PIONEER PROTECTED PRINCIPAL PLUS FUND II
FINANCIAL GUARANTEE AGREEMENT
among
PIONEER INVESTMENT MANAGEMENT, INC.,
PIONEER PROTECTED PRINCIPAL TRUST
and
AMBAC ASSURANCE CORPORATION
Dated as of February 26, 2003
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
Section 1.01 General Definitions.......................................1
Section 1.02 Generic Terms............................................11
ARTICLE II
THE POLICY
Section 2.01 The Policy...............................................11
Section 2.02 Procedure for Issuance...................................11
Section 2.03 Conditions Precedent to Effectiveness....................12
Section 2.04 Fees.....................................................14
ARTICLE III
MANAGEMENT OF THE FUND
Section 3.01 General..................................................15
Section 3.02 Permitted Fixed Income Investments.......................15
Section 3.03 Permitted Equity Investments.............................16
Section 3.04 Additional Portfolio Requirements........................18
Section 3.05 Allocation Between Fixed Income Portfolio
and Equity Portfolio.....................................21
Section 3.06 Reports..................................................22
Section 3.07 Cash.....................................................23
Section 3.08 Intent...................................................23
Section 3.09 Article III Computations.................................23
Section 3.10 Ramp-Up Period...........................................23
Section 3.11 Master Fund Shares.......................................24
ARTICLE IV
TRIGGER EVENTS
Section 4.01 Trigger Events...........................................25
Section 4.02 Defeasance Portfolio.....................................27
ARTICLE V
Limitation of Liability
Section 5.01 Limitation of Liability of Adviser.......................27
Section 5.02 Limitations as to the Fund...............................27
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.01 Representations and Warranties of the Adviser............28
Section 6.02 Representations and Warranties of the Trust
for itself and the Fund..................................30
Section 6.03 Representations and Warranties of the Insurer............31
ARTICLE VII
COVENANTS
Section 7.01 Covenants of the Adviser.................................32
Section 7.02 Covenants of the Fund....................................34
Section 7.03 Covenant of the Insurer..................................35
ARTICLE VIII
FURTHER AGREEMENTS
Section 8.01 Reinsurance and Assignments..............................35
Section 8.02 Fund Liability...........................................35
Section 8.03 Liability of the Insurer.................................35
ARTICLE IX
CONFIDENTIALITY
Section 9.01 Confidentiality..........................................36
Section 9.02 Trading Information and Other Information................36
Section 9.03 Copies of Fund Information...............................37
Section 9.04 Independent Verifier.....................................37
ARTICLE X
THE INDEPENDENT VERIFIER
Section 10.01 Retention of Independent Verifier........................37
Section 10.02 Responsibilities of Independent Verifier.................37
Section 10.03 Adviser Cooperation......................................37
ARTICLE XI
TERMINATION
Section 11.01 Termination..............................................37
ARTICLE XII
MISCELLANEOUS
Section 12.01 Amendments and Waivers...................................38
Section 12.02 Notices..................................................38
Section 12.03 No Waiver, Remedies and Severability.....................39
Section 12.04 Payments.................................................39
Section 12.05 Governing Law............................................40
Section 12.06 Submission to Jurisdiction, Waiver of Jury Trial.........40
Section 12.07 Counterparts.............................................40
Section 12.08 Paragraph Headings.......................................40
Section 12.09 Survival.................................................40
Section 12.10 Reliance on Information..................................41
Section 12.11 Time of the Essence......................................41
Section 12.12 No Third-Party Rights....................................41
Section 12.13 Further Assurances.......................................41
Section 12.14 Concerning Knowledge.....................................41
Section 12.15 No Additional Trust Created..............................41
Exhibit A Form of Financial Guarantee Insurance Policy
Exhibit B Form of Direction and Undertaking Regarding Remedies
Schedule 1-A Form of Daily Gap Risk Report
Schedule 1-B Form of Daily Portfolio Requirements Report
Schedule 2 Form of Weekly Report
Schedule 3 Notice Procedures
Schedule 4 Duration Calculation Methodology
FINANCIAL GUARANTEE AGREEMENT
FINANCIAL GUARANTEE AGREEMENT, dated as of February 26, 2003
(the "AGREEMENT"), among AMBAC ASSURANCE CORPORATION, a Wisconsin domiciled
stock insurance company (the "INSURER"), PIONEER INVESTMENT MANAGEMENT, INC., a
Delaware corporation (the "ADVISER"), and PIONEER PROTECTED PRINCIPAL TRUST, a
Delaware business trust (the "TRUST"), on behalf of its series PIONEER PROTECTED
PRINCIPAL PLUS FUND II (the "FUND").
W I T N E S S E T H:
WHEREAS, the Trust is an open-end diversified, management
investment company registered under the Investment Company Act of 1940, as
amended (the "INVESTMENT COMPANY ACT"), and the Fund, a series of the Trust,
agrees, for the benefit of the shareholders of the Fund (the "SHAREHOLDERS"), to
make a payment such that, on the Maturity Date, shares of the Fund of any Class
of Shares may be redeemed for an amount no less than the Guarantee per Share for
that Class of Shares (the "PAYMENT UNDERTAKING"); and
WHEREAS, the Trust has requested the Insurer, and the Insurer
has agreed, to issue a financial guarantee insurance policy (the "POLICY") to
insure the Fund's Payment Undertaking; and
WHEREAS, the parties hereto, among other things, desire to
specify the conditions precedent to the issuance by the Insurer of the Policy,
the payment of the premium in respect thereof, and to provide for certain other
matters related thereto;
NOW, THEREFORE, for good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
DEFINITIONS
Section 1.01 GENERAL DEFINITIONS. The terms defined in this Article I shall have
the meanings provided herein for all purposes of this Agreement, in both
singular and plural form, as appropriate.
"ACT OF INSOLVENCY" means, with respect to any party, (i) the
commencement by such party as debtor of any case or proceeding under any
bankruptcy, insolvency, reorganization, liquidation, dissolution or similar law,
or such party seeking the appointment of a receiver, trustee, custodian or
similar official for such party or any substantial part of its property; (ii)
the appointment of a receiver, conservator, or manager for such party by any
government agency or authority having the jurisdiction to do so; (iii) the
commencement of any such case or proceeding against such party, which (A) is
consented to or not timely contested by such party, (B) results in the entry of
an order for relief, such an appointment, the issuance of such a protective
decree or the entry of an order having a similar effect, or (C) is not dismissed
within 72 hours; (iv) the making or offering by such party of a composition with
its creditors or a general assignment for the benefit of creditors; (v) the
admission by such party of such party's inability to pay its debts or discharge
its obligations as they become due or mature; or (vi) any governmental authority
or agency or any person, agency or entity acting under governmental authority
shall have taken any action to condemn, seize or appropriate, or to assume
custody or control of, all or any substantial part of the property of such
party.
"ACTS" means the Investment Company Act and the Securities
Act.
"ADVERSE EFFECT" means, (i) in respect of the Adviser or its
parent company, a material adverse effect upon (A) the ability of the Adviser to
perform its obligations under this Agreement or any other Transaction Document
to which it is a party, or (B) the rights of the Insurer under the Transaction
Documents, and (ii) in respect of the Fund, a material adverse effect upon (A)
the ability of the Fund to perform its obligations under this Agreement or any
other Transaction Document to which it is a party or (B) 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.
"AGGREGATE EQUITY EXPOSURE" means the aggregate Equity
Exposure of the Equity Portfolio.
"AMBAC INFORMATION" means the four paragraphs appearing in the
Prospectus under the heading "Ambac Assurance Corporation" and the financial
statements of the Insurer incorporated by reference in the Registration
Statement (which financial statements are contained in the periodic reports of
Ambac Financial Group Inc. filed under the Securities Exchange Act of 1934).
"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 calendar days: demand and time deposits in, certificates of
deposit of, and bankers' acceptances issued by any depository institution or
trust company incorporated under the laws of the United States of America or any
state thereof and subject to supervision and examination by federal and/or state
banking authorities so long as the commercial paper or debt obligations of such
depository institution or trust company (or, in the case of the principal
depository institution in a holding company system, the commercial paper or debt
obligations of such holding company) have a credit rating of at least "P-1" by
Moody's and at least "A-1" by S&P (or equivalent credit ratings if different
rating categories are used), in the case of commercial paper and short-term
obligations; PROVIDED that the issuer thereof must also have at the time of such
investment a long-term credit rating of at least "Aa3" by Moody's or at least
"AA-" by S&P (or equivalent credit ratings if different rating categories are
used).
"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 calendar day other than a calendar
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 NYSE is closed for business.
"CASH" means legal tender of the United States.
"CASH EQUIVALENTS" means Bank Deposits, Commercial Paper, and
Repurchase Obligations.
"CLASS OF SHARES" means each class of shares of beneficial
interest of the Fund designated pursuant to the Declaration of Trust.
"COMMERCIAL PAPER" means commercial paper having a credit
rating of at least "P-1" by Moody's and at least "A-1+" by S&P (or equivalent
credit ratings if different rating categories are used), either bearing interest
or sold at a discount from the face amount thereof, having a maturity of not
more than 183 calendar days from the date of issuance, and issued by either (A)
a corporation incorporated under the laws of the United States of America or any
state thereof, or (B) any depository institution or trust company incorporated
under the laws of the United States of America or any state thereof and subject
to supervision and examination by federal and/or state banking authorities,
PROVIDED that the issuer thereof must also have at the time of such investment a
long-term credit rating of at least "Aa3" by Moody's or at least "AA-" by S&P
(or equivalent credit ratings if different rating categories are used).
"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 Xxxxx Brothers Xxxxxxxx & Co., as Custodian
pursuant to the Custodian Agreement, or any successor to Xxxxx Brothers
Xxxxxxxx & Co. in such capacity.
"CUSTODIAN AGREEMENT" means the Custodian Contract dated as of
July 1, 2001 between the Trust and the Custodian, as amended from time to time.
"DAILY GAP RISK REPORT" means a report in the form of the
sample attached as SCHEDULE 1-A hereto.
"DAILY PORTFOLIO REQUIREMENTS REPORT" means a report in the
form of the sample attached as SCHEDULE 1-B hereto.
