AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
ON SEPTEMBER 10, 1999 REGISTRATION NOS.: 333-81141
------------ 811-9395
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20546
FORM N-1A
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933 X
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Pre-Effective Amendment No. [ 1 ]
Post-Effective Amendment No. [ ]
and/or
REGISTRATION STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940 X
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Amendment No. [ 1 ]
THIRD AVENUE VARIABLE SERIES TRUST
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(Exact name of Registrant as Specified in Charter)
767 Third Avenue, New York, New York 10017-2023
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(Address of Principal Executive Offices including Zip Code)
(toll-free) (800)443-1021, (212)888-5222
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(Registrant's Telephone Number, including Area Code)
Please send copies of communications to:
David M. Barse Richard T. Prins, Esq.
767 Third Avenue Skadden, Arps, Slate, Meagher & Flom LLP
New York, New York 10017-2023 919 Third Avenue, New York, NY 10022
(Name and Address of Agent for Service)
Approximate Date of proposed public offering: As soon as practicable after the
effective date of this Registration Statement.
Pursuant to Rule 24f-2 under the Investment Company Act of 1940, Registrant has
elected to register an indefinite number of shares of beneficial interest.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to Section 8(a), may
determine.
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THIRD AVENUE VARIABLE SERIES TRUST
THIRD AVENUE VALUE PORTFOLIO
PROSPECTUS
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SEPTEMBER 13, 1999
As with all mutual funds, the Securities and Exchange Commission has not
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
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TABLE OF CONTENTS
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ABOUT THE PORTFOLIO 1
Objective and Approach
Main Risks
Past Performance and Financial Highlights
Investment Philosophy
Who May Want to Invest
MANAGEMENT OF THE PORTFOLIO 3
HOW TO PURCHASE AND REDEEM SHARES 4
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS & TAXES 5
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ABOUT THE PORTFOLIO
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OBJECTIVE AND APPROACH
The Portfolio seeks long-term capital appreciation as its investment objective.
The Portfolio seeks to achieve its objective mainly by acquiring common stocks
of well-financed companies (meaning companies without significant debt in
comparison to their cash resources) at a substantial discount to what the
Adviser believes is their true value. The Portfolio also seeks to acquire senior
securities, such as preferred stocks and debt instruments, that it believes are
undervalued. Acquisitions of these senior securities will generally be limited
to those providing (1) protection against the issuer taking certain actions
which could reduce the value of the security and (2) above-average current
yields, yields to events (e.g., acquisitions and recapitalizations), or yields
to maturity. The Portfolio invests in companies regardless of market
capitalization, although it frequently finds value in companies with a smaller
capitalization. It also invests in both domestic and foreign securities. The mix
of the Portfolio's investments at any time will depend on the industries and
types of securities the Adviser believes hold the most value.
MAIN RISKS
Prices of securities (and stocks in particular) have historically fluctuated.
The value of the Portfolio will similarly fluctuate and you could lose money.
The Portfolio frequently finds value in industries that are temporarily
depressed. The prices of securities in these industries may tend to go down more
than those of companies in other industries. The Portfolio also invests in
companies with smaller capitalizations, whose securities tend to be more
volatile than those of larger companies. In addition to general market risks,
sometimes the value of a security owned by the Portfolio will decline if the
market believes that the value of the security is less than the Adviser believes
such security is worth. This may be particularly true of the Portfolio because
the Portfolio follows a buy and hold strategy and does not sell investments in
response to price changes in the markets. Sometimes the Adviser's analysis of a
company in which the Portfolio invests may be wrong or the company may fail to
realize its full value and the Portfolio could lose money on its investment in
the company. Foreign securities are subject to risks such as currency
fluctuations and controls, adverse political developments and potentially
greater illiquidity. Since the Portfolio is not limited to investing in stocks,
the Portfolio may own significant non-equity instruments in a rising stock
market, thereby producing smaller gains than a Portfolio invested solely in
stocks. The Portfolio is non-diversified. This generally means that the
Portfolio will have fewer investments than diversified mutual funds of
comparable size. The Portfolio does not have, however, a strategy requiring it
to limit its investments to any specified number of issuers. Non-diversified
funds can be more volatile than diversified funds.
PAST PERFORMANCE AND FINANCIAL HIGHLIGHTS
Past performance information and financial highlights are not provided for the
Portfolio because it had not begun investment operations as of the date of this
Prospectus. You should be aware that Portfolio performance will fluctuate and
may or may not perform as well as a comparable broad market index. As with all
mutual funds, past performance does not indicate future results.
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INVESTMENT PHILOSOPHY
The Portfolio adheres to a strict value discipline in selecting securities. This
means seeking securities whose prices are low in relation to what the
Portfolio's Adviser believes is the true value of the securities. The
Portfolio's Adviser believes this both lowers risk and increases appreciation
potential. The Portfolio identifies investment opportunities through intensive
research of individual companies and ignores general stock market conditions and
other macro factors. For these reasons, the Portfolio may seek investments in
the securities of companies in industries that are temporarily depressed. The
Portfolio follows a strategy of "buy and hold." The Portfolio will generally
sell an investment only when there has been a fundamental change in the business
or capital structure of the company which significantly affects the investment's
inherent value.
The particular types of securities in which the Portfolio will invest and the
percentage of the Portfolio's assets invested in each type of security will vary
depending on where the Adviser sees the most value at the time of investment.
The Adviser anticipates, however, that a substantial portion of the Portfolio's
assets will be invested in common stocks. In selecting common stocks, the
Adviser generally seeks to invest in companies that exhibit the following
characteristics:
1) A strong financial position, as measured not only by balance sheet data but
also by off-balance sheet assets, liabilities and contingencies (as disclosed in
footnotes to financial statements and as determined through research of public
information), where debt service (that is, the current annual required payment
of interest and principal to creditors) consumes a small part of such companies'
cash flow.
2) Responsible management and control groups, as gauged by managerial
competence as operators and investors as well as by an apparent absence of
intent to profit at the expense of stockholders.
3) Availability of comprehensive and meaningful financial and related
information. A key disclosure is audited financial statements and information
which the Adviser believes are reliable benchmarks to aid in understanding the
business, its values and its dynamics.
4) Availability of the security at a market price which the Adviser believes
is at a substantial discount to the Adviser's estimate of what the issuer is
worth as a private company or as a takeover or merger and acquisition candidate.
As noted above, the Portfolio may from time to time invest its assets in
securities other than common stock, including preferred stocks and various types
of debt securities, when the Adviser believes that there is a greater potential
to realize value by investing in other types of securities. The Portfolio may
invest a small portion or a substantial portion of its assets in those other
types of securities from time to time without shareholder approval.
When the Portfolio's Adviser believes that a temporary defensive posture is
appropriate, the Portfolio may hold all or a portion of its assets in short-term
U.S. Government obligations, cash or cash equivalents. This does not constitute
a change in the Portfolio's investment objective, but could prevent it from
achieving its objective.
The investment objective and philosophy of the Portfolio are similar to those of
the Third Avenue Value Fund, a publicly offered "retail" fund managed by the
Adviser. Although the Adviser anticipates that the Portfolio and the
corresponding retail fund will hold simliar investments, differences in asset
size and cash flow needs resulting from purchases and redemptions of Portfolio
shares may result in different security selections, differences in the relative
weightings of investments or differences in the prices paid for particular
investments and, accordingly, are expected to cause differences in performance
results. Expenses of the Portfolio and the corresponding retail fund also are
expected to differ.
WHO MAY WANT TO INVEST
The Portfolios may be appropriate for investors seeking long-term capital
appreciation.
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MANAGEMENT OF THE PORTFOLIO
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THE INVESTMENT ADVISER
EQSF Advisers, Inc. (the "Adviser"), 767 Third Avenue, New York, NY 10017-2023,
is the investment adviser for the Portfolio. The Adviser manages the Portfolio's
investments, provides various administrative services and supervises the
Portfolio's daily business affairs, subject to the authority of the Board of
Trustees of Third Avenue Variable Series Trust (the "Trust"). The Adviser
manages five other open-end mutual funds with assets in excess of $1.5 billion.
The Adviser has been an investment adviser for mutual funds since its
organization in 1986 and is controlled by Martin J. Whitman.
MARTIN J. WHITMAN
Mr. Whitman, the Chairman and Chief Executive Officer of the Trust and its
Adviser, is the portfolio manager of the Portfolio. During the past five years,
he has also: served in various executive capacities with M.J. Whitman, Inc., the
Portfolio's distributor and regular broker-dealer, and several affiliated
companies engaged in various investment and financial businesses; served as a
Distinguished Management Fellow at the Yale School of Management; and been a
director of various public and private companies, currently including Danielson
Holding Corporation, an insurance holding company, Nabors Industries, Inc., an
international oil drilling contractor, and Tejon Ranch Company, an agricultural
and land management company.
ADVISORY FEES
Under an investment advisory agreement between the Portfolio and the Adviser,
the Portfolio has agreed to pay the Adviser a fee at an annual rate of .90% of
the Portfolio's average daily net assets.
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YEAR 2000
The Portfolio's securities trades, pricing and accounting services and
other operations could be adversely affected if the computer systems
of the Adviser or the Portfolio's distributor, accounting agent, custodian
or transfer agent were unable to recognize dates after 1999. The Adviser
and other service providers have told the Portfolio that they are taking
action to prevent, and do not expect the Portfolio to suffer from,
significant Year 2000 problems. In addition, the companies in which
the Portfolio invests may have Year 2000 problems. The value of their
securities could go down if they do not fix these problems in time or
if fixing them is very expensive. With respect to the Portfolio's
investment in foreign securities, there can be no assurances that the
Year 2000 issue will not have an adverse effect on global markets or
economies generally.
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HOW TO PURCHASE AND REDEEM SHARES
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GENERAL
The Portfolio is offering its shares only to separate accounts (the "Accounts")
of insurance companies to fund the benefits of variable annuity or variable life
insurance policies (the "Contracts"). The Accounts may invest in shares of the
Portfolio in accordance with allocation instructions received from the owners of
the Contracts. Such allocation rights and information on how to purchase or
surrender a Contract, as well as sales charges and other expenses imposed by the
Contracts or their owners, are further described in the separate prospectuses
issued by the participating insurance companies and accompanying this
Prospectus. The Portfolio reserves the right to reject any order for the
purchase of shares.
PRICE OF SHARES
All investments in the Portfolio are credited to an account immediately upon
acceptance of the investment by the Portfolio's transfer agent. Net asset value
per share is calculated each day the Portfolio is open for business as of the
close of regular trading on the New York Stock Exchange, normally 4:00 p.m.,
Eastern time. Net asset value of the Portfolio is determined by dividing the
value of all portfolio securities, cash, and other assets, including accrued
interest and dividends, owned by the Portfolio, less all liabilities, including
accrued expenses of the Portfolio, by the total number of outstanding shares of
the Portfolio. Orders will be priced at the next net asset value calculated
following receipt of the order in proper form by the transfer agent. The
Portfolio's investments are generally valued at market value. Certain short-term
securities are valued based on amortized cost. Illiquid securities and other
securities and assets for which market quotations are not readily available are
valued at "fair value", as determined in good faith by or under the direction of
the Board of Trustees of the Portfolio. Foreign securities held by the Portfolio
generally trade on foreign markets which may be open on days when the New York
Stock Exchange is closed. This means that the Portfolio's net asset value can
change on a day that you cannot purchase or redeem your shares.
BUSINESS HOURS
The Portfolio is open for business each day the New York Stock Exchange is open.
The New York Stock Exchange and the Portfolio will be closed on the following
holidays: New Year's Day, Martin Luther King, Jr. Day, Presidents' Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day, and
Christmas Day.
REDEMPTION OF SHARES
Shares of the Portfolio may be redeemed on any day during which the New York
Stock Exchange is open. Portfolio shares will be redeemed at the net asset value
next calculated after an order is received in proper form by the Portfolio's
transfer agent. Redemption requests that contain a restriction as to the time,
date or share price at which the redemption is to be effective will not be
honored. The Portfolio will usually make payment for redemptions of Portfolio
shares within one business day, but not later than seven calendar days after
receipt of a redemption request.
CERTAIN EXPENSES
Contract owners will bear various distribution-related and insurance-related
costs at the insurance company level and should refer to the accompanying
Account prospectus for a summary of such fees and expenses.
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DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS & TAXES
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The Portfolio expects to pay dividends from its net investment income and to
distribute any realized net capital gains to the Accounts. All dividends and
capital gains distributions of the Portfolio are automatically reinvested by the
Accounts in additional shares of such Portfolio.
Dividends from stocks and interest earned from other investments are the main
source of income for the Portfolio. Substantially all of this income, less
expenses, is distributed to Accounts on an annual basis. When the Portfolio
sells securities, it may realize capital gains or losses, depending upon whether
the prices of the securities sold are higher or lower than the prices the
Portfolio paid to purchase them. Net capital gains represent the excess of net
long-term capital gains over net short-term capital losses and any carried
forward from prior years. The Portfolio will distribute any net capital gains to
Accounts no less frequently than annually.
TAX STATUS OF THE PORTFOLIO
The Portfolio will elect to be taxed as a "regulated investment company" under
the Internal Revenue Code of 1986, as amended (the "Code"). So long as the
Portfolio qualifies as a "regulated investment company," the Portfolio will not
be subject to federal income taxes to the extent it distributes its net
investment income and net capital gains. If for any taxable year the Portfolio
does not qualify for the special tax treatment afforded regulated investment
companies, all of its taxable income, including any net capital gains, would be
subject to tax at regular corporate rates (without any deduction for
distributions to shareholders).
TAX TREATMENT TO INSURANCE COMPANY AS SHAREHOLDER
The investments of an Account are subject to the diversification requirements of
Section 817(h) of the Code (the "Requirements"), which must be met at the end of
each quarter of the year (or within 30 days thereafter). An Account may
generally satisfy the Requirements in either of two ways. First, an Account will
satisfy the Requirements if it invests no more than 55% of its total assets in
securities of any one issuer, no more than 70% in the securities of any two
issuers, no more than 80% in the securities of any three issuers, and no more
than 90% in the securities of any four issuers. For this purpose, the U.S.
Treasury and each U.S. Government agency and instrumentality is considered to be
a separate issuer. Second, an Account will satisfy the Requirements if (i) it
meets the diversification requirements imposed upon regulated investment
companies and (ii) no more than 55% of the value of the total assets of the
Account are attributable to cash, cash items (including receivables), government
securities, and securities of regulated investment companies. In determining
whether an Account meets the Requirements, a "look-through" rule permits an
Account to treat assets of a regulated investment company as its own assets if
all of the beneficial interests in the regulated investment company are held by
one or more Accounts. Because the Portfolio is offering its shares only to
Accounts, an Account should be able to apply this "look-through" rule to the
Portfolio in determining if such Account meets the Requirements. The Portfolio
intends to manage its investments so that the Portfolio itself will meet the
Requirements. In the event that an Account is not properly diversified under
Code Section 817(h), then the policies funded by shares of the Portfolio will
not be treated as life insurance for federal income tax purposes and the owners
of the policies will be subject to taxation on their respective shares of the
dividends and distributions paid by the Portfolio.
Dividends paid by the Portfolio from its ordinary income and distributions of
the Portfolio's net short-term capital gains are includable in the insurance
company's gross income. The tax treatment of such dividends and distributions
depends upon the insurance company's tax status. To the extent that income of
the Portfolio represents dividends on equity securities rather than interest
income, its distributions are eligible for the dividends received deduction
applicable in the case of a life insurance company as provided in the Code. The
Portfolio will send to the Accounts
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a written notice required by the Code designating the amount and character of
any distributions made during such year.
Under the Code, any distributions designated as being made from the Portfolio's
net capital gains are taxable to the insurance company as long-term capital
gains. Such distributions of net capital gains will be designated as capital
gain dividends in a written notice to the Accounts which accompanies the
distribution payments. Capital gain dividends are not eligible for the dividends
received deduction. Ordinary income dividends and capital gain dividends to the
insurance company may also be subject to state and local taxes.
CERTAIN INVESTMENT PRACTICES
Certain investment practices of the Portfolio may be subject to special
provisions of the Code that, among other things, may defer the use of certain
losses of the Portfolio and affect the holding period of the securities held by
the Portfolio and the character of the gains or losses realized by the
Portfolio. These provisions may also require the Portfolio to recognize income
or gain without receiving cash with which to make distributions in the amounts
necessary to maintain the Portfolio's qualification as a regulated investment
company and avoid income and excise taxes. The Portfolio will monitor its
transactions and may make certain tax elections in order to mitigate the effect
of these rules and prevent disqualification of the Portfolio as a regulated
investment company.
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BOARD OF TRUSTEES
Phyllis W. Beck
Lucinda Franks
Gerald Hellerman
Marvin Moser
Donald Rappaport
Myron M. Sheinfeld
Martin Shubik
Charles C. Walden
Barbara Whitman
Martin J. Whitman
OFFICERS
Martin J. Whitman
Chairman, Chief Executive Officer
David M. Barse
President, Chief Operating Officer
Michael Carney
Chief Financial Officer, Treasurer
Kerri Weltz, Assistant Treasurer
Ian M. Kirschner, General Counsel and Secretary
INVESTMENT ADVISER
EQSF Advisers, Inc.
767 Third Avenue
New York, NY 10017-2023
DISTRIBUTOR
M.J. Whitman, Inc.
767 Third Avenue
New York, NY 10017-2023
TRANSFER AGENT
First Data Investor Services Group, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
(610) 239-4600
(800) 443-1021 (toll-free)
CUSTODIAN
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540-6231
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THIRD AVENUE FUNDS
767 THIRD AVENUE
NEW YORK, NY 10017-2023
PHONE (212)888-5222
TOLL FREE (800)443-1021
www.thirdavenuefunds.com
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More information about the Portfolio will be available in the Portfolio's
reports to shareholders and is available in the Statement of Additional
Information (SAI). The Portfolio's Annual Report will contain a discussion of
the market conditions and investment strategies that significantly affect the
Portfolio's performance during its fiscal year. The SAI is on file with the SEC
and is incorporated in this Prospectus by reference (is legally considered part
of this Prospectus).
You can obtain the SAI and the Portfolio's reports to shareholders without
charge and otherwise make inquiries to the Portfolio by writing or calling the
Portfolio at 767 Third Avenue, New York, NY 10017-2023, (800) 443-1021 or (212)
888-5222.
Information about the Portfolio, including the SAI, can be reviewed and copied
at the SEC's Public Reference Room in Washington D.C. (phone 1-800-SEC-0330 for
information). Copies of this information may be obtained, upon payment of a
duplicating fee, by writing the SEC's Public Reference Section, Washington, D.C.
20549-6009. Reports and other information about the Portfolio are available on
the SEC's Internet Web site (http://www.sec.gov).
SEC file number 811-9395
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STATEMENT OF ADDITIONAL INFORMATION
DATED SEPTEMBER 13, 1999
THIRD AVENUE VARIABLE SERIES TRUST
THIRD AVENUE VALUE PORTFOLIO
This Statement of Additional Information (SAI) is not a Prospectus and should be
read together with the Portfolio's Prospectus dated September 13, 1999. This SAI
contains information in addition to that set forth in the Prospectus into which
this document is incorporated by reference. A copy of the Prospectus and the
Portfolio's reports to shareholders may be obtained without charge by writing to
the Portfolio at 767 Third Avenue, New York, NY 10017-2023, or by calling the
Portfolio at (800) 443-1021 (toll free) or (212) 888-5222.
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TABLE OF CONTENTS
GENERAL INFORMATION 3
INVESTMENT STRATEGIES AND RISKS 3
INVESTMENT RESTRICTIONS 10
MANAGEMENT OF THE TRUST 11
COMPENSATION TABLE 16
PRINCIPAL STOCKHOLDERS 16
INVESTMENT ADVISER 16
INVESTMENT ADVISORY AGREEMENT 17
DISTRIBUTOR 17
ADMINISTRATORS 18
CUSTODIAN 18
TRANSFER AGENT 18
INDEPENDENT ACCOUNTANTS 18
PORTFOLIO TRADING PRACTICES 18
SHARE INFORMATION 20
PURCHASE ORDERS 20
REDEMPTION OF SHARES 20
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES 22
PERFORMANCE INFORMATION 23
FINANCIAL STATEMENTS 24
APPENDIX 25
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GENERAL INFORMATION
This Statement of Additional Information is in addition to and serves to expand
and supplement the current Prospectus of Third Avenue Variable Series Trust (the
"Trust"). The Trust is an open-end, non-diversified management investment
company which currently consists of one investment series: THIRD AVENUE VALUE
PORTFOLIO (the "Portfolio"). The Trust was organized as a business trust under
the laws of the state of Delaware pursuant to an Agreement and Declaration of
Trust dated as of June 16, 1999.
The shares of the Portfolio may be purchased only by the separate accounts of
insurance companies for the purpose of funding variable life insurance policies
and variable annuity contracts.
INVESTMENT STRATEGIES AND RISKS
The Prospectus discusses the investment objective of the Portfolio and the
principal strategies to be employed to achieve that objective. This section
contains supplemental information concerning certain types of securities and
other instruments in which the Portfolio may invest, additional strategies that
the Portfolio may utilize and certain risks associated with such investments and
strategies.
The Portfolio expects to invest in a broad range of securities (subject to the
Portfolio's fundamental investment objective). The particular types of
securities and the percentage of the Portfolio's assets invested in each type,
will vary depending on where the Adviser (as hereinafter defined) sees the most
value at the time of investment. The following is a description of the different
types of securities that the Adviser may invest in and certain of the risks
relating to those securities.
INVESTMENT IN EQUITY SECURITIES
In selecting common stocks, the Adviser generally seeks issuers that exhibit the
following characteristics:
(1) A strong financial position, as measured not only by balance
sheet data but also by off-balance sheet assets, liabilities and
contingencies (as disclosed in footnotes to financial statements
and as determined through research of public information), where
debt service1 consumes a small part of such companies' cash flow.
(2) Responsible management and control groups, as gauged by
managerial competence as operators and investors as well as by an
apparent absence of intent to profit at the expense of
stockholders.
(3) Availability of comprehensive and meaningful financial and
related information. A key disclosure is audited financial
statements and information which the Adviser believes are
reliable benchmarks to aid in understanding the business, its
values and its dynamics.
(4) Availability of the security at a market price which the Adviser
believes is at a substantial discount to the Adviser's estimate
of what the issuer is worth as a private company or as a takeover
or merger and acquisition candidate.
1 "Debt Service" means the current annual required payment of interest and
principal to creditors.
Investing in common stock has certain risks, including the risk that the
financial condition of the issuers of the Portfolio's securities may become
impaired or that the general condition of the stock market may worsen (both of
which may contribute directly to a decrease in the value of the securities and
thus in the value of the Portfolio's shares). Common stocks are especially
susceptible to general stock market movements and to increases and decreases in
value as market confidence in and perceptions of the issuers change. These
perceptions are based on unpredictable
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factors including expectations regarding government, economic, monetary and
fiscal policies, inflation and interest rates, economic expansion or
contraction, and global or regional political, economic or banking crises. The
value of the common stocks owned by the Portfolio thus may be expected to
fluctuate.
In selecting preferred stocks, the Adviser will use its selection criteria for
either common stocks or debt securities, depending on the Adviser's
determination as to how the particular issue should be viewed, based, among
other things, upon the terms of the preferred stock and where it fits in the
issuer's capital structure. Preferred stocks are usually entitled to rights on
liquidation which are senior to those of common stocks. For these reasons,
preferred stocks generally entail less risk than common stocks of the same
issuer. Such securities may pay cumulative dividends. Because the dividend rate
is pre-established, and as they are senior to common stocks, such securities
tend to have less possibility of capital appreciation.
Although the Adviser does not pay attention to market factors in making
investment decisions, the Portfolio is, of course, subject to the vagaries of
the markets. In particular, small-cap stocks have less market liquidity and tend
to have more price volatility than larger capitalization stocks.
INVESTMENT IN DEBT SECURITIES
The Portfolio intends its investment in debt securities to be, for the most
part, in securities which the Adviser believes will provide above-average
current yields, yields to events, or yields to maturity. In selecting debt
instruments for the Portfolio, the Adviser requires the following
characteristics:
1) Strong covenant protection, and
2) Yield to maturity at least 500 basis points above that
of a comparable credit.
In acquiring debt securities for the Portfolio, the Adviser generally will look
for covenants which protect holders of the debt issue from possible adverse
future events such as, for example, the addition of new debt senior to the issue
under consideration. Also, the Adviser will seek to analyze the potential
impacts of possible extraordinary events such as corporate restructurings,
refinancings, or acquisitions. The Adviser will also use its best judgment as to
the most favorable range of maturities. In general, the Portfolio will acquire
debt issues which have a senior position in an issuer's capitalization and will
avoid "mezzanine" issues such as non-convertible subordinated debentures.
The market value of debt securities is affected by changes in prevailing
interest rates and the perceived credit quality of the issuer. When prevailing
interest rates fall or perceived credit quality is increased, the market values
of debt securities generally rise. Conversely, when interest rates rise or
perceived credit quality is lowered, the market values of debt securities
generally decline. The magnitude of these fluctuations will be greater when the
average maturity of the portfolio securities is longer.
CONVERTIBLE SECURITIES
The Portfolio may invest in convertible securities, which are bonds, debentures,
notes, preferred stocks or other securities that may be converted into or
exchanged for a prescribed amount of equity securities (generally common stock)
of the same or a different issuer within a particular period of time at a
specified price or formula. Convertible securities have general characteristics
similar to both fixed income and equity securities. Yields for convertible
securities tend to be lower than for non-convertible debt securities but higher
than for common stocks. Although to a lesser extent than with fixed income
securities generally, the market value of convertible securities tends to
decline as interest rates increase and, conversely, tends to increase as
interest rates decline. In addition, because of the conversion feature, the
market value of convertible securities tends to vary with fluctuations in the
market value of the underlying security and therefore also will react to
variations in the general market for equity securities and the operations of the
issuer. While no securities investments are without risk, investments in
convertible securities generally entail less risk than investments in common
stock of the same issuer. Convertible securities generally are subordinated to
other similar but non-convertible securities of the same issuer, although
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convertible bonds, as corporate debt obligations, enjoy seniority in right of
payment to all equity securities, and convertible preferred stock is senior to
common stock of the same issuer. However, because of the subordination feature,
convertible bonds and convertible preferred stock typically have lower ratings
than similar convertible securities.
MORTGAGE-BACKED SECURITIES
The Portfolio may invest in mortgage-backed securities and derivative
mortgage-backed securities, but will not invest in "principal only" and
"interest only" components. Mortgage-backed securities are securities that
directly or indirectly represent a participation in, or are secured by and
payable from, mortgage loans on real property. The Portfolio intends to invest
in these securities only when it believes, after analysis, that there is
unlikely to ever be permanent impairment of capital as measured by whether there
will be a money default by either the issuer or the guarantor of these
securities. These securities do, nonetheless, entail considerable market risk
(meaning fluctuations in quoted prices for the instruments), interest rate risk,
prepayment risk and inflation risk.
The Portfolio will not invest in non-investment grade subordinated classes of
residential mortgage-backed securities and does not intend to invest in
commercial mortgage-backed securities. Prepayments of principal generally may be
made at any time without penalty on residential mortgages and these prepayments
are passed through to holders of one or more of the classes of mortgage-backed
securities. Prepayment rates may change rapidly and greatly, thereby also
affecting yield to maturity, reinvestment risk and market value of the
mortgage-backed securities. As a result, the high credit quality of many of
these securities may provide little or no protection against loss in market
value, and there have been periods during which many mortgage-backed securities
have experienced substantial losses in market value. The Adviser believes that,
under certain circumstances, many of these securities may trade at prices below
their inherent value on a risk-adjusted basis and believes that selective
purchases by the Portfolio may provide high yield and total return in relation
to risk levels.
ASSET-BACKED SECURITIES
The Portfolio may also invest in asset-backed securities that, through the use
of trusts and special purpose vehicles, are securitized with various types of
assets, such as automobile receivables, credit card receivables and home-equity
loans in pass-through structures similar to the mortgage-related securities
described above. In general, the collateral supporting asset-backed securities
is of shorter maturity than the collateral supporting mortgage loans and is less
likely to experience substantial prepayments. However, asset-backed securities
are not backed by any governmental agency.
FLOATING RATE, INVERSE FLOATING RATE AND INDEX OBLIGATIONS
The Portfolio may invest in debt securities with interest payments or maturity
values that are not fixed, but float in conjunction with (or inversely to) an
underlying index or price. These securities may be backed by U.S. Government or
corporate issuers, or by collateral such as mortgages. The indices and prices
upon which such securities can be based include interest rates, currency rates
and commodities prices. However, the Portfolio will not invest in any instrument
whose value is computed based on a multiple of the change in price or value of
an asset or an index of or relating to assets in which the Portfolio cannot or
will not invest.
Floating rate securities pay interest according to a coupon which is reset
periodically. The reset mechanism may be formula based, or reflect the passing
through of floating interest payments on an underlying collateral pool. Inverse
floating rate securities are similar to floating rate securities except that
their coupon payments vary inversely with an underlying index by use of a
formula. Inverse floating rate securities tend to exhibit greater price
volatility than other floating rate securities.
The Portfolio does not intend to invest more than 5% of its total assets in
inverse floating rate securities. Floating rate obligations generally exhibit a
low price volatility for a given stated maturity or average life because their
coupons adjust with changes in interest rates. Interest rate risk and price
volatility on inverse floating rate obligations can be high, especially if
leverage is
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used in the formula. Index securities pay a fixed rate of interest, but have a
maturity value that varies by formula, so that when the obligation matures a
gain or loss may be realized. The risk of index obligations depends on the
volatility of the underlying index, the coupon payment and the maturity of the
obligation.
INVESTMENT IN HIGH YIELD DEBT SECURITIES
The Portfolio may invest in high yield debt securities, including those rated
below Baa by Moody's Investors Service, Inc. ("Moody's") and below BBB by
Standard & Poor's Ratings Group ("Standard & Poor's") and unrated debt
securities, commonly referred to as "junk bonds". See also "Investment in Debt
Securities" and "Restricted and Illiquid Securities." Such securities are
predominantly speculative with respect to the issuer's capacity to pay interest
and repay principal in accordance with the terms of the obligation, and may in
fact be in default. The Portfolio does not intend to invest more than 35% of its
total assets in such securities. The ratings of Moody's and Standard & Poor's
represent their opinions as to the credit quality of the securities which they
undertake to rate (see Appendix A for a description of those ratings). It should
be emphasized, however, that ratings are relative and subjective and, although
ratings may be useful in evaluating the safety of interest and principal
payments, they do not evaluate the market price risk of these securities. In
seeking to achieve its investment objective, the Portfolio depends on the
Adviser's credit analysis to identify investment opportunities. For the
Portfolio, credit analysis is not a process of merely measuring the probability
of whether a money default will occur, but also measuring how the creditor would
fare in a reorganization or liquidation in the event of a money default.
Before investing in any high yield debt instruments, the Adviser will evaluate
the issuer's ability to pay interest and principal, as well as the seniority
position of such debt in the issuer's capital structure vis-a-vis any other
outstanding debt or potential debts. There appears to be a direct cause and
effect relationship between the weak financial conditions of issuers of high
yield bonds and the market valuation and prices of their credit instruments, as
well as a direct relationship between the weak financial conditions of such
issuers and the prospects that principal or interest may not be paid.
The market price and yield of bonds rated below Baa by Moody's and below BBB by
Standard & Poor's are more volatile than those of higher rated bonds due to such
factors as interest rate sensitivity, market perception of the creditworthiness
of the issuer and general market liquidity and the risk of an issuer's inability
to meet principal and interest payments. In addition, the secondary market for
these bonds is generally less liquid than that for higher rated bonds.
Lower rated or unrated debt obligations also present reinvestment risks based on
payment expectations. If an issuer calls the obligation for redemption, the
Portfolio may have to replace the security with a lower yielding security,
resulting in a decreased return for investors.
The market values of these higher yielding debt securities tend to be more
sensitive to economic conditions and individual corporate developments than
those of higher rated securities. Companies that issue such bonds often are
highly leveraged and may not have available to them more traditional methods of
financing. Under adverse economic conditions, there is a risk that highly
leveraged issuers may be unable to service their debt obligations or to repay
their obligations upon maturity. Under deteriorating economic conditions or
rising interest rates, the capacity of issuers of lower-rated securities to pay
interest and repay principal is more likely to weaken significantly than that of
issuers of higher-rated securities. Investors should carefully consider the
relative risks of investing in high yield securities and understand that such
securities are generally not meant for short-term investing.
The Portfolio may also purchase or retain debt obligations of issuers not
currently paying interest or in default (i.e., with a rating from Moody's of C
or lower or Standard & Poor's of C1 or lower). In addition, the Portfolio may
purchase securities of companies that have filed for protection under Chapter 11
of the United States Bankruptcy Code. Defaulted securities will be purchased or
retained if, in the opinion of the Adviser, they may present an opportunity for
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subsequent price recovery, the issuer may resume payments, or other advantageous
developments appear likely.
ZERO-COUPON AND PAY-IN-KIND SECURITIES
The Portfolio may invest in zero coupon and pay-in-kind ("PIK") securities. Zero
coupon securities are debt securities that pay no cash income but are sold at
substantial discounts from their value at maturity. PIK securities pay all or a
portion of their interest in the form of additional debt or equity securities.
Because such securities do not pay current cash income, the price of these
securities can be volatile when interest rates fluctuate. While these securities
do not pay current cash income, federal income tax law requires the holders of
zero coupon and PIK securities to include in income each year the portion of the
original issue discount (or deemed discount) and other non-cash income on such
securities accrued during that year. In order to continue to qualify for
treatment as a "regulated investment company" under the Internal Revenue Code of
1986, as amended (the "Code") and avoid a certain excise tax, the Portfolio may
be required to distribute a portion of such discount and income and may be
required to dispose of other portfolio securities, which may occur in periods of
adverse market prices, in order to generate cash to meet these distribution
requirements.
LOANS AND OTHER DIRECT DEBT INSTRUMENTS
The Portfolio may invest in loans and other direct debt instruments owed by a
borrower to another party and may also from time to time make loans. These
instruments represent amounts owed to lenders or lending syndicates (loans and
loan participations) or to other parties. Direct debt instruments may involve a
risk of loss in case of default or insolvency of the borrower and may offer less
legal protection to the Portfolio in the event of fraud or misrepresentation. In
addition, loan participations involve a risk of insolvency of the lending bank
or other financial intermediary. The markets in loans are not regulated by
federal securities laws or the Securities and Exchange Commission (the "SEC").
TRADE CLAIMS
The Portfolio may invest in trade claims. Trade claims are interests in amounts
owed to suppliers of goods or services and are purchased from creditors of
companies in financial difficulty. For purchasers such as the Portfolio, trade
claims offer the potential for profits since they are often purchased at a
significant discount from face value and, consequently, may generate capital
appreciation in the event that the market value of the claim increases as the
debtor's financial position improves or the claim is paid.
An investment in trade claims is speculative and carries a high degree of risk.
Trade claims are illiquid instruments which generally do not pay interest and
there can be no guarantee that the debtor will ever be able to satisfy the
obligation on the trade claim. The markets in trade claims are not regulated by
federal securities laws or the SEC. Because trade claims are unsecured, holders
of trade claims may have a lower priority in terms of payment than certain other
creditors in a bankruptcy proceeding.
FOREIGN SECURITIES
The Portfolio may invest in foreign securities. The Portfolio's foreign
securities investments will have characteristics similar to those of domestic
securities selected for the Portfolio. The Portfolio intends to limit its
investments in foreign securities to companies issuing U.S. dollar-denominated
American Depository Receipts or which, in the judgment of the Adviser, otherwise
provide financial information which provides the Adviser with substantively
similar financial information as SEC disclosure requirements. By limiting its
investments in this manner, the Portfolio seeks to avoid investing in securities
where there is no compliance with SEC requirements to provide public financial
information, or such information is unreliable as a basis for analysis.
Foreign securities markets generally are not as developed or efficient as those
in the United States. Securities of some foreign issuers are less liquid and
more volatile than securities of comparable U.S. issuers. The Portfolio will be
subject to additional risks which include: possible adverse political and
economic developments, seizure or nationalization of foreign deposits and
adoption
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of governmental restrictions that may adversely affect the payment of principal
and interest on the foreign securities or currency blockage that would restrict
such payments from being brought back to the United States. Because foreign
securities often are purchased with and payable in foreign currencies, the value
of these assets as measured in U.S. dollars may be affected favorably or
unfavorably by changes in currency rates and exchange control regulations.
FOREIGN CURRENCY TRANSACTIONS
The Portfolio may, from time to time, engage in foreign currency transactions in
order to hedge the value of its portfolio holdings denominated in foreign
currencies against fluctuations in foreign currency prices versus the U.S.
dollar. These transactions include forward currency contracts, exchange listed
and OTC options on currencies, currency swaps and other swaps incorporating
currency hedges.
The notional amount of a currency hedged by the Portfolio will be closely
related to the aggregate market value (at the time of making such hedge) of the
securities held and reasonably expected to be held in its portfolio denominated
or quoted in or currently convertible into that particular currency or a closely
related currency. If the Portfolio enters into a hedging transaction in which
the Portfolio is obligated to make further payments, its custodian will
segregate cash or readily marketable securities having a value at all times at
least equal to the Portfolio's total commitments.
