2
DISTRIBUTION AGREEMENT
This DISTRIBUTION AGREEMENT, made this 1st day of December,
2005 by and between Xxxxx Xxxxxx Appreciation Fund Inc.
("Investment Company"), a Maryland corporation and Xxxx Xxxxx
Investor Services, LLC ("Distributor").
WHEREAS, the Investment Company is registered with the
Securities and Exchange Commission ("SEC") as an open-end
management investment company under the Investment Company Act of
1940, as amended (the "1940 Act"), and has registered its shares
for the series thereof listed on Appendix A ("Shares"), as it may
be amended from time to time by agreement between the Distributor
and the Investment Company (each such series thereof, a "Fund")
for sale to the public under the Securities Act of 1933, as
amended (the "1933 Act") and filed appropriate notices under
various state securities laws; and
WHEREAS, the Investment Company wishes to retain the
Distributor as the principal underwriter in connection with the
offering and sale of the Shares and to furnish certain other
services to the Investment Company as specified in this
Agreement; and
WHEREAS, this Agreement has been approved by separate votes
of the Investment Company's Board of Directors ("Board") and of
those Board members who are not "interested persons" of the
Investment Company, as defined in the 1940 Act and who have no
direct or indirect financial interest in the operation of the
plan of distribution adopted pursuant to Rule 12b-1 under the
1940 Act ("Plan") of a Fund or in any agreements related to such
plan ("Independent Board Members") in conformity with Section 15
of, and Rule 12b-1 under, the 1940 Act; and
WHEREAS, the Distributor is willing and able to furnish such
services on the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the promises and mutual
covenants herein contained, it is agreed as follows:
1. (a) The Investment Company hereby appoints the
Distributor as non-exclusive principal underwriter and
distributor in connection with the offering and sale of Shares of
the Fund to the public directly and through registered and
qualified securities dealers, banks and other intermediaries
(collectively, "Intermediaries"), and the Distributor hereby
accepts such appointment, on the terms and for the period set
forth in this Agreement. The Distributor, as agent for the
Investment Company, shall, in accordance with applicable federal
and state law and the organizational documents of the Investment
Company and the registration statement most recently filed by the
Investment Company with the SEC and effective under the 1940 Act
and 1933 Act, as such Registration Statement may be amended or
supplemented from time to time ("Registration Statement"):
(i) promote the Fund; (ii) solicit orders for the purchase of the
Shares subject to such terms and conditions as the Investment
Company may specify; and (iii) accept orders for the purchase of
the Shares on behalf of the Investment Company (collectively,
"Distribution Services"). The Distributor shall comply with all
applicable federal and state laws and offer the Shares of the
Fund on an agency or "best efforts" basis under which the
Investment Company shall issue only such Shares as are actually
sold.
(b) The Distributor may pay for ongoing shareholder
liaison services, including responding to shareholder inquiries,
providing shareholders with information on their investments, and
any other services now or hereafter deemed to be appropriate
subjects for the payments of "service fees" under Conduct Rule
2830 of the National Association of Securities Dealers, Inc.
("NASD") (collectively, "Shareholder Services"), as appropriate.
2. The Distributor may also enter into dealer or similar
agreements with qualified Intermediaries it may select for the
performance of Distribution Services and Shareholder Services.
The Distributor may also enter into agreements with
Intermediaries and other qualified entities to perform
recordkeeping, shareholder servicing and sub-accounting services.
In making such arrangements, the Distributor shall act only as
principal and not as agent for the Investment Company. No such
Intermediary is authorized to act as agent for the Investment
Company in connection with the offering or sale of Shares to the
public or otherwise, except for the limited purpose of
determining the time as of which orders for the purchases, sales
and exchanges of Shares are deemed to have been received.
3. The public offering price of the Shares of the Fund
shall be the net asset value per share (as determined by the
Investment Company) of the outstanding Shares of the Fund (or
class thereof) next determined after receipt of an order by the
Fund or its designated agent plus any applicable sales charge, as
described in the Registration Statement of the Investment
Company.
