FORM OF
AUTHORIZED PARTICIPANT AGREEMENT
FOR
_____________ TRUST
This Authorized Participant Agreement (the "Agreement") is entered into by and
between ___________________ (together with its affiliates, the "Distributor")
and __________________________________ (the "Authorized Participant" or "AP")
and is subject to acceptance by The Bank of New York ("BNY" or the "Transfer
Agent"). The Transfer Agent serves as the transfer agent for the _____________
Trust (the "Trust" ) and is an Index Receipt Agent as that term is defined in
the rules of the National Securities Clearing Corporation ("NSCC"). The
Distributor, the Transfer Agent and the Authorized Participant acknowledge and
agree that the Trust shall be a third party beneficiary of this Agreement, and
shall receive the benefits contemplated by this Agreement, to the extent
specified herein. The Distributor has been retained to provide services as
principal underwriter of the Trust acting on an agency basis in connection with
the sale and distribution of shares of beneficial interest, par value $.001 per
share (sometimes referred to as "Shares"), of the each of the separate
investment portfolios of the Trust (each such portfolio a "Fund" and
collectively, the "Funds") named on Annex I to this Agreement. _____________
Investments has created a proprietary, rules-based methodology as described in
the Trust's Prospectus and Statement of Additional Information ("SAI")
incorporated therein (collectively, the "Prospectus") included as part of its
registration statement, as amended, on Form N-1A (No. 811-_______)
("Registration Statement") ("Rules-Based Methodology") to define the
dividend-paying segments of the U.S. and foreign stock markets and to serve as
indexes for use by the Funds and other equity income investors (each an "Index"
and collectively the "Indexes"). Certain Funds will be based on domestic equity
Indexes ("Domestic Funds"), while others will based on international equity
Indexes ("International Funds"), as further described herein.
As specified in the Trust's Prospectus, the Shares of any Fund offered thereby
may be purchased or redeemed only in aggregations of a specified number of
Shares referred to therein and herein as a "Creation Unit". The number of Shares
presently constituting a Creation Unit of each Fund is set forth in Annex I
hereto. Creation Units of Shares may be purchased only by or through an
Authorized Participant that has entered into an Authorized Participant Agreement
with the Trust and the Distributor. The Prospectus provides that Creation Units
generally will be sold in exchange for an in-kind deposit of a designated
portfolio of equity securities (the "Deposit Securities") and an amount of cash
computed as described in the Prospectus (the "Cash Requirement"), plus a
purchase "Transaction Fee" as described in the Prospectus, delivered to the
Trust by the Authorized Participant for its own account or acting on behalf of
another party. Together, the Deposit Securities and the Cash Requirement
constitute the "Creation Deposit", which represents the minimum initial and
subsequent investment amount for Shares of any Fund of the Trust. References to
the Prospectus are to the then current Prospectus as it may be supplemented or
amended from time to time. Capitalized terms not otherwise defined herein are
used herein as defined in the Prospectus.
This Agreement is intended to set forth certain premises and the procedures by
which the Authorized Participant may purchase and/or redeem Creation Units of
Shares (i) through the Continuous Net Settlement ("CNS") clearing processes of
NSCC as such processes have been enhanced to effect purchases and redemptions of
Creation Units, such processes being referred
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to herein as the "_____________ Shares Clearing Process", or (ii) outside the
_____________ Shares Clearing Process (i.e., through the manual process of The
Depository Trust Company ("DTC") ("DTC Process"). The procedures for processing
an order to purchase Shares (each a "Purchase Order") and an order to redeem
Shares (each a "Redemption Order") are described in the Trust's Prospectus and
in Annex II to this Agreement. All Purchase and Redemption Orders must be made
pursuant to the procedures set forth in Annex II hereto. An Authorized
Participant may not place a Purchase Order before the fifth (5th) Business Day
(as defined below) following execution and delivery to the Distributor of this
Agreement and notification by the Distributor of the Participant's status. An
Authorized Participant may not cancel a Purchase Order or a Redemption Order
after an order is placed by the Authorized Participant.
The parties hereto in consideration of the premises and of the mutual agreements
contained herein agree as follows:
1. STATUS OF PARTICIPANT.
(a) The Authorized Participant hereby represents, covenants and warrants that
with respect to Purchase Orders or Redemption Orders of Creation Units of Shares
of any Fund (i) through the _____________ Shares Clearing Process, it is a
member of NSCC and an Authorized Participant in the CNS System of NSCC (as
defined in the Fund's Prospectus, a "Participating Party"), and/or (ii) outside
the _____________ Shares Clearing Process, it is a DTC Participant (as defined
in the Fund's Prospectus, a "DTC Participant"). The Authorized Participant may
place Purchase Orders or Redemption Orders for Creation Units either through the
_____________ Shares Clearing Process or outside the _____________ Shares
Clearing Process, subject to the procedures for purchase and redemption referred
to in paragraph 2 of this Agreement and Annex II hereto ("Execution of Orders").
Any change in the foregoing status of the Authorized Participant shall terminate
this Agreement and the Authorized Participant shall give prompt written notice
to the Distributor and the Trust of such change.
(b) The Authorized Participant hereby represents and warrants that, unless the
following paragraph is applicable to it, (i) it is registered as a broker-dealer
under the Securities Exchange Act of 1934, as amended, (ii) is qualified to act
as a broker or dealer in the states or other jurisdictions where it transacts
business, and (iii) is a member in good standing of the National Association of
Securities Dealers, Inc. (the "NASD"), and the Authorized Participant agrees
that it will maintain such registrations, qualifications, and membership in good
standing and in full force and effect throughout the term of this Agreement. The
Authorized Participant agrees to comply with all applicable United States
federal laws, the laws of the states or other jurisdictions concerned, and the
rules and regulations promulgated thereunder and with the Constitution, By-Laws
and Conduct Rules of the NASD, and that it will not offer or sell Shares of any
Fund of the Trust in any state or jurisdiction where they may not lawfully be
offered and/or sold.
(c) If the Authorized Participant is offering or selling Shares of any Fund of
the Trust in jurisdictions outside the several states, territories and
possessions of the United States ("US") and is not otherwise required to be
registered, qualified, or a member of the NASD as set forth above, the
Authorized Participant nevertheless agrees (i) to observe the applicable laws of
the jurisdiction in which such offer and/or sale is made, (ii) to comply with
the full disclosure requirements of the Securities Act of 1933, as amended (the
"1933 Act") and the regulations promulgated thereunder and (iii) to conduct its
business in accordance with the spirit of the NASD Conduct Rules.
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(d) The Authorized Participant represents, covenants and warrants that it is in
compliance with the money laundering and related provisions of the Uniting and
Strengthening America by Providing Appropriate Tools Required to Intercept and
Obstruct Terrorism (USA PATRIOT ACT) Act of 2001, and the regulations
promulgated thereunder, if the Authorized Participant is subject to the
requirements of the USA PATRIOT ACT.
(e) The Authorized Participant understands and acknowledges that the method by
which Creation Units of Shares will be created and traded may raise certain
issues under applicable securities laws. For example, because new Creation Units
of Shares may be issued and sold by the Trust on an ongoing basis, at any point
a "distribution", as such term is used in the 1933 Act, may be occurring. The
Authorized Participant understands and acknowledges that some activities on its
part, depending on the circumstances, may result in its being deemed a
participant in a distribution in a manner which could render it a statutory
underwriter and subject it to the prospectus delivery and liability provisions
of the 1933 Act. The Authorized Participant should review the "Continuous
Offering" section of the SAI and consult with its own counsel in connection with
entering into this Agreement and placing an Order (defined below). The
Authorized Participant also understands and acknowledges that dealers who are
not "underwriters" but are effecting transactions in Shares, whether or not
participating in the distribution of Shares, are generally required to deliver a
prospectus.
(f) The Authorized Participant has the capability to send and receive
communications via authenticated telecommunication facility to and from the
Distributor, the Custodian, the Subcustodian (in the case of International
Funds) and the Authorized Participant's custodian. The Authorized Participant
shall confirm such capability to the satisfaction of the Distributor, the
Custodian and the Subcustodian prior to placing its first Order with the
Distributor (whether it is a Purchase Order or a Redemption Order).
2. EXECUTION OF PURCHASE ORDERS AND REDEMPTION ORDERS.
(a) All Purchase Orders or Redemption Orders shall be made in accordance with
the terms of the Prospectus and the procedures described in Annex II hereto .
Each party hereto agrees to comply with the provisions of such documents to the
extent applicable to it. It is contemplated that the telephone lines used by the
_____________ telephone representatives of the Distributor ("_____________
Telephone Representatives") will be recorded, and the Authorized Participant
hereby consents to the recording of all calls with the _____________ Telephone
Representatives. The Trust reserves the right to issue additional or other
procedures relating to the manner of purchasing or redeeming Creation Units and
the Authorized Participant agrees to comply with such procedures as may be
issued from time to time, including but not limited to the _____________ Cash
Collateral Settlement Procedures that are referenced in Annex II hereto.