The cost to the Portfolio of engaging in currency hedging transactions varies
with factors such as (depending upon the nature of the hedging transaction) the
currency involved, the length of the contract period, interest rates in foreign
countries for prime credits relative to U.S. interest rates for U.S. Treasury
obligations, the market conditions then prevailing and fluctuations in the value
of such currency in relation to the U.S. dollar. Transactions in currency
hedging contracts usually are conducted on a principal basis, in which case no
fees or commissions are involved. The use of currency hedging contracts does not
eliminate fluctuations in the prices in local currency of the securities being
hedged. The ability of the Portfolio to realize its objective in entering into
currency hedging transactions is dependent on the performance of its
counterparties on such contracts, which may in turn depend on the absence of
currency exchange interruptions or blockage by the governments involved, and any
failure on their part could result in losses to the Portfolio. The requirements
for qualification as a regulated investment company under the Code, may cause
the Portfolio to restrict the degree to which it engages in currency hedging
transactions.
RESTRICTED AND ILLIQUID SECURITIES
The Portfolio will not purchase or otherwise acquire any security if, as a
result, more than 15% of its net assets (taken at current market value) would be
invested in securities that are illiquid. Generally speaking, an illiquid
security is any asset or investment which the Portfolio cannot sell in the
ordinary course of business within seven days at approximately the value at
which the Portfolio has valued the asset or investment, including securities
that cannot be sold publicly due to legal or contractual restrictions. The sale
of illiquid securities often requires more time and results in higher brokerage
charges or dealer discounts and other selling expenses than does the sale of
securities eligible for trading on national securities exchanges or in the
over-the-counter markets. Restricted securities may sell at a price lower than
similar securities that are not subject to restrictions on resale.
Over the past several years, strong institutional markets have developed for
various types of restricted securities, including repurchase agreements,
commercial paper, and some corporate bonds and notes. Securities freely salable
among qualified institutional investors under special rules adopted by the SEC
or otherwise determined to be liquid, may be treated as liquid if they satisfy
liquidity standards established by the Board of Trustees. The continued
liquidity of such securities is not as well assured as that of publicly traded
securities, and accordingly the Board of Trustees will monitor their liquidity.
The Board will review pertinent factors such as trading activity, reliability of
price information and trading patterns of comparable securities in determining
whether to treat any such security as liquid for purposes of the foregoing 15%
test.
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To the extent the Board treats such securities as liquid, temporary impairments
to trading patterns of such securities may adversely affect the Portfolio's
liquidity.
INVESTMENT IN RELATIVELY NEW ISSUES
The Portfolio intends to invest occasionally in the common stock of selected new
issuers. Investments in relatively new issuers, i.e., those having continuous
operating histories of less than three years, may carry special risks and may be
more speculative because such companies are relatively unseasoned. Such
companies may also lack sufficient resources, may be unable to generate
internally the funds necessary for growth and may find external financing to be
unavailable on favorable terms or even totally unavailable. Those companies will
often be involved in the development or marketing of a new product with no
established market, which could lead to significant losses. The securities of
such issuers may have a limited trading market which may adversely affect their
disposition and can result in their being priced lower than might otherwise be
the case. If other investors who invest in such issuers trade the same
securities when the Portfolio attempts to dispose of its holdings, the Portfolio
may receive lower prices than might otherwise be the case.
TEMPORARY DEFENSIVE INVESTMENTS
When, in the judgment of the Adviser, a temporary defensive posture is
appropriate, the Portfolio may hold all or a portion of its assets in short-term
U.S. Government obligations, cash or cash equivalents. The adoption of a
temporary defensive posture does not constitute a change in the Portfolio's
investment objective.
BORROWING
The Portfolio may also make use of bank borrowing as a temporary measure for
extraordinary or emergency purposes, such as for liquidity necessitated by
shareholder redemptions, and may use securities as collateral for such
borrowing. Such temporary borrowing may not exceed 5% of the value of the
Portfolio's total assets at the time of borrowing.
INVESTMENT IN OTHER INVESTMENT COMPANIES
The Portfolio may invest in securities of other investment companies, to the
extent permitted under the Investment Company Act of 1940, as amended (the "1940
Act"), provided that after any purchase the Portfolio does not own more than 3%
of such investment company's outstanding stock. The Adviser will charge an
advisory fee on the portion of the Portfolio's assets that are invested in
securities of other investment companies. Thus, shareholders will be responsible
for a "double fee" on such assets, since both investment companies will be
charging fees on such assets.
SIMULTANEOUS INVESTMENTS
Investment decisions for the Portfolio are made independently from those of the
other accounts advised by the Adviser and its affiliates. If, however, such
other accounts wish to invest in, or dispose of, the same securities as one of
the Portfolios, available investments will be allocated equitably between the
Portfolio and other account. This procedure may adversely affect the size of the
position obtained for or disposed of by the Portfolio or the price paid or
received by the Portfolio.
SECURITIES LENDING
The Portfolio may lend its portfolio securities to qualified institutions. By
lending its portfolio securities, the Portfolio attempts to increase its income
through the receipt of interest on the loan. Any gain or loss in the market
price of the securities loaned that may occur during the term of the loan will
be for the account of the Portfolio. The Portfolio may lend its portfolio
securities so long as the terms and the structure of such loans are not
inconsistent with the requirements of the 1940 Act, which currently provide that
(a) the borrower pledge and maintain with the Portfolio collateral consisting of
cash, a letter of credit issued by a domestic U.S. bank, or securities issued or
guaranteed by the U.S. government having a value at all times not less than 100%
of the value of the securities loaned, (b) the borrower add to such collateral
whenever the price of the securities
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loaned rises (i.e., the value of the loan is "marked to the market" on a daily
basis), (c) the loan be made subject to termination by the Portfolio at any time
and the loaned securities be subject to recall within the normal and customary
settlement time for securities transactions and (d) the Portfolio receive
reasonable interest on the loan (which may include the Portfolio's investing any
cash collateral in interest bearing short-term investments), any distributions
on the loaned securities and any increase in their market value. If the borrower
fails to maintain the requisite amount of collateral, the loan automatically
terminates and the Portfolio could use the collateral to replace the securities
while holding the borrower liable for any excess of replacement cost over the
value of the collateral. As with any extension of credit, there are risks of
delay in recovery and in some cases even loss of rights in collateral should the
borrower of the securities fail financially.
The Portfolio will not lend portfolio securities if, as a result, the aggregate
of such loans exceeds 33 1/3% of the value of its total assets (including such
loans). Loan arrangements made by the Portfolio will comply with all other
applicable regulatory requirements. All relevant facts and circumstances,
including the creditworthiness of the qualified institution, will be monitored
by the Adviser, and will be considered in making decisions with respect to
lending of securities, subject to review by the Portfolio's Board of Trustees.
The Portfolio may pay reasonable negotiated fees in connection with loaned
securities, so long as such fees are set forth in a written contract and
approved by its Board of Trustees. In addition, the Portfolio shall, through the
ability to recall securities prior to any required vote, retain voting rights
over the loaned securities.
On behalf of the Portfolio, the Trust has entered into a master lending
arrangement with Bear, Stearns Securities Corp. in compliance with the foregoing
requirements.
SHORT SALES
The Portfolio may, but currently does not intend to, engage in short sales. In a
short sale transaction, the Portfolio sells a security it does not own in
anticipation of a decline in the market value of the security.
COMMODITIES
The Portfolio may, but currently does not intend to, invest in commodities or
commodity contracts and futures contracts.
INVESTMENT RESTRICTIONS
For the benefit of shareholders, the Portfolio has adopted the following
restrictions, which are fundamental policies and, together with the Portfolio's
investment objective, cannot be changed without the approval of a majority of
such Portfolio's outstanding voting securities. 1
The Portfolio may not:
1. Borrow money or pledge, mortgage or hypothecate any of its assets
except that the Portfolio may borrow on a secured or unsecured basis as
a temporary measure for extraordinary or emergency purposes. Such
temporary borrowing may not exceed 5% of the value of the Portfolio's
total assets when the borrowing is made.
2. Act as underwriter of securities issued by other persons, except to the
extent that, in connection with the disposition of portfolio
securities, it may technically be deemed to be an underwriter under
certain securities laws.
3. Invest in interests in oil, gas, or other mineral exploration or
development programs, although it may invest in the marketable
securities of companies which invest in or sponsor such programs.
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4. Issue any senior security (as defined in the 1940 Act). Borrowings
permitted by Item 1 above are not senior securities.
5. Invest 25% or more of the value of its total assets in the securities
(other than Government Securities or the securities of other regulated
investment companies) of any one issuer, or of two or more issuers
which the Portfolio controls and which are determined to be engaged in
the same industry or similar trades or businesses or related trades or
businesses.
6. Invest 25% or more of the value of its total assets in any one industry.
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1 As used in this Statement of Additional Information as to any matter requiring
shareholder approval, the phrase "majority of the outstanding securities" means
the vote at a meeting of (i) 67% or more of the shares present or represented,
if the holders of more than 50% of the outstanding voting securities are present
in person or represented by proxy, or (ii) more than 50% of the outstanding
voting securities, whichever is less.
The Portfolio is required to comply with the above fundamental investment
restrictions applicable to it only at the time the relevant action is taken. The
Portfolio is not required to liquidate an existing position solely because a
change in the market value of an investment or a change in the value of the
Portfolio's net or total assets causes it not to comply with the restriction at
a future date. The Portfolio will not purchase any portfolio securities while
any borrowing exceeds 5% of its total assets.
MANAGEMENT OF THE TRUST
The Board of Trustees of the Portfolio oversees the management of the Portfolio.
The Trustees are responsible for such matters as reviewing and approving
fundamental operating, financial, and corporate governance policies; evaluating
the Adviser's performance; determining management fees; and reviewing and
approving procedures for providing financial and operational information to the
Board.
Trustees and officers of the Portfolio, together with information as to their
principal business occupations during at least the last five years, are shown
below. Each trustee who is deemed to be an "interested person" of the Portfolio,
as defined in the 1940 Act, is indicated by an asterisk.
<TABLE>
<CAPTION>
NAME & ADDRESS AGE POSITION(S) PRINCIPAL OCCUPATION DURING PAST 5 YEARS
HELD WITH
REGISTRANT
<S> <C> <C> <C>
PHYLLIS W. BECK*1 72 Trustee An Associate Judge (1981 to Present) of the
GSB Bldg. Suite 800 Superior Court of Pennsylvania; Trustee of Third
City Line & Belmont Ave. Avenue Trust (together with its predecessor,
Bala Cynwyd, PA 19004-1611 "Third Avenue Trust") (November 1992 to Present);
Trustee of the Trust since its inception, June, 1999.
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LUCINDA FRANKS 52 Trustee Journalist (1969 to Present); Author "Wild
64 East 86th Street Apples" (1990), "Waiting Out a War; The Exile of
New York, NY 10028 Private John Picciano (1974); Winner of the 1971
Pulitzer Prize for Journalism; Trustee of Third Avenue
Trust (February, 1998 to Present); Trustee of the
Trust since its inception, June, 1999.
GERALD HELLERMAN 61 Trustee Managing Director (8/93 to Present) of Hellerman
10965 Eight Bells Lane Associates, a financial and corporate consulting
Columbia, MD 21044 firm; Chief Financial Analyst (1976 to 7/93) of the
Antitrust Division of U.S. Department of Justice; Director
of Clemente Global Growth Portfolio, Inc. (9/98 to Present);
Trustee of Third Avenue Trust (September, 1993 to Present);
Trustee of the Trust since its inception, June, 1999.
MARVIN MOSER, M.D. 75 Trustee Trustee (1992 to Present) of the Trudeau
13 Murray Hill Road Institute, a medical research institute; Clinical
Scarsdale, NY 10583 Professor of Medicine (1984 to Present) at Yale
University School of Medicine; Senior Medical Consultant
(1972 to Present) for the National High Blood Pressure
Education Program of the National Heart, Lung and Blood
Institute; Chairman (1977) and a member in 1980, 1984, 1988,
1992 and 1996 of the Joint National Committee on Detection,
Evaluation and Treatment of High Blood Pressure for the
National Heart, Lung and Blood Institute; Director of AMBI
Corp. (1997 to Present); Trustee of Third Avenue Trust
(November, 1994 to Present); Trustee of the Trust since its
inception, June, 1999.
DONALD RAPPAPORT 73 Trustee Private investor and consultant (1987 to May, 1997
1619 31st Street, N.W. and May, 1999 to Present); Chief Financial and
Washington, D.C. 20007 Chief Information Officer for the U.S. Department
of Education (May, 1997 to May, 1999); President and Chief
Operating Officer (3/90 to 12/90) of Third Avenue Value Fund,
Inc. and Equity Strategies Fund, Inc. (1984 to 12/90);
Director (1987 to 4/94) of Equity Strategies Fund, Inc.;
President (1989 to 12/90) of Whitman Advisors, Ltd., an
investment adviser; Registered Securities Representative
(1989 to 1991) of M.J. Whitman & Co., Inc. a former
broker-dealer; Trustee of Third Avenue Trust (November,
1991 to May, 1997 and June, 1998 to Present); Trustee of the
Trust since its inception, June, 1999.
MYRON M. SHEINFELD 68 Trustee Counsel to (12/96 to present) and Attorney and
1001 Fannin St., Suite 3700 Shareholder (1968 to 12/96) of Sheinfeld, Maley &
Houston, TX 77002 Kay P.C., a law firm; Adjunct Professor (1975 to
1991) of the University of Texas Law School; Director (1984
to 1992) of Equity Strategies Fund, Inc.; Director
(1988 to Present) of Nabors Industries, Inc., an
international oil drilling contractor; Director (11/98 to
present) of Anchor Glass Container Corp.; former Consultant
(11/90 to 4/95) to Meyer Hendricks Victor Osborn & Maledon,
a law firm in Phoenix, Arizona; Co-Editor and Co-Author
"Collier on Bankruptcy 15th Edition Revised" and "Collier on
Bankruptcy Taxation"; Trustee of Third Avenue Trust
(November, 1991 to Present); Trustee of the Trust since its
inception, June, 1999.
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MARTIN SHUBIK 72 Trustee Seymour H. Knox Professor (1975 to Present) of
Yale University Dept. of Mathematical and Institutional Economics,
Economics Yale University; Director (1984 to 4/94) Equity
Box 2125, Yale Station Strategies Fund, Inc.; Trustee of Third Avenue Trust
New Haven, CT 06520 (November, 1991 to Present); Trustee of the Trust since
its inception, June, 1999.
CHARLES C. WALDEN 55 Trustee Executive Vice-President--Investments (1973 to Present)
11 Williamsburg Circle (Chief Investment Officer) of Knights of Columbus, a
Madison, CT 06443 fraternal benefit society selling life insurance and
annuities; Chartered Financial Analyst; Trustee of Third
Avenue Trust (May, 1996 to Present); Trustee of the Trust
since its inception, June, 1999.
BARBARA WHITMAN*1 40 Trustee Registered Securities Representative (11/96 to Present) of
767 Third Avenue M.J. Whitman, Inc., a broker-dealer and the Portfolio's
New York, NY 10017-2023 underwriter; Director (4/95 to Present) of EQSF Advisers, Inc.,
the Portfolio's investment adviser; Director (8/97 to 6/98)
of Riverside Stage Company, a theater; House Manager (1/94
to 8/94) of Whiting Auditorium, a theater; Substitute
Teacher (1/92 to 6/93) of National-Louis University Movement
Center, a university; Trustee of Third Avenue Trust
(September, 1997 to Present); Trustee of the Trust since its
inception, June, 1999.
MARTIN J. WHITMAN*1 74 Chairman, Chairman and CEO of the Trust since inception; Chairman, CEO
767 Third Avenue Chief and Trustee (3/90 to Present), President (1/91 to 5/98),
New York, NY 10017-2023 Executive of Third Avenue Trust; Chairman and CEO (3/90 to Present),
Officer, and President (1/91 to 2/98), of EQSF Advisers, Inc.; Chairman,
Trustee CEO (1/1/95 to Present), President (1/1/95 to 6/29/95) and
Chief Investment Officer (10/92 to Present) of M.J. Whitman
Advisers, Inc., a subsidiary of M.J. Whitman Holding Corp.,
(MJWHC), a holding company managing investment subsidiaries
and an investment adviser to private and institutional
clients; Chairman, CEO (1/1/95 to Present) and President
(1/1/95 to 6/29/95) of MJWHC and of M.J. Whitman, Inc., a
subsidiary of MJWHC and the successor broker-dealer of M.J.
Whitman, L.P. (MJWLP), a Delaware limited partnership which
has been dissolved; Distinguished Management Fellow (1972 to
Present) and Member of the Advisory Board (10/94 to 6/95) of
the Yale School of Management at Yale University; Director
and Chairman (8/90 to Present), President (8/90 to 12/90),
CEO (8/96 to Present) and Chief Investment Officer (12/90 to
8/96) of Danielson Holding Corporation, and a Director of
its subsidiaries; Director (3/91 to Present) of Nabors
Industries, Inc., an international oil drilling contractor;
Director (8/97 to Present) of Tejon Ranch Co.; President and
CEO (10/74 to Present) of Martin J. Whitman & Co., Inc.,
(formerly M.J. Whitman & Co., Inc.), a private investment
company; Trustee of the Trust since its inception, June,
1999; Chartered Financial Analyst.
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<PAGE>
DAVID M. BARSE 37 President President of the Trust since inception; President
767 Third Avenue and Chief (5/98 to Present), and Executive Vice President
New York, NY 10017-2023 Operating (4/95 to 5/98) of Third Avenue Trust; President,
Officer (COO) Chief Operating Officer and Director (7/96 to
Present) of Danielson Holding Corporation; Director (8/96 to
Present) of National American Insurance Company of
California; President (2/98 to Present), Executive Vice
President (4/95 to 2/98), and Director (4/95 to Present) of
EQSF Advisers, Inc.; President (6/95 to Present), Director,
Chief Operating Officer (1/95 to Present), Secretary (1/95
to 1/96) and Executive Vice President (1/95 to 6/95) of
MJWHC; President (6/95 to Present), Director and COO (1/95
to Present), Secretary (1/95 to 1/96), Executive Vice
President (1/95 to 6/95) of M.J. Whitman, Inc.; President
(6/95 to Present), Director and COO (1/95 to Present),
Executive Vice President (1/95 to 6/95) and Corporate
Counsel (10/92 to 12/95) of M.J. Whitman Advisers, Inc.;
Director (6/97 to Present) of CGA Group, Ltd.; Director
(7/94 to 12/94), Executive Vice President and Secretary
(1/92 to 12/94) of Whitman Securities Corp.
MICHAEL CARNEY 45 Treasurer, Treasurer and CFO of the Trust since inception; Treasurer
767 Third Avenue Chief and CFO of Third Avenue Trust (March, 1990 to Present);
New York, NY 10017-2023 Financial Director, (1/1/95 to Present) Executive Vice President,
Officer Chief Financial Officer (6/29/95 to Present) of MJWHC and
(CFO) of M.J. Whitman, Inc.; Treasurer, Director (1/1/95 to Present),
Executive Vice President (6/29/95 to Present) and CFO (10/92 to
Present) of M.J. Whitman Advisers, Inc.; Treasurer (12/93 to
4/96) of Longstreet Investment Corp.; CFO (3/26/93 to 6/95)
of Danielson Trust Company; Limited Partner (1/92 to
12/31/94) of M.J. Whitman, L.P.; CFO of WHR Management
Corporation (8/91 to Present), Danielson Holding Corporation
(8/90 to Present) and Carl Marks Strategic Investments,
L.P., an investment partnership (1/90 to 4/94); CFO (1/90 to
4/94) of Carl Marks & Co., Inc., a broker-dealer; CFO (8/89
to 12/90) of Whitman Advisors, Ltd.; CFO and Treasurer (5/89
to 4/94) of Equity Strategies Fund, Inc.; CFO and Treasurer
(5/89 to Present) of EQSF Advisers, Inc.; CFO (5/89 to Present)
of Whitman Heffernan Rhein & Co., Inc., Martin J. Whitman & Co.,
Inc., (formerly M.J. Whitman & Co., Inc.) and WHR Management
Company, L.P., a firm managing investment partnerships.
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<PAGE>
KERRI WELTZ 31 Assistant Assistant Treasurer of the Trust since inception; Assistant
767 Third Avenue Treasurer Treasurer (5/96 to Present), Controller (1/96 to Present),
New York, NY 10017-2023 Assistant Controller (1/93 to 12/95) and Staff Accountant (1/92
to 12/92) for Third Avenue Trust; Controller (1/96 to
Present), Assistant Controller (1/93 to 12/95), and Staff
Accountant (1/92 to 12/92) of EQSF Advisers, Inc.;
Controller (8/96 to Present), of Danielson Holding Corp.;
Controller (5/96 to Present) and Assistant Controller (1/95
to 5/96) of Whitman Heffernan & Rhein Workout Portfolio II,
L.P. and Whitman Heffernan & Rhein Workout Portfolio II-A,
L.P.; Controller (5/96 to Present) of WHR Management Corp.;
Controller (5/96 to present), Assistant Controller (1/93 to
5/96) and Staff Accountant (5/91 to 12/92), of Whitman
Heffernan Rhein & Co., Inc.; Controller (5/96 to Present) of
Martin J. Whitman & Co., Inc.; Assistant Controller (10/94
to 4/96) of Longstreet Investment Corp and Emerald
Investment Partners, L.P.; Assistant Controller (1/93 to
4/94) and Staff Accountant (1/92 to 12/92) of Equity
Strategies Portfolio, Inc.; Payroll manager (5/91 to 12/93)
of M.J. Whitman, L.P.
IAN M. KIRSCHNER 43 General General Counsel and Secretary of the Trust since inception;
767 Third Avenue Counsel and General Counsel and Secretary (8/96 to Present) of Danielson
New York, NY 10017-2023 Secretary Holding Corporation; General Counsel and Secretary (1/96
to Present) of MJWHC, M.J. Whitman, Inc., and M. J. Whitman
Advisers, Inc.; General Counsel and Secretary (1/97 to
Present) of Third Avenue Trust; General Counsel and
Secretary (1/97 to Present) of EQSF Advisers, Inc.;
Vice-President, General Counsel and Secretary (2/93 to 6/95)
of 2 I Inc.; Of Counsel (10/90 to 10/92) to Morgan, Lewis &
Bockius.
</TABLE>
- -----------------------------
1 Phyllis W. Beck is the sister of Martin J. Whitman, Chairman, Chief Executive
Officer and a Trustee of the Trust and the Aunt of Barbara Whitman, a Trustee of
the Trust; Barbara Whitman is the daughter of Martin J.
Whitman.
The Trust does not pay any fees to its officers for their services as such, but
does pay Trustees who are not affiliated with the Adviser a fee of $1,500 for
each meeting of the Board of Trustees that they attend, in addition to
reimbursing all Trustees for travel and incidental expenses incurred by them in
connection with their attendance at Board meetings. The Trust also pays the
non-interested Trustees an annual stipend of $2,000 in January of each year for
the previous year's service. Since the Trust was organized in June, 1999, it has
not paid any compensation to its Trustees for the prior fiscal year. Trustees do
not receive any pension or retirement benefits.
-15-
<PAGE>
<TABLE>
<CAPTION>
COMPENSATION TABLE
TOTAL COMPENSATION FROM
AGGREGATE COMPENSATION FROM REGISTRANT AND FUND COMPLEX PAID
NAME AND POSITION HELD REGISTRANT * TO TRUSTEES**
---------------------- ------------ -------------
<S> <C> <C>
Phyllis W. Beck, Trustee $ 0 $ 0
Lucinda Franks, Trustee $ 8,000 $ 27,666
Gerald Hellerman, Trustee $ 8,000 $ 36,166
Marvin Moser, M.D., Trustee $ 8,000 $ 36,166
Donald Rappaport, Trustee $ 8,000 $ 8,000
Myron M. Sheinfeld, Trustee $ 8,000 $ 36,166
Martin Shubik, Trustee $ 8,000 $ 33,166
Charles C. Walden, Trustee $ 8,000 $ 36,166
Barbara Whitman, Trustee $ 0 $ 0
Martin J. Whitman, Chairman $ 0 $ 0
and Chief Executive Officer
</TABLE>
* Estimated for the Portfolio's first full fiscal year.
** Includes estimated fees for the Portfolio's first full fiscal year and actual
fees paid to the Trustees by other funds in the Fund Complex for the fiscal year
ended October 31, 1998. Amount does not include reimbursed expenses for
attending Board meetings, which amounted to $4,983 for all Trustees as a group
for the fiscal year ended October 31, 1998. Amounts for THIRD AVENUE HIGH YIELD
FUND are for the period from February 12, 1998 (inception) through October 31,
1998. Amounts for THIRD AVENUE REAL ESTATE VALUE FUND are for the period from
September 17, 1998 (inception) through October 31, 1998. For the fiscal year
ended October 31, 1999, it is anticipated that in addition to the compensation
specified above, the Trustees will receive additional compensation from THIRD
AVENUE HIGH YIELD FUND and THIRD AVENUE REAL ESTATE VALUE FUND in an estimated
amount equal to $1,500 and $4,500 per Trustee, respectively, and THIRD AVENUE
HIGH YIELD FUND and THIRD AVENUE REAL ESTATE VALUE FUND will reimburse the
Trustees for approximately $2,500 in expenses in the aggregate (such estimated
amounts are based upon the aggregate compensation received and expenses incurred
by the Trustees for the fiscal year ended October 31, 1998).
PRINCIPAL STOCKHOLDERS
As of September 8, 1999, the sole stockholder of the Portfolio was IDS Life
Variable Account 10.
INVESTMENT ADVISER
The investment adviser to the Trust is EQSF Advisers, Inc. (the "Adviser"), 767
Third Avenue, New York, NY 10017. Martin J. Whitman is a controlling person of
the Adviser. His control is based upon an irrevocable proxy signed by his
children, who own, in the aggregate, 74% of the outstanding common stock of the
Adviser, pursuant to a shareholders' agreement entered into by and among them.
Mr. Whitman is Chairman and Chief Executive Officer of the Adviser.
The following individuals are affiliated persons of the Trust and Adviser:
<TABLE>
<CAPTION>
CAPACITY WITH PORTFOLIOS CAPACITY WITH ADVISER
------------------------ ---------------------
<S> <C> <C>
Martin J. Whitman Chairman and Chief Executive Chairman and Chief Executive
Officer Officer
David M. Barse President, Chief Operating Officer President, Chief Operating Officer, Director
Michael Carney Treasurer, Chief Financial Officer Treasurer, Chief Financial Officer
Ian M. Kirschner General Counsel and Secretary General Counsel and Secretary
Kerri Weltz Assistant Treasurer Assistant Treasurer
Barbara Whitman Trustee Director
</TABLE>
-16-
<PAGE>
INVESTMENT ADVISORY AGREEMENT
The investment advisory services of the Adviser are furnished to the Portfolio
pursuant to an Investment Advisory Agreement approved by a majority of the
Trustees who are not "interested persons" as defined in the 1940 Act and the
Board of Trustees of the Trust, and by the sole shareholder of the Portfolio.
The Adviser has provided investment advisory services to the Portfolio since its
inception.
After the initial two-year term, the Investment Advisory Agreement will continue
from year to year if approved annually by the Board of Trustees of the Trust or
a majority of the outstanding voting securities of the Trust, and by vote of a
majority of the Trustees who are not parties to the Investment Advisory
Agreement or "interested persons" (as defined in the 1940 Act) of such parties,
cast in person at a meeting called for the purpose of voting on such approval.
The Investment Advisory Agreement may be terminated at any time without penalty,
upon 60 days written notice by either party to the other, and will automatically
be terminated upon any assignment thereof.
For the investment advisory services provided by the Adviser, the Portfolio has
agreed to pay the Adviser a monthly fee of 1/12 of .90% (an annual rate of .90%)
on the average daily net assets in the Portfolio during the prior month. Under
the Investment Advisory Agreement, the Adviser supervises and assists in the
management of the Trust, provides investment research and research evaluation
and makes and executes recommendations for the purchase and sale of securities.
The Adviser furnishes, at its expense, all necessary office equipment and
personnel necessary for the performance of the obligations of the Adviser and
pays the compensation of officers of the Trust. However, in the event that any
person serving as an officer of the Trust has both executive duties attendant to
such offices and administrative duties to the Trust apart from such office, the
Adviser does not pay any amount relating to the performance of such
administrative duties.
All other expenses incurred in the operation of the Portfolio and the continuous
offering of its shares, including taxes, fees and commissions, bookkeeping
expenses, Portfolio employees, expenses of redemption of shares, charges of
administrators, custodians and transfer agents, auditing and legal expenses and
fees of outside Trustees are borne by the Portfolio. From time to time, the
Adviser may waive receipt of its fees and/or assume certain expenses of the
Portfolio, which would have the effect of lowering the expense ratio of the
Portfolio and increasing yield to investors. Under current arrangements,
whenever, in any fiscal year, the Portfolio's normal operating expenses,
including the investment advisory fee, but excluding brokerage commissions and
interest and taxes, exceeds 1.3% of average daily net assets of the Portfolio,
the Adviser is obligated to reimburse the Portfolio in an amount equal to that
excess. If the Portfolio's operating expenses fall below the expense limitation,
the Portfolio will begin repaying the Adviser for the amount contributed on
behalf of the Portfolio. This repayment will continue for up to three years
after the end of the fiscal year in which an expense is reimbursed by the
Adviser, subject to the expense limitation, until the Adviser has been paid for
the entire amount contributed or such three year period expires.
DISTRIBUTOR
The distribution services of M.J. Whitman, Inc., 767 Third Avenue, New York, NY
10017 ("MJW" or the "Distributor") are furnished to the Portfolio pursuant to a
Distribution Agreement (the "Distribution Agreement"). Under such agreement, the
Distributor shall (1) assist in the sale and distribution of the Portfolio's
shares; and (2) qualify and maintain the qualification as a broker-dealer in
such states where shares of the Portfolio are registered for sale.
Martin J. Whitman, David M. Barse, Michael Carney and Ian M. Kirschner, who are
executive officers of the Trust and the Adviser, are also executive officers of
the Distributor.
-17-
<PAGE>
The Distribution Agreement will remain in effect provided that it is reviewed
and approved at least annually by a majority of the Trustees who are not parties
to the Distribution Agreement or interested persons of any such party and by the
Board of Trustees or by a majority of the Portfolio's outstanding shares. The
Distribution Agreement terminates automatically if it is assigned and may be
terminated without penalty by either party on not less than 60 days written
notice.
ADMINISTRATORS
The Portfolio has entered into a Services Agreement (the "Services Agreement")
with First Data Investor Services Group, Inc. ("Investor Services Group"), a
wholly owned subsidiary of First Data Corporation. The Services Agreement
provides that Investor Services Group shall provide certain accounting, transfer
agency and shareholder services to the Portfolio. The Services Agreement has an
initial three year term and may be terminated at any time (effective after such
initial term) without penalty, upon 180 days written notice by either party to
the other, and will automatically be terminated upon any assignment thereof. The
Trust has agreed to pay Investor Services Group an amount equal to $49,000 per
annum plus .03% of aggregate assets of the Portfolio between $20-50 million,
.02% of aggregate assets between $50-100 million and .01% of aggregate assets in
excess of $100 million. The Portfolio has entered into an Administration
Agreement (the "Administration Agreement") with the Adviser, which provides that
the Adviser shall provide all other adminsitrative services to the Portfolio
other than those relating to the investment portfolio of the Portfolio, the
distribution of the Portfolio and the maintenance of the Portfolio's financial
records and those performed by Investor Services Group under the Services
Agreement. The Adviser has entered into a Sub-Administration Agreement with
Investor Services Group pursuant to which Investor Services Group performs
certain of those services on behalf of the Adviser.
CUSTODIAN
Custodial Trust Company (the "Custodian"), 101 Carnegie Center, Princeton, NJ
08540-6231, serves as custodian for the Portfolio pursuant to a custodian
agreement. Under such agreement, the Custodian (1) maintains a separate account
or accounts in the name of the Portfolio; (2) holds and transfers portfolio
securities on account of the Portfolio; (3) accepts receipts and makes
disbursements of money on behalf of the Portfolio; (4) collects and receives all
income and other payments and distributions on account of the Portfolio's
securities; and (5) makes periodic reports to the Board of Trustees concerning
the Portfolio's operations.
TRANSFER AGENT
First Data Investor Services Group, Inc., 3200 Horizon Drive, P.O. Box 61503,
King of Prussia, PA 19406-0903, is the transfer agent for the Portfolio.
INDEPENDENT ACCOUNTANTS
PricewaterhouseCoopers LLP, 1177 Avenue of the Americas, New York, NY 10036, is
the independent accountants for the Portfolio. The independent accountants audit
the financial statements of the Portfolio following the end of each fiscal year
and provide a report to the Board of Trustees of the results of the audit.
PORTFOLIO TRADING PRACTICES
Under the Investment Advisory Agreement between the Trust and the Adviser, the
Adviser has the responsibility of selecting brokers and dealers. The Adviser
must place portfolio transactions with brokers and dealers who render
satisfactory service in the execution of orders at the most favorable prices and
at reasonable commission rates, but has discretion to pay a greater amount if
-18-
<PAGE>
it, in good faith, determines that such commission was reasonable in relation to
the value of the brokerage and research services provided by such broker or
dealer, either in terms of that particular transaction or in fulfilling the
overall responsibilities of the Adviser to the Portfolio. Where transactions are
executed in the over-the-counter market, or in the "third market" (the
over-the-counter market in listed securities), the Portfolio will normally first
seek to deal with the primary market makers. However, when the Portfolio
considers it advantageous to do so, it will utilize the services of brokers, but
will, in all cases, attempt to negotiate the best price and execution. The
determination of what may constitute the most favorable price and execution in a
securities transaction by a broker involves a number of considerations,
including, without limitation, the overall direct net economic result to the
Portfolio (involving both price paid or received and any commissions or other
costs paid), the efficiency with which the transaction is effected, the ability
to effect the transaction at all if selling large blocks is involved, the
availability of the broker to stand ready to execute possibly difficult
transactions in the future and the financial strength and stability of the
broker. Such considerations are judgmental and are weighed by management in
determining the overall reasonableness of brokerage commissions paid. In
allocating any such portfolio brokerage on a national securities exchange, the
Portfolio may consider the research, statistical and other factual information
and services provided by brokers from time to time to the Adviser. Such services
and information are available to the Adviser for the benefit of all clients of
the Adviser and its affiliates and it is not practical for the Adviser to assign
a particular value to any such service.
The Adviser intends to use brokers affiliated with the Adviser as brokers for
the Portfolio where, in its judgment, such firms will be able to obtain a price
and execution at least as favorable as other qualified brokers. Martin J.
Whitman, David M. Barse, Michael Carney and Ian M. Kirschner, who are executive
officers of the Trust and the Adviser, are also executive officers of MJW and
M.J. Whitman Senior Debt Corp. ("Senior Debt Corp."), a broker of private debt
instruments under common control with MJW.
In determining the commissions to be paid to MJW and Senior Debt Corp., it is
the policy of the Portfolio that such commissions will, in the judgment of the
Adviser, be (i) at least as favorable as those which would be charged by other
qualified brokers having comparable execution capability and (ii) at least as
favorable as commissions contemporaneously charged by MJW or Senior Debt Corp.,
as the case may be, on comparable transactions for its most favored unaffiliated
customers, except for any customers of MJW or Senior Debt Corp., as the case may
be, considered by a majority of the disinterested Trustees not to be comparable
to the Portfolio. The Portfolio does not deem it practicable and in its best
interests to solicit competitive bids for commission rates on each transaction.
However, consideration is regularly given to information concerning the
prevailing level of commissions charged on comparable transactions by other
qualified brokers.
The Trustees from time to time, at least on a quarterly basis, will review,
among other things, all the Portfolio's portfolio transactions including
information relating to the commissions charged by MJW and Senior Debt Corp. to
the Portfolio and to their other customers, and information concerning the
prevailing level of commissions charged by other qualified brokers. In addition,
the procedures pursuant to which MJW and Senior Debt Corp. effects brokerage
transactions for the Portfolio must be reviewed and approved no less often than
annually by a majority of the disinterested Trustees.
The Adviser expects that it will execute a portion of the Portfolio's
transactions through qualified brokers other than MJW and Senior Debt Corp. In
selecting such brokers, the Adviser will consider the quality and reliability of
the brokerage services, including execution capability and performance,
financial responsibility, and investment information and other research provided
by such brokers. Accordingly, the commissions charged by any such broker may be
greater than the amount another firm might charge if management of the Trust
determines in good faith that the amount of such commissions is reasonable in
relation to the value of the brokerage services and research information
provided by such broker to the Portfolio. Management of the Trust believes
-19-
<PAGE>
that the research information received in this manner provides the Portfolio
with benefits by supplementing the research otherwise available to the
Portfolio. Over-the-counter purchases and sales will be transacted directly with
principal market makers, except in those circumstances where the Portfolio can,
in the judgment of its management, otherwise obtain better prices and execution
of orders.
To the knowledge of the Portfolio, no affiliated person of the Portfolio
receives give-ups or reciprocal business in connection with security
transactions of the Portfolio. The Portfolio does not effect securities
transactions through brokers in accordance with any formula, nor will it take
the sale of Portfolio shares into account in the selection of brokers to execute
security transactions. However, brokers who execute brokerage transactions for
the Portfolio, including MJW and Senior Debt Corp., from time to time may effect
purchases of Portfolio shares for their customers.
SHARE INFORMATION
All shares of the Portfolio have one vote and when duly issued will be fully
paid and non-assessable. Shares have no preemptive, subscription or conversion
rights and are freely transferable. The Trustees are authorized to re-classify
and issue any unissued shares to any number of additional series without
shareholder approval. Accordingly, the Trustees in the future, for reasons such
as the desire to establish one or more additional Portfolios with different
objectives, policies, risk considerations or restrictions, may create additional
series or classes of shares. Any issuance of shares of such additional series
would be governed by the Investment Company Act of 1940, as amended, and the
laws of the State of Delaware.
