EXHIBIT 99.h(xix)
SECURITIES LENDING, AGENCY
AND COLLATERAL
MANAGEMENT AGREEMENT
date as of
January 3, 2004
between
American AAdvantage Funds, on behalf of its series,
American AAdvantage High Yield Bond Fund
and
Metropolitan West Securities, LLC
TABLE OF CONTENTS
SECTION 1. DEFINITIONS 1
SECTION II. APPOINTMENT AS AGENT 3
2.1 General Appointment 3
SECTION III. CUSTODIAL ACCOUNT 4
3.1 Deposit of Assets 4
3.2 Additions and Withdrawals 4
3.3 Reports 4
3.4 Disclosure of Custodial Account Information 4
SECTION IV. SECURITIES LENDING TRANSACTIONS 5
4.1 Lending Transactions 5
4.2 List of Borrowers and Counterparties 5
4.3 ▇▇▇▇-to-Market 5
4.4 Distributions; Voting, etc 6
SECTION V. INVESTMENTS 6
5 Investments 6
SECTION VI. TRANSACTION PROCEDURES 6
6.1 Confirmations; Transaction Reports 6
6.2 Defaults by Counterparties 7
6.3 Termination of Loans and Investments 7
6.4 Risk of Loss 8
6.5 Use of Third Party Services 8
6.6 Use of Book-Entry System 8
6.7 MetWest's Other Clients 8
SECTION VII. REMITTANCE 8
7.1 Compensation to MetWest 8
7.2 Payments to Client 9
SECTION VIII. REPRESENTATIONS, WARRANTIES AND COVENANTS 9
8.1 By Client 9
8.2 By MetWest 10
SECTION IX. NO AFFILIATE TRANSACTIONS 11
9 No Affiliate Transactions 11
SECTION X. STANDARD OF CARE 11
10.1 Standard of Care 11
10.2 Force Majeure 12
10.3 Lending Opportunities 12
10.4 No Implied Duties 12
SECTION XI. INDEMNIFICATION 12
11.1 General 12
11.2 Continuing Obligation 13
SECTION XII. RELIANCE ON THIRD PARTIES 13
12.1 Reliance on the Statements, Representations and Warranties of 13
Borrowers, Counterparties or Other Obligors
12.2 Reliance on Instructions 13
SECTION XIII. DURATION AND TERMINATION 13
13.1 General 13
SECTION XIV. MISCELLANEOUS 14
14.1 Exclusivity 14
14.2 Certificate 14
14.3 Notices 14
14.4 Cumulative Rights and NO Waiver 14
14.5 Severability 14
14.6 Amendments 15
14.7 Assignments 15
14.8 Governing Law 15
14.9 Waiver of Immunity 15
14.10 No Third Party Beneficiaries 15
14.11 Entire Agreement 15
14.12 Counterparts 15
14.13 Further Assurances 16
14.14 Records 16
14.15 Client is a Massachusetts Business Trust 16
Exhibits
EXHIBIT A-COLLATERAL AND INVESTMENT GUIDELINES
EXHIBIT B-LIST OF BORROWERS AND COUNTERPARTIES
EXHIBIT C-FEES
EXHIBIT D-CLIENT AUTHORIZED SIGNATORIES
EXHIBIT E-FORM OF SECURITIES LOAN AGREEMENT WITH BORROWERS
SECURITIES LENDING, AGENCY
AND COLLATERAL
MANAGEMENT AGREEMENT
This SECURITIES LENDING, AGENCY AND COLLATERAL MANAGEMENT
AGREEMENT (the "Agreement") is entered into this 3rd day of January, 2004,
between the American AAdvantage High Yield Bond Fund, a series of the American
AAdvantage Funds ("Client"), and Metropolitan West Securities, LLC ("MetWest"),
a subsidiary of Wachovia Corporation.
SECTION I. DEFINITIONS
Whenever used in this Agreement, unless the context otherwise
requires, the following words shall have the meanings set forth below:
"Affiliate" shall mean, in relation to any person, any entity
controlled (directly or indirectly) by the person, any entity that controls
(directly or indirectly) the person, or any entity (directly or indirectly)
under common control with the person. (For purposes of this definition,
"control" of any entity or person means ownership of a majority of the voting
power of the entity or person.)
"Affiliate Transactions" shall mean any Loan or Investment in
which an Affiliate of MetWest acts as principal or in which Met West and an
Affiliate of MetWest both act as agents.
"Book-Entry System" shall mean the United States Federal
Reserve/Treasury book-entry system for receiving and delivering United States
Government Securities and any successors of such system.
"Borrower" shall mean U.S. registered broker-dealers or U.S.
regulated banks borrowing Securities under a Securities Loan Agreement, which is
on the List of Borrowers and Counterparties approved by Client.
"Business Day" shall mean any day on which MetWest is open for
business and on which the Book-Entry System, and/or the applicable Depositories
are open for business.
"Cash Collateral" shall mean any Collateral that takes the
form of federal funds, New York Clearing House funds, or other U.S. Dollar
deposits.
"Code" shall mean the Internal Revenue Code of 1986, as
amended.
"Collateral" shall mean Cash Collateral, United States
Government Securities transferred or delivered pursuant to a Securities Loan
Agreement to Client as collateral, including any substitute or additional
collateral transferred or delivered thereto.
1
"Collateral and Investment Guidelines" shall mean the guidelines
established by the Client and MetWest with regard to the transactions
described herein, a copy of which is attached hereto as Exhibit A.
"Counterparty" shall mean an entity that is an obligor on an
Investment that is made up of one or more underlying securities (such as a
repurchase agreement), but shall not include obligors on any such underlying
securities.
"Custodial Account" shall mean one or more accounts
established by Client at State Street Bank and Trust Company that hold
Securities to be loaned by MetWest on behalf of Client and the assets of Client
to be managed by MetWest, including Collateral, Investments, distributions
received with respect to Securities, Collateral and Investments ("Proceeds"),
and any Securities Loan Fee.
"Depository" shall mean the Depository Trust Company, the
Participants Trust Company and any other securities depository, local custodian
or clearing agency (and their respective successors and nominees) registered
with the appropriate governmental organization or otherwise authorized to act as
a securities depository or clearing agency.
