Exhibit (h)9.1
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XXXXXXX MULTI-MANAGER PRINCIPAL PROTECTED FUND
FINANCIAL GUARANTEE AGREEMENT
among
XXXXX XXXXXXX INVESTMENT MANAGEMENT COMPANY,
XXXXX XXXXXXX INVESTMENT COMPANY,
XXXXXXX XXXXX BARNEY INC.,
and
AMBAC ASSURANCE CORPORATION
Dated as of January 17, 2003
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TABLE OF CONTENTS
Page
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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 ........................................................................ 15
ARTICLE III
MANAGEMENT OF THE FUND
Section 3.01 General ..................................................................... 15
Section 3.02 Permitted Fixed Income Investments .......................................... 16
Section 3.03 Permitted Equity Investments ................................................ 17
Section 3.04 Additional Portfolio Requirements. .......................................... 18
Section 3.05 Allocation Between Fixed Income Portfolio and Equity Portfolio. ............. 21
Section 3.06 Reports. .................................................................... 23
Section 3.07 Cash ........................................................................ 23
Section 3.08 Intent ...................................................................... 24
Section 3.09 Article III Computations .................................................... 24
Section 3.10 Transition Period ........................................................... 24
Section 3.11 Subadvisers. ................................................................ 24
Section 3.12 The Calculation Agent. ...................................................... 25
ARTICLE IV
TRIGGER EVENTS
Section 4.01 Trigger Events .............................................................. 27
Section 4.02 Defeasance Portfolio ........................................................ 29
ARTICLE V
LIMITATION OF LIABILITY
Section 5.01 Limitation of Liability of Adviser .......................................... 00
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Xxxxxxx 0.00 Xxxxxxxxxx of Liability of Calculation Agent ................................ 29
Section 5.03 Limitations as to the Fund .................................................. 29
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.01 Representations and Warranties of the Adviser ............................... 30
Section 6.02 Representations and Warranties of the Calculation Agent ..................... 31
Section 6.03 Representations and Warranties of the Trust for Itself and the Fund ......... 33
Section 6.04 Representations and Warranties of the Insurer ............................... 34
ARTICLE VII
COVENANTS
Section 7.01 Covenants of the Adviser .................................................... 35
Section 7.02 Covenants of the Calculation Agent .......................................... 37
Section 7.03 Covenants of the Fund ....................................................... 37
ARTICLE VIII
FURTHER AGREEMENTS
Section 8.01 Reinsurance and Assignments ................................................. 38
Section 8.02 Fund Liability .............................................................. 38
Section 8.03 Liability of the Insurer .................................................... 39
Section 8.04 Insurer's Rights with respect to Subadvisers ................................ 39
ARTICLE IX
CONFIDENTIALITY
Section 9.01 Confidentiality ............................................................. 39
Section 9.02 Trading Information and Other Information. .................................. 40
Section 9.03 Independent Verifier ........................................................ 40
ARTICLE X
THE INDEPENDENT VERIFIER
Section 10.01 Retention of Independent Verifier ........................................... 40
Section 10.02 Responsibilities of Independent Verifier .................................... 41
Section 10.03 Adviser Cooperation ......................................................... 41
ARTICLE XI
TERMINATION
Section 11.01 Termination ................................................................. 41
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ARTICLE XII
MISCELLANEOUS
Section 12.01 Amendments and Waivers ..................................................... 41
Section 12.02 Notices .................................................................... 41
Section 12.03 No Waiver, Remedies and Severability ....................................... 43
Section 12.04 Payments ................................................................... 43
Section 12.05 Governing Law .............................................................. 43
Section 12.06 Submission to Jurisdiction, Waiver of Jury Trial ........................... 43
Section 12.07 Counterparts ............................................................... 44
Section 12.08 Paragraph Headings ......................................................... 44
Section 12.09 Survival ................................................................... 44
Section 12.10 Reliance on Information .................................................... 44
Section 12.11 Time of the Essence ........................................................ 44
Section 12.12 No Third-Party Rights ...................................................... 44
Section 12.13 Further Assurances ......................................................... 44
Section 12.14 Concerning Knowledge ....................................................... 45
Section 12.15 No Additional Trust Created ................................................ 45
Exhibit A Form of Financial Guarantee Insurance Policy
Exhibit B Form of Direction and Undertaking Regarding Remedies
Schedule 1 Notice Procedures
Schedule 2 Form of Daily Report (Calculation Agent)
Schedule 3 Form of Holdings Report (Fund Accounting Agent)
Schedule 4 Form of Trial Balance Report (Fund Accounting Agent)
Schedule 5 Form of Purchases and Sales Report (Fund Accounting Agent)
Schedule 6 Form of Weekly Investment Restrictions Report (Adviser)
Schedule 7 Form of Weekly Sector Weights Report (Adviser)
Schedule 8 Form of Weekly Fund Statistics Report (Adviser)
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FINANCIAL GUARANTEE AGREEMENT
FINANCIAL GUARANTEE AGREEMENT, dated as of January 17, 2003 (the
"Agreement"), among AMBAC ASSURANCE CORPORATION, a Wisconsin domiciled stock
insurance company (the "Insurer"), XXXXX XXXXXXX INVESTMENT MANAGEMENT COMPANY,
a Washington corporation (the "Adviser"), XXXXXXX XXXXX BARNEY INC., a
corporation organized under the laws of the State of New York (the "Calculation
Agent"), and XXXXX XXXXXXX INVESTMENT COMPANY, a Massachusetts business trust
(the "Trust"), on behalf of its series XXXXXXX MULTI-MANAGER PRINCIPAL PROTECTED
FUND (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, and any
successor statute (the "Investment Company Act"), and the Fund, a series of the
Trust, makes certain guarantees to the shareholders of the Fund (the
"Shareholders"); and
WHEREAS, the Trust has requested the Insurer, and the Insurer has
agreed, to issue a financial guarantee insurance policy (the "Policy") to insure
the Fund's guarantee that, on the Guarantee 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; 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, a material
adverse effect upon (x) the ability of the Adviser to perform its obligations
under this Agreement or any other Transaction Document to which it is a party,
or (y) the rights of the Insurer under the Transaction Documents, (ii) in
respect of the Calculation Agent, a material adverse effect upon (x) the ability
of the Calculation Agent to perform its obligations under this Agreement or any
other Transaction Document to which it is a party, or (y) the rights of the
Insurer under this Agreement or any other Transaction Document to which both the
Calculation Agent and the Insurer are parties, and (iii) in respect of the Fund,
a material adverse effect upon (x) the ability of the Fund to perform its
obligations under this Agreement or any other Transaction Document to which it
is a party or (y) the rights of the Insurer under the Transaction Documents. A
material 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.
"Advisory Agreement" means the Advisory Agreement, dated as of January
1, 1999, between the Trust and the Adviser with respect to the Fund, as it may
be amended, supplemented or otherwise modified from time to time.
"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 ETF" means any exchange-traded fund that is based on an
Approved Index.
"Approved Index" means Standard & Poor's 500, Standard & Poor's 000
Xxxxxx, Xxxxxx 000, Xxxxxxx 0000 and Xxxxxxx 2000.
"Bank Deposits" means any of the following having a maturity of not
more than 183 days: demand and time deposits in, certificates of deposit of, and
bankers' acceptances
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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, 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.
"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(a)(iii).
"Business Day" means any day other than a day on which banks located in
the City of New York, New York are required or authorized by law to close or on
which the New York Stock Exchange is closed for business.
"Calculation Agent" has the meaning provided in the preamble.
"Cash" means legal tender of the United States.
"Cash Equivalents" means Bank Deposits, Commercial Paper, and
Repurchase Obligations.
"Cash Sweep Exemptive Order" has the meaning provided in Section
3.04(j).
"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, either bearing interest or
sold at a discount from the face amount thereof, having a maturity of not more
than 183 days from the date of issuance, and issued by either (x) a corporation
incorporated under the laws of the United States of America or any state
thereof, or (y) any depository institution or trust company incorporated under
the laws of the United States of America or any state thereof and subject to
supervision and examination by federal and/or state banking authorities,
provided that the issuer thereof must also have at the time of such investment a
long-term credit rating of at least "Aa3" by Moody's or at least "AA-" by S&P.
"Commission" means the United States Securities and Exchange
Commission.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or any agreement, instrument or other undertaking
to which such Person is a party or by which it or any of its property is bound.
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"Covered Expenses" means, for any Class of Shares, the annual ordinary
fund operating expenses reflected in the Prospectus and SAI relating to such
Class of Shares that are covered and limited by the Expense Limitation
Agreement. "Covered Expenses" shall not include extraordinary expenses such as
litigation and other expenses not incurred in the ordinary course of the Fund's
business.
"Custodian" means State Street Bank and Trust Company, as Custodian,
pursuant to the Custodian Agreement, or any successor to State Street Bank and
Trust Company in such capacity.
"Custodian Agreement" means the Custodian Contract, dated as of October
31, 1988, between the Trust and the Custodian, as amended and any successor
agreement.
"Daily Report" means the Daily Report in the form of the sample
attached as Schedule 2 hereto.
"Declaration of Trust" means the Trust's Amended and Restated
Declaration of Trust, dated as of August 19, 2002, as amended by Amendment #1
thereto, dated October 8, 2002 and as in effect from time to time.
"Defeasance Portfolio" has the meaning provided in Section 4.02.
"Delta" means, (i) with respect to an Equity Security, the meaning
provided in Section 3.03(a)(iv); (ii) with respect to an Equity Futures
Position, the meaning provided in Section 3.03(b)(ii); and (iii) with respect to
an Equity Option, the meaning provided in Section 3.03(c)(C).
"Designated Account" means the demand deposit account maintained with
the Custodian by the Trust on behalf of the Fund.
"Direction and Undertaking Regarding Remedies" means the direction from
the Board of Trustees of the Trust to the Custodian substantially in the form of
Exhibit B.
"Distribution Per Share" means, with respect to any Class of Shares, an
amount equal to the quotient of (x) the amount any distribution or payment by
the Fund related to investment income plus capital gains plus principal plus any
expense that is not a Covered Expense (for example, any payment of Income Taxes
and extraordinary expenses) divided by (y) the number of Shares of such Class of
Shares outstanding on the date of such distribution. For the avoidance of doubt
(i) payments of expenses that are not Covered Expenses, specifically including
Income Taxes and extraordinary expenses, will reduce the Guarantee per Share as
if such amounts were distributed to Shareholders, but such payments cannot be
reinvested and no Shares shall be issued in respect of such payments; and (ii)
investment-related costs, such as interest, taxes (other than Income Taxes),
brokerage commissions and transaction fees, shall not be treated as
distributions or payments by the Fund for purposes of determining Distribution
Per Share, but are taken into account and reduce the amount in clause (x) above
in accordance with the Fund's calculation of NAV.
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"Effective Date" means the date on which the conditions set forth in
Section 2.03(a) are satisfied.
"Equity Benchmark" means the Xxxxxxx 1000(R)Index.
"Equity Call" has the meaning provided in Section 3.03(c).
"Equity Exposure" means, with respect to each investment in the Equity
Portfolio, the product of its Notional Value and its Delta.
"Equity Futures" has the meaning provided in Section 3.03(b).
"Equity Option" has the meaning provided in Section 3.03(c).
"Equity Portfolio" has the meaning provided in Section 3.03.
"Equity Put" has the meaning provided in Section 3.03(c).
"Equity 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(a)(iv).
"Expense Limitation Agreement" means the Expense Limitation 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
(exclusive of investments in the FRIC U.S. Government Money Market Fund).
"Fund" has the meaning provided in the preamble.
"Fund Accounting Agent" means State Street Bank and Trust Company, as
Fund Accounting Agent, or any successor to State Street Bank and Trust Company
in such capacity.