Shares of the Portfolio have equal noncumulative voting rights which means that
the holders of more than 50% of the shares voting for the election of Trustees
can elect 100% of the Trustees if they choose to do so, and, in such event, the
holders of the remaining less than 50% of the shares voting for the election of
Trustees will not be able to elect any person or persons to the Board of
Trustees. The Shares of the Portfolio also have equal rights with respect to
dividends, assets and liquidation of the Portfolio and are subject to any
preferences, rights or privileges of any classes of shares of the Portfolio. The
Trust is not required to and has no current intention of holding annual
shareholder meetings, although special meetings may be called for purposes
requiring shareholder approval, such as changing fundamental investment policies
or upon the written request of 10% of the Portfolio shares to replace its
Trustees.
PURCHASE ORDERS
The purchase of shares of the Portfolio is currently limited to separate
accounts (the "Accounts") of insurance companies to fund the benefits of
variable annuity or variable life insurance policies (the "Contracts") as
explained in the Prospectus. The Portfolio reserves the right, in its sole
discretion, to refuse purchase orders. Without limiting the foregoing, the
Portfolio will consider exercising such refusal right when it determines that it
cannot effectively invest the available funds on hand in accordance with the
Portfolio's investment policies.
REDEMPTION OF SHARES
The procedure for redemption of Portfolio shares under ordinary circumstances is
set forth in the Prospectus and in the separate prospectus relating to the
Contracts which accompanies the Prospectus. In unusual circumstances, such as in
the case of a suspension of the determination of net asset value, the right of
redemption is also suspended and, unless redeeming shareholders withdraw their
certificates from deposit, they will receive payment of the net asset value next
determined after termination of the suspension. The right of redemption may be
suspended or payment upon redemption deferred for more than seven days: (a) when
trading on the New York
-20-
<PAGE>
Stock Exchange (the "NYSE") is restricted; (b) when the NYSE is closed for other
than weekends and holidays; (c) when the SEC has by order permitted such
suspension; or (d) when an emergency exists making disposal of portfolio
securities or valuation of net assets of the Portfolio not reasonably
practicable; provided that applicable rules and regulations of the SEC shall
govern as to whether the conditions prescribed in (a), (c) or (d) exist.
REDEMPTION IN KIND
The Portfolio has elected to be governed by Rule 18f-1 under the 1940 Act
pursuant to which the Portfolio is obligated during any 90 day period to redeem
shares for any one shareholder of record solely in cash up to the lesser of
$250,000 or 1% of the net asset value of the Portfolio at the beginning of such
period. Should a redemption exceed such limitation, the Portfolio may deliver,
in lieu of cash, readily marketable securities from its portfolio. The
securities delivered will be selected at the sole discretion of the Portfolio,
will not necessarily be representative of the entire portfolio and may be
securities which the Portfolio would otherwise sell. The redeeming shareholder
will usually incur brokerage costs in converting the securities to cash. The
method of valuing securities used to make the redemptions in kind will be the
same as the method of valuing portfolio securities and such valuation will be
made as of the same time the redemption price is determined.
For purposes of determining the Portfolio's net asset value per share, readily
marketable portfolio securities listed on the NYSE are valued, except as
indicated below, at the last sale price reflected at the close of the regular
trading session of the NYSE on the business day as of which such value is being
determined. If there has been no sale on such day, the securities are valued at
the mean of the closing bid and asked prices on such day. If no bid or asked
prices are quoted on such day, then the security is valued by such method as the
Board of Trustees shall determine in good faith to reflect its fair market
value. Readily marketable securities not listed on the NYSE but listed on other
national securities exchanges or admitted to trading on the National Association
of Securities Dealers Automated Quotations, Inc. ("NASDAQ") National List are
valued in a like manner. Portfolio securities traded on more than one national
securities exchange are valued at the last sale price on the business day as of
which such value is being determined as reflected on the tape at the close of
the exchange representing the principal market for such securities.
Readily marketable securities traded in the over-the-counter market, including
listed securities whose primary market is believed by the Adviser to be
over-the-counter but excluding securities admitted to trading on the NASDAQ
National List, are valued at the mean of the current bid and asked prices as
reported by NASDAQ or, in the case of securities not quoted by NASDAQ, the
National Quotation Bureau or such other comparable sources as the Board of
Trustees deems appropriate to reflect their fair value.
United States Government obligations and other debt instruments having sixty
days or less remaining until maturity are stated at amortized cost. Debt
instruments having a greater remaining maturity will be valued at the highest
bid price obtained from a dealer maintaining an active market in that security
or on the basis of prices obtained from a pricing service approved as reliable
by the Board of Trustees. All other investment assets, including restricted and
not readily marketable securities, are valued under procedures established by
and under the general supervision and responsibility of the Portfolio's Board of
Trustees designed to reflect in good faith the fair value of such securities.
As indicated in the Prospectus, the net asset value per share of the Portfolio's
shares will be determined on each day that the NYSE is open for trading. The
NYSE annually announces the days on which it will not be open for trading; the
most recent announcement indicates that it will not be open on the following
days: New Year's Day, President's Day, Martin Luther King, Jr. Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
However, the NYSE may close on days not included in that announcement.
-21-
<PAGE>
DIVIDENDS, CAPITAL GAIN DISTRIBUTIONS AND TAXES
The Portfolio will elect to be taxed as a "regulated investment company" under
the Code. So long as the Portfolio qualifies as a "regulated investment
company", the Portfolio will not be subject to Federal income taxes to the
extent it distributes its net investment income and net capital gains. If for
any taxable year the Portfolio does not qualify for the special tax treatment
afforded regulated investment companies, all of its taxable income, including
any net capital gains, would be subject to tax at regular corporate rates
(without any deduction for distributions to shareholders).
The Portfolio will either distribute or retain for reinvestment all or part of
any net long-term capital gain. If any such net capital gain is retained, the
Portfolio will be subject to a tax of 35% of such amount. In that event, the
Portfolio expects to designate the retained amount as undistributed capital
gains in a notice to its shareholders, each of whom (1) will be required to
include in income for tax purposes, as long-term capital gains, its share of
such undistributed amount, (2) will be entitled to credit its proportionate
share of the tax paid by the Portfolio against its Federal income tax liability
and to claim refunds to the extent the credit exceeds such liability, and (3)
will increase its basis in its shares of the Portfolio by an amount equal to 65%
of the amount of the undistributed capital gains included in such shareholder's
gross income. A distribution by a Portfolio will be treated as paid during any
calendar year if it is declared by the Portfolio in October, November or
December of that year, payable to shareholders of record on a date during such
month and paid by the Portfolio during January of the following year. Any such
distributions paid during January of the following year will be deemed to be
received on December 31 of the year the distribution is declared, rather than
when the distribution is received.
Under the Code, amounts not distributed on a timely basis in accordance with a
calendar year distribution requirement are subject to a 4% excise tax. To avoid
the tax, the Portfolio must distribute during each calendar year, an amount
equal to at least the sum of (1) 98% of its ordinary income (not taking into
account any capital gains or losses) for the calendar year, (2) 98% of its
capital gains in excess of its capital losses for the twelve-month period ending
on October 31 of the calendar year (unless an election is made by a Portfolio
with a November or December year end to use the Portfolio's fiscal year), and
(3) all ordinary income and net capital gains for previous years that were not
previously distributed.
The Federal income tax treatment of the various high yield debt securities and
other debt instruments (collectively, "Instruments" and individually, an
"Instrument") to be acquired by the Portfolio will depend, in part, on the
nature of those Instruments and the application of various tax rules. The
Portfolio may derive interest income through the accrual of stated interest
payments or through the application of the original issue discount rules, the
market discount rules or other similar provisions. The Portfolio may be required
to accrue original issue discount income, and in certain circumstances the
Portfolio may be required to accrue stated interest even though no concurrent
cash payments will be received. Moreover, it is the position of the IRS that a
holder of a debt instrument subject to the original issue discount rules is
required to recognize interest income regardless of the financial condition of
the obligor, even where there is no reasonable expectancy that the Instrument
will be redeemed according to its terms. If the Portfolio acquires an Instrument
at a discount and the terms of that Instrument are subsequently modified, the
Portfolio could be required to recognize gain at the time of the modification
even though no cash payments will have been received at that time. The market
discount rules, as well as certain other provisions, may require that a portion
of any gain recognized on the sale, redemption or other disposition of an
Instrument be treated as ordinary income as opposed to capital gain. Also, under
the market discount rules, if the Portfolio were to receive a partial payment on
an Instrument, the Portfolio could be required to recognize ordinary income at
the time of the partial payment, even though the Instrument may ultimately be
settled at an overall loss. As a result of these and other rules, the Portfolio
may be required to recognize taxable
-22-
<PAGE>
income which it would be required to distribute, even though the underlying
Instruments have not made concurrent cash distributions to the Portfolio.
The body of law governing these Instruments is complex and not well developed.
Thus the Portfolio and its advisors may be required to interpret various
provisions of the Internal Revenue Code and Regulations and take certain
positions on the Portfolio's tax returns, in situations where the law is
somewhat uncertain.
PERFORMANCE INFORMATION
Performance information for the Portfolio may appear in advertisements, sales
literature, or reports to shareholders or prospective shareholders. Performance
information in advertisements and sales literature may be expressed as "average
annual return" and "total return."
The Portfolio's average annual return quotation is computed in accordance with a
standardized method prescribed by rules of the SEC. The average annual return
for a specific period is found by first taking a hypothetical $1,000 investment
("initial investment") in the Portfolio's shares on the first day of the period
and computing the redeemable value of that investment at the end of the period.
The redeemable value is then divided by the initial investment, and this
quotient is taken to the Nth root (N representing the number of years in the
period) and 1 is then subtracted from the result, which is then expressed as a
percentage. The calculation assumes that all income and capital gains dividends
paid by the Portfolio have been reinvested at net asset value on the
reinvestment dates during the period.
Calculation of the Portfolio's total return is subject to a standardized
formula. Total return performance for a specific period is calculated by taking
an initial investment in the Portfolio's shares on the first day of the period
and computing the redeemable value of that investment at the end of the period.
The total return percentage is then determined by subtracting the initial
investment from the redeemable value and dividing the remainder by the initial
investment and expressing the result as a percentage. The calculation assumes
that all income and capital gains dividends by the Portfolio have been
reinvested at net asset value on the reinvestment dates during the period. Total
return may also be shown as the increased dollar value of the hypothetical
investment over the period.
As of September 1, 1999, the Portfolio had not commenced investment operations
and, accordingly, no performance information is included for the Portfolio.
PERFORMANCE OF ADVISER. The Adviser manages the Third Avenue Value Fund (the
"Value Fund"), which served as the model for the Portfolio. The Portfolio has
substantially the same investment objective, policies and strategies as the
Value Fund. In addition, the Adviser intends the Portfolio to be managed by the
same personnel and to continue to have closely similar investment strategies,
techniques and characteristics as the Value Fund. Past investment performance of
the Value Fund, as shown in the table below, may be relevant to your
consideration of investment in the Portfolio. The investment performance of the
Value Fund is not necessarily indicative of future performance of the Portfolio.
As of the date of this SAI, the Portfolio had not yet commenced investment
operations and therefore had no performance of its own. Also, the operating
expenses of the Portfolio will be different from the operating expenses of the
Value Fund. The investment performance of the Value Fund is provided merely to
indicate the experience of the Adviser in managing a similar investment
portfolio. The data does not reflect any fees that may be accessed at the
Contract level as explained in the Prospectus. Such fees would reduce the total
return figures shown below.
-23-
<PAGE>
The data set forth below are adjusted to reflect the Portfolio's projected
operating expenses for its first year of operation.
Average Annual Total Return for Third Avenue Value Fund's Shares
(A Separate Mutual Fund from the Portfolio)
For the Periods Ended October 31, 1998
(adjusted to reflect projected operating expenses of the Portfolio)
1 Year 5 Years Since Inception (1991)
- ------ ------- ----------------------
(4.08%) 13.39% 19.52%
The past performance of the Value Fund is no guarantee of the future performance
of the Value Fund or the Portfolio.
FINANCIAL STATEMENTS
The Portfolio will issue unaudited semi-annual and audited annual financial
statements.
-24-
<PAGE>
Appendix
Description of Corporate Bond Ratings
Standard & Poor's Ratings Group
The ratings are based on current information furnished by the issuer or obtained
by Standard & Poor's from other sources it considers reliable. Standard & Poor's
does not perform any audit in connection with any rating and may, on occasion,
rely on unaudited financial information. The ratings may be changed, suspended
or withdrawn as a result of changes in, or unavailability of, such information
or for other circumstances.
The ratings are based, in varying degrees, on the following considerations:
I. Likelihood of default-capacity and willingness of the obligor as to the
timely payment of interest and repayment of principal in accordance with
the terms of the obligation.
II. Nature and provisions of the obligation.
III. Protection afforded by, and relative position of the obligation in the
event of bankruptcy, reorganization or other arrangement under the laws of
bankruptcy and other laws affecting creditors' rights.
AAA - Debt rated "AAA" has the highest rating assigned by Standard &
Poor's. Capacity to pay interest and repay principal is extremely strong.
AA - Debt rated "AA" has a very strong capacity to pay interest and repay
principal and differs from the higher rated issues only in small degree.
A - Debt rated "A" has a strong capacity to pay interest and repay
principal although it is somewhat more susceptible to the adverse effects
of changes in circumstances and economic conditions than debt in higher
rated categories.
BBB - Debt rated "BBB" is regarded as having an adequate capacity to pay
interest and repay principal. Whereas it normally exhibits adequate
protection parameters, adverse economic conditions or changing
circumstances are more likely to lead to a weakened capacity to pay
interest and repay principal for debt in this category than in higher rated
categories.
BB, B, CCC, CC, C - Debt rated "BB", "B", "CCC", "CC", and "C" is regarded,
on balance, as predominantly speculative with respect to capacity to pay
interest and repay principal in accordance with the terms of the
obligation. "BB" indicates the lowest degree of speculation and "C" the
highest degree of speculation. While such debt will likely have some
quality and protective characteristics, these are outweighed by large
uncertainties or major risk exposures to adverse conditions.
BB - Debt rated "BB" has less near-term vulnerability to default than other
speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial or economic conditions which could
lead to inadequate capacity to meet timely interest and principal payments.
The "BB" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "BBB" rating.
B - Debt rated "B" has a greater vulnerability to default but currently has
the capacity to meet interest payments and principal repayments. Adverse
business, financial or economic conditions will likely impair capacity or
willingness to pay interest and repay principal. The "B" rating category is
also used for debt subordinated to senior debt that is assigned an actual
or implied "BB" or "BB-" rating.
CCC - Debt rated "CCC" has a currently identifiable vulnerability to
default, and is dependent upon favorable business, financial and economic
conditions to meet timely payment of interest and repayment of principal.
In the event of adverse business, financial or economic conditions, it is
not likely to have the capacity to pay interest and repay principal. The
"CCC" rating category is also used for debt subordinated to senior debt
that is assigned an actual or implied "B" or "B-" rating.
CC - The rating "CC" is typically applied to debt subordinated to senior
debt that is assigned an actual or implied "CCC" rating.
C - The rating "C" is typically applied to debt subordinated to senior debt
which is assigned an actual or implied "CCC-" debt rating. The "C" rating
may be used to cover a situation where a bankruptcy petition has been
filed, but debt service payments are continued.
C1 - The rating "C1" is reserved for income bonds on which no interest is
being paid.
D - Debt rated "D" is in payment default. The "D" rating category is used
when interest payments or principal payments are not made on the date due
even if the applicable grace period has not expired, unless Standard &
Poor's believes that such payments will be made during such grace period.
The "D" rating also will be used upon the filing of a bankruptcy petition
if debt service payments are jeopardized.
Plus (+) or Minus (-): The ratings from "AA" to "CCC" may be modified by the
addition of a plus or minus sign to show relative standing within the major
categories.
-25-
<PAGE>
MOODY'S INVESTORS SERVICE, INC.
Aaa - Bonds which are rated Aaa are judged to be of the best quality. They
carry the smallest degree of investment risk and are generally referred to
as "gilt edged." Interest payments are protected by a large or by an
exceptionally stable margin and principal is secure. While the various
protective elements are likely to change, such changes as can be visualized
are most unlikely to impair the fundamentally strong position of such
issues.
Aa - Bonds which are rated Aa are judged to be of high quality by all
standards. Together with the Aaa group they comprise what are generally
known as high-grade bonds. They are rated lower than the best bonds because
margins of protection may not be as large as in Aaa securities, fluctuation
of protective elements may be of greater amplitude, or there may be other
elements present which make the long-term risk appear somewhat greater than
the Aaa securities.
A - Bonds which are rated A possess many favorable investment attributes
and are to be considered as upper-medium-grade obligations. Factors giving
security to principal and interest are considered adequate, but elements
may be present which suggest a susceptibility to impairment some time in
the future.
Baa - Bonds which are rated Baa are considered as medium-grade obligations
(i.e., they are neither highly protected nor poorly secured). Interest
payments and principal security appear adequate for the present, but
certain protective elements may be lacking or may be characteristically
unreliable over any great length of time. Such bonds lack outstanding
investment characteristics and in fact have speculative characteristics as
well.
Ba - Bonds which are rated Ba are judged to have speculative elements:
their future cannot be considered as well-assured. Often the protection of
interest and principal payments may be very moderate and thereby not well
safeguarded during both good and bad times over the future. Uncertainty of
position characterizes bonds in this class.
B - Bonds which are rated B generally lack characteristics of the desirable
investment. Assurance of interest and principal payments or of maintenance
of other terms of the contract over any long period of time may be small.
Caa - Bonds which are rated Caa are of poor standing. Such issues may be in
default or there may be present elements of danger with respect to
principal or interest.
Ca - Bonds which are rated Ca represent obligations which are speculative
in a high degree. Such issues are often in default or have other marked
shortcomings.
C - Bonds which are rated C are the lowest rated class of bonds, and issues
so rated can be regarded as having extremely poor prospects of ever
attaining any real investment standing. Moody's applies numerical
modifiers: 1, 2 and 3 in each generic rating classification from Aa through
B in its corporate bond rating system. The modifier 1 indicates that the
security ranks in the higher end of its generic rating category, the
modifier 2 indicates a mid-range ranking, and the modifier 3 indicates that
the issue ranks in the lower end of its generic rating category.
-26-
<PAGE>
BOARD OF TRUSTEES
Phyllis W. Beck
Lucinda Franks
Gerald Hellerman
Marvin Moser
Donald Rappaport
Myron M. Sheinfeld
Martin Shubik
Charles C. Walden
Barbara Whitman
Martin J. Whitman
OFFICERS
Martin J. Whitman
Chairman, Chief Executive Officer
David M. Barse
President, Chief Operating Officer
Michael Carney
Chief Financial Officer, Treasurer
Kerri Weltz, Assistant Treasurer
Ian M. Kirschner, General Counsel and Secretary
INVESTMENT ADVISER
EQSF Advisers, Inc.
767 Third Avenue
New York, NY 10017-2023
DISTRIBUTOR
M.J. Whitman, Inc.
767 Third Avenue
New York, NY 10017-2023
TRANSFER AGENT
First Data Investor Services Group, Inc.
3200 Horizon Drive
P.O. Box 61503
King of Prussia, PA 19406-0903
(610) 239-4600
(800) 443-1021 (toll-free)
CUSTODIAN
Custodial Trust Company
101 Carnegie Center
Princeton, NJ 08540-6231
[GRAPHIC OMITTED]
767 THIRD AVENUE
NEW YORK, NY 10017
Phone (212) 888-5222
Toll Free (800) 443-1021
www.thirdavenuefunds.com
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Shareholder and Trustees of
Third Avenue Variable Series Trust -
Third Avenue Value Portfolio
In our opinion, the accompanying statement of assets and liabilities and the
related statement of operations present fairly, in all material respects, the
financial position of Third Avenue Variable Series Trust - Third Avenue Value
Portfolio (the "Fund") at September 10, 1999, and the results of its operations
for the one day period then ended, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Fund's management; our responsibility is to express an opinion on these
financial statements based on our audit. We conducted our audit of these
financial statements in accordance with generally accepted auditing standards
which require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
September 10, 1999
<PAGE>
THIRD AVENUE VARIABLE SERIES TRUST
THIRD AVENUE VALUE PORTFOLIO
STATEMENT OF ASSETS AND LIABILITIES
SEPTEMBER 10, 1999
ASSETS
Cash $ 100
Receivable from Adviser 55,000
-------
Total assets 55,100
LIABILITIES
Organization costs payable 55,000
-------
Total liabilities 55,000
-------
Net assets $ 100
=======
SUMMARY OF NET ASSETS
Common stock, $ 0.001 par value, unlimited
shares authorized, 10 shares outstanding $ -
Additional paid in capital 100
-------
Net assets applicable to outstanding capital shares $100
====
Net asset value per share $10.00
======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-1
<PAGE>
THIRD AVENUE VARIABLE SERIES TRUST
THIRD AVENUE VALUE PORTFOLIO
STATEMENT OF OPERATIONS
FOR THE ONE DAY PERIOD ENDED SEPTEMBER 10, 1999
Organization expenses $55,000
Expenses reimbursed by the Adviser (55,000)
-------
Net income/loss 0
=======
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THE FINANCIAL STATEMENTS.
F-2
<PAGE>
THIRD AVENUE VARIABLE SERIES TRUST
THIRD AVENUE VALUE PORTFOLIO
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 10, 1999
1. ORGANIZATION:
Third Avenue Variable Series Trust (the "Trust") is an open-end,
non-diversified management investment company organized as a Delaware
business trust pursuant to an Agreement and Declaration of Trust dated as
of June 16, 1999. The Trust currently consists of one investment series:
Third Avenue Value Portfolio (the "Portfolio"). The Portfolio has had no
operations to date, other than the sale of 10 shares for the amount of $100
on September 10, 1999.
Costs incurred in connection with the organization of the Portfolio,
estimated at $55,000, will be borne by the Portfolio, subject to the
expense limitation described in Note 2 below.
The Portfolio's objective is long-term capital appreciation which it seeks
to achieve primarily by acquiring common stocks of well-financed companies
at a substantial discount to what the Adviser believes is their true value.
The financial statements have been prepared in accordance with generally
accepted accounting principles. These accounting principles require that
management make estimates and assumptions that affect the reported amounts
and disclosures in the financial statements. Such estimates and assumptions
may differ from actual results.
2. INVESTMENT ADVISORY SERVICES:
The Portfolio has an Investment Advisory Agreement with EQSF Advisers, Inc.
(the "Adviser") for investment advice and certain management functions. The
terms of the Investment Advisory Agreement provide for a monthly fee of
1/12 of 0.90% (an annual fee rate of 0.90%) of the total average daily net
assets of the Portfolio, payable each month. Additionally, under the terms
of the Investment Advisory Agreement, the Adviser pays certain expenses on
behalf of the Portfolio, which are reimbursable by the Portfolio, including
salaries of non-officer employees and other miscellaneous expenses.
Whenever, in any fiscal year, the Portfolio's normal operating expenses,
including the investment advisory fee, but excluding brokerage commissions
and interest and taxes, exceeds 1.3% of average daily net assets of the
Portfolio, the Adviser is obligated to reimburse the Portfolio in an amount
equal to that excess. Such reimbursed expenses may be paid to the Adviser
during the following three year period to the extent that the payment of
such expenses would not cause the Portfolio to exceed the preceding
limitation. The Portfolio recorded its initial organization costs of
$55,000 as an expense as of September 10, 1999 and recognized an offsetting
expense reduction as a result of the Adviser's commitment to reimburse
these costs. The Portfolio may be obliged to repay some or all of these
costs to the Adviser if the preceding conditions are met.
F-3
<PAGE>
PART C - OTHER INFORMATION
ITEM 23. EXHIBITS
Exhibits filed pursuant to Form N-1A:
(a)(1) Agreement and Declaration of Trust and Certificate of
Trust are incorporated by reference to the
Registrant's Registration Statement on Form N-1A,
file No. 333-81141, filed on June 21, 1999.
(2) Designation of Subtrust for Third Avenue Value
Portfolio is incorporated by reference to the
Registrant's Registration Statement on Form N-1A,
file No. 333-81141, filed on June 21, 1999.
(b) By-Laws are incorporated by reference to the
Registrant's Registration Statement on Form N-1A,
file No. 333-81141, filed on June 21, 1999.
(c) Reference is made to Articles V and VI of the Trust's
Agreement and Declaration of Trust.
(d) Investment Advisory Contract is filed herewith.
(e) Distribution Agreement is filed herewith.
(g) Custody Agreement between Third Avenue Variable
Series Trust and Custodial Trust Company is filed
herewith.
(h) (1) Services Agreement between Third Avenue Variable
Series Trust and First Data Investor Services
Group, Inc. is filed herewith.
(2) Administration Agreement between Third Avenue
Variable Series Trust and EQSF Advisers, Inc. is
filed herewith.
(3) Sub-Administration Agreement between EQSF
Advisers, Inc. and First Data Investor Services
Group, Inc. is filed herewith.
(i) (a) Opinion and Consent of Counsel regarding the
legality of the securities being issued is filed
herewith.
(j) Consent of Auditors is filed herewith.
(n) Not applicable.
Item 24. Persons Controlled By or Under Common Control with
Registrant.
Insofar as the following have substantially the same boards
of trustees or directors, they may be deemed to be under
common control with the Portfolio: Third Avenue Value Fund,
Third Avenue Small-Cap Value Fund, Third Avenue High Yield
Fund and Third Avenue Real Estate Value Fund.
Item 25. Indemnification.
Reference is made to Article IV of the Registrant's Trust
Instrument.
Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to trustees,
officers and controlling persons of the Registrant by the
Registrant pursuant to the Trust's Trust Instrument, its
By-Laws or otherwise, the Registrant is aware that in the
opinion of the Securities and Exchange Commission, such
indemnification is against public policy as expressed in the
Act and, therefore, is unenforceable. In the event that a
claim for indemnification against such liabilities (other
than the payment by the Registrant of expenses incurred or
paid by trustees, officers or controlling persons of the
Registrant in connection with the successful defense of any
act, suit or proceeding) is asserted by such trustees,
officers or controlling persons in connection with shares
being registered, the Registrant will, unless in the opinion
of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the
question whether such
<PAGE>
indemnification by it is against public policy as expressed
in the Act and will be governed by the final adjudication of
such issues.
Item 26. Business and other connections of investment adviser.
EQSF Advisers, Inc., 767 Third Avenue, New York, New York
10017-2023 provides investment advisory services to
investment companies and as of September 3, 1999 had
approximately $1,506 million in assets under management.
For information as to any other business, vocation or
employment of a substantial nature in which each Director or
officer of the Registrant's investment adviser has been
engaged for his own account or in the capacity of Director,
officer, employee, partner or trustee, reference is made to
Form ADV (File #801-27792) filed by it under the Investment
Advisers Act of 1940.
Item 27. Principal underwriters.
(a) Not Applicable.
(b) Not Applicable.
(c) Not Applicable.
Item 28. Location of accounts and records.
All records described in Section 31 (a) of the Investment Company Act of 1940,
as amended and Rules 17 CFR 270.31a-1 to 31a-31 promulgated thereunder, are
maintained by the Trust's Investment Adviser, EQSF Advisers, Inc. 767 Third
Avenue, NY, NY 10017-2023, except for those records maintained by the Trust's
Custodian, Custodial Trust Company, 101 Carnegie Center, Princeton, NJ
08540-6231, and the Trust's Shareholder Service and Fund Accounting and Pricing
Agent, First Data Corporation, 3200 Horizon Drive, P.O. Box 61503, King of
Prussia, PA 19406-0903.
Item 29. Management services.
None.
Item 30. Undertakings.
Not applicable
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment
Company Act of 1940, as amended, the Registrant has duly caused this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of New York, and State of New York on the 10th day
of September, 1999.
THIRD AVENUE VARIABLE SERIES TRUST
Registrant
/s/ Martin J. Whitman
----------------------------------
Martin J. Whitman, Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this Registration
Statement of Third Avenue Variable Series Trust has been signed below by the
following persons in the capacities and on the date indicated.
Signature Capacity Date
/s/ MARTIN J. WHITMAN
- --------------------------------
Martin J. Whitman Chief Executive Officer 9/10/99
/s/ MICHAEL CARNEY
- --------------------------------
Michael Carney Chief Financial Officer 9/10/99
/s/ PHYLLIS W. BECK
- --------------------------------
Phyllis W. Beck Trustee 9/10/99
/s/ MARTIN SHUBIK
- --------------------------------
Martin Shubik Trustee 9/10/99
/s/ MYRON M. SHEINFELD
- --------------------------------
Myron M. Sheinfeld Trustee 9/10/99
/s/ GERALD HELLERMAN
- --------------------------------
Gerald Hellerman Trustee 9/10/99
/s/ CHARLES C. WALDEN
- --------------------------------
Charles C. Walden Trustee 9/10/99
/s/ MARVIN MOSER
- --------------------------------
Marvin Moser Trustee 9/10/99
/s/ BARBARA WHITMAN
- --------------------------------
Barbara Whitman Trustee 9/10/99
/s/ LUCINDA FRANKS
- --------------------------------
Lucinda Franks Trustee 9/10/99
/s/ DONALD RAPPAPORT
- --------------------------------
Donald Rappaport Trustee 9/10/99
<PAGE>
SCHEDULE OF EXHIBITS TO FORM N-1A
EXHIBIT
NUMBER EXHIBIT
D Investment Advisory Contract
E Distribution Agreement
G Custody Agreement
H (1) Services Agreement
(2) Administration Agreement
(3) Sub-Administration Agreement
I Opinion and Consent of Counsel
J Consent of Auditors
INVESTMENT ADVISORY AGREEMENT
-----------------------------
INVESTMENT ADVISORY AGREEMENT, dated as of September 1, 1999,
between Third Avenue Variable Series Trust (the "Trust"), a Delaware business
trust, on behalf of its series, Third Avenue Value Portfolio (the "Fund") and
EQSF Advisers, Inc. (the "Adviser"), a New York corporation.
In consideration of the mutual promises and agreements herein
contained and other good and valuable consideration, the receipt of which is
hereby acknowledged, it is agreed by and between the parties hereto as follows:
1. IN GENERAL
The Adviser agrees, all as more fully set forth herein, to act
as investment adviser to the Fund with respect to the investment of the assets
of the Fund and to supervise and arrange the purchase and sale of assets held in
the investment portfolio of the Trust. The Adviser may delegate any or all of
its responsibilities to one or more sub-advisers or administrators, subject to
the approval of the Board of Trustees of the Trust. Such delegation shall not
relieve the Adviser of its duties and responsibilities hereunder.
2. DUTIES AND OBLIGATIONS OF THE ADVISER WITH RESPECT TO
INVESTMENTS OF ASSETS OF THE FUND
(a) Subject to the succeeding provisions of this paragraph
and subject to the direction and control of the Trust's Board of Trustees, the
Adviser shall (i) act as investment adviser for and supervise and manage the
investment and reinvestment of the Fund's assets and in connection therewith
have complete discretion in purchasing and selling securities and other assets
for the Fund and in voting, exercising consents and exercising all other rights
appertaining to such securities and other assets on behalf of the Fund; and (ii)
arrange for the purchase and sale of securities and other assets held in the
investment portfolio of the Fund. Nothing contained herein shall be construed to
restrict the Fund's right to hire its own employees or to contract separately
with EQSF Advisers, Inc. or others to provide administrative services to the
Fund, including but not limited to, the calculation of the net asset value of
the Fund's shares.
<PAGE>
(b) In the performance of its duties under this Agreement,
the Adviser shall at all times use all reasonable efforts to conform to, and act
in accordance with, any requirements imposed by (i) the provisions of the
Investment Company Act of 1940, as amended (the "Act"), and of any rules or
regulations in force thereunder; (ii) any other applicable provision of law;
(iii) the provisions of the Declaration of Trust and By-Laws of the Fund, as
such documents are amended from time to time; (iv) the investment objectives,
policies and restrictions applicable to the Fund as set forth in the Fund's
Prospectus (including its Statement of Additional Information) and (v) any
policies and determinations of the Board of Trustees of the Trust.
(c) The Adviser will seek to provide qualified personnel
to fulfill its duties hereunder and will bear all costs and expenses (including
any overhead and personnel costs) incurred in connection with its duties
hereunder and shall bear the costs of any salaries or trustees fees of any
officers or trustees of the Trust who are affiliated persons (as defined in the
Act) of the Adviser. Subject to the foregoing, the Fund shall be responsible for
the payment of all the Fund's other expenses, including (i) payment of the fees
payable to the Adviser under paragraph 4 hereof; (ii) organizational expenses;
(iii) brokerage fees and commissions; (iv) taxes; (v) interest charges on
borrowings; (vi) the cost of liability insurance or fidelity bond coverage for
the Fund officers and employees, and trustees' and officers' errors and
omissions insurance coverage; (vii) legal, auditing and accounting fees and
expenses; (viii) charges of the Fund's administrator, custodian, transfer agent
and other service providers, (ix) the Fund's pro rata portion of dues, fees and
charges of any trade association of which the Fund is a member; (x) the expenses
of printing, preparing and mailing proxies, stock certificates and reports,
including the Fund's prospectus and statement of additional information, and
notices to shareholders; (xi) filing fees for the registration or qualification
of the Fund and its shares under federal or state securities laws; (xii) the
fees and expenses involved in registering and maintaining registration of the
Fund's shares with the Securities and Exchange Commission; (xiii) the expenses
of holding shareholder meetings; (xiv) the compensation, including fees, of any
of the Trust's trustees, officers or employees who are not affiliated persons of
the Adviser; (xv) all expenses of computing the Fund's net asset value per
share, including any equipment or services obtained solely for the purpose of
pricing shares or valuing the Fund's investment portfolio; (xvi) expenses of
personnel performing shareholder servicing functions and all other distribution
expenses payable by the Fund; (xvii) expenses of redemption of shares and
(xviii) litigation and other extraordinary or non-recurring expenses and other
expenses properly payable by the Fund.
2
<PAGE>
(d) The Adviser shall give the Fund the benefit of its best
judgment and effort in rendering services hereunder, but neither the Adviser nor
any of its officers, directors, employees, agents or controlling persons shall
be liable for any act or omission or for any loss sustained by the Fund in
connection with the matters to which this Agreement relates, except a loss
resulting from willful misfeasance, bad faith or gross negligence in the
performance of its duties, or by reason of its reckless disregard of its
obligations and duties under this Agreement; provided, however, that the
foregoing shall not constitute a waiver of any rights which the Fund may have
which may not be waived under applicable law.
(e) Nothing in this Agreement shall prevent the Adviser or
any director, officer, employee or other affiliate thereof from acting as
investment adviser for any other person, firm or corporation, or from engaging
in any other lawful activity, and shall not in any way limit or restrict the
Adviser or any of its directors, officers, employees or agents from buying,
selling or trading any securities for its or their own accounts or for the
accounts of others for whom it or they may be acting.
3. Portfolio Transactions
In the course of the Adviser's execution of portfolio
transactions for the Fund, it is agreed that the Adviser shall employ securities
brokers and dealers which, in its judgment, will be able to satisfy the policy
of the Fund to seek the best execution of its portfolio transactions at
reasonable expenses. For purposes of this agreement, "best execution" shall mean
prompt, efficient and reliable execution at the most favorable price obtainable.
Under such conditions as may be specified by the Trust's Board of Trustees in
the interest of its shareholders and to ensure compliance with applicable law
and regulations, the Adviser may (a) place orders for the purchase or sale of
the Fund's portfolio securities with its affiliates, M.J. Whitman, Inc. and M.J.
Whitman Senior Debt Corp.; (b) pay commissions to brokers other than its
affiliates which are higher than might be charged by another qualified broker to
obtain brokerage and/or research services considered by the Adviser to be useful
or desirable in the performance of its duties hereunder and for the investment
management of other advisory accounts over which it or its affiliates exercise
investment discretion; and (c) consider sales by brokers (other than its
affiliates distributor) of shares of the Fund and any other mutual fund for
which it or its affiliates act as investment adviser, as a factor in its
selection of brokers and dealers for the Fund's portfolio transactions.
4. COMPENSATION OF THE ADVISER
(a) The Fund agrees to pay to the Adviser out of the
Fund's assets and the Adviser agrees to accept as full compensation for all
services rendered
3
<PAGE>
by or through the Adviser a fee computed daily and payable monthly in arrears an
amount equal to 1/12 of .90% of the Fund's daily average net assets for such
month. For any period less than a month during which this Agreement is in
effect, the fee shall be prorated according to the proportion which such period
bears to a full month of 28, 29, 30 or 31 days, as the case may be.
(b) For purposes of this Agreement, the net assets of the
Fund shall be calculated pursuant to the procedures adopted by resolutions of
the Trustees of the Trust for calculating the net asset value of the Fund's
shares.