"Distribution" shall mean a payment of the type referred to in
Section 4.4(b) of this Agreement.
"Fee" shall mean the compensation to be paid to Met West for
its services hereunder as provided in Section 7.1.
"Investment" shall mean any security, financial instrument,
participation or interest in property or other asset that is purchased with Cash
Collateral as an investment.
"List of Borrowers and Counterparties" shall mean the list of
Borrowers and Counterparties approved by Client and attached hereto as Exhibit
B.
"Loan" shall mean a loan of Securities under a Securities Loan
Agreement.
"Loaned Security" shall mean any Security that is subject to a
Loan.
"Net Income" for each Client shall mean an amount equal to:
(i) all income from Investments, plus (ii) any Securities Loan Fees, minus (iii)
any Rebates paid or payable by Client to Borrowers.
"Oral Instructions" shall mean non-written communications
actually received by MetWest from a person reasonably believed by MetWest to be
authorized to act on behalf of Client.
"Permissible Investments" shall mean the categories of
investments approved by Client and listed on the Collateral and Investment
Guidelines, provided that such Investments shall not include Securities issued
by Met West or any Affiliate thereof.
2
"Rebate" shall mean the amount payable by Client to a Borrower
pursuant to a Securities Loan Agreement in connection with Loans collateralized
by Cash Collateral.
"Securities Loan Agreement" shall mean the agreement(s)
pursuant to which MetWest lends securities on behalf of its clients (including
Client) from time to time, in the form attached hereto as Exhibit E.
"Securities Loan Fee" shall mean the amount payable by a
Borrower to Client pursuant to a Securities Loan Agreement in connection with
Loans collateralized by Collateral other than Cash Collateral.
"Security" shall include: (i) United States Government
Securities; (ii) bonds, debentures, corporate debt securities, notes, mortgages,
convertible debt securities or other debt obligations; (iii) any certificates,
warrants or other instruments representing rights to receive, purchase or
subscribe for any of (i) or (ii) above, or evidencing or representing any other
rights or interests therein owned by Client and which are to be loaned hereunder
by Met West.
"United States Government Security" shall mean a book-entry
Treasury security (as defined in Subpart 0 of Treasury Department Circular No.
300, 31 C.F.R. 306) and any other security issued or fully guaranteed by the
United States Government or any agency, instrumentality or establishment of the
United States Government.
"Written Instructions" shall mean written communications
actually received by MetWest from a person reasonably believed by MetWest to be
authorized to act on behalf of Client, whether by letter, memorandum, telegram,
cable, telex, telecopy, facsimile, computer, video (CRT) terminal or other
on-line system, or any other method agreed to by the parties whereby MetWest is
able to verify with a reasonable degree of certainty the identity of the sender
of such communications or the sender is required to provide a password or other
identification code.
SECTION II. APPOINTMENT AS AGENT
2.1 General Appointment.
Client hereby appoints and authorizes MetWest, as Client's
agent, and MetWest agrees to act, as Client's agent, with
power and authority (i) to lend Client's Securities that are
deposited in a Custodial Account to Borrowers, (ii) to arrange
for Client to receive Collateral in respect of Loans, (iii) to
invest Cash Collateral by making Investments in accordance
with the Collateral and Investment Guidelines provided by
Client, and (iv) to provide related administrative services to
Client, all pursuant to the terms of this Agreement. In
connection with the services to be provided by MetWest
pursuant to this Agreement, MetWest shall also have the power
and authority to (i) establish such accounts in Client's name
as may reasonably be necessary to effect Loans and Investments
and receive Collateral on Client's behalf (ii) execute and
deliver such contracts and other documents on behalf of, or
for the benefit of, Client as MetWest reasonably deems
3
necessary or advisable in connection with the services
rendered by MetWest hereunder, including the establishment of
accounts and the effecting of Loans and Investments; and (iii)
assist Client in enforcing any remedies under any such
contracts or documents.
MetWest shall make no Loan to any Affiliate of MetWest or enter into any
Investment pursuant to a transaction in which an Affiliate of MetWest acts as
principal.
SECTION III. CUSTODIAL ACCOUNT
3.1 Deposit of Assets.
Client agrees that all Securities, Collateral, Investments,
Proceeds and Securities Loan Fees shall be deposited into a Custodial Account.
Except as otherwise provided herein, MetWest shall not have any beneficial
interest in the Securities, Collateral, Investments or Securities Loan Fees held
in any Custodial Account.
3.2 Additions and Withdrawals.
During the term of this Agreement, Client may add assets to or
withdraw assets from any Custodial Account provided that for any withdrawal of
Collateral, Client has delivered to MetWest Written Instructions of such
withdrawal at least two Business Days prior thereto, and the withdrawal shall be
subject to the provisions of Section 6.3 of this agreement.
3.3 Reports.
MetWest shall send, or shall arrange to have sent, to Client
by the fifteenth (15th) Business Day of each month a statement detailing the
securities lending activity in each Custodial Account for the previous calendar
month. The statement will, among other things, set forth for each Loan made or
outstanding during the previous calendar month the Loaned Securities, the
related Collateral, Rebate and Securities Loan Fee and such other information as
may be reasonably requested by Client. At the request of Client, MetWest shall
send, or shall arrange to have sent, to Client weekly or daily reports in such
format as shall be agreed to by MetWest and Client.
3.4 Disclosure of Custodial Account Information.
Client understands and agrees that Met West may supply any
information regarding any Custodial Account that MetWest reasonably believes is
required to be disclosed pursuant to any statute, regulation, rule or order now
or hereafter in effect, upon the request of a regulatory agency, or to any third
party (including an Affiliate of MetWest) providing services pursuant to Section
6.6 of this Agreement. In addition, Client authorizes MetWest to disclose (a) to
any Borrower who at any time so requests, (i) Client's name, (ii) that Client
has authorized MetWest to lend the Securities, (iii) that the Loaned Securities
are owned by Client, and (iv) any publicly available information concerning
Client in MetWest's possession; and (b) to any third party providing services
pursuant to Section 6.6 of this Agreement, (i) Client's name, (ii) that Client
has authorized MetWest to manage Collateral and make Investments, and (iii) that
the assets in each Custodial Account are owned by Client.
