date of
termination, until termination thereof in accordance with the Master Repurchase
Agreement.
IV. GENERAL
1. Principal's Representations and Warranties. In addition to any other
representation and warranty of Principal hereunder, Principal represents and
warrants (which representations shall be deemed repeated at and as of all times
when this Addendum is in effect) that:
a) Lending Principal's securities and/or entering into reverse repurchase
agreement transactions as contemplated in this Addendum, and the appointment of
Bank as Principal's agent as contemplated hereby, shall be in compliance with,
and shall not be in violation of any law, regulation, charter, bylaw, or other
restriction applicable to Principal.
b) Principal is the owner, free and clear of any lien, charge or other
encumbrance, of all securities that may be lent from time to time. Principal
will not sell any securities subject to this Addendum unless and until Principal
shall have first obtained confirmation from Bank that the securities Principal
intends to sell are not subject to an outstanding loan or reverse repurchase
agreement transaction. Principal will notify Bank in writing, or cause written
notice to be given to Bank, that Principal intends to sell securities which are
subject to this Addendum, such notice to be provided on or before the second
"Business Day" (as defined below) immediately prior to the trade date on which
Principal intends to sell such securities. "Business Day" shall mean any day on
which regular trading occurs on the New York Stock Exchange.
c) Principal acknowledges and agrees that there can be no assurance, during
the term of any securities loan or reverse repurchase agreement transaction,
that (notwithstanding any provision of any Securities Lending Agreement or
Master Repurchase Agreement) Principal will be able to participate in, or
receive the full benefit of, any corporate action, dividend or principal
payment, or any other right or privilege accruing in respect of any securities
subject to any such loan or reverse repurchase agreement transaction. Without
limiting the generality of the foregoing, Principal hereby waives the right to
vote or to provide any consent or to take any similar action with respect to any
securities loaned or which are subject to any reverse repurchase agreement
transaction during the term of such loan, and/or reverse repurchase agreement
transaction.
d) Principal has made such examination, review and investigation of the facts
necessary to evaluate the merits and risks of securities lending and reverse
repurchase agreement transactions and investments in connection therewith
(collectively "securities lending") as Principal deems appropriate; Principal
acknowledges that the Bank has not given it any tax or accounting advice
concerning this Addendum or any of the transactions contemplated hereby or any
other investment advice or rendered any opinion as to whether participation in
securities lending or reverse repurchase agreements is prudent and Principal is
not relying on any advice of or representation or warranty by the Bank.
Principal has such knowledge and experience in financial and business matters
that it is capable of evaluating the merits and assuming the risk of securities
lending, including the risks of loss of principal in connection therewith; and
Principal acknowledges that Bank is not acting as a fiduciary for or an adviser
to it in respect of this Addendum or the transactions contemplated hereby.
e) Principal is duly organized and validly existing and in good standing under
the law of the jurisdiction in which it is established and it has all necessary
power and authority to enter into this Addendum and to carry out the
transactions contemplated hereby; and this Addendum constitutes a legal, valid
and binding obligation enforceable against Principal (subject to applicable
bankruptcy, reorganization, insolvency, or similar laws affecting creditors'
rights generally).
By its signature hereunder, Principal acknowledges that it has been apprised of
the fact that:
NOTWITHSTANDING ANY OTHER PROVISION TO THE CONTRARY, IN THE EVENT OF THE DEFAULT
OF A BORROWER AND/OR BUYER, THE PROVISIONS OF THE SECURITIES INVESTOR PROTECTION
ACT OF 1970 MAY NOT PROTECT PRINCIPAL'S ACCOUNT WITH RESPECT TO SECURITIES LOAN
OR REVERSE REPURCHASE AGREEMENT TRANSACTIONS AND IN SUCH EVENT, THE COLLATERAL
DELIVERED TO LENDER IN CONNECTION WITH SUCH LOANS AND REVERSE REPURCHASE
AGREEMENTS, IF ANY, MAY BE THE ONLY SOURCE OF SATISFACTION OF THE BORROWER'S OR
BUYER'S OBLIGATIONS IN THE EVENT THE BORROWER/BUYER FAILS TO RETURN THE LOANED
SECURITIES AND OR SECURITIES SUBJECT TO REVERSE REPURCHASE AGREEMENTS.
