Exhibit h(5)
EXPENSE LIMITATION AGREEMENT
Xxxxx Xxxxxx Trust II
Xxxxx Xxxxxx Capital Preservation Fund II
EXPENSE LIMITATION AGREEMENT, effective as of September 17, 2002 by and
between Xxxxx Xxxxxx Fund Management LLC (the "Manager") and Xxxxx Xxxxxx Trust
II (the "Trust"), on behalf of the Trust's series, Xxxxx Xxxxxx Capital
Preservation Fund II (the "Fund").
WHEREAS, the Trust is a Massachusetts business trust, and is registered
under the Investment Company Act of 1940, as amended (the "1940 Act"), as an
open-end management company; and
WHEREAS, the Trust and the Manager have entered into a Management
Agreement dated September 17, 2002 ("Management Agreement"), pursuant to which
the Manager provides investment management services to the Fund for compensation
based on the value of the average daily net assets of the Fund; and
WHEREAS, the Trust and the Manager have determined that it is
appropriate and in the best interests of the Fund and its shareholders to
maintain the expenses of the Fund at a level below the level to which the Fund
may otherwise be subject.
NOW THEREFORE, the parties hereto agree as follows:
1. Expense Limitation.
1.1. Applicable Expense Limit. To the extent that the ordinary
operating expenses incurred by a class of the Fund in any fiscal year, including
but not limited to investment management fees payable to the Manager, but
excluding interest, taxes, brokerage commissions, other investment-related
costs, extraordinary expenses such as litigation and other expenses not incurred
in the ordinary course of the Fund's business ("Fund Operating Expenses"),
exceed the Operating Expense Limit, as defined in Section 1.2 below, such excess
amount (the "Excess Amount") shall be the liability of the Manager.
1.2. Operating Expense Limit. The Operating Expense Limit in any fiscal
year with respect to each class of the Fund shall be the amount specified in
Schedule A hereto based on a percentage of the average daily net assets of such
class of the Fund.
1.3. Method of Computation. To determine the Manager's obligation with
respect to the Excess Amount, the Fund Operating Expenses for each class of the
Fund shall be calculated each day. If the annualized value of that calculation
exceeds the Operating Expense Limit for any class of the Fund, the expenses
shall be capped as specified in Schedule A, and a receivable from the Manager
for that day's Excess Amount shall be recorded. The Fund may offset amounts owed
to the Fund pursuant to this Agreement against the investment management fee
payable to the Manager from the Fund.
1.4. Adjustments. From time to time, as better or more complete
information becomes available, adjustments to expenses may be made in order to
more accurately reflect the actual expense environment in which the Fund
operates. Such adjustments may temporarily cause the Fund's annualized expense
ratio on a given day to exceed the Operating Expense Limit. In such cases,
subsequent adjustments will be made to ensure that the Fund's expense ratio for
the fiscal year will not exceed the Operating Expense Limit. If necessary, on or
before the last day of the first month of each fiscal year, an adjustment
payment shall be made by the appropriate party in order that the amount of the
investment management fees waived or reduced and other payments remitted by the
Manager to each class of the Fund with respect to the previous fiscal year shall
equal the Excess Amount.
2. Recoupment of Fee Waivers and Expense Reimbursements.
2.1. Recoupment. If on any day during which the Management Agreement is
in effect, the estimated annualized Fund Operating Expenses of a class of the
Fund for that day are less than the Operating Expense Limit, the Manager shall
be entitled to recoup from the Fund the investment management fees waived or
reduced and other payments remitted by the Manager to such class of the Fund
pursuant to Section 1 hereof (the "Recoupment Amount") during any of the
previous thirty-six (36) months, to the extent that such class' annualized Fund
Operating Expenses plus the amount so recouped equals, for such day, the
Operating Expense Limit provided in Schedule A, provided that such amount paid
to the Manager will in no event exceed the total Recoupment Amount and the
Recoupment Amount will not include any amounts previously recouped.
2.2. Adjustments. If necessary, appropriate adjustments shall be made
in order to ensure that the actual Fund Operating Expenses of each class of the
Fund for the fiscal year (including any recoupment payments hereunder with
respect to such fiscal year) do not exceed the Operating Expense Limit.