4
SECTION IV. SECURITIES LENDING TRANSACTIONS
4.1 Lending Transactions.
MetWest, as agent on behalf of Client, shall use its best
efforts to enter into Loans cm each Business Day that Client has Securities
available for Loans. MetWest shall enter into a Loan with a Borrower pursuant to
a Securities Loan Agreement substantially in the form set forth in Exhibit E and
on such pricing terms as determined by MetWest, provided that (a) such Borrower
is listed on the List of Borrowers and Counterparties; (b) the amount of the
Loan to a Borrower when aggregated with the market value of all outstanding
Loans to such Borrower does not exceed the maximum lending capacity of such
Borrower as described on the list of Borrowers and Counterparties; (c) the
Collateral received with respect to the Loan is of the type listed as Collateral
on the Collateral and Investment Guidelines: (d) the maturity of the Loan does
not exceed the maximum maturity for a Loan set forth in the Collateral and
Investment Guidelines; and (e) such Borrower is not an Affiliate of MetWest.
Notwithstanding the foregoing, MetWest shall loan no more than thirty three and
one third percent (33 1/3%) of the market value of Client's total assets,
including the aggregate value of all Collateral hereunder.
MetWest, as agent on behalf of Client, shall take all actions
it deems necessary or appropriate, in its sole judgment, in connection with any
Loan, including (a) directing the transfer of Collateral into the Custodial
Account; (b) directing the transfer into the Custodial Account of Distributions
in respect of Loaned Securities and Collateral and any applicable Securities
Loan Fee; and (c) negotiating with each Borrower the type and amount of
Collateral, the Margin Percentage (as defined in Section 4.3 below), and the
amount of Rebate or Securities Loan Fee.
Notwithstanding anything to the contrary, Client acknowledges
and agrees that MetWest is (a) acting solely as Client's agent in entering into
Loans, with Client as the principal on all such Loans, and (b) under no duty to
enter into any transaction with respect to Securities that do not satisfy
Sections 8.1(g) and (h) of this Agreement.
4.2 List of Borrowers and Counterparties.
Client and MetWest agree that the List of Borrowers and
Counterparties may be amended after the date hereof by either party upon
obtaining the written consent of the other party.
4.3 ▇▇▇▇-to-Market.
Each Securities Loan Agreement shall provide that the fair
market value of the Collateral received with respect to the Loaned Securities
shall be equal to that percentage (the `Margin Percentage") of the Loan as is
agreed to by the Borrower and MetWest, on behalf of Client, provided that the
Margin Percentage shall be not less than 102 percent and the maintenance Margin
Percentage shall be not less than 100 percent, or such lower percentages
permitted with prior written permission of the Client. On a daily basis, MetWest
shall determine the fair market value of Collateral and the outstanding Loan in
order to determine that the Borrower is complying with the Margin Percentage. In
the event that, on any Business Day, the fair market value of the Collateral is
greater than or less than the product of the outstanding Loan multiplied by the
Margin Percentage, MetWest shall exercise the rights afforded to the Client by
Section 8 of the Securities Loan Agreement. MetWest is not in any way
responsible for providing additional Collateral or eliminating such deficiency.
5
4.4 Distributions; Voting, etc.
(a) Client acknowledges that, during the term of any Loan, the
Borrower shall hold all incidents of ownership with respect to the Loaned
Securities, including, but without limitation, the rights to vote the Loaned
Securities and to transfer or lend Loaned Securities to others. In no event
shall MetWest be responsible for or have any obligations with respect to any
right to vote any Loaned Securities.
(b) Each Borrower shall, in accordance with the terms of the
Securities Loan Agreement, promptly pay to Client's Custodial Account the
equivalent (sometimes called a "manufactured" payment or dividend) of all
Distributions made by the issuer of the Loaned Securities during the term of the
Loan to which the Client would have been entitled had the Securities not been
loaned, including, but not limited to, cash dividends, interest payments, shares
of stock as a result of stock splits, stock dividends and the rights to purchase
additional securities. All such equivalent payments shall be in the same amount
that Client would have received had it not loaned the securities. MetWest, as
agent for Client, shall make every reasonable effort to obtain for Client all
Distributions (or the equivalent thereof) with respect to the Loaned Securities
and shall have credited the aggregate amount of such Distribution (net of
applicable fees) to the Custodial Account on the date such amounts are delivered
by the Borrower to the Custodial Account. Conversely, Client agrees that
MetWest, as agent for Client, may direct the transfer from the Custodial Account
to a Borrower for any Distributions received by Client on Collateral other than
Cash Collateral.
SECTION V. INVESTMENTS
5 Investments.
Client hereby authorizes and agrees that MetWest has full and
exclusive discretionary authority to manage all Cash Collateral and, in that
regard, MetWest hereby agrees to use its best efforts to purchase Investments
with all available Cash Collateral in the Custodial Account, provided that (a)
each Investment is a Permissible Investment pursuant to the Collateral and
Investment Guidelines, (b) no such Investment may be made pursuant to a
transaction in which an Affiliate of MetWest acts as principal, and (c) for each
Investment involving a Counterparty, such Counterparty is listed on the List of
Borrowers and Counterparties.
SECTION VI. TRANSACTION PROCEDURES
6.1 Transaction Reports.
MetWest shall deliver to Client reports of any Loan or
Investment transaction as is requested by Client, which shall identify, among
other things, the Borrower and the basic terms of any transaction, within five
(5) Business Days after the settlement date of the transaction and shall deliver
to client such daily, weekly or monthly summary reports in a form and manner
agreed to by the Parties. MetWest shall send, or shall arrange to have sent, to
Client by the fifteenth (15th) Business Day of each month a report which will
provide a list of all Loans outstanding and closed during the preceding month.
The report will identify for each open Loan position, the Loaned Securities, the
value of the Loaned Securities for collateralization purposes, the current value
of the Collateral, the applicable Rebate or Securities Loan Fee, and the number
of days the Loaned Securities have been on loan.