2. Instructions of Principal. All instructions of Principal to Bank shall be
provided in accordance with the terms of this Addendum and the Custodian
Agreement. Bank shall be entitled to accept and rely on any instructions Bank
reasonably believes to have been authorized by Principal. Bank shall have no
obligation to act in the absence of instructions. If at any time the
circumstances require immediate action and Bank endeavors to obtain instructions
from Principal, but is unable to so obtain them, Bank may act, and will be fully
indemnified by Principal in acting, in such manner as it considers appropriate
hereunder.
3. Reports. Bank shall provide Principal with periodic reports at such
intervals as Principal and Bank shall agree, reflecting a schedule of property,
statement of transactions recording principal and income receipts and
disbursements, outstanding loans and reverse repurchase agreement transactions,
income, and schedule of property detailing investments made hereunder.
4. Duties of Bank. Bank's duties and responsibilities shall be only those
expressly set forth in this Addendum, or as otherwise agreed by Bank in writing.
Bank shall not be liable for acting in accordance with instructions that it
reasonably believes have been given by Principal under this Addendum or
otherwise in accordance with this Addendum or within the scope of its actual or
apparent authority. Bank shall not be required to appear in or defend any legal
proceedings or take any other action relating to a securities loan or reverse
repurchase agreement transaction with respect to the property subject to this
Addendum, unless Bank has been indemnified to its satisfaction against loss and
expense (including reasonable attorneys' fees). Bank may consult with counsel
acceptable to it concerning its duties and responsibilities under this Addendum,
and shall not be liable for any action taken or not taken on the advice of such
counsel.
Principal acknowledges that Bank and its agents, if any, act as agent for other
repurchase agreement and securities lending clients and, accordingly, that other
clients' securities may be used for such transactions prior to Principal's.
Principal agrees that each of Bank and any such agent has full discretion to
allocate the use of Principal's securities as it deems appropriate, and that
Bank may make available securities lending and/or reverse repurchase agreement
opportunities to clients other than Principal for any reason, and that Bank will
have no obligation to make any securities lending and/or reverse repurchase
agreement opportunities available to Principal.
5. Expenses; Compensation of Bank. Principal shall be responsible for payment
of all expenses and charges incurred in connection with the administration of
this Addendum, including Bank's compensation for its services hereunder as
determined in accordance with the attached Exhibit E, and Bank may in its
discretion charge the assets subject to this Addendum therefor.
6. Indemnification. Principal shall indemnify, keep indemnified, defend and
hold harmless the Bank and any of its directors, officers, employees, agents and
affiliates against any cost, expense, damage, loss or liability whatsoever
(including without limitation attorneys' fees and expenses) which may be
suffered or incurred by any of them directly or indirectly as a result of, or in
connection with, or arising out of, this Addendum or any loan of securities or
reverse repurchase agreement transaction involving Principal's securities. This
provision shall survive any termination of this Addendum and shall be binding on
Principal's successors and assigns.
7. Tax Consequences. Bank makes no representations regarding tax treatment by
federal, state, local or foreign authorities of the lending or placing in
reverse repurchase agreements of securities under this Addendum, the receipt of
any income, dividend, profit or other distribution inuring to Principal as the
result of receipt of any loan premium, dividends, interest, distributions or
other amounts on securities loaned and/or the subject of reverse repurchase
agreements hereunder, or the investment by Bank of any Collateral received in
connection with such loans or cash received in connection with such reverse
repurchase agreement transactions (including without limitation the
characterization for United States or foreign tax purposes of any such amount as
taxable income) or the imposition of a United States or foreign tax duty, levy,
charge, deduction, payment, impost, withholding or liability imposed on any such
income, dividend, profit or other distribution. Principal acknowledges and
agrees that Bank may be required to withhold tax on amounts payable or inuring
to Principal or payable by or on behalf of Principal pursuant to a Securities
Lending Agreement.
Principal also acknowledges and agrees that any amounts received from a Borrower
which represent interest, dividends, or other distributions made with respect to
any Loaned Securities (as defined in the Securities Lending Agreement) may be in
substitution for interest, dividends, or other distributions accrued or paid in
respect of loaned securities and that the tax treatment of such amounts may
differ from the tax treatment of such interest, dividends or other
distributions.