"DECLARATION OF TRUST" means the Trust's Declaration of Trust,
dated as of October 2, 2001, as amended and 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 Future,
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 cannot be reinvested and no Shares shall
be issued in respect of such payments.
"EFFECTIVE DATE" means the date on which the conditions set
forth in SECTION 2.03(A) are satisfied.
"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 FUTURE" has the meaning provided in SECTION 3.03(B).
"EQUITY INVESTMENT" has the meaning provided in SECTION 3.03.
"EQUITY OPTION" has the meaning provided in SECTION 3.03(C).
"EQUITY PORTFOLIO" has the meaning provided in SECTION 3.03.
"EQUITY PUT" has the meaning provided in SECTION 3.03(C).
"EQUITY SECURITIES" has the meaning provided in SECTION
3.03(A).
"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 Limit and
Reimbursement Agreement dated as of the date hereof, between the Adviser and the
Trust on behalf of the Fund as amended from time to time in accordance with this
Agreement.
"FIXED INCOME DERIVATIVE" has the meaning provided in SECTION
3.02(C).
"FIXED INCOME FUTURE" has the meaning provided in SECTION
3.02(B).
"FIXED INCOME INVESTMENT" has the meaning provided in SECTION
3.02.
"FIXED INCOME PORTFOLIO" has the meaning provided in SECTION
3.02.
"FIXED INCOME SECURITY" has the meaning provided in SECTION
3.02(A).
"FIXED INCOME WEIGHTED AVERAGE DURATION" means, at any time,
the weighted average duration by Notional Value of the Fixed Income Portfolio
calculated in accordance with the methodology set forth in SCHEDULE 4.
"FUND" has the meaning provided in the preamble.
"FUND ACCOUNTING AGENT" means Xxxxx Brothers Xxxxxxxx & Co.,
as Fund Accounting Agent, or any successor to Xxxxx Brothers Xxxxxxxx & Co. in
such capacity.
"FUND VALUE" means, at any time, (A) the sum of the Market
Value of the Equity Portfolio and the Market Value of the Fixed Income
Portfolio, plus (B) all other assets of the Fund (such as dividends, interest
and other receivables), minus (C) all accrued and unpaid liabilities of the
Fund.
"GAP RISK" has the meaning provided in SECTION 3.05(A).
"GOVERNMENT AUTHORITY" means any nation or government, any
state or other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative functions or
pertaining to government.
"GUARANTEE AMOUNT" means, as of any date, the sum of (i) the
product of (A) the Guarantee per Share applicable to the Class A Shares as of
such date and (B) the number of Class A Shares outstanding as of such date; (ii)
the product of (A) the Guarantee per Share applicable to the Class B Shares as
of such date and (B) the number of Class B Shares outstanding as of such date;
and (iii) the product of (A) the Guarantee per Share applicable to the Class C
Shares as of such date and (B) the number of Class C Shares outstanding as of
such date.
"GUARANTEE PER SHARE" means, with respect to any Class of
Shares, (i) the sum of (a) the NAV for such Class of Shares at the close of
business on the Transition Date and (b) the product of the NAV for such Class of
Shares at the close of business on the Transition Date and the Return Multiplier
for such Class of Shares 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 Business Day such Distribution Per Share
was effective.
"GUARANTEE PERIOD" means the period commencing on and
including the Inception Date to and including the Maturity Date.
"INCEPTION DATE" means the second Business Day after the end
of the Offering Period unless the Adviser elects to delay the Inception Date as
contemplated in SECTION 2.02(A), in which case it shall be the date designated
pursuant to SECTION 2.02(A). In all cases the Inception Date is the date on
which the Guarantee Period begins and the Policy is issued.
"INCEPTION DATE CERTIFICATION" has the meaning provided in
SECTION 2.02.
"INCOME TAXES" means U.S. income or excise taxes that are
calculated on the net income or undistributed net income of the Fund.
"INDEMNIFICATION AGREEMENT" means the Indemnification
Agreement dated as of the date hereof among the Insurer, the Adviser, the Trust
and Pioneer Funds Distributor, 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 Trust and the Independent Verifier pursuant to which the Independent
Verifier performs the services contemplated by SECTION 10.02.
"INTEREST RATE SWAPS" means plain vanilla interest rate swaps
with counterparties that are rated at least Aa3 by Moody's and AA- by S&P which
are documented on ISDA documentation (as appropriately modified to comply with
applicable provisions of the Investment Company Act and as is customary in the
fund industry), use commercially reasonable terms consistent with market
practice, require delivery of collateral pursuant to a credit support annex with
threshold amounts no greater than $10,000,000, provide for termination at market
or assignment at market upon counterparty downgrade below Aa3 or AA-, and are a
swap of a fixed interest rate for LIBOR in respect of a constant U.S.
Dollar-denominated notional amount, regardless of whether the Fund is the payor
of the fixed rate or the floating rate.
"INVESTMENT ADVISERS ACT" means the Investment Advisers Act of
1940, as amended.
"INVESTMENT COMPANY ACT" has the meaning provided in the
recitals.
"INVESTMENT MANAGEMENT AGREEMENT" means the Management
Agreement dated as of the date hereof between the Trust and the Adviser with
respect to the Fund.
"INVESTMENT-RELATED COSTS" means interest, taxes (other than
Income Taxes), brokerage commissions, transaction fees and other
investment-related costs.
"LIEN" means any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, charge, lien or security interest (statutory
or other) of any kind or nature whatsoever.
"LITIGATION EVENT" means, with respect to the Adviser or the
Fund, as applicable, the submission of any claim or the commencement of any
proceedings by or against such party in any Federal, state or local court or
before any governmental body or agency, or before any arbitrator, or the overt
threat of any such proceedings, which, if adversely determined, would reasonably
be expected to have an Adverse Effect with respect to such party.
"LOANS FOR TEMPORARY OR EMERGENCY PURPOSES" means loans that
are outstanding for not more than 60 calendar days (and are not extended or
renewed) 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).
"MASTER FUND" means any open-end investment company for which
Pioneer acts as investment adviser and which primarily invests in equity
securities.
"MATURITY DATE" means May 5, 2010, but if that date is not a
Business Day, the Maturity Date shall be the first Business Day thereafter.
"MAXIMUM EQUITY EXPOSURE" has the meaning provided in SECTION
3.05(B).
"MONEY MARKET SECURITIES" means securities issued by money
market funds that either (i) (x) are registered investment companies under the
Investment Company Act and (y) comply with all of the criteria set forth in Rule
2a-7 under the Investment Company Act; or (ii) are not registered investment
companies under the Investment Company Act but comply with all of the criteria
set forth in Rule 2a-7 under the Investment Company Act as if they were
registered investment companies.
"MOODY'S" means Xxxxx'x Investors Service, Inc.
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"NAV" means, with respect to any Class of Shares of the Fund,
on any date, the net asset value per share of such Class of Shares established
by the Fund for such date in the manner required by the Investment Company Act.
"NONCONFORMING EQUITY SECURITIES" has the meaning provided in
SECTION 3.11(B).
"NOTIONAL VALUE" has, (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 prior to the Guarantee
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.
"PARENT COMPANY" means UniCredito Italiano S.p.A.; PROVIDED,
HOWEVER, that if UniCredito Italiano S.p.A. reduces its beneficial ownership in
the Adviser to less than a majority of the Adviser's outstanding voting
securities, Parent Company shall mean the company (excluding intermediate
holding companies) that has the largest beneficial ownership of the Adviser's
outstanding voting securities.
"PAYMENT UNDERTAKING" means the Payment Undertaking Agreement
dated as of the date hereof by the Fund in favor of its Shareholders.
"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 OPTIONS" 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 calendar 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.
"REPORTS" means the Daily Gap Risk Report, Daily Portfolio
Requirements Report and Weekly Report.
"REPURCHASE OBLIGATIONS" means unleveraged repurchase
obligations, with maturities of not more than 30 calendar 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 Xxxxx'x 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 Xxxxx'x 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.
"RETURN MULTIPLIER" means, (i) in the case of Class A Shares,
the minimum return on Class A Shares during the Guarantee Period, which shall be
14%; (ii) in the case of Class B Shares, the minimum return on Class B Shares
during the Guarantee Period, which shall be 8.75%; and (iii) in the case of
Class C Shares, the minimum return on Class C Shares during the Guarantee
Period, which shall be 8.75%.
"RISK MODEL" means the BARRA Aegis Risk Model as updated from
time to time by BARRA, Inc. or such other risk model as may be agreed by the
parties from time to time.
"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 Global Industry
Classification Standard developed by Standard & Poor's and Xxxxxx Xxxxxxx
Capital International, as amended from time to time.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SENIOR OFFICER" has the meaning provided in SECTION 12.14.
"SHAREHOLDER" has the meaning provided in the recitals.
"SHARES" means shares of beneficial interest of any Class of
Shares 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.
"TERMINATION DATE" means the date of termination of this
Agreement as contemplated by SECTION 11.01.
"TRADE DATE" has the meaning provided in SECTION 3.06(D).
"TRANSACTION DOCUMENTS" means this Agreement, the Payment
Undertaking, 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 Expense Limitation Agreement, the Declaration of Trust, 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 before the
commencement of the Guarantee Period. The Transition Date shall be the Business
Day after the end of the Offering Period unless the Adviser elects to delay the
Inception Date as contemplated in SECTION 2.02(A). In all cases, the Transition
Date shall be the Business Day prior to the Inception Date.
"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 Bank, the
Federal Home Loan Mortgage Corp., the Federal National Mortgage Association, the
Government National Mortgage Association and the Resolution Funding Corporation.
"WEEKLY REPORT" means the Weekly Report in the form of the
sample attached as SCHEDULE 2 hereto. Section 1.02 GENERIC TERMS. All words used
herein shall be construed to be of such gender or number as the circumstances
require. The words "herein," "hereby," "hereof" and "hereto," and words of
similar import, refer to this Agreement in its entirety and not to any
particular paragraph, clause or other subdivision, unless otherwise specified,
and Section and Exhibit references are to this Agreement unless otherwise
specified.