3. Term and Termination of Agreement.
This Agreement shall have an initial term through five years from the
second business day after the end of the Fund's offering period, or if that day
is not a business day, the first business day thereafter (as determined pursuant
to the prospectus for the Fund) (the "Guarantee Maturity Date"). Thereafter,
this Agreement shall automatically renew for one-year terms unless the Manager
provides written notice to the Fund of the termination of this Agreement at
least 30 days prior to the end of the then-current term. In addition, this
Agreement shall terminate upon termination of the Management Agreement with
respect to the Fund, or it may be terminated by the Fund, without payment of any
penalty, upon ninety (90) days' prior written notice to the Manager at its
principal place of business. The Operating Expense Limit specified in Schedule A
is effective through to the Guarantee Maturity Date; thereafter the maximum
Operating Expense Limit may be changed upon the extension of this Agreement as
contemplated by this paragraph and paragraph 4.4.
4. Miscellaneous.
4.1. Captions. The captions in this Agreement are included for
convenience of reference only and in no other way define or delineate any of the
provisions hereof or otherwise affect their construction or effect.
4.2. Interpretation. Nothing herein contained shall be deemed to
require the Fund or the Trust to take any action contrary to the Trust's
Declaration of Trust, or any applicable statutory or regulatory requirement to
which it is subject or by which it is bound, or to relieve or deprive the
Trust's Board of Trustees of its responsibility for and control of the conduct
of the affairs of the Fund.
4.3. Definitions. Any question of interpretation of any term or
provision of this Agreement, including but not limited to the investment
management fee and the computations of net asset values, having a counterpart in
or otherwise derived from the terms and provisions of the Management Agreement
or the 1940 Act, shall have the same meaning as and be resolved by reference to
such Management Agreement or the 1940 Act.
4.4. Amendments. This Agreement may be amended only by a written
agreement signed by each of the parties hereto.
The undersigned officer of the Trust has executed this Agreement not
individually, but as an officer under the Declaration of Trust of the Trust and
the obligations of this Agreement are not binding upon any of the Trustees,
officers or shareholders of the Trust individually.
IN WITNESS WHEREOF, the parties have caused this Agreement to be signed
by their respective officers thereunto duly authorized as of the day and year
first above written.
XXXXX XXXXXX TRUST II
On behalf of Xxxxx Xxxxxx Capital
Preservation Fund II
By: /s/ X.X. Xxxxxx
-----------------------------
Name: X.X. Xxxxxx
Title: President
XXXXX XXXXXX FUND
MANAGEMENT LLC
By: /s/ Xxxxxxxxx X. Xxxxx
-----------------------------
Name: Xxxxxxxxx X. Xxxxx
Title: Secretary
Schedule A
OPERATING EXPENSE LIMITS
Maximum Operating Expense Limit
(as a percentage of average net assets)*
Class A Class B Class L
Xxxxx Xxxxxx Capital Preservation
Fund II 1.95%** 2.70%** 2.70%**
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* Effective through to the Guarantee Maturity Date; thereafter this limit is
subject to change if the Agreement is extended as contemplated in paragraph
4.4.
** During any period in which the Fund's assets are required to be invested in
a Defeasance Portfolio (as defined below) pursuant to the Financial
Guarantee Agreement referred to below, the Maximum Operating Expense Limit
(as a percentage of average net assets) with respect to those assets
comprising the Defeasance Portfolio shall be: 1.35% Class A, 2.10% Class
B and 2.10% Class L. The Maximum Operating Expense Limit (as a percentage
of average net assets) with respect to assets other than the Defeasance
Portfolio (the "Other Assets") shall remain as set forth in the table above,
and the Fund Operating Expenses subject to such Maximum Operating Expense
Limit for the Other Assets shall be payable solely from the Other Assets and
not from the Defeasance Portfolio. For the avoidance of doubt, "Other
Assets" is limited solely to the excess (if any) of Fund Value over 101% of
the Bond Floor as contemplated by Section 4.02 of the Financial Guarantee
Agreement referred to below.
As used herein the terms Defeasance Portfolio, Fund Value and Bond Floor
shall have the meanings ascribed thereto in that certain Financial Guarantee
Agreement, dated as of September 17, 2002, among the Manager, the Trust
and Ambac Assurance Corporation, as such agreement is in effect from time to
time.