6
6.2 Defaults by Counterparties.
(a) Upon the occurrence of an event of default (as defined in
the Securities Loan Agreement or other documentation governing an Investment) by
a Borrower or a Counterparty or other obligor on an Investment, MetWest may,
unless such event of default is cured prior thereto, terminate such Loan or
Investment in accordance with the Securities Loan Agreement or any documentation
covering the Investment, and MetWest shall inform Client regarding its rights
thereunder.
(b) Seventy-five percent of all expenses incurred by MetWest
in acting pursuant to this Section 6.2 shall be borne by Client, and any such
amounts (as well as any other amounts to which MetWest is entitled hereunder)
will be charged to the Client.
(c) Client hereby understands and agrees that MetWest is
acting as agent for Client and is not in any way responsible for the performance
of a Borrower under any Securities Loan Agreement or a Counterparty or other
obligor under an Investment and shall in no way bear any responsibility for any
default by either of them.
(d) In the event for any reason there is a failure on the part
of a Borrower to deliver Loaned Securities to Client on an agreed upon date,
MetWest may, but shall not be obligated to, invest Cash Collateral with respect
to such Loaned Securities overnight in any short term investment account or take
such other action as it deems appropriate to the extent such action is
consistent with this Agreement.
6.3 Termination of Loans and Investments.
Met West shall terminate any Loan and Investment prior to the
agreed upon termination date for such Loan or Investment, as set forth in the
Securities Loan Agreement or documents governing such Investment, as soon as
practicable after:
(a) receipt by MetWest of Oral Instructions or Written
Instructions from Client to terminate a Loan or Investment;
(b) receipt by MetWest of Oral Instructions or Written
Instructions from Client advising that the Loaned Security is no longer subject
to the representations contained in Sections 8.1(g) or (h);
(c) the occurrence of an event of default under a Securities
Loan Agreement or by a Counterparty under the documents governing the
Investment; or
(d) termination of this Agreement.
All Loans shall be terminable upon demand. The Securities
subject to a terminated Loan shall be returned to the Custodial Account within
the applicable standard settlement period, which period shall be not more than
five business days.
7
6.4 Risk of Loss.
MetWest does not give any assurance as to the economic result
of any Loan or Investment, and Client as the principal bears all risk of loss
and liability under each Loan and Investment made in accordance with the
provisions of this Agreement, including, but not limited, to any event of
default, early termination under a Securities Loan Agreement or document
governing an Investment, unless otherwise agreed to in writing by MetWest or
unless otherwise provided under the Securities Loan Agreement or document.
6.5 Use of Third Party Services.
Client hereby authorizes MetWest, in its sole discretion, to
appoint, utilize and reasonably rely upon the services of third parties,
including, but not limited to, recognized security data and pricing information
sources. Client understands and agrees that such third parties are not and shall
not be construed to be a party to this Agreement or otherwise be deemed in any
way to be in privity of contract with Client. MetWest shall not be responsible
for delays, failures in `performance, or other actions by such third parties
selected by MetWest in the exercise of reasonable care, except to the extent
such action or inaction by a third party was caused in part by MetWest. The
Client authorizes MetWest, as Client's agent, to compensate any such third
parties and to pay all related expenses and fees, provided that (a) no more than
reasonable compensation shall be paid to any such third party and (b) no
compensation shall be paid to any Affiliate of Met West.
6.6 Use of Book-Entry System.
Client hereby authorizes MetWest, in its sole discretion, to
deposit in the Book- Entry System, and the applicable Depositories all
Securities eligible for deposit therein and to utilize the Book-Entry System,
and Depositories to the extent possible in connection with MetWest's receipt and
delivery of Securities, Collateral, Investments and monies under this Agreement.
6.7 MetWest's Other Clients.
MetWest shall use its best efforts to treat Client on panty
with other clients in making Loans and Investments on its behalf, taking into
account the demand for specific securities, location of securities, availability
of securities, size of security position, types of Collateral, eligibility of
Borrowers, limitations on Investments and such other factors as MetWest deems
appropriate. MetWest shall nevertheless have the right to decline to make any
Loans or Investments and to terminate any Loans or Investments in its sole
discretion.
SECTION VII. REMITTANCES
7.1 Compensation to Met West.
As compensation for the services provided by MetWest
hereunder, Client shall pay to MetWest a periodic Fee in such amounts and for
such periods (each, a "Fee Period") as are set forth on Exhibit C hereto. Client
agrees to pay the Fee on the 15th day of each month (or if such day is not a
Business Day then on the next succeeding Business Day) from the Custodial
Account.
8
7.2 Payments to Client.
MetWest shall coordinate the transfer, by the 15th day of the
month (or, if such lay is not a Business Day, on the next succeeding Business
Day) to the Custodial Account, an amount for the immediately preceding Fee
Period equal to the Net Income (as defined in Section 1), minus the Fee (as
described above), with respect to the previous Fee Period.
SECTION VIII. REPRESENTATIONS, WARRANTIES AND COVENANTS
8.1 By Client.
Client hereby represents, warrants and covenants to MetWest,
on each day that a Loan is outstanding, as follows:
(a) Client is entering into this Agreement and each Loan and
Investment as a principal for its own account;
(b) Client has been duly organized and is validly existing and
has the full power and authority to execute, deliver and perform its obligations
under this Agreement and any documents contemplated herein including, without
limitation, any Securities Loan Agreement, repurchase agreement or other
documentation that MetWest executes as agent for Client (the "Other Documents");
(c) The execution, delivery and performance of this Agreement
and the Other Documents by Client have been duly authorized by Client;
(d) The person executing this Agreement and all persons acting
on behalf of Client have been duly and properly authorized to do so;
(e) This Agreement is, and each Other Document, Loan and
Investment will be, a legal, valid and binding agreement of Client and will be
enforceable against Client in accordance with its terms, except as may be
limited by bankruptcy, insolvency or similar laws, or by equitable principles
relating to or limiting creditors' rights generally;
(f) The execution, delivery and performance of this Agreement
and each Other Document does not and will not (i) violate any provision of
Client's governing documents and instruments, (ii) conflict with or result in a
default under any agreement to which Client is a party or by which any of its
properties is bound, or (iii) violate any law, regulation, judgment or order
affecting Client or by which Client is bound;
(g) Client will not transfer, assign or encumber its interest
in, or rights with respect to, any assets in the Custodial Account, except as
required by this Agreement;
9
(h) Except as otherwise described in Written Instructions
delivered to MetWest by Client, Client is the beneficial owner of the
Securities, and all Securities in the Custodial Account are free and clear of
all liens, claims, security interests and encumbrances (other than liens,
claims, security interests or encumbrances created under this Agreement)
(collectively, "Claims") and has the right to transfer all right, title and
interest in and to the Securities to Borrowers free from Claims;
(i) Client acknowledges that it has received a copy of Part II
of MetWest's Form ADV at least 48 hours before signing this Agreement.