(b) The Authorized Participant acknowledges and agrees on behalf of itself and
any party for which it is acting (whether as a customer or otherwise) that
delivery of a Purchase Order or Redemption Order shall be irrevocable, provided
that the Trust and the Distributor on behalf of the Trust reserves the right to
reject any Purchase Order until the trade is released as "good" as described in
Annex II hereto and any Redemption Order that is not in "proper form" as defined
in the Prospectus.
(c) With respect to any Redemption Order, the Authorized Participant also
acknowledges and agrees on behalf of itself and any party for which it is acting
(whether as a customer or
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otherwise) to return to the Trust any dividend, distribution or other corporate
action paid to it or to the party for which it is acting in respect of any
Deposit Security that is transferred to the Authorized Participant or any party
for which it is acting that, based on the valuation of such Deposit Security at
the time of transfer, should have been paid to the Trust. With respect to any
Redemption Order, the Authorized Participant also acknowledges and agrees on
behalf of itself and any party for which it is acting (whether as a customer or
otherwise) that the Trust is entitled to reduce the amount of money or other
proceeds due to the Authorized Participant or any party for which it is acting
by an amount equal to any dividend, distribution or other corporate action to be
paid to it or to the party for which it is acting in respect of any Deposit
Security that is transferred to the Authorized Participant or any party for
which it is acting that, based on the valuation of such Deposit Security at the
time of transfer, should be paid to the Fund. With respect to any Purchase
Order, the Trust acknowledges and agrees to return to the Authorized Participant
or any party for which it is acting any dividend, distribution or other
corporate action paid to the Trust in respect of any Deposit Security that is
transferred to the Trust that, based on the valuation of such Deposit Security
at the time of transfer, should have been paid to the Authorized Participant or
any party for which it is acting.
3. NSCC.
Solely with respect to Purchase Orders or Redemption Orders effected through the
_____________ Shares Clearing Process, the Authorized Participant, as a
Participating Party, hereby authorizes the Transfer Agent to transmit to the
NSCC on behalf of the Authorized Participant such instructions, including
amounts of the Deposit Securities and Cash Requirement as are necessary,
consistent with the instructions issued by the Authorized Participant to a
_____________ Telephone Representative. The Authorized Participant agrees to be
bound by the terms of such instructions issued by the Transfer Agent and
reported to NSCC as though such instructions were issued by the Authorized
Participant directly to NSCC.
4. PROSPECTUS, MARKETING MATERIALS AND REPRESENTATIONS.
(a) The Distributor will provide to the Authorized Participant copies of the
then current Prospectus and any printed supplemental information in reasonable
quantities upon request. The Distributor represents, warrants and agrees that it
will notify the Authorized Participant when a revised, supplemented or amended
Prospectus for any Fund is available and deliver or otherwise make available to
the Authorized Participant copies of such revised, supplemented or amended
Prospectus at such time and in such numbers as to enable the Authorized
Participant to comply with any obligation it may have to deliver such Prospectus
to customers. The Distributor will make such revised, supplemented or amended
Prospectus available to the Participant no later than its effective date. The
Distributor shall be deemed to have complied with this Section 4 when the
Participant has receive such revised, supplemented or amended prospectus by
email at [ insert e-mail address], in printable form, with such number of hard
copies as may be agreed from time to time by the parties promptly thereafter.
(b) The Distributor represents and warrants that (i) the Registration Statement
and the Prospectus contained therein conforms in all material respects to the
requirements of the Securities Act of 1933, as amended, and the rules and
regulations of the Securities Exchange Commission thereunder and do not and will
not, as of the applicable effective date as to the Registration Statement and
any amendment thereto and as of the applicable filing date as to the Prospectus
and any amendment or supplement thereto, contain an untrue statement of a
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material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein not misleading; (ii) the sale and
distribution of the Shares as contemplated herein will not conflict with or
result in a breach or violation of any statute or any order, rule or regulation
of any court or governmental agency or body having jurisdiction over the Trust,
any Fund or the Distributor; and (iii) no consent, approval, authorization,
order, registration or qualification of or with any such court or governmental
agency or body is required for the issuance and sale of the Shares, except the
registration under the Securities Act of 1933 Act of the Shares.
(c) The Authorized Participant represents, warrants and agrees that it will not
make any representations concerning Shares other than those contained in the
Trust's then current Prospectus or in any promotional materials or sales
literature furnished to the Authorized Participant by the Distributor. The
Authorized Participant agrees not to furnish or cause to be furnished to any
person or display or publish any information or materials relating to Shares
(including, without limitation, promotional materials and sales literature,
advertisements, press releases, announcements, statements, posters, signs or
other similar materials), except such information and materials as may be
furnished to the Authorized Participant by the Distributor and such other
information and materials as may be approved in writing by the Distributor. The
Authorized Participant understands that neither the Trust nor any of its Funds
will be advertised or marketed as an open-end investment company, (i.e., as a
mutual fund), which offers redeemable securities, and that any advertising
materials will prominently disclose that the Shares are not redeemable shares of
the Trust. In addition, the Authorized Participant understands that any
advertising material that addresses redemptions of Shares, including the
Prospectus, will disclose that the owners of Shares may acquire Shares and
tender Shares for redemption to the Trust in whole Creation Units only.
(b) Notwithstanding the foregoing, the Authorized Participant may without the
written approval of the Distributor prepare and circulate in the regular course
of its business research reports that include information, opinions or
recommendations relating to Shares (i) for public dissemination, provided that
such research reports compare the relative merits and benefits of Shares with
other products and are not used for purposes of marketing Shares and (ii) for
internal use by the Authorized Participant.
5. SUBCUSTODIAN ACCOUNT.
The Authorized Participant understands and agrees that in the case of each
International Fund, the Trust has caused The Bank of New York acting in its
capacity as the Trust's custodian ("Custodian") to maintain with the applicable
subcustodian ("Subcustodian") for such Fund an account in the relevant foreign
jurisdiction to which the Authorized Participant shall deliver or cause to be
delivered in connection with the purchase of a Creation Unit the securities and
any other cash amounts (or the cash value of all or a part of such securities,
in the case of a permitted or required cash purchase or "cash in lieu" amount)
on behalf of itself or any party for which it is acting (whether or not a
customer), with any appropriate adjustments as advised by such Fund, in
accordance with the terms and conditions applicable to such account in such
jurisdiction.
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6. TITLE TO SECURITIES; RESTRICTED SHARES.
The Authorized Participant represents on behalf of itself and any party for
which it acts that upon delivery of a portfolio of Deposit Securities to the
Custodian and/or the relevant Subcustodian in accordance with the terms of the
Prospectus, the Trust will acquire good and unencumbered title to such
securities, free and clear of all liens, restrictions, charges and encumbrances
and not subject to any adverse claims, including, without limitation, any
restriction upon the sale or transfer of such securities imposed by (i) any
agreement or arrangement entered into by the Authorized Participant or any party
for which it is acting in connection with a Purchase Order or (ii) any provision
of the 1933 Act, and any regulations thereunder (except that portfolio
securities of issuers other than U.S. issuers shall not be required to have been
registered under the 1933 Act if exempt from such registration), or of the
applicable laws or regulations of any other applicable jurisdiction and (iii) no
such securities are "restricted securities" as such term is used in Rule
144(a)(3)(i) promulgated under the 1933 Act.
7. CASH REQUIREMENT AND FEES.
(a) For Domestic Funds:
The Authorized Participant hereby agrees that as between the Trust and itself or
any party for which it acts in connection with a Purchase Order for any Domestic
Fund, it will make available in same day funds for each purchase of Shares an
amount of cash sufficient to pay the Cash Requirement and any other amounts of
cash due to the Trust in connection with the purchase of any Creation Unit of
Shares (including the purchase Transaction Fee for in-kind and cash purchases
and the additional variable charge for cash purchases (when, in the sole
discretion of the Trust, cash purchases are available or specified as described
in the Prospectus)) (the "Cash Amount") which shall be made through DTC to an
account maintained by the Custodian at The Bank of New York, New York, New York
and shall be provided in same day or immediately available funds on or before
the settlement date in accordance with the Trust's Prospectus ("Contractual
Settlement Date"). The Authorized Participant hereby agrees to ensure that the
Cash Amount will be received by the Trust on or before the Contractual
Settlement Date, and in the event payment of such Cash Amount has not been made
by such Contractual Settlement Date, the Authorized Participant agrees on behalf
of itself or any party for which it acts in connection with a Purchase Order to
pay the full cash amount, plus interest, computed at such reasonable rate as may
be specified by the Trust from time to time. The Authorized Participant may
require its customer to enter into a written agreement with the Authorized
Participant with respect to such matters. The Authorized Participant shall be
liable to the Custodian and/or the Trust for any amounts advanced by the
Custodian in its sole discretion to the Authorized Participant for payment of
the amounts due and owing for the Cash Requirement, the purchase Transaction
Fee, cash collateral discrepancies and/or the additional variable charge for
cash purchases (when, in the sole discretion of the Trust, cash purchases are
available or specified).