5. Indemnity.
(a) The Fund hereby agrees to indemnify the Adviser and
each of the Adviser's directors, officers, employees, and agents (including any
individual who serves at the Adviser's request as director, officer, partner,
trustee or the like of another corporation) and controlling persons (each such
person being an "indemnitee) against any liabilities and expenses, including
amounts paid in satisfaction of judgments, in compromise or as fines and
penalties, and counsel fees (all as provided in accordance with applicable
corporate law) reasonably incurred by such indemnitee in connection with the
defense or disposition of any action, suit or other proceeding, whether civil or
criminal, before any court or administrative or investigative body in which he
may be or may have been involved as a party or otherwise or with which he may be
or may have been threatened, while acting in any capacity set forth above in
this paragraph or thereafter by reason of his having acted in any such capacity,
except with respect to any matter as to which he shall have been adjudicated not
to have acted in good faith in the reasonable belief that his action was in the
best interest of the Fund and furthermore, in the case of any criminal
proceeding, so long as he had no reasonable cause to believe that the conduct
was unlawful, provided, however, that (1) no indemnitee shall be indemnified
hereunder against any liability to the Fund or its shareholders or any expense
of such indemnitee arising by reason of (i) willful misfeasance, (ii) bad faith,
(iii) gross negligence or (iv) reckless disregard of the duties involved in the
conduct of his position (the conduct referred to in such clauses (i) through (v)
being sometimes referred to herein as "disabling conduct"), (2) as to any matter
disposed of by settlement or a compromise payment by such indemnitee, pursuant
to a consent decree or otherwise, no indemnification either for said payment or
for any other expenses shall be provided unless there has been a determination
that such settlement or compromise is in the best interests of the Fund and that
such indemnitee appears to have acted in good faith in the reasonable belief
that his action was in the best interest of the Fund and did not involve
disabling conduct by such indemnitee and (3) with respect to any action, suit or
other proceed-
4
<PAGE>
ing voluntarily prosecuted by any indemnitee as plaintiff, indemnification shall
be mandatory only if the prosecution of such action, suit or other proceeding by
such indemnitee was authorized by a majority of the full Board of the Trust.
Notwithstanding the foregoing the Fund shall not be obligated to provide any
such indemnification (i) to the extent such provision would waive any right
which the Fund cannot lawfully waive or (ii) with respect to any obligation,
liability or expense of any other series of shares of the Trust.
(b) The Fund shall make advance payments in connection
with the expenses of defending any action with respect to which indemnification
might be sought hereunder if the Fund receives a written affirmation of the
indemnitee's good faith belief that the standard of conduct necessary for
indemnification has been met and a written undertaking to reimburse the Fund
unless it is subsequently determined that he is entitled to such indemnification
and if the trustees of the Trust determine that the facts then known to them
would not preclude indemnification. In addition, at least one of the following
conditions must be met: (A) the indemnitee shall provide a security for his
undertaking, (B) the Fund shall be insured against losses arising by reason of
any lawful advances, or (C) a majority of a quorum of trustees of the Trust who
are neither "interested persons" of the Trust (as defined in Section 2(a)(19) of
the Act) nor parties to the proceeding ("Disinterested Non-Party Trustees") or
an independent legal counsel in a written opinion, shall determine, based on a
review of readily available facts (as opposed to a full trial-type inquiry),
that there is reason to believe that the indemnitee ultimately will be found
entitled to indemnification.
(c) All determinations with respect to indemnification
hereunder shall be made (1) by a final decision on the merits by a court or
other body before whom the proceeding was brought that such indemnitee is not
liable by reason of disabling conduct or, (2) in the absence of such a decision,
by (i) a majority vote of a quorum of the Disinterested Non-Party Trustees of
the Trust, or (ii) if such a quorum is not obtainable or even, if obtainable, if
a majority vote of such quorum so directs, independent legal counsel in a
written opinion.
The rights accruing to any indemnitee under these provisions
shall not exclude any other right to which he may be lawfully entitled.
6. DURATION AND TERMINATION
This Agreement shall become effective upon the date hereof and
shall continue in effect for a period of two years and thereafter from year to
year, but only
5
<PAGE>
so long as such continuation is specifically approved at least annually in
accordance with the requirements of the Act.
This Agreement may be terminated by the Adviser at any time
without penalty upon giving the Fund sixty days written notice (which notice may
be waived by the Fund) and may be terminated by the Fund at any time without
penalty upon giving the Adviser sixty days notice (which notice may be waived by
the Adviser), provided that such termination by the Fund shall be directed or
approved by the vote of a majority of the Trustees of the Trust in office at the
time or by the vote of the holders of a "majority of the voting securities" (as
defined in the Act) of the Fund at the time outstanding and entitled to vote.
This Agreement shall terminate automatically in the event of its assignment (as
"assignment" is defined in the Act and the rules thereunder.)
It is understood and hereby agreed that the words "Third
Avenue" is the property of the Adviser for copyright and other purposes. The
Fund further agrees that the words "Third Avenue" may freely be used by the
Adviser for other investment companies, entities or products. The Fund further
agrees that, in the event that the Adviser shall cease to act as investment
adviser to the Fund, the Fund shall promptly take all necessary and appropriate
action to change its name to names which do not include the words "Third
Avenue"; provided, however, that the Fund may continue to use the words "Third
Avenue" if the Adviser consents in writing to such use.
7. NOTICES
Any notice under this Agreement shall be in writing to the
other party at such address as the other party may designate from time to time
for the receipt of such notice and shall be deemed to be received on the earlier
of the date actually received or on the fourth day after the postmark if such
notice is mailed first class postage prepaid.
8. GOVERNING LAW
This Agreement shall be construed in accordance with the laws
of the State of New York for contracts to be performed entirely therein and in
accordance with the applicable provisions of the Act.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused the
foregoing instrument to be executed by their duly authorized officers, all as of
the day and the year first above written.
THIRD AVENUE VARIABLE SERIES TRUST
on behalf of its series THIRD AVENUE VALUE
PORTFOLIO
By
--------------------------------
Name:
Title:
EQSF ADVISERS, INC.
By
--------------------------------
Name: Martin J. Whitman
Title:
7
DISTRIBUTION AGREEMENT
Distribution Agreement (the "Agreement") made as of September 1, 1999
between THIRD AVENUE VARIABLE SERIES TRUST, a Delaware trust (the "Trust") on
behalf of the Third Avenue Value Portfolio of the Trust (the "Fund"), and M.J.
WHITMAN, INC., a New York corporation (the "Distributor").
RECITALS
--------
1. The Trust is registered under the Investment Company Act of 1940, as
amended (the "Investment Company Act"), as an open-end management investment
company and it is affirmatively in the interest of the Fund to offer its shares
for sales continuously.
2. The Distributor is a broker-dealer registered under the Securities
Exchange Act of 1934, as amended.
3. The Fund and the Distributor wish to enter into an agreement with
each other with respect to the continuous offering of the Fund's Common Stock
$.001 par value (the "shares") in order to assist in the sale and distribution
of shares of the Fund.
In consideration of the promises and the covenants hereinafter
contained, the Fund and the Distributor hereby agree as follows:
1. APPOINTMENT OF THE DISTRIBUTOR. The Fund hereby appoints the
Distributor as agent for the Fund, to assist in the sale and distribution of
shares of the Fund to the public, upon the terms and conditions and during the
term of this Agreement, and the Distributor hereby accepts such appointment and
agrees to act hereunder.
2. NATURE OF DUTIES. The Distributor shall (i) assist in the sale and
distribution of the Fund's shares and (ii) qualify and maintain the
qualification as a broker-dealer in such states where shares of the Fund are
registered for sale.
3. SALE OF SHARES OF THE FUND.
3.1. The Distributor will have the right to sell on behalf of
the Fund, as its agent, any shares needed but not more than the shares needed
(except for clerical errors in transmission) to fill unconditional orders for
shares of the Fund placed with the Distributor by investors. The Distributor
agrees that the Fund shall receive 100% of the net asset value, determined as
set forth in the Prospectus, for all shares sold by the Distributor. The Fund
acknowledges that the Distributor will enter into sales or servicing agreements
with registered securities brokers and banks and into servicing agreements with
financial institutions and other industry professionals, such as investment
advisers, accountants and estate planning firms. In entering into such
agreements, the Distributor shall act only on its own behalf as principal
underwriter and distributor. The Distributor shall not be responsible for making
any distribution plan or service fee payments pursuant to any plans the Fund may
adopt or agreements it may enter into.
<PAGE>
3.2. The shares are to be sold by or through the Distributor
to investors at a price per share ("offering price") equal to the sum of the net
asset value per share determined as set forth in the Prospectus.
3.3. The Fund shall have the right to suspend the sale of
shares at times when redemption is suspended pursuant to the conditions set
forth in subsection 4.2. The Fund shall also have the right to suspend the sale
of shares if a banking moratorium shall have been declared by federal or New
York authorities, if there shall have been some other event, that, in the
judgment of the Trustees of the Fund makes it impracticable or inadvisable to
sell shares, or if in the judgment of the Trustees, the suspension of the sale
of shares is in the best interests of the Fund or at any time when required by
the provisions of any statute, order, rule or regulation of any governmental
body having jurisdiction.
3.4. The Fund, or any agent of the Fund designated in writing
by the Fund, shall be promptly advised of all purchase orders for shares
received by the Distributor. Any order may be rejected by the Fund for any
reason whatsoever. The Fund (or its agent) will confirm orders upon their
receipt, will make appropriate book entries and upon receipt by the Fund (or its
agent) of payment therefore, will deliver deposit receipts or certificates for
such shares pursuant to the instructions of the Distributor. Payment shall be
made to the Fund in New York Clearing House funds, or by federal funds wire,
cashiers check or certified check. The Distributor agrees to cause such payment
and such instructions to be delivered promptly to the Fund (or its agent).
4. REPURCHASE OR REDEMPTION OF SHARES OF THE FUND.
4.1. Any of the outstanding shares may be tendered for
redemption at any time, and the Fund agrees to repurchase or redeem the shares
so tendered in accordance with its obligations set forth in Article IX of the
Trust Instrument of the Trust, as amended from time to time, and the applicable
provision set forth in the Prospectus.
4.2. Redemption of shares or payment may be suspended: 1) at
times when the New York Stock Exchange is closed other than customary weekend
closings and holiday closings, 2) when pursuant to rules and regulations of the
Securities and Exchange Commission (the "SEC"), trading on said Exchange is
restricted or an emergency exists as a result of which disposal by the Fund of
securities owned by it is not reasonably practicable or it is not reasonably
practicable for the Fund fairly to determine the value of its net assets, or 3)
during any other period when the SEC, by order, so permits.
5. DUTIES OF THE FUND.
5.1. The Fund shall make available to the Distributor, at the
Fund's expense, such number of copies of its Prospectus, quarterly reports and
annual financial statements as the Distributor shall reasonably request.
5.2. The Fund will qualify and maintain the qualifications, at
the Fund's expense, of an appropriate number of its shares for sale under the
securities laws of such states as selected by the Fund.
-2-
<PAGE>
6. DUTIES OF THE DISTRIBUTOR.
6.1. The Distributor shall devote reasonable time and effort
to effect sales of shares of the Fund, but shall not be obligated to sell any
specific number of shares. The Distributor will qualify and maintain the
qualifications, at the Distributor's expense, of its registration as a
broker-dealer in such states where shares of the Fund are qualified for sale.
The services of the Distributor to the Fund hereunder are not to be
deemed exclusive and nothing contained herein shall prevent the Distributor from
entering into like arrangements with other investment companies so long as the
performance of its obligations hereunder is not impaired thereby. The
Distributor will undertake and discharge its obligations hereunder as an
independent contractor and it shall have no authority or power to obligate or
bind the Fund by its actions, conduct or contracts except that it is authorized
to accept orders for the purchase or repurchase of shares as the Fund's agent
and subject to its approval.
6.2. In selling the shares of the Fund, the Distributor shall
use all reasonable efforts to conform in all respects with the requirements of
all federal and state laws relating to the sale of such securities. Neither the
Distributor nor any other person is authorized by the Fund to give any
information or to make any representations other than those contained in the
Registration Statement or related Prospectus or in any sales literature
specifically approved in writing by the Fund.
6.3. The Distributor shall adopt and follow procedures, as
approved by the officers of the Fund, for the confirmation of sales to
investors, the collection of amounts payable by investors on such sales, and the
cancellation of unsettled transactions, as may be necessary to comply with the
requirements of the National Association of Securities Dealers, Inc. (the
"NASD"), as such requirements may from time to time exist.
6.4. The Distributor warrants and represents that it is, and
agrees to use all commercially reasonable efforts to remain at all times, a
member in good standing of the NASD with authority to act as the Distributor.
6.5. The Distributor shall furnish to the Fund any pertinent
information required to be inserted with respect to the Distributor as exclusive
sales agent and distributor within the purview of Federal and state securities
laws in any reports or registrations required to be filed with any government
authority.
7. ALLOCATION OF EXPENSES.
7.1. The Distributor shall bear all expenses incurred by it in
connection with its duties and activities under this Agreement, including the
costs and expenses of qualifying and maintaining the qualifications of its
registration as a broker-dealer in such states where shares of the Fund are
qualified for sale, preparing, printing and distributing any sales literature,
advertising and other materials which it creates for its use as Distributor.
-3-
<PAGE>
7.2. Except as provided in subsection 7.1 hereof, nothing
contained in this Agreement shall be deemed or construed to impose upon the
Distributor any obligation to incur, pay, or reimburse the Fund for any other
costs and expenses.
7.3. The Fund shall bear the following costs and expenses
related to the continuous offering of its shares, including fees and
disbursements of its counsel and auditors, in connection with the preparation
and filing of any required registration statements and Prospectuses under the
Investment Company Act, the Securities Act, and all amendments and supplements
thereto, and preparing and mailing annual and interim reports and proxy
materials to shareholders (including but not limited to the expense of setting
in type any such registration statements, Prospectuses, annual or interim
reports or proxy materials).
7.4. Except as provided in subsection 7.3 hereof, nothing
contained in this Agreement shall be deemed or construed to impose upon the Fund
any obligation to incur, pay, or reimburse the Distributor for any other costs
and expenses.
8. INDEMNIFICATION.
8.1. The Fund agrees to indemnify, defend and hold harmless
the Distributor, its officers, directors, employees, agents, and any person who
controls the Distributor, if any, within the meaning of Section 15 of the
Securities Act (each, an "Indemnified Distributor Party" and collectively, the
"Indemnified Distributor Parties"), from and against any and all claims,
demands, actions, liabilities, losses, costs and expenses (including the cost of
investigating or defending same, and any reasonable attorneys' fees and expenses
incurred in connection therewith) (collectively, "Liabilities") which the
Indemnified Distributor Parties may incur which arise out of or are based upon
(a) any untrue statement of a material fact contained in the Registration
Statement, Prospectus or annual or interim report or (b) any omission to state a
material fact required to be stated in any thereof or necessary to make the
statements in any thereof not misleading, except insofar as such Liabilities
arise out of or are based upon any such untrue statement or omission or untrue
statement or omission made in reliance upon and in conformity with information
furnished to the Fund in writing in connection therewith by or on behalf of the
Distributor; provided, however, that (i) no Indemnified Distributor Party shall
be indemnified hereunder against any liability to the Fund or the shareholders
of the Fund or any expense of such Indemnified Distributor Party with respect to
any matter as to which such Indemnified Distributor Party shall have been
adjudicated not to have acted in good faith in the reasonable belief that its
action was in the best interest of the Fund or arising by reason of such
Indemnified Distributor Party's willful misfeasance, bad faith, or gross
negligence in the performance of its or his duties, or by reason of its or his
reckless disregard of its or his obligations under this Agreement (collectively,
"disabling conduct"), or (ii) as to any matter disposed of by settlement or a
compromise payment by such Indemnified Distributor Party, no indemnification
shall be provided unless there has been a determination that such settlement or
compromise is in the best interests of the Fund and that such Indemnified
Distributor Party appears to have acted in good faith in the reasonable belief
that its action was in the best interest of the Fund and did not involve
disabling conduct by such Indemnified Distributor Party. Notwithstanding the
foregoing, (i) the Fund shall not be obligated to provide any such
indemnification to the extent such provision would waive any right which the
Fund cannot lawfully waive and (ii)
-4-
<PAGE>
the Fund shall not be liable for any obligation, liability or expense of any
other series of shares of the Trust. The Fund's indemnification obligation as
aforesaid is expressly conditioned upon the Fund's being promptly notified, by
letter or telegram addressed to the Fund at its principal business office, of
any Liability of or against any Indemnified Distributor Person. The Fund agrees
promptly to notify the Distributor of the commencement of any litigation or
proceeding against the Fund or any Indemnified Fund Parties (as defined below)
in connection with the issue and sale of any Fund shares.
8.2. The Distributor agrees to indemnify, defend and hold
harmless the Fund, its officers, directors, employees, agents and any person who
controls the Fund, if any, within the meaning of Section 15 of the Securities
Act (each, an "Indemnified Fund Party" and collectively, the "Indemnified Fund
Parties"), from and against any and all Liabilities which the Indemnified Fund
Parties may incur which arise out of or are based upon (a) any untrue statement
of a material fact contained in information furnished to the Fund in writing by
or on behalf of the Distributor for use in the Registration Statement or
Prospectus or any omission to state a material fact in connection with such
information required to be stated in the Registration Statement, Prospectus or
annual or interim report or necessary to make such information not misleading;
or (b) any acts or omissions by the Indemnified Distributor Parties in
connection with the performance of the Distributor's obligations hereunder. The
Distributor's indemnification agreement as aforesaid is expressly conditioned
upon the Distributor's being promptly notified, by letter or telegram addressed
to the Distributor at its principal business office, of any Liability of or
against any Indemnified Distributor Party.
8.3. The Fund shall make advance payments in connection with
the expenses of defending any action with respect to which indemnification might
be sought hereunder if the Fund receives a written affirmation of the
Indemnified Distributor Party's good faith belief that the standard of conduct
necessary for indemnification has been met and a written undertaking to
reimburse the fund unless it is subsequently determined that he is entitled to
such indemnification and if the trustees of the Trust determine that the facts
then known to them would not preclude indemnification. In addition, at least one
of the following conditions must be met: (A) the Indemnified Distributor Party
shall provide a security for his undertaking, (B) the fund shall be insured
against losses arising by reason of any lawful advances, or (C) a majority of a
quorum of trustees of the Trust who are neither "interested persons" of the Fund
(as defined in Section 2(a)(19) of the Act) nor parties to the proceeding
("Disinterested Non-Party Trustees") or an independent legal counsel in a
written opinion, shall determine, based on a review of readily available facts
(as opposed to a full trial-type inquiry), that there is reason to believe that
the Indemnified Distributor Party ultimately will be found entitled to
indemnification.
8.4. All determinations with respect to indemnification
hereunder shall be made (1) by a final decision on the merits by a court or
other body before whom the proceeding was brought that such indemnitee is not
liable by reason of disabling conduct or, (2) in the absence of such a decision,
by (i) a majority vote of a quorum of the Disinterested Non-Party Trustees of
the Trust, or (ii) if such a quorum is not obtainable or even, if obtainable, if
a majority vote of such quorum so directs, independent legal counsel in a
written opinion.
-5-
<PAGE>
9. DURATION AND TERMINATION OF THE AGREEMENT.
9.1. This Agreement shall become effective as of the date
first written above and shall remain in force for up to two years from such date
and thereafter from year to year, but only so long as such continuance is
specifically approved at least annually by (i) the Fund's Board of Trustees or
by the vote of a majority of the outstanding voting securities of the Fund, and
(ii) by the vote of a majority of those trustees who are not parties to this
Agreement or interested persons of any such party, cast in person at a meeting
or meetings called for the purpose of voting on such approval.
9.2. This Agreement may be terminated at any time, without the
payment of any penalty, by the Fund's Board of Trustees or by vote of a vote of
a majority of the outstanding voting securities of the Fund, or by the
Distributor, on sixty days written notice to the other party. This Agreement
shall automatically terminate in the event of its assignment.
10. DEFINITION OF CERTAIN TERMS. The terms "vote of a majority of the
outstanding voting securities," "assignment," "affiliated person," and
"interested person," when used in this Agreement, shall have the respective
meanings specified in the Investment Company Act and the rules and regulations
of the Commission thereunder.
11. AMENDMENTS OF THIS AGREEMENT. This Agreement may be amended by the
parties only if such amendment is specifically approved by (i) the Fund's Board
of Trustees or by the vote of a majority of outstanding voting securities of the
Fund and (ii) by the vote of a majority of those trustees of the Fund who are
not interested persons of either party to this Agreement, cast in person at a
meeting or meetings called for the purpose of voting on such approval.
12. GOVERNING LAW. The provisions of this Agreement shall be construed
and interpreted in accordance with the laws of the State of New York, and the
applicable provisions of the Investment Company Act. To the extent that the
applicable laws of the State of New York, or any of the provisions herein,
conflict with the applicable provisions of the Investment Company Act or the
rules and regulations thereunder, the latter shall control.
-6-
<PAGE>
The parties hereto have executed this Agreement as of the day and year
first above written.
THIRD AVENUE VARIABLE SERIES TRUST, for the
Third Avenue Value Portfolio
By:
---------------------------------
Name: Martin J. Whitman
Title: Chairman
M. J. WHITMAN, INC
By:
---------------------------------
Name: David Barse
Title: President
-7-
CUSTODY AGREEMENT
AGREEMENT, dated as of August 30, 1999 by and between THIRD AVENUE
VARIABLE SERIES TRUST (the "Trust" ), a business trust organized and existing
under the laws of the State of Delaware, acting with respect to and on behalf of
each of the series of the Trust that are identified on Exhibit A hereto (each, a
"Portfolio"), and CUSTODIAL TRUST COMPANY, a bank organized and existing under
the laws of the State of New Jersey (the "Custodian").
WHEREAS, the Trust desires that the securities, funds and other assets
of the Portfolios be held and administered by Custodian pursuant to this
Agreement;
WHEREAS, each Portfolio is an investment portfolio represented by a
series of Shares included among the shares of beneficial interest issued by the
Trust, an open-end management investment company registered under the 1940 Act;
WHEREAS, Custodian represents that it is a bank having the
qualifications prescribed in the 1940 Act to act as custodian for management
investment companies registered under the 1940 Act;
NOW, THEREFORE, in consideration of the mutual agreements herein made,
the Trust and Custodian hereby agree as follows:
ARTICLE I
DEFINITIONS
-----------
Whenever used in this Agreement, the following terms, unless the
context otherwise requires, shall mean:
1.1 "AUTHORIZED PERSON" means any person authorized by resolution of
the Board of Trustees to give Oral Instructions and Written Instructions on
behalf of the Trust and identified, by
<PAGE>
name or by office, in Exhibit B hereto or any person designated to do so by an
investment adviser of any Portfolio who is named by the Trust in Exhibit C
hereto.
1.2 "BOARD OF TRUSTEES" means the Board of Trustees of the Trust or,
when permitted under the 1940 Act, the Executive Committee thereof, if any.
1.3 "BOOK-ENTRY SYSTEM" means a book-entry system maintained by a
Federal Reserve Bank for securities of the United States government or of
agencies or instrumentalities thereof (including government-sponsored
enterprises).
1.4 "BUSINESS DAY" means any day on which banks in the States of New
Jersey and New York are open for business.
1.5 "CUSTODY ACCOUNT" means, with respect to a Portfolio, the account
in the name of such Portfolio, which is provided for in Section 3.2 below.
1.6 "DOMESTIC SECURITIES DEPOSITORY" means The Depository Trust Company
and any other clearing agency registered with the Securities and Exchange
Commission under the Securities Exchange Act of 1934, which acts as a securities
depository.
1.7 "ELIGIBLE DOMESTIC BANK" means a bank as defined in the 1940 Act.
1.8 "ELIGIBLE FOREIGN CUSTODIAN" means any banking institution, trust
company or other entity (including any Foreign Securities Depository) organized
under the laws of a country other than the United States which is eligible under
the 1940 Act to act as a custodian for securities and other assets of a
Portfolio held outside the United States.
1.9 "FOREIGN CUSTODY MANAGER" has the same meaning as in the 1940 Act.
-2-
<PAGE>
1.10 "FOREIGN SECURITIES DEPOSITORY" means a foreign securities
depository or clearing agency as defined in the 1940 Act.
1.11 "MASTER REPURCHASE AGREEMENT" means the Master Repurchase
Agreement of even date herewith between the Trust and Bear, Stearns & Co. Inc.
as it may from time to time be amended.
1.12 "MASTER SECURITIES LOAN AGREEMENT" means the Master Securities
Loan Agreement of even date herewith between the Trust and Bear, Stearns
Securities Corp. as it may from time to time be amended.
1.13 "1940 ACT" means the Investment Company Act of 1940, as amended,
and the rules and regulations thereunder.
1.14 "ORAL INSTRUCTIONS" means instructions orally transmitted to and
accepted by Custodian which are (a) reasonably believed by Custodian to have
been given by an Authorized Person, (b) recorded and kept among the records of
Custodian made in the ordinary course of business, and (c) completed in
accordance with Custodian's requirements from time to time as to content of
instructions and their manner and timeliness of delivery by the Trust.
1.15 "PROPER INSTRUCTIONS" means Oral Instructions or Written
Instructions. Proper Instructions may be continuing Written Instructions when
deemed appropriate by the Trust and Custodian.
1.16 "SECURITIES DEPOSITORY" means any Domestic Securities Depository
or Foreign Securities Depository.
1.17 "SHARES" means, with respect to a Portfolio, those shares in a
series or class of beneficial interests of the Trust that represent interests in
such Portfolio.
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1.18 "WRITTEN INSTRUCTIONS" means written communications received by
Custodian that are (a) reasonably believed by Custodian to have been signed or
sent by an Authorized Person, (b) sent or transmitted by letter, facsimile,
central processing unit connection, on-line terminal or magnetic tape, and (c)
completed in accordance with Custodian's requirements from time to time as to
content of instructions and their manner and timeliness of delivery by the
Trust.
ARTICLE II
APPOINTMENT OF CUSTODIAN
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2.1 APPOINTMENT. The Trust hereby appoints Custodian as custodian of
all such securities, funds and other assets of each Portfolio as may be
reasonably acceptable to Custodian and from time to time delivered to it by the
Trust or others for the account of such Portfolio.
2.2 ACCEPTANCE. Custodian hereby accepts appointment as such custodian
and agrees to perform the duties thereof as hereinafter set forth.
ARTICLE III
CUSTODY OF SECURITIES, FUNDS AND OTHER ASSETS
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3.1 SEGREGATION. All securities and non-cash property of a Portfolio in
the possession of Custodian (other than securities maintained by Custodian with
a sub-custodian appointed pursuant to this Agreement or in a Securities
Depository or Book-Entry System) shall be physically segregated from other such
securities and non-cash property in the possession of Custodian. All cash,
securities and other non-cash property of a Portfolio shall be identified as
belonging to such Portfolio.
3.2 CUSTODY ACCOUNT. (a) Custodian shall open and maintain in its trust
department a custody account in the name of each Portfolio, subject only to
draft or order of Custodian, in which Custodian shall enter and carry all
securities, funds and other assets of such Portfolio which are delivered to
Custodian and accepted by it.
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(b) If, with respect to any Portfolio, Custodian at any time fails to
receive any of the documents referred to in Section 3.10(a) below, then, until
such time as it receives such document, it shall not be obligated to receive any
securities into the Custody Account of such Portfolio and shall be entitled to
return to such Portfolio any securities that it is holding in such Custody
Account.
3.3 SECURITIES IN PHYSICAL FORM. Custodian may hold securities that may
be held only in physical form.
3.4 DISCLOSURE TO ISSUERS OF SECURITIES. Custodian is authorized to
disclose the Trust's and any Portfolio's names and addresses, and the securities
positions in such Portfolio's Custody Account, to the issuers of such securities
when requested by them to do so.
3.5 EMPLOYMENT OF DOMESTIC SUB-CUSTODIANS. At any time and from time to
time, Custodian in its discretion may appoint and employ, and may also cease to
employ, any Eligible Domestic Bank as sub-custodian to hold securities and other
assets of a Portfolio that are maintained in the United States and to carry out
such other provisions of this Agreement as it may determine, provided, however,
that the employment of any such sub-custodian has been approved by the Trust.
The employment of any such sub-custodian shall be at Custodian's expense and
shall not relieve Custodian of any of its obligations or liabilities under this
Agreement.
3.6 EMPLOYMENT OF FOREIGN SUB-CUSTODIANS. (a) At any time and from time
to time, Custodian in its discretion may appoint and employ in accordance with
the 1940 Act, and may also cease to employ, (i) any overseas branch of any
Eligible Domestic Bank, or (ii) any Eligible Foreign Custodian selected by the
Foreign Custody Manager, in each case as a foreign sub-custodian for securities
and other assets of a Portfolio that are maintained outside the United States,
provided, however, that the employment of any such overseas branch has been
approved by the Trust and, provided further that, in the case of any such
Eligible Foreign Custodian, the Foreign Custody Manager has approved, in
writing, the agreement (and/or, in the case of a Foreign Securities Depository,
the rules and/or established practices and procedures thereof) pursuant to which
Custodian employs such Eligible Foreign Custodian.
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(b) Set forth on Exhibit D hereto are the foreign sub-custodians
(including Foreign Securities Depositories) that Custodian, subject to Section
3.6(a) above, may appoint and the countries in which, subject to Section 3.6(a)
above, such foreign sub-custodians may hold Portfolio securities and other
Portfolio assets. Custodian may from time to time, at its discretion, add or
delete foreign sub-custodians and countries to and from Exhibit D, and Exhibit D
shall be revised accordingly.
(c) If the Trust proposes to have a Portfolio make an investment which
is to be held outside the United States, then the Trust shall inform Custodian
sufficiently in advance of such investment to allow the Trust and the Foreign
Custody Manager to consider and give the approvals required under Section 3.6(a)
above and for Custodian to put appropriate arrangements in place with a foreign
sub-custodian.
(d) Notwithstanding anything to the contrary in Section 8.1 below,
Custodian shall have no greater liability to any Portfolio or the Trust for the
actions or omissions of any foreign sub-custodian appointed pursuant to this
Agreement than any such foreign sub-custodian has to Custodian.
(e) Upon the request of the Foreign Custody Manager, Custodian shall
furnish to the Foreign Custody Manager information concerning all foreign
sub-custodians employed pursuant to this Agreement which shall be similar in
kind and scope to any such information that may have been furnished to the
Foreign Custody Manager in connection with the initial approval by the Foreign
Custody Manager of the agreements pursuant to which Custodian employs such
foreign sub-custodians or as otherwise required by the 1940 Act.
3.7 EMPLOYMENT OF OTHER AGENTS. Custodian may employ other suitable
agents, which may include affiliates of Custodian such as Bear, Stearns & Co.
Inc. ("Bear Stearns") or Bear, Stearns Securities Corp.("BS Securities"), both
of which are securities broker-dealers, provided, however, that Custodian shall
not employ (a) BS Securities to hold any collateral pledged by BS Securities
under the Master Securities Loan Agreement or any other securities loan
agreement between the Trust and BS Securities, whether now or hereafter in
effect, or (b) Bear Stearns to hold any securities
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purchased from Bear Stearns under the Master Repurchase Agreement or any other
repurchase agreement between the Trust and Bear Stearns, whether now or
hereafter in effect. The appointment of any agent pursuant to this Section 3.7
shall not relieve Custodian of any of its obligations or liabilities under this
Agreement.
3.8 BANK ACCOUNTS. In its discretion and from time to time, Custodian
may open and maintain one or more demand deposit accounts with any Eligible
Domestic Bank (any such accounts to be in the name of Custodian and subject only
to its draft or order), provided, however, that the opening and maintenance of
any such account shall be at Custodian's expense and shall not relieve Custodian
of any of its obligations or liabilities under this Agreement.
3.9 DELIVERY OF ASSETS TO CUSTODIAN. Provided they are acceptable to
Custodian, the Trust shall deliver to Custodian the securities, funds and other
assets of each Portfolio, including (a) payments of income, payments of
principal and capital distributions received by such Portfolio with respect to
securities, funds or other assets owned by such Portfolio at any time during the
term of this Agreement, and (b) funds received by such Portfolio for the
issuance, at any time during such term, of Shares of such Portfolio. Custodian
shall not be under any duty or obligation to require the Trust to deliver to it
any securities or other assets owned by a Portfolio and shall have no
responsibility or liability for or on account of securities or other assets not
so delivered.
3.10 DOMESTIC SECURITIES DEPOSITORIES AND BOOK-ENTRY SYSTEMS. Custodian
and any sub-custodian appointed pursuant to Section 3.5 above may deposit and/or
maintain securities of any Portfolio in a Domestic Securities Depository or in a
Book-Entry System, subject to the following provisions:
(a) Prior to a deposit of securities of a Portfolio in any Domestic
Securities Depository or Book-Entry System, the Trust shall deliver to Custodian
a resolution of the Board of Trustees, certified by an officer of the Trust,
authorizing and instructing Custodian (and any sub-custodian appointed pursuant
to Section 3.5 above) on an on-going basis to deposit in such Domestic
Securities Depository or Book-Entry System all securities eligible for deposit
therein and to make use of such
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Domestic Securities Depository or Book-Entry System to the extent possible and
practical in connection with the performance of its obligations hereunder (or
under the applicable sub-custody agreement in the case of such sub-custodian),
including, without limitation, in connection with settlements of purchases and
sales of securities, loans of securities, and deliveries and returns of
collateral consisting of securities.
(b) Securities of a Portfolio kept in a Book-Entry System or Domestic
Securities Depository shall be kept in an account ("Depository Account") of
Custodian (or of any sub-custodian appointed pursuant to Section 3.5 above) in
such Book-Entry System or Domestic Securities Depository which includes only
assets held by Custodian (or such sub-custodian) as a fiduciary, custodian or
otherwise for customers.
(c) The records of Custodian with respect to securities of a Portfolio
that are maintained in a Book-Entry System or Domestic Securities Depository
shall at all times identify such securities as belonging to such Portfolio.
(d) If securities purchased by a Portfolio are to be held in a
Book-Entry System or Domestic Securities Depository, Custodian (or any
sub-custodian appointed pursuant to Section 3.5 above) shall pay for such
securities upon (i) receipt of advice from the Book-Entry System or Domestic
Securities Depository that such securities have been transferred to the
Depository Account, and (ii) the making of an entry on the records of Custodian
(or of such sub-custodian) to reflect such payment and transfer for the account
of such Portfolio. If securities sold by a Portfolio are held in a Book-Entry
System or Domestic Securities Depository, Custodian (or such sub-custodian)
shall transfer such securities upon (A) receipt of advice from the Book-Entry
System or Domestic Securities Depository that payment for such securities has
been transferred to the Depository Account, and (B) the making of an entry on
the records of Custodian (or of such sub-custodian) to reflect such transfer and
payment for the account of such Portfolio.
(e) Custodian shall provide the Trust with copies of any report
obtained by Custodian (or by any sub-custodian appointed pursuant to Section 3.5
above) from a Book-Entry System or Domestic
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Securities Depository in which securities of a Portfolio are kept on the
internal accounting controls and procedures for safeguarding securities
deposited in such Book-Entry System or Domestic Securities Depository.
(f) At its election, the Trust shall be subrogated to the rights of
Custodian (or of any sub-custodian appointed pursuant to Section 3.5 above) with
respect to any claim against a Book-Entry System or Domestic Securities
Depository or any other person for any loss or damage to a Portfolio arising
from the use of such Book-Entry System or Domestic Securities Depository, if and
to the extent that such Portfolio has not been made whole for any such loss or
damage.
3.11 RELATIONSHIP WITH SECURITIES DEPOSITORIES. No Book-Entry System,
Securities Depository, or other securities depository or clearing agency
(whether foreign or domestic) which it is or may become standard market practice
to use for the comparison and settlement of trades in securities shall be an
agent or sub-contractor of Custodian for purposes of Section 3.7 above or
otherwise.
3.12 PAYMENTS FROM CUSTODY ACCOUNT. Upon receipt of Proper Instructions
with respect to a Portfolio but subject to its right to foreclose upon and
liquidate collateral pledged to it pursuant to Section 9.4 below, Custodian
shall make payments from the Custody Account of such Portfolio, but only in the
following cases, provided, first, that such payments are in connection with the
clearance and/or custody of securities or other assets, second, that there are
sufficient funds in such Custody Account, whether belonging to such Portfolio or
advanced to it by Custodian in its sole and absolute discretion as set forth in
Section 3.18 below, for Custodian to make such payments, and, third, that after
the making of such payments, such Portfolio would not be in violation of any
margin or other requirements agreed upon pursuant to Section 3.18 below:
(a) For the purchase of securities for such Portfolio but only (i) in
the case of securities (other than options on securities, futures contracts and
options on futures contracts), against the delivery to Custodian (or any
sub-custodian appointed pursuant to this Agreement) of such securities
registered as provided in Section 3.20 below or in proper form for transfer or,
if the purchase of such
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securities is effected through a Book-Entry System or Domestic Securities
Depository, in accordance with the conditions set forth in Section 3.10 above,
and (ii) in the case of options, futures contracts and options on futures
contracts, against delivery to Custodian (or such sub-custodian) of evidence of
title thereto in favor of such Portfolio, the Custodian, any such sub-custodian,
or any nominee referred to in Section 3.20 below;
(b) In connection with the conversion, exchange or surrender, as set
forth in Section 3.13(f) below, of securities owned by such Portfolio;
(c) For transfer in accordance with the provisions of any agreement
among the Trust, Custodian and a securities broker-dealer, relating to
compliance with rules of The Options Clearing Corporation and of any registered
national securities exchange (or of any similar organization or organizations)
regarding escrow or other arrangements in connection with transactions of such
Portfolio;
(d) For transfer in accordance with the provisions of any agreement
among the Trust, Custodian and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding margin
or other deposits in connection with transactions of such Portfolio;
(e) For the funding of any time deposit (whether certificated or not)
or other interest-bearing account with any banking institution (including
Custodian), provided that Custodian shall receive and retain such certificate,
advice, receipt or other evidence of deposit (if any) as such banking
institution may deliver with respect to any such deposit or account;
(f) For the purchase from a banking or other financial institution of
loan participations, but only if Custodian has in its possession a copy of the
agreement between the Trust and such banking or other financial institution with
respect to the purchase of such loan participations and provided that Custodian
shall receive and retain such participation certificate or other evidence of
participation
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(if any) as such banking or other financial institution may deliver with respect
to any such loan participation;
(g) For the purchase and/or sale of foreign currencies or of options to
purchase and/or sell foreign currencies, for spot or future delivery, for the
account of such Portfolio pursuant to contracts between the Trust and any
banking or other financial institution (including Custodian, any sub-custodian
appointed pursuant to this Agreement and any affiliate of Custodian);
(h) For transfer to a securities broker-dealer as margin for a short
sale of securities for such Portfolio, or as payment in lieu of dividends paid
on securities sold short for such Portfolio;
(i) For the payment as provided in Article IV below of any dividends,
capital gain distributions or other distributions declared on the Shares of such
Portfolio;
(j) For the payment as provided in Article IV below of the redemption
price of the Shares of such Portfolio;
(k) For the payment of any expense or liability incurred by such
Portfolio, including but not limited to the following payments for the account
of such Portfolio: interest, taxes, and administration, investment advisory,
accounting, auditing, transfer agent, custodian, trustee and legal fees, and
other operating expenses of such Portfolio; in all cases, whether or not such
expenses are to be in whole or in part capitalized or treated as deferred
expenses; and
(l) For any other proper purpose, but only upon receipt of Proper
Instructions, specifying the amount and purpose of such payment, certifying such
purpose to be a proper purpose of such Portfolio, and naming the person or
persons to whom such payment is to be made.