(j) Client agrees to make available to MetWest Client's most
recent publicly available audited and unaudited statements of financial
condition and earnings, and represents that such statements will be true and
correct, prepared in accordance with generally accepted accounting principles
applied on a consistent basis, and reflective of Client's true financial
condition;
(k) Client represents that the Loans and Investments
contemplated herein are not inconsistent with any law, regulation, rule or order
or any judgment decree or order of any court or regulatory agency, whether now
or hereafter in effect and whether known or unknown to MetWest;
(1) Client is capable of assessing the merits of and
understanding (on its own behalf or through independent professional advice),
and understands and accepts, the terms, conditions and risks of this Agreement
and of the Loans and Investments contemplated hereunder; Client has had an
opportunity to review the Agreement and reach its own conclusions regarding the
tax and accounting consequences of the Loans and Investments contemplated
hereunder, and acknowledges that neither MetWest nor any of its Affiliates have
made any representation or given any advice with respect thereto and that
nothing in this Agreement or any exhibit or schedule hereto shall be construed
as a representation by MetWest with respect to any of the tax or accounting
consequences of the Agreement or any person; and Client has not relied on the
views, advice or any recommendation of MetWest or any of its Affiliates in
entering into this Agreement;
(m) Client has provided to Met West all information with
respect to the withholding tax requirements of any taxing authority applicable
to Client; and
(n) Client shall promptly notify MetWest of any change in
circumstances that materially affects the accuracy of the representations set
forth in Section 8.1.
8.2 By MetWest.
MetWest hereby represents, warrants and covenants to Client,
on each day that a Loan is outstanding, as follows:
(a) MetWest has been duly organized and is validly existing
and has the full power and authority to execute, deliver and perform its
obligations under this Agreement and any documents contemplated herein
including, without limitation, any Securities Loan Agreement, repurchase
agreement or other documentation that MetWest executes as agent for Client (the
"Other Documents");
10
(b) The execution, delivery and performance of this Agreement
and the Other Documents by Met West have been duly authorized by Met West;
(c) The persons executing this Agreement and all persons
acting on behalf of MetWest have been duly and properly authorized to do so;
(d) This Agreement is, and each Other Document, Loan and
Investment will be, a legal, valid and binding agreement of MetWest and will be
enforceable against MetWest in accordance with its terms, except as may be
limited by bankruptcy, insolvency or similar laws, or by equitable principles
relating to or limiting creditors' rights generally;
(e) The execution, delivery and performance of this Agreement
and each Other Document does not and will not (i) violate any provision of
MetWest's governing documents and instruments, (ii) conflict with or result in a
default under any agreement to which MetWest is a party or by which any of its
properties is bound, or (iii) violate any law, regulation, judgment or order
affecting Met West or by which MetWest is bound;
(f) MetWest acknowledges that, with respect to any Loans or
Investments, that Client is not responsible for MetWest's compliance and shall
not have any liability for MetWest's compliance with any law, regulation, rule
or order or any judgment decree or order of any court or regulatory agency,
whether now or hereafter in effect and whether known or unknown to Client; and
(g) MetWest shall promptly notify Client of any change in
circumstances that materially affects the accuracy of the representations set
forth in Section 8.2.
SECTION IX. NO AFFILIATE TRANSACTIONS
9 No Affiliate Transactions.
MetWest shall not enter into any transactions with any
Affiliates on behalf of Client related to any transactions or services
contemplated by this Agreement.
SECTION X. STANDARD OF CARE
10.1 Standard of Care.
With respect to Loans and Investments, Met West acknowledges
that it will perform its services in good faith and in accordance with
applicable law, including the Investment Company Act of 1940, as amended, and
the rules thereunder, and with the care, skill, prudence and diligence under the
circumstances then prevailing that a prudent person acting in a like capacity
and familiar with such matters would use in the conduct of an enterprise of a
like character and with like aims. MetWest and its Affiliates, directors,
officers, employees and agents shall not be liable for any costs, expenses,
damages, liabilities or claims (including attorneys' and accountants' fees)
incurred by Client, except those costs, expenses, damages, liabilities or claims
arising out of the negligence, bad faith or willful misconduct of MetWest, or
its failure to comply with the terms of or representations in this Agreement.
Moreover, except to
11
the extent that MetWest otherwise agrees in writing, MetWest shall have no
obligation hereunder for costs, expenses, damages, liabilities or claims
(including attorneys' and accountants' fees), which are sustained or incurred by
reason of any action or inaction by any Borrower, Counterparty, obligor on any
Investment, pricing service, the Book-Entry System, any Depository, or any third
party, or their respective successors or nominees, except to the extent that Met
West contributed to the action or inaction that resulted in a loss to the
Client. In no event shall MetWest or Client be liable for special, indirect or
consequential damages, or lost profits or loss of business, arising under or in
connection with this Agreement, even if previously informed of the possibility
of such damages and regardless of the form of action. The applicable securities
laws may impose liabilities under certain circumstances on persons who act in
good faith, and therefore nothing herein shall in any way constitute a waiver or
limitation of any rights which the Client may have under any securities laws.