(b) For International Funds.:
The Authorized Participant hereby agrees that as between the Trust and itself or
any party for which it acts in connection with a Purchase Order for any
International Fund, it will make available in same day funds for each purchase
of Shares the Cash Amount as described in Section 7(a) above which shall be made
via Fed Funds Wire to an account maintained by the Custodian at The Bank of New
York, New York, New York and shall be provided in same day or immediately
available funds at least one business day before Contractual Settlement Date.
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The Authorized Participant hereby agrees to ensure that the Cash Amount will be
received by the Trust on or before the Contractual Settlement Date, and in the
event payment of such Cash Amount has not been made by such Contractual
Settlement Date, the Authorized Participant agrees on behalf of itself or any
party for which it acts in connection with a Purchase Order to pay the full Cash
Amount, plus interest, computed at such reasonable rate as may be specified by
the Trust from time to time. The Authorized Participant may require its customer
to enter into a written agreement with the Authorized Participant with respect
to such matters. The Authorized Participant shall be liable to the Custodian
and/or the Trust for any amounts advanced by the Custodian in its sole
discretion to the Authorized Participant for payment of the amounts due and
owing for the Cash Component, the purchase Transaction Fee, cash collateral
discrepancies and/or the additional variable charge for cash purchases (when, in
the sole discretion of the Trust, cash purchases are available or specified).
8. ROLE OF PARTICIPANT.
(a) The Authorized Participant acknowledges and agrees that for all purposes of
this Agreement, the Authorized Participant will be deemed to be an independent
contractor, and will have no authority to act as agent for the Trust, any Fund,
the Distributor, the Custodian, the Subcustodian, or the Authorized
Participant's custodian in any matter or in any respect. The Authorized
Participant agrees to make itself and its employees available, upon request,
during normal business hours to consult with the Trust, the Distributor, the
Custodian, the Subcustodian, or the Authorized Participant's custodian or their
designees concerning the performance of the Authorized Participant's
responsibilities under this Agreement.
(b) In executing this Agreement, the Authorized Participant agrees in connection
with any purchase or redemption transactions in which it acts for a customer or
for any other Participant or indirect participant, or any other Beneficial
Owner, that it shall extend to any such party all of the rights, and shall be
bound by all of the obligations, of a DTC Participant in addition to any
obligations that it undertakes hereunder or in accordance with the Prospectus.
(c) The Authorized Participant agrees to maintain records of all sales of Shares
made by or through it and to furnish copies of such records to the Trust or the
Distributor upon the request of the Trust or the Distributor.
9. AUTHORIZED PERSONS OF THE AUTHORIZED PARTICIPANT.
Concurrently with the execution of this Agreement and from time to time
thereafter as may be requested by the Trust or the Distributor, the Authorized
Participant shall deliver to the Distributor and the Trust, with copies to the
Transfer Agent at the address specified below, duly certified as appropriate by
its Secretary or other duly authorized official, a certificate in a form
approved by the Trust (see Annex III to this Agreement) setting forth the names
and signatures of all persons authorized to give instructions relating to any
activity contemplated hereby or any other notice, request or instruction on
behalf of the Authorized Participant (each such person an "Authorized Person").
Such certificate may be accepted and relied upon by the Distributor and the
Trust as conclusive evidence of the facts set forth therein and shall be
considered to be in full force and effect until delivery to the Distributor and
the Trust of a superseding certificate in a form approved by the Trust bearing a
subsequent date. Upon the termination or revocation of authority of such
Authorized Person by the Authorized Participant, the Authorized Participant
shall give immediate written notice of such fact to the
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Distributor and the Trust and such notice shall be effective upon receipt by
both the Distributor and the Trust. The Distributor shall issue to each
Authorized Participant a unique personal identification number ("PIN Number") by
which such Authorized Participant shall be identified and instructions issued by
the Authorized Participant hereunder shall be authenticated. The PIN Number
shall be kept confidential and only provided to Authorized Persons. If after
issuance, a Participant's PIN Number is changed, the new PIN Number will become
effective on a date mutually agreed upon by the Authorized Participant and the
Distributor.
10. REDEMPTION.
The Authorized Participant understands and agrees that Redemption Orders may be
submitted only on days that the US stock exchange where the Shares are
principally listed ( as specified in the Prospectus) (the "Listing Exchange") is
open for trading or business.
(a)The Authorized Participant represents and warrants that it will not attempt
to place a Redemption Order for the purpose of redeeming any Creation Unit of
Shares of any Fund unless it first ascertains that it or its customer, as the
case may be, owns outright or has full legal authority and legal and beneficial
right to tender for redemption the requisite number of Creation Units of Shares
of the relevant Fund to be redeemed and to the entire proceeds of the redemption
and that such Shares have not been loaned or pledged to another party and are
not the subject of a repurchase agreement, securities lending agreement or any
other arrangement that would preclude the delivery of such Shares to the
Transfer Agent in accordance with the Prospectus or as otherwise required by the
Trust. The Authorized Participant understands that Shares of any Fund may be
redeemed only when one or more Creation Units of Shares of a Beneficial Owner
are held in the account of a single Authorized Participant.
[insert other jurisdictions and modify:
(b) In the case of a resident Australian or New Zealand holder notwithstanding
the foregoing, the Authorized Participant understands and agrees that such
holder is only entitled to receive cash upon its redemption of Creation Units of
Shares. In the Redemption Order the Participant will be required to confirm that
an in-kind redemption request has not been submitted on behalf of a beneficial
owner who is an Australian resident.]
11. BENEFICIAL OWNERSHIP.
(a)The Authorized Participant represents and warrants to the Distributor and the
Trust that (based upon the number of outstanding Shares of each such Fund made
publicly available by the Trust) it does not, and will not in the future, hold
for the account of any single Beneficial Owner of Shares of the relevant Fund,
80 percent (80%) or more of the currently outstanding Shares of such relevant
Fund, so as to cause the Fund to have a basis in the portfolio securities
deposited with the Fund with respect to such Fund different from the market
value of such portfolio securities on the date of such deposit, pursuant to
section 351 of the Internal Revenue Code of 1986, as amended. The Authorized
Participant agrees that the confirmation relating to any order for one or more
Creation Units of Shares of any Fund shall state as follows:
"Purchaser represents and warrants that, after giving effect to the purchase of
Shares to which this confirmation relates, it will not hold 80 percent or more
of the outstanding Shares of the relevant Fund of the Trust and that it will not
treat such purchase as eligible for tax-free treatment under Section 351 of the
Internal Revenue Code of 1986, as amended. If purchaser is
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a dealer, it agrees to deliver similar written confirmations to any person
purchasing any of the Shares to which this confirmation relates from it."
(b) The Trust and its Transfer Agent and Distributor shall have the right to
require information from the Authorized Participant regarding Shares' ownership
of each Fund, and to rely thereon to the extent necessary to make a
determination regarding ownership of 80 percent *(80%) or more of the currently
outstanding Shares of any Fund by a Beneficial Owner as a condition to the
acceptance of a deposit of Deposit Securities.
12. INDEMNIFICATION.
This section 12 shall survive the termination of this Agreement.
(a) The Authorized Participant hereby agrees to indemnify and hold harmless the
Distributor, the Trust, the Transfer Agent, their respective subsidiaries,
affiliates, directors, officers, employees and agents, and each person, if any,
who controls such persons within the meaning of Section 15 of the 1933 Act (each
an " AP Indemnified Party") from and against any loss, liability, cost and
expense (including attorneys' fees) incurred by such AP Indemnified Party as a
result of (i) any breach by the Authorized Participant of any provision of this
Agreement that relates to such Authorized Participant; (ii) any failure on the
part of the Authorized Participant to perform any of its obligations set forth
in the Agreement; (iii) any failure by the Authorized Participant to comply with
applicable laws, including rules and regulations of self-regulatory
organizations; (iv) actions of such AP Indemnified Party in reliance upon any
instructions issued in accordance with Annex II, III or IV hereto (as each may
be amended from time to time) reasonably believed by the Distributor and/or the
Transfer Agent to be genuine and to have been given by the Participant, or (v)
(1) any representation by the Authorized Participant, its employees or its
agents or other representatives about the Shares, any AP Indemnified Party or
the Trust that is not consistent with the Trust's then-current Prospectus made
in connection with the offer or the solicitation of an offer to buy or sell
Shares and (B) any untrue statement or alleged untrue statement of a material
fact contained in any research reports, marketing material and sales literature
described in Section 4 hereof or any alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent that such statement or omission relates to
the Shares, any AP Indemnified Party or the Trust, unless, in either case, such
representation, statement or omission was made or included by the Authorized
Participant at the written direction of the Trust or the Distributor or is
based upon any omission or alleged omission by the Trust or the Distributor to
state a material fact in connection with such representation, statement or
omission necessary to make such representation, statement or omission not
misleading. The Authorized Participant and the Distributor understand and agree
that the Trust as a third party beneficiary to this Agreement is entitled and
intends to proceed directly against the Authorized Participant in the event that
the Authorized Participant fails to honor any of its obligations pursuant to
this Agreement that benefit the Trust. The Distributor shall not be liable to
the Authorized Participant for any damages arising out of mistakes or errors in
data provided to the Distributor, or out of interruptions or delays of
communications with the Indemnified Parties who are service providers to the
Trust, nor is the Distributor liable for any action, representation, or
solicitation made by the wholesalers of the Trust.