3.13 DELIVERIES FROM CUSTODY ACCOUNT. Upon receipt of Proper
Instructions with respect to a Portfolio but subject to its right to foreclose
upon and liquidate collateral pledged to it pursuant to Section 9.4 below,
Custodian shall release and deliver securities and other assets from the Custody
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Account of such Portfolio, but only in the following cases, provided, first,
that such deliveries are in connection with the clearance and/or custody of
securities or other assets, second, there are sufficient amounts and types of
securities or other assets in such Custody Account for Custodian to
make such deliveries, and, third, that after the making of such deliveries, such
Portfolio would not be in violation of any margin or other requirements agreed
upon pursuant to Section 3.18 below:
(a) Upon the sale of securities for the account of such Portfolio but,
subject to Section 3.14 below, only against receipt of payment therefor or, if
such sale is effected through a Book-Entry System or Domestic Securities
Depository, in accordance with the provisions of Section 3.10 above;
(b) To an offeror's depository agent in connection with tender or other
similar offers for securities of such Portfolio; provided that, in any such
case, the funds or other consideration for such securities is to be delivered to
Custodian;
(c) To the issuer thereof or its agent when such securities are called,
redeemed or otherwise become payable, provided that in any such case the funds
or other consideration for such securities is to be delivered to Custodian;
(d) To the issuer thereof or its agent for exchange for a different
number of certificates or other evidence representing the same aggregate face
amount or number of units; provided that, in any such case, the new securities
are to be delivered to Custodian;
(e) To the securities broker (or its clearing agent) through whom
securities are being sold for such Portfolio, for examination in accordance with
the "street delivery" custom;
(f) For exchange or conversion pursuant to any plan of merger,
consolidation, recapitalization, reorganization or readjustment of the issuer of
such securities, or pursuant to provisions for conversion contained in such
securities, or pursuant to any deposit agreement, including surrender or receipt
of underlying securities in connection with the issuance or cancellation
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of depository receipts; provided that, in any such case, the new securities and
funds, if any, are to be delivered to Custodian;
(g) In the case of warrants, rights or similar securities, to the
issuer of such warrants, rights or similar securities, or its agent, upon the
exercise thereof, provided that, in any such case, the new securities and funds,
if any, are to be delivered to Custodian;
(h) To the borrower thereof, or its agent, in connection with any loans
of securities for such Portfolio pursuant to any securities loan agreement
entered into by the Trust, but only against receipt by Custodian of such
collateral as is required under such securities loan agreement;
(i) To any lender, or its agent, as collateral for any borrowings from
such lender by such Portfolio that require a pledge of assets of such Portfolio,
but only against receipt by Custodian of the amounts borrowed;
(j) Pursuant to any authorized plan of liquidation, reorganization,
merger, consolidation or recapitalization of such Portfolio or the Trust;
(k) For delivery in accordance with the provisions of any agreement
among the Trust, Custodian and a securities broker-dealer, relating to
compliance with the rules of The Options Clearing Corporation and of any
registered national securities exchange (or of any similar organization or
organizations) regarding escrow or other arrangements in connection with
transactions of such Portfolio;
(l) For delivery in accordance with the provisions of any agreement
among the Trust, Custodian, and a futures commission merchant, relating to
compliance with the rules of the Commodity Futures Trading Commission and/or any
contract market (or any similar organization or organizations) regarding margin
or other deposits in connection with transactions of such Portfolio;
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(m) For delivery to a securities broker-dealer as margin for a short
sale of securities for such Portfolio;
(n) To the issuer of American Depositary Receipts or International
Depositary Receipts (hereinafter, collectively, "ADRs") for such securities, or
its agent, against a written receipt therefor adequately describing such
securities, provided that such securities are delivered together with
instructions to issue ADRs in the name of Custodian or its nominee and to
deliver such ADRs to Custodian;
(o) In the case of ADRs, to the issuer thereof, or its agent, against a
written receipt therefor adequately describing such ADRs, provided that such
ADRs are delivered together with instructions to deliver the securities
underlying such ADRs to Custodian or an agent of Custodian; or
(p) For any other proper purpose, but only upon receipt of Proper
Instructions, specifying the securities or other assets to be delivered, setting
forth the purpose for which such delivery is to be made, certifying such purpose
to be a proper purpose of such Portfolio, and naming the person or persons to
whom delivery of such securities or other assets is to be made.
3.14 DELIVERY PRIOR TO FINAL PAYMENT. When instructed by the Trust to
deliver securities of a Portfolio against payment, Custodian shall be entitled,
but only if in accordance with generally accepted market practice, to deliver
such securities prior to actual receipt of final payment therefor and,
exclusively in the case of securities in physical form, prior to receipt of
payment therefor. In any such case, such Portfolio shall bear the risk that
final payment for such securities may not be made or that such securities may be
returned or otherwise held or disposed of by or through the person to whom they
were delivered, and Custodian shall have no liability for any of the foregoing.
3.15 CREDIT PRIOR TO FINAL PAYMENT. In its sole discretion and from
time to time, Custodian may credit the Custody Account of a Portfolio, prior to
actual receipt of final payment thereof, with (a) proceeds from the sale of
securities of such Portfolio which it has been instructed to deliver against
payment, (b) proceeds from the redemption of securities or other assets in such
Custody
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Account, and (c) income from securities, funds or other assets in such Custody
Account. Any such credit shall be conditional upon actual receipt by Custodian
of final payment and may be reversed if final payment is not actually received
in full. Custodian may, in its sole discretion and from time to time, permit a
Portfolio to use funds so credited to its Custody Account in anticipation of
actual receipt of final payment. Any funds so used shall constitute an advance
subject to Section 3.18 below.
3.16 DEFINITION OF FINAL PAYMENT. For purposes of this Agreement,
"final payment" means payment in funds which are (or have become) immediately
available, under applicable law are irreversible, and are not subject to any
security interest, levy, lien or other encumbrance.
3.17 PAYMENTS AND DELIVERIES OUTSIDE THE UNITED STATES. Notwithstanding
anything to the contrary that may be required by Section 3.12 or Section 3.13
above, or elsewhere in this Agreement, in the case of securities and other
assets maintained outside the United States and in the case of payments made
outside the United States, Custodian and any sub-custodian appointed pursuant to
this Agreement may receive and deliver such securities or other assets, and may
make such payments, in accordance with the laws, regulations, customs,
procedures and practices applicable in the relevant local market outside the
United States.
3.18 CLEARING CREDIT. Custodian may, in its sole discretion and from
time to time, advance funds to the Trust to facilitate the settlement of a
Portfolio's transactions in the Custody Account of such Portfolio. Any such
advance (a) shall be repayable immediately upon demand made by Custodian, (b)
shall be fully secured as provided in Section 9.3 below, and (c) shall bear
interest at such rate, and be subject to such other terms and conditions, as
Custodian and the Trust may agree.
3.19 ACTIONS NOT REQUIRING PROPER INSTRUCTIONS. Unless otherwise
instructed by the Trust, Custodian shall with respect to all securities and
other assets held for a Portfolio:
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(a) Subject to Section 8.4 below, receive into the Custody Account of
such Portfolio any funds or other property, including payments of principal,
interest and dividends, due and payable on or on account of such securities and
other assets;
(b) Deliver securities of such Portfolio to the issuers of such
securities or their agents for the transfer thereof into the name of such
Portfolio, Custodian or any of the nominees referred to in Section 3.20 below;
(c) Endorse for collection, in the name of such Portfolio, checks,
drafts and other negotiable instruments;
(d) Surrender interim receipts or securities in temporary form for
securities in definitive form;
(e) Execute, as custodian, any necessary declarations or certificates
of ownership under the federal income tax laws of the United States, or the laws
or regulations of any other taxing authority, in connection with the transfer of
such securities or other assets or the receipt of income or other payments with
respect thereto;
(f) Receive and hold for such Portfolio all rights and similar
securities issued with respect to securities or other assets of such Portfolio;
(g) As may be required in the execution of Proper Instructions,
transfer funds from the Custody Account of such Portfolio to any demand deposit
account maintained by Custodian pursuant to Section 3.8 above; and
(h) In general, attend to all non-discretionary details in connection
with the sale, exchange, substitution, purchase and transfer of, and other
dealings in, such securities and other assets.
3.20 REGISTRATION AND TRANSFER OF SECURITIES. All securities held for a
Portfolio that are issuable only in bearer form shall be held by Custodian in
that form, provided that any such
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securities shall be held in a Securities Depository or Book-Entry System if
eligible therefor. All other securities and all other assets held for a
Portfolio may be registered in the name of (a) Custodian as agent, (b) any
sub-custodian appointed pursuant to this Agreement, (c) any Securities
Depository, or (d) any nominee or agent of any of them. The Trust shall furnish
to Custodian appropriate instruments to enable Custodian to hold or deliver in
proper form for transfer, or to register as in this Section 3.20 provided, any
securities or other assets delivered to Custodian which are registered in the
name of a Portfolio.
3.21 RECORDS. (a) Custodian shall maintain complete and accurate
records with respect to securities, funds and other assets held for a Portfolio,
including (i) journals or other records of original entry containing an itemized
daily record in detail of all receipts and deliveries of securities and all
receipts and disbursements of funds; (ii) ledgers (or other records) reflecting
(A) securities in transfer, if any, (B) securities in physical possession, (C)
monies and securities borrowed and monies and securities loaned (together with a
record of the collateral therefor and substitutions of such collateral), (D)
dividends and interest received, and (E) dividends receivable and interest
accrued; and (iii) cancelled checks and bank records related thereto. Custodian
shall keep such other books and records with respect to securities, funds and
other assets of a Portfolio which are held hereunder as the Trust may reasonably
request.
(b) All such books and records maintained by Custodian for a Portfolio
shall (i) be maintained in a form acceptable to the Trust and in compliance with
rules and regulations of the Securities and Exchange Commission, (ii) be the
property of such Portfolio and at all times during the regular business hours of
Custodian be made available upon request for inspection by duly authorized
officers, employees or agents of the Trust and employees or agents of the
Securities and Exchange Commission, and (iii) if required to be maintained under
the 1940 Act, be preserved for the periods prescribed therein.
3.22 ACCOUNT REPORTS BY CUSTODIAN. Custodian shall furnish the Trust
with a daily activity statement, including a summary of all transfers to or from
the Custody Account of each Portfolio (in the case of securities and other
assets maintained in the United States, on the day following such
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transfers). At least monthly and from time to time, Custodian shall furnish the
Trust with a detailed statement of the securities, funds and other assets held
for each Portfolio under this Agreement.
3.23 OTHER REPORTS BY CUSTODIAN. Custodian shall provide the Trust with
such reports as the Trust may reasonably request from time to time on the
internal accounting controls and procedures for safeguarding securities which
are employed by Custodian or any sub-custodian appointed pursuant to this
Agreement.
3.24 PROXIES AND OTHER MATERIALS. (a) Unless otherwise instructed by
the Trust, Custodian shall promptly deliver to the Trust all notices of
meetings, proxy materials (other than proxies) and other announcements, which it
receives regarding securities held by it in the Custody Account of a Portfolio.
Whenever Custodian or any of its agents receives a proxy with respect to
securities in the Custody Account of a Portfolio, Custodian shall promptly
request instructions from the Trust on how such securities are to be voted, and
shall give such proxy, or cause it to be given, in accordance with such
instructions. If the Trust timely informs Custodian that the Trust wishes to
vote any such securities in person, Custodian shall promptly seek to have a
legal proxy covering such securities issued to the Trust. Unless otherwise
instructed by the Trust, neither Custodian nor any of its agents shall exercise
any voting rights with respect to securities held hereunder.
(b) Unless otherwise instructed by the Trust, Custodian shall promptly
transmit to the Trust all other written information received by Custodian from
issuers of securities held in the Custody Account of any Portfolio. With respect
to tender or exchange offers for such securities or with respect to other
corporate transactions involving such securities, Custodian shall promptly
transmit to the Trust all written information received by Custodian from the
issuers of such securities or from any party (or its agents) making any such
tender or exchange offer or participating in such other corporate transaction.
If the Trust, with respect to such tender or exchange offer or other corporate
transaction, desires to take any action that may be taken by it pursuant to the
terms of such offer or other transaction, the Trust shall notify Custodian (i)
in the case of securities maintained outside the United States, such number of
Business Days prior to the date on which Custodian is to take such action as
will allow Custodian to take such action in the relevant local market for such
securities in
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a timely fashion, and (ii) in the case of all other securities, at least five
Business Days prior to the date on which Custodian is to take such action.
3.25 CO-OPERATION. Custodian shall cooperate with and supply necessary
information to the entity or entities appointed by the Trust to keep the books
of account of a Portfolio and/or to compute the value of the assets of a
Portfolio.
ARTICLE IV
REDEMPTION OF PORTFOLIO SHARES;
-------------------------------
DIVIDENDS AND OTHER DISTRIBUTIONS
---------------------------------
4.1 TRANSFER OF FUNDS. From such funds as may be available for the
purpose in the Custody Account of a Portfolio, and upon receipt of Proper
Instructions specifying that the funds are required to redeem Shares of such
Portfolio or to pay dividends or other distributions to holders of Shares of
such Portfolio, Custodian shall transfer each amount specified in such Proper
Instructions to such account of such Portfolio or of an agent thereof (other
than Custodian), at such bank, as the Trust may designate therein with respect
to such amount.
4.2 SOLE DUTY OF CUSTODIAN. Custodian's sole obligation with respect to
the redemption of Shares of a Portfolio and the payment of dividends and other
distributions thereon shall be its obligation set forth in Section 4.1 above,
and Custodian shall not be required to make any payments to the various holders
from time to time of Shares of a Portfolio nor shall Custodian be responsible
for the payment or distribution by the Trust, or any agent designated in Proper
Instructions given pursuant to Section 4.1 above, of any amount paid by
Custodian to the account of the Trust or such agent in accordance with such
Proper Instructions.
ARTICLE V
SEGREGATED ACCOUNTS
-------------------
Upon receipt of Proper Instructions to do so, Custodian shall establish
and maintain a segregated account or accounts for and on behalf of any
Portfolio, into which account or accounts
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may be transferred funds and/or securities, including securities maintained in a
Securities Depository:
(a) in accordance with the provisions of any agreement among the Trust,
Custodian and a securities broker-dealer (or any futures commission merchant),
relating to compliance with the rules of The Options Clearing Corporation or of
any registered national securities exchange (or the Commodity Futures Trading
Commission or any registered contract market), or of any similar organization or
organizations, regarding escrow or other arrangements in connection with
transactions of such Portfolio,
(b) for purposes of segregating funds or securities in connection with
securities options purchased or written by such Portfolio or in connection with
financial futures contracts (or options thereon) purchased or sold by such
Portfolio,
(c) which constitute collateral for loans of securities made by such
Portfolio,
(d) for purposes of compliance by such Portfolio with requirements
under the 1940 Act for the maintenance of segregated accounts by registered
management investment companies in connection with reverse repurchase
agreements, when-issued, delayed delivery and firm commitment transactions, and
short sales of securities, and
(e) for other proper purposes, but only upon receipt of Proper
Instructions, specifying the purpose or purposes of such segregated account and
certifying such purposes to be proper purposes of such Portfolio.
ARTICLE VI
CERTAIN REPURCHASE TRANSACTIONS
-------------------------------
6.1 TRANSACTIONS. If and to the extent that the necessary funds and
securities of a Portfolio have been entrusted to it under this Agreement, and
subject to Custodian's right to foreclose upon and liquidate collateral pledged
to it pursuant to Section 9.4 below, Custodian, as agent of such
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Portfolio, shall from time to time (and unless the Trust gives it Proper
Instructions to do otherwise) make from the Custody Account of such Portfolio
the transfers of funds and deliveries of securities which such Portfolio is
required to make pursuant to the Master Repurchase Agreement and shall receive
for the Custody Account of such Portfolio the transfers of funds and deliveries
of securities which the seller under the Master Repurchase Agreement is required
to make pursuant thereto.
Custodian shall make and receive all such transfers and deliveries pursuant to,
and subject to the terms and conditions of, the Master Repurchase Agreement.
6.2 COLLATERAL. Custodian shall daily mark to market the securities
purchased under the Master Repurchase Agreement and held in the Custody Account
of a Portfolio, and shall give to the seller thereunder any such notice as may
be required thereby in connection with such mark-to-market.
6.3 EVENTS OF DEFAULT. Custodian shall promptly notify the Trust of any
event of default under the Master Repurchase Agreement (as such term "event of
default" is defined therein) of which it has actual knowledge.
6.4 MASTER REPURCHASE AGREEMENT. Custodian hereby acknowledges its
receipt from the Trust of a copy of the Master Repurchase Agreement. The Trust
shall provide Custodian, prior to the effectiveness thereof, with a copy of any
amendment to the Master Repurchase Agreement.
ARTICLE VII
CERTAIN SECURITIES LENDING TRANSACTIONS
---------------------------------------
7.1 TRANSACTIONS. If and to the extent that the necessary funds and
securities of a Portfolio have been entrusted to it under this Agreement, and
subject to Custodian's right to foreclose upon and liquidate collateral pledged
to it pursuant to Section 9.4 below, Custodian, as agent of such Portfolio,
shall from time to time (and unless the Trust gives it Proper Instructions to do
otherwise) make from the Custody Account of such Portfolio the transfers of
funds and deliveries of securities which such Portfolio is required to make
pursuant to the Master Securities Loan Agreement and shall
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receive for the Custody Account of such Portfolio the transfers of funds and
deliveries of securities which the borrower under the Master Securities Loan
Agreement is required to make pursuant thereto. Custodian shall make and receive
all such transfers and deliveries pursuant to, and subject to the terms and
conditions of, the Master Securities Loan Agreement.
7.2 COLLATERAL. Custodian shall daily mark to market, in the manner
provided for in the Master Securities Loan Agreement, all loans of securities
which may from time to time be outstanding thereunder.
7.3 DEFAULTS. Custodian shall promptly notify the Trust of any default
under the Master Securities Loan Agreement (as such term "default" is defined
therein) of which it has actual knowledge.
7.4 MASTER SECURITIES LOAN AGREEMENT. Custodian hereby acknowledges its
receipt from the Trust of a copy of the Master Securities Loan Agreement. The
Trust shall provide Custodian, prior to the effectiveness thereof, with a copy
of any amendment to the Master Securities Loan Agreement.
ARTICLE VIII
CONCERNING THE CUSTODIAN
------------------------
8.1 STANDARD OF CARE. Custodian shall be held to the exercise of
reasonable care in carrying out its obligations under this Agreement, and shall
be without liability to any Portfolio or the Trust for any loss, damage, cost,
expense (including attorneys' fees and disbursements), liability or claim which
does not arise from willful misfeasance, bad faith or negligence on the part of
Custodian. Custodian shall be entitled to rely on and may act upon advice of
counsel in all matters, and shall be without liability for any action reasonably
taken or omitted pursuant to such advice. In no event shall Custodian be liable
for special, incidental or consequential damages, even if Custodian has been
advised of the possibility of such damages, or be liable in any manner
whatsoever for any action taken or omitted upon instructions from the Trust or
any agent of the Trust.
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8.2 ACTUAL COLLECTION REQUIRED. Custodian shall not be liable for, or
considered to be the custodian of, any funds belonging to a Portfolio or any
money represented by a check, draft or other instrument for the payment of
money, until Custodian or its agents actually receive such funds or collect on
such instrument.
8.3 NO RESPONSIBILITY FOR TITLE, ETC. So long as and to the extent that
it is in the exercise of reasonable care, Custodian shall not be responsible for
the title, validity or genuineness of any assets or evidence of title thereto
received or delivered by it or its agents.
8.4 LIMITATION ON DUTY TO COLLECT. Custodian shall promptly notify the
Trust whenever any money or property due and payable from or on account of any
securities or other assets held hereunder for a Portfolio is not timely received
by it. Custodian shall not, however, be required to enforce collection, by legal
means or otherwise, of any such money or other property not paid when due, but
shall receive the proceeds of such collections as may be effected by it or its
agents in the ordinary course of Custodian's custody and safekeeping business or
of the custody and safekeeping business of such agents.
8.5 EXPRESS DUTIES ONLY. Custodian shall have no duties or obligations
whatsoever except such duties and obligations as are specifically set forth in
this Agreement, and no covenant or obligation shall be implied in this Agreement
against Custodian. Custodian shall have no discretion whatsoever with respect to
the management, disposition or investment of the Custody Account of any
Portfolio and is not a fiduciary to any Portfolio or the Trust. In particular,
Custodian shall not be under any obligation at any time to monitor or to take
any other action with respect to compliance by any Portfolio or the Trust with
the 1940 Act, the provisions of the Trust's trust instruments or by-laws, or any
Portfolio's investment objectives, policies and limitations as in effect from
time to time.
ARTICLE IX
INDEMNIFICATION
---------------
9.1 INDEMNIFICATION BY PORTFOLIO. Each Portfolio shall indemnify and
hold harmless Custodian, any sub-custodian appointed pursuant to this Agreement
and any nominee of any of them,
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from and against any loss, damages, cost, expense (including reasonable
attorneys' fees and disbursements), liability (including, without limitation,
liability arising under the Securities Act of 1933, the Securities Exchange Act
of 1934, the 1940 Act, and any federal, state or foreign securities and/or
banking laws) or claim arising directly or indirectly (a) from the fact that
securities or other assets in the Custody Account of such Portfolio are
registered in the name of any such nominee, or
(b) from any action or inaction, with respect to such Portfolio, by Custodian or
such sub-custodian or nominee (i) at the request or direction of or in reliance
on the advice of the Trust or any of its agents, or (ii) upon Proper
Instructions, or (c) generally, from the performance of its obligations under
this Agreement with respect to such Portfolio, provided that Custodian, any such
sub-custodian or any nominee of any of them shall not be indemnified and
held harmless from and against (A) any such loss, damages, cost, expense,
liability or claim arising from willful misfeasance, bad faith or negligence on
the part of Custodian or any such sub-custodian or nominee, or (B) any special,
incidental or consequential damages, even if such Portfolio has been advised of
the possibility of such damages.
9.2 INDEMNITY TO BE PROVIDED. If the Trust requests Custodian to take
any action with respect to securities or other assets of a Portfolio, which may,
in the opinion of Custodian, result in Custodian or its nominee becoming liable
for the payment of money or incurring liability of some other form, Custodian
shall not be required to take such action until such Portfolio shall have
provided indemnity therefor to Custodian in an amount and form satisfactory to
Custodian.
9.3 INDEMNIFICATION BY CUSTODIAN. Custodian shall indemnify and hold
harmless the Trust and each Portfolio from and against any loss, damages, cost,
expense (including reasonable attorneys' fees and disbursements), liability
(including, without limitation, liability arising under the Securities Act of
1933, the Securities Exchange Act of 1934, the 1940 Act, and any federal, state
or foreign securities and/or banking laws) or claim arising from Custodian's
willful misfeasance, bad faith or negligence in the performance of its
obligations under this Agreement, provided that neither the Trust nor such
Portfolio shall be indemnified and held harmless from and against (A) any such
loss, damages, cost, expense, liability or claim arising from willful
misfeasance, bad faith or
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negligence on the part of the Trust or any Portfolio, or (B) any special,
incidental or consequential damages, even if Custodian has been advised of the
possibility of such damages.
9.4 SECURITY. As security for the payment of any present or future
obligation or liability which a Portfolio may have to Custodian under Sections
3.15 or 3.18 hereof or any loan agreement between the such Portfolio or the
Trust and Custodian, the Trust hereby pledges to Custodian all securities, funds
and other assets of every kind which are in such Custody Account or otherwise
held for such Portfolio pursuant to this Agreement, and hereby grants to
Custodian a lien, right of set-off and continuing security interest in such
securities, funds and other assets.
ARTICLE X
FORCE MAJEURE
-------------
Custodian shall not be liable for any failure or delay in performance
of its obligations under this Agreement arising out of or caused, directly or
indirectly, by circumstances beyond its reasonable control, including, without
limitation, acts of God; earthquakes; fires; floods; wars; civil or military
disturbances; sabotage; strikes; epidemics; riots; power failures; computer
failure and any such circumstances beyond its reasonable control as may cause
interruption, loss or malfunction of utility, transportation, computer (hardware
or software) or telephone communication service; accidents; labor disputes; acts
of civil or military authority; actions by any governmental authority, de jure
or de facto; or inability to obtain labor, material, equipment or
transportation, provided that Custodian has taken measures to prepare for any
such event which are substantially in accordance with those it is industry
practice to take.
ARTICLE XI
REPRESENTATIONS AND WARRANTIES
------------------------------
11.1 REPRESENTATIONS WITH RESPECT TO PORTFOLIOS. The Trust represents
and warrants that (a) it has all necessary power and authority to perform the
obligations hereunder of each Portfolio, (b) the execution and delivery by it of
this Agreement, and the performance by it of the obligations hereunder of each
Portfolio, have been duly authorized by all necessary action and will not
violate any law, regulation, charter, by-law, or other instrument, restriction
or provision applicable to it or
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such Portfolio or by which it or such Portfolio, or their respective assets, may
be bound, and (c) this Agreement constitutes a legal, valid and binding
obligation of the Trust of behalf of each Portfolio, enforceable against it in
accordance with its terms.
11.2 REPRESENTATIONS OF CUSTODIAN. Custodian represents and warrants
that (a) it has all necessary power and authority to perform its obligations
hereunder, (b) the execution and delivery by it of this Agreement, and the
performance by it of its obligations hereunder, have been duly authorized by all
necessary action and will not violate any law, regulation, charter, by-law, or
other instrument, restriction or provision applicable to it or by which it or
its assets may be bound, and (c) this Agreement constitutes a legal, valid and
binding obligation of it, enforceable against it in accordance with its terms.
ARTICLE XII
COMPENSATION OF CUSTODIAN
-------------------------
Each Portfolio shall pay Custodian such fees and charges as are set
forth in Exhibit E hereto, as such Exhibit E may from time to time be revised by
Custodian upon 65 days' prior written notice to the Trust. Any annual fee
payable by a Portfolio shall be calculated on the basis of the total market
value of the assets in the Custody Account of such Portfolio as determined on
the last Basiness Day of the month for which such fee is charged; and such fee,
and any transaction charges payable by such Portfolio, shall be paid monthly by
automatic deduction from funds available therefor in the Custody Account of such
Portfolio, or, if there are no such funds, upon presentation of an invoice
therefor. Out-of-pocket expenses incurred by Custodian in the proper performance
of its services hereunder for any Portfolio and all other proper charges and
disbursements of the Custody Account of such Portfolio shall be charged to such
Custody Account by Custodian and paid in the same manner as the annual fee and
other charges referred to in this Article XII, and Custodian shall promptly
provide the Trust with supporting evidence for such out-of-pocket expenses,
charges and disbursements.
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ARTICLE XIII
TAXES
-----
13.1 TAXES PAYABLE BY PORTFOLIOS. Any and all taxes, including any
interest and penalties with respect thereto, which may be levied or assessed
under present or future laws or in respect of the Custody Account of any
Portfolio or any income thereof shall be charged to such Custody Account by
Custodian and paid in the same manner as the annual fee and other charges
referred to in Article XII above.
13.2 TAX RECLAIMS. Upon the written request of the Trust, Custodian
shall exercise, on behalf of any Portfolio, any tax reclaim rights of such
Portfolio which arise in connection with foreign securities in the Custody
Account of such Portfolio.
ARTICLE XIV
AUTHORIZED PERSONS; NOTICES
---------------------------
14.1 AUTHORIZED PERSONS. Custodian may rely upon and act in accordance
with any notice, confirmation, instruction or other communication which is
reasonably believed by Custodian to have been given or signed on behalf of the
Trust by one of the Authorized Persons designated by the Trust in Exhibit B
hereto, as it may from time to time be revised. The Trust may revise Exhibit B
hereto at any time by notice in writing to Custodian given in accordance with
Section 14.4 below, but no revision of Exhibit B hereto shall be effective until
Custodian actually receives such notice.
14.2 INVESTMENT ADVISERS. Custodian may also rely upon and act in
accordance with any Written or Oral Instructions given with respect to a
Portfolio which are reasonably believed by Custodian to have been given or
signed by one of the persons designated from time to time by the Trust with
respect to any of the investment advisers of such Portfolio who are specified in
Exhibit C hereto (if any) as it may from time to time be revised. The Trust may
revise Exhibit C hereto at any time by notice in writing to Custodian given in
accordance with Section 14.4 below and may at any time by like notice designate
an Authorized Person or remove an Authorized Person previously designated by it,
but no revision of Exhibit C hereto (if any) and no such designation or removal
of an Authorized Person shall be effective until Custodian actually receives
such notice.
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14.3 ORAL INSTRUCTIONS. Custodian may rely upon and act in accordance
with Oral Instructions. All Oral Instructions shall be confirmed to Custodian in
Written Instructions. However, if Written Instructions confirming Oral
Instructions are not received by Custodian prior to a transaction, it shall in
no way affect the validity of the transaction authorized by such Oral
Instructions or the authorization given by an Authorized Person to effect such
transaction. Custodian shall incur no liability to any Portfolio or the Trust in
acting upon Oral Instructions. To the extent such Oral Instructions vary from
any confirming Written Instructions, Custodian shall advise the Trust of such
variance but unless confirming Written Instructions are timely received, such
Oral Instructions shall govern.
14.4 ADDRESSES FOR NOTICES. Unless otherwise specified herein, all
demands, notices, instructions, and other communications to be given hereunder
shall be sent, delivered or given to the recipient at the address, or the
relevant telephone number, set forth after its name hereinbelow, and if so sent
shall be effective upon receipt:
If to the Trust:
THIRD AVENUE VARIABLE SERIES TRUST
for [INSERT NAME OF PORTFOLIO]
767 Third Avenue
New York, NY 10017-2023
Attention: GENERAL COUNSEL
Telephone: (212) 888-6685
Facsimile: (212) 735-0003
If to Custodian:
CUSTODIAL TRUST COMPANY
101 Carnegie Center
Princeton, New Jersey 08540-6231
Attention: VICE PRESIDENT - TRUST OPERATIONS
Telephone: (609) 951-2320
Facsimile: (609) 951-2327
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or at such other address as either party hereto shall have provided to the other
by notice given in accordance with this Section 14.4. Writing shall include
transmissions by or through teletype, facsimile, central processing unit
connection, on-line terminal and magnetic tape.
14.5 REMOTE CLEARANCE. Written Instructions for the receipt, delivery
or transfer of securities may include, and Custodian shall accept, Remote
Clearance Instructions (as defined hereinbelow) and Bulk Input Instructions (as
defined hereinbelow), provided that such Instructions are given in accordance
with the procedures prescribed by Custodian from time to time as to content of
instructions and their manner and timeliness of delivery by Customer. Custodian
shall be entitled to conclusively assume that all Remote Clearance Instructions
and Bulk Input Instructions have been given by an Authorized Person, and
Custodian is hereby irrevocably authorized to act in accordance therewith. For
purposes of this Agreement, "Remote Clearance Instructions" means instructions
that are input directly via a remote terminal which is located on the premises
of the Trust, or of an investment adviser named in Exhibit C hereto, and linked
to Custodian; and "Bulk Input Instructions" means instructions that are input by
bulk input computer tape delivered to Custodian by messenger or transmitted to
it via such transmission mechanism as the Trust and Custodian shall from time to
time agree upon.
ARTICLE XV
TERMINATION
-----------
Either party hereto may terminate this Agreement with respect to one or
more of the Portfolios by giving to the other party a notice in writing
specifying the date of such termination, which shall be not less than sixty (60)
days after the date of the giving of such notice. Upon the date set forth in
such notice this Agreement shall terminate with respect to each Portfolio
specified in such notice, and Custodian shall, upon receipt of a notice of
acceptance by the successor custodian, on that date (a) deliver directly to the
successor custodian or its agents all securities (other than securities held in
a Book-Entry System or Securities Depository) and other assets then owned by
such Portfolio and held by Custodian as custodian, and (b) transfer any
securities held in a Book-Entry System or Securities Depository to an account of
or for the benefit of such Portfolio,
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provided that such Portfolio shall have paid to Custodian all fees, expenses and
other amounts to the payment or reimbursement of which it shall then be
entitled.
ARTICLE XVI
LIMITATION OF LIABILITIES
-------------------------
To the extent that the trustees of the Trust are regarded as entering
into this Agreement, they do so only as trustees of the Trust and not
individually. The obligations under this Agreement of the Trust or any Portfolio
shall not be binding upon any trustee, officer or employee of the Trust
individually, or upon any holder of Shares individually, or upon any other
series of the Trust or any holder, individually, of shares of such other series,
but shall be binding only upon the assets and property of such Portfolio. Such
trustees, officers, employees and holders, when acting in such capacities, shall
not be personally liable under this Agreement, and Custodian shall look solely
to the assets and property of each Portfolio for the performance of this
Agreement with respect to such Portfolio and the payment of any claim against
such Portfolio under this Agreement.
ARTICLE XVII
MISCELLANEOUS
-------------
17.1 BUSINESS DAYS. Nothing contained in this Agreement shall require
Custodian to perform any function or duty on a day other than a Business Day.
17.2 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York, without regard to the
conflict of law principles thereof.
17.3 REFERENCES TO CUSTODIAN. The Trust shall not circulate any printed
matter which contains any reference to Custodian without the prior written
approval of Custodian, excepting printed matter contained in the prospectus or
statement of additional information for a Portfolio and such other printed
matter as merely identifies Custodian as custodian for a Portfolio. The Trust
shall submit printed matter requiring approval to Custodian in draft form,
allowing sufficient time for review by Custodian and its counsel prior to any
deadline for printing.
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17.4 NO WAIVER. No failure by either party hereto to exercise, and no
delay by such party in exercising, any right hereunder shall operate as a waiver
thereof. The exercise by either party hereto of any right hereunder shall not
preclude the exercise of any other right, and the remedies provided herein are
cumulative and not exclusive of any remedies provided at law or in equity.
17.5 AMENDMENTS. This Agreement cannot be changed orally and, except as
otherwise provided herein with respect to the Exhibits attached hereto, no
amendment to this Agreement shall be effective unless evidenced by an instrument
in writing executed by the parties hereto.
17.6 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, and by the parties hereto on separate counterparts, each of which
shall be deemed an original but all of which together shall constitute but one
and the same instrument.
17.7 SEVERABILITY. If any provision of this Agreement shall be invalid,
illegal or unenforceable in any respect under any applicable law, the validity,
legality and enforceability of the remaining provisions shall not be affected or
impaired thereby.
17.8 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement shall not be assignable by
either party hereto without the written consent of the other party. Any
purported assignment in violation of this Section 17.8 shall be void.
17.9 JURISDICTION. Any suit, action or proceeding with respect to this
Agreement may be brought in the Supreme Court of the State of New York, County
of New York, or in the United States District Court for the Southern District of
New York, and the parties hereto hereby submit to the non-exclusive jurisdiction
of such courts for the purpose of any such suit, action or proceeding, and
hereby waive for such purpose any other preferential jurisdiction by reason of
their present or future domicile or otherwise.
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17.10 HEADINGS. The headings of sections in this Agreement are for
convenience of reference only and shall not affect the meaning or construction
of any provision of this Agreement.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed in its name and on its behalf by its representative
thereunto duly authorized, all as of the day and year first above written.
THIRD AVENUE VARIABLE SERIES CUSTODIAL TRUST COMPANY
TRUST
By: By:
------------------------ ------------------------
Name: Name:
Title: Title:
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EXHIBIT A
PORTFOLIOS
----------
Third Avenue Value Portfolio
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EXHIBIT B
AUTHORIZED PERSONS
------------------
Set forth below are the names and specimen signatures of the persons
authorized by the Trust to administer the Custody Accounts of the Portfolios.
Name Signature
---- ---------
Martin J. Whitman
---------------------------
Michael T.Carney
---------------------------
Kerri Weltz
---------------------------
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EXHIBIT C
INVESTMENT ADVISERS
-------------------
ALL PORTFOLIOS
EQSF Advisers, Inc.
