Exhibit h(5)
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AMENDED & RESTATED
FINANCIAL GUARANTEE AGREEMENT
for
XXXXX XXXXXX CAPITAL PRESERVATION FUND
among
XXXXX XXXXXX FUND MANAGEMENT LLC,
XXXXX XXXXXX TRUST II
and
AMBAC ASSURANCE CORPORATION
Dated as of November 4, 2002
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TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS
Section 1.01 General Definitions......................................................2
Section 1.02 Generic Terms...........................................................10
ARTICLE II
THE POLICY
Section 2.01 The Policy..............................................................10
Section 2.02 Procedure for Issuance..................................................11
Section 2.03 Conditions Precedent to Effectiveness...................................11
Section 2.04 Fees....................................................................13
ARTICLE III
MANAGEMENT OF THE FUND
Section 3.01 General.................................................................14
Section 3.02 Permitted Fixed Income Investments......................................14
Section 3.03 Permitted Equity Investments............................................15
Section 3.04 Additional Portfolio Requirements.......................................17
Section 3.05 Allocation Between Fixed Income Portfolio and Equity Portfolio..........19
Section 3.06 Reports.................................................................20
Section 3.07 Cash....................................................................20
Section 3.08 Intent..................................................................20
Section 3.09 Article III Computations................................................21
Section 3.10 Transition Period.......................................................21
ARTICLE IV
TRIGGER EVENTS
Section 4.01 Trigger Events..........................................................21
Section 4.02 Defeasance Portfolio....................................................23
ARTICLE V
Limitation of Liability
Section 5.01 Limitation of Liability of Adviser......................................23
Section 5.02 Limitations as to the Fund..............................................23
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.01 Representations and Warranties of the Adviser...........................24
Section 6.02 Representations and Warranties of the Trust for itself and the Fund.....25
ARTICLE VII
COVENANTS
Section 7.01 Covenants of the Adviser................................................27
Section 7.02 Covenants of the Fund...................................................28
ARTICLE VIII
FURTHER AGREEMENTS
Section 8.01 Reinsurance and Assignments.............................................29
Section 8.02 Fund Liability..........................................................29
Section 8.03 Liability of the Insurer................................................29
ARTICLE IX
CONFIDENTIALITY
Section 9.01 Confidentiality.........................................................30
Section 9.02 Trading Information and Other Information...............................30
Section 9.03 Independent Verifier....................................................30
ARTICLE X
THE INDEPENDENT VERIFIER
Section 10.01 Retention of Independent Verifier.......................................31
Section 10.02 Responsibilities of Independent Verifier................................31
Section 10.03 Adviser Cooperation.....................................................31
ARTICLE XI
TERMINATION
Section 11.01 Termination.............................................................31
ARTICLE XII
MISCELLANEOUS
Section 12.01 Amendments and Waivers..................................................31
Section 12.02 Notices.................................................................32
Section 12.03 No Waiver, Remedies and Severability....................................33
Section 12.04 Payments................................................................33
Section 12.05 Governing Law...........................................................34
Section 12.06 Submission to Jurisdiction, Waiver of Jury Trial........................34
Section 12.07 Counterparts............................................................34
Section 12.08 Paragraph Headings......................................................34
Section 12.09 Survival................................................................35
Section 12.10 Reliance on Information.................................................35
Section 12.11 Time of the Essence.....................................................35
Section 12.12 No Third-Party Rights...................................................35
Section 12.13 Further Assurances......................................................35
Section 12.14 Concerning Knowledge....................................................35
Section 12.15 No Additional Trust Created.............................................35
Section 12.16 Grace Period............................................................35
Exhibit A Form of Financial Guarantee Insurance Policy
Exhibit B Form of Direction and Undertaking Regarding Remedies
Schedule 1 Form of Daily Report
Schedule 2 Litigation Disclosure
Schedule 3 Notice Procedures
AMENDED AND RESTATED
FINANCIAL GUARANTEE AGREEMENT
AMENDED & RESTATED FINANCIAL GUARANTEE AGREEMENT, dated as of November 4,
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 (the "Fund").