(b) The Distributor hereby agrees to indemnify and hold harmless the Authorized
Participant, its respective subsidiaries, affiliates, directors, officers,
employees and agents, and each person, if any, who controls such persons within
the meaning of Section 15 of the 1933 Act (each a "Distributor Indemnified
Party") from and against any loss, liability, cost and expense
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(including attorneys' fees) incurred by such Distributor Indemnified Party as a
result of (i) any breach by the Distributor of any provision of this Agreement
that relates to the Distributor; (ii) any failure on the part of the Distributor
to perform any of its obligations set forth in this Agreement; (iii) any failure
by the Distributor to comply with applicable laws, including rules and
regulations of self-regulatory organizations; (iv) actions of such Distributor
Indemnified Party in reliance upon any instructions issued or representations
made in accordance with Annex II, III and IV hereto (as each may be amended from
time to time) reasonably believed by the Authorized Participant to be genuine
and to have been given by the Distributor, or (v) any untrue statement or
alleged untrue statement of a material fact contained in the Registration
Statement of the Trust as originally filed with the Securities and Exchange
Commission or in any amendment thereof, or in any prospectus or any statement of
additional information, or any amendment thereof or supplement thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, in connection with the Authorized Participant's acting
in its capacity as an Authorized Participant. The Authorized Participant shall
not be liable to the Distributor for any damages arising out of mistakes or
errors in data provided to the Authorized Participant, or out of interruptions
or delays of communications with the Indemnified Parties who are service
providers to the Trust, nor is the Authorized Participant liable for any action,
representation, or solicitation made by the wholesalers of the Trust.
(c) This Section 12 shall not apply to the extent any such losses, liabilities,
damages, costs and expenses are incurred as a result or in connection with any
gross negligence, bad faith or willful misconduct on the part of the AP
Indemnified Party or the Distributor Indemnified Party, as the case may be. The
term "affiliate" in this Section 12 shall include, with respect to any person,
entity or organization, any other person, entity or organization which directly,
or indirectly through one or more intermediaries, controls, is controlled by or
is under common control with such person, entity or organization.
13. LIMITATION OF LIABILITY.
(a) None of the Distributor, the Custodian, the Subcustodian, the Authorized
Participant, and the Participant's custodian shall be liable to each other or to
any other person, including any party claiming by, through or on behalf of the
Authorized Participant, for any losses, liabilities, damages, costs or expenses
arising out of any mistake or error in data or other information provided to any
of them by each other or any other person or out of any interruption or delay in
the electronic means of communications used by them.
(b) Tax Liability. To the extent any payment of any transfer tax, sales or use
tax, stamp tax, recording tax, value added tax or any other similar tax or
government charge applicable to the creation or redemption of any Creation Unit
of Shares of any Fund made pursuant to this Agreement is imposed, the Authorized
Participant shall be responsible for the payment of such tax or government
charge regardless of whether or not such tax or charge is imposed directly on
the Authorized Participant. To the extent the Trust or the Distributor is
required by law to pay any such tax or charge, the Authorized Participant agrees
to promptly indemnify such party for any such payment, together with any
applicable penalties, additions to tax or interest thereon.
Page 10 of 27
14. INFORMATION ABOUT CREATION DEPOSITS.
The Authorized Participant understands that the number and names of the
designated portfolio of Deposit Securities to be included in the current
Creation Deposit for each Fund will be made available by NSCC on each day that
the Listing Exchange is open for trading and will also be made available on each
such day through the facilities of the NSCC.
15. ACKNOWLEDGMENT.
The Authorized Participant acknowledges receipt of the Prospectus and represents
that it has reviewed and understands such documents.
16. NOTICES.
Except as otherwise specifically provided in this Agreement, all notices
required or permitted to be given pursuant to this Agreement shall be given in
writing and delivered by personal delivery or by postage prepaid registered or
certified United States first class mail, return receipt requested, or by telex,
telegram or facsimile or similar means of same day delivery (with a confirming
copy by mail). Unless otherwise notified in writing, all notices to the Trust
shall be at the address or telephone, facsimile or telex numbers as follows:
Attn: [ insert name]_______
[ insert title]_______
[ insert name of institution]_______
[ insert address]_______
[ insert telephone, fax and other numbers]_______
All notices to the Authorized Participant, the Distributor and the Transfer
Agent shall be directed to the address or telephone, facsimile or telex numbers
indicated below the signature line of such party.
17. EFFECTIVENESS, TERMINATION AND AMENDMENT.
(a) This Agreement shall become effective five (5) Business Days after execution
and delivery to the Distributor upon notice by the Distributor to the Authorized
Participant. A "Business Day" shall mean each day the Listing Exchange is open
for regular trading. This Agreement may be terminated at any time by any party
upon sixty (60) days prior written notice to the other parties and may be
terminated earlier by the Trust or the Distributor at any time in the event of a
breach by the Authorized Participant of any provision of this Agreement or the
procedures described or incorporated herein. This Agreement supersedes any prior
such agreement between or among the parties.
(b) This Agreement may be amended by the Trust or the Distributor from time to
time without the consent of any Beneficial Owner by the following procedure. The
Trust or the Distributor will mail a copy of the amendment to the Authorized
Participant and the Trust or Distributor, as applicable. For purposes of this
Agreement, mail will be deemed received by the recipient thereof on the fifth
(5th) Business Day following the deposit of such mail into the U.S. Postal
system. If neither the Authorized Participant or the other party objects in
writing to the amendment within five (5) days after its receipt, the amendment
will become part of this Agreement in accordance with its terms.
Page 11 of 27
18. GOVERNING LAW; CONSENT TO JURISDICTION.
This Agreement shall be governed by and construed in accordance with the laws
of the State of New York (regardless of the laws that might otherwise govern
under applicable New York conflict of laws principles) as to all matters,
including matters of validity, construction, effect, performance and remedies.
Each party hereto irrevocably consents to the jurisdiction of the courts of the
State of New York and of any federal court located in the Borough of Manhattan
in such State in connection with any action, suit or other proceeding arising
out of or relating to this Agreement or any action taken or omitted hereunder,
and waives any claim of forum non conveniens and any objections as to laying of
venue. Each party further waives personal service of any summons, complaint or
other process and agrees that service thereof may be made by certified or
registered mail directed to such party at such party's address for purposes of
notices hereunder.
19. SUCCESSORS AND ASSIGNS.
This Agreement and all of the provisions hereof shall be binding upon and inure
to the benefit of the parties and their respective successors and permitted
assigns.
20. ASSIGNMENT.
Neither this Agreement nor any of the rights, interests or obligations hereunder
shall be assigned by any party without the prior written consent of the other
parties, except that any entity into which a party hereto may be merged or
converted or with which it may be consolidated or any entity resulting from any
merger, conversion, or consolidation to which such party hereunder shall be a
party, or any entity succeeding to all or substantially all of the business of
the party, shall be the successor of the party under this Agreement. The party
resulting from any such merger, conversion, consolidation or succession shall
notify the other parties hereto of the change. Any purported assignment in
violation of the provisions hereof shall be null and void.
21. INTERPRETATION.
The article and section headings contained in this Agreement are solely for the
purpose of reference, are not part of the agreement of the parties and shall not
in any way affect the meaning or interpretation of this Agreement.
22. ENTIRE AGREEMENT.
This Agreement, along with any other agreement or instrument delivered pursuant
to this Agreement, supersede all prior agreements and understandings between the
parties with respect to the subject matter hereof.