"Fund Accounting Agent Reports" means (i) the Holdings Report in the
form of the sample attached as Schedule 3 hereto; (ii) the Trial Balance Report
in the form of the sample
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attached as Schedule 4 hereto; and (iii) the Purchases and Sales Report in the
form of the sample attached as Schedule 5 hereto.
"Fund Value" means, as of the close of each Business Day, the sum of
(i) the product of (x) the NAV applicable to the Class A Shares as of such date
and (y) the number of Class A Shares outstanding as of such date; (ii) the
product of (x) the NAV applicable to the Class B Shares as of such date and (y)
the number of Class B Shares outstanding as of such date; and (iii) the product
of (x) the NAV applicable to the Class C Shares as of such date and (y) the
number of Class C Shares outstanding as of such date.
"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" means the guarantee dated as of the date hereof by the Fund
in favor of the Shareholders.
"Guarantee Amount" means, as of any date, the sum of (i) the product of
(x) the Guarantee per Share applicable to the Class A Shares as of such date and
(y) the number of Class A Shares outstanding as of such date; (ii) the product
of (x) the Guarantee per Share applicable to the Class B Shares as of such date
and (y) the number of Class B Shares outstanding as of such date; and (iii) the
product of (x) the Guarantee per Share applicable to the Class C Shares as of
such date and (y) the number of Class C Shares outstanding as of such date.
"Guarantee Maturity Date" means the date that is five years after the
Inception Date, but if that date is not a Business Day, the Guarantee Maturity
Date shall be the first Business Day thereafter.
"Guarantee per Share" means, with respect to any Class of Shares, (i)
the NAV for such Class of Shares at the close of business on the Transition Date
and (ii) thereafter on any Business Day, the Guarantee per Share for such Class
of Shares on the immediately preceding Business Day divided by the sum of one
plus the quotient of (A) the amount of any Distribution Per Share with respect
to such Class of Shares effective since the immediately preceding Business Day
divided by (B) the NAV for such Class of Shares at the close of business on the
day such Distribution Per Share was effective.
"Guarantee Period" means the period commencing on and including the
Inception Date to and including the Guarantee Maturity Date.
"Inception Date" means the second Business Day after the end of the
Offering Period.
"Income Taxes" means U.S. income or excise taxes that are calculated on
the net income or undistributed net income of the Fund.
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"Indemnification Agreement" means the Indemnification Agreement dated
as January 14, 2003 among the Insurer, the Adviser, the Trust on behalf of the
Fund, Xxxxxxx Fund Distributors, Inc. and Xxxxxxx Xxxxx Xxxxxx Inc.
"Independent Verification Report" has the meaning provided in Section
10.02.
"Independent Verifier" means the accounting firm of nationally
recognized standing selected in accordance with Section 10.01.
"Independent Verifier Agreement" means the agreement between the
Adviser and the Independent Verifier pursuant to which the Independent Verifier
performs the services contemplated by Section 10.02.
"Interest Rate Swaps" means 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 rate for LIBOR in respect of a constant notional amount,
regardless of whether the Fund is the payor of the fixed rate or the floating
rate.
"Investment Advisers Act" means the Investment Advisers Act of 1940, as
amended.
"Investment Company Act" has the meaning provided in the recitals.
"Investment Guidelines" has the meaning provided in Section 3.11(c).
"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, the Calculation
Agent or the Fund, as applicable, the submission of any claim or the
commencement of any proceedings by or against such party in any Federal, state
or local court or before any governmental body or agency, or before any
arbitrator, or the overt threat of any such proceedings, which, if adversely
determined, would reasonably be expected to have an Adverse Effect with respect
to such party.
"Loans for Temporary or Emergency Purposes" means loans that are
outstanding for not more than 60 days in an aggregate amount not exceeding five
percent of the value of the total assets of the Fund at the time the loans are
borrowed, in conformity with Section 18(g) of the Investment Company Act.
"Market Value" has, (i) with respect to a Fixed Income Security, the
meaning provided in Section 3.02(a)(i); (ii) with respect to a Fixed Income
Derivative, the meaning provided in Section 3.02(c)(i); (iii) with respect to an
Equity Security, the meaning provided in
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Section 3.03(a)(i); and (iv) with respect to an Equity Option, the meaning
provided in Section 3.03(c)(A).
"Moody's" means Xxxxx'x Investors Service, Inc.
"NAV" means, with respect to any Class of Shares of the Fund, 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.
"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 and SAI relating to each Class of Shares.
"Permitted Derivatives Exchange" means the Chicago Mercantile Exchange,
the Chicago Board of Trade, the Chicago Board of Options, the American
Stock/Options Exchange, the New York Board of Trade, the Nasdaq/LIFFE or the One
Chicago LLC.
"Permitted Equity Futures" has the meaning provided in Section 3.03(b).
"Permitted Equity Investments" has the meaning provided in Section
3.03.
"Permitted Equity Option" has the meaning provided in Section 3.03(c).
"Permitted Equity Securities" has the meaning provided in Section
3.03(a).
"Permitted Fixed Income Derivatives" has the meaning provided in
Section 3.02(c).
"Permitted Fixed Income Futures" has the meaning provided in Section
3.02(b).
"Permitted Fixed Income Investments" has the meaning provided in
Section 3.02.
"Permitted Fixed Income Securities" has the meaning provided in Section
3.02(a).
"Person" means an individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, limited liability
company, joint venture, Government Authority or other entity of whatever nature.
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"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.
"Pricing Procedures" means procedures adopted by the Board of Trustees
of the Fund in compliance with applicable law and regulation for the daily
determination of net asset value including when market quotations for Fund
investments are not readily available.
"Prospectus and SAI" 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.
"Quoted Rate" means LIBOR (1 month, 3 month and 6 month), U.S. Treasury
Obligations, Prime, Commercial Paper (30, 90, 180 days) and overnight Federal
Funds.
"Registration Statement" has the meaning provided in Section
2.03(a)(v).
"Regulatory Change" means, with respect to the Adviser, the Calculation
Agent 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 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, the Calculation
Agent 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 Report, Fund Accounting Agent Reports and
Weekly Reports.
"Repurchase Obligations" means unleveraged repurchase obligations, with
maturities of not more than 30 days, with respect to any U.S. Government
Security entered into with a depository institution or trust company (acting as
principal) that satisfies the criteria set forth in the definition of Bank
Deposits or entered into with a corporation (acting as principal) incorporated
under the laws of the United States of America or any state thereof whose
obligations are rated at least "P-1" by 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
-9-
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Risk Model" means the Vestek Fundamental Risk Model 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 24% to 25% is an example of a Risk
Reducing Trade.
"Rule 2a-7" means Rule 2a-7 under the Investment Company Act.
"Sector" means each of the Sectors set forth in the Sector
Classification System.
"Sector Classification System" means the classification system used in
the Xxxxxxx 1000(R) Index.
"Securities Act" means the Securities Act of 1933, as amended.
"Segregated Equity Portfolio Rebalancing Account" means a segregated
trading account of the Fund at the Custodian (i) with respect to which the
Adviser, but no Subadviser, may issue investment instructions, (ii) which is
part of the Equity Portfolio, and (iii) which shall be used solely to effect the
rebalancing contemplated by Section 3.05(b).
"Segregated Fixed Income Portfolio Rebalancing Account" means a
segregated trading account of the Fund at the Custodian (i) with respect to
which the Adviser, but no Subadviser, may issue investment instructions, (ii)
which is part of the Fixed Income Portfolio, and (iii) which shall be used
solely to effect the rebalancing contemplated by Section 3.05(b).
"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.
"Subadviser" means each subadviser for the Equity Portfolio and the
Fixed Income Portfolio selected by the Adviser as contemplated in Section 3.11.
"Subadviser Agreement" means each portfolio management contract or
equivalent investment management agreement between a Subadviser and the Fund.
"Subadviser Event" has the meaning provided in Section 8.04(a).
"Synthetic Futures" has the meaning provided in Section 3.03(c).
"S&P" means Standard & Poor's Ratings Services, a division of The
XxXxxx-Xxxx Companies, Inc.
"Target Equity Exposure" has the meaning provided in Section 3.05(b).
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"Trade Date" has the meaning provided in Section 3.06(d).
"Transaction Documents" means this Agreement, the Guarantee, the
Policy, the Direction and Undertaking Regarding Remedies, the Indemnification
Agreement, the Advisory Agreement (solely as it applies to the Fund and not as
it applies to other series of the Trust), the Custodian Agreement (solely as it
applies to the Fund and not as it applies to other series of the Trust), the
Independent Verifier Agreement (from and after its execution and delivery), the
Declaration of Trust, the Expense Limitation Agreement, and the Prospectus and
SAI relating to each Class of Shares, as each may be amended, supplemented or
otherwise modified from time to time.
"Transition Date" means the Business Day after the end of the Offering
Period.
"Trigger Event" has the meaning provided in Section 4.01.
"Unclassified Equity Securities" has the meaning provided in Section
3.04(c).
"U.S. Government Securities" means (i) U.S. Treasury obligations, and
(ii) debt obligations of the Federal Home Loan Bank, the Federal Home Loan
Mortgage Corp., the Federal National Mortgage Association, and the Government
National Mortgage Association; provided, however, that U.S. Government
Securities shall only include debt obligations that have a predetermined fixed
dollar amount of principal due at maturity that cannot vary or change and are
not subject to call or prepayment prior to maturity.
"Weekly Reports" means (i) the Weekly Investment Restrictions Report in
the form of the sample attached as Schedule 6 hereto, (ii) the Weekly Sector
Weights Report in the form of the sample attached as Schedule 7 hereto, and
(iii) the Weekly Fund Statistics Report in the form of the sample attached as
Schedule 8 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 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. Not later than three Business Days
prior to the last day of the Offering Period, the Fund shall deliver to the
Insurer a notice specifying the expected Inception Date. On the Inception Date,
(a) the Fund shall deliver to the Insurer written certification (i) that the NAV
for each Class of Shares and the number of issued and outstanding Shares of each
Class of Shares as of the close of business on the Business Day immediately
prior
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to the Inception Date is as specified in such written certification, and (ii)
that the conditions precedent in Sections 2.03(b)(i) and (ii), each with respect
to the Fund, have been satisfied; (b) the Adviser shall deliver to the Insurer
written certification that the conditions precedent in Section 2.03(b) have been
satisfied with respect to the Adviser as of the close of business on the
Business Day immediately prior to the Inception Date; and (c) the Calculation
Agent shall deliver to the Insurer written certification that the conditions
precedent in Section 2.03(b)(i) shall have been satisfied with respect to the
Calculation Agent as of the close of business of the Business Day immediately
prior to the Inception Date. Subject to the satisfaction of the conditions
precedent to the issuance of the Policy, the Insurer shall promptly (and in any
event on the Inception Date) issue and deliver the Policy to the Custodian.
Section 2.03 Conditions Precedent to Effectiveness.
(a) The effectiveness of this Agreement is subject to the
satisfaction of the following conditions:
(i) Each of this Agreement, the Guarantee, the Direction and
Undertaking Regarding Remedies, the Indemnification Agreement, the Advisory
Agreement, the Custodian Agreement, the Declaration of Trust and the
Expense Limitation 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 Washington Secretary of State regarding the
Adviser.
(iii) The Insurer and the Adviser each shall have received (A) a
certificate of the Secretary or Assistant Secretary of the Calculation
Agent, 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 Calculation Agent 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
New York Secretary of State regarding the Calculation Agent.