ARTICLE II
THE POLICY
Section 2.01 THE POLICY. The Insurer agrees to issue the Policy, subject to the
conditions hereinafter set forth herein. The Policy shall (i) be issued on the
Inception Date, and (ii) be substantially in the form of EXHIBIT A hereto.
Section 2.02 PROCEDURE FOR ISSUANCE. (a) Not later than the third Business Day
prior to the last day of the Offering Period the Trust shall deliver to the
Insurer a notice specifying the expected Inception Date. The Adviser may, in its
sole discretion, specify in such notice that the expected Inception Date shall
be delayed for up to ten calendar days following the end of the Offering Period.
At any time prior to 9:00 a.m. on the Business Day prior to such expected
Inception Date, the Adviser may notify the Insurer in writing that the Adviser
elects to further delay the Inception Date due to the occurrence of unforeseen
national security, political or economic events that are adversely affecting the
yield on U.S. Treasury Securities. The Adviser may elect to so further delay the
Inception Date to a date no later than July 31, 2003. In the event of such a
further delay in the Inception Date (i) the Adviser shall deliver to the Insurer
a revised notice specifying the Inception Date not less than three Business Days
prior to such revised Inception Date, and (ii) the revised Inception Date shall
not be later than July 31, 2003. On the Inception Date, the Trust shall deliver
to the Insurer a notice and certification (the "INCEPTION DATE CERTIFICATION")
of the following, in each case as of the close of business on the Transition
Date: (i) the NAV for each Class of Shares, (ii) the number of issued and
outstanding Shares of each Class of Shares, and, (iii) the Return Multiplier for
each Class of Shares. The notice also shall certify that no Trigger Event shall
have occurred, and (ii) each of the representations and warranties made by the
Trust in this Agreement shall be true and correct in all material respects on
and as of such date.
(b) The Inception Date Certification may include a statement that the number of
issued and outstanding shares of each Class of Shares may be adjusted in the
ordinary course of business due to trade corrections in the first 45 calendar
days following the Inception Date. If such a statement is included in the
Inception Date Certification then the Trust shall deliver a notice and
certification at the end of such 45 calendar day period specifying the corrected
number of issued and outstanding shares of each class of shares as of the
Inception Date. In no event shall the Inception Date Guarantee Amount be
increased from the amount calculated based on the information specified in the
original Inception Date Certification without the prior written consent of the
Insurer.
(c) Subject to the satisfaction of the conditions precedent to the
effectiveness of this Agreement and to the issuance of the Policy, the
Insurer shall issue and deliver the Policy to the Custodian on behalf of the
Fund on the Inception Date.
Section 2.03 CONDITIONS PRECEDENT TO EFFECTIVENESS.
(a) The effectiveness of this Agreement is subject to the satisfaction of the
following conditions:
(i) Each Transaction Document (other than the Policy, the Prospectus and
the Independent Verifier Agreement) shall be duly authorized, executed
and delivered by each of the parties thereto and be in full force and
effect and executed counterparts of each such Transaction Document
shall have been delivered to the Insurer.
(ii) The Insurer shall have received (A) a certificate of the Secretary or
Assistant Secretary of the Adviser, dated as of the Effective Date, as
to the incumbency and signature of the officers or other employees of
the Adviser authorized to sign this Agreement on behalf of the Adviser
and certifying that attached thereto are true, complete and correct
copies of its constituent documents and resolutions duly adopted by the
Adviser authorizing the execution and delivery of this Agreement, and
(B) a good standing certificate from the Delaware Secretary of State
regarding the Adviser.
(iii) The Insurer shall have received (A) a certificate of the Secretary or
Assistant Secretary of the Trust, dated as of the Effective Date, as to
the incumbency and signature of the officers or other employees of the
Trust authorized to sign this Agreement on behalf of the Trust, and
certifying that attached thereto are true, complete and correct copies
of its (x) resolutions duly adopted by the Board of Trustees of the
Trust authorizing the execution and delivery of this Agreement and (y)
Declaration of Trust as in full force and effect on the Effective Date,
and (B) a copy of the Certificate of Trust certified as of a recent
date by the Secretary of State of the State of Delaware.
(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) as to
information other than the Ambac Information, 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 from Xxxx and Xxxx LLP, counsel to the
Fund and the Adviser, legal opinions, in form and substance
satisfactory to the Insurer, dated the Effective Date.
(vii) The Fund shall have received from Xxxxx Xxxxx, Managing Director and
General Counsel of the Insurer, legal opinions, in form and substance
satisfactory to the Adviser, dated the Effective Date.
(viii) All proceedings, documents, instruments and other legal matters in
connection with the transactions contemplated by this Agreement and the
other Transaction Documents shall be satisfactory in form and substance
to the Insurer, and the Insurer shall have received such other
documents in respect of any aspect or consequence of the transactions
contemplated hereby or thereby as it shall reasonably request.
(b) The obligation of the Insurer to issue the Policy is subject to the
satisfaction of the following conditions on the Inception Date:
(i) Each of the representations and warranties made by the Adviser and
the Fund in this Agreement shall be true and correct in all material
respects on and as of such date, and the Insurer shall have received a
certification from each of the Adviser and the Fund to such effect as
to the representations and warranties made by it.
(ii) No Trigger Event shall have occurred.
(iii) No statute, rule, regulation or order shall have been enacted, entered
or deemed applicable by any Government Authority which would make the
transactions contemplated by any of the Transaction Documents illegal
or otherwise prevent the consummation thereof.
(iv) No suit, action or other proceeding, investigation, or injunction or
final judgment relating thereto, shall be pending or threatened before
any court or governmental agency in which it is sought to restrain or
prohibit or to obtain damages or other relief in connection with any of
the Transaction Documents.
(v) There shall not have been an Adverse Effect with respect to the Adviser
or the Fund since the date of this Agreement.
(vi) The Trust 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
$500,000,000 (the "AGREED AMOUNT"). If, during the Offering Period, the
Fund expects to receive subscriptions for its Shares which could result
in such Guarantee Amount exceeding the Agreed Amount, then the Fund
shall consult with the Insurer. If the Insurer agrees to increase such
Agreed Amount in its sole discretion, this Agreement will be amended
accordingly.
(viii) The form of Daily Gap Risk Report, the form of Daily Portfolio
Requirements Report and the form of Weekly Report shall have been
agreed by the parties hereto prior to the Inception Date and shall be
in form and substance satisfactory to the Insurer. When each such form
of Report has been so agreed, a copy thereof shall be attached as the
appropriate Schedule hereto.
(ix) The Insurer shall have received a description of the Fund's policy for
calculating month-end average net assets, as contemplated by SECTION
2.04.
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 .80% per
annum of the average daily net asset value 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 Maturity Date (each, a "PREMIUM PAYMENT DATE"). Premium Fees payable on each
Premium Payment Date will be calculated based on a 365 or 366 calendar day year
for the actual number of calendar 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 calendar
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 .45% per annum.
ARTICLE III
MANAGEMENT OF THE FUND
Section 3.01 GENERAL. Except as provided in SECTION 2.02(B), 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; for purposes of clarification, the
reregistration of outstanding shares in accordance with the Adviser's normal
procedures shall not constitute the issuance of additional shares and the
processing of dividend reinvestment through omnibus accounts that requires the
fund to pay dividends in cash and immediately reinvests such payment in
additional shares shall constitute a reinvestment of dividends or distributions.
During the Guarantee Period, the assets of the Fund shall be invested and
reinvested in accordance with the provisions set forth in this Article III
(collectively, the "PORTFOLIO REQUIREMENTS"). The Adviser shall fairly and
objectively interpret the Portfolio Requirements, consistent with the intent
thereof. The Adviser shall consult with the Insurer as to any requirement
contained herein which, in the Adviser's reasonable opinion is not clear,
including without limitation the permissibility or classification of any
investment (including any types of investment that may be used in the market
during the term of this Agreement that were not widely used as of the date
hereof), the valuation methodology applicable thereto, and the methodology used
to calculate and report to the Insurer compliance with the Portfolio
Requirements. The Adviser shall use reasonable efforts to manage the Fund such
that the Fund Value remains at least equal to the Bond Floor.
Section 3.02 PERMITTED FIXED INCOME INVESTMENTS. The Fixed Income Component
of the Fund shall consist of a portfolio of Permitted Fixed Income Securities,
Permitted Fixed Income Futures, Permitted Fixed Income Derivatives, and/or Cash
(collectively, "PERMITTED FIXED INCOME INVESTMENTS"). A Permitted Fixed Income
Investment held by the Fund is a "FIXED INCOME INVESTMENT"; Fixed Income
Investments are collectively referred to herein as the "FIXED INCOME PORTFOLIO."
For the avoidance of doubt, any requirement that an investment satisfy a credit
rating criteria shall be applicable at any time and from time to time and shall
not be limited to whether the investment satisfied such credit rating criteria
as of the date of acquisition thereof.
(a) "PERMITTED FIXED INCOME SECURITIES" means U.S. Government Securities and
U.S. Dollar-denominated Cash Equivalents; PROVIDED, HOWEVER, that Permitted
Fixed Income Securities shall not include any interest-only obligation, any
obligation that bears interest at an inverse floating rate, any obligation the
interest rate of which is variable (unless such interest rate is established by
reference to a Quoted Rate plus a fixed spread, if any, and such interest rate
moves proportionally with such Quoted Rate), any obligation whose repayment is
subject to substantial non-credit related risk, including any security whose
rating assigned by S&P includes the subscript "r" or "t", or any obligation that
may be subject to call or prepayment prior to its maturity. Permitted Fixed
Income Securities must have a predetermined fixed dollar amount of principal due
at maturity that cannot vary or change. With respect to each Permitted Fixed
Income Security held by the Fund (a "FIXED INCOME SECURITY"):
(i) Market Value of a Fixed Income Security during a Business Day means its
market price as of such time of determination and, at any other time,
the market price as of the close of trading on the NYSE preceding such
time of determination.
(ii) Notional Value of a Fixed Income Security means the Market Value of
such Fixed Income Security.