10.2 Force Majeure.
MetWest shall not be responsible or liable for any failure or
delay in the performance of its obligations under this Agreement arising out of
or caused, directly or indirectly, by circumstances beyond its control,
including, without limitation: acts of God; earthquakes; fires; floods; wars;
civil or military disturbances; sabotage; epidemics; riots; interruptions, loss
or malfunctions of utilities, transportation, computer (hardware or software) or
communications service; accidents; labor disputes; acts of civil or military
authority; or governmental actions.
10.3 Lending Opportunities.
Client acknowledges that MetWest or its Affiliates may from
time to time lend securities to, or through, or enter into similar transactions
with any Borrower.
10.4 No Implied Duties.
MetWest shall not have any duties or responsibilities
whatsoever except such duties and responsibilities as are specifically set forth
in this Agreement, and no covenant or obligation shall be implied against
MetWest in connection with this Agreement.
SECTION XI. INDEMNIFICATION
11.1 General.
Each party hereto (the "Indemnifying Party") shall indemnify
and hold harmless the other party hereto, its Affiliates and their respective
directors, officers, employees and agents each an "Indemnified Party") from and
against any and all costs, expenses, damages, liabilities joint and several) or
claims, including reasonable fees and expenses of counsel, which any Indemnified
Party sustains or incurs as a direct result of any breach by the Indemnifying
Party of any of its acknowledgments, representations or agreements contained
herein or as a result of any action taken or omitted by the Indemnifying Party
in connection with this Agreement, other than those costs, expenses, damages,
liabilities or claims arising out of the negligence, bad faith or
12
willful misconduct of such Indemnified Party. Actions taken or omitted in
reliance upon Oral or Written Instructions or upon any information, order,
indenture, stock certificate, power of attorney, assignment, affidavit or other
instrument reasonably believed by any Indemnified Party to be duly authorized
shall be conclusively presumed to have been taken or omitted in good faith.
11.2 Continuing Obligation.
Each party acknowledges that the above indemnification
provision is a continuing obligation of itself and its successors and assigns,
notwithstanding the termination of any Loans, Investments or this Agreement.
SECTION XII. RELIANCE ON THIRD PARTIES
12.1 Reliance on the Statements, Representations and Warranties of
Borrowers, Counterparties or Other Obligors.
MetWest shall be entitled to rely upon, and to provide to
Borrowers and Counterparties, the most recent publicly available audited and
unaudited statements of financial condition and earnings of Client and to rely
upon reasonable representations and warranties made by Borrowers, Counterparties
or other obligors. MetWest shall not be liable for any loss or damage suffered
as a result of any such reliance.
12.2 Reliance on Instructions.
MetWest shall be entitled to rely upon any Written or Oral
Instructions actually received by MetWest and reasonably believed by Met West to
be duly authorized. Client agrees to forward to MetWest Written Instructions
confirming Oral Instructions in such a manner that Written Instructions are
received by MetWest by the close of business on the same day that Oral
Instruction~ are received. Client agrees that the fact that such confirming
Written Instructions are not received or that contrary instructions are received
by MetWest shall in no way affect the validity or enforceability of the
transactions authorized by Client pursuant to the Oral Instructions. In this
regard, the records of MetWest shall be presumed to reflect accurately any Oral
Instructions given by a person believed by MetWest to be duly authorized.
SECTION XIII. DURATION AND TERMINATION
13.1 General
This Agreement, may be terminated at any time by any party upon delivery to the
other party of Written Instructions specifying the date, which shall not be
earlier than the day following delivery of such Written Instructions, of such
termination.
13
SECTION XIV. MISCELLANEOUS
14.1 Exclusivity.
Client agrees that it shall not enter into any other agreement
with any third party with respect to any Custodial Account whereby such third
party is permitted to make loans on behalf of Client of Securities in a
Custodial Account or any investments of Cash Collateral in a Custodial Account.
14.2 Certificate.
Client agrees to furnish to Met West a certificate regarding
authorized signatories and to furnish updates thereto as such persons change.
Such certificate shall be attached hereto as Exhibit D.
14:3 Notices.
(a) Any notice or other instrument in writing authorized or
required by this Agreement to be given to Met West shall be sufficiently given
if addressed to MetWest and received by it at its offices at ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇, Fax: (▇▇▇) ▇▇▇-▇▇▇▇, Attn:
Securities Lending Group, or at such other places as MetWest may from time to
time designate in writing.
(b) Any notice or other instrument in writing authorized or
required by this Agreement to be given to Client shall be sufficiently given if
addressed to Client and received by it at its office at 4151 ▇▇▇▇ ▇▇▇▇▇▇ Blvd.,
MD 2450, ▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇, Fax: (▇▇▇) ▇▇▇-▇▇▇▇, Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ or at
such other place as Client may from time to time designate in writing.
All notices to be delivered hereunder this Agreement shall be effective upon
receipt.
14.4 Cumulative Rights and No Waiver.
Except as provided herein, each and every right granted to
MetWest or Client, respectively, hereunder or under any other document delivered
hereunder or in connection herewith, or allowed either party by law or equity,
shall be cumulative and may be exercised from time to time. No failure on the
part of MetWest or Client to exercise, and no delay in exercising, any of their
respective rights will operate as a waiver thereof, nor will any single or
partial exercise by MetWest or Client of any of their respective rights preclude
any other or future exercise thereof or the exercise of any other right.
14.5 Severability.
If any provision in or obligation under this Agreement is
deemed to be invalid, illegal or unenforceable in any jurisdiction, the
validity, legality and enforceability of the remaining provisions and
obligations shall not in any way be affected or impaired thereby, and if any
provision is inapplicable to any person or circumstances, it shall nevertheless
remain applicable to all other persons and circumstances.
14
14.6 Amendments
This Agreement may not be amended or modified in any manner
except by a written agreement executed by all parties hereto.
14.7 Assignment.
This Agreement is not assignable by either party without the
prior written consent of the other.