(iv) 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, on
behalf of its series, the Fund, and certifying that attached thereto are
true, complete and correct copies of its resolutions duly adopted by the
Board of Trustees of the Trust authorizing the execution and delivery of
this
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Agreement, and (B) a copy of the Declaration of Trust certified as of a
recent date by the Secretary of the Commonwealth of Massachusetts.
(v) The Adviser and the Fund each 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.
(vi) 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 and SAI 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.
(vii) The Insurer shall have received the following legal opinions,
in form and substance satisfactory to the Insurer, dated the Effective
Date: (A) the opinion of Xxxxxxxx Ronon Xxxxxxx & Xxxxx, counsel to the
Fund; (B) the opinion of Dechert, counsel to the Adviser; (C) the opinion
of Xxxx X. Xxx, General Counsel and Secretary to the Adviser; (D) the
opinion of Xxxxxx, Xxxxxx & Xxxxxxxxx, counsel to the Calculation Agent;
(E) the opinion of in-house counsel to the Calculation Agent; and (F) such
other opinions as the Insurer may reasonably request.
(viii) The Adviser shall have received the following legal opinions,
in form and substance satisfactory to the Adviser, dated the Effective
Date: (A) the opinion of Xxxxxxxx Ronon Xxxxxxx & Xxxxx, counsel to the
Fund; (B) the opinion of Xxxxx Xxxxx, Managing Director and General Counsel
of the Insurer; (C) the opinion of in-house counsel to the Calculation
Agent; (D) the opinion of Xxxxxx, Xxxxxx & Xxxxxxxxx, counsel to the
Calculation Agent; and (E) such other opinions as the Adviser may
reasonably request.
(ix) The Calculation Agent shall have received the following legal
opinions, in form and substance satisfactory to the Calculation Agent,
dated the Effective Date: (A) the opinion of Xxxxxxxx Ronon Xxxxxxx & Xxxxx
LLP, counsel to the Fund; (B) the opinion of Dechert, counsel to the
Adviser; (C) the opinion of Xxxx X. Xxx, General
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Counsel and Secretary to the Adviser; and (D) the opinion of Xxxxx Xxxxx,
Managing Director and General Counsel of the Insurer.
(x) The Fund shall have received the following legal opinions, in
form and substance satisfactory to the Adviser, dated the Effective Date:
(A) the opinion of Dechert, counsel to the Adviser; (B) the opinion of Xxxx
X. Xxx, General Counsel and Secretary to the Adviser; (C) the opinion of
in-house counsel to the Calculation Agent; (D) the opinion of Xxxxx Xxxxx,
Managing Director and General Counsel of the Insurer; (E) the opinion of
Xxxxxx, Xxxxxx & Xxxxxxxxx, counsel to the Calculation Agent; and (F) such
other opinions as the Fund may reasonably request.
(xi) All proceedings, documents, instruments and other legal matters
in connection with the transactions contemplated by this Agreement and the
other Transaction Documents shall be in form and substance to the
satisfaction of the Fund and the Insurer, and the Fund 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,
the Calculation Agent, 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 an officer of each of the Adviser,
the Calculation Agent, 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 could
reasonably be expected to make the transactions contemplated by any of the
Transaction Documents void, unenforceable, illegal or otherwise prevent the
consummation thereof.
(iv) No suit, action or other proceeding, investigation, or
injunction or final judgment relating thereto, shall be pending or
threatened before any court or governmental agency in which it is sought to
restrain or prohibit or to obtain damages or other relief in connection
with any of the Transaction Documents.
(v) There shall not have been an Adverse Effect with respect to the
Adviser or the Fund since the date of this Agreement.
(vi) The Adviser shall have (A) retained an Independent Verifier as
contemplated by Section 10.01, (B) prepared a form of Independent
Verification Report covering such matters as the Adviser and the
Insurer have agreed as contemplated by Section 10.02, (C) delivered to
the Insurer a fully executed copy of the Independent Verifier
Agreement and (D) delivered to the Insurer a certificate of an officer
of the
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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 $600,000,000. If, during the Offering Period, the Fund expects
to receive subscriptions for its Shares which could result in such
Guarantee Amount exceeding $600,000,000, then the Fund shall consult
with the Insurer. If the Insurer agrees to increase such maximum
amount in its sole discretion, this Agreement will be amended
accordingly.
(viii) The Adviser shall have provided to the Insurer a copy of
the Pricing Procedures in effect with respect to the Fund.
Section 2.04 Fees. In consideration of the issuance by the Insurer
of the Policy, the Fund shall pay to the Insurer a fee in an amount equal to
..75% per annum of the average daily net 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 Guarantee Maturity Date (each, a "Premium Payment Date"). The
Premium Fee payable on each Premium Payment Date will be calculated based on a
365 or 366 day year for the actual number of days elapsed, and will be
determined in accordance with the Fund's month end average net asset policy
previously described to the Insurer. If the Trust terminates this Agreement in
accordance with Section 11.01(b), then, 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 III
MANAGEMENT OF THE FUND
Section 3.01 General. During the Guarantee Period the Fund shall
not issue additional Shares except in connection with the reinvestment of
dividends and distributions by the Fund to its Shareholders in respect of the
Shares. Commencing upon the issuance of the Policy on the Inception Date, the
assets of the Fund shall be invested and reinvested only in U.S.
Dollar-denominated investments in accordance with the provisions set forth in
this Article III (collectively, the "Portfolio Requirements"). The Adviser shall
fairly and objectively interpret the Portfolio Requirements, consistent with the
intent thereof. The Adviser shall consult with the Insurer as to any requirement
contained herein which, in the reasonable opinion of the Adviser 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
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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, Cash Equivalents and the Trust's US Government Money Market Fund;
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 (other than the Trust's US Government Money Market Fund). 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. If a market price is not available, Market
Value shall be determined in accordance with the Pricing Procedures.
(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, U.S.T-Note,
U.S. T-Xxxx, and 3 month Eurodollar futures contracts traded on the Chicago
Board of Trade, the Chicago Mercantile Exchange and Globex. 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.
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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, the Trust's Money Market Fund 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, Approved ETFs and equity real estate
investment trusts; provided, however, that Permitted Equity Securities shall not
include any security that is not listed on the New York Stock Exchange, the
American Stock Exchange, the NASDAQ National Market System or such
nationally-recognized securities exchanges as the Adviser and the Insurer may
agree from time to time; provided, further, however, that if any equity
securities owned by the Fund are delisted, such equity securities shall be sold
by the close of business on the second Business Day following the Business Day
on which such equity securities were delisted. 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. If a market price is not available the Pricing Procedures
shall be used to determine the value, and such amount shall be used to
determine "Market Value."
(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 a Permitted Derivatives 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.
If a market price is not available, the Pricing Procedures shall be used to
determine the value, and such amount shall be used to determine the
"Notional Value."
(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 Synthetic Futures. "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
-17-
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. 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. If a market price is not available, the Pricing
Procedures shall be used to determine the value, and such amount shall
be used to determine the "Market Value."
(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.
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; provided, however, that the
Adviser may, with respect to two issuers, increase this limit to 7%; and,
provided, further, however, that the Trust's Money Market Fund shall not be
subject to the foregoing limitations. For the avoidance of doubt, 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 so increase
the limit 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
shall not exceed 20% of the Fund Value; provided, however, that such 20%
limitation shall not apply during the six months immediately prior to the
Guarantee Maturity Date as and to the extent the Adviser determines in its
reasonable judgment that it is not advisable to purchase U.S. Government
Securities due to the limited time remaining to the Guarantee Maturity Date;
provided, however, that the Adviser shall not exceed such 20% limitation during
such six month period unless (i) the Adviser shall have notified the Insurer in
writing during such six month period, or within the five (5) Business Days
immediately prior to the commencement of such six month period, that the Adviser
has determined in its reasonable judgment that it is not advisable to purchase
U.S. Government Securities due to the limited time remaining to the Guarantee
Maturity Date, (ii) the Insurer shall have consented in writing to the Adviser
exceeding such 20% limitation or shall not have objected within the five (5)
Business Days following the date of
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receipt of such notice, and (iii) the maturity of any Commercial Paper in the
Fixed Income Portfolio during such six month period shall be limited to 30 days.
For the avoidance of doubt, the preceding sentence shall not in any way affect
the obligation to eliminate Cash Equivalents from the Defeasance Portfolio, nor
shall it affect the requirement in Section 3.04(f) that, within the twelve
months prior to the Guarantee Maturity Date, the Fixed Income Portfolio shall
not include any instrument that matures after the Guarantee Maturity Date. The
aggregate Market Value of Cash Equivalents (other than fully collateralized
Repurchase Obligations) attributable to any single depositary institution,
issuer or counterparty shall not exceed 3% of the Fund Value. The aggregate
Market Value of fully collateralized Repurchase Obligations attributable to any
single counterparty shall not exceed 10% of the Fund Value. For purposes hereof,
a Repurchase Obligation shall be fully collateralized if (i) the securities
collateralizing such Repurchase Obligation consist solely of U.S. Treasury
obligations, (ii) the value of the securities collateralizing such Repurchase
Obligation (reduced by the transaction costs (including loss of interest) that
the Fund could reasonably expect to incur if the seller defaults) is at least
equal to the resale price provided in the agreement evidencing such Repurchase
Obligation, and (iii) the provisions of Rule 5b-3(c)(1) under the Investment
Company Act are complied with.
(c) Equity Securities Portfolio Sector Diversification.
(i) The weighting of each Sector within the Equity Securities
Portfolio shall be a percentage that is (A) at least equal to the Benchmark
Sector Weight minus 7% thereof, and (B) not greater than the Benchmark
Sector Weight plus 7% thereof.
(ii) The Market Value of Equity Securities (other than Approved ETFs)
that are not classified by the Sector Classification System or the Adviser
shall not in the aggregate exceed 2% of the Market Value of the Equity
Securities Portfolio. The Market Value of Equity Securities that are not
classified by the Sector Classification System or the Adviser and all
Approved ETFs (collectively, "Unclassified Equity Securities"), other than
exchange-traded funds based solely on the Equity Benchmark, shall not in
the aggregate exceed 7% of the Market Value of the Equity Securities
Portfolio. For the avoidance of doubt, (i) Equity Futures are not
considered Unclassified Equity Securities; and (ii) Equity Securities that
are classified by the Sector Classification System as "Other" shall be
classified as "Other" and not as Unclassified Equity Securities.
(iii) If the Adviser classifies an Equity Security that is not
classified by the Sector Classification System, the Adviser shall determine
the applicable Sector reasonably, in good faith and in accordance with
industry standards following prior notice to and, if requested by the
Insurer, consultation with the Insurer. The Adviser may only classify an
Equity Security if it is not classified by the Sector Classification
System.
(iv) Approved ETFs based solely on the Equity Benchmark (including
Xxxxxxx 1000 i-shares) 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) The Trust's Money Market Fund shall be disregarded for purposes
of the tests required by Section 3.04(c).
-19-
(vi) Long positions in the Segregated Equity Portfolio Rebalancing
Account with respect to Approved ETFs based solely on the S&P 500 shall be
disregarded for purposes of the tests required by Section 3.04(c).
(d) Equity Securities Portfolio Tracking Error. The expected
annualized tracking error of the Equity Securities Portfolio as compared to the
Equity Benchmark, as measured by the Risk Model, shall not exceed five percent
(5.00%). Unclassified Equity Securities and the FRIC Money Market Fund shall be
disregarded for purposes of the tests required by this Section 3.04(d).
(e) Equity Securities Portfolio Beta. The expected beta of the Equity
Securities Portfolio as compared to the Equity Benchmark, as measured by the
Risk Model, shall equal at least .8 and shall not exceed 1.2. Unclassified
Equity Securities and the FRIC Money Market Fund shall be disregarded for
purposes of the tests required by this Section 3.04(e).