23. SEVERANCE.
If any provision of this Agreement is held by any court or any act, regulation,
rule or decision of any other governmental or supra national body or authority
or regulatory or self-regulatory organization to be invalid, illegal or
unenforceable for any reason, it shall be invalid, illegal or unenforceable only
to the extent so held and shall not affect the validity, legality or
enforceability of the other provisions of this Agreement and this Agreement will
be construed as if such invalid, illegal, or unenforceable provision had never
been contained herein, unless
Page 12 of 27
the Distributor determines in its discretion, after consulting with the Trust,
that the provision of this Agreement that was held invalid, illegal or
unenforceable does affect the validity, legality or enforceability of one or
more other provisions of this Agreement, and that this Agreement should not be
continued without the provision that was held invalid, illegal or unenforceable,
and in that case, upon the Distributor's notification of the Trust of such a
determination, this Agreement shall immediately terminate and the Distributor
will so notify the Authorized Participant immediately.
24. NO STRICT CONSTRUCTION.
The language used in this Agreement will be deemed to be the language chosen by
the parties to express their mutual intent, and no rule of strict construction
will be applied against any party.
25. SURVIVAL.
Section 12 (Indemnification) hereof shall survive the termination of this
Agreement.
26. OTHER USAGES.
The following usages shall apply in interpreting this Agreement: (i) references
to a governmental or quasigovernmental agency, authority or instrumentality
shall also refer to a regulatory body that succeeds to the functions of such
agency, authority or instrumentality; and (ii) "including" means "including, but
not limited to."
27. COUNTERPARTS.
This Agreement may be executed in one or more counterparts, each of which will
be deemed to be an original copy of this Agreement and all of which, when taken
together, will be deemed to constitute one and the same agreement, and it shall
not be necessary in making proof of this Agreement as to any party hereto to
[Signature Page Follows]
Page 13 of 27
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered as of the day and year written below.
DATED: ____________
[NAME OF DISTRIBUTOR]
BY:___________________________________
TITLE:________________________________
ADDRESS:______________________________
TELEPHONE:____________________________
FACSIMILE:____________________________
TELEX:________________________________
[NAME OF AUTHORIZED PARTICIPANT]
BY:___________________________________
TITLE:________________________________
ADDRESS:______________________________
TELEPHONE:____________________________
FACSIMILE:____________________________
TELEX:________________________________
ACCEPTED BY: THE BANK OF NEW YORK, AS TRANSFER AGENT
BY:__________________________________________
TITLE:_______________________________________
ADDRESS:_____________________________________
TELEPHONE:___________________________________
FACSIMILE:___________________________________
TELEX:_______________________________________
ANNEX I
TO
AUTHORIZED PARTICIPANT AGREEMENT
FOR _____________ SM TRUST
NAME OF FUND AND NUMBER OF SHARES REQUIRED PER CREATION UNIT
Page 14 of 27
ANNEX II
TO
AUTHORIZED PARTICIPANT AGREEMENT
FOR _____________ SM TRUST
PROCEDURES FOR PROCESSING
PURCHASE ORDERS AND REDEMPTION ORDERS
This Annex II to the Authorized Participant Agreement supplements the
Prospectus with respect to the procedures to be used in processing (1) a
Purchase Order for the purchase of Shares of the _____________ Trust in Creation
Units of each Fund and a (2)Redemption Order for the redemption of Shares of the
_____________ Trust in Creation Units of each Fund. Capitalized terms, unless
otherwise defined in this Annex II, have the meanings attributed to them in the
Authorized Participant Agreement or the Prospectus.
An Authorized Participant is required to have signed the Authorized
Participant Agreement. Upon acceptance of the Agreement and execution thereof by
the Trust and in connection with the initial Purchase Order submitted by the
Authorized Participant, the Distributor will assign a PIN Number to each
Authorized Person authorized to act for an Authorized Participant. This will
allow an Authorized Participant through its Authorized Person(s) to place a
Purchase Order or Redemption Order with respect to the purchase or redemption of
Creation Units of Shares of the _____________ Trust.
ANNEX II -- PART A
TO
AUTHORIZED PARTICIPANT AGREEMENT
FOR _____________ SM TRUST
TO PLACE A PURCHASE ORDER FOR
CREATION UNIT(S) OF SHARES OF ONE OR MORE FUNDS OF THE _____________ TRUST
Page 15 of 27
1. PLACING A PURCHASE ORDER.
Purchase Orders for Creation Units of Shares of the _____________ Trust may be
initiated only on days that the Listing Exchange is open for trading ("Business
Days"). Purchase Orders may only be made in whole Creation Units of Shares of
each Fund.
To begin a Purchase Order, the Authorized Participant ("AP"") must telephone the
Distributor at (---)-------------. This telephone call must be made by an
Authorized Person of the AP not later than the closing time of the regular
trading session on the Listing Exchange which is ordinarily 4:00 p.m. Eastern
Standard Time ("Listing Exchange Closing Time"). Upon verifying the authenticity
of the AP (as determined by the use of the appropriate PIN Number), Distributor
will request that the AP place the Purchase Order. To do so, the AP must provide
the appropriate ticker symbols when referring to each Fund. After the AP has
placed the Purchase Order, Distributor will read the Purchase Order back to the
AP. The AP then must affirm that the Purchase Order has been taken correctly by
Distributor. If the AP affirms that Purchase Order has been taken correctly,
Distributor will issue an Confirmation Number to the AP.
PLEASE NOTE: A PURCHASE ORDER REQUEST IS NOT COMPLETE UNTIL THE CONFIRMATION
NUMBER IS ISSUED BY DISTRIBUTOR. AN ORDER MAY NOT BE CANCELED BY THE AP AFTER
THE CONFIRMATION NUMBER IS ISSUED. INCOMING TELEPHONE CALLS ARE QUEUED AND WILL
BE HANDLED IN THE SEQUENCE RECEIVED. CALLS PLACED BEFORE THE LISTING EXCHANGE
CLOSING TIME WILL BY PROCESSED EVEN IF THE CALL IS ANSWERED BY DISTRIBUTOR AFTER
THE LISTING EXCHANGE CLOSING TIME. ACCORDINGLY, THE AP SHOULD NOT HANG UP AND
REDIAL. INCOMING CALLS THAT ARE RECEIVED AFTER THE LISTING EXCHANGE CLOSING TIME
WILL NOT BE ANSWERED BY DISTRIBUTOR. ALL TELEPHONE CALLS WILL BE RECORDED BY
DISTRIBUTOR.
2. RECEIPT OF TRADE CONFIRMATION.
Subject to the conditions that a properly completed telephone Purchase Order has
been placed by the AP (either on its own or its customer's behalf) not later
than the Listing Exchange Closing Time, the Distributor will accept the Purchase
Order on behalf of Trust and Distributor and will confirm in writing to the AP
that its Purchase Order has been accepted by 7:00 p.m. Eastern Standard Time on
the Business Day that the Purchase Order is received.
3. QUALITY ASSURANCE.
After a Confirmation Number is issued by Distributor to the AP, Distributor will
either fax or email a written version of the Purchase Order to the AP. Upon
receipt, the AP should immediately telephone Distributor, if the Participate
believes that the Purchase Order has not been taken correctly by Distributor. In
addition, Distributor will telephone the AP within 15 minutes of the fax or
e-mail to corroborate the Purchase Order
Page 16 of 27
4. PROCESSING A PURCHASE ORDER.
During the telephone call, Distributor will request that the AP state that the
AP will not own 80% or more of the Shares of any Fund upon execution of the
Purchase Order. If the AP is not able to so confirm, Distributor has the right
to not accept the Purchase Order.
5. REJECTING OR SUSPENDING PURCHASE ORDERS.
The Trust or Distributor reserve the absolute right to reject or suspend a
Purchase Order if (i) the portfolio of Deposit Securities delivered is not as
specified by Distributor; (ii) acceptance of the Deposit Securities would have
certain adverse tax consequences to the Trust or any Fund; (iii) the acceptance
of the Portfolio Deposit would, in the opinion of counsel, be unlawful; (iv) the
acceptance of the Portfolio Deposit would otherwise, in the discretion of Trust
or Adviser, have an adverse effect on Trust or the rights of beneficial owners
of a Fund; or (v) circumstances outside the control of Trust, Distributor or
Adviser make it for all practical purposes impossible to process a Purchase
Order. The Trust shall notify the AP of its rejection of any Purchase Order. The
Trust and Distributor are under no duty, however, to give notification of any
defects or irregularities in the delivery of Portfolio Deposits nor shall either
of them incur any liability for the failure to give any such notification.
Except as provided herein, all Purchase Orders for Creation Units of Shares of
the Trust are irrevocable. The Trust acknowledges its agreement to return to the
AP or any party for which it is acting any dividend, distribution or other
corporate action paid to the Trust in respect of any Deposit Security that is
transferred to Trust that, based on the valuation of such Deposit Security at
the time of transfer, should have been paid to the AP or any party for which it
is acting.