(b) "PERMITTED FIXED INCOME FUTURES" means U.S. T-Bond and U.S. T-Note futures
contracts traded on the Chicago Board of Trade and U.S. T-Xxxx futures contracts
traded on the Chicago Mercantile Exchange. With respect to each Permitted Fixed
Income Futures contract owned by the Fund (a "FIXED INCOME FUTURE"):
(i) Notional Value of a Fixed Income Future means, at any time, the product
of (x) the applicable trading unit (or multiplier) of such Fixed Income
Futures contract, and (y) market price of such Fixed Income Futures
contract.
(c) "PERMITTED FIXED INCOME DERIVATIVES" means Interest Rate Swaps. With
respect to each Permitted Fixed Income Derivative to which the Fund is a party
(a "FIXED INCOME DERIVATIVE"):
(i) Market Value of a Fixed Income Derivative at any time means its
xxxx-to-market value (at replacement cost) determined in accordance
with the agreement related thereto.
(ii) Notional Value of a Fixed Income Derivative at any time means the
notional amount specified in the agreement related thereto.
Section 3.03 PERMITTED EQUITY INVESTMENTS. The Equity Component of the Fund
shall consist of a portfolio of Permitted Equity Securities, Permitted Equity
Futures, Permitted Equity Options, Master Fund shares as contemplated by SECTION
3.11 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. Except as provided in SECTION 3.11(B), Permitted
Equity Securities shall be denominated or traded in U.S. Dollars and be listed
on the NYSE or American Stock Exchange or NASDAQ National Market System;
PROVIDED, 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 5% of the Market Value
of the Equity Securities Portfolio as of the most recent purchase transaction by
the Fund or any Master Fund involving the Equity Securities of such issuer;
PROVIDED, HOWEVER, that the Adviser may, with respect to 5 issuers, increase
this limit to 6%. For the avoidance of doubt (i), to the extent the Equity
Portfolio is invested in Master Fund shares, this test shall be applied as if
the Fund's assets and liabilities included a PRO RATA portion of the assets and
liabilities of such Master Funds; and (ii) nothing herein shall diminish the
Fund's obligation to be in compliance with the Investment Company Act and other
applicable laws and, accordingly, the Fund may increase the single issuer limit
as contemplated in the proviso above only to the extent such an increase would
not cause the Fund to fail to be in compliance with the Investment Company Act
and applicable regulations thereunder.
(B) CASH EQUIVALENTS. The aggregate Market Value of Cash Equivalents
included in the Fixed Income Portfolio 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 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 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) included in
the Fixed income Portfolio 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 included in the
Fixed Income Portfolio 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 Benchmark
Sector Weight minus 8% thereof, and (B) not greater than the Benchmark
Sector Weight plus 8% thereof; PROVIDED, HOWEVER, that a Sector may
have a weighting that is less than the minimum required weighting to
the extent that the minimum required weighting exceeds 25%. For the
avoidance of doubt, nothing in this SECTION 3.04(C)(I) shall alter the
requirements in SECTION 3.04(D) or SECTION 3.04(E).
(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 aggregate Market Value of (x)
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 exchange-traded funds
based solely on the Equity Benchmark, and (y) Nonconforming Equity
Securities shall not in the aggregate exceed 7% of the Market Value of
the Equity Securities Portfolio. If exchange-traded funds 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. To the extent that an Equity Security is classified
by the Adviser (as reflected in a Weekly Report or otherwise), the
Adviser will, if requested by the Insurer, consult with the Insurer
with respect to such classification and, if the Insurer does not concur
with the Adviser's classification, the classification shall be revised
to a mutually acceptable classification.
(iv) Exchange-traded funds based solely on the Equity Benchmark 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).
(v) For the avoidance of doubt, to the extent the Equity Portfolio is
invested in Master Fund shares, this test shall be applied as if the
Fund's assets and liabilities included a pro rata portion of the assets
and liabilities of such Master Funds.
(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 Risk Model, shall not exceed seven percent (7.00%). Unclassified
Equity Securities shall be disregarded for purposes of the tests required by
this SECTION 3.04(D). For the avoidance of doubt, to the extent the Equity
Portfolio is invested in Master Fund Shares, this test shall be applied as if
the Fund's assets and liabilities included a pro rata portion of the assets and
liabilities of such Master Funds.
(E) EQUITY SECURITIES PORTFOLIO BETA. The expected beta of the Equity
Securities Portfolio as compared to the Equity Benchmark, as measured by the
Risk Model, shall equal at least .7 and shall not exceed 1.2. Unclassified
Equity Securities shall be disregarded for purposes of the tests required by
this SECTION 3.04(E). For the avoidance of doubt, to the extent the Equity
Portfolio is invested in Master Fund Shares, this test shall be applied as if
the Fund's assets and liabilities included a pro rata portion of the assets and
liabilities of such Master Funds.
(F) FIXED INCOME WEIGHTED AVERAGE DURATION. The Fixed Income Weighted Average
Duration at any time shall not be less than 90 calendar days prior to the
Maturity Date and shall not be greater than 90 calendar days following the
Maturity Date; PROVIDED, HOWEVER, that (i) at no time shall the Fixed Income
Portfolio include any instrument that matures later than the Maturity Date plus
two years, and (ii) within the twelve months prior to the Maturity Date (x) the
Fixed Income Weighted Average Duration shall not exceed the period remaining
until the Maturity Date and shall not be less than 30 calendar days prior to the
Maturity Date and (y) the Fixed Income Portfolio shall not include any
instrument that matures after the Maturity Date. Fixed Income Weighted Average
Duration shall be calculated in accordance with the methodology set forth in
SCHEDULE 4.
(G) AGGREGATE NOTIONAL VALUE OF EQUITY FUTURES AND EQUITY OPTIONS. The following
amount shall not exceed 30% of the Market Value of the Equity Portfolio: (i) the
sum of (x) the aggregate Notional Value of all long Equity Futures and all long
Synthetic Futures PLUS (y) the aggregate Notional Value of all long Equity
Calls, MINUS (ii) the sum of (a) the aggregate Notional Value of all short
Equity Futures and all short Synthetic Futures, PLUS (b) the aggregate Notional
Value of all short Equity Calls, PLUS (c) the aggregate Notional Value of all
Protective Puts. For the avoidance of doubt, to the extent the Equity Portfolio
is invested in Master Fund Shares, this test shall be applied as if the Fund's
assets and liabilities included a pro rata portion of the assets and liabilities
of such Master Funds.
(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. For the avoidance
of doubt, to the extent the Equity Portfolio is invested in Master Fund Shares,
this test shall be applied as if the Fund's assets and liabilities included a
pro rata portion of the assets and liabilities of such Master Funds.
(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. For the avoidance of doubt, to the extent the Equity Portfolio is
invested in Master Fund Shares, this test shall be applied as if the Fund's
assets and liabilities included a pro rata portion of the assets and liabilities
of such Master Funds.
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 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)
Ag(t) = the Aggregate 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)
-------------
Ag(t)
"MAXIMUM 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 Maximum Equity Exposure shall not exceed 100% and shall not
be less than 0% of the Fund Value.
(b) "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 Maturity Date, and (2) the product of (x) the
Expense Amount, and (y) the interpolated price (expressed as a percentage of par
and as calculated using the straight line method) 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 Maturity Date, rounded to the date nearer to the date of determination in
the case of an odd number of calendar days; PROVIDED, HOWEVER, that after the
maturity of the U.S. Treasury zero coupon bond that matures most nearly prior to
the Maturity Date, the applicable percentage of par is 100%.
(c) 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) 1.20% with respect to the Class A Shares, 1.95% with respect to the
Class B Shares, and 1.95% with respect to the Class C Shares, and (D) the time
remaining to the 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 Maturity Date).
Section 3.06 REPORTS.
(a) The Adviser shall provide the Daily Gap Risk Report to the Insurer by 9:00
a.m. (New York City time) on the next Business Day. Each Daily Gap Risk Report
shall reflect the Fund Value, Bond Floor, Aggregate Equity Exposure, Gap Risk
and Maximum Equity Exposure of the Fund as of the close of business on the
Business Day in respect of which such Daily Report is issued. The Adviser shall
provide the Daily Portfolio Requirements Report to the Insurer by 2:00 p.m. (New
York City time) on the next Business Day. Each Daily Portfolio Requirements
Report shall reflect the assets of the Fund as of the close of business on the
Business Day in respect of which such Daily Portfolio Requirements Report is
issued. The Daily Portfolio Requirements Report shall provide information with
respect to the Fund's compliance with all of the Portfolio Requirements, other
than (i) the Portfolio Requirements contained in the Daily Gap Risk Report; (ii)
sector diversification compliance required by SECTION 3.04(C) and contained in
the Weekly Report; and (iii) tracking error compliance and beta compliance
required by SECTION 3.04(D) and SECTION 3.04(E), respectively, so long (x) as
tracking error (calculated as contemplated in SECTION 3.04(D)) is less than or
equal to 5% and beta (calculated as contemplated in SECTION 3.04(E)) is between
0.8 and 1.1, in each case as reflected in the most recent Weekly Report or, if
applicable, the ten most recent Daily Portfolio Requirements Reports and (y)
such tracking error and beta compliance is reported in the Weekly Report.
(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 and/or the Custodian to
provide to the Insurer a report or reports in form satisfactory to the Insurer
setting forth (i) the assets of the Fund, transaction log, and trial balance 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 and (b) the price of such assets. Unless otherwise
agreed, all such pricing information shall be identical to the pricing
information used to calculate NAV.
(e) The Adviser shall provide the Weekly Report to the Insurer by 9:00 a.m. (New
York City time) on the second Business Day following the last Business Day of
each week. Each Weekly Report shall reflect the assets of the Fund as of 12:00
noon on the last Business Day of the preceding week. The Weekly Report shall
provide information with respect to the Fund's compliance with the sector
diversification requirements of SECTION 3.04(C) (including a classification of
all of the Fund's Equity Securities by Factset, and an itemized list of each
Equity Security which is not classified by Factset together with the
classification of each such Equity Security by the Adviser) and, so long as
tracking error (calculated as contemplated in SECTION 3.04(D)) is less than or
equal to 5% and beta (calculated as contemplated in SECTION 3.04(E)) is between
..8 and 1.1, the tracking error requirements of SECTION 3.04(D) and the beta
requirements of SECTION 3.04(E). If the Fund is not eligible to report such
tracking error and beta on the Weekly Report, the Fund shall report such
tracking error and beta as of the close of business on each Business Day on the
Daily Portfolio Requirements Report until tracking error is less than or equal
to 5% and beta is between 0.8 and 1.1 for ten (10) successive Business Days as
indicated in the Daily Portfolio Requirements Report.