(f) Fixed Income Weighted Average Duration. The Fixed Income Weighted
Average Duration at any time shall not be less than 30 days prior to the
Guarantee Maturity Date and shall not be greater than 30 days following the
Guarantee Maturity Date; provided, however, that (i) at no time shall the Fixed
Income Portfolio include any instrument that matures later than the Guarantee
Maturity Date plus two years, and (ii) within the twelve months prior to the
Guarantee Maturity Date (x) the Fixed Income Weighted Average Duration shall not
exceed the period remaining until the Guarantee Maturity Date and (y) the Fixed
Income Portfolio shall not include any instrument that matures after the
Guarantee Maturity Date. The Trust's US Government Money Market Fund shall be
disregarded for purposes of the tests required by this Section 3.04(f).
(g) Aggregate Notional Value of Equity Futures and Synthetic Futures.
The aggregate Notional Value of all long Equity Futures and all long Synthetic
Futures shall not exceed 30% of the Market Value of the Equity Portfolio.
(h) Net Short Equity Futures Exposure and Short Synthetic Futures
Exposure. The sum of the aggregate Notional Value of all short Equity Futures,
all short Synthetic Futures and all short Approved ETFs shall not exceed 10% of
the Market Value of the Equity Portfolio; provided, however, that such sum may
exceed 10% of the Market Value of the Equity Portfolio on the Business Day
following a Business Day or which Gap Risk is less than 25% and the Adviser is,
on such Business Day, entering into short Equity Futures in accordance with
Section 3.05(b). If such sum does exceed 10% as contemplated above, on the
Business Day following the Business Day on which such 10% limit was breached,
the Adviser shall cause an asset reallocation such that on such Business Day Gap
Risk is greater than 25% and the sum of the aggregate Notional Value of all
short Equity, Futures, all short Synthetic Futures and all short Approved ETFs
is 0%; provided, however, that if the Adviser has not confirmed that the
Adviser's instructions to Subadvisers with respect to reallocations have been
implemented within such one Business Day period, then the Adviser may, following
notice to the Insurer, take up to an additional Business Day to reduce such sum
to 0%.
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(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.
(j) Trust's US Government Money Market Fund. The Fund shall not invest
in the Trust's US Government Money Market Fund during the period beginning
ninety (90) days prior to the Guarantee Maturity Date and ending on the
Guarantee Maturity date. Prior to the commencement of such ninety (90) day
period, up to 10% of the Market Value of the Fixed Income Portfolio may be
invested in the Trust's US Government Money Market Fund if at all times while
any amount of the Fund's assets are invested therein (i) all of the underlying
assets of the Trust's US Government Money Market Fund (A) have a credit rating
of at least "P-1" by Moody's and at least "A-1+" by S&P, (B) are either issued
or fully guaranteed by the U.S. Government, (C) have a maturity of 397 days or
less as determined in accordance with Rule 2a-7, and (D) otherwise comply with
Rule 2a-7; (ii) the weighted average maturity of the underlying assets of the
Trust's US Government Money Market Fund is 90 days or less as determined in
accordance with Rule 2a-7; and (iii) any and all such investments by the Fund in
the Trust's US Government Money Market Fund comply with SEC Release No. 25458,
dated March 12, 2002 (the "Cash Sweep Exemptive Order").
(k) Trust's Money Market Fund. Up to 15% of the Market Value of the
Equity Portfolio (including the Segregated Equity Portfolio Rebalancing Account)
may be invested in the Trust's Money Market Fund if at all times while any
amount of the Fund's assets are invested therein (i) the Trust's Money Market
Fund is in compliance in all respects with Rule 2a-7, and (ii) any and all such
investments by the Fund in the Trust's Money Market Fund comply with the Cash
Sweep Exemptive Order.
(l) Segregated Equity Portfolio Rebalancing Account. The Segregated
Equity Portfolio Rebalancing Account may be either long or short, but shall not
at any time include both long and short positions. If the Segregated Equity
Portfolio Rebalancing Account is short, the Equity Portfolio shall not be net
short. If the Segregated Equity Portfolio Rebalancing Account is long, the
maximum long exposure shall not exceed 10% of the Equity Portfolio.
(m) Segregated Fixed Income Portfolio Rebalancing Account. The
Segregated Fixed Income Portfolio shall not be short.
Section 3.05 Allocation Between Fixed Income Portfolio and Equity
Portfolio.
(a) 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 allocate the Fund's assets based on the Gap Risk and Target Equity
Exposure set forth in the Daily Report and shall use its best efforts to
maintain Gap Risk of not less than 25%. 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)
A\\E\\(/t/)= the Aggregate Equity Exposure as of such time(t)
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(i) "Gap Risk" shall be expressed as a percentage and as of any time
equals:
FV(t) - bf(t)
-------------
A\\E\\(t)
(ii) "Target Equity Exposure" shall be expressed as a percentage and as
of any time equals:
4 x [ FV(t) - bf(t)]
--------------
FV(t)
; provided that the Target Equity Exposure shall not exceed 100% and shall not
be less than 0% of the Fund Value.
(iii) "Bond Floor" means, as of any time of determination, an amount
equal to the sum of (1) the product of (x) the Guarantee Amount and (y) the
offered price (expressed as a percentage of par) of the U.S. Treasury zero
coupon bonds that mature most nearly prior to the Guarantee Maturity Date,
and (2) the product of (x) the Expense Amount, and (y) the interpolated
price (expressed as a percentage of par 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 Guarantee
Maturity Date, rounded to the date nearer to the date of determination in
the case of an odd number of days; provided, however, that after the
maturity of the U.S. Treasury zero coupon bond that matures most nearly
prior to the Guarantee Maturity Date, the applicable percentage of par is
100%.
(iv) 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) 2.10% with respect to the Class A Shares and
2.85% with respect to the Class B Shares and the Class C Shares, and (D)
the time remaining to the Guarantee Maturity Date, expressed as years and
fractions thereof; and (ii) the maximum amount of fees and expenses not
subject to the Expense Limitation Agreement that the Fund would owe if the
Fund's assets were required to be invested in the Defeasance Portfolio at
the time of determination (excluding contingent expenses, but including any
other expenses that the Fund will be obligated to pay on or before the
Guarantee Maturity Date).
(b) To the extent the Daily Report shows that Gap Risk is less than
25%, the Adviser shall cause the Fund to enter into Risk Reducing Trades in the
Segregated Equity Portfolio Rebalancing Account designed to result in a Gap Risk
of 25% or more (by entering into short Equity Futures and/or short sales of
Approved ETFs). Except when it is necessary to reallocate the Fund's assets as
contemplated by the preceding sentence, the Segregated Equity Portfolio
Rebalancing Account shall be invested in Cash, U.S. Treasury obligations, the
FRIC Money Market Fund, long Permitted Equity Futures, or long Approved ETFs.
The Segregated Equity Portfolio Rebalancing Account shall at all times be part
of the Equity Portfolio for
-22-
purposes of all calculations required in connection with the Portfolio
Requirements, except that Section 3.07 shall apply to any U.S. Treasury
obligations in the Segregated Equity Portfolio Rebalancing Account. For the
avoidance of doubt, the Adviser may also reallocate assets from the Equity
Portfolio to the Fixed Income Portfolio to effect Risk Reducing Trades, inasmuch
as the Adviser may, in its discretion, at any time, reduce the Equity Portfolio
and increase the Fixed Income Portfolio. The Adviser may transfer funds between
the Segregated Fixed Income Portfolio Rebalancing Account and the Segregated
Equity Portfolio Rebalancing Account; provided, however that the Segregated
Fixed Income Portfolio Rebalancing Account shall at all times be part of, and
subject to the restrictions applicable to, the Fixed Income Portfolio and the
Segregated Equity Portfolio Rebalancing Account shall at all times be part of,
and subject to the restrictions applicable to, the Equity Portfolio. The Adviser
may maintain up to 10% of the assets of the Equity Portfolio in the Segregated
Equity Portfolio Rebalancing Account, and up to 10% of the Fixed Income
Portfolio in the Segregated Fixed Income Portfolio Rebalancing Account.
(c) The purpose of the Segregated Equity Portfolio Rebalancing Account
is to permit the Adviser to reduce the Fund's Equity Exposure within one
Business Day inasmuch as a reallocation at the Subadviser level may not be able
to be accomplished within such period. The Segregated Equity Portfolio
Rebalancing Account is not to be used to leverage the Fund's long exposure, nor
is it to be used in a manner that exposes the Fund to basis risk between or
among the Approved Indices.
Section 3.06 Reports.
(a) The Adviser shall cause the Fund Accounting Agent to provide to
the Calculation Agent and the Insurer by 9:00 p.m. (New York City time) on each
Business Day the Fund Accounting Agent Reports with respect to the Fund as of
the close of such Business Day (it being understood that such records reflect
the assets of the Fund as of 12:00 noon (New York City time) on such Business
Day).
(b) Based on the information that the Calculation Agent receives
pursuant to Section 3.06(a), or in accordance with the provisions of Section
3.12(f), the Calculation Agent shall provide to the Adviser and the Insurer by
9:00 a.m. (New York City time) on each Business Day the Daily Report. If the
Daily Report indicates that Gap Risk is less than 25%, then the Adviser shall
(i) notify the Insurer of the occurrence of such violation (a "Notice of
Violation"), and (ii) following the implementation of the action by the Adviser
contemplated by Section 3.05(b), notify the Insurer of the action taken,
specifying the type and amount of each trade (a "Notice of Cure"). All such
notices shall be provided as promptly as practicable.
(c) The Adviser shall provide the Weekly Reports 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.
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,
-23-
Cash Equivalents and/or Cash present in the Equity Portfolio shall not be
included in the Fixed Income Portfolio. Fixed Income Investments present in the
Equity Portfolio shall not be included in the calculation of Fixed Income
Weighed Average Duration set forth in Section 3.04(f). No Fixed Income
Investment present in the Equity Portfolio shall mature later than the Guarantee
Maturity Date plus two years, and, within the twelve months prior to the
Guarantee Maturity Date, no Fixed Income Investment present in the Equity
Portfolio shall mature after the Guaranty 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 25% 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, except that compliance with Section 3.05 shall be
required on a daily basis during periods of regular trading on the NYSE. 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 Transition Period. Notwithstanding any other provision of
this Agreement, during the first seven Business Days of the Guarantee Period (i)
Sections 3.04(b) through and including 3.04(h) shall not apply, and (ii) the
Equity Portfolio may be invested in the Trust's Money Market Fund,
notwithstanding the 15% limitation set forth in Section 3.04(k), but subject to
the requirements in such section that the Trust's Money Market Fund be in
compliance in all respects with Rule 2a-7 and the Fund's investment in the
Trust's Money Market Fund be in compliance with the Cash Sweep Exemptive Order.
Section 3.11 Subadvisers.
(a) The Adviser shall select each Subadviser for the Equity Portfolio
and the Fixed Income Portfolio prudently and in accordance with its methodology
for selecting subadvisers for other funds managed by the Adviser. Each
Subadviser selected from time to time by the Adviser shall (i) have been the
subject of the Adviser's ongoing research and diligence (or shall employ
individuals who have been the subject of such research and diligence where such
individuals are expected to be directly responsible for selecting investments
for the Fund, either alone or in combination with other employees of the
Subadviser); (ii) be a U.S. institution or be a U.S. subsidiary of an
institution organized under the laws of Belgium, Canada, France, Germany, Italy,
Japan, Luxembourg, The Netherlands, Sweden, Switzerland or the
-00-
Xxxxxx Xxxxxxx and have its principal office located in the U.S., and (iii) be
registered as an investment adviser under the Investment Advisers Act.