8. Financial Condition. Upon reasonable request by Bank, and at least
annually, Principal shall provide Bank with its most recent available audited
statement of its financial condition, and its most recent unaudited statement of
its financial condition if more recent than the audited statement. Principal
represents and warrants which representation and warranty shall continue so long
as any loan of securities or reverse repurchase agreement transaction is
outstanding, that such statements fairly represent its financial condition and
net capital as of the dates of such statements and have been prepared in
accordance with generally accepted accounting principles of the jurisdiction in
which Principal is organized or located, as the case may be. Principal
acknowledges and agrees that Bank may provide Borrowers and Buyers with copies
of such financial statements and that Principal will cooperate with Bank in
providing such other financial information to Borrowers and Buyers as such
Borrowers and Buyers may reasonably request.
9. Other Relationships. Principal acknowledges and agrees that Bank may,
through its commercial, trust or other departments, be a creditor for its own
account or represent in a fiduciary capacity another Borrower(s)/Buyer(s) (or
its or their affiliates, creditors, or customers) to which securities are loaned
or sold under this Addendum, even though any of such relationships may
potentially be in conflict with those of Principal.
10. Termination. This Addendum may be terminated without penalty at any time
by either party upon thirty (3 0) days' written notice to the other provided,
however, that if Principal is a Plan (as defined in Exhibit G), this Addendum
may be terminated by the Authorizing Fiduciary designated in Exhibit G within
five (5) business days. In the event of termination, Bank shall deliver to
Principal all funds, securities, and other property held by it under this
Addendum for the account of Principal or to such other person or persons as
Principal shall designate in writing on Exhibit F or shall continue to hold such
property pursuant to the Custodian Agreement; provided however, that this
Addendum shall remain in effect with respect to all securities loan transactions
or reverse repurchase agreement transactions outstanding on the effective date
of termination, until consummation, completion or termination thereof in
accordance with the terms of the applicable Securities Lending or Reverse
Repurchase Agreement, as the case may be.
11. Amendments. This Addendum may be amended only in writing executed by both
parties. Amendments to any Exhibit or Attachment hereto shall be effective only
if executed by all the parties required to execute the initial
Attachment/Exhibit, and then, only after received by Bank and Principal by the
party to whom notices are to be sent hereunder.
12. Notices. All notices hereunder shall be given and deemed received as set
forth in the Custodian Agreement.
13. Governing Law. The validity, construction, and administration of this
Addendum shall be governed by the laws of the State of California from time to
time in force and effect.
Dated: December 1, 2000
By: ------------------------------
"PRINCIPAL"
Dated: ------------------------------
By: Union Bank of Caliifornia, N.A.
By: ------------------------------
"BANK"
XXXX XXXXXXXXXXXX
VP MANAGER
SECURITIES LENDING SERVICE
EXHIBIT A
BORROWERS/BUYERS FOR
SECURITIES LENDING/REVERSE REPURCHASE AGREEMENT TRANSACTIONS
Banc of America Securities LLC
FleetBoston/ Xxxxxxxxx Xxxxxxxx*
Barclays Capital Corp.
Bear Steams & Co. Inc.
Deutsche Bank Securities Inc.
DB Xxxx Xxxxx LLC
CS First Boston Corp.
Xxxx Xxxxxx Xxxxxxxx Inc.
DLJ/Pershing
Dresdner Kleinwort Xxxxxx, X.X., L.L.C.
Fleet Securities Inc.*
Fuji Securities Inc.
Xxxxxxx Sachs & Co.
Greenwich Capital Markets Inc.
HSBC Securities Inc.
Xxxxxx Bros. Inc.
Lewco/Xxxxxxxxx*
Merrill, Lynch, Xxxxxx Xxxxxx & Xxxxx Inc.
Xxxxxxx, Xxxxx Government Securities, Inc.
X.X. Xxxxxx Securities Inc.
Xxxxxx Xxxxxxx & Co. Inc.
PaineWebber Inc.
Xxxxxxx Xxxxx Barney Inc.
XX Xxxxx Securities Corp.
Spear Leeds*
UBS Warburg LLC
*NOT ON FED'S PRIMARY DEALER LIST
Dated: ------------------------------
By: ------------------------------
"PRINCIPAL"
Dated: ------------------------------
By: Union Bank of California, N.A.