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 Maturity Date plus two years, and, within the twelve months prior
to the Maturity Date, no Fixed Income Investment present in the Equity Portfolio
shall mature after the 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 and the Fund 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 each Business
Day or on the last Business Day of each week, as applicable, in accordance with
the Fund's usual procedures and in compliance with the Investment Company Act.
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
Risk Model is unavailable during any period requirements based on the
application thereof shall be suspended during such period.
Section 3.10 RAMP-UP PERIOD. Notwithstanding any other provision of this
Agreement, SECTIONS 3.04(B) through and including 3.04(H) shall not apply until
the earliest to occur of (i) the seventh Business Day following the commencement
of the Guarantee Period, and (ii) the Fund invests the Equity Portfolio in one
or more Master Funds. Section
3.11 MASTER FUND SHARES. (a) The Fund may invest all or a portion of the Equity
Portfolio in the shares of one or more Master Funds if (i) such investment does
not violate the Investment Company Act (including without limitation SECTION
12(D)(1)(G) thereof) or any other Requirement of Law applicable to the Trust,
the Fund, any Master Fund, or the Adviser; (ii) the Portfolio Requirements
(including the reporting information required by SECTION 3.06) are met on a
look-through basis, as if the Fund's assets and liabilities were a PRO RATA
portion of the assets and liabilities of such Master Funds; and (iii) the Fund
shall have provided to the Insurer evidence satisfactory to the Insurer that an
enforceable agreement exists between such Master Fund and the Fund pursuant to
which such Master Fund has undertaken not to make a distribution in kind to the
Fund, and the Shareholders of the Fund and the Insurer shall be third party
beneficiaries of such agreement. It shall not constitute a violation of this
Article III if assets of any such Master Fund include Cash, U.S. Government
Securities, Money Market Securities and, if they would comply with the proviso
in SECTION 3.04(F), Cash Equivalents; PROVIDED, HOWEVER, that such investments
shall be included in the calculation of the Equity Portfolio and shall not be
included in the calculation of the Fixed Income Portfolio; and PROVIDED,
FURTHER, HOWEVER, that, solely for the purposes of investment of the Equity
Portfolio in a Master Fund or in Cash Equivalents that are considered part of
the Equity Portfolio (i) in the definitions of "Commercial Paper" and
"Repurchase Obligation" herein the minimum requirement of "A-1+" shall be
reduced to "A-1" where it appears in such definitions and the minimum
requirements of "Aa2" and "AA" shall be reduced to "Aa3" and "AA-", respectively
in the definition of "Repurchase Obligation" herein, and (ii) the single issuer
and counterparty limitations of SECTION 3.04(B) shall apply but the 10%
limitation with respect to fully collateralized Repurchase Obligations shall be
increased to 25% of Fund Value (as long as the criteria set forth therein for
"fully-collateralized" Repurchase Obligations are complied with, including
compliance with the provisions of Rule 5b-3(c)(1) under the Investment Company
Act).
(b) Up to 5% of the Equity Securities Portfolio may be invested in Equity
Securities that are not denominated or traded in U.S. Dollars and/or are not
listed on the NYSE, American Stock Exchange or NASDAQ National Market System
("NONCONFORMING EQUITY SECURITIES") if (i) such Nonconforming Equity Securities
are common stock, preferred stock or exchange-traded funds listed on a local
stock exchange; (ii) the Fund acquires such Nonconforming Equity Securities as a
result of its investment in a Master Fund; and (iii) the aggregate Market Value
of all Equity Securities of each single issuer of any such Nonconforming Equity
Securities does not exceed 2% of the Market Value of the Equity Securities
Portfolio.
(c) For the avoidance of doubt, any of the following activities by the Master
Fund would constitute a breach of the Portfolio Requirements: the use of
leverage in violation of SECTION 3.04(I) and/or SECTION 3.08; investment in
other than U.S. Dollar-denominated investments in violation of SECTION 3.01 or
SECTION 3.11(B); investment in common shares that are not listed on the NYSE,
American Stock Exchange or NASDAQ National Market System; investment in options
and/or futures other than as contemplated by SECTIONS 3.03.(B), 3.03(C),
3.04(G), 3.04(H); and investment in fixed income investments that are not
consistent with the requirements of SECTION 3.07 or SECTION 3.11(A). The
foregoing list is not intended to be comprehensive.
ARTICLE IV
TRIGGER EVENTS
Section 4.01 TRIGGER EVENTS. (a) The following events shall constitute Trigger
Events hereunder:
(i) Any failure to maintain Gap Risk of not less than 22.5%, unless the
Adviser notifies the Insurer upon becoming aware of such failure and is
using best efforts to cure such failure (to the reasonable satisfaction
of the Insurer) and such failure is cured by the end of the following
Business Day;
(ii) Any failure to provide a Daily Report to the Insurer within two hours
following notice by the Insurer to the Adviser of the Insurer's
non-receipt thereof, unless the Adviser and the Fund are 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 Article III that is not expressly provided for in
clause (i) or (ii) above unless cured by the end of the third Business
Day following the Business Day on which such violation occurred;
(iv) Fund Value is less than or equal to 101% of the Bond Floor at any time;
(v) The Fund shall fail to pay the Premium Fee as provided in SECTION 2.04
and such failure shall continue unremedied for a period of two Business
Days following notice by the Insurer to the Fund and to the Adviser;
(vi) Any representation or warranty made by the Adviser or the Trust on
behalf of the Fund herein shall have been incorrect or misleading in
any material respect when made;
(vii) The Adviser or the Trust on behalf of the Fund shall fail to perform
any obligation under this Agreement or the Transaction Documents that
is not expressly provided for in clause (i), (ii), (iii) or (v) above,
which failure could reasonably be expected to have an Adverse Effect
and such violation, if capable of being remedied, shall continue
unremedied for a period of 30 days after notice shall have been given
by the Insurer to such party requiring that such default be cured;
(viii) Either Xxxxx'x or S&P suspends or withdraws the short- or long-term
rating of the Adviser or, if the Adviser is not rated, its Parent
Company, or downgrades the senior unsecured rating of the Adviser or,
if the Adviser is not rated, its parent company 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 the
Adviser or, if the Adviser is not rated, its Parent Company or elect to
have only one rating agency specified herein;
(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 (other than a termination
resulting from a change in control of the Adviser if the Adviser or its
successor are reappointed as investment adviser, such successor entity
agrees to be bound by the terms of this Agreement and the other
Transaction Documents to which the Adviser is a party, and the senior
unsecured rating of such successor Adviser or, if the successor Adviser
is not rated, its parent company is at least Baa1 and BBB+; (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;
(x) Notice of termination of the Custodian Agreement is given by the Fund
or the Custodian, and the Fund is unable to engage a successor
Custodian that agrees to be bound by the Direction and Undertaking
Regarding Remedies not less than five (5) Business Days prior to the
effective date of any such termination; or
(xi) Notice of termination of the Investment Management Agreement is given
by the Fund or the Adviser (other than a termination resulting from a
change in control of the Adviser if the Adviser or its successor are
reappointed as investment adviser, such successor entity agrees to be
bound by the terms of this Agreement and the other Transaction
Documents to which the Adviser is a party, and the senior unsecured
rating of such successor Adviser or, if the successor Adviser is not
rated, its parent company is at least Baa1 and BBB+.
(b) If an event has occurred and is continuing, which, if not cured or waived
would give rise to a Trigger Event, then, until the time when such event is
cured or the cause of the potential Trigger Event is eliminated, the Adviser may
only enter into Risk Reducing Trades and shall consult with the Insurer and
provide to the Insurer a description of the manner in which the Adviser intends
to cure such event, the Adviser's assessment of the likelihood of success, the
time the Adviser expects to elapse before such event is cured, and such other
information as the Insurer may request. If a Trigger Event occurs and is
continuing (and all applicable cure periods have expired) then, at the election
of the Insurer, the Insurer shall have the right, exerciseable at any time
during such 30 calendar day period (or such shorter period during which such
Trigger Event is continuing) after notice to the Insurer of the occurrence of
such Trigger Event, to require that the Adviser cause the assets of the Fund to
be allocated to the Defeasance Portfolio.
(c) If a Trigger Event occurs and is continuing (and all applicable cure periods
have expired) then, at the election of the Insurer, the Insurer shall have the
right, exerciseable at any time during such 30 calendar day period (or such
shorter period during which such Trigger Event is continuing) after notice to
the Insurer of the occurrence of such Trigger Event, to direct the Custodian
with respect to the liquidation of the Fund's assets and the acquisition of 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 have the right, at the
election of the Insurer, to direct the Custodian with respect to the liquidation
of the Fund's assets and the acquisition of 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 be entitled to deliver the
Direction and Undertaking Regarding Remedies and to direct the Custodian with
respect to the liquidation of the Fund's assets and the acquisition of
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
Maturity Date as practicable but in any event no later than the 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 practicable, the Adviser shall manage the Defeasance Portfolio to obtain
the highest available yields consistent with the requirements set forth in the
definition of "Defeasance Portfolio", and such constraints as may exist due to
the value of the Fund's assets at the time the Fund's assets are invested in the
Defeasance Portfolio. For example, if Fund Value is less than 100% of the Bond
Floor the Adviser shall invest the Defeasance Portfolio, to the extent possible,
in the following order of priority: (i) the instruments in SECTION 4.02(I), (ii)
the instruments in SECTION 4.02(II), and (iii) Cash. It is understood that, if
Fund Value is less than 100% of the Bond Floor, the extent of the Fund's assets
may limit the Fund's ability to purchase zero coupon U.S. Treasury bonds having
a par amount equal to the Guarantee Amount.
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 gross negligence, willful misconduct,
recklessness or bad faith of the Adviser, the Insurer shall have all of the
rights and remedies available to it against the Adviser at law and in equity.
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 SECTIONS 4.01(C), 4.01(D) and 4.02.