(b) Upon terminating the services of a Subadviser or retaining the
services of a Subadviser, the Adviser shall notify the Insurer and the
Calculation Agent at the time such termination or retention is announced to the
public.
(c) Each Subadviser shall have a written agreement with the Fund in
substantially the form filed as an exhibit to the Registration Statement. Each
such agreement shall require the Subadviser party thereto to comply with the
Investment Guidelines. "Investment Guidelines" means a description of permitted
and prohibited investment parameters for such Subadviser with respect to the
Fund which may be changed from time to time by the Adviser. Such Investment
Guidelines shall at all times provide that (i) with respect to Equity Portfolio
Subadvisers, the only trades that are permitted are the purchase and sale (but
not the short sale) of Permitted Equity Securities, and (ii) with respect to the
Fixed Income Portfolio Subadviser, the only trades that are permitted are the
purchase and sale (but not the short sale) of Permitted Fixed Income Securities.
The Adviser shall exercise reasonable supervision as to each Subadviser's
compliance with the Investment Guidelines and shall in any event supervise
sufficiently to determine whether each Subadviser is in compliance with
requirements in the Investment Guidelines described in the preceding sentence.
Section 3.12 The Calculation Agent.
(a) Subject to Section 3.12(g), there shall at all times during the
Guarantee Period be a Calculation Agent. If the Calculation Agent is unable or
unwilling to continue to perform its obligations hereunder, the Calculation
Agent shall notify the Fund, the Adviser, and the Insurer. The Adviser shall, as
promptly as practicable following receipt of such notice, consult with the
Insurer to identify potential replacement Calculation Agents. The Adviser shall
conduct such investigation of such potential replacement Calculation Agents as
is appropriate and furnish the results of its investigation to the Insurer and
the Fund. The Adviser shall select and propose a replacement Calculation Agent
to the Insurer and the Fund, in writing, and the Calculation Agent so selected
shall be the replacement Calculation Agent unless the Insurer or the Fund
objects within five (5) Business Days following receipt of such written
proposal. The parties shall cooperate to replace the Calculation Agent as
promptly as circumstances require. The Insurer and the Fund may by written
notice to the Adviser waive their time to object.
(b) If the Calculation Agent fails to perform its obligations hereunder
but has not provided the notice contemplated above, any party hereto may notify
the other parties of such nonperformance and, upon receipt of such notice (or
dispatch, if sent by the Adviser) the Adviser shall take the actions set forth
in (a) above to replace the Calculation Agent. If the Calculation Agent has
failed to perform its obligations hereunder and the Adviser, the Fund and the
Insurer are unable to agree on a replacement Calculation Agent within five (5)
Business Days (or such longer period as the Adviser, the Fund and the Insurer
may agree), the Adviser shall cause an amount of the Fund's assets equal to not
less than 101% of the Bond Floor to be invested in a portfolio of investments
consisting of (i) zero coupon U.S. Treasury bonds having a par amount equal to
the Guarantee Amount and that mature on a date as close to the Guarantee
Maturity Date as practicable but in any event no later than the Guarantee
Maturity Date, and, following
-25-
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. Upon the execution and delivery
of documentation effecting the replacement of the Calculation Agent in form and
substance satisfactory to the Insurer, the Adviser and the Fund, the Fund's
assets shall not be restricted as described in the preceding sentence.
(c) Except as set forth in (a) and (b) above and (g) below, the
services of the Calculation Agent shall not be terminated during the Guarantee
Period.
(d) The Calculation Agent shall not act as an investment advisor to
the Fund. The Calculation Agent shall not (i) advise the Adviser as to the
desirability of purchasing or selling securities, or (ii) make recommendations
to the Adviser with respect to the purchase or sale of securities. The
Calculation Agent shall not have any authority to cause the Fund to purchase or
sell any security.
(e) The Calculation Agent shall not be deemed to have failed to
perform its obligations hereunder if the Calculation Agent has not received the
Fund Accounting Agent Reports from the Fund Accounting Agent.
(f) If the Fund Accounting Agent Reports are not available with
respect to a Business Day at a time when the Calculation Agent is preparing the
Daily Report, then (i) the Calculation Agent shall notify the Adviser and the
Insurer, (ii) the Calculation Agent shall calculate the information contained in
the Daily Report as set forth below, and (iii) the Calculation Agent shall
prominently indicate on the Daily Report that it is prepared pursuant to this
Section 3.12(f), and (iv) the Calculation Agent shall use best efforts to
deliver a Daily Report based on the Fund Accounting Agent Reports as soon as
possible following receipt of such Fund Accounting Agent Reports.
(i) Gap Risk shall be recalculated using (i) an adjusted calculation
for Fund Value in which (A) Fund Value is the sum of the Market Value of
the Equity Portfolio and the Market Value of the Fixed Income Portfolio,
(B) the Market Value of the Equity Portfolio is deemed to change by the
same percentage that the Equity Benchmark changed on such Business Day (as
reported by Bloomberg L.P.), and (C) the Market Value of the Fixed Income
Portfolio is deemed to change by the same percentage change as the change
on such Business Day in the amount of the interpolation of the bid prices
of the U.S. Treasury bonds that mature most nearly prior to and following
the Guarantee Maturity Date (as reported by Bloomberg L.P.); (ii) an
adjusted calculation for Equity Exposure in which Equity Exposure is deemed
to change by the same percentage that the Equity Benchmark changed on such
Business Day (as reported by Bloomberg L.P.) and (iii) the same Bond Floor
calculation as was in the most recently available Daily Report that was
based on Fund Accounting Agent Reports.
(ii) Whenever the Daily Report is prepared pursuant to Section 3.12(f)
and until the Daily Report is again prepared on the basis of the Fund
Accounting Agent Reports, the Fund shall not enter into any trade that has
the effect of decreasing the percentage that represents Gap Risk (it being
understood that a decrease in the percentage
-26-
that represents Gap Risk (from 26% to 25% for example) has the effect of
increasing Aggregate Equity Exposure).
(g) The obligations of the Calculation Agent hereunder with respect
to the Daily Report shall terminate on the Business Day following the date on
which the Fund's assets are fully and irrevocably invested in the Defeasance
Portfolio.
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 25%, as
indicated in the Daily Report, unless the Adviser notifies the Insurer upon
becoming aware of such failure and the Adviser is using best efforts to
cure such failure (to the reasonable satisfaction of the Insurer);
(ii) Any failure to provide a Daily Report to the Insurer within two
hours following notice by the Insurer to the Adviser of the Insurer's
non-receipt thereof, unless the Adviser is using best efforts to cure such
failure (as determined by the Insurer in good faith) and such failure is
cured by the end of such Business Day;
(iii) Any violation of Section 3.01, 3.02, 3.03, 3.04, 3.05, 3.06,
3.07, 3.08, 3.09 or 3.10 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) Gap Risk is less than or equal to 20%, as indicated in the Daily
Report;
(v) Fund Value is less than or equal to 101% of the Bond Floor at
any time;
(vi) 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;
(vii) 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;
(viii) 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 (vi)
above, or (xi) or (xii) below, 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 written notice
shall have been given by the Insurer to such party requiring that such
default be cured;
-27-
(ix) Either Moody's or S&P suspends or withdraws the short- or
long-term rating of The Northwestern Mutual Life Insurance Company
("Northwestern Mutual"), or downgrades the senior unsecured rating of
Northwestern Mutual to or below "Baa1" or "BBB+"; provided, however, that
if Moody's 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 Moody's 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 Northwestern Mutual or elect to have only one rating
agency specified herein;
(x) The occurrence of any of the following: (i) except as otherwise
permitted by Section 8.01 hereof, the Adviser takes any action to authorize
or effect its resignation or takes or fails to take any action the effect
of which is more likely than not to result in the resignation or removal of
the Adviser; (ii) a Regulatory Event, Litigation Event or any other event,
if it is more likely than not that such event will result in the
resignation or removal of the Adviser, as reasonably determined by the
Insurer after consultation with the Adviser; (iii) an Act of Insolvency
with respect to the Adviser; or (iv) any "assignment" of the Advisory
Agreement (within the meaning of the Investment Company Act), unless each
of the other parties to the Agreement shall have given their prior written
consent thereto;
(xi) 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;
(xii) The Fund or the Adviser fails to notify the Insurer of the
occurrence of a Subadviser Event within three (3) Business Days following
the date on which such Subadviser Event occurred; or
(xiii) Notice of termination of the Advisory Agreement is given by the
Fund or the Adviser.
(b) If an event has occurred and is continuing, which, if not cured
or waived would give rise to a Trigger Event, then the Adviser may only enter
into Risk Reducing Trades and shall consult with 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.
(c) If a Trigger Event occurs and is continuing then, at the election
of the Insurer, the Insurer shall have the right to direct the Custodian to
invest the Fund's assets in the Defeasance Portfolio pursuant to the Direction
and Undertaking Regarding Remedies. The Insurer shall notify the Adviser of the
Insurer's exercise of remedies pursuant to this Section 4.01(c) as promptly as
reasonably practicable.
-28-
(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 25%, the Insurer shall have the right
to direct the Custodian to invest the Fund's assets in the Defeasance Portfolio
pursuant to the Direction and Undertaking Regarding Remedies. The Insurer shall
notify the Adviser of the Insurer's exercise of remedies pursuant to this
Section 4.01(d) as promptly as reasonably practicable.
Section 4.02 Defeasance Portfolio. If the Insurer exercises remedies
provided by Section 4.01(c) or Section 4.01(d), the Insurer shall instruct the
Custodian to invest the assets of the Fund in a Defeasance Portfolio.
"Defeasance Portfolio" means a portfolio of investments consisting of (i) zero
coupon U.S. Treasury bonds having a par amount equal to the Guarantee Amount and
that mature on a date as close to the Guarantee Maturity Date as practicable but
in any event no later than the Guarantee Maturity Date, and, following the
maturity of such zero coupon U.S. Treasury bonds, Cash, (ii) a portfolio of zero
coupon U.S. Treasury bonds that mature on various dates which correspond as
closely as reasonably practicable to the expected payment dates of the expected
fees and expenses of the Fund, and (iii) Cash. Any instruction given by the
Insurer to the Custodian hereunder or under the Direction and Undertaking
Regarding Remedies shall be solely for the purpose of directing that the Fund's
assets be invested in the Defeasance Portfolio.
ARTICLE V
LIMITATION OF LIABILITY
Section 5.01 Limitation of Liability of Adviser. Solely if there is a
breach of this Agreement arising out of the gross negligence or willful
misconduct of the Adviser (other than a breach caused by the acts or omissions
of the Calculation Agent), 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 willful actions but shall
also include willful 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 Limitation of Liability of Calculation Agent. Solely if
there is a breach of this Agreement arising out of the gross negligence or
willful misconduct of the Calculation Agent, the Insurer shall have all of the
rights and remedies available to it against the Calculation Agent at law and in
equity. For the avoidance of doubt, "willful misconduct" shall not be limited to
willful actions but shall also include willful failures to act. Nothing in this
Section 5.02 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 5.03 Limitations as to the Fund. The Insurer shall have no
claim against the Fund hereunder for any breach hereof that did not arise out of
(i) the failure of the Fund to pay the Premium Fee in accordance with Section
2.04, or (ii) the gross negligence or willful misconduct of the Fund. The sole
remedies that the Insurer shall have against the Fund in the event of such a
breach shall be (x) to pursue a claim against the Fund for failure to pay the
Premium Fee, if the breach hereof is the Fund's failure to pay the Premium Fee
in accordance
-29-
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
5.03 shall be construed to limit the Insurer's right to exercise remedies under
Sections 4.01(c), 4.01(d) and 4.02.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES
Section 6.01 Representations and Warranties of the Adviser. 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 Washington, (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 reasonably be expected to have an Adverse Effect.