14.8 Governing Law.
THE CLIENT AGREES THAT ALL CONTROVERSIES WHICH MAY ARISE
BETWEEN OR AMONG ANY OF THE PARTIES HERETO, INCLUDING, BUT NOT LIMITED TO, THOSE
INVOLVING ANY TRANSACTION OR THE CONSTRUCTION, PERFORMANCE OR BREACH OF THIS OR
ANY OTHER AGREEMENT RELATED HERETO BETWEEN THE PARTIES AS ALLOWED BY THE LAWS OF
THE STATE OF NEW YORK, WHETHER ENTERED INTO PRIOR TO, ON OR SUBSEQUENT TO THE
DATE HEREOF, SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK WITHOUT
REGARD TO CONFLICT OF LAWS PRINCIPLES AND ANY DISPUTES SHALL BE BROUGHT SOLELY
BEFORE THE COURTS OF NEW YORK IN THE CITY OF NEW YORK OR FEDERAL COURTS OF THE
SOUTHERN DISTRICT OF NEW YORK.
14.9 Waiver of Immunity.
To the extent that Client may now or hereafter in any
jurisdiction be entitled to claim, for itself or its assets, immunity from suit,
execution, attachment (before or after judgment) or other legal process, Client
irrevocably agrees not to claim, and hereby waives, such immunity.
14.10 No Third Party Beneficiaries.
In performing hereunder, MetWest is acting solely on behalf of
Client, and no contractual or service relationship shall be deemed to be
established hereby between MetWest and any other person.
14.11 Entire Agreement.
This Agreement constitutes the entire agreement of the parties
with respect to its subject matter (except as otherwise provided herein) and
supersedes all prior oral and written agreements in regard thereto.
14.12 Counterparts.
This Agreement may be executed in any number of counterparts,
each of which shall be deemed to be an original, but such counterparts shall
together constitute only one instrument.
15
14.13 Further Assurances.
At any time and from time to time, each of Client and MetWest
will promptly execute and deliver or file all further instruments and documents
and take all further action that the other party may reasonably request to
permit such other party to perform its duties, or to enforce its rights and
remedies, under this Agreement.
14.14 Records.
Any records required to be maintained and preserved pursuant
to the provisions of Rule 31 a-i and Rule 31 a-2 promulgated under the
Investment Company Act of 1940, as amended, which are prepared or maintained by
MetWest on behalf of the Client are the property of the Client and will be
surrendered promptly to the Client on request and made available for inspection
upon reasonable request by Client.
14.15 Client is a Massachusetts Business Trust
Client is organized as a Massachusetts business trust. A copy
of Client's Declaration of Trust is on file with the Secretary of the
Commonwealth of Massachusetts, and notice is hereby given that this instrument
is not binding upon any of the Trustees, officers, or shareholders of the Client
individually. Any responsibility or liability of a series of the Client under
any provision of this Agreement shall be satisfied solely from the assets of the
particular series, tangible or intangible, realized or unrealized, and in no
event shall MetWest have any recourse against any one series for the obligations
of any other series of the Client.
16
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be executed by their respective duly authorized corporate officers
as of the day and year first above written.
ACCEPTED AND APPROVED BY:
METROPOLITAN WEST SECURITIES, LLC
By: ______________________
Name: ____________________
Title: ___________________
American AAdvantage Funds, on behalf of its
series, the American AAdvantage High Yield Bond
Fund
By: ______________________
Name: ____________________
Title: ___________________
17
EXHIBIT A
INVESTMENT GUIDELINES
OBJECTIVES
The key objectives of the management of cash collateral supporting securities
loans are to:
- safeguard principal
- assure that all cash collateral is invested in a timely manner,
- maintain adequate liquidity to meet the needs of clients and/or their
investment advisors, and
- consistent with these objectives, to optimize the spread between the
earnings on cash collateral investments and rebate rates paid to the
borrowers of securities.
Permitted Investments
U.S. Treasury Bills and Notes
U.S. Agency Discount and Coupon Notes
Domestic, Yankee or Eurodollar:
- certificates of deposit
- bankers acceptances
- medium-term notes/bank notes
- time deposits
- commercial paper
- Master Notes
- Repurchase agreements, including Tri-Party Agreements, collateralized
at 102% which collateral consists of U.S dollar denominated
securities, other than derivative securities, rated at least (i) A-i
by Standard and Poor's or P-i by Moody's for short term securities,
(ii)-A- by Standard and Poor's or A3 by Moody's for long term
securities.
- Investment Funding Agreements with puts of a year or less which are
rated or which are issued by an entity rated AA or better by Standard
& Poor's and Aa2 or better by Moody's.
- Floating Rate Asset Backed Securities with an expected average life of
five years or less which are rated AAA by Standard & Poor's and Aaa by
Moody's.
- Money Market Mutual Funds.
- Corporate Debt Obligations.
INVESTMENT QUALITY
All investments, except as provided otherwise in this Exhibit, must be
(i) high quality, U.S. dollar-denominated obligations (ii) rated A-I by Standard
and Poor's or P-i by ▇▇▇▇▇'▇ or its equivalent by any two nationally recognized
statistical rating organizations (NRSRO), at least one of which NRSRO is either
▇▇▇▇▇'▇ or Standard and Poor's (the Requisite NRSROs) if such investments are
short-term and (iii) rated at least A by Standard and Poor's and A2 by Moody's
if such investments are long-term.
ACCEPTED AND APPROVED BY:
METROPOLITAN WEST SECURITIES, LLC
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
ACCEPTED AND APPROVED BY:
AMERICAN AADVANTAGE FUNDS, on behalf of its series, the
AMERICAN AADVANTAGE HIGH YIELD BOND FUND
By: ___________________________________
Name: ___________________________________
Title: ___________________________________
DIVERSIFICATION
Investments in obligations of any issuer (other than U.S. Treasury or
Agency securities) cannot exceed 5% of the value of the total assets as of the
date the investment is made. For purposes of this preceding sentence, issuer
shall include an issuer and any subsidiary, which is consolidated on such
issuer's balance sheet.
For purposes of issuer concentration limits, with respect to repurchase
agreements, only the counterparties to such agreements will be considered and
not the issuers of the underlying securities.
OTHER RESTRICTIONS
Unsecured direct obligations of broker/dealers are permitted to the
extent that, when aggregated with loans to such broker/dealers, they do not
exceed the Counterparty maximum percentage of available securities to loan set
forth in Exhibit B. Notwithstanding anything to the contrary, repurchase
agreements with, and secured obligations of, broker/dealers shall not be subject
to the percentage limits set forth in Exhibit B.