Section 5.02 LIMITATIONS AS TO THE FUND. The Insurer shall have no claim
against the Trust on behalf of the Fund hereunder for any breach hereof that did
not arise out of (i) the failure of the Trust on behalf of the Fund to pay the
Premium Fee in accordance with SECTION 2.04, or (ii) the gross negligence,
willful misconduct, recklessness or bad faith of the Trust on behalf of the
Fund. The sole remedies that the Insurer shall have against the Trust on behalf
of the Fund in the event of such a breach shall be (x) to pursue a claim against
the Trust on behalf of 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 SECTIONS 4.01(C), 4.01(D) and 4.02.
In no event shall the Insurer set off against, decline to pay, or otherwise
withhold amounts payable under the Policy. Nothing in this SECTION 5.02 shall be
construed to limit the Insurer's rights under Article IV.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.01 REPRESENTATIONS AND WARRANTIES OF THE ADVISER. To induce the
Insurer to enter into this Agreement and to issue the Policy, the Adviser hereby
represents and warrants to the Insurer as follows, on and as of the date hereof:
(a) The Adviser (i) is a corporation 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, authority and legal right to execute, deliver and
perform its obligations under 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 or as are not material to
the enforceability or validity of the Transaction Documents, no consent or
authorization of, filing with, or other act by or in respect of, any Government
Authority or any other Person is required in connection with the execution,
delivery, performance, validity or enforceability by or against the Adviser of
the Transaction Documents to which it is a party. This Agreement has been, and
each other Transaction Document to which the Adviser is a party will be, duly
executed and delivered on behalf of the Adviser. This Agreement constitutes, and
each other Transaction Document to which the Adviser is a party, when executed
and delivered, will constitute, a legal, valid and binding obligation of the
Adviser enforceable against it in accordance with its terms, except as
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).
(c) The execution, delivery and performance of the Transaction Documents to
which the Adviser is a party will not violate any Requirement of Law or
Contractual Obligation of the Adviser and will not result in, or require, the
creation or imposition of any Lien on any of its property, assets or revenues
except where such violation or Lien would not reasonably be expected to have an
Adverse Effect. The Adviser is not in violation of any Contractual Obligation,
except where such violation would not reasonably be expected to have an Adverse
Effect.
(d) No litigation, proceeding or investigation of or before any arbitrator or
Governmental Authority is pending or, to the Adviser's knowledge, threatened (i)
asserting the invalidity or unenforceability of any of the Transaction
Documents, (ii) seeking to prevent the consummation of any of the transactions
contemplated by the Transaction Documents or (iii) seeking any determination or
ruling that would reasonably be expected to have an Adverse Effect.
(e) The Adviser is duly registered with the Commission as an investment adviser
under the Investment Advisers Act; and there does not exist any proceeding or
any facts or circumstances the existence of which could adversely affect the
registration of the Adviser with the Commission; the Adviser is not prohibited
by any provision of the Investment Advisers Act or the Investment Company Act,
or the respective rules and regulations thereunder, from acting as an investment
adviser of the Fund as contemplated hereunder.
(f) Except as specifically disclosed in writing to the Insurer, to the best of
the Adviser's knowledge there has been no event, condition, action or omission
since the audited consolidated financial statements of the Parent Company for
the fiscal year ended December 31, 2001 which were furnished to the Insurer
which would reasonably be expected to have an Adverse Effect, other than such
events, conditions, actions or omissions which have been specifically disclosed
in writing to the Insurer.
(g) Except as specifically disclosed in writing to the Insurer, the most recent
balance sheets of the Parent Company, commencing with the fiscal year ended
December 31, 2001, and the related statements of earnings of the Adviser's
parent company, have been prepared in accordance with the standards of the
Commissione Nazionale per le Societa e la Borsa (CONSOB) and present fairly in
all material respects the financial condition of the Adviser's parent company 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 that
would make the transactions contemplated by the Transaction Documents illegal or
otherwise prevent the consummation thereof.
Section 6.02 REPRESENTATIONS AND WARRANTIES OF THE TRUST FOR ITSELF AND THE
FUND. The Trust on behalf of itself and the Fund hereby represents and warrants
to the Insurer as follows, on and as of the date hereof:
(a) The Trust (i) is a
statutory trust 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. 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.
Section 6.03 REPRESENTATIONS AND WARRANTIES OF THE INSURER. The Insurer hereby
represents and warrants to the Adviser and the Fund as follows, on and as of the
date hereof:
(a) The Insurer is a stock insurance company duly incorporated and validly
existing under the laws of Wisconsin.
(b) The Insurer has the corporate power and authority to execute and
deliver this Agreement, the Indemnification Agreement and the Policy and to
perform all of its obligations hereunder and thereunder.
(c) The execution, delivery and performance by the Insurer of this
Agreement, the Indemnification Agreement, and the Policy have been duly and
validly authorized by all necessary corporate action and proceedings, and any
licenses, orders, consents or other authorizations or approvals of any
governmental boards or bodies legally required for the enforceability of the
Agreement, the Indemnification Agreement and the Policy have been obtained and
any actions or proceedings not taken or any consents, approvals or filings not
obtained or made are not material to the enforceability against the Insurer of
this Agreement, the Indemnification Agreement or the Policy (assuming that the
conditions precedent to the issuance of the Policy set forth herein are
satisfied).
(d) Each of this Agreement and the Indemnification Agreement has been duly
executed and delivered by the Insurer and constitutes the legal, valid and
binding obligation of the Insurer, enforceable against the Insurer in accordance
with its terms (subject to applicable bankruptcy, reorganization, insolvency,
moratorium or similar laws affecting creditors' rights generally and subject, as
to enforceability, to equitable principles of general application (regardless of
whether enforcement is sought in a proceeding in equity or at law)). When the
Policy is executed and delivered by the Insurer in accordance with this
Agreement, the Policy will constitute the legal, valid and binding obligation of
the Insurer, enforceable against the Insurer in accordance with its terms
(subject to applicable bankruptcy, reorganization, insolvency, moratorium or
similar laws affecting creditors' rights generally and subject, as to
enforceability, to equitable principles of general application (regardless of
whether enforcement is sought in a proceeding in equity or at law)).
(e) There are no actions, suits, proceedings or investigations pending or,
to the best of the Insurer's knowledge, threatened against the Insurer at law or
in equity or before or by any court, governmental agency, board or commission or
any arbitrator which could reasonably be expected to adversely affect the
enforceability of this Agreement, the Indemnification Agreement or the Policy.
ARTICLE VII
COVENANTS
Section 7.01 COVENANTS OF THE ADVISER. The Adviser hereby covenants and agrees
that through the Maturity Date or the earlier termination of this Agreement
pursuant to SECTION 11.01:
(a) The Adviser 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; PROVIDED, HOWEVER, that a
termination of the Investment Management Agreement resulting from a change in
control of the Adviser shall require prior written notice to the Insurer but
shall not require the prior written consent of the Insurer if the Adviser or its
successor are reappointed as investment adviser, such successor entity agrees to
be bound by the terms of this Agreement and the other Transaction Documents to
which the Adviser is a party, and the senior unsecured rating of such successor
Adviser or, if the successor Adviser is not rated, its parent company is a least
Baa1 and BBB+;
(b) Other than (i) in connection with the reinvestment of dividends or
other distributions; and (ii) as contemplated in SECTION 2.02(B), the Adviser
shall not allow the offering or sale of the shares of the Fund after the
Offering Period;
(c) The Adviser 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) The Adviser 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, the Adviser 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) The Adviser 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) The Adviser shall provide to the Insurer copies of (i) the audited
annual consolidated financial statements of the Parent Company within 120
calendar days following the end of each fiscal year, and (ii) the unaudited
quarterly consolidated financial statements of the Parent Company within 90
calendar days following the end of each fiscal quarter; PROVIDED that such
annual and quarterly financial statements may be provided by sending an email to
the persons listed on SCHEDULE 3, Table A, that includes either a link to, or an
attachment containing, such financial statements;
(h) The Adviser 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 the Adviser 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 Document 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 Investment
Advisers Act and to satisfy the Adviser's obligation to provide to the Insurer
the information referred to herein;
(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 the Insurer prior to its inclusion in such marketing
materials, such approval not to be unreasonably withheld or delayed; and
(m) The Adviser shall inform the Insurer as promptly as practicable of (i)
any inquiry or request for information with respect to the Fund by the
Commission, and (ii) any disclosure of information regarding the specific
investments of the Fund or other information relating to the Fund that is made
at the request of Governmental Authority or is required to be disclosed as a
result of any governmental investigation or inquiry.
Section 7.02 COVENANTS OF THE FUND. The Trust on behalf of the Fund hereby
covenants and agrees that through the Maturity Date or the earlier termination
of this Agreement pursuant to SECTION 11.01:
(a) Within 90 calendar 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) During the Guarantee Period, other than the redemption of Shares by a
Shareholder, the reinvestment of dividends or other distributions, or as
contemplated by SECTION 2.02(B), the Fund shall not change the number of
outstanding shares of the Fund;
(c) The Fund 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) The Fund 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) The Fund 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 notifies the Fund that
the Custodian intends to 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) The Fund shall comply in all material respects with the terms and
provisions of the Acts with respect to the Fund except where the failure so to
comply would not have an Adverse Effect and would not have a material adverse
effect upon the Insurer; and
(h) The Fund shall provide to the Insurer such additional information with
respect to the Fund as the Insurer may from time to time reasonably request.
(i) The Fund shall not change the manner in which NAV is calculated during
the Guarantee Period unless required to do so by applicable law. If the Fund
changes the manner in which NAV is calculated during the Guarantee Period, the
Fund shall notify the Insurer and negotiate in good faith to modify the
calculation of any other amounts determined tin relation to NAV, including
without limitation, Guarantee Amount and Guarantee per Share to the extent
reasonably necessary to preserve, but not increase, the Insurer's intended
obligations hereunder.