4. As compensation for providing Distribution Services
under this Agreement, the Distributor shall retain the sales
charge, if any, on purchases of Shares or retain deferred sales
charges upon redemption of Shares, as set forth in the
Registration Statement. The Distributor is authorized to collect
the gross proceeds derived from the sale of the Shares, remit the
net asset value thereof to the Investment Company upon receipt of
the proceeds and retain the sales charge, if any. The
Distributor shall receive from each Fund fees at the rates and
under the terms and conditions of the Plan adopted by the
Investment Company with respect to each Fund, as such Plan is in
effect from time to time, and subject to any further limitations
on such fees as the Board may impose. The Distributor may
reallow any or all of the sales charges that it has received
under this Agreement to such Intermediaries as it may from time
to time determine, consistent with the Registration Statement and
applicable law. The Distributor may pay any or all of the
distribution fees and service fees that it has received under
this Agreement to such Intermediaries as it may from time to time
determine, consistent with the Registration Statement and
applicable law. The Distributor may securitize or borrow against
amounts to be received by the Distributor under a Plan, in which
case payments of the fees under the Plan by the Fund may be made
directly to the lender, security-holder or an agent thereof
pursuant to written instructions of the Distributor; provided,
however, that no such arrangement shall be deemed to give rise to
any obligation on the part of an Investment Company or its Board
to continue such payments if the Board determines that such
payments are not in the best interests of the Fund or its
shareholders, or to create any obligation of the Fund or
Investment Company to the lender.
5. As used in this Agreement, the terms "Prospectus" and
"Statement of Additional Information" shall mean, respectively,
the form of prospectus and statement of additional information
with respect to the Fund filed by the Investment Company as part
of the Registration Statement, or as they may be amended or
supplemented from time to time.
6. The Distributor shall print and distribute to
prospective investors current Prospectuses, and shall print and
distribute, upon request, to prospective investors current
Statements of Additional Information, and may print and
distribute such other sales literature, reports, forms and
advertisements in connection with the sale and offers of sale of
the Shares as it deems appropriate. In connection with such
sales and offers of sale, the Distributor and any Intermediary
shall give only such information and make only such statements or
representations as are contained in the Fund's Registration
Statement, or in information furnished in writing to the
Distributor by the Investment Company and intended for such use
or approved in writing by authorized representatives of the
Investment Company or the Investment Company's investment
adviser, and the Investment Company shall not be responsible in
any way for any other information, statements or representations
given or made by the Distributor or any Intermediary. Except as
specifically provided in this Agreement, the Investment Company
shall bear none of the expenses of the Distributor in connection
with its offer and sale of the Shares.
7. Subject to the right of the Investment Company to cease
to offer Shares as set forth in paragraph 11 hereof, the
Investment Company agrees at its own expense to register, qualify
or determine the exemption for registration or qualification of
the Shares then offered with the SEC, state and other regulatory
bodies, and to prepare and file from time to time such Fund's
Registration Statement, amendments thereto, reports and other
documents as may be necessary to maintain the registration or
qualification. The Distributor and Intermediaries shall provide
the Investment Company promptly with all information required for
such registration or qualification. Each Fund shall bear all
expenses related to preparing and typesetting such Prospectuses,
Statements of Additional Information, and other materials
required by law and such other expenses, including printing and
mailing expenses, related to such Fund's communications with
persons who are shareholders of that Fund.
8. (a) The Distributor shall act as distributor of Shares
in compliance in all material respects with all applicable laws,
rules and regulations, including, without limitation, all rules
and regulations made or adopted pursuant to (i) the 1940 Act,
(ii) the 0000 Xxx, (xxx) the Securities Exchange Act of 1934
("1934 Act"), (iv) any securities association registered under
the 1934 Act, including without limitation the NASD Conduct Rules
or rules of any other applicable self-regulatory organization.
