DISTRIBUTION CONTRACT
THIS AGREEMENT, dated this 23rd day of January 1997, is a continuation of
Agreements initially adopted in 1983 (with the exception of Composite Northwest
Fund, Inc. which adopted the Plan in 1987), by and between individual funds
within the Composite Group of Funds (corporations duly incorporated and existing
under the laws of the State of Washington), and XXXXXXX XXXXX, INC., doing
business at Seattle, Washington, herein sometimes referred to as the
"DISTRIBUTOR." This Agreement is by and between the Composite Group of Funds and
the Distributor.
RECITALS
WHEREAS, the Composite Group of Funds ("Composite") is a family of funds
registered as open-end, management investment companies under the Investment
Company Act of 1940, as amended (the "1940 Act");
WHEREAS, the Composite Group of Funds and the Distributor desire to enter into
an agreement that sets forth standard terms and conditions for distribution
services for the individual funds, as noted on the signatory page, and in
accordance with the schedule of fees attached as Exhibit A;
WHEREAS, the payments contemplated herein intend to result in the sale of
Composite shares of common stock with the allocation of certain charges and
expenses in paragraph 6 hereof and the reimbursement of expenses incurred by the
Distributor as agent for Composite for advertisement, promotional material,
sales literature and printing and mailing of prospectuses to other than current
Composite shareholders;
WHEREAS, such payments may be considered the financing of activities intended to
result in the sale of Composite shares;
WHEREAS, this Agreement is intended to be a "written plan" of the reimbursement
type for Class A shares and of the compensation type for Class B shares as
contemplated by Rule 12b-1 promulgated pursuant to the provisions of the 1940
Act;
NOW, THEREFORE, in consideration of the mutual covenants herein contained and
other good and valuable consideration the receipt whereof is hereby
acknowledged, the parties hereto agree as follows:
1. APPOINTMENT. Composite hereby appoints Xxxxxxx Xxxxx as the
Distributor for the funds for the period and on terms set forth in
this Agreement. The Distributor accepts such appointment and agrees to
render the services herein set forth, for the payments herein provided
(including reimbursement of expenses).
2. DELIVERY OF DOCUMENTS. Composite has furnished the Distributor with
copies of:
(a) Articles of Incorporation and all amendments thereto for each
fund;
(b) Bylaws and all amendments thereto for each fund;
(c) Each fund's most recent prospectus and recent registration
statement.
From time to time, each fund will furnish the Distributor properly certified or
authenticated copies of all amendments or supplements to the foregoing, if any,
and all documents, notices and reports filed with the Securities and Exchange
Commission (the "SEC").
3. DUTIES OF THE DISTRIBUTOR. The Distributor shall provide each fund
with the benefit of its best judgment, efforts and facilities in
rendering its services as Distributor. The Distributor will act as the
exclusive Distributor, subject to the supervision of each fund's board
of directors and the following understandings: (i) directors shall be
responsible for and control the conduct of each fund's affairs; (ii)
in all matters relating to the performance of this Agreement, the
Distributor will act in conformity with the Articles of Incorporation,
Bylaws and Prospectus of each fund and with the instructions and
directions of each fund's board of directors and will conform to and
comply with the requirements of the 1940 Act and all other applicable
federal or state laws and regulations. In carrying out its obligations
hereunder, the Distributor shall:
(a) provide to each fund's board of directors, at least quarterly, a
written report of the amounts expended in connection with all
distribution services rendered pursuant to this Agreement,
including an explanation of the purposes for which such
expenditures were made; and
(b) take, on behalf of each fund, all actions which appear to be
necessary to carry into effect the distribution of each fund's
shares as provided in paragraph 4.
4. DISTRIBUTION OF SHARES. It is mutually understood and agreed that the
Distributor does not undertake to sell all or any specific portion of
the shares of common stock of any of the funds. A fund shall not sell
any shares of its common stock except through the Distributor.
Notwithstanding the provisions of the foregoing sentence:
(a) A fund may issue its shares at their net asset value to any
shareholder of the fund purchasing such shares with dividends or
other cash distributions received from the fund pursuant to any
special or continuing offer made to shareholders;
(b) the Distributor may, and when requested by a fund, shall, suspend
its efforts to effectuate sales of the shares of common stock of
a fund at any time when in the opinion of the Distributor or of
the fund no sales should be made because of market or other
economic considerations or abnormal circumstances of any kind and
may in its sole discretion reject orders for the purchase of a
fund's shares;
(c) a fund may withdraw the offering of its shares of common stock
(i) at any time with the consent of the Distributor or (ii)
without such consent when so required by the provisions of any
statute or of any order, rule or regulation of any governmental
body having jurisdiction; and
(d) the price at which the shares may be sold (the "offering price")
shall be the net asset value per share, plus a sales charge which
shall be determined in the manner established from time to time
by a fund's Distributor and set forth in a fund's then current
prospectus.