Signed:. ------------------------------
"BANK"
AS OF 10/6/98
EXHIBIT B
SECURITIES LENDING AGREEMENT
TO BE FORWARDED UNDER SEPARATE COVER.
Dated: ------------------------------
By: ---------------------------------
"PRINCIPAL"
EXHIBIT C
PUBLIC SECURITIES ASSOCIATION PROTOTYPE
MASTER REPURCHASE AGREEMENT
TO BE FORWARDED UNDER SEPARATE COVER.
Dated: ------------------------------
By: ---------------------------------
"PRINCIPAL"
UNION BANK OF CALIFORNIA
POLICIES FOR THE INVESTMIENT
OF CASH COLLATERAL
IN CONNECTION WITH SECURITIES LENDING
GENERAL PROVISIONS
------------------
Credit Ratings:
---------------
With the exception of "full faith and credit" securities of the United States
Government (e.g. Treasury issues, GNMA's) and securities issued by agencies,
instrumentality's, sponsored agencies or enterprises of the United States
Government, minimum credit ratings are defined for securities eligible for cash
collateral reinvestment. In connection with those defined credit ratings, the
following explanations apply:
a) Rating Agencies: The term "rating agencies" means Standard & Poor's,
Xxxxx'x, Xxxxx'x rating Service, Duff & Xxxxxx.
b) High Quality: For shortterm debt the term "high quality" means: Al
(S&P), PI (Xxxxx'x), F1 (Fitch's), & D I (D&P) or better. For long
term debt the term "high quality" means: A or better. If the
applicable credit rating applies to the issuer in general, as opposed
to the specific issue, then the rating agencies rating for the issuer
short term debt will apply to the securities or obligations that have
less than one year to maturity at the time of purchase. The issuer's
long term debt rating will apply if the security or obligation has a
remaining maturity greater than one year at the time of purchase.
c) Credit Rating Downgrades: A downgrade in credit rating does not by
itself require immediate liquidation of the security, but does require
prompt review and recommendation by the Investment Manager regarding
the desirability of selling the investment if the time to maturity
exceeds seven days. Customer will be contacted in the event of a
downgrade and asked for specific written instructions.
Maturity Limitations:
---------------------
a) The term "maximum maturity" as used in the policies and applied to the
individual instruments refers to the remaining time to maturity at the
time of purchase, regardless of the term to maturity when originally
issued.
b) Except where otherwise specifically provided under a customers
permitted investments, the average mismatch of each customers cash
collateral investment portfolio will not exceed 90 days.
c) The average mismatch is defined as the difference between the average
weighted maturity of transactions (security loan/repo) and the average
weighted maturity of permitted investments in the account.
Maturity of Certain Instruments Defined:
----------------------------------------
a) Floating Rate (Variable Rate) Notes: For purposes of these policies,
the maturity of floating rate notes is deemed to be the next interest
reset date, provided that the interest rate reset feature is contained
in the terms of the instrument itself, also, the interest reset rate
feature is reasonably expected to return the price of the security to
par or amortized cost on each reset date.
b) Securities Subject to Unconditional Puts: For the purposes of these
policies, the maturity of the securities subject to an unconditional
put to the original issuer of the security is deemed to be the next
date that the put can be exercised
Concentration Limits:
---------------------
These policies will address concentration limits at two levels, per issuer
limitations, and aggregate portfolio limitations. Concentration limits apply to
securities directly purchased in customer cash collateral investment accounts.
Securities constituting collateral for reverse repurchase agreements are not
counted in these concentration limits.
Customer Approval:
------------------
Where permissive provisions of these policies are specifically conditioned on
"customer approval", that approval must be contained within the securities
lending agreement between the Bank and the customer, or it must be documented as
having been obtained from the customer in writing.
PERMITTED INVESTMENTS
---------------------
BANK WILL INVEST CASH COLLATERAL ON BEHALF OF LENDER IN INVESTMENTS, WHICH AT
THE TIME OF PURCHASE, MAY CONSIST OF THE FOLLOWING.
1. Securities issued by or fully guaranteed as to principal and interest by
the United States Government. Maximum maturity thirteen months, except when
used as collateral in a repurchase transaction.