(b) The Adviser has the power and authority, and the 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
would not reasonably be expected to have an Adverse Effect, 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 by the Adviser of its
obligations under the Transaction Documents to which the Adviser is a party will
not violate any Requirement of Law or Contractual Obligation of the Adviser,
except where such violation 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 by or against the
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Adviser (i) asserting the invalidity or unenforceability of any of the
Transaction Documents to which it is a party, (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 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, to the best of the
Adviser's knowledge, 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) To the best of the Adviser's knowledge, there has been no event,
condition, action or omission since the Adviser's financial statements 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) The most recent balance sheets of the Adviser, for the fiscal
year ended December 31, 2001, and the related statements of earnings of the
Adviser, have been prepared in accordance with GAAP and present fairly in all
material respects the financial condition of the Adviser as at the date thereof
and the results of its operations for the period then ended except for omissions
that would not have an Adverse Effect.
(h) To the best of the Adviser's knowledge, all factual information
prepared and furnished by the Adviser to the Insurer (whether prepared by the
Adviser or prepared by any other Person) for purposes of or in connection with
this Agreement 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 in any
material respect.
(i) To the best of the Adviser's knowledge, no statute, rule,
regulation or order has been enacted or deemed applicable by any Government
Authority which would make the transactions contemplated by the Transaction
Documents to which it is a party illegal or otherwise prevent the consummation
thereof.
Section 6.02 Representations and Warranties of the Calculation Agent.
The Calculation Agent hereby represents and warrants to the Insurer and the
Adviser as follows, on and as of the date hereof:
(a) The Calculation Agent (i) is a corporation duly organized,
validly existing and in good standing under the laws of the State of New York,
(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
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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 Calculation Agent has the power and authority, and the legal
right, to execute, deliver and perform the Transaction Documents to which it is
a party and has taken all necessary action required by applicable Requirements
of Law to authorize the execution, delivery and performance of the Transaction
Documents to which it is a party. Except as has been obtained, no consent or
authorization of, filing with, or other act by or in respect of, any Government
Authority or any other Person is required in connection with the execution,
delivery, performance, validity or enforceability by or against the Calculation
Agent of the Transaction Documents to which it is a party. This Agreement has
been, and each other Transaction Document to which the Calculation Agent is a
party will be, duly executed and delivered on behalf of the Calculation Agent.
This Agreement constitutes, and each other Transaction Document to which the
Calculation Agent is a party, when executed and delivered, will constitute, a
legal, valid and binding obligation of the Calculation Agent 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 Calculation Agent is a party will not violate any
Requirement of Law or Contractual Obligation of the Calculation Agent except
where such violation would not reasonably be expected to have an Adverse Effect.
The Calculation Agent is not in violation of any Contractual Obligation, except
where such violation would not reasonably be expected to have and Adverse
Effect.
(d) No litigation, proceeding or investigation of or before any
arbitrator or Governmental Authority is pending or, to the Calculation Agent'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) To the best of the Calculation Agent's knowledge, all factual
information prepared and furnished by the Calculation Agent to the Insurer
(whether prepared by the Calculation Agent 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
in any material respect.
(f) To the best of the Calculation Agent's knowledge, no statute,
rule, regulation or order has been enacted or deemed applicable by any
Government Authority which would make the transactions contemplated by the
Transaction Documents illegal or otherwise prevent the consummation thereof.
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Section 6.03 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 business trust duly organized, validly existing
and in good standing under the laws of the Commonwealth of Massachusetts; (ii)
has the power and authority, and the legal right, to own its assets and to
transact the business in which it is engaged; (iii) is duly qualified to do
business and is in good standing under the laws of each jurisdiction where its
ownership or lease of property or the conduct of its business requires such
qualification except where the failure to so qualify would not have an Adverse
Effect; and (iv) is in compliance with all Requirements of Law except where
non-compliance would not have an Adverse Effect. The Fund has been duly
established as a series of the Trust.
(b) The Trust has the power and authority, and the legal right, to
execute, deliver and perform on behalf of the Fund the Transaction Documents to
which it is a party and has taken all necessary action required by applicable
Requirements of Law to authorize the execution, delivery and performance of the
Transaction Documents to which it is a party. No consent or authorization of,
filing with, or other act by or in respect of, any Government Authority or any
other Person is required in connection with the execution, delivery,
performance, validity or enforceability by or against the Fund of the
Transaction Documents to which it is a party, other than the filing under the
Acts of the Registration Statement and the Prospectus and SAI and filings in
accordance with applicable 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
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 (including for this purpose the Advisory
Agreement and the Custodian Agreement as they apply to all series of the Trust)
to which the Trust on behalf of the Fund 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 (including for this purpose the Advisory Agreement and the
Custodian Agreement as they apply to all series of the Trust) to which it is a
party or (iii) seeking any determination or ruling that could reasonably be
expected to have an Adverse Effect.
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(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 6.04 Representations and Warranties of the Insurer. The Insurer
hereby represents and warrants to the Adviser, the Calculation Agent 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
-34-
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 Guarantee Maturity Date or the earlier termination of
this Agreement pursuant to Section 11.01:
(a) it shall not amend, supplement, modify, terminate or agree to any
waiver with respect to any of the Transaction Documents (other than the
Prospectus and SAI), without the prior written consent of the Insurer, which
consent shall not be unreasonably withheld or delayed; provided, however, that
the consent of the Insurer shall not be required for an unconditional waiver by
the Adviser of its rights to a specified advisory and/or administrative fee;
(b) other than in connection with the reinvestment of dividends or
other distributions, it shall not allow the issuance of the shares of the Fund
during the Guarantee Period;
(c) it shall notify the Insurer promptly (i) of any request or proposed
request by the Commission for an amendment to the Registration Statement with
respect to any Class of Shares of the Fund or a supplement to the Prospectus and
SAI with respect to any Class of Shares of the Fund, or (ii) of the issuance by
the Commission of any stop-order suspending the effectiveness of the
Registration Statement with respect to any Class of Shares of the Fund or the
initiation or threat of any such stop-order proceeding;
(d) it shall provide to the Insurer such additional information with
respect to the Fund as the Insurer may from time to time reasonably request;
(e) within one (1) Business Day of 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 and SAI with respect to any Class of
Shares of the Fund, it shall send 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 (it being understood that
(i) amendments and supplements solely for the purpose of reflecting a change in
Subadviser do not require the prior written consent of the Insurer, (ii) the
Adviser shall use reasonable efforts to provide the Insurer with as much prior
notice of a proposed amendment and as much time to review the draft proposed
amendment or supplement as is practicable, and (iii) the Insurer
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recognizes that the Insurer may not have more than two (2) Business Days to
review the draft proposed amendment or supplement in some cases);
(f) it shall comply in all material respects with the terms and
conditions of the Transaction Documents to which it is a party and shall provide
the Insurer with written notice promptly upon becoming aware of any material
breach by it of the provisions of any such agreements;
(g) it shall provide to the Insurer copies of its audited annual
financial statements within 90 days following the end of each fiscal year;
(h) it shall comply in all material respects with the terms and
provisions of all applicable laws, including the Acts and the Investment
Advisers Act, with respect to the Fund, except where (i) the failure to comply
does not have an Adverse Effect or (ii) the failure to comply results from the
Insurer's failure to provide the Ambac Information or the Ambac Information
fails to be correct in all material respects, and it shall obtain and maintain
all licenses, permits, charters and registrations which are necessary to the
conduct of its business or where the failure to obtain and maintain the same
would not reasonably be expected to have an Adverse Effect;
(i) it shall promptly inform the Insurer in writing of the occurrence
of any of the following events in respect of the Adviser 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) it 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) it 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) it 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) it shall provide to the Insurer any proposed amendments to the
Pricing Procedures prior to the adoption thereof (other than (i) amendments to
change pricing sources if the new sources are standard in the industry, and (ii)
amendments that do not affect the valuation of any Permitted Fixed Income
Investment or Permitted Equity Investments), and shall provide
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to the Insurer copies of each such amendment in the form adopted, promptly
following the adoption thereof.
Section 7.02 Covenants of the Calculation Agent. The Calculation Agent
hereby covenants and agrees that through the Guarantee Maturity Date or the
earlier termination of this Agreement pursuant to Section 11.01:
(a) it shall comply in all material respects with the terms and
conditions of the Transaction Documents to which it is a party and shall provide
the Adviser, the Fund and the Insurer with written notice promptly upon becoming
aware of any material breach by the Calculation Agent of the provisions of any
such agreements;
(b) it shall comply in all material respects with the terms and
provisions of all Applicable Laws, except where the failure to comply does not
have an Adverse Effect and it shall obtain and maintain all licenses, permits,
charters and registrations which are necessary to the conduct of its business or
where the failure to obtain and maintain the same would reasonably be expected
to have an Adverse Effect;
(c) it 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;
(d) it shall promptly and fully perform all of its obligations (i)
under the Transaction Documents to which it is a party and (ii) under each other
agreement, instrument or contract by which it is bound, except to the extent
that such nonperformance would not reasonably be expected to have an Adverse
Effect; and
(e) it shall keep or cause to be kept in reasonable detail books and
records that form the basis for the Daily Report, including without limitation
electronic information with respect thereto.
Section 7.03 Covenants of the Fund. The Trust on behalf of the Fund
hereby covenants and agrees that through the Guarantee Maturity Date or the
earlier termination of this Agreement pursuant to Section 11.01:
(a) within 90 days of the end of the Fund's fiscal year, it shall
provide to the Insurer the financial statements for the Fund with respect to
such fiscal year, audited by independent public accountants;
(b) during the Guarantee Period, other than in connection with the
redemption of Shares by a Shareholder or the reinvestment of dividends or other
distributions, it shall not change the number of outstanding Shares of the Fund;
(c) it shall comply in all material respects with the terms and
conditions of the Transaction Documents to which it is a party and shall provide
the Insurer with written notice promptly upon becoming aware of any material
breach by it of the provisions of any such agreements;
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(d) it shall not amend, supplement or otherwise modify, or agree to any
waiver with respect to any of the Transaction Documents (other than the
Prospectus and SAI) without the prior written consent of the Insurer, which
consent shall not be unreasonably withheld or delayed; provided, however, that
the consent of the Insurer shall not be required for an unconditional waiver by
the Adviser of its rights to a specified advisory and/or administrative fee;
(e) 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;
(f) it shall comply in all material respects with the terms and
provisions of the Acts with respect to the Fund except where (i) the failure to
comply would not have an Adverse Effect and would not have a material adverse
effect upon the Insurer or (ii) the failure to comply results from the Insurer's
failure to provide the Ambac Information or the Ambac Information fails to be
correct in all material respects;
(g) it shall provide to the Insurer such additional information with
respect to the Fund as the Insurer may from time to time reasonably request; and
(h) 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 in 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; and
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, under the Indemnification
Agreement, 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, the Calculation Agent 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. The Declaration of Trust establishing the
Fund is on file with the Secretary of The Commonwealth of Massachusetts. It is
expressly
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acknowledged and agreed that the obligations of the Fund hereunder shall not be
binding upon any of the shareholders, Trustees, officers, employees or agents of
the Fund, personally, but shall bind only the trust property of the Fund, as
provided in its Declaration of Trust. The execution and delivery of this
Agreement has been authorized by the Trustees of the Fund and signed by an
officer of the Fund, acting as such, and neither such authorization by such
Trustees nor such execution and delivery by such officer shall be deemed to have
been made by any of them individually or to impose any liability on any of them
personally, but shall bind only the trust property of the Fund as provided in
the Declaration of Trust.
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.