The Distributor shall offer the Shares, and accept purchases,
redemptions and exchanges for Shares, in compliance with the
Fund's Registration Statement and applicable law.
(b) The Distributor shall be responsible for reviewing
and making such filings with the NASD, as required, of
advertisements and sales literature relating to each Fund. The
Distributor shall be responsible for reviewing the Registration
Statement of each Fund, as applicable, for compliance with the
requirement of the NASD Conduct Rules that a Fund's prospectus
contain disclosure of the details of any arrangement by which
special cash compensation arrangements are made available to an
NASD member distributing the Fund's securities, which
arrangements are not made available on the same terms to all NASD
members who distribute the Fund's securities.
(c) The Distributor shall adopt and follow procedures
for the confirmation of sales to investors and Intermediaries
timeliness of orders, the collection of amounts payable by
investors and Intermediaries on such sales, the correction of
errors related to distribution of Shares, the cancellation of
unsettled transactions, and assisting with the solicitation of
proxies, and any other matters governed by Rule 38a-1 under the
1940 Act (as may apply to a principal underwriter for a
registered investment company), each as may be necessary to
comply with the requirements of the NASD, any other self-
regulatory organization, and the federal and state securities
laws. The Distributor shall provide reports or other information
to the Investment Company at the Investment Company's reasonable
request, including, without limitation, reports related to the
operation and implementation of the Fund's policies related to
customer privacy, safeguarding of customer information, sales and
marketing practices or other policies and procedures of the
Investment Company.
9. The Distributor agrees that it has adopted and
implemented an anti-money-laundering program in compliance with
the USA PATRIOT Act of 2001, the regulations thereunder and NASD
Conduct Rules, including, without limitation, customer
identification program procedures and monitoring for suspicious
activity. The Distributor additionally agrees that it has
adopted and implemented procedures to comply with applicable law
and regulation related to cash transaction reporting
requirements, as well as monitoring and reporting under FinCEN,
OFAC and other government watch lists. The Distributor shall
provide reports or other information to the Investment Company at
the Investment Company's reasonable request, related to the
operation and implementation of any of the Fund's anti-money-
laundering policies for which the Distributor is responsible.
10. (a) The Investment Company agrees to indemnify, defend
and hold the Distributor, its officers, directors and employees
and any person who controls the Distributor within the meaning of
Section 15 of the 1933 Act, free and harmless from and against
any and all claims, demands, liabilities and expenses (including
the reasonable cost of investigating or defending such claims,
demands or liabilities and any counsel fees incurred in
connection therewith) which the Distributor, its officers,
directors and employees or any such controlling person may incur,
under the 1933 Act or under common law or otherwise, arising out
of or based upon any alleged untrue statement of a material fact
contained in the Registration Statement or arising out of or
based upon any alleged omission to state a material fact required
to be stated or necessary to make the Registration Statement not
misleading, provided that in no event shall anything contained in
this Agreement be construed so as to protect the Distributor or
such other parties against any liability to the Investment
Company or its shareholders to which the Distributor or such
other parties would otherwise be subject by reason of willful
misfeasance, bad faith, or gross negligence in the performance of
their duties, or by reason of reckless disregard of their
obligations and duties under this Agreement, and further provided
that, notwithstanding the foregoing, the Investment Company shall
not indemnify the Distributor or such other parties if such
indemnification obligations arose, directly or indirectly, as a
result of conduct as set forth in paragraph 10(b). The
Distributor agrees that it shall look only to the assets of the
Fund, and not to any other series of the Investment Company, for
satisfaction of any obligation created by this paragraph or
otherwise arising under this Agreement.