5. COMPENSATION FOR SERVICING SHAREHOLDER ACCOUNTS. Composite
acknowledges that the Distributor may compensate its investment
representatives for opening accounts, processing investors' purchase
and redemption orders, responding to inquiries from fund shareholders
concerning the status of their accounts and the operations of a fund,
and communicating with a fund and its transfer agent on behalf of fund
shareholders in such manner and amount as the Distributor may deem
appropriate.
6. EXPENSES. The expenses connected with distribution shall be allocable
between the funds and the Distributor as follows:
(a) the Distributor shall furnish the services of personnel to the
extent that such services are required to carry out its
obligations under this Agreement.
(b) Composite agrees that each fund assumes and shall pay or cause to
be paid the following expenses incurred on its behalf:
registration of common stock (except the initial registration)
including the expense of printing and distributing prospectuses;
expenses incurred for corporate services; taxes and expenses
related to portfolio transactions; charges and expenses of any
registrar, custodian or depository for portfolio securities and
other property, and any stock transfer, dividend or account agent
or agents; brokers' commissions chargeable in connection with
portfolio securities transactions; all taxes, including
securities issuance and transfer taxes, and corporate fees
payable to federal, state or other governmental agencies; the
costs and expenses of engraving or printing of stock certificates
representing shares of a fund; costs and expenses in connection
with the registration and maintenance of registration of a fund
and its shares with the SEC and various states and other
jurisdictions (including filing fees, legal fees and
disbursements of counsel); expenses of shareholders' and
directors' meetings and of preparing, printing, and mailing of
proxy statements and reports to shareholders; fees and travel
expenses of "disinterested" directors; expenses incident to the
payment of any dividend, distribution, withdrawal or redemption,
whether in shares or in cash; charges and expenses of any outside
service used for pricing of a fund's shares; fees and expenses of
legal counsel and of independent accountants; membership dues of
industry associations; postage (excluding postage for promotional
and sales literature); insurance premiums on property of
personnel (including, but not limited to legal claims and
liabilities and litigation costs and any indemnification related
thereto); and all other charges and costs of a fund's operation
unless otherwise explicitly provided herein.
(c) With respect to Class A shares, the Distributor shall request
reimbursement for distribution expenses not otherwise described
above, including, without limitation, the direct cost of
advertising, marketing, selling, and distributing shares of
common stock of each fund; printing and mailing prospectuses to
other than current shareholders; the cost of preparation,
printing, and mailing of promotional and sales literature; and
compensation paid to registered representatives of the
Distributor, affiliates of the Manager or other dealers.
Reimbursement for these distribution expenses will be subject to
the provisions of Rule 12b-1 and will not exceed an annual rate
of a fund's average daily net assets attributable to Class A
shares as set forth in Exhibit A. Such expenditures will be
reviewed at least quarterly by the board of directors. In
addition, the Distributor and its affiliates or the Manager and
its affiliates may pay additional expenses of any type or nature
which are reported to and deemed by the directors to be
appropriate for reimbursement within the provisions of this
paragraph.
(d) With respect to Class B shares, the Distributor shall be
compensated with a distribution fee equal to an annual rate of
.75 of 1% of a fund's average net assets attributable to Class B
shares and a service fee at an annual rate of .25 of 1% of such
assets. Proceeds from any contingent deferred sales charges are
paid to the Distributor.
(e) The distributor will furnish the board of directors statements of
distribution revenues and expenditures at least quarterly with
respect to each class of shares. Only distribution expenses
properly attributable to Class A shares will be used to support
the reimbursement charged to Class A shareholders.
(f) Each fund will record all payments made under the Plan as
expenses in the calculation of its net investment income. The
amount of distribution expenses incurred by the Distributor that
may be paid pursuant to the Plan in future periods will not be
incurred as a liability, unless the standards for accrual of a
liability under generally accepted accounting principles have
been satisfied. Such distribution expenses will be recorded as an
expense in future periods as they are paid by a fund.
(g) For purposes of Section 6 of this Distribution Contract, the
Distributor shall not be responsible for the payment of
distribution expenses that are subject to reimbursement, as the
Distributor has acted solely as the agent of Composite or of a
specific fund in connection therewith.
7. EXPENSE LIMITATION. In the event the operating expenses of any fund,
for any fiscal year exceed the expense limitations imposed by the
securities laws or regulations thereunder of any state in which that
fund's shares are qualified for sale, as such limitations may be
raised or lowered from time to time, the Distributor will reimburse
that fund for annual operating expenses in excess of any expense
limitation that may be applicable; provided, however, there shall be
excluded from such expenses the amount of all distribution costs as
well as any interest, taxes, brokerage commissions, and extraordinary
expenses (including but not limited to legal claims and liabilities
and litigation costs and any indemnification related thereto) paid or
payable by the Fund.