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EXHIBIT D
APPROVED FOREIGN SUB-CUSTODIANS AND SECURITIES DEPOSITORIES
-----------------------------------------------------------
ALL PORTFOLIOS
Foreign Sub-custodian Country(ies) Securities Depositories
- --------------------- ------------ -----------------------
Citibank, N.A Japan The Bank of Japan
Japan Securities Depository
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EXHIBIT E
CUSTODY FEES AND TRANSACTION CHARGES
------------------------------------
All fees and charges set forth in this Exhibit E shall be calculated
and paid in the manner provided in Article XII above.
DOMESTIC FEES. Each Portfolio shall pay Custodian the following fees
for assets maintained by such Portfolio in the United States ("Domestic Assets")
and charges for transactions by such Portfolio in the United States, all such
fees and charges to be payable monthly:
(1) an annual fee of the greater of 0.01% (one basis points) per annum
of the value of the Domestic Assets in the Custody Account of such Portfolio or
$6,000, any such percentage fee to be based upon the total market value of such
Domestic Assets as determined on the last Business Day of the month for which
such fee is charged;
(2) a transaction charge of $12 for each receive or deliver of
book-entry securities into or from the Custody Account of such Portfolio (but
not for any such receive or deliver of book-entry securities loaned by such
Portfolio or constituting collateral for a loan of securities, or any such
receive or deliver in a repurchase transaction representing (a) a cash sweep
investment for such Portfolio's account or (b) the investment by such Portfolio
of cash collateral for a loan of securities);
(3) a transaction charge of $40 for each receive or deliver into or
from such Portfolio's Custody Account of securities in physical form;
(4) a transaction charge for each repurchase transaction in the Custody
Account of such Portfolio which represents a cash sweep investment for such
Portfolio's account, computed on the basis of a 360-day year and for the actual
number of days such repurchase transaction is outstanding at a rate of 0.10%
(ten basis points) per annum on the amount of the purchase price paid by such
Portfolio in such repurchase transaction;
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(5) a charge of $7 for each "free" wire transfer of funds from the
Custody Account of such Portfolio;
(6) a charge of $5 for each disbursement of funds made by check; and
(7) an administrative fee for each purchase in the Custody Account of
such Portfolio of shares or other interests in a money market or other fund,
which purchase represents a cash sweep investment for such Portfolio's account,
computed for each day that there is a positive balance in such fund to equal
1/365th of 0.10% (ten basis points) on the amount of such positive balance for
such day; and
(8) a reasonable service charge for each holding of securities or other
assets of such Portfolio that are sold by way of private placement or in such
other manner as to require services by Custodian which in its reasonable
judgment are materially in excess of those ordinarily required for the holding
of publicly traded securities in the United States.
INTERNATIONAL FEES. Each Portfolio shall pay Custodian fees for assets
maintained by such Portfolio outside the United States ("Foreign Assets") and
charges for transactions by such Portfolio outside the United States (including,
without limitation, charges for funds transfers and tax reclaims) in accordance
with such schedule of fees and charges for each country in which Foreign Assets
of such Portfolio are held as Custodian shall from time to time provide to the
Trust. Any asset-based fee shall be based upon the total market value of the
applicable Foreign Assets as determined on the last Business Day of the month
for which such fee is charged.
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SERVICES AGREEMENT
THIS AGREEMENT, dated as of this 10th day of September, 1999 (the "Effective
Date") between THIRD AVENUE VARIABLE SERIES TRUST (the "Fund"), a Delaware
business trust having its principal place of business at 767 Third Avenue, New
York, New York 10017 and FIRST DATA INVESTOR SERVICES GROUP, INC. ("Investor
Services Group"), a Massachusetts corporation with principal offices at 4400
Computer Drive, Westboro, Massachusetts 01581.
WITNESSETH
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WHEREAS, the Fund is authorized to issue Shares in separate series,
with each such series representing interests in a separate portfolio of
securities or other assets.
WHEREAS, the Fund initially intends to offer Shares in those Portfolios
identified in the attached Schedule A, each such Portfolio, together with all
other Portfolios subsequently established by the Fund shall be subject to this
Agreement in accordance with Article 14;
WHEREAS, the Fund on behalf of the Portfolios, desires to appoint
Investor Services Group as its fund accounting agent, transfer agent, dividend
disbursing agent and agent in connection with certain other activities and
Investor Services Group desires to accept such appointment;
NOW, THEREFORE, in consideration of the mutual covenants and promises
hereinafter set forth, the Fund and Investor Services Group agree as follows:
Article 1 DEFINITIONS.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
authorized officer of the Fund; or (ii) any person, whether or not such
person is an officer or employee of the Fund, duly authorized to give
Oral Instructions or Written Instructions on behalf of the Fund as
indicated in writing to Investor Services Group from time to time.
(c) "Board Members" shall mean the Directors or Trustees of the
governing body of the Fund, as the case may be.
(d) "Board of Directors" shall mean the Board of Directors or Board
of Trustees of the Fund, as the case may be.
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(e) "Commencement Date" shall mean the date on which Investor
Services Group commences providing services to the Fund pursuant to
this Agreement.
(f) "Commission" shall mean the Securities and Exchange Commission.
(g) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custodian Agreement.
(h) "1934 Act" shall mean the Securities Exchange Act of 1934 and
the rules and regulations promulgated thereunder, all as amended from
time to time.
(i) "1940 Act" shall mean the Investment Company Act of 1940 and
the rules and regulations promulgated thereunder, all as amended from
time to time.
(j) "Oral Instructions" shall mean instructions, other than Written
Instructions, actually received by Investor Services Group from a
person reasonably believed by Investor Services Group to be an
Authorized Person;
(k) "Portfolio" shall mean each separate series of shares offered
by the Fund representing interests in a separate portfolio of
securities and other assets;
(l) "Prospectus" shall mean the most recently dated Fund Prospectus
and Statement of Additional Information, including any supplements
thereto if any, which has become effective under the Securities Act of
1933 and the 1940 Act.
(m) "Shares" refers collectively to such shares of capital stock or
beneficial interest, as the case may be, or class thereof, of each
respective Portfolio of the Fund as may be issued from time to time.
(n) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Fund.
(o) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by Investor Services Group to be
an Authorized Person and actually received by Investor Services Group.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including telefacsimile of a
manually executed original or other process.
Article 2 APPOINTMENT OF INVESTOR SERVICES GROUP.
The Fund, on behalf of the Portfolios, hereby appoints and constitutes
Investor Services Group as its transfer agent and dividend disbursing agent for
Shares of each respective Portfolio of the Fund and as fund accounting agent,
and shareholder servicing agent for the Fund, and
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Investor Services Group hereby accepts such appointments and agrees to perform
the duties hereinafter set forth. This Agreement shall be effective as of the
Effective Date.
Article 3 DUTIES OF INVESTOR SERVICES GROUP.
3.1 Investor Services Group shall be responsible for:
(a) Administering and/or performing the customary services of
a transfer agent; acting as service agent in connection with dividend
and distribution functions; and for performing shareholder account and
administrative agent functions in connection with the issuance,
transfer and redemption or repurchase (including coordination with the
Custodian) of Shares of each Portfolio, as more fully described in the
written schedule of Duties of Investor Services Group annexed hereto as
Schedule B and incorporated herein, and in accordance with the terms of
the Prospectus of the Fund on behalf of the applicable Portfolio,
applicable law and the procedures established from time to time between
Investor Services Group and the Fund.
(b) Recording the issuance of Shares and maintaining pursuant
to Rule 17Ad-10(e) of the 1934 Act a record of the total number of
Shares of each Portfolio which are authorized, based upon data provided
to it by the Fund, and issued and outstanding. Investor Services Group
shall provide the Fund on a regular basis with the total number of
Shares of each Portfolio which are authorized and issued and
outstanding and, except as provided herein, shall have no obligation,
when recording the issuance of Shares, to monitor the issuance of such
Shares.
(c) Investor Services Group shall be responsible for the
following: performing the customary services of a fund accounting agent
for the Fund, as more fully described in the written schedule of Duties
of Investor Services Group annexed hereto as Schedule B and
incorporated herein, and subject to the supervision and direction of
the Board of Directors of the Fund.
(d) Notwithstanding any of the foregoing provisions of this
Agreement, Investor Services Group shall be under no duty or obligation
to inquire into, and shall not be liable for: (i) the legality of the
issuance or sale of any Shares; (ii) the legality of the redemption of
any Shares; (iii) the legality of the declaration of any dividend by
the Board of Directors, or the legality of the issuance of any Shares
in payment of any dividend; or (iv) the legality of any
recapitalization or readjustment of the Shares.
3.2 In addition, the Fund shall (i) identify to Investor Services Group
in writing those transactions and assets to be treated as exempt from blue sky
reporting for each State and (ii) verify the establishment of transactions for
each State on the system prior to activation and thereafter monitor the daily
activity for each State. Except to the extent that Investor Services Group shall
provide Blue Sky administration services to the Fund, the responsibility of
Investor Services Group for the Fund's blue sky State registration status is
solely limited to the initial establishment of transactions subject to blue sky
compliance by the Fund.
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3.3 In performing its duties under this Agreement, Investor Services
Group: (a) will act in accordance with the Articles of Incorporation, By-Laws,
Prospectuses and with the Oral Instructions and Written Instructions of the Fund
and will conform to and comply with the requirements of the 1940 Act and all
other applicable federal or state laws and regulations; and (b) will consult
with legal counsel to the Fund, as necessary and appropriate. Furthermore,
Investor Services Group shall not have or be required to have any authority to
supervise the investment or reinvestment of the securities or other properties
which comprise the assets of the Fund or any of its Portfolios and shall not
provide any investment advisory services to the Fund or any of its Portfolios.
3.4 In addition to the duties set forth herein, Investor Services Group
shall perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the Fund
and Investor Services Group.
Article 4 RECORDKEEPING AND OTHER INFORMATION.
4.1 Investor Services Group shall create and maintain all records
required of it pursuant to its duties hereunder and as set forth in Schedule B
in accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. Where applicable, such records shall
be maintained by Investor Services Group for the periods and in the places
required by Rule 31a-2 under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, Investor
Services Group agrees that all such records prepared or maintained by Investor
Services Group relating to the services to be performed by Investor Services
Group hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such section, and will be surrendered
promptly to the Fund on and in accordance with the Fund's request.
4.3 In case of any requests or demands for the inspection of
Shareholder records of the Fund, Investor Services Group will notify the Fund of
such request and secure Written Instructions as to the handling of such request.
Investor Services Group reserves the right, however, to exhibit the Shareholder
records to any person whenever it is advised by its counsel that it may be held
liable for the failure to comply with such request.
Article 5 FUND INSTRUCTIONS.
5.1 Investor Services Group will have no liability when acting upon
Written or Oral Instructions reasonably believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Fund. Investor Services Group will also have no liability when
processing Share certificates which it reasonably believes to bear the proper
manual or facsimile signatures of the officers of the Fund and the proper
countersignature of Investor Services Group.
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5.2 At any time, Investor Services Group may request Written
Instructions from the Fund and may seek advice from legal counsel for the Fund,
or its own legal counsel, with respect to any matter arising in connection with
this Agreement, and it shall not be liable for any action taken or not taken or
suffered by it in good faith in accordance with such Written Instructions or in
accordance with the opinion of counsel for the Fund or for Investor Services
Group. Written Instructions requested by Investor Services Group will be
provided by the Fund within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees, shall
accept Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Fund only if said representative is an
Authorized Person. The Fund agrees that all Oral Instructions shall be followed
within one business day by confirming Written Instructions, and that the Fund's
failure to so confirm shall not impair in any respect Investor Services Group's
right to rely on Oral Instructions.
Article 6 COMPENSATION.
6.1 The Fund on behalf of each of the Portfolios will compensate
Investor Services Group for the performance of its obligations hereunder in
accordance with the fees and other charges set forth in the written Fee Schedule
annexed hereto as Schedule C and incorporated herein.
6.2 In addition to those fees set forth in Section 6.1 above, the Fund
on behalf of each of the Portfolios agrees to pay, and will be billed separately
for, out-of-pocket expenses actually incurred by Investor Services Group in the
performance of its duties hereunder. Out-of-pocket expenses shall include, but
shall not be limited to, the items specified in the written schedule of
out-of-pocket charges annexed hereto as Schedule D and incorporated herein.
Schedule D may be modified by written agreement between the parties. Unspecified
out-of-pocket expenses shall be limited to those out-of-pocket expenses
reasonably incurred by Investor Services Group in the performance of its
obligations hereunder.
6.3 The Fund on behalf of each of the Portfolios hereby authorizes
Investor Services Group to collect its fees, other charges and related
out-of-pocket expenses by debiting the Fund's or Portfolio's custody account for
invoices which are rendered for the services performed for the applicable
function. Invoices for the services performed will be sent to the Fund after
such debiting with an indication that payment has been made. The Fund shall have
the right in good faith to dispute any invoice amount in which case the Fund
shall do the following within thirty (30) days of the postmark date: (a)
identify for Investor Services Group the undisputed amount of the invoice; and
(b) provide Investor Services Group with a detailed written description of the
disputed amount and the basis for the Fund's dispute with such amount. The Fund
and Investor Services Group shall cooperate in resolving disputed invoice
amounts. Upon resolution of such dispute, Investor Services Group agrees to
promptly refund such amounts determined to be due.
6.4 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule C, a revised Fee Schedule executed and dated by
the parties hereto.
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6.5 Investor Services Group will from time to time employ or associate
with itself such person or persons as Investor Services Group may believe to be
particularly suited to assist it in performing services under this Agreement.
Such person or persons may be officers and employees who are employed by both
Investor Services Group and the Fund. The compensation of such person or persons
shall be paid by Investor Services Group and no obligation shall be incurred on
behalf of the Fund in such respect.
6.6 Investor Services Group shall not be required to pay any of the
following expenses incurred by the Fund: membership dues in the Investment
Company Institute or any similar organization; investment advisory expenses;
costs of printing and mailing stock certificates, prospectuses, reports and
notices; interest on borrowed money; brokerage commissions; stock exchange
listing fees; taxes and fees payable to Federal, state and other governmental
agencies; fees of Board Members of the Fund who are not affiliated with Investor
Services Group; outside auditing expenses; outside legal expenses; Blue Sky
registration or filing fees; or other expenses not specified in this Section 6.7
which may be properly payable by the Fund.
Article 7 [RESERVED]
Article 8 INVESTOR SERVICES GROUP SYSTEM.
8.1 Investor Services Group shall retain title to and ownership of any
and all data bases, computer programs, screen formats, report formats,
interactive design techniques, derivative works, inventions, discoveries,
patentable or copyrightable matters, concepts, expertise, patents, copyrights,
trade secrets, and other related legal rights utilized by Investor Services
Group in connection with the services provided by Investor Services Group to the
Fund herein (the "Investor Services Group System").
8.2 Investor Services Group hereby grants to the Fund a limited license
to the Investor Services Group System for the sole and limited purpose of having
Investor Services Group provide the services contemplated hereunder and nothing
contained in this Agreement shall be construed or interpreted otherwise and such
license shall immediately terminate with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the Investor Services Group System for either account inquiry or to
transmit transaction information, including but not limited to maintenance,
exchanges, purchases and redemptions, such direct access capability shall be
limited to direct entry to the Investor Services Group System by means of
on-line mainframe terminal entry or PC emulation of such mainframe terminal
entry and any other non-conforming method of transmission of information to the
Investor Services Group System is strictly prohibited without the prior written
consent of Investor Services Group.
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Article 9 REPRESENTATIONS AND WARRANTIES.
9.1 Investor Services Group represents and warrants to the Fund that:
(a) it is a corporation duly organized, validly existing
and in good standing under the laws of the Commonwealth of
Massachusetts;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement;
(d) it is duly registered with its appropriate regulatory
agency as a transfer agent and such registration will remain in effect
for the duration of this Agreement; and
(e) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
9.2 The Fund represents and warrants to Investor Services Group that:
(a) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its
Declaration of Trust and By-Laws to enter into this Agreement;
(c) all corporate proceedings required by said Declaration of
Trust, By-Laws and applicable laws have been taken to authorize it to
enter into this Agreement; and
(d) all outstanding Shares are validly issued, fully paid and
non-assessable and when Shares are hereafter issued in accordance with
the terms of the Fund's Articles of Incorporation and its Prospectus
with respect to each Portfolio, such Shares shall be validly issued,
fully paid and non-assessable.
Article 10 INDEMNIFICATION.
10.1 Investor Services Group shall not be responsible for and the Fund
on behalf of each Portfolio shall indemnify and hold Investor Services Group
harmless from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments and liabilities
of any sort or kind which may be asserted against Investor Services Group or for
which Investor Services Group may be held to be liable (a "Claim") arising out
of or attributable to any of the following:
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(a) any actions of Investor Services Group required to be
taken pursuant to this Agreement unless such Claim resulted from a
negligent act or omission to act or bad faith by Investor Services
Group in the performance of its duties hereunder;
(b) Investor Services Group's reasonable reliance on, or
reasonable use of information, data, records and documents (including
but not limited to magnetic tapes, computer printouts, hard copies and
microfilm copies) received by Investor Services Group from the Fund, or
any authorized third party acting on behalf of the Fund, including but
not limited to the prior transfer agent for the Fund, except FPS
Services, Inc., in the performance of Investor Services Group's duties
and obligations hereunder;
(c) the reliance on, or the implementation of, any Written or
Oral Instructions or any other instructions or requests of the Fund on
behalf of the applicable Portfolio;
(d) the offer or sales of shares in violation of any
requirement under the securities laws or regulations of any state that
such shares be registered in such state or in violation of any stop
order or other determination or ruling by any state with respect to the
offer or sale of such shares in such state; and
(e) the Fund's refusal or failure to comply with the terms of
this Agreement, or any Claim which arises out of the Fund's negligence
or misconduct or the breach of any representation or warranty of the
Fund made herein.
10.2 Investor Services Group shall indemnify and hold the Fund harmless
from and against any and all claims, costs, expenses (including reasonable
attorneys' fees), losses, damages, charges, payments and liabilities of any sort
or kind which may be asserted against the Fund or for which the Fund may be held
to be liable in connection with this Agreement (a "Claim"), provided that such
Claim resulted from a negligent act or omission to act, bad faith, willful
misfeasance or reckless disregard by Investor Services Group in the performance
of its duties hereunder.
10.3 In any case in which one party (the "Indemnifying Party") may be
asked to indemnify or hold the other party (the "Indemnified Party") harmless,
the Indemnified Party will notify the Indemnifying Party promptly after
identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Indemnified Party although the
failure to do so shall not prevent recovery by the Indemnified Party and shall
keep the Indemnifying Party advised with respect to all developments concerning
such situation. The Indemnifying Party shall have the option to defend the
Indemnified Party against any Claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party, and thereupon the Indemnifying
Party shall take over complete defense of the Claim and the Indemnified Party
shall sustain no further legal or other expenses in respect of such Claim. The
Indemnified Party will not confess any Claim or make any compromise in any case
in which the Indemnifying Party will be asked to provide
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indemnification, except with the Indemnifying Party's prior written consent. The
obligations of the parties hereto under this Article 10 shall survive the
termination of this Agreement.
10.4 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
(a) one year after the Indemnified Party becomes aware of the
event for which indemnification is claimed; or
(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.5 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
Investor Services Group's sole and exclusive remedy for claims or other actions
or proceedings to which the Fund's indemnification obligations pursuant to this
Article 10 may apply.
Article 11 STANDARD OF CARE.
11.1 Investor Services Group shall at all times act in good faith and
agrees to use its best efforts within commercially reasonable limits to ensure
the accuracy of all services performed under this Agreement, but assumes no
responsibility for loss or damage to the Fund unless said errors are caused by
Investor Services Group's own negligence, bad faith or willful misconduct or
that of its employees.
11.2 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than three (3) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
11.3 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
Article 12 CONSEQUENTIAL DAMAGES.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE FOR INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES.
As used in the preceding paragraph "incidental, indirect or
consequential damages" means damages which do not flow directly from the act of
the party or which arise from the intervention of special circumstances not
ordinarily predictable, and does NOT include direct damages which arise
naturally or ordinarily from a breach of contract.
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Article 13 TERM AND TERMINATION.
13.1 This Agreement shall be effective on the date first written above
and shall continue for a period of three (3) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms") each,
unless the Fund or Investor Services Group provides written notice to the other
of its intent not to renew. Such notice must be received not less than ninety
(90) days and not more than one-hundred eighty (180) days prior to the
expiration of the Initial Term or the then current Renewal Term. The Fund shall
have the right to terminate this Agreement prior to the expiration of the
Initial Term or then current Renewal Term upon sixty (60) days written notice to
Investor Services Group if the Fund's Board of Trustees finds in the exercise of
its fiduciary duty that Investor Services Group is materially unable to perform
its duties and obligations under this Agreement.
13.3 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor service provider will be borne by the Fund.
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If the material failure is one for which the
Non-Defaulting Party has previously given the Defaulting Party notice as
provided in the previous sentence, the Agreement may be terminated by the
Non-Defaulting Party upon thirty (30) days written notice without giving the
Defaulting Party a second opportunity to cure such material failure. If Investor
Services Group is the Non-Defaulting Party, its termination of this Agreement
shall not constitute a waiver of any other rights or remedies of Investor
Services Group with respect to services performed prior to such termination of
rights of Investor Services Group to be reimbursed for out-of-pocket expenses.
In all cases, termination by the Non-Defaulting Party shall not constitute a
waiver by the Non-Defaulting Party of any other rights it might have under this
Agreement or otherwise against the Defaulting Party.
13.5 Notwithstanding anything contained in this Agreement to the
contrary and except as provided in Section 13.4, should the Fund desire to move
any of the services provided by Investor Services Group hereunder to a successor
service provider prior to the expiration of the then current Initial or Renewal
Term, or should the Fund or any of its affiliates take any action which would
result in Investor Services Group ceasing to provide transfer agency or fund
accounting services to the Fund prior to the expiration of the Initial or any
Renewal Term, Investor Services Group shall make a good faith effort and use all
commercially reasonable efforts to facilitate the conversion on such prior date,
however, there can be no guarantee that Investor Services Group will be able to
facilitate a conversion of services on such prior date. In connection with the
foregoing, should services be converted to a successor service provider or
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should the Fund or any of its affiliates take any action which would result in
Investor Services Group ceasing to provide transfer agency or fund accounting
services to the Fund prior to the expiration of the Initial or any Renewal Term,
the payment of fees to Investor Services Group as set forth herein shall be
accelerated to a date prior to the conversion or termination of services and
calculated as if the services had remained with Investor Services Group until
the expiration of the then current Initial or Renewal Term and calculated at the
asset and/or Shareholder account levels, as the case may be, on the date notice
of termination was given to Investor Services Group.
Article 14 ADDITIONAL PORTFOLIOS
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Schedule A, with respect to which the Fund
desires to have Investor Services Group render services as service provider
under the terms hereof, the Fund shall so notify Investor Services Group in
writing, and if Investor Services Group agrees in writing to provide such
services, Exhibit 1 shall be amended to include such additional Portfolios. If
after good faith negotiations, the parties are unable to agree upon the
conditions upon which Investor Services Group will service the new Portfolio,
either party shall have the right to terminate this Agreement upon sixty (60)
days written notice to the other party.
Article 15 CONFIDENTIALITY.
15.1 The parties agree that the Proprietary Information (defined below)
(collectively "Confidential Information") are confidential information of the
parties and their respective licensors. The Fund and Investor Services Group
shall exercise at least the same degree of care, but not less than reasonable
care, to safeguard the confidentiality of the Confidential Information of the
other as it would exercise to protect its own confidential information of a
similar nature. The Fund and Investor Services Group shall not duplicate, sell
or disclose to others the Confidential Information of the other, in whole or in
part, without the prior written permission of the other party. The Fund and
Investor Services Group may, however, disclose Confidential Information to their
respective parent corporation, their respective affiliates, their subsidiaries
and affiliated companies and employees, provided that each shall use reasonable
efforts to ensure that the Confidential Information is not duplicated or
disclosed in breach of this Agreement. The Fund and Investor Services Group may
also disclose the Confidential Information to independent contractors, auditors,
and professional advisors, provided they first agree in writing to be bound by
the confidentiality obligations substantially similar to this Section 15.1.
Notwithstanding the previous sentence, in no event shall either the Fund or
Investor Services Group disclose the Confidential Information to any competitor
of the other without specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, portfolio holdings, and internal performance
results
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relating to the past, present or future business activities of the
Fund or Investor Services Group, their respective subsidiaries and
affiliated companies and the customers, clients and suppliers of any
of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Fund or
Investor Services Group a competitive advantage over its competitors;
and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
15.4 The obligations of confidentiality and restriction on use herein
shall not apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this
Agreement or subsequently came into the public domain through no fault
of such party; or
(b) Was lawfully received by the party from a third party free
of any obligation of confidence to such third party; or
(c) Was already in the possession of the party prior to
receipt thereof, directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or
administrative proceeding after all reasonable legal remedies for
maintaining such information in confidence have been exhausted
including, but not limited to, giving the other party as much advance
notice of the possibility of such disclosure as practical so the other
party may attempt to stop such disclosure or obtain a protective order
concerning such disclosure; or
(e) Is subsequently and independently developed by employees,
consultants or agents of the party without reference to the
Confidential Information disclosed under this Agreement.
Article 16 FORCE MAJEURE; EXCUSED NON-PERFORMANCE.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by
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(i) fire, flood, elements of nature or other acts of God; (ii) any outbreak or
escalation of hostilities, war, riots or civil disorders in any country, (iii)
any act or omission of the other party or any governmental authority; (iv) any
labor disputes (provided that the employees' demands are not reasonable and
within the party's power to satisfy); or (v) nonperformance by a third party or
any similar cause beyond the reasonable control of such party, including without
limitation, failures or fluctuations in telecommunications or other equipment.
In addition, no party shall be liable for any default or delay in the
performance of its obligations under this Agreement if and to the extent that
such default or delay is caused, directly or indirectly, by the actions or
inactions of the other party. In any such event, the non-performing party shall
be excused from any further performance and observance of the obligations so
affected only for as long as such circumstances prevail and such party continues
to use commercially reasonable efforts to recommence performance or observance
as soon as practicable.
Article 17 ASSIGNMENT AND SUBCONTRACTING.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that
Investor Services Group may, in its sole discretion, assign all its right, title
and interest in this Agreement to an affiliate, parent or subsidiary. Investor
Services Group may, in its sole discretion, engage subcontractors to perform any
of the obligations contained in this Agreement to be performed by Investor
Services Group but shall no be relieved of its obligations and responsibilities
hereunder by reason of any such engagement.
Article 18 ARBITRATION.
18.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in New York, New York in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
18.2 The parties hereby agree that judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
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Article 19 NOTICE.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or Investor Services Group, shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Fund:
Third Avenue Variable Series Trust
767 Third Avenue
New York, New York 10017
Attention: Ian M. Kirschner, General Counsel
To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
Article 20 GOVERNING LAW/VENUE.
The laws of the State of New York, excluding the laws on conflicts of
laws, shall govern the interpretation, validity, and enforcement of this
agreement.
Article 21 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.
Article 22 CAPTIONS.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 PUBLICITY.
Neither Investor Services Group nor the Fund shall release or publish
news releases, public announcements, advertising or other publicity relating to
this Agreement or to the transactions contemplated by it without the prior
review and written approval of the other party; provided, however, that either
party may make such disclosures as are required by legal,
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accounting or regulatory requirements after making reasonable efforts in the
circumstances to consult in advance with the other party.
Article 24 RELATIONSHIP OF PARTIES/NON-SOLICITATION.
24.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
24.2 During the term of this Agreement and for one (1) year afterward,
neither Party shall recruit, solicit, employ or engage, for itself or others,
the other Party's employees.
Article 25 ENTIRE AGREEMENT; SEVERABILITY.
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against Investor Services Group unless said writing is executed by
a Senior Vice President, Executive Vice President, or President of Investor
Services Group. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the same or
another term or condition.
25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
Article 26 MISCELLANEOUS.
The Fund and Investor Services Group agree that the obligations of the
Fund under the Agreement shall not be binding upon any of the Board Members,
shareholders, nominees, officers, employees or agents, whether past, present or
future, of the Fund individually, but are binding only upon the assets and
property of the Fund, as provided in the Articles of Incorporation. The
execution and delivery of this Agreement have been authorized by the Board
Members of the Fund, and signed by an authorized officer of the Fund, acting as
such, and neither such authorization by such Board Members nor such execution
and delivery by such officer shall be deemed to have been made by any of them or
any shareholder of the Fund individually or to impose any liability on any of
them or any shareholder of the Fund personally, but shall bind only the assets
and property of the Fund as provided in the Articles of
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Incorporation and all persons dealing with any Portfolio of the Fund must look
solely to the trust property belonging to such Portfolio for the enforcement of
any claims against the Fund.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized officers, as of the day and year first above
written.
THIRD AVENUE VARIABLE SERIES TRUST
By:
-----------------------------
Title:
-----------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
-----------------------------
Title:
-----------------------------
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SCHEDULE A
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LIST OF PORTFOLIOS
Third Avenue Value Portfolio
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SCHEDULE B
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DUTIES OF INVESTOR SERVICES GROUP
1. SERVICES RELATED TO PORTFOLIO VALUATION AND MUTUAL FUND ACCOUNTING
All financial data provided to, processed and reported by Investor Services
Group under this Agreement shall be in United States dollars. Investor Services
Group's obligation to convert, equate or deal in foreign currencies or values
extends only to the accurate transposition of information received from the
various pricing and information services.
A. Daily Accounting Services
1. Calculate Net Asset Value ("NAV") and Public Offering Price Per Share
("POP"):
o Update the daily market value of all assets held by the Fund
using Investor Services Group's standard agents for pricing U.S.
equity and bond securities as approved by the Board of Trustees.
The U.S. equity pricing services are currently Reuters, Inc.,
Muller Data Corporation, J.J. Kenny Co., Inc. and Interactive
Data Corporation ("IDC"). Muller Data Corporation, Dow Jones
Markets (formerly Telerate Systems, Inc.), J.J. Kenny Co., Inc.,
Municipal Market Data and IDC are also used for bond and money
market prices/yields. Bloomberg is available and used for price
research.
o Enter limited number (less than 15) of manual prices supplied by
the Fund and/or broker.
o Prepare NAV proof sheets. Review components of change in NAV for
reasonableness.
o Review variance reporting on-line and in hard copy for price
changes in individual securities using variance levels
established by the Fund. Verify U.S. dollar security prices
exceeding variance levels by notifying the Fund and pricing
sources of noted variances.
o Review for ex-dividend items indicated by pricing sources; trace
to Fund's general ledger for agreement.
o Communicate pricing information (NAV) to the Fund, Investor
Services Group and electronically to NASDAQ.
2. Determine and Report Cash Availability to the Fund by approximately
9:30 a.m. Eastern Time:
o Receive daily cash and transaction statements from the Custodian
by 8:30 a.m. Eastern time.
o Receive previous day shareholder activity reports from the
Transfer Agent by 8:30 a.m. Eastern time.
o Fax hard copy cash availability calculations with all details to
the Fund.
o Supply the Fund with 3-day cash projection report.
o Prepare daily bank cash reconciliations. Notify the Custodians
and the Fund of any reconciling items.
3. Reconcile and Record All Expense Accruals:
o Accrue expenses based on budget supplied by the Fund either as
percentage of net assets or specific dollar amounts.
o If applicable, monitor expense limitations established by the
Fund.
o If applicable, accrue daily amortization of organizational
expense.
o If applicable, complete daily accrual of 12b-1 expenses.
4. Verify and Record All Daily Income Accruals for Debt Issues:
o Review and verify all system generated Interest and Amortization
reports.
o Establish unique security codes for bond issues to permit
segregated trial balance income reporting.
5. Monitor Securities Held for Cash Dividends, Corporate Actions and
Capital Changes such as splits, mergers, spin-offs, etc. and process
appropriately.
o Monitor electronically received information from pricing vendors
for all domestic securities.
o Review current daily security trades for dividend activity.
o Monitor collection and postings of corporate actions, dividends
and interest.
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6. Enter All Security Trades on Accounting System based on written
instructions from the Fund's Advisor.
o Review system verification of trade and interest calculations.
o Verify settlement through statements supplied by the Custodian.
o Maintain security ledger transaction reporting.
o Maintain tax lot holdings.
o Determine realized gains or losses on security trades.
o Provide broker commission reporting.
7. Enter All Fund Share Transactions on Accounting System:
o Process activity identified on reports supplied by Investor
Services Group.
o Verify settlement through statements supplied by the Custodians.
o Reconcile to Investor Services Group's report balances.
8. Prepare and Reconcile/Prove Accuracy of the Daily Trial Balance
(listing all asset, liability, equity, income and expense accounts).
o Post manual entries to the general ledger.
o Post Custodian activity.
o Post security transactions.
o Post and verify system generated activity, i.e. income and
expense accruals.
9. Review and Reconcile with Custodians' Statements:
o Verify all posted interest, dividends, expenses and shareholder
and security payments/receipts, etc. (Discrepancies will be
reported to the Custodians).
o Post all cash settlement activity to the trial balance.
o Reconcile to ending cash balance accounts.
o Clear subsidiary reports with settled amounts.
o Track status of past due items and failed trades as reported by
the Custodians.
10. Submission of Daily Accounting Reports to the Fund: (Additional
reports readily available)
o Fund Trial Balance.
o Portfolio Valuation (listing inclusive of holdings, costs, market
values, unrealized appreciation/depreciation and percentage of
portfolio comprised of each security).
o NAV Calculation Report
o Cash Availability
o 3-Day Cash Projection Report.
B. Monthly Accounting Services
1. Full Financial Statement Preparation (automated Statements of Assets
and Liabilities, of Operations and of Changes in Net Assets) and
submission to the Fund by 10th business day.
2. Submission of Monthly Automated Accounting Reports to the Fund (by 10th
business day):
o Security Purchase/Sales Journal.
o Interest and Maturity Report.
o Brokers Ledger (Commission Report).
o Security Ledger Transaction Report with Realized Gains/Losses.
o Security Ledger Tax Lot Holdings Report.
o Additional reports available upon request.
3. Submit Reconciliation of Accounting Asset Listing to Custodian Asset
Listing:
o Report any security balance discrepancies to the Custodian/the
Fund.
4. Provide Monthly Analysis and Reconciliation of Additional Trial Balance
Accounts, such as:
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o Security cost and realized gains/losses.
o Interest/dividend receivable and income.
o Payable/receivable for securities purchased and sold.
o Payable/receivable for fund shares; issued and redeemed.
o Expense payments and accruals analysis.
5. If appropriate, Prepare and Submit to the Fund (additional fees may
apply):
o Income by state reporting.
o Standard Industry Code Valuation Report.
o Alternative Minimum Tax Income segregation schedule.
o SEC yield reporting (non-money market funds).
C. Annual (and Semi-Annual) Accounting Services
1. Annually assist and supply Fund's auditors with schedules supporting
securities and shareholder transactions, income and expense accruals,
etc. for each Portfolio during the year in accordance with standard
audit assistance requirements.
2. Provide N-SAR Reporting (Accounting Questions) on a Semi-Annual Basis:
If applicable, answer the following items:
2, 12B, 20, 21, 22, 23, 28, 30A, 31, 32, 35, 36, 37, 43, 53, 55, 62,
63, 64B, 71, 72, 73, 74, 75 and 76
D. Accounts and Records
On each day the New York Stock Exchange is open for regular trading and
subject to the proper receipt (via Oral or Written Instructions) by
Investor Services Group of all information required to fulfill its duties
under this Agreement, Investor Services Group will maintain and keep
current the following Accounts and Records and any other records required
to be kept pursuant to Rule 31a-1 of the 1940 Act relating to the business
of the Portfolios in such form as may be mutually agreed upon between the
Fund and Investor Services Group:
(1) Net Asset Value Calculation Reports;
(2) Cash Receipts Report;
(3) Cash Disbursements Report;
(4) Dividends Paid and Payable Schedule;
(5) Purchase and Sales Journals - Portfolio Securities;
(6) Subscription and Redemption Reports;
(7) Security Ledgers - Transaction Report and Tax Lot Holdings
Report;
(8) Broker Ledger - Commission Report;
(9) Daily Expense Accruals;
(10) Daily Interest Accruals;
(11) Daily Trial Balance;
(12) Portfolio Interest Receivable and Income Reports;
(13) Portfolio Dividend Receivable and Income Reports;
(14) Listing of Portfolio Holdings - showing cost, market value
and percentage of portfolio comprised of each security; and
(15) Average Daily Net assets provided on monthly basis.
2. SERVICES RELATED TO SHAREHOLDERS AND SHARE TRANSACTIONS
A. Shareholder File
1. Establish new accounts and enter demographic data into shareholder base.
Includes in-house processing and National Securities Clearing
Corporation ("NSCC") - Fund/SERV and/or Networking transmissions.
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2. Create Customer Information File ("CIF") to link accounts within the
Fund and across Portfolios within the Fund. Facilitates account
maintenance, lead tracking, quality control, household mailings and
combined statements.
3. 100% quality control of new account information including verification
of initial investment.
4. Maintain account and customer file records based on shareholder request
and routine quality review.
5. Maintain tax ID certification and Non Resident Alien ("NRA") records
for each account, including backup withholding.
6. Provide written confirmation of address changes.
7. Produce shareholder statements for daily activity, dividends,
on-request, interested party and periodic mailings.
8. Establish and maintain dealer file by Fund, including dealer, branch,
representative number and name, and provide this information to the
Fund.