Section 7.03 COVENANT OF THE INSURER. The Insurer hereby covenants and
agrees that through the Maturity Date or the earlier termination of this
Agreement pursuant to SECTION 11.01:
(a) The Insurer shall provide a brief description of the Insurer to the
Fund for inclusion in the Registration Statement and subsequent updates and
amendments thereof during the Guarantee Period. The Insurer shall permit the
Fund to incorporate by reference in the Registration Statement (and subsequent
updates and amendments thereof during the Guarantee Period) the financial
statements of the Insurer and information related thereto included in the
periodic reports of Ambac Financial Group, Inc. under the Securities Exchange
Act of 1934. The Insurer shall make reasonable efforts to obtain the consent of
the Insurer's auditor to such incorporation by reference of the Insurer's
financials in the Registration Statement and subsequent updates and amendments
thereof during the Guarantee Period.
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 not less than thirty (30) Business Days prior
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 or the Master Funds
whether provided to the Insurer by the Adviser, the Trust, the Custodian or the
Fund Accounting Agent ("TRADING INFORMATION") or (y) other information
(including without limitation proprietary information as to systems, software
and trading methods) ("OTHER INFORMATION" and, together with Trading
Information, "FUND 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 Fund Information in
connection with the Insurer's hedging and reinsurance arrangements to recipients
("PERMITTED RECIPIENTS") if such Permitted Recipients represent and warrant to
the Insurer that such Permitted Recipients will treat such information as
confidential information. The Adviser and the Fund agree that the Insurer and
any Permitted Recipient will satisfy their obligation to treat such information
as confidential information by (i) restricting access to such information to the
investment officers and compliance officers who require access to such
information for monitoring, hedging, administration and compliance purposes,
(ii) obtaining the agreement of such investment officers and compliance officers
to keep such information confidential on the terms of SECTION 9.01, and (iii)
complying with the other requirements of an appropriate institutional compliance
procedure in form and detail customary in the industry 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 access to 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.
(c) The Fund and the Adviser acknowledge and agree that the Insurer may disclose
Trading Information and Other Information to Citibank, N.A. ("CITIBANK") in
connection with the Insurer's hedging and reinsurance arrangements, and that
Citibank may disclose such information to affiliates of Citibank in connection
with Citibank's hedging and reinsurance arrangements; PROVIDED that Citibank and
its affiliates treat such information as confidential information as
contemplated in SECTION 9.02(A).
Section 9.03 COPIES OF FUND INFORMATION. Upon the request of the Fund or the
Adviser given following the Termination Date, (i) the Insurer shall return or
destroy Trading Information that is not yet publicly available and any Other
Information which, when delivered to the Insurer, was labeled as confidential
and required to be returned or destroyed upon request, and (ii) the Insurer
shall use reasonable efforts to cause any Permitted Recipients to return or
destroy such Trading Information and Other Information upon request; PROVIDED,
HOWEVER, that any Fund Information retained by the Insurer and any Permitted
Recipients is subject to the confidentiality terms of this Agreement. Section
9.04 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 Trust shall, no later than
the Inception Date, retain, at the Trust'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 Trust 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 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 rating of the Insurer's financial
strength and claims paying ability 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:
Pioneer Investment Management, Inc.
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: General Counsel
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with a copy to:
Xxxx and Xxxx LLP
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxx
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
If to the Fund:
Pioneer Protected Principal Plus Fund II
c/o Pioneer Investment Management, Inc.
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: General Counsel
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
with copies to:
Xxxx and Xxxx LLP
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxx Xxxxxx
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
any party 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 any party hereunder is
unavailable or unenforceable shall not affect in any way the ability of a party
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 calendar 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. EACH OF THE
PARTIES HERETO (I) IRREVOCABLY SUBMITS 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 THIS
AGREEMENT; (II) IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH NEW YORK STATE OR FEDERAL COURT;
(III) WAIVES, TO THE FULLEST EXTENT THAT IT MAY LEGALLY DO SO, THE DEFENSE OF AN
INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR PROCEEDING; AND (IV)
AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN ANY OTHER JURISDICTIONS BY SUIT ON THE
JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW.
EACH OF THE PARTIES HERETO KNOWINGLY, VOLUNTARILY AND
INTENTIONALLY WAIVES ANY RIGHTS IT 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 PARTIES HERETO
ACKNOWLEDGES AND AGREES THAT IT HAS RECEIVED FULL AND SUFFICIENT CONSIDERATION
FOR THIS PROVISION AND THAT THIS PROVISION IS A MATERIAL INDUCEMENT FOR IT TO
ENTER 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. (a) Subject to SECTION 12.12(B), nothing in
this Agreement, express or implied, shall or is intended to confer any rights
upon any Person (including, without limitation, any Shareholder) other than the
parties hereto or their respective successors or assigns;
(b) The Master Funds are intended third-party beneficiaries of Article IX
to the extent that non-public information regarding the specific investments of
the Master Funds is provided to the Insurer, any Permitted Recipient and/or
Citibank and its affiliates in connection with this Agreement.
Section 12.13 FURTHER ASSURANCES. The parties hereto shall, upon the
request of the Insurer or the Adviser, from time to time, execute, acknowledge
and deliver, or cause to be executed, acknowledged and delivered, within a
reasonable period following such request, such amendments or supplements hereto
and such further instruments and take such further action as may be reasonably
necessary to effectuate the intention, performance and provisions of the
Transaction Documents.
Section 12.14 CONCERNING KNOWLEDGE. When used herein, a reference to the
"knowledge" of the Adviser or the Fund means the actual knowledge of a Senior
Officer of such Person of the matter in question, and not just the facts giving
rise to the matter. For purposes hereof, the term Senior Officer means (i) in
the case of the Adviser, an officer who is a Director or occupies a more senior
position, and (ii) in the case of the Fund, the President, any Vice-President,
the Treasurer or the Secretary of the Fund.
Section 12.15 NO ADDITIONAL TRUST CREATED. Nothing herein or in the Policy
shall be deemed to create a trust other than that created by the Declaration of
Trust in respect of the Fund.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement, all as of the day and year first above mentioned.
AMBAC Assurance Corporation, as Insurer
By:/s/ Xxxxxx Xxxx
Name: Xxxxxx Xxxx
Title: First Vice President
PIONEER INVESTMENT MANAGEMENT, INC.,
as Adviser
By:/s/ Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: President
PIONEER PROTECTED PRINCIPAL TRUST, on
behalf of its series
Pioneer Protected Principal Plus Fund II
By:/s/ Xxxxxx X. Xxxxxx
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President
EXHIBIT A
Ambac Assurance Corporation
Xxx Xxxxx Xxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attn: General Counsel
FINANCIAL GUARANTY INSURANCE POLICY
Policy Number: [_________]
Insured Amount: The Guarantee Amount on the Maturity Date.
Insured Obligation: The Payment Undertaking
Agreement, dated as of [______, 2003] by
Pioneer Protected Principal Plus Fund II
(the "FUND"), a series of Pioneer
Protected Principal Trust (the "TRUST"),
in favor of the holders of Class A, Class
B and Class C Shares (the "SHAREHOLDERS")
of the Fund.
Beneficiary: The Trust, on behalf of the Fund, for the
benefit of the Shareholders.
Ambac Assurance Corporation ("AMBAC"), a Wisconsin stock insurance company, in
consideration of the payment of the Premium and subject to the terms of this
financial guarantee insurance policy (the "POLICY"), hereby agrees
unconditionally and irrevocably to pay to the Beneficiary, by deposit to the
Designated Account, that portion of the Insured Amount which shall become Due
for Payment but shall be unpaid by reason of Nonpayment, up to the Maximum
Amount.
Ambac will make any such payments which are due under this Policy to the
Beneficiary no later than the close of business on the second Business Day
following Receipt by Ambac of a valid Notice of Claim. Payments due under this
Policy will be satisfied by payment by Ambac to the account specified in the
relevant Notice of Claim. Payment to such account shall discharge the
obligations of Ambac under this Policy to the extent of such payment. Once
payment of the Insured Amount has been made in the manner referred to above,
Ambac shall have no further obligation under this Policy.
This Policy is not cancelable by Ambac for any reason, including the failure of
Ambac to receive payment of any Premium due in respect of this Policy. This
Policy does not insure against any risk other than Nonpayment.
This Policy shall terminate (i) on the fifth Business Day following the 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 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).
There shall be no accelerated payment due under the Policy unless such
acceleration is at the sole option of Ambac.
In witness whereof, Ambac has caused this Policy to be duly executed on its
behalf by a duly authorized officer of Ambac.
--------------------------------
Authorized Officer
Dated:___Effective Date: [______], 0000
XXXXXXXX A
DEFINITIONS
"ADVISER" means Pioneer Investment Management, Inc., as
Adviser to the Fund.
"BUSINESS DAY" means any calendar day other than a calendar
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 NYSE is closed for business.
"CLASS OF SHARES" means each class of shares of beneficial
interest of the Fund designated pursuant to the Trust's Amended and Restated
Declaration of Trust dated as of October 2, 2001 as amended and in effect from
time to time.
"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 February ___, 2003, 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.
"CUSTODIAN" means Xxxxx Brothers Xxxxxxxx & Co., as Custodian
pursuant to the Custodian Agreement, or any successor to Xxxxx Brothers
Xxxxxxxx & Co. in such capacity.
"CUSTODIAN AGREEMENT" means the Custodian Contract dated as of
July 1, 2001 between the Trust and the Custodian, as amended from time to time.
"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 cannot 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 Maturity Date.
"FINANCIAL GUARANTEE AGREEMENT" means the Financial Guarantee
Agreement, dated as of February ___, 2003, 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 (A) the Guarantee per Share applicable to the Class A Shares as of
such date and (B) the number of Class A Shares outstanding as of such date; (ii)
the product of (A) the Guarantee per Share applicable to the Class B Shares as
of such date and (B) the number of Class B Shares outstanding as of such date;
and (iii) the product of (A) the Guarantee per Share applicable to the Class C
Shares as of such date and (B) the number of Class C Shares outstanding as of
such date.
"GUARANTEE PER SHARE" means, with respect to any Class of
Shares, (i) the sum of (a) the NAV for such Class of Shares at the close of
business on the Transition Date and (b) the product of the NAV for such Class of
Shares at the close of business on the Transition Date and the Return Multiplier
for such Class of Shares 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 Business Day such Distribution Per Share
was effective.