6. CONTRACTUAL SETTLEMENT
(a) For Domestic Funds:
(1) Except as provided below, Deposit Securities must be delivered through the
National Securities Clearing Corporation ("NSCC") to a Depository Trust Company
("DTC") account maintained at the Custodian of the Trust on or before the
Domestic Contractual Settlement Date (defined below). The AP must also make
available on or before the Contractual Settlement Date, by means satisfactory to
Trust, immediately available or same day funds estimated by Trust to be
sufficient to pay the Cash Requirement next determined after acceptance of the
Purchase Order, together with the applicable purchase Transaction Fee (as
described in the Prospectus as "the _____________ Shares Clearing Process"). Any
excess funds will be returned following settlement of the issue of the Creation
Unit of Shares of the Trust. The "Domestic Contractual Settlement Date" is the
earlier of (i) date upon which all of the required Deposit Securities, the Cash
Requirement and any other cash amounts which may be due are delivered to Trust
and (ii) trade date +three (3) Business Days. Except as provided in the next two
paragraphs, a Creation Unit of Shares of any Fund will be issued concurrently
with the transfer of good title to Trust of the portfolio of Deposit Securities
through the NSCC's Continuous Net Settlement ("CNS") system and the payment of
the Cash Requirement and the purchase Transaction Fee through DTC.
(2) The Trust reserves the right to permit or require the substitution of an
amount of cash (i.e., a "cash in lieu" amount ) to be added to the Cash
Requirement to replace any Deposit Security with respect to any Domestic Fund
which may not be available in sufficient quantity for delivery or which may not
be eligible for transfer through the _____________ Shares Clearing Process, or
which may not be eligible for transfer through the systems of DTC and hence not
eligible for transfer through the _____________ Shares Clearing Process
(discussed below)
Page 17 of 27
and will be at the expense of the Fund and will affect the value of all Shares
of such Fund; but the Trust, subject to the approval of the Board, may adjust
the "Transaction Fee" within the parameters described below to protect ongoing
shareholders. (3) Any settlement outside the _____________ Shares Clearing
Process is subject to additional requirements and fees as discussed in the
Statement of Additional Information ("SAI").
(b) For International Funds:
(1) Except as provided below, Deposit Securities must be delivered to an account
maintained at the applicable local Subcustodian of Trust on or before the
International Contractual Settlement Date (defined below). The AP must also make
available on or before the International Contractual Settlement Date, by means
satisfactory to Trust, immediately available or same day funds estimated by
Trust to be sufficient to pay the Cash Requirement next determined after
acceptance of the Purchase Order, together with the applicable purchase
Transaction Fee (as described in the Prospectus). Any excess funds will be
returned following settlement of the issue of the Creation Unit of Shares. The
"International Contractual Settlement Date" with respect to each International
Fund is the earlier of (i) the date upon which all of the required Deposit
Securities, the Cash Requirement and any other cash amounts which may be due are
delivered to Trust and (ii) the latest day for settlement on the customary
settlement cycle in the jurisdiction(s) where the any of the securities of such
International Fund are customarily traded.
(2) Except as provided in the next two paragraphs, a Creation Unit of Shares
will not be issued until the transfer of good title to Trust of the portfolio of
Deposit Securities and the payment of the Cash Requirement and the purchase
Transaction Fee have been completed. When the Subcustodian confirms to Custodian
that the required securities included in the Portfolio Deposit (or, when
permitted in the sole discretion of Trust, the cash value thereof) have been
delivered to the account of the relevant Subcustodian, Custodian shall notify
Distributor and Adviser, and Trust will issue and cause the delivery of the
Creation Unit of Shares.
(3) The Trust may in its sole discretion permit or require the substitution of
an amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash
Requirement to replace any Deposit Security which may not be available in
sufficient quantity for delivery or for other similar reasons. If Adviser
notifies Distributor that a "cash in lieu" amount will be accepted, Distributor
will notify the AP and the AP shall deliver, on behalf of itself or the party on
whose behalf it is acting, the "cash in lieu" amount, with any appropriate
adjustments as advised by Trust. Any excess funds will be returned following
settlement of the issue of the Creation Unit of Shares.
(4) In the event that a Portfolio Deposit is incomplete on the settlement date
for a Creation Unit of Shares because certain or all of the Deposit Securities
are missing, Trust will issue a Creation Unit of Shares notwithstanding such
deficiency in reliance on the undertaking of the AP to deliver the missing
Deposit Securities as soon as possible, which undertaking shall be secured by
such the AP's delivery and maintenance of collateral consisting of cash having a
value at least equal to [125% ]of the value of the missing Deposit Securities.
The parties hereto agree that the delivery of such collateral shall be made in
accordance with the _____________ Shares Cash Collateral Settlement Procedures,
which such procedures shall be provided to the AP by Distributor upon request.
The parties hereto further agree that Trust may purchase the missing Deposit
Securities at any time and the AP agrees to accept liability for any shortfall
between the cost to Trust of purchasing such securities and the value of the
collateral, which may be sold by Trust at such time, and in such manner, as
Trust may determine in its sole discretion.
Page 18 of 27
7. CASH PURCHASES
When, in the sole discretion of Trust, cash purchases of Creation Units of
Shares are available or specified for a Fund, such purchases shall be effected
in essentially the same manner as in-kind purchases thereof. In the case of a
cash purchase, the AP must pay the cash equivalent of the Deposit Securities it
would otherwise be required to provide through an in-kind purchase, plus the
same Cash Component required to be paid by an in-kind purchaser. In addition, to
offset Trust's brokerage and other transaction costs associated with using the
cash to purchase the requisite Deposit Securities, the AP must pay a fixed
purchase Transaction Fee, plus an additional variable charge for cash purchases,
which is expressed as a percentage of the value of the Deposit Securities. The
Transaction Fees for in-kind and cash purchases of Creation Units of Shares are
described in the Prospectus.
ANNEX II -- PART B
TO
AUTHORIZED PARTICIPANT AGREEMENT
FOR _____________ SM TRUST
PROCEDURES TO PLACE A REDEMPTION ORDER FOR CREATION UNIT(S) OF SHARES OF ONE OR
MORE FUNDS OF THE _____________ TRUST
1.PLACING A REDEMPTION ORDER
Redemption Orders for Creation Units of Shares may be initiated only on days
that the Listing Exchange Stock Exchange is open for trading. Redemption Orders
may only be made in whole Creation Units of shares of each Fund. To begin a
Redemption Order, the AP must telephone Distributor at (---) --------. This
telephone call must be made by an Authorized Person of the AP not later than the
closing time of the regular trading session on the Listing Exchange which is
ordinarily 4:00 p.m. Eastern Standard Time ("Listing Exchange Closing Time").
Upon verifying the authenticity of the AP (as determined by the use of the
appropriate PIN Number), Distributor will request that the AP place the
Redemption Order. To do so, the AP must provide the appropriate ticker symbols
when referring to Fund. After the AP has placed the Redemption Order,
Distributor will read the Redemption Order back to the AP. The AP then must
affirm that the Redemption Order has been taken correctly by Distributor. If the
AP affirms that Redemption Order has been taken correctly, Distributor will
issue an Confirmation Number to the AP.
PLEASE NOTE: A REDEMPTION ORDER REQUEST IS NOT COMPLETE UNTIL THE CONFIRMATION
NUMBER IS ISSUED BY DISTRIBUTOR. AN ORDER MAY NOT BE CANCELED BY A THE AP AFTER
THE CONFIRMATION NUMBER IS ISSUED. INCOMING TELEPHONE CALLS ARE QUEUED AND WILL
BE HANDLED IN THE SEQUENCE RECEIVED. CALLS PLACED BEFORE THE LISTING EXCHANGE
CLOSING TIME WILL BY PROCESSED EVEN IF THE CALL IS ANSWERED BY DISTRIBUTOR AFTER
THE LISTING EXCHANGE CLOSING TIME. ACCORDINGLY, THE AP SHOULD NOT HANG UP AND
REDIAL. INCOMING CALLS THAT ARE RECEIVED AFTER THE LISTING EXCHANGE CLOSING TIME
WILL NOT BE ANSWERED BY DISTRIBUTOR. ALL TELEPHONE CALLS MAY BE RECORDED BY
DISTRIBUTOR.
Page 19 of 27
2.RECEIPT OF CONFIRMATION.
Subject to the conditions that a duly completed Redemption Order is received by
Distributor from the AP on behalf of itself or another redeeming investor by the
Listing Exchange Closing Time, the Distributor will accept the Redemption Order
on behalf of Trust and Distributor and will confirm in writing to the AP that
its Redemption Order has been accepted by 7:00 p.m. Eastern Standard Time on the
Business Day the Redemption Order is received.