W I T N E S S E T H:
WHEREAS, the Insurer, the Adviser and the Trust, on behalf of the Fund
have entered into a Financial Guarantee Agreement, dated as of March 29, 2002
(the "Original Agreement"), as modified by a waiver letter dated May 6, 2002
and as amended by Amendment No. 1 thereto, dated as of May 13, 2002, Amendment
No. 2 thereto, effective as of 3:59 p.m. (Eastern Time) on July 24, 2002, and
Amendment No. 3 thereto, dated as of August 12, 2002 (the Original Agreement,
as so modified and amended, the "Existing Agreement"); and
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 Insurer issued a financial guarantee insurance policy (the
"Policy") to insure the Fund's obligation to pay the Guarantee Amount (as
defined herein) to the Shareholders; and
WHEREAS, on the date hereof the Insurer will issue financial guarantee
insurance policy #SF0571BE, in the form of Exhibit A hereto, in substitution
for financial guarantee insurance policy #SF0526BE to change the Beneficiary of
the Policy from the Custodian to the Trust on behalf of the Fund; and
WHEREAS, the Daily Report will be amended to conform to the amendments
contained herein, in the form attached as Schedule 1 hereto; and
WHEREAS, the parties desire to further amend the Existing Agreement as
provided herein;
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 Xxxxx'x 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 Xxxxx'x
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 Xxxxx'x 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 Xxxxx'x 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. For
the avoidance of doubt, payments of expenses that are not Covered Expenses or
Investment-Related Costs, specifically including Income Taxes and extraordinary
expenses, are treated as Distributions Per Share for purposes of determining
the Guarantee per Share, but such payments can not be reinvested and no Shares
shall be issued in respect of such payments.
"Equity Benchmark" means the S&P 500 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 Security" has the meaning provided in Section 3.03(a).
"Equity Securities Portfolio" 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 Original Effective Date, 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" shall have the meaning set forth 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 Original Effective Date 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 Original Effective Date 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 Xxxxx'x 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 Original Effective Date 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.
"Original Effective Date" means March 29, 2002.
"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, which was selected by the Adviser pursuant to Section
2.03(b)(ix).
"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. The proceeds of any drawing under the Policy shall be used solely to
discharge the Fund's obligations in respect of the Guarantee.
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 the Original Agreement was 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:
the opinion of Xxxxxxx Xxxx LLP, counsel to the Fund; and 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:
the opinion of Xxxxxxx Xxxx XXX, counsel to the Fund, and 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 was 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 Verifier 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
$1,000,000,000. If, during the Offering Period, the Fund expects to
receive subscriptions for its Shares which could result in such Guarantee
Amount exceeding $1,000,000,000, then the Fund shall consult with the
Insurer. If the Insurer agrees to increase such maximum amount in its sole
discretion, this Agreement will be amended accordingly.
(viii) The parties shall have provided the notice procedures
contemplated by Section 12.02(b).
(ix) The Adviser shall have selected the BARRA Risk Model or the S&P
Global Industry Classification as the system to be used to perform the
Sector diversification test set forth in Section 3.04(c).
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). Notwithstanding the foregoing, in the event that the
Fund's assets are required to be invested in a Defeasance Portfolio, the
Premium Fee with respect to those assets comprising the Defeasance Portfolio
shall be 0.55% per annum; provided, however, that the Premium Fee with respect
to the amount, if any, of Fund Value in excess of 101% of the Bond Floor shall
remain at .75% per annum.