Section 8.04 Insurer's Rights with respect to Subadvisers. (a) Each of
the Fund and the Adviser covenants and agrees to notify the Insurer of the
following (any such event, a "Subadviser Event"): (i) any breach by a Subadviser
of the requirements in the Investment Guidelines that (x) with respect to Equity
Portfolio Subadvisers, the only trades that are permitted are the purchase and
sale (but not the short sale) of Permitted Equity Securities, and (y) with
respect to Fixed Income Portfolio Subadvisers, the only trades that are
permitted are the purchase and sale (but not the short sale) of Permitted Fixed
Income Securities, and/or (ii) any failure or refusal of a Subadviser to
liquidate Permitted Equity Securities or Permitted Fixed Income Securities in
accordance with the instructions of the Adviser.
(b) If a Subadviser Event occurs and a Trigger Event occurs, directly
or indirectly as a result of or otherwise in connection with such Subadviser
Event, then the Fund shall consult with the Insurer with respect to the exercise
by the Fund of all rights and remedies available against the relevant
Subadviser(s) and their respective principals, directors, officers, employees
and related persons under the relevant Subadviser Agreement or at law.
ARTICLE IX
CONFIDENTIALITY
Section 9.01 Confidentiality. Subject to Section 9.02, each of the
Insurer and the Calculation Agent agrees not to disclose or use for any purpose
other than the administration of this Agreement, the exercise of its rights
hereunder or legitimate corporate purposes relating to this Agreement (including
any corporate purposes relating to the characterization or treatment of the
rights and obligations hereunder for accounting, insurance, rating agency or
other similar purposes) (x) any information regarding the specific investments
of the Fund ("Trading Information") or (y) other information (including without
limitation proprietary information as to systems, software and trading methods)
("Other Information") provided by the Adviser, the Trust, the Custodian, or the
Fund Accounting Agent to the Insurer or the Calculation Agent
-39-
hereunder unless (i) such information was or becomes generally available to the
public other than as a result of the breach of this Article IX by the Insurer or
the Calculation Agent; or (ii) such information is required to be disclosed
pursuant to applicable law or in connection with any legal proceedings.
Section 9.02 Trading Information and Other Information.
(a) Notwithstanding Section 9.01, the Insurer may disclose Trading
Information and Other Information in connection with the Insurer's hedging and
reinsurance arrangements only to entities ("Permitted Recipients") that (A)
represent and warrant that such Permitted Recipients are not registered
investment advisers and (B) undertake to treat such information as confidential
information. The Adviser and the Fund agree that each of the Insurer and any
Permitted Recipient will satisfy its obligation to treat such information as
confidential information by (i) restricting access to such information to the
investment officers and compliance officers who (x) require access to such
information for monitoring, hedging, administration and compliance purposes, and
(y) are not engaged in the business of being an investment adviser, (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 with respect to the investment activities of such investment officers
and compliance officers which procedure is reasonably designed to achieve
compliance with applicable law. A Permitted Recipient may disclose Trading
Information in connection with its hedging arrangements only on the same terms
as this Section 9.02(a).
(b) Notwithstanding Section 9.01, the Insurer may disclose Other
Information to those of its officers, employees, directors, representatives,
agents, outside counsel, and independent auditors who need to have access to
such information for the 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. Notwithstanding Section 9.01, the Insurer may disclose Other
Information to Permitted Recipients who agree to disclose such information only
to those of its officers, employees, directors, representatives, agents, outside
counsel, and independent auditors who need to have access to such information
for legitimate corporate purposes and who agree to keep such information
confidential on the terms contained in Section 9.01.
Section 9.03 Independent Verifier. This Article IX shall not apply to
the Independent Verifier. The confidentiality arrangements among the Adviser,
the Trust and the Independent Verifier shall be set forth in the Independent
Verifier Agreement.
ARTICLE X
THE INDEPENDENT VERIFIER
Section 10.01 Retention of Independent Verifier. The Adviser shall, no
later than the Inception Date, retain, at the Adviser's expense, an accounting
firm of nationally recognized standing, as Independent Verifier. If the
Independent Verifier selected in accordance with this Section 10.01 fails to
perform its duties to the Insurer's reasonable satisfaction, then, upon the
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Insurer's request, the Adviser shall select another accounting firm of
nationally recognized standing to act as Independent Verifier and provide the
Independent Verification Report.
Section 10.02 Responsibilities of Independent Verifier. The Independent
Verifier shall, on a periodic basis perform such procedures with respect to the
information provided to the Insurer pursuant to Article III as the Insurer and
the Adviser shall agree prior to the Inception Date and report its finding to
the Insurer (the "Independent Verification Report").
Section 10.03 Adviser Cooperation. The Adviser shall cooperate fully
with the Independent Verifier to facilitate the fulfillment of the Independent
Verifier's responsibilities.
ARTICLE XI
TERMINATION
Section 11.01 Termination. (a) Subject to paragraph (b) below, this
Agreement shall terminate (i) on the Guarantee Maturity Date if no amounts are
payable under the Policy, or (ii) thereafter, upon payment by the Insurer of all
amounts due under the Policy to the Designated Account.
(b) This Agreement may be terminated by the Trust by written notice to
the Insurer at any time (i) prior to the Inception Date, if the Board has
determined to liquidate the Fund, (ii) upon the occurrence of an Act of
Insolvency with respect to the Insurer, or (iii) if the credit rating of the
Insurer is suspended, withdrawn or downgraded to or below A1 by Xxxxx'x or A+ by
S&P. If the Trust so terminates this Agreement, the Trust shall notify the
Fund's shareholders of such termination and such notice shall state that the
Trust has released the Insurer from all liability under the Policy. The Trust
shall provide a copy of such notice to the Insurer. From and after such
termination, the Fund shall have no obligation to pay the Premium Fee (except as
to amounts thereof accrued on a daily interpolated basis prior to such
termination), and the Insurer shall have no liability under the Policy.
ARTICLE XII
MISCELLANEOUS
Section 12.01 Amendments and Waivers. No amendment or waiver of any
provision of this Agreement nor consent to any departure therefrom, shall in any
event be effective unless in writing and signed by all of the parties hereto;
provided that any waiver so granted shall extend only to the specific event or
occurrence so waived and not to any other similar event or occurrence which
occurs subsequent to the date of such waiver.
Section 12.02 Notices. (a) Except to the extent otherwise expressly
provided herein, all notices, requests and demands to or upon the respective
parties hereto to be effective shall be in writing (and if, sent by mail,
certified or registered, return receipt requested) or facsimile transmission
and, unless otherwise expressly provided herein, shall be deemed to have been
duly given or made when delivered by hand, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of facsimile
transmission, upon verbal telephone confirmation of receipt, addressed as
follows:
-41-
If to the Adviser:
Xxxxx Xxxxxxx Investment Management Company
000 X Xxxxxx
Xxxxxx, XX 00000
Attention: General Counsel
Telephone:
Facsimile:
If to the Calculation Agent:
Xxxxxxx Xxxxx Xxxxxx Inc.
000 Xxxxxxxxx Xxxxxx, 0/xx/ Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxx Xxxxx, Global Equity Derivative
Management
Telephone No.:
Telecopy No.:
with a copy to:
Xxxxxxx Xxxxx Xxxxxx Inc.
000 Xxxxxxxxx Xxxxxx, 0/xx/ Xxxxx
Xxx Xxxx, Xxx Xxxx 00000
Attention: Xxxxxxx Xxxxx
Telephone No.:
Telecopy No.:
with a copy to
Citigroup Centre
Canada Square, Xxxxxx Xxxxx
Xxxxxx X00 0XX Xxxxxx Xxxxxxx
Attention: Xxxxxx Xxxxxx
Telephone No.:
Telecopy No.:
If to the Fund:
Xxxxx Xxxxxxx Investment Company
c/o Xxxxx Xxxxxxx Investment Management Company
000 X Xxxxxx
Xxxxxx, XX 00000
Attention: General Counsel
Telephone:
Facsimile:
-42-
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:
Facsimile:
or such other address and/or addresses (and with copies to such persons) as
shall be specified in writing by any such party to the others.
(b) Notices permitted or required to be given pursuant to Section 3.06
and Section 4.01 hereof shall be given as set forth in Schedule 3 hereto.
Section 12.03 No Waiver, Remedies and Severability. No failure on the
part of the Insurer to exercise, and no delay in exercising, any right hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right preclude any other or further exercise thereof or the exercise of
any other right. Except to the extent provided in Section 5.01 and Section 5.02,
the remedies herein provided are cumulative and not exclusive of any remedies
provided by law. The parties further agree that the holding by any court of
competent jurisdiction that any remedy pursued by the Insurer hereunder is
unavailable or unenforceable shall not affect in any way the ability of the
Insurer to pursue any other remedy available to it. In the event any provision
of this Agreement shall be held invalid or unenforceable by any court of
competent jurisdiction, the parties hereto agree that such holding shall not
invalidate or render unenforceable any other provision hereof.
Section 12.04 Payments. All payments to the Insurer hereunder shall be
made in lawful currency of the United States in immediately available funds and
shall be made prior to 2:00 p.m. (New York City time) on the date such payment
is due by wire transfer to the account designated by the Insurer by notice to
the Fund and the Adviser.
Whenever any payment under this Agreement shall be stated to be due on
a day which is not a Business Day, such payment shall be made on the next
succeeding Business Day, and such extension of time shall in such cases be
included in computing interest or fees, if any, in connection with such payment.
Section 12.05 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York (including
Section 5-1401 of the New York General Obligations Law but excluding all other
choice of law and conflicts of law rules).
Section 12.06 Submission to Jurisdiction, Waiver of Jury Trial. 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 THE
AGREEMENT;
-43-
(II) IRREVOCABLY AGREES THAT 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 under Section 4.01(a)(viii) or (ix), the
Insurer shall be entitled to rely on reports published or broadcast by media
sources believed by the Insurer to be generally reliable and on information
provided to the Insurer by any other source believed by the Insurer to be
generally reliable, provided that the Insurer reasonably and in good faith
believes such information to be accurate and has taken such steps as may be
reasonable in the circumstances to attempt to verify such information.
Section 12.11 Time of the Essence. Time is of the essence under this
Agreement.
Section 12.12 No Third-Party Rights. Nothing in this Agreement, express
or implied, shall or is intended to confer any rights upon any Person
(including, without limitation, any Shareholder) other than the parties hereto
or their respective successors or assigns.
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
-44-
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.
-45-
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: __________________________________________
Name:
Title:
XXXXX XXXXXXX INVESTMENT MANAGEMENT COMPANY,
as Adviser
By: __________________________________________
Name:
Title:
XXXXX XXXXXXX INVESTMENT COMPANY, on behalf of
its series
Xxxxxxx Multi-Manager Principal Protected
Fund
By: __________________________________________
Name:
Title:
XXXXXXX XXXXX BARNEY INC., as Calculation Agent
By: __________________________________________
Name:
Title:
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 Guarantee Maturity Date.
Insured Obligation: The Guarantee, dated as of [___________], 2003, by the
Xxxxxxx Multi-Manager Principal Protected Fund (the
"Fund"), a series of Xxxxx Xxxxxxx Investment Company (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
hareholders.
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 Designated Account specified
in the relevant Notice of Claim. Payment to such account shall discharge the
obligations of Ambac under this Policy to the extent of such payment. Once
payment of the Insured Amount has been made in the manner referred to above,
Ambac shall have no further obligation under this Policy.
This Policy is not cancelable by Ambac for any reason, including the failure of
Ambac to receive payment of any Premium due in respect of this Policy. This
Policy does not insure against any risk other than Nonpayment.