3. QUALITY ASSURANCE.
(a) After a Confirmation Number is issued by Distributor to the AP, Distributor
will either fax or email a copy of the Redemption Order to the AP. Upon receipt,
the AP should immediately telephone Distributor, if the AP believes that the
Redemption Order has not been taken correctly by Distributor. In addition,
Distributor will telephone the AP within 15 minutes of the fax or e- mail to
corroborate the Redemption Order.
(b) In the Redemption Order, the AP will be required to acknowledge its
agreement on behalf of itself and any party for which it is acting (whether as a
customer or otherwise) to return to Trust any dividend, distribution or other
corporate action paid to it or to the party for which it is acting in respect of
any Deposit Security that is transferred to the AP or any party for which it is
acting that, based on the valuation of such Deposit Security at the time of
transfer, should be paid to the Fund to which the Redemption Order relates. In
the Redemption Order, the AP will also be required to acknowledge its agreement
on behalf of itself and any party for which it is acting (whether as a customer
or otherwise) that Trust is entitled to reduce the amount of money or other
proceeds due to the AP or any party for which it is acting by an amount equal to
any dividend, distribution or other corporate action to be paid to it or to the
party for which it is acting in respect of any Deposit Security that is
transferred to the AP or any party for which it is acting that, based on the
valuation of such Deposit Security at the time of transfer, should be paid to
the Fund to which the Redemption Order relates.
4. TAKING DELIVERY OF DEPOSIT SECURITIES.
The Deposit Securities constituting in-kind redemption proceeds will be
delivered to the appropriate account which must be indicated in the AP's
Standing Redemption Instructions. An Authorized Person of the AP may amend the
AP's Standing Redemption Instructions from time to time in writing to
Distributor and Trust in a form approved by Trust. A redeeming Beneficial Owner
or the AP acting on behalf of such Beneficial Owner must maintain appropriate
securities broker-dealer, bank or other custody arrangements to which account
such Deposit Securities will be delivered. Redemptions of Shares for Deposit
Securities will be subject to compliance with applicable United States federal
and state securities laws.
5. CONTRACTUAL SETTLEMENT.
(a) For Domestic Funds:
(1) Except as provided below, the Shares of any Domestic Fund must be delivered
through the National Securities Clearing Corporation ("NSCC") to a Depository
Trust Company ("DTC") account maintained at the applicable custodian of any
Domestic Fund on or before the Domestic Contractual Settlement Date (defined
below). The Trust will make available on the Domestic Contractual Settlement
Date, the Cash Requirement next determined after acceptance of the Redemption
Order, less the applicable purchase Transaction Fee (as described in the
Prospectus as "the _____________ Clearing Process"). The "Domestic Contractual
Settlement Date" is the date upon which all of the required Shares must be
delivered to the Trust and, the Deposit Securities, Cash Requirement less any
fees are delivered by the Trust to the AP
Page 20 of 27
(ordinarily trade date + three (3) Business Days). Except as provided in the
next two paragraphs, the Deposit Securities representing Creation Units of
Shares will be issued concurrently with the transfer of good title to Trust of
the required number of Shares through the NSCC's Continuous Net Settlement (CNS)
system and the delivery of the Cash Requirement less the purchase Transaction
Fee through DTC.
(2) The Trust reserves the right to permit or require the substitution of an
amount of cash (i.e., a "cash in lieu" amount ) to be added to the Cash
Requirement to replace any Deposit Security with respect to a Fund which may not
be available in sufficient quantity for delivery or which may not be eligible
for transfer through the _____________ Clearing Process, or which may not be
eligible for transfer through the systems of DTC and hence not eligible for
transfer through the _____________ Clearing Process (discussed below) and will
be at the expense of the Fund and will affect the value of all Shares of such
Fund; but the Trust, subject to the approval of the Board, may adjust the
Transaction Fee within the parameters described below to protect ongoing
shareholders. Any settlement outside the _____________ Clearing Process is
subject to additional requirements and fees as discussed in the Statement of
Additional Information ("SAI").
(3) In the event that the number of Shares is insufficient on the settlement
date for Creation Unit(s) of Shares, the Trust will deliver the Deposit
Securities notwithstanding such deficiency in reliance on the undertaking of the
AP to deliver the missing Shares as soon as possible, which undertaking shall be
secured by such the AP's delivery and maintenance of collateral consisting of
cash having a value at least equal to [125%] of the value of the missing Shares.
The parties hereto agree that the delivery of such collateral shall be made in
accordance with the _____________ Shares Cash Collateral Settlement Procedures,
which such procedures shall be provided to the AP by Distributor upon request.
The parties hereto further agree that Trust may purchase the missing Shares at
any time and the AP agrees to accept liability for any shortfall between the
cost to the Trust of purchasing such securities and the value of the collateral,
which may be sold by Trust at such time, and in such manner, as Trust may
determine in its sole discretion.
(b) For International Funds:
(1) Except as provided below, the Shares must be delivered to an account
maintained at the applicable local Subcustodian of Trust on or before the
Business Day immediately following the date on which the redemption order was
placed. The Trust will also make available on the International Contractual
Settlement Date, immediately available or same day funds sufficient to pay the
Cash Requirement next determined after acceptance of the Purchase Order, less
the applicable redemption Transaction Fee (as described in the Prospectus). The
"International Contractual Settlement Date" of an International Fund is the
earlier of (i) the date upon which all of the Deposit Securities are delivered
to the AP and (ii) and (ii) the latest day for settlement on the customary
settlement cycle in the jurisdiction(s) where the any of the securities of such
International Fund are customarily traded.
(2) Deliveries of redemption proceeds by the Funds generally will be made within
three (3) Business Days. Due to the schedule of holidays in certain countries,
however, the delivery of in-kind redemption proceeds of International Funds may
take longer than three Business Days after the day on which the Redemption Order
is placed.
(3) Except as provided in the next two paragraphs, the Deposit Securities will
not be issued until the transfer of good title to Trust of the required Creation
Unit(s) of Shares has been completed. When the relevant Subcustodian confirms to
Custodian that the required Shares (or, when permitted in the sole discretion of
Trust, the cash value thereof) have been delivered to
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the account of such Subcustodian, the Custodian shall notify Distributor and
Advisor, and Trust will issue and cause the delivery of the Deposit Securities.
(4) The Trust may in its sole discretion permit or require the substitution of
an amount of cash (i.e., a "cash in lieu" amount) to be added to the Cash
Requirement to replace any Deposit Security which may not be available in
sufficient quantity for delivery or for other similar reasons. If Adviser
notifies Distributor that a "cash in lieu" amount will be delivered, Distributor
will notify the AP and the AP shall receive, on behalf of itself or the party on
whose behalf it is acting, the "cash in lieu" amount, with any appropriate
adjustments as advised by Trust.
(5) In the event that the number of Shares is insufficient on the settlement
date for Creation Unit(s) of Shares, the Trust will deliver the Deposit
Securities notwithstanding such deficiency in reliance on the undertaking of the
AP to deliver the missing Shares as soon as possible, which undertaking shall be
secured by such the AP's delivery and maintenance of collateral consisting of
cash having a value at least equal to [125%] of the value of the missing Shares.
The parties hereto agree that the delivery of such collateral shall be made in
accordance with the _____________ Shares Cash Collateral Settlement Procedures,
which such procedures shall be provided to the AP by Distributor upon request.
The parties hereto further agree that Trust may purchase the missing Shares at
any time and the AP agrees to accept liability for any shortfall between the
cost to Trust of purchasing such securities and the value of the collateral,
which may be sold by Trust at such time, and in such manner, as Trust may
determine in its sole discretion.
6. CASH REDEMPTIONS.
In the event that, in the sole discretion of Trust, cash redemptions are
permitted or required by Trust, proceeds will be paid to the AP redeeming Shares
on behalf of the redeeming investor as soon as practicable after the date of
redemption.
7. STANDING REDEMPTION INSTRUCTIONS.
Annex V hereto contains the AP's Standing Redemption Instructions, which
includes information identifying the account(s) into which Deposit Securities of
each Fund and any other redemption proceeds should be delivered by Trust
pursuant to a Redemption Order.
ANNEX II -- PART C
TO
AUTHORIZED PARTICIPANT AGREEMENT
FOR _____________ SM TRUST
_____________ FUNDS FLOW PROCESS
This Annex II-Part C supplements the Trust's Prospectus with respect to the
procedures to be used by the Distributor and Transfer Agent in processing an
order for the creation or redemption of Shares of any Fund of the Trust.
A. The AP is required to have (i) signed an Authorized Participant Agreement for
_____________ Trust and (ii) assigned a personal identification number to each
Authorized
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Person that the AP has authorized to act for such AP. This will allow an AP
through its Authorized Person(s) to place a creation or redemption order with
respect to Shares of any Fund of the Trust.
B. The AP and Distributor shall implement the "_____________ Funds Flow Process"
as agreed to by the parties from time to time.