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 Original Effective Date), 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-Bill 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
mark-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
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 if such securities are tradable. 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 SPDRs, 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) SPDRs 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 the Market Value of the Equity Securities
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) 1.10% with respect to the Class A Shares and 1.85%
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 Guarantee 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 ofnot 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 at any time (A) 101% of the
Bond Floor during the period from and including the Inception Date to but
excluding the date one year from the Inception Date (such date, the "First
Anniversary"); (B) 100.75% of the Bond Floor during the period from and
including the First Anniversary to but excluding the date one year
therefrom (such date, the "Second Anniversary"); (C) 100.50% of the Bond
Floor during the period from and including the Second Anniversary to but
excluding the date one year therefrom (such date, the "Third Anniversary")
; (D) 100.25% of the Bond Floor during the period from and including the
Third Anniversary to but excluding the date one year therefrom (such date,
the "Fourth Anniversary"); or (E) 100% of the Bond Floor during the period
from and including the Fourth Anniversary to and including the Guarantee
Maturity Date;
(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 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 the Original Agreement and to issue the Policy, the
Adviser represented and warranted to the Insurer as follows, on and as of the
Original Effective Date:
(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) Except as set forth on Schedule 2 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, 2000
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, 2000, 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 represented and warranted
to the Insurer as follows, on and as of the Original Effective Date:
(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 covenants and agrees
that since the Original Effective Date and 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
covenants and agrees that since the Original Effective Date and 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;
(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;
and
(i) it shall terminate the Fund on the Guarantee Maturity Date if the
Policy is drawn upon.
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 this 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
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.
Section 12.16 Grace Period. The parties recognize that certain provisions
contained in Article III of this Agreement constitute amendments of the
Existing Agreement and require that certain adjustments and modifications be
made to the Adviser's systems and operations to permit the Adviser and the Fund
to comply with such provisions. The Adviser shall have ten Business Days
following November 4, 2002 to complete such adjustments and modifications;
provided, however, that to the extent the Adviser and the Fund are not in
compliance with this Agreement during such grace period, the Adviser and the
Fund are required to be in compliance with the Existing Agreement; and
provided, further, however, that the Adviser and the Fund shall amend Schedule
A to the Expense Limitation Agreement so that, on the Business Day on which the
Adviser and the Fund commence compliance with this Agreement, the percentages
in footnote ** are 1.10% for Class A and 1.85% for Class B and Class L (it
being understood that the Insurer consents to such amendment of the Expense
Limitation Agreement). The Adviser shall notify the Insurer by 12:00 noon one
(1) Business Day prior to the Business Day on which the Adviser and the Fund
cease compliance with the Existing Agreement and commence compliance with this
Agreement. Such notice shall be given as set forth in Schedule 3 hereto, in the
manner and to the persons set forth therein with respect to the Daily Report.
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
By: /s/ X. Xxx Xxxxxx
--------------------------------
Name: X. Xxx 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: Guarantee Amount due to holders of Class A, Class B and
Class L Shares (the "Shareholders") of Xxxxx Xxxxxx
Capital Preservation Fund (the "Fund"), a series of
Xxxxx Xxxxxx Trust II (the "Trust")
Insured Obligation: Guarantee dated as of March 29, 2002 by the Fund in
favor of the Shareholders
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).
The obligations of Ambac under this Policy shall not be accelerated.
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: May 14, 2002
APPENDIX 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 March 29, 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. For
the avoidance of doubt, payments of expenses that are not Covered Expenses or
Investment-Related Costs, specifically including Income Taxes and extraordinary
expenses, are treated as Distributions Per Share for purposes of determining
the Guarantee per Share, but such payments can not be reinvested and no Shares
shall be issued in respect of such payments.
"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 March 29, 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
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.
"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.
"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, 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.
"Transition Date" means the Business Day after the end of the Offering
Period.
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 May
14, 2002 (the "Policy") issued by Ambac in respect of the shares of Xxxxx
Xxxxxx Trust II, Series Xxxxx Xxxxxx Capital Preservation Fund (the "Fund"),
that:
(i) The undersigned for the benefit of the 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
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
March 29, 2002
State Street Bank 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 (the "Fund") (each, an "Ambac Instruction").
Each Ambac Instruction shall be deemed to constitute "Proper Instructions"
pursuant to Section 5 of the Contract. Further, this letter itself constitutes
a "Proper Instruction" pursuant to Section 5 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
By: /s/ X X Xxxxxx
----------------------------------------
Name: Xxx Xxxxxx
Title: President,
Duly Authorized
Acknowledged and Agreed:
STATE STREET BANK AND TRUST COMPANY
By: /s/ Xxxxxx X. Xxxx
--------------------------------------------------
Xxxxxx X. Xxxx, Senior Vice President, Duly Authorized