9. Automated processing of dividends and capital gains with daily,
monthly, quarterly or annual distributions. Payment options include
reinvestment, directed payment to another fund, cash via mail, Fed wire
or ACH.
10. Image all applications, account documents, data changes,
correspondence, monetary transactions and other pertinent shareholder
documents.
B. Shareholder Services
1. Provide quality service through a dedicated group of highly trained
NASD licensed customer service personnel, including phone, research and
correspondence representatives.
2. Answer shareholder calls in timely fashion: provide routine account
information, transactions details including direct and wire purchases,
redemptions, exchanges, systematic withdrawals, pre-authorized drafts,
Fund/SERV and wire order trades, problem solving and process telephone
transactions.
3. Silent monitoring of telephone representative calls by the phone
supervisor during live conversations to ensure exceptional customer
service.
4. Record and maintain tape recordings of all shareholder calls for a six
month period.
5. Phone supervisor produces daily management reports of shareholder calls
which include tracking volume, call length, average wait time and
abandoned call rates to ensure quality service, and provided to the
Fund weekly.
6. Phone representatives will be trained through in-house training
programs on the techniques of providing exceptional customer service.
7. Customer inquiries received by letter or telephone will be researched
by a correspondence team. These inquiries include such items as account
/ customer file information, complete historical account information,
stop payments on checks, transaction details and lost certificates.
8. Provide written correspondence in response to shareholder inquiries and
requests. Whenever possible, unclear shareholder instructional letters
are handled by a phone call to the shareholder from Investor Services
Group's phone representatives to avoid delay in processing of the
request.
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C. Investment Processing
1. Initial investment.
2. Subsequent investments processed through lock box.
3. Pre-authorized investments ("PAD") through ACH system.
4. Government allotments through ACH system.
5. Wire order and NSCC - Fund/SERV trades.
6. Prepare and process daily bank deposit of shareholder investments.
D. Redemption Processing
1. Process mail redemption requests.
2. Process telephone redemption transactions.
3. Establish Systematic Withdrawal file and process automated
transactions on monthly basis.
4. Provide wire order and NSCC - Fund/SERV trade processing.
5. Distribute redemption proceeds to shareholder by check, wire or ACH
processing.
E. Exchange and Transfer Processing
1. Process legal transfers.
2. Process ACATS transfers.
3. Issue and cancel certificates.
4. Replace certificates through surety bonds (separate charge to
shareholder).
5. Process exchange transactions (letter and/or telephone requests).
F. CASH MANAGEMENT SERVICES. (a) Investor Services Group shall
establish demand deposit accounts (DDA's) with a cash management provider to
facilitate the receipt of purchase payments and the processing of other
Shareholder-related transactions. Investor Services Group shall retain any
excess balance credits earned with respect to the amounts in such DDA's
("Balance Credits") after such Balance Credits are first used to offset any
banking service fees charged in connection with banking services provided on
behalf of the Fund. Balance Credits will be calculated and applied toward the
Fund's banking service charges regardless of the withdrawal of DDA balances
described in Section (b) below.
(b) DDA balances which cannot be forwarded on the day of receipt may be
withdrawn on a daily basis and invested in U.S. Treasury and Federal Agency
obligations, money market mutual funds, repurchase agreements, money market
preferred securities (rated A or better), commercial paper (rated A1 or P1),
corporate notes/bonds (rated A or better) and/or Eurodollar time deposits
(issued by banks rated A or better). Investor Services Group bears the risk of
loss on any such investment and shall retain any earnings generated thereby.
Other similarly rated investment vehicles may be used, provided however,
Investor Services Group shall first notify the Fund of any such change.
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(c) Investor Services Group may facilitate the payment of distributions from
the Fund which are made by check ("Distributions") through the "IPS Official
Check" program. "IPS Official Check" is a product and service provided by
Investor Services Group's affiliate, Integrated Payment Systems ("IPS"). IPS is
licensed and regulated as an "issuer of payment instruments". In the event the
IPS Official Check program is utilized, funds used to cover such Distributions
shall be forwarded to and held by IPS. IPS may invest such funds while awaiting
presentment of items for payment. In return the services provided by IPS, IPS
imposes a per item charge which is identified in the Schedule of Out-of-Pocket
Expenses attached hereto and shall retain, and share with Investor Services
Group, the benefit of the revenue generated from its investment practices.
G. LOST SHAREHOLDERS. Investor Services Group shall perform such services as are
required in order to comply with Rules 17a-24 and 17Ad-17 of the 34 Act (the
Lost Shareholder Rules"), including, but not limited to those set forth below.
Investor Services Group may, in its sole discretion, use the services of a third
party to perform the some or all such services.
o documentation of electronic search policies and procedures;
o execution of required searches;
o creation and mailing of confirmation letters;
o taking receipt of returned verification forms;
o providing confirmed address corrections in batch via electronic
media;
o tracking results and maintaining data sufficient to comply with the
Lost Shareholder Rules; and
o preparation and submission of data required under the Lost
Shareholder Rules.
H. Settlement and Control
1. Daily review of processed shareholder transactions to assure input was
processed correctly. Accurate trade activity figures passed to Investor
Services Group.
2. Preparation of daily cash movement sheets to be passed to Investor
Services Group and the Custodian Bank for use in determining the Fund's
daily cash availability.
3. Prepare a daily share reconcilement which balances the shares on the
Transfer Agent system to those on the books of the Fund.
4. Resolve any outstanding share or cash issues that are not cleared by
trade date + 2.
5. Process shareholder adjustments to also include the proper notification
of any booking entries needed, as well as any necessary cash movement.
6. Settlement and review of the Fund's declared dividends and capital gains
will include the following:
a. Review of record date report for accuracy of shares.
b. Prepare dividend settlement report after dividend is posted.
c. Verify the posting date shares, the rate used and the NAV price of
reinvest date to ensure dividend was posted properly.
d. Distribute copies to Investor Services Group.
e. Prepare the checks prior to being mailed.
f. Send any dividends via wire, if requested.
g. Prepare cash movement sheets for the cash portion of the dividend payout
on payable date.
7. Placement of stop payments on dividend and liquidation checks as well as
the issuance of their replacements.
8. Maintain inventory control for stock certificates and dividend check
form.
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9. Aggregate tax filings for all Investor Services Group clients. Monthly
deposits are made to the IRS for all taxes withheld from shareholder
disbursements, distributions and foreign account distributions.
Correspond with the IRS concerning any of the above issues.
10. Timely settlement and cash movement for all NSCC - Fund/SERV activity.
I. Year-End Processing
1. Maintain shareholder records in accordance with IRS notices for
under-reporting and invalid tax IDs. This includes initiating 31% backup
withholding and notifying shareholders of their tax status and the
corrective action which is needed.
2. Conduct annual W-9 solicitation of all uncertificated accounts. Update
account tax status to reflect backup withholding or certificated status
depending on responses.
3. Conduct periodic W-8 solicitation of all non-resident alien shareholder
accounts. Update account tax status with updated shareholder information
and treaty rates for NRA tax.
4. Review IRS Revenue Procedures for changes in transaction and distribution
reporting and specifications for the production of forms to ensure
compliance.
5. Coordinate year-end activity with client. Activities include producing
year-end statements, scheduling record dates for year-end dividends and
capital gains, production of combined statements and printing of inserts
to be mailed with tax forms.
6. Distribute dividend letter to Portfolios to sign off on all distributions
paid year-to-date. Dates and rates must be authorized so that they can be
used for reporting to the IRS.
7. Coordinate the ordering of forms and envelopes from vendors in
preparation of tax reporting. Compare forms with IRS requirements to
ensure accuracy. Upon receipt of forms and envelopes, allocate space for
storage.
8. Prepare form flashes for the microfiche vendor. Test and oversee the
production of fiche for year-end statements and tax forms.
9. Match and settle tax reporting totals to Fund records and on-line data
from Transfer Agency System.
10. Produce Forms 1099R, 1099B, 1099Div, 5498, 1042S and year-end valuations.
Quality assure forms before mailing to shareholders.
11. Monitor IRS deadlines and special events such as crossover dividends and
prior year IRA contributions.
12. Prepare magnetic tapes and appropriate forms for the filing of all
reportable activity to the IRS.
J. Client Services
1. An Account Manager is assigned to each relationship and is the liaison
between the Fund and Investor Service Group. Responsibilities include
scheduling of events, system enhancement implementation, special
promotion / event implementation and follow-up and constant Fund
interaction on daily operational issues. Specifically:
a. Scheduling of dividends, proxies, report mailings and special mailings.
b. Coordinating with the Fund the shipment of materials for scheduled
mailings.
c. Acting as liaison between the Fund and support services for preparation
of proofs and eventual printing of statement forms, certificates, proxy
cards, envelopes etc.
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d. Handling all notification to the Fund regarding proxy tabulation through
the meeting - coordinate scheduling of materials, including votes cards,
tabulation letters and shareholder list to be available for the meeting.
e. Ordering special reports, tapes and/or discs for special systems requests
received.
f. Implementing new operational procedures, i.e., check writing feature,
load discounts, minimum waivers, sweeps, telephone options, PAD
promotions etc.
g. Coordinating with systems, services and operations, special events, i.e.,
mergers, new fund start-ups, small account liquidations, combined
statements, household mailings, additional mail files.
h. Preparing standard operating procedures and review prospectuses -
coordinate implementation of suggested changes with the Fund. i. Acting
as liaison between the Fund and Investor Services Group regarding all
service and operational issues.
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SCHEDULE C
----------
FEE SCHEDULE
FUND ACCOUNTING (PER DOMESTIC PORTFOLIO)
$25,000 minimum to $20 million of average net assets, plus
.0003 on the next $30 million of average net assets
.0002 on the next $50 million of average net assets
.0001 over $100 million of average net assets
TRANSFER AGENCY
$2,000 per month based on daily activity in an omnibus account. Assumes
no printing of account statements
FUND/SERV Processing (not applicable)
Networking Processing (not applicable)
Lost Shareholder Search/Reporting: $2.75 per account search*
* The per account search fee shall be waived until June 2000
so long as the Fund retains Keane Tracers, Inc. ("KTI") to
provide the Fund with KTI's "In-Depth Research Program"
services.
MISCELLANEOUS CHARGES
The Fund shall be charged for the following products and services as applicable:
o Ad hoc reports
o Ad hoc SQL time
o COLD Storage
o Digital Recording
o Banking Services, including incoming and outgoing wire charges
o Microfiche/microfilm production
o Magnetic media tapes and freight
o Manual Pricing
o Materials for Rule 15c-3 Presentations
o Pre-Printed Stock, including business forms, certificates, envelopes,
checks and stationary
FEE ADJUSTMENTS
After the one year anniversary of the effective date of this Agreement, Investor
Services Group may adjust the fees described in the above sections once per
calendar year, upon thirty (30) days
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prior written notice in an amount not to exceed the cumulative percentage
increase in the Consumer Price Index for All Urban Consumers (CPI-U) U.S. City
Average, All items (unadjusted) - (1982-84=100), published by the U.S.
Department of Labor since the last such adjustment in the Client's monthly fees
(or the Effective Date absent a prior such adjustment).
PROGRAMMING COSTS (TO THE EXTENT REQUESTED BY THE FUND)
The following programming rates are subject to an annual 5% increase after the
one year anniversary of the effective date of this Agreement.
(a) Dedicated Team: Programmer: $100,000 per annum
BSA: $ 85,000 per annum
Tester: $ 65,000 per annum
(b) System Enhancements (Non Dedicated Team): $ 150.00 per/hr per
programmer
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SCHEDULE D
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OUT-OF-POCKET EXPENSES
The Fund shall reimburse Investor Services Group monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
o Postage - direct pass through to the Fund
o Telephone and telecommunication costs requested by the Fund,
including all lease, maintenance and line costs
o Proxy solicitations, mailings and tabulations
o Shipping, Certified and Overnight mail and insurance
o Terminals, communication lines, printers and other equipment and any
expenses incurred in connection with such terminals and lines
requested by the Fund
o Duplicating services
o Distribution and Redemption Check Issuance
o Courier services
o Federal Reserve charges for check clearance
o Overtime, as approved by the Fund
o Temporary staff, as approved by the Fund
o Travel and entertainment, as approved by the Fund
o Record retention, retrieval and destruction costs, including, but
not limited to exit fees charged by third party record keeping
vendors
o Third party audit reviews
o Pricing services (or services used to determine Fund NAV)
o Vendor set-up charges for Blue Sky
o Blue Sky filing or registration fees
o EDGAR filing fees
o Vendor pricing comparison
o Such other expenses as are agreed to by Investor Services Group and
the Fund
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with Investor Services Group. In addition,
the Fund will promptly reimburse Investor Services Group for any other
unscheduled expenses incurred by Investor Services Group whenever the Fund and
Investor Services Group mutually agree that such expenses are not otherwise
properly borne by Investor Services Group as part of its duties and obligations
under the Agreement.
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ADMINISTRATION AGREEMENT
THIS ADMINISTRATION AGREEMENT, dated as of this 10th day of September,
1999, the "Agreement"), between EQSF ADVISERS, INC., a New York corporation
("EQSF") and THIRD AVENUE TRUST (the "Fund"), an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act").
WHEREAS, the Fund desires to retain EQSF to render certain
administrative services with respect to each investment portfolio listed in
Schedule A hereto, as the same may be amended from time to time by the parties
hereto (collectively, the "Portfolios"), and EQSF is willing to render such
services;
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
Article 1 DEFINITIONS.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
officer of the Fund; or (ii) any person, whether or not such person is
an officer or employee of the Fund, duly authorized to give Oral
Instructions or Written Instructions on behalf of the Fund as indicated
in writing to EQSF from time to time.
(c) "Board Members" shall mean the Directors or Trustees of
the governing body of the Fund, as the case may be.
(d) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
(e) "Commission" shall mean the Securities and Exchange
Commission.
(f) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custody Agreement.
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<PAGE>
(g) "1933 Act" shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder, all as amended from time
to time.
(h) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(i) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by EQSF from a person
reasonably believed by EQSF to be an Authorized Person.
(j) "Portfolio" shall mean each separate series of shares
offered by the Fund representing interests in a separate portfolio of
securities and other assets.
(k) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the 1933
Act and the 1940 Act.
(l) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class thereof, of
each respective Portfolio of the Fund as may be issued from time to
time.
(m) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Fund.
(n) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by EQSF to be an Authorized
Person and actually received by EQSF. Written Instructions shall
include manually executed originals and authorized electronic
transmissions, including telefacsimile of a manually executed original
or other process.
Article 2 APPOINTMENT OF EQSF.
The Fund hereby appoints EQSF to act as Administrator of the Fund on
the terms set forth in this Agreement. EQSF accepts such appointment and agrees
to render the services herein set forth for the compensation herein provided.
Article 3 DUTIES OF EQSF.
3.1 EQSF shall be responsible for the following: performing the
customary services of an Administrator, including treasury and blue sky for the
Fund, as more fully described in the written schedule of Duties of EQSF annexed
hereto as Schedule B and incorporated herein, and subject to the supervision and
direction of the Fund.
3.2 In performing its duties under this Agreement, EQSF: (a) will act
in accordance with the Articles of Incorporation, By-Laws, Prospectuses and with
the Oral Instructions and
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Written Instructions of the Fund and will conform to and comply with the
requirements of the 1940 Act and all other applicable federal or state laws and
regulations; and (b) will consult with legal counsel to the Fund, as necessary
and appropriate. Furthermore, EQSF shall not, pursuant to this Agreement, have
or be required to have any authority to supervise the investment or reinvestment
of the securities or other properties which comprise the assets of the Fund or
any of its Portfolios and shall not provide any investment advisory services to
the Fund or any of its Portfolios.
3.3 In addition to the duties set forth herein, EQSF shall perform such
other duties and functions, and shall be paid such amounts therefor, as may from
time to time be agreed upon in writing between the Fund and EQSF.
Article 4 RECORDKEEPING AND OTHER INFORMATION.
4.1 EQSF shall create and maintain all records required of it pursuant
to its duties hereunder and as set forth in Schedule B in accordance with all
applicable laws, rules and regulations, including records required by Section
31(a) of the 1940 Act. Where applicable, such records shall be maintained by
EQSF for the periods and in the places required by Rule 31a-2 under the 1940
Act.
4.2 To the extent required by Section 31 of the 1940 Act, EQSF agrees
that all such records prepared or maintained by EQSF relating to the services to
be performed by EQSF hereunder are the property of the Fund and will be
preserved, maintained and made available in accordance with such section, and
will be surrendered promptly to the Fund on and in accordance with the Fund's
request.
Article 5 FUND INSTRUCTIONS.
5.1 EQSF will have no liability when properly acting upon Written or
Oral Instructions reasonably believed to have been executed or orally
communicated by an Authorized Person and will not be held to have any notice of
any change of authority of any person until receipt of a Written Instruction
thereof from the Fund.
5.2 At any time, EQSF may request Written Instructions from the Fund
and may seek advice from legal counsel for the Fund, or its own legal counsel,
with respect to any matter arising in connection with this Agreement, and it
shall not be liable for any action properly taken or not taken or suffered by it
in good faith in accordance with such Written Instructions or in accordance with
the opinion of counsel for the Fund or for EQSF. Written Instructions requested
by EQSF will be provided by the Fund within a reasonable period of time.
5.3 EQSF, its officers, agents or employees, shall accept Oral
Instructions or Written Instructions given to them by any person representing or
acting on behalf of the Fund only if said representative is an Authorized
Person. The Fund agrees that all Oral Instructions shall be followed within one
business day by confirming Written Instructions, and that the Fund's failure to
so confirm shall not impair in any respect EQSF's right to rely on Oral
Instructions.
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Article 6 COMPENSATION.
6.1 EQSF will from time to time employ or associate with itself such
person or persons as EQSF may believe to be particularly suited to assist it in
performing services under this Agreement. Such person or persons may be officers
and employees who are employed by both EQSF and the Fund. The compensation of
such person or persons shall be paid by EQSF and no obligation shall be incurred
on behalf of the Fund in such respect.
6.2 EQSF shall not be required to pay any of the following expenses
incurred by the Fund: membership dues in the Investment Company Institute or any
similar organization; investment advisory expenses; costs of printing and
mailing stock certificates, prospectuses, reports and notices; interest on
borrowed money; brokerage commissions; stock exchange listing fees; taxes and
fees payable to Federal, state and other governmental agencies; fees of Board
Members of the Fund who are not affiliated with EQSF; outside auditing expenses;
outside legal expenses; Blue Sky registration or filing fees; or other expenses
not specified in this Section 6.2 which are properly payable by the Fund. EQSF
shall not be required to pay any Blue Sky registration or filing fees unless and
until it has received the amount of such fees from the Fund.
6.3 The Fund will compensate EQSF for the performance of its
obligations hereunder in accordance with the fees and other charges set forth in
the written Fee Schedule annexed hereto as Schedule C and incorporated herein.
6.4 In addition to those fees set forth in Section 6.3 above, the Fund
agrees to pay, and will be billed separately for, out-of-pocket expenses
actually incurred by EQSF in the performance of its duties hereunder.
Out-of-pocket expenses shall include, but shall not be limited to, the items
specified in the written schedule of out-of-pocket charges annexed hereto as
Schedule D and incorporated herein. Schedule D may be modified by written
agreement between the parties. Unspecified out-of-pocket expenses shall be
limited to those out-of-pocket expenses reasonably incurred by EQSF in the
performance of its obligations hereunder.
6.5 The Fund agrees to pay all fees, charges and out-of-pocket expenses
to EQSF by Federal Funds Wire within fifteen (15) business days following the
receipt of the respective invoice. In addition, with respect to all fees under
this Agreement, EQSF may charge a service fee equal to the lesser of (i) one and
one half percent (1 1/2%) per month or (ii) the highest interest rate legally
permitted on any past due invoiced amounts, provided however, the foregoing
service fee shall not apply if the Fund in good faith legitimately disputes any
invoice amount in which case the Fund shall do the following within thirty (30)
days of the postmark date: (a) pay EQSF the undisputed amount of the invoice;
and (b) provide EQSF a detailed written description of the disputed amount and
the basis for the Administator's dispute with such amount. In addition, the Fund
shall cooperate with EQSF in resolving disputed invoice amounts and then
promptly paying such amounts determined to be due.
6.6 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule C a revised Fee Schedule executed and dated by the
parties hereto.
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Article 7 [RESERVED]
Article 8 FUND ACCOUNTING SYSTEM.
8.1 EQSF shall retain title to and ownership of any and all data bases,
computer programs, screen formats, report formats, interactive design
techniques, derivative works, inventions, discoveries, patentable or
copyrightable matters, concepts, expertise, patents, copyrights, trade secrets,
and other related legal rights utilized by EQSF in connection with the services
provided by EQSF to the Fund herein (the "EQSF System").
8.2 EQSF hereby grants to the Fund a limited license to the EQSF System
for the sole and limited purpose of having EQSF provide the services
contemplated hereunder and nothing contained in this Agreement shall be
construed or interpreted otherwise and such license shall immediately terminate
with the termination of this Agreement.
8.3 In the event that the Fund, including any affiliate or agent of the
Fund or any third party acting on behalf of the Fund is provided with direct
access to the EQSF System, such direct access capability shall be limited to
direct entry to the EQSF System by means of on-line mainframe terminal entry or
PC emulation of such mainframe terminal entry and any other non-conforming
method of transmission of information to the EQSF System is strictly prohibited
without the prior written consent of EQSF.
Article 9 REPRESENTATIONS AND WARRANTIES.
9.1 EQSF represents and warrants to the Fund that:
(a) it is a corporation duly organized, validly existing and
in good standing under the laws of the State of New York;
(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement; and
(d) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and
obligations under this Agreement.
9.2 The Fund represents and warrants to EQSF that:
(a) it is duly organized, validly existing and in good
standing under the laws of the jurisdiction in which it is organized;
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(b) it is empowered under applicable laws and by its Articles
of Incorporation and By-Laws to enter into this Agreement; and
(c) all corporate proceedings required have been taken to
authorize it to enter into this Agreement.
Article 10 INDEMNIFICATION.
10.1 The Fund shall indemnify and hold EQSF harmless from and against
any and all claims, costs, expenses (including reasonable attorneys' fees),
losses, damages, charges, payments and liabilities of any sort or kind which may
be asserted against EQSF or for which EQSF may be held to be liable in
connection with this Agreement or EQSF's performance hereunder (a "Claim"),
unless such Claim resulted from a negligent act or omission to act or bad faith
by EQSF in the performance of its duties hereunder.
10.2 EQSF shall indemnify and hold the Fund harmless from and against
any and all claims, costs, expenses (including reasonable attorneys' fees),
losses, damages, charges, payments and liabilities of any sort or kind which may
be asserted against the Fund or for which the Fund may be held to be liable in
connection with this Agreement (a "Claim"), provided that such Claim resulted
from a negligent act or omission to act, bad faith, willful misfeasance or
reckless disregard by EQSF in the performance of its duties hereunder.
10.3 In any case in which one party (the "Indemnifying Party") may be
asked to indemnify or hold the other party (the "Indemnified Party") harmless,
the Indemnified Party will notify the Indemnifying Party promptly after
identifying any situation which it believes presents or appears likely to
present a claim for indemnification against the Indemnified Party although the
failure to do so shall not prevent recovery by the Indemnified Party and shall
keep the Indemnifying Party advised with respect to all developments concerning
such situation. The Indemnifying Party shall have the option to defend the
Indemnified Party against any Claim which may be the subject of this
indemnification, and, in the event that the Indemnifying Party so elects, such
defense shall be conducted by counsel chosen by the Indemnifying Party and
reasonably satisfactory to the Indemnified Party, and thereupon the Indemnifying
Party shall take over complete defense of the Claim and the Indemnified Party
shall sustain no further legal or other expenses in respect of such Claim. The
Indemnified Party will not confess any Claim or make any compromise in any case
in which the Indemnifying Party will be asked to provide indemnification, except
with the Indemnifying Party's prior written consent. The obligations of the
parties hereto under this Article 10 shall survive the termination of this
Agreement.
10.4 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
(a) one year after the Indemnified Party becomes aware of the
event for which indemnification is claimed; or
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(b) one year after the earlier of the termination of this
Agreement or the expiration of the term of this Agreement.
10.4 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
EQSF's sole and exclusive remedy for claims or other actions or proceedings to
which the Fund's indemnification obligations pursuant to this Article 10 may
apply.
Article 11 STANDARD OF CARE.
11.1 EQSF shall at all times act in good faith and agrees to use its
best efforts within commercially reasonable limits to ensure the accuracy of all
services performed under this Agreement, but assumes no responsibility for loss
or damage to the Fund unless said errors are caused by EQSF's own negligence,
bad faith or willful misconduct or that of its employees.
11.2 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than three (3) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
11.3 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
11.5 Without in any way limiting the foregoing, in the event EQSF shall
provide Blue Sky services to the Fund, EQSF shall have no liability for failing
to file on a timely basis any material to be provided by the Fund or its
designee that it has not received on a timely basis from the Fund or its
designee, nor shall EQSF have any responsibility to review the accuracy or
adequacy of materials it receives from the Fund or its designee for filing or
bear any liability arising out of the timely filing of such materials; nor shall
EQSF have any liability for monetary damages for the sale of securities in
jurisdictions where Shares are not properly registered, or in jurisdictions
where Shares are sold in excess of the lawfully registered amount unless such
failure of proper registration or excess sales is due to the willful
misfeasance, bad faith or negligence of EQSF and provided EQSF has requested
such information from the Fund in a timely fashion.
Article 12 CONSEQUENTIAL DAMAGES.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE FOR INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES.
As used in the preceding paragraph "incidental, indirect or
consequential damages" means damages which do not flow directly from the act of
the party or which arise from the
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intervention of special circumstances not ordinarily predictable, and does NOT
include direct damages which arise naturally or ordinarily from a breach of
contract.
Article 13 TERM AND TERMINATION.
13.1 This Agreement shall be effective on the date first written above
and shall continue for a period of three (3) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms") each,
unless the Fund or EQSF provides written notice to the other of its intent not
to renew. Such notice must be received not less than ninety (90) days and not
more than one-hundred eighty (180) days prior to the expiration of the Initial
Term or the then current Renewal Term.
13.3 In the event a termination notice is given by the Fund, all
expenses associated with movement of records and materials and conversion
thereof to a successor Fund will be borne by the Fund.
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If the material failure is one for which the
Non-Defaulting Party has previously given the Defaulting Party notice as
provided in the previous sentence, the Agreement may be terminated by the
Non-Defaulting Party upon thirty (30) days written notice without giving the
Defaulting Party a second opportunity to cure such material failure. If EQSF is
the Non-Defaulting Party, its termination of this Agreement shall not constitute
a waiver of any other rights or remedies of EQSF with respect to services
performed prior to such termination of rights of EQSF to be reimbursed for
out-of-pocket expenses. In all cases, termination by the Non-Defaulting Party
shall not constitute a waiver by the Non-Defaulting Party of any other rights it
might have under this Agreement or otherwise against the Defaulting Party.
13.5 Notwithstanding anything contained in this Agreement to the
contrary and except as provided in Section 13.4, should the Fund desire to move
any of the services provided by EQSF hereunder to a successor service provider
prior to the expiration of the then current Initial or Renewal Term, or should
the Fund or any of its affiliates take any action which would result in EQSF
ceasing to provide administration services to the Fund or the Fund prior to the
expiration of the Initial or any Renewal Term, EQSF shall make a good faith
effort and use all commercially reasonable efforts to facilitate the conversion
on such prior date, however, there can be no guarantee that EQSF will be able to
facilitate a conversion of services on such prior date. In connection with the
foregoing, should services be converted to a successor service provider or
should the Fund or any of its affiliates take any action which would result in
EQSF ceasing to provide administration services to the Fund or the Fund prior
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to the expiration of the Initial or any Renewal Term, the payment of fees to
EQSF as set forth herein shall be accelerated to a date prior to the conversion
or termination of services and calculated as if the services had remained with
EQSF until the expiration of the then current Initial or Renewal Term and
calculated at the asset and/or Shareholder account levels, as the case may be,
on the date notice of termination was given to EQSF.
Article 14 ADDITIONAL PORTFOLIOS
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Schedule A, with respect to which the Fund
desires to have EQSF render services as Administrator under the terms hereof,
the Fund shall so notify EQSF in writing, and if EQSF agrees in writing to
provide such services, Schedule A shall be amended to include such additional
Portfolios. If after good faith negotiations, the parties are unable to agree
upon the conditions upon which EQSF will service the new Portfolio, either party
shall have the right to terminate this Agreement upon sixty (60) days written
notice to the other party.
Article 15 CONFIDENTIALITY.
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The Fund
and EQSF shall exercise at least the same degree of care, but not less than
reasonable care, to safeguard the confidentiality of the Confidential
Information of the other as it would exercise to protect its own confidential
information of a similar nature. The Fund and EQSF shall not duplicate, sell or
disclose to others the Confidential Information of the other, in whole or in
part, without the prior written permission of the other party. The Fund and EQSF
may, however, disclose Confidential Information to their respective parent
corporation, their respective affiliates, their subsidiaries and affiliated
companies and employees, provided that each shall use reasonable efforts to
ensure that the Confidential Information is not duplicated or disclosed in
breach of this Agreement. The Fund and EQSF may also disclose the Confidential
Information to independent contractors, auditors, and professional advisors,
provided they first agree in writing to be bound by the confidentiality
obligations substantially similar to this Section 15.1. Notwithstanding the
previous sentence, in no event shall either the Fund or EQSF disclose the
Confidential Information to any competitor of the other without specific, prior
written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, portfolio holdings and internal performance
results relating to the past, present or future business activities of
the Fund or EQSF, their respective subsidiaries and affiliated
companies and the customers, clients and suppliers of any of them;
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<PAGE>
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Fund or EQSF a
competitive advantage over its competitors; and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
15.4 The obligations of confidentiality and restriction on use herein
shall not apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this
Agreement or subsequently came into the public domain through no fault of such
party; or
(b) Was lawfully received by the party from a third party free
of any obligation of confidence to such third party; or
(c) Was already in the possession of the party prior to
receipt thereof, directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or
administrative proceeding after all reasonable legal remedies for maintaining
such information in confidence have been exhausted including, but not limited
to, giving the other party as much advance notice of the possibility of such
disclosure as practical so the other party may attempt to stop such disclosure
or obtain a protective order concerning such disclosure; or
(e) Is subsequently and independently developed by employees,
consultants or agents of the party without reference to the Confidential
Information disclosed under this Agreement.
Article 16 FORCE MAJEURE; EXCUSED NON-PERFORMANCE.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country, (iii) any act or omission of the other party or
any governmental authority; (iv) any labor disputes (provided that the
employees' demands are not reasonable and within the party's power to satisfy);
or (v) nonperformance by a third party or
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any similar cause beyond the reasonable control of such party, including without
limitation, failures or fluctuations in telecommunications or other equipment.
In addition, no party shall be liable for any default or delay in the
performance of its obligations under this Agreement if and to the extent that
such default or delay is caused, directly or indirectly, by the actions or
inactions of the other party. In any such event, the non-performing party shall
be excused from any further performance and observance of the obligations so
affected only for as long as such circumstances prevail and such party continues
to use commercially reasonable efforts to recommence performance or observance
as soon as practicable.
Article 17 ASSIGNMENT AND SUBCONTRACTING.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that EQSF
may, in its sole discretion, assign all its right, title and interest in this
Agreement to an affiliate, parent or subsidiary, or to the purchaser of
substantially all of its business. EQSF may, in its sole discretion, engage
subcontractors to perform any of the obligations contained in this Agreement to
be performed by EQSF but shall not be relieved of its obligations and
responsibilities hereunder by reason of such engagement.
Article 18 ARBITRATION.
18.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in New York, New York in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
18.2 The parties hereby agree that judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
Article 19 NOTICE.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Fund or EQSF, shall be sufficiently given if
addressed to that party and received by it at its office set forth below or at
such other place as it may from time to time designate in writing.
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To the Fund:
767 Third Avenue
New York, New York 10017
Attention: Ian M. Kirschner, General Counsel
To EQSF:
767 Third Avenue
New York, New York 10017
Attention: David Barse
Article 20 GOVERNING LAW/VENUE.
The laws of the State of New York, excluding the laws on conflicts of
laws, shall govern the interpretation, validity, and enforcement of this
agreement.
Article 21 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.
Article 22 CAPTIONS.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 PUBLICITY.
Neither EQSF nor the Fund shall release or publish news releases,
public announcements, advertising or other publicity relating to this Agreement
or to the transactions contemplated by it without the prior review and written
approval of the other party; provided, however, that either party may make such
disclosures as are required by legal, accounting or regulatory requirements
after making reasonable efforts in the circumstances to consult in advance with
the other party.
Article 24 RELATIONSHIP OF PARTIES/NON-SOLICITATION.
24.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
Article 25 ENTIRE AGREEMENT; SEVERABILITY.
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and
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understandings, whether written or oral, between the parties with respect to the
subject matter hereof. No change, termination, modification, or waiver of any
term or condition of the Agreement shall be valid unless in writing signed by
each party. No such writing shall be effective as against EQSF unless said
writing is executed by an officer of EQSF. A party's waiver of a breach of any
term or condition in the Agreement shall not be deemed a waiver of any
subsequent breach of the same or another term or condition.
25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
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IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed and delivered by their duly authorized officers as of the date
first written above.
EQSF ADVISERS, INC.
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
THIRD AVENUE VARIABLE SERIES TRUST
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
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SCHEDULE A
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LIST OF PORTFOLIOS
Third Avenue Value Portfolio
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SCHEDULE B
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DUTIES OF EQSF
SERVICES RELATED TO ADMINISTRATION
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PROCESSING AND PAYMENT OF BILLS
o Centralized contact to receive all invoices for Fund operating expenses.
o Voucher invoices for authorization / money movement instructions
o Distribution of approved vouchers for payment / recording
o Monitoring bank statement for appropriate money movement and timing
o Ensure proper wire instructions for expenses paid by wire transfer
o Coordinate mailing of checks to various vendors
PREPARATION OF SEMI-ANNUAL REPORTS AND ANNUAL REPORTS
o Preparation of Schedule of Investments, Statements of Assets and
Liabilities, Operations and Changes, Financial Highlights and Footnotes
to Financial Statements.
o Contact for auditors regarding questions / comments relating to the
Financial Statements / process.
o Timely delivery of properly formatted tape of registered shareholders to
ADP for quarterly report mailing.
o Centralized contact for receipt of president's letter, audit opinion
letter and letter of internal controls.
o Centralized area to receive and implement comments and changes.
o Coordination and timing with printer.
o Review content of draft copies prior to printing.
o Average Net Assets / Ratio Analysis.
MANAGEMENT REPORTING
o Daily, Schedule of Investment Report delivered electronically
COMPLETION AND FILING OF N-SARS
o Preparation of N-SARs semi-annually.
o Preparation of Financial Data Sheet to facilitate EDGAR filing.
o Filing of N-SARs.
STATE AND LOCAL TAX INFORMATION
o Preparation of 1099-DIV insert cards.
o Coordination with printer, mailroom for 1099-DIV insert cards.
o Review of 1099-DIV insert prior to printing.
REGULATORY COMPLIANCE
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Compliance - Federal Investment Company Act of 1940
1. Review, report and renew
a. investment advisory contracts
b. fidelity bond
c. underwriting contracts
d. administration contracts
e. accounting contracts
f. custody administration contracts
g. transfer agent and stockholder services
2. Filings
a. N-1A (prospectus), post-effective amendment and supplements
("stickers")
b. 24f-2 indefinite registration of shares
c. filing fidelity bond under 17g-1
d. filing stockholder reports under 30b2-1
3. Annual updates of biographical information and questionnaires for
Trustees and Officers
COPORATE BUSINESS AND STOCKHOLDER/PUBLIC INFORMATION
A. Trustees/Management
1. Preparation of meetings
a. agendas - all necessary items of compliance
b. arrange and conduct meetings
c. prepare minutes of meetings
d. keep attendance records
e. maintain corporate records/minute book
B. Coordinate Proposals
1. Printers
2. Auditors
3. Literature fulfillment
4. Insurance
B. Maintain Corporate Calendars and Files
C. Release Corporate Information
1. To stockholders
2. To financial and general press
3. To industry publications
a. distributions (dividends and capital gains)
b. tax information
c. changes to prospectus
d. letters from management
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e. funds' performance
D. Communications to Stockholders
1. Coordinate printing and distribution of annual, semi-annual reports and
prospectus
FINANCIAL AND MANAGEMENT REPORTING
A. Income and Expenses
1. Monitoring of expenses and expense accruals (monthly)
2. Checking Account Reconciliation (monthly)
3. Calculation of advisory fee and reimbursements to Fund (if applicable)
4. Calculation of average net assets.
B. Distributions to Stockholders
1. Projections of distribution amounts
2. Calculations of dividends and capital gain distributions (in conjunction
with the Funds and their auditors)
a. compliance with income tax provisions
b. compliance with excise tax provisions
c. compliance with Investment Company Act of 1940
C. Financial Reporting
1. Liaison between fund management, independent auditors and printers for
stockholder reports
2. Preparation of Quarterly Reports
3. Preparation of financial statements for required SEC post-effective
filings (if applicable)
4. Portfolio turnover calculations
5. Calculation of Fund performance
D. Fubchapter M Compliance (monthly)
1. Asset diversification test
2. Short/short test
E. Other Financial Analyses
1. Upon request from fund management, other budgeting and analyses can be
constructed to meet specific needs (additional fees may apply)
2. Sales information, portfolio turnover (monthly)
3. Assist independent auditors on return of capital presentation, excise tax
calculation
4. Performance (total return) calculation (monthly)
5. IRS Form 1099 Miscellaneous preparation, mailing & IRS filing
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6. Analysis of interest derived from various Government obligations (annual)
(if interest income was distributed in a calendar year)
F. Review and Monitoring Functions (monthly)
1. Review expense and reclassification entries to ensure proper update
2. Perform various reviews to ensure accuracy of subscription/liquidation
schedules, Accounting (the monthly expense analysis) and Custody (review
of daily bank statements to ensure accurate money movement).