C. Note that trades placed through the NSCC may only occur on any day that NSCC
is open for business ("NSCC Business Day") .
_____________ FUNDS FLOW PROCESS
--------------------------------------------------------------------------------
ORIGINATOR ACTIVITY
--------------------------------------------------------------------------------
1. AP calls on Distributor's recorded 1-800
number to place a Share Creation and/or Redemption order. These trades are to be
placed by 4:00 PM EST on any NSCC Business Day.
1. The _____________ Telephone Representative greets caller.
2. AP identifies his/her name, the Institution he/she represents, and PIN #. The
AP confirms his/her PIN # when the _____________ Telephone Representative asks
for a confirmation.
3. When asked by the _____________ Telephone Representative, the AP will confirm
that the trades to be placed will not raise the AP's holding to 80% or more of
any Fund.
2._____________ Telephone Representative selects the AP from drop down
box to pull up the account registration and list of Authorized Participants and
their Authorized Persons. The _____________ Telephone Representative verifies
that the caller is authorized to place trades on behalf of that institution. The
_____________ Telephone Representative then asks the AP for his/her PIN #. The
_____________ Telephone Representative types the number, which will be alpha
numeric into the database.
3. The _____________ Telephone Representative will read to the AP a statement
confirming that the AP will not be placing trades that would raise the AP's
total holdings to 80% or more of any Fund. When the AP confirms this is the
case, then the _____________ Telephone Representative will click "ok". The
database will then open to a trading input screen for the _____________
Telephone Representative to start entering trades online.
4. AP tells _____________ Telephone Representative that he wants to place a
Creation or Redemption Order for Creation Units in a stated Fund or Funds. The
AP states the Fund name(s) and relevant ticker symbol(s).
4. The _____________ Telephone Representative is checking the Creation or
Redemption Order form to place a creation or redemption box and then types in
the Fund's ticker symbol. If the AP is eligible to trade in that Fund, the Fund
name will appear.
Exception: The redemption process for the International Funds will include an
extra step.
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These Funds require confirmation from the Transfer Agent before a Redemption
Order can be processed. The AP wishing to redeem Creation Units of any
International Fund will place a call to the Distributor prior to 4:00 PM EST
with an "Intent to Redeem". The AP will also provide the number of Creation
Units and the name of the Fund that such AP wishes to redeem. This call is
necessary to verify that the Shares in Creation Unit(s) have been returned to
the Custodian before an actual redemption trade can take place. The
_____________ Telephone Representative will enter the Redemption Order into the
ETF system and, as with a redemption of Domestic Funds, an affirmation will be
produced and sent via email or fax to the AP. The _____________ Telephone
Representative will call the Custodian to receive confirmation that Shares in
Creation Units have been delivered so that _____________ Telephone
Representative may proceed to finalize the Redemption Order with the AP. The
Transfer Agent will confirm that the appropriate number(s) of Creation Unit(s)
of specified Fund(s) have been delivered to the custody account, and will email
the Distributor that the Redemption Order can be processed. After the Custodian
confirms the Redemption Order, Distributor will call the AP to approve the
trade.
Note: This call may not come within the normal fifteen minute window for
Domestic Funds if the Creation Unit(s) of the International Fund(s) are not
delivered to the custody account immediately. If the Creation Unit(s) of the
International Fund(s) are not delivered by 4:00 PM EST to the custody account,
the AP will no longer be able to place the Redemption Order for such Fund(s) on
that trade date, but must place the trade the following day if it is still
necessary.
5. AP states the number of Creation Units for each Fund that he/she wants to
create or redeem. Steps 4 and 5 completed and continued until the AP has
completed all transactions.
5. _____________ Telephone Representative types in the number of Creation
Units for each of the Funds to be created or redeemed. Steps 4 and 5 continue
until the AP has completed all transactions.
6. AP states that he/she has finished trading.
6. The database will summarize all trading into one online text box, which
_____________ Telephone Representative reads back to the AP, asking for a verbal
confirmation. The _____________ Telephone Representative reads back each Fund's
ticker symbol and name, along with the order to create or redeem and the amount
of Creation Units to be created or redeemed.
7. The AP confirms the statement.
7. _____________ Telephone Representative then reads to the AP a single
system generated trade confirm number for all trades placed. Also, the
_____________ Telephone Representative sends a written affirmation to the AP via
a system-generated fax of all trades entered.
8. The AP receives the fax
8. The _____________ Telephone Representative will call the AP within 15
minutes after faxing the affirmation to ensure all trades are good. Once this
second verbal confirmation is given, the trades are released as "good". Contact
of the AP is done on a "best efforts" level (i.e.). if the _____________
Telephone Representative can not get in touch with the AP, then the
_____________ Telephone Representative will release the trade as it was taken.
The AP will assume responsibility for an incorrect trade if such AP is not
available for the second phone call to reaffirm trades placed with a
_____________ Telephone Representative. If trades are incorrect, the
_____________ Telephone Representative will delete the first trade and reenter
the corrected trade. A second affirmation will be faxed to the AP with all
trades placed that day. The corrected trade will be coded on the affirmation so
that the AP can see the correction. A second _____________ Telephone
Representative will call the AP back to confirm the correction.
Page 24 of 27
Exception: If an "Intent to Redeem" was called for an International Fund, the AP
will not receive a call from a _____________ Telephone Representative to approve
the affirmation until the Distributor confirms that the requisite Creation Units
have been delivered to the Custodian.
9. Once all trades have been confirmed for the 2nd time, the Distributor's
database creates an interface file to be sent to the Custodian.
9. _____________ Telephone Representative rep checks trades pending file
in database to insure all trades have been approved. Trades not approved will be
highlighted for approval purposes. A trade file will not be generated if there
are unapproved trades in the system.
10. After balancing interface file with database pend file, _____________
Telephone Representative transmits file via FTP to Custodian and the Advisor .
The _____________ Telephone Representative will also email a PDF file
summarizing the trades sent in the FTP file.
10. The Custodian receives trade file, runs through validation process on
their end, and creates an acknowledgement file to send back to the Distributor.
11. The Custodian transmits acknowledgement file to Distributor confirming the #
of orders received from the Distributor, and # of rejects.
The Custodian will call the Distributor if any trades are rejected.
11. The _____________ Telephone Representative receives acknowledgement
from the Custodian and an auto reconciliation process is done to account for all
records sent.
12.
12. If the Custodian sends back reject trades , the Distributor will
generate an additional interface to send to the Custodian. The additional
transmission will include only those trades that were previously rejected.
13. The Custodian transmits to the Distributor the Cash Requirement and full
confirmation of trades.
13. The Distributor will auto-fax confirmations including cash amount to
AP. trades.
* Times may vary depending on the trade volume from APs.
ANNEX III
TO
AUTHORIZED PARTICIPANT AGREEMENT
FOR _____________ SM TRUST
FORM OF CERTIFIED AUTHORIZED PERSONS OF THE AP
The following are the names, titles and signatures of all persons (each
an"Authorized Person") authorized to give instructions relating to any activity
contemplated by this Agreement or any other notice, request or instruction on
behalf of the AP pursuant to this Agreement.
Name: __________________
Title: __________________
Signature: __________________
Page 25 of 27
Name: __________________
Title: __________________
Signature: __________________
Name: __________________
Title: __________________
Signature: __________________
The undersigned, [name], [title], [company], does hereby certify that the
persons listed above have been duly elected to the offices set forth beneath
their names, that they presently hold such offices, that they have been duly
authorized to act as Authorized Persons of this Institution in its capacity as
an AP pursuant to the Agreement by and among _____________ Trust,
--------------, as Distributor and [name of the AP], dated [date] and that their
signatures set forth above are their own true and genuine signatures.
In Witness Whereof, the undersigned has hereby set his/her hand and the seal of
[company].
Date: ______________________ ___________________
[name, title]
ANNEX IV
TO
AUTHORIZED PARTICIPANT AGREEMENT
FOR _____________ SM TRUST
INTERNATIONAL FUND SUBCUSTODIAN ACCOUNTS FOR DELIVERY OF DEPOSIT SECURITIES
The Subcustodian accounts into which an AP should deposit the securities
constituting the Deposit Securities of each International Fund of the
_____________ Trust are set forth below:
_________________________
[name of Fund]
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
[name of Fund]
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
[name of Fund]
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
Page 26 of 27
[name of Fund]
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
[name of Fund]
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
[name of Fund]
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________
ANNEX V
TO
AUTHORIZED PARTICIPANT AGREEMENT
FOR _____________ SM TRUST
THE AP ACCOUNTS
FOR DELIVERY OF DEPOSIT SECURITIES
The accounts into which the _____________ Trust should deposit the securities
constituting the Deposit Securities of each Fund upon redemption by the AP are
set forth below:
Name of AP: __________________
Account Name: __________________
Account Number: __________________
Other Reference Number: __________________