- Obligations with stated lifetime caps are not permitted, except for
statutory caps, including usury caps.
- Obligations denominated in non-U.S. dollar currencies are not permitted.
- Variable rate obligations must be based on a leading money market index
such as Fed Funds or LIBOR.
- Derivative instruments are not permitted.
- No mortgage or mortgage backed securities are permitted except to the
extent that such securities are delivered with respect to repurchase
agreements.
MATURITY/MISMATCH
The maximum weighted average maturity of the client's Loans and cash
collateral investments is 30 days. Put features and floating and variable rate
note reset dates will be used as the proxy for maturity date in calculating the
weighted average maturity of the Loans and Cash Collateral investments.
No fixed rate instrument will have a maturity date in excess of 33 days
from time of purchase, subject to any maturity shortening provisions.
- Floating and variable rate instruments, except for Floating and Variable
Rate Asset Backed securities, may have a stated final maturity of up to
two-years maturity (such instruments must reset at least annually), and
- Weighted average mismatch between Loans and Cash Collateral investments
cannot exceed ays at any time.
- Money market funds are viewed as having a one-day maturity.
RATINGS
For purposes of this Exhibit, the ratings required for investments to
be in compliance with these Investment Guidelines shall be required only as of
the date such investment is purchased. Therefore, if an investment is downgraded
after it is purchased, MetWest will not be in default of these Investment
Guidelines solely because of such downgrade.
EXHIBIT B
LIST OF BORROWERS UNDER SECURITIES LOAN AGREEMENTS AND
COUNTERPARTIES UNDER REPURCHASE AND REVERSE REPURCHASE AGREEMENTS
Dated as of January 3, 2004
Maximum percentage of
COUNTERPARTY DOMICILE available securities to loan
----------------------------------------------------------------------------------------------------------
Bank of America Corp US 5%
Bank of America NA
Bank of America Securities, LLC
----------------------------------------------------------------------------------------------------------
Bank One (30 day limit)
Banc One Capital Markets, Inc. (30 day limit) US 5%
----------------------------------------------------------------------------------------------------------
Barclays PLC (30 day limit)
Barclays Capital Inc. (30 day limit) US 5%
----------------------------------------------------------------------------------------------------------
Bear ▇▇▇▇▇▇▇ & Co, Inc. (30 day limit)
Bear ▇▇▇▇▇▇▇ & Company, Inc. (30 day limit) US 5%
Bear ▇▇▇▇▇▇▇ Securities Corp. (30 day limit)
----------------------------------------------------------------------------------------------------------
Citigroup Global Markets Holdings Inc. US 5%
Citigroup Global Markets Inc.
----------------------------------------------------------------------------------------------------------
Credit Suisse First Boston
Credit Suisse First Boston Inc. US 5%
Credit Suisse First Boston LLC.
----------------------------------------------------------------------------------------------------------
Deutsche Bank (30 day limit) US 5%
Deutsche Bank Securities, Inc. (30 day limit)
----------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ Sachs Group, Inc. US 5%
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Company
----------------------------------------------------------------------------------------------------------
▇▇ ▇▇▇▇▇▇ Chase & Co. US 5%
▇.▇. ▇▇▇▇▇▇ Securities, Inc.
----------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ Brothers Holdings, Inc. (30 day limit) US 5%
▇▇▇▇▇▇ Brothers, Inc. (30 day limit)
----------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Co., Inc.
▇▇▇▇▇▇▇ ▇▇▇▇▇ Government Securities, Inc. US 5%
▇▇▇▇▇▇▇ Lynch, Pierce, ▇▇▇▇▇▇ & ▇▇▇▇▇, Inc.
----------------------------------------------------------------------------------------------------------
1
Maximum percentage of
COUNTERPARTY DOMICILE available securities to loan
----------------------------------------------------------------------------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & Co. US 5%
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Inc.
----------------------------------------------------------------------------------------------------------
Societe Generale US 5%
▇▇ ▇▇▇▇▇ Securities, Corp.
----------------------------------------------------------------------------------------------------------
State Street Corp. US 5%
State Street Bank & Trust Co.
----------------------------------------------------------------------------------------------------------
UBS AG
UBS Financial Services Inc US 5%
UBS Securities LLC
----------------------------------------------------------------------------------------------------------
ACCEPTED AND APPROVED BY:
METROPOLITAN WEST SECURITIES, LLC
By:_______________________________
Name:_____________________________
Title:____________________________
CLIENTS:
THE AMERICAN AADVANTAGE HIGH YIELD BOND FUND
By:_______________________________
Name:
Title:
2
EXHIBIT C
FEES
MetWest shall receive a Fee equal to 25% of the Net Income during each Fee
Period for services Provided to the Client under the Agreement.
For purposes of the Agreement, a Fee Period shall be the customary MetWest
reporting period.
EXHIBIT D
CLIENT INCUMBENCY CERTIFICATE
I, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, President of American AAdvantage Funds., on behalf of its
series, High Yield Bond Fund ("Client"), HEREBY CERTIFY AND DECLARE, on behalf
of Client, that (x) each of the following named persons is singly authorized to
deliver the Securities Lending Agency and Collateral Management Agreement, dated
as of January 2, 2004, by and between Client and Metropolitan West Securities,
Inc., and to act singly on behalf of the Client thereunder, or in connection
therewith, including, without limitation, the execution and delivery of Written
and Oral Instructions; (y) the office set forth opposite each identified
person's name is held by such person; and (z) the genuine signature of each such
officer is set forth opposite his/her name.
-------------------------------------------------------------------------------------------
Name Office Signature
-------------------------------------------------------------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇ Vice President, Trust
Investments
AMR Investment Services,
Inc.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Manager, Trust Investments
AMR Investment Services,
Inc.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Manager, Trust Investments
AMR Investment Services,
Inc.
-------------------------------------------------------------------------------------------
IN WITNESS WHEREOF, I have caused this certificate to be executed in the name of
the Client as of this 19th day of December 2003.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
-------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
EXHIBIT E
FORM OF SECURITIES LOAN AGREEMENT