(b) The Distributor agrees to indemnify, defend and
hold the Investment Company, its several officers and Board
members, and any person who controls the Investment Company
within the meaning of Section 15 of the 1933 Act, free and
harmless from and against any and all claims, demands,
liabilities and expenses (including the cost of investigating or
defending such claims, demands or liabilities and any counsel
fees incurred in connection therewith) which the Investment
Company, its officers or Board members, or any such controlling
person may incur, under the 1933 Act or under common law or
otherwise, on account of any act of the Distributor or its
directors, officers, employees or agents, constituting willful
misfeasance, bad faith, or gross negligence in the performance of
its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement or arising out of or
based upon any alleged untrue statement of a material fact
contained in information furnished in writing by the Distributor
to the Investment Company for use in the Registration Statement
or arising out of or based upon any alleged omission to state a
material fact in connection with such information required to be
stated in the Registration Statement or necessary to make such
information not misleading. As used in this paragraph, the term
"employee" shall not include a corporate entity under contract to
provide services to the Fund, or any employee of such a corporate
entity, unless such person is otherwise an employee of the
Investment Company.
(c) Each party agrees to promptly notify the other of
the commencement of any litigation or proceedings involving any
indemnified party. The indemnification provisions of this
paragraph 10 shall survive the termination of this Agreement.
11. The Investment Company reserves the right at any time
to withdraw any or all offerings of the Shares of a Fund, and at
its discretion to recommence offering any time thereafter, by
written notice to the Distributor at its principal office.
12. The Distributor may at its sole discretion, directly or
through Intermediaries, repurchase Shares offered for sale by the
shareholders or Intermediaries. Repurchase of Shares by the
Distributor shall be at the net asset value (less any applicable
sales, redemption or other charges, as described in the Fund's
Registration Statement) next determined after a repurchase order
has been received. The Distributor will receive no commission or
other remuneration for repurchasing Shares, other than deferred
sales charges as described in the Fund's Registration Statement.
At the end of each business day, the Distributor shall notify, by
means of electronic transmission (as may be agreed-upon by the
parties to this Agreement) or in writing, the Investment Company
and the Investment Company's transfer agent, of the orders for
repurchase of Shares received by the Distributor since the last
such report, the amount to be paid for such Shares, and the
identity of the shareholders or Intermediaries offering Shares
for repurchase. Upon such notice, the Investment Company shall
pay the Distributor such amounts as are required by the
Distributor to pay for the repurchase of such Shares in cash or
in the form of a credit against moneys due the Investment Company
from the Distributor as proceeds from the sale of Shares. The
Investment Company reserves the right to suspend such repurchase
right upon written notice to the Distributor. The Distributor
further agrees to act as agent for the Investment Company to
receive and transmit promptly to the Investment Company's
transfer agent shareholder and Intermediary requests for
redemption of Shares.
13. The Distributor is an independent contractor and shall
be agent for the Investment Company only in respect to the sale,
redemption and exchange of the Shares, including for the limited
purpose of determining the time as of which Share transactions
are deemed to have been received.
14. The services of the Distributor to the Investment
Company under this Agreement are not to be deemed exclusive, and
the Distributor shall be free to render similar services or other
services to others so long as its services hereunder are not
impaired thereby.
15. The Distributor shall prepare reports for the Board on
a quarterly basis, or more frequently as reasonably requested by
the Board, showing such information concerning expenditures
related to this Agreement or related to the operation and
implementation of a Fund's Plan.
16. As used in this Agreement, the terms "assignment,"
"interested person" and "majority of the outstanding voting
securities" shall have the meanings given to them by Section 2(a)
of the 1940 Act, subject to such exemptions as may be granted by
the SEC or its staff, as appropriate, by any rule, regulation,
order, or no-action or interpretative letter.
17. This Agreement will become effective with respect to
the Fund on the date first written above and, unless sooner
terminated as provided herein, will continue in effect for two
years from the above written date. Thereafter, if not
terminated, this Agreement shall continue in effect with respect
to each Fund for successive annual periods ending on the same
date of each year, provided that such continuance is specifically
approved at least annually (i) by the Board or (ii) by a vote of
a majority of the outstanding voting securities (as defined the
in 0000 Xxx) of the Fund, provided that in either event the
continuance is also approved by a majority of the Investment
Company's Independent Board Members, by vote cast in person at a
meeting called for the purpose of voting on such approval.