2. Securities issued by agencies, instrumentalities, sponsored agencies or
enterprises of the United States Government. This specifically includes pass
through certificates and collateralized mortgage obligations. Maximum maturity
thirteen months, except when used as collateral in a repurchase transaction.
3. Securities issued by or fully guaranteed by international organizations
(supernationals) so long as the are rated Al or P1 or AA or equivalent by at
least one Rating Agency and are eligible for transfer in the Federal Reserve
Bank of New York bookentry system or settle through DTC. Maximum maturity
thirteen months. Maximum exposure per issuer 5% of portfolio at the time of
purchase.
4. Deposits in, notes of, bankers acceptances of, or letters of credits issued
by banks with minimum assets of two billion U.S. dollars (or U.S. dollar
equivalent), which banks short term deposits are rated Al or P1 or equivalent by
at least one Rating Agency. Those with a maturity of one year or greater must
be rated at least "A" or equivalent by at least one rating agency. This
category includes both Yankee" and "Euro" paper. Maximum exposure per issuer 5%
of portfolio at the time of purchase.
5. Commercial Paper and variable rate master notes rated at least Al or P1 or
equivalent by at least one Rating Agency. Maximum maturity 270 days. This may
include Section 4(2) or unregistered commercial paper. Maximum exposure per
issuer 5% of portfolio at the time of purchase.
6. Asset Backed Securities rated a least "AAX' or equivalent by at least one
Rating Agency. Maximum maturity thirteen months, except when used as collateral
in a repurchase transaction. Maximum exposure per issuer 5% of portfolio at the
time of purchase.
7. Mortgage Backed Securities rated at least AA or equivalent by at least one
Rating Agency. Maximum exposure per issuer 5% of portfolio at the time of
purchase. Maximum maturity thirteen months, except when used as collateral in a
repurchase transaction.
8. Corporate Obligations, both with and without credit enhancements (with the
exception of CP). Those with a maturity of less than or equal to one year may
be judged upon the corporation's short term rating, and must be rated Al or PI
or equivalent by at least one Rating Agency. Those with a maturity greater than
one year must be rated at least A- or equivalent by at least one Rating Agency.
This may include 144a (private placement) corporate obligations. Maximum
maturity thirteen months, except when used as collateral in a repurchase
transaction. Maximum exposure per issuer 5% of portfolio at the time of
purchase. Maximum total exposure 25% of portfolio at time of purchase.
9. Sovereign debt of foreign governments rated at least Al or PI, AA or
equivalent by at least one Rating Agency. Maximum maturity thirteen months.
Maximum exposure per issuer 5% of portfolio at the time of purchase. Maximum
total exposure 25% of portfolio at time of purchase.
10. Repurchase Agreements with primary government securities dealers or with
counterparties whose shortterm debt is rated at least Al or P1 or equivalent by
at least one Rating Agency. Collateral securing a reverse repurchase agreement
is limited to the securities and/or instruments that are defined as permitted
investments in this policy. Collateral must be delivered to either Union Bank
of California or a third party custodian acceptable to the Bank. Collateral
level must be at least 102% and marked to market on a daily basis.
11. Shares of Registered Investment Companies or STIF's. Funds must comprise
investment vehicles whose criteria match those outlined within the policies of
permitted investments of securities lending cash collateral All ratings criteria
that apply to the direct investment of cash collateral apply to the investments
within the funds.
Dated: ------------------------------
By: ------------------------------
"PRINCIPAL"
Dated: 12/18/00
By: ------------------------------
UNION BANK OF CALIFORNIA, N.A., "BANK"
February, 1997
EXHIBIT E
SCHEDULE OF FEES AND CHARGES
All gross revenue* generated from Securities Lending will be split as
follows:
70% to the Principal Preservation Portfolios, Inc.
30% to Union Bank of California
Revenues will be credited to the Fund on a monthly basis by the 10 1h business
day of the month following the lending activity.
*Gross Revenue is defined as the total securities lending earnings generated
after broker rebates and fees have been paid prior to any revenue sharing
arrangements.
Dated:------------------------------
'PRINCIPAL'
By: ------------------------------
Dated:
Union Bank of California, N.A.
By:------------------------------