"GUARANTEE PERIOD" means the period commencing on and
including the Inception Date to and including the Maturity Date.
"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.
"MATURITY DATE" means May 5, 2010, but if that date is not a
Business Day, the Maturity Date shall be the first Business Day thereafter.
"MAXIMUM AMOUNT" means, as of the Maturity Date, the excess of
(a) the Guarantee Amount on the Maturity Date, over (b) the sum of (i) the
product of (A) the NAV for the Class A Shares as of the Maturity Date and (B)
the number of Class A Shares outstanding on such date; PLUS (ii) the product of
(A) the NAV for the Class B Shares as of the Maturity Date and (B) the number of
Class B Shares outstanding on such date; PLUS (iii) the product of (A) the NAV
for the Class C Shares as of the Maturity Date and (B) the number of Class C
Shares outstanding on such date.
"NAV" means, with respect to any Class of Shares of
the Fund, on any date, the net asset value per share of such Class of Shares
established by the Fund for such date in the manner required by the Investment
Company Act.
"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 Maturity Date if the Shareholders redeem on
such 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.
"NYSE" means The New York Stock Exchange.
"PROSPECTUS" means for any Class of Shares, the prospectus and
statement of additional information pursuant to which the shares of such Class
of Shares were offered for sale, as the same may be updated and in effect from
time to time in accordance with the Financial Guarantee Agreement.
"PREMIUM" means the premium payable in consideration for the
issuance of this Policy.
"RECEIPT" means actual delivery of an original to Ambac at the
office indicated on the first page of this Policy or at the new address provided
as contemplated below, Attn: General Counsel, on a Business Day. Delivery on a
calendar day that is not a Business Day or after 5:00 p.m., New York City time,
shall be deemed to be Receipt on the next succeeding Business Day. Delivery by
facsimile shall not be complete until orally confirmed at the appropriate
telephone number set forth above. If Ambac's offices are relocated subsequent to
the date hereof while the Policy is in effect, Ambac shall notify the Fund and
the Beneficiary of Ambac's new address and telephone and facsimile numbers.
"RETURN MULTIPLIER" means, (i) in the case of Class A Shares,
the minimum return on Class A Shares during the Guarantee Period, which shall be
14%; (ii) in the case of Class B Shares, the minimum return on Class B Shares
during the Guarantee Period, which shall be 8.75%; and (iii) in the case of
Class C Shares, the minimum return on Class C Shares during the Guarantee
Period, which shall be 8.75%.
"TRANSITION DATE" means the Business Day prior to the
Inception Date.
APPENDIX B
NOTICE OF CLAIM AND CERTIFICATE
Ambac Assurance Corporation
Xxx Xxxxx Xxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Telephone: 000-000-0000
Facsimile: 000-000-0000
Attention: General Counsel
The undersigned hereby certifies to Ambac Assurance
Corporation ("AMBAC"), with reference to financial guaranty insurance policy No.
[_________] dated [_____], 2002 (the "POLICY") issued by Ambac in respect of the
shares of Pioneer Protected Principal Trust, Series Pioneer Protected Principal
Plus Fund II (the "FUND"), that:
(i) The undersigned, for the benefit of holders of Class A, Class B and
Class C 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 [___________].
By executing this Notice of Claim, the undersigned hereby
confirms and agrees that, subject to and concurrently with the payment by Ambac
of amounts then due under the Policy, Ambac shall, without necessity of further
act, be subrogated, to the extent of such payment to all rights of the Fund
under the Transaction Documents. In furtherance of the foregoing, the
undersigned hereby assigns to Ambac all rights of the Fund under the Transaction
Documents. The undersigned shall, and shall cause the Fund to, cooperate in
Ambac's exercise of such subrogated and assigned rights.
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 [ ], [ ].
PIONEER PROTECTED PRINCIPAL TRUST,
on behalf of its series
Pioneer Protected Principal Plus Fund II
By:_______________________________________
Name:
Title:
CC: Xxxxx Brothers Xxxxxxxx & Co., as Custodian
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: [__________]
EXHIBIT B
Pioneer Protected Principal Trust
C/o Pioneer Investment Management, Inc.
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
February [___], 2003
Xxxxx Brothers Xxxxxxxx & Co.
00 Xxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: [_________________]
Re:______PIONEER PROTECTED PRINCIPAL PLUS FUND II
Ladies and Gentlemen:
Pursuant to the terms of the Custodian Contract, dated as of
July 1, 2001, as amended from time to time (the "Contract"), between Pioneer
Protected Principal Plus Fund II (the "FUND") and Xxxxx Brothers Xxxxxxxx & Co.
(the "CUSTODIAN"), the undersigned Pioneer Protected Principal Trust (the
"TRUST") on behalf of the Fund 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
liquidation of the assets of the Fund and the investment of the Fund's assets in
the Defeasance Portfolio (as defined below) (each, an "AMBAC INSTRUCTION")
Each Ambac Instruction shall be deemed to constitute proper
"Instructions" pursuant to Section 4 of the Contract. Further, this letter
itself constitutes a proper "Instruction" pursuant to Section 4 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.
The persons listed on Appendix A shall be "AUTHORIZED PERSONS" pursuant to
Section 4 of the Contract with authority to issue an Ambac Instruction.
"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 (as defined in the Financial Guarantee
Agreement, dated as of February ___, 2003, among Pioneer Investment Management,
Inc., the Trust on behalf of the Fund, and Ambac, as amended from time to time
(the "AGREEMENT")) and that mature on a date as close to the Maturity Date (as
defined in the Agreement) as practicable but in any event no later than the
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.
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, any 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, on behalf of the Fund, 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) modifications to the list of Authorized Persons of the Trust and Ambac duly
authorized by the Fund's Board; (b) funds transfer security procedure
documentation regarding each of the Fund and Ambac; and (c) remote access
services documentation.
The undersigned Trust, on behalf of the Fund, hereby
acknowledges that, except as may arise from the Custodian's own negligence or
willful misconduct, the Custodian shall be without liability to the Fund 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.
PIONEER PROTECTED PRINCIPAL TRUST
On behalf of its series
Pioneer Protected Principal Plus Fund II
By:______________________________________
Name:____________________________________
Acknowledged and Agreed:
XXXXX BROTHERS XXXXXXXX & CO.
By:______________________________________
Name:
Title:
APPENDIX A
AMBAC ASSURANCE CORPORATION
AUTHORIZED PERSONS
Xxxxxxx X. Xxxxxxx Managing Director
Xxxxx X. Xxxxx Managing Director and General Counsel
Xxxxxx X. Xxxx First Vice President
Xxxxxxx Xxxxxxx Vice President
Any other Managing Director, First Vice President or Vice President of Ambac
Assurance Corporation
Schedule 1-A
FORM OF DAILY GAP RISK REPORT
Schedule 1-B
FORM OF DAILY PORTFOLIO REQUIREMENTS REPORT
Schedule 2
FORM OF WEEKLY REPORT
Schedule 3
CONCERNING NOTICES UNDER
FINANCIAL GUARANTEE AGREEMENT
NOTICES TO THE ADVISER OR THE FUND
The party giving notice (the "Notice Giver") shall attempt to
reach an individual named in Table I below by calling each such person, in the
order their names appear below, at the business number given for that person. If
the Notice Giver is not able to speak to one of the individuals named, the
Notice Giver shall then call each such person, in the order their names appear
below, at the cell number given for that person. If the Notice Giver still is
not able to speak to one of the individuals named, the Notice Giver shall then
call each such person, in the order their names appear below, at the home number
given for that person.
As soon as the Notice Giver speaks to one of the individuals
named in Table I and communicates the notice, or if the Notice Giver is unable
to speak with any of the individuals after following the procedures in the
preceding paragraph, the Notice Giver shall send, via fax and email to all of
the individuals named in Table I, a written confirmation or written notice, as
applicable.
Notice shall be deemed given upon verbal communication with an
individual named in Table I or, if the Notice Giver is unable to speak with such
individuals after following the procedures above, dispatch of written notice by
fax and email to the individuals on Table I.
-------------------- --------------- ------------ --------------- ---------------- -----------------------------------
PIONEER
REPRESENTATIVE BUSINESS CELL HOME FAX E-MAIL ADDRESS
-------------------- --------------- ------------ --------------- ---------------- -----------------------------------
-------------------- --------------- ------------ --------------- ---------------- -----------------------------------
-------------------- --------------- ------------ --------------- ---------------- -----------------------------------
-------------------- --------------- ------------ --------------- ---------------- -----------------------------------
-------------------- --------------- ------------ --------------- ---------------- -----------------------------------
-------------------- --------------- ------------ --------------- ---------------- -----------------------------------
-------------------- --------------- ------------ --------------- ---------------- -----------------------------------
-------------------- --------------- ------------ --------------- ---------------- -----------------------------------
-------------------- --------------- ------------ --------------- ---------------- -----------------------------------
For purposes hereof, the Notice Giver shall not be considered
to have spoken to an individual if the Notice Giver leaves a voicemail or other
message for that person.
The Adviser may, from time to time by written notice to the
Insurer, change the names or other information in the tables, PROVIDED that no
more than five individuals are included in Table I.
NOTICES TO THE INSURER
The Notice Giver shall call each person listed in Table A, in
the order their names appear below, at the business number given for that
person, and thereafter shall call each person, in the order their names appear
below, at the mobile number given for that person. If the Notice Giver speaks to
an individual listed in Table A, the Notice Giver may cease calling and shall in
addition send an email and a fax to each person listed in Table A.
Notice shall be deemed given upon verbal communication with an
individual named in Table A, or if the Notice Giver is unable to speak with such
individuals after following the procedures above, dispatch of written notice by
fax and email to the individuals listed on Table A.
The Daily Report shall be delivered to each person listed in
Table B by email. If any email is indicated returned due to delivery failure,
the Daily Report shall be delivered by fax to each person listed in Table B.
TABLE A
TABLE B
For purposes hereof, the Notice Giver shall not be considered
to have spoken to an individual if the Notice Giver leaves a voicemail or other
message for that person.
The Insurer may, from time to time by written notice to the
Adviser, change the names or other information in Tables A and B.
Schedule 4
DURATION CALCULATION METHODOLOGY