18. This Agreement is terminable with respect to some or
all of the Funds without penalty by the Board, by vote of a
majority of the outstanding voting securities of the Fund (as
defined in the 1940 Act), or by the Distributor, on not less than
60 days' written notice to the other party, and such notice
period may be waived upon the mutual written consent of the
Distributor and the Investment Company. This Agreement will also
automatically and immediately terminate in the event of its
assignment (as defined in Section 16 of this Agreement).
19. Shares of any Fund may have been divided into separate
classes, as described in the applicable Fund's Registration
Statement, and may have sales charges or discounts or waivers
available for certain categories of investor.
20. The Fund and the Distributor agree that the information
exchanged hereunder and information about the respective
customers and potential customers of each is confidential and as
such shall not be disclosed, sold or used in any way except to
carry out the terms of this Agreement. Notwithstanding the
foregoing, such confidential information may be disclosed on a
"need to know" basis as set forth in applicable privacy rules and
regulations. The obligations regarding confidentiality hereunder
shall not apply to any information which is (i) otherwise
publicly available, (ii) already possessed by the entity to whom
the information was disclosed prior to disclosure hereunder,
(iii) independently developed by the entity, or (iv) disclosed
pursuant to law, rule, regulation or court or administrative
order. The Distributor shall have the right to use any list of
shareholders of the Fund or any other list of investors which it
obtains in connection with its provision of services under this
Agreement, provided that such use is consistent with applicable
law and the privacy policies of the Distributor and the Fund.
The Distributor further agrees to take commercially reasonable
steps, in accordance with applicable law, to safeguard customer
information. The provisions of this paragraph 20 will survive
termination of this Agreement.
21. From time to time, each Fund may implement policies,
procedures or charges in an effort to avoid the potential adverse
effects on the Funds of short-term trading by market timers. The
Distributor agrees to cooperate in good faith with the Investment
Company in the implementation of (i) any such policies,
procedures and/or charges, and (ii) the imposition and payment
over to the Fund of redemption fees specified in the Registration
Statement. The Distributor agrees, where appropriate, to make
reasonable efforts to obtain the agreement of Intermediaries to
comply with the Funds' frequent trading and other policies set
forth in the Funds' Registration Statement or to take alternative
actions reasonably designed to achieve compliance with these
policies.
22. No provision of this Agreement may be changed, waived,
discharged or terminated, except by an instrument in writing
signed by the party against which enforcement of the change,
waiver, discharge or termination is sought. This Agreement may
be executed in multiple counterparts.
23. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
24. Notices shall be provided to each party, as noted
below:
To the Distributor:
Attn: Xxxxxx Xxxxx
Xxxx Xxxxx Investor Services, LLC
c/x Xxxx Xxxxx, Inc.,
000 Xxxxx Xxxxxx
Xxxxxxxxx, XX 00000
To the Investment Company:
Xxxxx Xxxxxx Appreciation Fund Inc.
000 Xxxxx Xxxxxxxx Xxxxx, 0xx Xxxxx
Xxxxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxx, Secretary and Chief Legal Officer
25. The Articles of Incorporation of the Investment
Company, amended from time to time, which is on file with the
Maryland State Department of Assessments and Taxation, provides
that to the fullest extent permitted by Maryland law, no Board
member or officer of the Investment Company shall be personally
liable to the Investment Company or its stockholders for money
damages, except to the extent such exemption from liability or
limitation thereof is not permitted by the 1940 Act.
IN WITNESS WHEREOF, the parties hereto caused this Agreement
to be executed by their officers thereunto duly authorized.
ATTEST:
By: _____________________________ By:
____________________________________
Assistant Secretary
ATTEST: XXXX XXXXX INVESTOR SERVICES, LLC
By: ______________________________ By:
_____________________________________
Appendix A
Fund Date Added:
Xxxxx Xxxxxx Appreciation Fund December 1, 2005
Inc.