This Policy shall terminate (i) on the fifth Business Day following the
Guarantee Maturity Date if Ambac shall not have received a valid Notice of
Claim, (ii) upon payment by Ambac of the
Exh. A-1
Insured Amount to the Designated Account if Ambac receives a valid Notice of
Claim within five Business Days following the Guarantee Maturity Date, or (iii)
on the date the Trust terminates this Policy by notice to Ambac pursuant to the
Financial Guarantee Agreement.
The insurance provided by this Policy is not covered by the Property/Casualty
Insurance Security Fund specified in Article 76 of the New York Insurance Law.
Any capitalized terms not defined herein shall have the meaning given to such
terms in Appendix A hereto.
This Policy shall be governed by the laws of the state of New York, including
all matters of construction, validity and performance (including Section 5-1401
of the New York General Obligations Law but excluding all other choice-of-law
and conflicts-of-law rules).
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
Xxx. A-2
APPENDIX A
DEFINITIONS
"Adviser" means Xxxxx Xxxxxxx Investment Management Company, as Adviser
to the Fund.
"Business Day" means any day other than a day on which banks located in
the City of New York, New York are required or authorized by law to close or on
which the New York Stock Exchange is closed for business.
"Class of Shares" means, as applicable, the Class A, Class B and Class
C shares of beneficial interest of the Fund designated pursuant to the Trust's
Amended and Restated Declaration of Trust dated as of September 28, 2001.
"Covered Expenses" means, for any Class of Shares, the annual ordinary
fund operating expenses reflected in the Prospectus and SAI relating to such
Class of Shares that are covered and limited by the Expense Limitation
Agreement, dated as of January __, 2003, between the Trust and the Adviser, as
it may be amended from time to time. "Covered Expenses" shall not include
extraordinary expenses such as litigation and other expenses not incurred in the
ordinary course of the Fund's business.
"Custodian" means State Street Bank and Trust Company, as Custodian,
pursuant to the Custodian Agreement, or any successor to State Street Bank and
Trust Company in such capacity.
"Custodian Agreement" means the Custodian Contract, dated as of
October 31, 1988, between the Trust and the Custodian, as amended and any
successor agreement.
"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 any distribution or payment by the
Fund related to investment income plus capital gains plus principal plus any
expense that is not a Covered Expense (for example, any payment of Income Taxes
and extraordinary expenses) divided by the number of Shares of such Class of
Shares outstanding on the date of such distribution. For the avoidance of doubt
(i) payments of expenses that are not Covered Expenses, specifically including
Income Taxes and extraordinary expenses, will reduce the Guarantee per Share as
if such amounts were distributed to Shareholders, but such payments cannot be
reinvested and no Shares shall be issued in respect of such payments; and (ii)
investment-related costs, such as interest, taxes (other than Income Taxes),
brokerage commissions and transaction fees, shall not be treated as
distributions or payments by the Fund for purposes of determining Distributions
Per Share, but are taken into account and reduce the amount in clause (x) above
in accordance with the Fund's calculation of NAV.
"Due for Payment" means, in relation to the Insured Obligation, the
occurrence of the Guarantee Maturity Date.
"Financial Guarantee Agreement" means the Financial Guarantee
Agreement, dated as of January __, 2003, among the Adviser, the Trust and Ambac,
as it may be amended from time to time in accordance with the terms thereof.
A-1
"Guarantee Amount" means, as of any date, the sum of (i) the product of
(x) the Guarantee per Share applicable to the Class A Shares as of such date and
(y) the number of Class A Shares outstanding as of such date; (ii) the product
of (x) the Guarantee per Share applicable to the Class B Shares as of such date
and (y) the number of Class B Shares outstanding as of such date; and (iii) the
product of (x) the Guarantee per Share applicable to the Class C Shares as of
such date and (y) the number of Class C Shares outstanding as of such date.
"Guarantee Maturity Date" means the date that is five years after the
Inception Date, but if that date is not a Business Day, the Guarantee Maturity
Date shall be the first Business Day thereafter.
"Guarantee per Share" means, with respect to any Class of Shares, (i)
the NAV for such Class of Shares at the close of business on the Transition Date
and (ii) thereafter on any Business Day, the Guarantee per Share for such Class
of Shares on the immediately preceding Business Day divided by the sum of one
plus the quotient of (A) the amount of any Distribution Per Share with respect
to such Class of Shares effective since the immediately preceding Business Day
divided by (B) the NAV for such Class of Shares at the close of business on the
day such Distribution Per Share was effective.
"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.
"Maximum Amount" means, as of the Guarantee Maturity Date, the excess
of (a) the Guarantee Amount on the Guarantee Maturity Date, over (b) the sum of
(i) the product of (x) the NAV for the Class A Shares as of the Guarantee
Maturity Date and (y) the number of Class A Shares outstanding on such date;
plus (ii) the product of (x) the NAV for the Class B Shares as of the Guarantee
Maturity Date and (y) the number of Class B Shares outstanding on such date;
plus (iii) the product of (x) the NAV for the Class C Shares as of the Guarantee
Maturity Date and (y) 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 on the Guarantee
Maturity Date.
"Notice of Claim" means a Notice of Claim and Certificate in the form
attached as Appendix B to this Policy, duly executed by the Beneficiary.
"Offering Period" means the period during which the shares of the Fund
will be offered for sale to investors as described in the Prospectus and SAI
relating to each Class of Shares.
A-2
"Prospectus and SAI" 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.
"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 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.
"Subadviser" means each subadviser with respect to the Fund selected by
the Adviser in accordance with the Financial Guarantee Agreement.
"Transaction Documents" has the meaning set forth in the Financial
Guarantee Agreement.
"Transition Date" means the Business Day after the end of the Offering
Period.
A-3
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 [_____], 2003 (the "Policy"), issued by Ambac in respect of
the shares of Xxxxx Xxxxxxx Investment Company, Series Xxxxxxx Multi-Manager
Principal Protected Fund (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 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 Days 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 right, title and interest of
the undersigned and the Fund in, to and under the Transaction Documents and any
agreement between any Subadviser and the Fund (such agreement, a "Subadviser
Agreement"). In furtherance of the foregoing and upon such payment, the
undersigned hereby assigns all right, title and interest of the undersigned and
the Fund in, to and under the Transaction Documents and the Subadviser
Agreements. The undersigned shall, and shall cause the Fund to, cooperate in
Ambac's exercise of such subrogated and assigned rights. Without limiting the
foregoing, from and after the date of such payment by Ambac, neither the
undersigned nor the Fund shall take or omit to take any action with respect to
enforcement of the obligations of any counterparty under the Transaction
Documents or any Subadviser Agreement without the prior written consent of
Ambac, and from and after the date of such payment by Ambac, Ambac shall be
entitled to control and direct the exercise of
A-1
remedies (including but not limited to all proceedings and settlements) in
respect of the Transaction Documents and any Subadviser Agreement.
Unless the context otherwise requires, capitalized terms used in this
Notice of Claim and Certificate and not defined herein shall have the respective
meanings provided in the Policy.
ANY PERSON WHO KNOWINGLY AND WITH INTENT TO DEFRAUD ANY INSURANCE
COMPANY OR OTHER PERSON FILES AN APPLICATION FOR INSURANCE OR STATEMENT OF CLAIM
CONTAINING ANY MATERIALLY FALSE INFORMATION, OR CONCEALS FOR THE PURPOSE OF
MISLEADING, INFORMATION CONCERNING ANY FACT MATERIAL THERETO, COMMITS A
FRAUDULENT INSURANCE ACT, WHICH IS A CRIME AND SHALL ALSO BE SUBJECT TO A CIVIL
PENALTY NOT TO EXCEED FIVE THOUSAND DOLLARS AND THE STATED VALUE OF THE CLAIM
FOR EACH SUCH VIOLATION.
IN WITNESS WHEREOF, the Beneficiary has executed and delivered this
Notice of Claim and Certificate this [ ] day of [ ], [ ].
XXXXX XXXXXXX INVESTMENT COMPANY,
on behalf of its series
Xxxxxxx Multi-Manager Principal
Protected Fund
By: ___________________________________
Name:
Title:
CC: State Street Bank and Trust Company, as Custodian
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attn: Xxxxxx X. Xxxx, Senior Vice President, JPB/3S
A-2
EXHIBIT B
Xxxxx Xxxxxxx Investment Company
000 X Xxxxxx
Xxxxxx, XX 00000
[___________], 0000
Xxxxx Xxxxxx Xxxx and Trust Company
000 Xxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxx, Senior Vice President, JPB/3S
Re: Xxxxx Xxxxxxx Investment Company and Xxxxxxx Multi-Manager
Principal Protected Fund - Instructions Under Custodian Contract
Ladies and Gentlemen:
Pursuant to the terms of the Custodian Contract, dated as of October
31, 1988 (as amended, the "Contract"), between Xxxxx Xxxxxxx Investment Company
(the "Trust") and State Street Bank and Trust Company (the "Custodian"), the
undersigned Trust hereby authorizes and directs the Custodian to follow and act
upon any instructions delivered from time to time to the Custodian by Ambac
Assurance Corporation ("Ambac") with respect to the assets of the Trust's series
designated Xxxxxxx Multi-Manager Principal Protected Fund (the "Fund") (each, an
"Ambac Instruction").
Each Ambac Instruction shall be deemed to constitute "Proper
Instructions" pursuant to Section 2.16 of the Contract. Further, this letter
itself constitutes a "Proper Instruction" pursuant to Section 2.16 of the
Contract and shall be a standing instruction, effective as of the date of this
letter and until the Trust and Ambac jointly instruct the Custodian otherwise in
writing.
In the event that the Custodian receives any Ambac Instruction which,
in the reasonable belief of the Custodian, conflicts in any way (in whole or in
part) with any other outstanding instruction to the Custodian regarding the
Fund's assets issued by the Trust, an investment advisor to the Trust or the
Fund or any other party (each, an "Other Instruction"), the Custodian shall be
entitled to rely upon the Ambac Instruction and further, the Custodian is hereby
authorized and directed to disregard the Other Instruction and instead, follow
and act upon the Ambac Instruction.
The Trust hereby confirms to and agrees with the Custodian that, as a
condition of any obligation of the Custodian hereunder, the Trust shall at all
times do, make, execute and deliver (and shall likewise request 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
Exh. B-1
and any Ambac Instruction including, without limitation, the execution and
delivery of (a) so-called Authorized Signer Lists regarding each of the Trust's
and Ambac's officers duly authorized by the Trust's Board; (b) funds transfer
security procedure documentation regarding each of the Trust and Ambac; and (c)
remote access services documentation.
The undersigned Trust hereby acknowledges that, except as may arise
from the Custodian's own negligence or willful misconduct, the Custodian shall
be without liability to the Trust for any loss, liability, claim or expense
resulting from or caused by the Custodian's acting in accordance with this
letter of instruction and/or any Ambac Instruction, and/or the Custodian's
disregarding any Other Instruction. The Trust, on behalf of the Fund, agrees
that the Fund will indemnify the Custodian to the extent of its assets for any
loss, liability, claim or expense incurred by the Custodian, except as may arise
from the Custodian's own negligence or willful misconduct, in connection with
actions omitted or taken by the Custodian pursuant to each of this letter of
instruction and/or any Ambac Instruction.
Please sign below to evidence your receipt of this letter and to
acknowledge that, as Custodian, you will follow, pursuant to the terms of this
instruction letter and in accordance with the governing standard of care set
forth in the Contract, any Ambac Instruction.
XXXXX XXXXXXX INVESTMENT COMPANY,
On behalf of its series Xxxxxxx
Multi-Manager Principal Protected Fund
By: ______________________________________
Name:
Title:
Acknowledged and Agreed:
STATE STREET BANK AND TRUST COMPANY
By: _________________________________
Name:
Title:
Exh. B-2