8. NON-EXCLUSIVITY. The services of the Distributor are not exclusive and
the Distributor shall be entitled to render distribution or other
services to others (including other investment companies) and to
engage in other activities. It is understood and agreed that officers
of the Distributor may serve as officers or directors of Composite,
and that officers or directors of Composite may serve as officers of
the Distributor to the extent permitted by law; and that officers of
the Distributor are not prohibited from engaging in any other business
activity or from rendering services to any other person, or from
serving as partners, officers or directors of any other firm or
corporation, including other investment companies.
9. TERM AND APPROVAL. This Agreement shall become effective upon
execution and shall continue in force and effect from year to year,
provided that such continuance is specifically approved at least
annually:
(a) by Composite's board of directors or (ii) by the vote of a
majority of the outstanding voting securities of any fund (as
defined in Section 2{1}{42} of the 1940 Act), and
(b) the affirmative vote of a majority of the directors who are not
parties to this Agreement or interested persons of any such party
or have no direct or indirect financial interest in the operation
of this Agreement or any agreement related to this Agreement, by
votes cast in person at a meeting specifically called for the
purpose of voting on such approval.
10. TERMINATION. This Agreement may be terminated at any time, without the
payment of any penalty, by vote of Composite's board of directors, by
a vote of a majority of the members of the board of directors of
Composite who are not interested persons of any fund and have no
direct or indirect financial interest in the operation of this
Agreement or in agreement related to this Agreement, or by a vote of a
majority of any fund's outstanding voting securities (as defined in
Section 2{a}{42} of the 1940 Act), or by the Distributor on sixty (60)
days' written notice to the other party. The notice provided for
herein may be waived by either party. This Agreement shall
automatically terminate in the event of its assignment, the term
"assignment" for this purpose having the meaning defined in Section
{a}{4} of the 1940 Act.
11. AMENDMENTS.
(a) This Agreement may be amended by the parties hereto only if such
amendment is specifically approved (i) by the board of directors
of Composite or by the vote of majority of outstanding voting
securities of any fund, and (ii) by a majority of those directors
who are not parties to this Agreement or disinterested persons of
any such party, which vote must be cast in person at a meeting
called for the purpose of voting on such approval; provided,
however, that if any such amendment is "material" as such word is
used in Rule 12b-1 under the 1940 Act, such amendment shall be
approved in the manner prescribed in paragraph 10 for the annual
approval of the continuation of the Agreement.
(b) In the event that this Agreement is proposed to be amended to
increase materially the amount to be spent for distribution, such
amendment will not be effected without shareholder approval.
12. LIABILITY OF THE DISTRIBUTOR. In the performance of its duties
hereunder, the Distributor shall be obligated to exercise care and
diligence and to act in good faith and to use its best efforts within
reasonable limits to insure the accuracy of all services performed
under this Agreement, but the Distributor shall not be liable for any
act or omission which does not constitute willful misfeasance, bad
faith or gross negligence on the part of the Distributor or reckless
disregard by the Distributor of its duties under this Agreement
provided that the Distributor shall be responsible for its own
negligent failure to perform its duties under this Agreement.
13. NOTICES. Any notices under this Agreement shall be in writing,
addressed and delivered or mailed postage paid to the other party at
such address as such other party may designate for the receipt of such
notice. Until further notice to the other party, it is agreed that the
address of Composite shall be 000 Xxxx Xxxx Xxxxxx, Xxxxxxx, XX 00000,
and the address of the Distributor shall be 0000 Xxxxx Xxxxxx,
Xxxxxxx, XX 00000.
14. QUESTIONS OF INTERPRETATION. This Agreement shall be implemented and
continued in a manner consistent with the provisions of the 1940 Act
and to interpretations thereof, if any, of the United States Courts
or, in the absence of any controlling decision of any such court, by
rules, regulations or orders of the SEC issued pursuant to said 1940
Act. In addition, where the effect of a requirement of the 1940 Act
reflected in any provision of this Agreement is revised by rule,
regulation or order of the SEC, such provision shall be deemed to
incorporate the effect of such rule, regulation or order.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in duplicate by their respective officers on the day and year first
above written.
FUNDS BOUND BY THIS AGREEMENT COMPOSITE GROUP OF FUNDS
Composite Bond & Stock Fund, Inc. By/s/---------------------
Composite Equity Series, Inc. Xxxxxxx X. Xxxxxx
Composite Northwest Fund, Inc. President
Composite U.S. Government Securities, Inc.
Composite Income Fund, Inc.
Composite Tax-Exempt Bond Fund, Inc.
Composite Cash Management Company
ATTEST:/s/------------------------------
Xxxx X. Xxxx
Secretary XXXXXXX XXXXX, INC.
By/s/-------------------------
Xxxxxxx X. Xxxxxxxx
President
ATTEST:/s/-------------------------------
Xxxxxxx X. Xxxxxxxx
Secretary