3. Review accruals and expenditurs where applicable
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SCHEDULE C
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FEE SCHEDULE
For the services to be rendered, the facilities to be furnished and the
payments to be made by EQSF, as provided for in this Agreement, the Fund will
pay EQSF on the first business day of each month a fee for the previous month at
the rates listed below.
FUND ADMINISTRATION
$32,000 per year
MISCELLANEOUS CHARGES
The Fund shall be charged for the following products and services as applicable:
o Ad hoc reports
o Ad hoc SQL time
o Materials for Rule 15c-3 Presentations
o COLD Storage
o Digital Recording
o Microfiche/microfilm production
o Magnetic media tapes and freight
o Pre-Printed Stock, including business forms, certificates, envelopes,
checks and stationary
FEE ADJUSTMENTS
After the one year anniversary of the effective date of this Agreement, EQSF may
adjust the fees described in the above sections once per calendar year, upon
thirty (30) days prior written notice in an amount not to exceed the cumulative
percentage increase in the Consumer Price Index for All Urban Consumers (CPI-U)
U.S. City Average, All items (unadjusted) - (1982-84=100), published by the U.S.
Department of Labor since the last such adjustment in the Company's monthly fees
(or the Effective Date absent a prior such adjustment).
PROGRAMMING COSTS (TO THE EXTENT REQUESTED BY THE FUND)
The following programming rates are subject to an annual 5% increase after the
one year anniversary of the effective date of this Agreement.
(a) Dedicated Team: Programmer: $100,000 per annum
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BSA: $ 85,000 per annum
Tester: $ 65,000 per annum
(b) System Enhancements (Non Dedicated Team): $150.00 per/hr per
programmer
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SCHEDULE D
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OUT-OF-POCKET EXPENSES
The Fund shall reimburse EQSF monthly for applicable out-of-pocket expenses,
including, but not limited to the following items:
o Postage - direct pass through to the Fund
o Telephone and telecommunication costs, requested by the Fund, including
all lease, maintenance and line costs
o Shipping, Certified and Overnight mail and insurance
o Terminals, communication lines, printers and other equipment and any
expenses incurred in connection with such terminals and lines requested
by the Fund
o Duplicating services
o Courier services
o Overtime, as approved by the Fund
o Temporary staff, as approved by the Fund
o Travel and entertainment, as approved by the Fund
o Record retention, retrieval and destruction costs, including, but not
limited to exit fees charged by third party record keeping vendors
o Third party audit reviews
o Vendor set-up charges for services
o EDGAR filing fees
o Vendor pricing comparison
o Such other expenses as are agreed to by EQSF and the Fund
The Fund agrees that postage and mailing expenses will be paid on the
day of or prior to mailing as agreed with EQSF. In addition, the Fund will
promptly reimburse EQSF for any other unscheduled expenses incurred by EQSF
whenever the Fund and EQSF mutually agree that such expenses are not otherwise
properly borne by EQSF as part of its duties and obligations under the
Agreement.
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SUB-ADMINISTRATION AGREEMENT
THIS SUB-ADMINISTRATION AGREEMENT, dated as of this 10th day of
September, 1999, the "Agreement"), between FIRST DATA INVESTOR SERVICES GROUP,
INC., a Massachusetts corporation ("Investor Services Group"), and EQSF
ADVISERS, INC., a New York corporation (the "Administrator").
WHEREAS, the Administrator provides administration services to Third
Avenue Trust (the "Fund"), an open-end management investment company under the
Investment Company Act of 1940, as amended (the "1940 Act"); and
WHEREAS, the Administrator desires to retain Investor Services Group to
render certain sub-administrative services with respect to each investment
portfolio listed in Schedule A hereto, as the same may be amended from time to
time by the parties hereto (collectively, the "Portfolios"), and Investor
Services Group is willing to render such services;
WITNESSETH:
NOW, THEREFORE, in consideration of the premises and mutual covenants
herein contained, it is agreed between the parties hereto as follows:
Article 1 DEFINITIONS.
1.1 Whenever used in this Agreement, the following words and phrases,
unless the context otherwise requires, shall have the following meanings:
(a) "Articles of Incorporation" shall mean the Articles of
Incorporation, Declaration of Trust, or other similar organizational
document as the case may be, of the Fund as the same may be amended
from time to time.
(b) "Authorized Person" shall be deemed to include (i) any
officer of the Administrator; or (ii) any person, whether or not such
person is an officer or employee of the Administrator, duly authorized
to give Oral Instructions or Written Instructions on behalf of the
Administrator as indicated in writing to Investor Services Group from
time to time.
(c) "Board Members" shall mean the Directors or Trustees of
the governing body of the Fund, as the case may be.
(d) "Board of Directors" shall mean the Board of Directors or
Board of Trustees of the Fund, as the case may be.
(e) "Commission" shall mean the Securities and Exchange
Commission.
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(f) "Custodian" refers to any custodian or subcustodian of
securities and other property which the Fund may from time to time
deposit, or cause to be deposited or held under the name or account of
such a custodian pursuant to a Custody Agreement.
(g) "1933 Act" shall mean the Securities Act of 1933 and the
rules and regulations promulgated thereunder, all as amended from time to time.
(h) "1940 Act" shall mean the Investment Company Act of 1940
and the rules and regulations promulgated thereunder, all as amended
from time to time.
(i) "Oral Instructions" shall mean instructions, other than
Written Instructions, actually received by Investor Services Group from
a person reasonably believed by Investor Services Group to be an
Authorized Person.
(j) "Portfolio" shall mean each separate series of shares
offered by the Fund representing interests in a separate portfolio of
securities and other assets.
(k) "Prospectus" shall mean the most recently dated Fund
Prospectus and Statement of Additional Information, including any
supplements thereto if any, which has become effective under the 1933
Act and the 1940 Act.
(l) "Shares" refers collectively to such shares of capital
stock or beneficial interest, as the case may be, or class thereof, of
each respective Portfolio of the Fund as may be issued from time to
time.
(m) "Shareholder" shall mean a record owner of Shares of each
respective Portfolio of the Fund.
(n) "Written Instructions" shall mean a written communication
signed by a person reasonably believed by Investor Services Group to be
an Authorized Person and actually received by Investor Services Group.
Written Instructions shall include manually executed originals and
authorized electronic transmissions, including telefacsimile of a
manually executed original or other process.
Article 2 APPOINTMENT OF INVESTOR SERVICES GROUP.
The Administrator hereby appoints Investor Services Group to act as
Sub-Administrator of the Fund on the terms set forth in this Agreement. Investor
Services Group accepts such appointment and agrees to render the services herein
set forth for the compensation herein provided.
Article 3 DUTIES OF INVESTOR SERVICES GROUP.
3.1 Investor Services Group shall be responsible for the following:
performing the customary services of a sub-administrator, including treasury and
blue sky for the Fund, as more
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fully described in the written schedule of Duties of Investor Services Group
annexed hereto as Schedule B and incorporated herein, and subject to the
supervision and direction of the Administrator.
3.2 In performing its duties under this Agreement, Investor Services
Group: (a) will act in accordance with the Articles of Incorporation, By-Laws,
Prospectuses and with the Oral Instructions and Written Instructions of the
Administrator and will conform to and comply with the requirements of the 1940
Act and all other applicable federal or state laws and regulations; and (b) will
consult with legal counsel to the Fund, as necessary and appropriate.
Furthermore, Investor Services Group shall not have or be required to have any
authority to supervise the investment or reinvestment of the securities or other
properties which comprise the assets of the Fund or any of its Portfolios and
shall not provide any investment advisory services to the Fund or any of its
Portfolios.
3.3 In addition to the duties set forth herein, Investor Services Group
shall perform such other duties and functions, and shall be paid such amounts
therefor, as may from time to time be agreed upon in writing between the
Administrator and Investor Services Group.
Article 4 RECORDKEEPING AND OTHER INFORMATION.
4.1 Investor Services Group shall create and maintain all records
required of it pursuant to its duties hereunder and as set forth in Schedule B
in accordance with all applicable laws, rules and regulations, including records
required by Section 31(a) of the 1940 Act. Where applicable, such records shall
be maintained by Investor Services Group for the periods and in the places
required by Rule 31a-2 under the 1940 Act.
4.2 To the extent required by Section 31 of the 1940 Act, Investor
Services Group agrees that all such records prepared or maintained by Investor
Services Group relating to the services to be performed by Investor Services
Group hereunder are the property of the Fund and will be preserved, maintained
and made available in accordance with such section, and will be surrendered
promptly to the Fund on and in accordance with the Administrator's request.
Article 5 ADMINISTRATOR INSTRUCTIONS.
5.1 Investor Services Group will have no liability when properly acting
upon Written or Oral Instructions reasonably believed to have been executed or
orally communicated by an Authorized Person and will not be held to have any
notice of any change of authority of any person until receipt of a Written
Instruction thereof from the Administrator.
5.2 At any time, Investor Services Group may request Written
Instructions from the Administrator and may seek advice from legal counsel for
the Fund, or its own legal counsel, with respect to any matter arising in
connection with this Agreement, and it shall not be liable for any action
properly taken or not taken or suffered by it in good faith in accordance with
such Written Instructions or in accordance with the opinion of counsel for the
Fund or for Investor
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Services Group. Written Instructions requested by Investor Services Group will
be provided by the Administrator within a reasonable period of time.
5.3 Investor Services Group, its officers, agents or employees, shall
accept Oral Instructions or Written Instructions given to them by any person
representing or acting on behalf of the Administrator only if said
representative is an Authorized Person. The Administrator agrees that all Oral
Instructions shall be followed within one business day by confirming Written
Instructions, and that the Administrator's failure to so confirm shall not
impair in any respect Investor Services Group's right to rely on Oral
Instructions.
Article 6 COMPENSATION.
6.1 Investor Services Group will from time to time employ or associate
with itself such person or persons as Investor Services Group may believe to be
particularly suited to assist it in performing services under this Agreement.
Such person or persons may be officers and employees who are employed by both
Investor Services Group and the Administrator. The compensation of such person
or persons shall be paid by Investor Services Group and no obligation shall be
incurred on behalf of the Administrator in such respect.
6.2 Investor Services Group shall not be required to pay any of the
following expenses incurred by the Administrator or the Fund: membership dues in
the Investment Company Institute or any similar organization; investment
advisory expenses; costs of printing and mailing stock certificates,
prospectuses, reports and notices; interest on borrowed money; brokerage
commissions; stock exchange listing fees; taxes and fees payable to Federal,
state and other governmental agencies; fees of Board Members of the Fund who are
not affiliated with Investor Services Group; outside auditing expenses; outside
legal expenses; Blue Sky registration or filing fees; or other expenses not
specified in this Section 6.2 which are properly payable by the Administrator or
the Fund. Investor Services Group shall not be required to pay any Blue Sky
registration or filing fees unless and until it has received the amount of such
fees from the Administrator.
6.3 The Administrator will compensate Investor Services Group for the
performance of its obligations hereunder in accordance with the fees and other
charges set forth in the written Fee Schedule annexed hereto as Schedule C and
incorporated herein.
6.4 In addition to those fees set forth in Section 6.3 above, the
Administrator agrees to pay, and will be billed separately for, out-of-pocket
expenses actually incurred by Investor Services Group in the performance of its
duties hereunder. Out-of-pocket expenses shall include, but shall not be limited
to, the items specified in the written schedule of out-of-pocket charges annexed
hereto as Schedule D and incorporated herein. Schedule D may be modified by
written agreement between the parties. Unspecified out-of-pocket expenses shall
be limited to those out-of-pocket expenses reasonably incurred by Investor
Services Group in the performance of its obligations hereunder.
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6.5 The Administrator agrees to pay all fees, charges and out-of-pocket
expenses to Investor Services Group by Federal Funds Wire within fifteen (15)
business days following the receipt of the respective invoice. In addition, with
respect to all fees under this Agreement, Investor Services Group may charge a
service fee equal to the lesser of (i) one and one half percent (1 1/2%) per
month or (ii) the highest interest rate legally permitted on any past due
invoiced amounts, provided however, the foregoing service fee shall not apply if
the Administrator in good faith legitimately disputes any invoice amount in
which case the Administrator shall do the following within thirty (30) days of
the postmark date: (a) pay Investor Services Group the undisputed amount of the
invoice; and (b) provide Investor Services Group a detailed written description
of the disputed amount and the basis for the Administator's dispute with such
amount. In addition, the Administrator shall cooperate with Investor Services
Group in resolving disputed invoice amounts and then promptly paying such
amounts determined to be due.
6.6 Any compensation agreed to hereunder may be adjusted from time to
time by attaching to Schedule C a revised Fee Schedule executed and dated by the
parties hereto.
Article 7 [RESERVED]
Article 8 FUND ACCOUNTING SYSTEM.
8.1 Investor Services Group shall retain title to and ownership of any
and all data bases, computer programs, screen formats, report formats,
interactive design techniques, derivative works, inventions, discoveries,
patentable or copyrightable matters, concepts, expertise, patents, copyrights,
trade secrets, and other related legal rights utilized by Investor Services
Group in connection with the services provided by Investor Services Group to the
Administrator herein (the "Investor Services Group System").
8.2 Investor Services Group hereby grants to the Administrator a
limited license to the Investor Services Group System for the sole and limited
purpose of having Investor Services Group provide the services contemplated
hereunder and nothing contained in this Agreement shall be construed or
interpreted otherwise and such license shall immediately terminate with the
termination of this Agreement.
8.3 In the event that the Administrator, including any affiliate or
agent of the Administrator or any third party acting on behalf of the
Administrator is provided with direct access to the Investor Services Group
System, such direct access capability shall be limited to direct entry to the
Investor Services Group System by means of on-line mainframe terminal entry or
PC emulation of such mainframe terminal entry and any other non-conforming
method of transmission of information to the Investor Services Group System is
strictly prohibited without the prior written consent of Investor Services
Group.
Article 9 REPRESENTATIONS AND WARRANTIES.
9.1 Investor Services Group represents and warrants to the
Administrator that:
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(a) it is a corporation duly organized, validly existing and in
good standing under the laws of the Commonwealth of Massachusetts;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into and perform this Agreement;
(c) all requisite corporate proceedings have been taken to
authorize it to enter into this Agreement; and
(d) it has and will continue to have access to the necessary
facilities, equipment and personnel to perform its duties and obligations
under this Agreement.
9.2 The Administrator represents and warrants to Investor Services
Group that:
(a) it is duly organized, validly existing and in good standing
under the laws of the jurisdiction in which it is organized;
(b) it is empowered under applicable laws and by its Articles of
Incorporation and By-Laws to enter into this Agreement; and
(c) all corporate proceedings required have been taken to authorize
it to enter into this Agreement.
Article 10 INDEMNIFICATION.
10.1 The Administrator shall indemnify and hold Investor Services Group
harmless from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments and liabilities
of any sort or kind which may be asserted against Investor Services Group or for
which Investor Services Group may be held to be liable in connection with this
Agreement or Investor Services Group's performance hereunder (a "Claim"), unless
such Claim resulted from a negligent act or omission to act or bad faith by
Investor Services Group in the performance of its duties hereunder.
10.2 Investor Services Group shall indemnify and hold the Administrator
harmless from and against any and all claims, costs, expenses (including
reasonable attorneys' fees), losses, damages, charges, payments and liabilities
of any sort or kind which may be asserted against the Administrator or for which
the Administrator may be held to be liable in connection with this Agreement (a
"Claim"), provided that such Claim resulted from a negligent act or omission to
act, bad faith, willful misfeasance or reckless disregard by Investor Services
Group in the performance of its duties hereunder.
10.3 In any case in which one party (the "Indemnifying Party") may be
asked to indemnify or hold the other party (the "Indemnified Party") harmless,
the Indemnified Party will notify the Indemnifying Party promptly after
identifying any situation which it believes
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presents or appears likely to present a claim for indemnification against the
Indemnified Party although the failure to do so shall not prevent recovery by
the Indemnified Party and shall keep the Indemnifying Party advised with respect
to all developments concerning such situation. The Indemnifying Party shall have
the option to defend the Indemnified Party against any Claim which may be the
subject of this indemnification, and, in the event that the Indemnifying Party
so elects, such defense shall be conducted by counsel chosen by the Indemnifying
Party and reasonably satisfactory to the Indemnified Party, and thereupon the
Indemnifying Party shall take over complete defense of the Claim and the
Indemnified Party shall sustain no further legal or other expenses in respect of
such Claim. The Indemnified Party will not confess any Claim or make any
compromise in any case in which the Indemnifying Party will be asked to provide
indemnification, except with the Indemnifying Party's prior written consent. The
obligations of the parties hereto under this Article 10 shall survive the
termination of this Agreement.
10.4 Any claim for indemnification under this Agreement must be made
prior to the earlier of:
(a) one year after the Indemnified Party becomes aware of the event
for which indemnification is claimed; or
(b) one year after the earlier of the termination of this Agreement
or the expiration of the term of this Agreement.
10.4 Except for remedies that cannot be waived as a matter of law (and
injunctive or provisional relief), the provisions of this Article 10 shall be
Investor Services Group's sole and exclusive remedy for claims or other actions
or proceedings to which the Administrator's indemnification obligations pursuant
to this Article 10 may apply.
Article 11 STANDARD OF CARE.
11.1 Investor Services Group shall at all times act in good faith and
agrees to use its best efforts within commercially reasonable limits to ensure
the accuracy of all services performed under this Agreement, but assumes no
responsibility for loss or damage to the Administrator unless said errors are
caused by Investor Services Group's own negligence, bad faith or willful
misconduct or that of its employees.
11.2 Neither party may assert any cause of action against the other
party under this Agreement that accrued more than three (3) years prior to the
filing of the suit (or commencement of arbitration proceedings) alleging such
cause of action.
11.3 Each party shall have the duty to mitigate damages for which the
other party may become responsible.
11.5 Without in any way limiting the foregoing, in the event Investor
Services Group shall provide Blue Sky services to the Administrator, Investor
Services Group shall have no
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liability for failing to file on a timely basis any material to be provided by
the Administrator or its designee that it has not received on a timely basis
from the Administrator or its designee, nor shall Investor Services Group have
any responsibility to review the accuracy or adequacy of materials it receives
from the Administrator or its designee for filing or bear any liability arising
out of the timely filing of such materials; nor shall Investor Services Group
have any liability for monetary damages for the sale of securities in
jurisdictions where Shares are not properly registered, or in jurisdictions
where Shares are sold in excess of the lawfully registered amount unless such
failure of proper registration or excess sales is due to the willful
misfeasance, bad faith or negligence of Investor Services Group and provided
Investor Services Group has requested such information from the Administrator in
a timely fashion.
Article 12 CONSEQUENTIAL DAMAGES.
NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE CONTRARY, IN NO EVENT
SHALL EITHER PARTY, ITS AFFILIATES OR ANY OF ITS OR THEIR DIRECTORS, OFFICERS,
EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE FOR INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES.
As used in the preceding paragraph "incidental, indirect or
consequential damages" means damages which do not flow directly from the act of
the party or which arise from the intervention of special circumstances not
ordinarily predictable, and does NOT include direct damages which arise
naturally or ordinarily from a breach of contract.
Article 13 TERM AND TERMINATION.
13.1 This Agreement shall be effective on the date first written above
and shall continue for a period of three (3) years (the "Initial Term").
13.2 Upon the expiration of the Initial Term, this Agreement shall
automatically renew for successive terms of one (1) year ("Renewal Terms") each,
unless the Administrator or Investor Services Group provides written notice to
the other of its intent not to renew. Such notice must be received not less than
ninety (90) days and not more than one-hundred eighty (180) days prior to the
expiration of the Initial Term or the then current Renewal Term.
13.3 In the event a termination notice is given by the Administrator,
all expenses associated with movement of records and materials and conversion
thereof to a successor administrator will be borne by the Administrator.
13.4 If a party hereto is guilty of a material failure to perform its
duties and obligations hereunder (a "Defaulting Party") the other party (the
"Non-Defaulting Party") may give written notice thereof to the Defaulting Party,
and if such material breach shall not have been remedied within thirty (30) days
after such written notice is given, then the Non-Defaulting Party may terminate
this Agreement by giving thirty (30) days written notice of such termination to
the Defaulting Party. If the material failure is one for which the
Non-Defaulting Party has previously given the Defaulting Party notice as
provided in the previous sentence, the
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Agreement may be terminated by the Non-Defaulting Party upon thirty (30) days
written notice without giving the Defaulting Party a second opportunity to cure
such material failure. If Investor Services Group is the Non-Defaulting Party,
its termination of this Agreement shall not constitute a waiver of any other
rights or remedies of Investor Services Group with respect to services performed
prior to such termination of rights of Investor Services Group to be reimbursed
for out-of-pocket expenses. In all cases, termination by the Non-Defaulting
Party shall not constitute a waiver by the Non-Defaulting Party of any other
rights it might have under this Agreement or otherwise against the Defaulting
Party.
13.5 Notwithstanding anything contained in this Agreement to the
contrary and esxcept as provided in Section 13.4, should the Fund or the
Administrator desire to move any of the services provided by Investor Services
Group hereunder to a successor service provider prior to the expiration of the
then current Initial or Renewal Term, or should the Administrator or any of its
affiliates take any action which would result in Investor Services Group ceasing
to provide administration services to the Administrator or the Fund prior to the
expiration of the Initial or any Renewal Term, Investor Services Group shall
make a good faith effort and use all commercially reasonable efforts to
facilitate the conversion on such prior date, however, there can be no guarantee
that Investor Services Group will be able to facilitate a conversion of services
on such prior date. In connection with the foregoing, should services be
converted to a successor service provider or should the Administrator or any of
its affiliates take any action which would result in Investor Services Group
ceasing to provide administration services to the Administrator or the Fund
prior to the expiration of the Initial or any Renewal Term, the payment of fees
to Investor Services Group as set forth herein shall be accelerated to a date
prior to the conversion or termination of services and calculated as if the
services had remained with Investor Services Group until the expiration of the
then current Initial or Renewal Term and calculated at the asset and/or
Shareholder account levels, as the case may be, on the date notice of
termination was given to Investor Services Group.
Article 14 ADDITIONAL PORTFOLIOS
14.1 In the event that the Fund establishes one or more Portfolios in
addition to those identified in Schedule A, with respect to which the
Administrator desires to have Investor Services Group render services as
sub-administrator under the terms hereof, the Administrator shall so notify
Investor Services Group in writing, and if Investor Services Group agrees in
writing to provide such services, Schedule A shall be amended to include such
additional Portfolios. If after good faith negotiations, the parties are unable
to agree upon the conditions upon which Investor Services Group will service the
new Portfolio, either party shall have the right to terminate this Agreement
upon sixty (60) days written notice to the other party.
Article 15 CONFIDENTIALITY.
15.1 The parties agree that the Proprietary Information (defined below)
and the contents of this Agreement (collectively "Confidential Information") are
confidential information of the parties and their respective licensors. The
Administrator and Investor Services Group shall
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exercise at least the same degree of care, but not less than reasonable care, to
safeguard the confidentiality of the Confidential Information of the other as it
would exercise to protect its own confidential information of a similar nature.
The Administrator and Investor Services Group shall not duplicate, sell or
disclose to others the Confidential Information of the other, in whole or in
part, without the prior written permission of the other party. The Administrator
and Investor Services Group may, however, disclose Confidential Information to
their respective parent corporation, their respective affiliates, their
subsidiaries and affiliated companies and employees, provided that each shall
use reasonable efforts to ensure that the Confidential Information is not
duplicated or disclosed in breach of this Agreement. The Administrator and
Investor Services Group may also disclose the Confidential Information to
independent contractors, auditors, and professional advisors, provided they
first agree in writing to be bound by the confidentiality obligations
substantially similar to this Section 15.1. Notwithstanding the previous
sentence, in no event shall either the Administrator or Investor Services Group
disclose the Confidential Information to any competitor of the other without
specific, prior written consent.
15.2 Proprietary Information means:
(a) any data or information that is competitively sensitive
material, and not generally known to the public, including, but not
limited to, information about product plans, marketing strategies,
finance, operations, customer relationships, customer profiles, sales
estimates, business plans, portfolio holdings and internal performance
results relating to the past, present or future business activities of
the Administrator or Investor Services Group, their respective
subsidiaries and affiliated companies and the customers, clients and
suppliers of any of them;
(b) any scientific or technical information, design, process,
procedure, formula, or improvement that is commercially valuable and
secret in the sense that its confidentiality affords the Administrator
or Investor Services Group a competitive advantage over its
competitors; and
(c) all confidential or proprietary concepts, documentation,
reports, data, specifications, computer software, source code, object
code, flow charts, databases, inventions, know-how, show-how and trade
secrets, whether or not patentable or copyrightable.
15.3 Confidential Information includes, without limitation, all
documents, inventions, substances, engineering and laboratory notebooks,
drawings, diagrams, specifications, bills of material, equipment, prototypes and
models, and any other tangible manifestation of the foregoing of either party
which now exist or come into the control or possession of the other.
15.4 The obligations of confidentiality and restriction on use herein
shall not apply to any Confidential Information that a party proves:
(a) Was in the public domain prior to the date of this
Agreement or subsequently came into the public domain through no fault of such
party; or
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(b) Was lawfully received by the party from a third party free
of any obligation of confidence to such third party; or
(c) Was already in the possession of the party prior to
receipt thereof, directly or indirectly, from the other party; or
(d) Is required to be disclosed in a judicial or
administrative proceeding after all reasonable legal remedies for maintaining
such information in confidence have been exhausted including, but not limited
to, giving the other party as much advance notice of the possibility of such
disclosure as practical so the other party may attempt to stop such disclosure
or obtain a protective order concerning such disclosure; or
(e) Is subsequently and independently developed by employees,
consultants or agents of the party without reference to the Confidential
Information disclosed under this Agreement.
Article 16 FORCE MAJEURE; EXCUSED NON-PERFORMANCE.
No party shall be liable for any default or delay in the performance of
its obligations under this Agreement if and to the extent such default or delay
is caused, directly or indirectly, by (i) fire, flood, elements of nature or
other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or
civil disorders in any country, (iii) any act or omission of the other party or
any governmental authority; (iv) any labor disputes (provided that the
employees' demands are not reasonable and within the party's power to satisfy);
or (v) nonperformance by a third party or any similar cause beyond the
reasonable control of such party, including without limitation, failures or
fluctuations in telecommunications or other equipment. In addition, no party
shall be liable for any default or delay in the performance of its obligations
under this Agreement if and to the extent that such default or delay is caused,
directly or indirectly, by the actions or inactions of the other party. In any
such event, the non-performing party shall be excused from any further
performance and observance of the obligations so affected only for as long as
such circumstances prevail and such party continues to use commercially
reasonable efforts to recommence performance or observance as soon as
practicable.
Article 17 ASSIGNMENT AND SUBCONTRACTING.
This Agreement, its benefits and obligations shall be binding upon and
inure to the benefit of the parties hereto and their respective successors and
permitted assigns. This Agreement may not be assigned or otherwise transferred
by either party hereto, without the prior written consent of the other party,
which consent shall not be unreasonably withheld; provided, however, that
Investor Services Group may, in its sole discretion, assign all its right, title
and interest in this Agreement to an affiliate, parent or subsidiary, or to the
purchaser of substantially all of its business. Investor Services Group may, in
its sole discretion, engage subcontractors to perform any of the obligations
contained in this Agreement to be performed by Investor Services
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Group but shall not be relieved of its obligations and responsibilities
hereunder by reason of such engagement.
Article 18 ARBITRATION.
18.1 Any claim or controversy arising out of or relating to this
Agreement, or breach hereof, shall be settled by arbitration administered by the
American Arbitration Association in New York, New York in accordance with its
applicable rules, except that the Federal Rules of Evidence and the Federal
Rules of Civil Procedure with respect to the discovery process shall apply.
18.2 The parties hereby agree that judgment upon the award rendered by
the arbitrator may be entered in any court having jurisdiction.
18.3 The parties acknowledge and agree that the performance of the
obligations under this Agreement necessitates the use of instrumentalities of
interstate commerce and, notwithstanding other general choice of law provisions
in this Agreement, the parties agree that the Federal Arbitration Act shall
govern and control with respect to the provisions of this Article 18.
Article 19 NOTICE.
Any notice or other instrument authorized or required by this Agreement
to be given in writing to the Administrator or Investor Services Group, shall be
sufficiently given if addressed to that party and received by it at its office
set forth below or at such other place as it may from time to time designate in
writing.
To the Administrator:
EQSF Advisers, Inc.
767 Third Avenue
New York, New York 10017
Attention: Ian M. Kirschner, General Counsel
To Investor Services Group:
First Data Investor Services Group, Inc.
4400 Computer Drive
Westboro, Massachusetts 01581
Attention: President
with a copy to Investor Services Group's General Counsel
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Article 20 GOVERNING LAW/VENUE.
The laws of the State of New York, excluding the laws on conflicts of
laws, shall govern the interpretation, validity, and enforcement of this
agreement.
Article 21 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.
Article 22 CAPTIONS.
The captions of this Agreement are included for convenience of
reference only and in no way define or limit any of the provisions hereof or
otherwise affect their construction or effect.
Article 23 PUBLICITY.
Neither Investor Services Group nor the Administrator shall release or
publish news releases, public announcements, advertising or other publicity
relating to this Agreement or to the transactions contemplated by it without the
prior review and written approval of the other party; provided, however, that
either party may make such disclosures as are required by legal, accounting or
regulatory requirements after making reasonable efforts in the circumstances to
consult in advance with the other party.
Article 24 RELATIONSHIP OF PARTIES/NON-SOLICITATION.
24.1 The parties agree that they are independent contractors and not
partners or co-venturers and nothing contained herein shall be interpreted or
construed otherwise.
24.2 During the term of this Agreement and for one (1) year afterward,
neither Party shall recruit, solicit, employ or engage, for itself or others,
the other Party's employees.
Article 25 ENTIRE AGREEMENT; SEVERABILITY.
25.1 This Agreement, including Schedules, Addenda, and Exhibits hereto,
constitutes the entire Agreement between the parties with respect to the subject
matter hereof and supersedes all prior and contemporaneous proposals,
agreements, contracts, representations, and understandings, whether written or
oral, between the parties with respect to the subject matter hereof. No change,
termination, modification, or waiver of any term or condition of the Agreement
shall be valid unless in writing signed by each party. No such writing shall be
effective as against Investor Services Group unless said writing is executed by
a Senior Vice President, Executive Vice President, or President of Investor
Services Group. A party's waiver of a breach of any term or condition in the
Agreement shall not be deemed a waiver of any subsequent breach of the same or
another term or condition.
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<PAGE>
25.2 The parties intend every provision of this Agreement to be
severable. If a court of competent jurisdiction determines that any term or
provision is illegal or invalid for any reason, the illegality or invalidity
shall not affect the validity of the remainder of this Agreement. In such case,
the parties shall in good faith modify or substitute such provision consistent
with the original intent of the parties. Without limiting the generality of this
paragraph, if a court determines that any remedy stated in this Agreement has
failed of its essential purpose, then all other provisions of this Agreement,
including the limitations on liability and exclusion of damages, shall remain
fully effective.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be duly executed and delivered by their duly authorized officers as of the date
first written above.
EQSF ADVISERS, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
FIRST DATA INVESTOR SERVICES GROUP, INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
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SCHEDULE A
----------
LIST OF PORTFOLIOS
Third Avenue Value Portfolio
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SCHEDULE B
----------
DUTIES OF INVESTOR SERVICES GROUP
SERVICES RELATED TO SUB-ADMINISTRATION
PROCESSING AND PAYMENT OF BILLS
o Centralized contact to receive all invoices for Fund operating
expenses.
o Voucher invoices for authorization / money movement instructions
o Distribution of approved vouchers for payment / recording
o Monitoring bank statement for appropriate money movement and timing
o Ensure proper wire instructions for expenses paid by wire transfer
o Coordinate mailing of checks to various vendors
PREPARATION OF SEMI-ANNUAL REPORTS AND ANNUAL REPORTS
o Preparation of Schedule of Investments, Statements of Assets and
Liabilities, Operations and Changes, Financial Highlights and
Footnotes to Financial Statements.
o Contact for auditors regarding questions / comments relating to the
Financial Statements / process.
o Timely delivery of properly formatted tape of registered
shareholders to ADP for quarterly report mailing.
o Centralized contact for receipt of president's letter, audit opinion
letter and letter of internal controls.
o Centralized area to receive and implement comments and changes.
o Coordination and timing with printer.
o Review content of draft copies prior to printing.
o Average Net Assets / Ratio Analysis.
MANAGEMENT REPORTING
o Daily, Schedule of Investment Report delivered electronically
COMPLETION AND FILING OF N-SARS
o Preparation of N-SARs semi-annually.
o Preparation of Financial Data Sheet to facilitate EDGAR filing.
o Filing of N-SARs.
STATE AND LOCAL TAX INFORMATION
o Preparation of 1099-DIV insert cards.
o Coordination with printer, mailroom for 1099-DIV insert cards.
o Review of 1099-DIV insert prior to printing.
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SCHEDULE C
----------
FEE SCHEDULE
For the services to be rendered, the facilities to be furnished and the
payments to be made by Investor Services Group, as provided for in this
Agreement, the Administrator will pay Investor Services Group on the first
business day of each month a fee for the previous month at the rates listed
below.
FUND ADMINISTRATION
$12,000 per year
MISCELLANEOUS CHARGES
The Company shall be charged for the following products and services as
applicable:
o Ad hoc reports
o Ad hoc SQL time
o Materials for Rule 15c-3 Presentations
o COLD Storage
o Digital Recording
o Microfiche/microfilm production
o Magnetic media tapes and freight
o Pre-Printed Stock, including business forms, certificates, envelopes,
checks and stationary
FEE ADJUSTMENTS
After the one year anniversary of the effective date of this Agreement, Investor
Services Group may adjust the fees described in the above sections once per
calendar year, upon thirty (30) days prior written notice in an amount not to
exceed the cumulative percentage increase in the Consumer Price Index for All
Urban Consumers (CPI-U) U.S. City Average, All items (unadjusted) -
(1982-84=100), published by the U.S. Department of Labor since the last such
adjustment in the Company's monthly fees (or the Effective Date absent a prior
such adjustment).
PROGRAMMING COSTS (TO THE EXTENT REQUESTED BY THE ADMINISTRATOR)
The following programming rates are subject to an annual 5% increase after the
one year anniversary of the effective date of this Agreement.
(a) Dedicated Team: Programmer: $100,000 per annum
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BSA: $ 85,000 per annum
Tester: $ 65,000 per annum
(b) System Enhancements (Non Dedicated Team): $150.00 per/hr per
programmer
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SCHEDULE D
OUT-OF-POCKET EXPENSES
The Company shall reimburse Investor Services Group monthly for applicable
out-of-pocket expenses, including, but not limited to the following items:
o Postage - direct pass through to the Company
o Telephone and telecommunication costs, requested by the
Administrator, including all lease, maintenance and line costs
o Shipping, Certified and Overnight mail and insurance
o Terminals, communication lines, printers and other equipment and any
expenses incurred in connection with such terminals and lines
requested by the Administrator
o Duplicating services
o Courier services
o Overtime, as approved by the Company
o Temporary staff, as approved by the Company
o Travel and entertainment, as approved by the Company
o Record retention, retrieval and destruction costs, including, but
not limited to exit fees charged by third party record keeping
vendors
o Third party audit reviews
o Vendor set-up charges for services
o EDGAR filing fees
o Vendor pricing comparison
o Such other expenses as are agreed to by Investor Services Group and
the Company
The Company agrees that postage and mailing expenses will be paid on
the day of or prior to mailing as agreed with Investor Services Group. In
addition, the Company will promptly reimburse Investor Services Group for any
other unscheduled expenses incurred by Investor Services Group whenever the
Company and Investor Services Group mutually agree that such expenses are not
otherwise properly borne by Investor Services Group as part of its duties and
obligations under the Agreement.
Exhibit (I)
September 10, 1999
Third Avenue Variable Series Trust
767 Third Avenue
New York, New York 10017-2023
Re: Pre-Effective Amendment No. 1 to the
Registration Statement on Form N-1A
for the Third Avenue Variable Series Trust, on
behalf of its series Third Avenue Value Portfolio
(File Nos. 333-81141 and 811-9395)
--------------------------------------------------
Ladies and Gentlemen:
We have acted as counsel to Third Avenue Variable Series Trust
(the "Trust"), a Delaware business trust, on behalf of its series Third Avenue
Value Portfolio (the "Portfolio") in connection with the preparation of
Pre-Effective Amendment No. 1 to the Trust's Registration Statement on Form N-1A
(as amended, the "Registration Statement") to be filed under the Securities Act
of 1933, as amended (the "1933 Act"), and the Investment Company Act of 1940, as
amended (the "1940 Act"), with the Securities and Exchange Commission (the
"Commission") on or about September 10, 1999. The Registration Statement relates
to the registration under the 1933 Act and the 1940 Act of an indefinite number
of shares of beneficial interest, par value $.01 per share, of the Trust on
behalf of the Portfolio (collectively, the "Shares").
This opinion is delivered in accordance with the requirements
of Item 23(i) of Form N-1A under the 1933 Act and the 1940 Act.
In connection with this opinion, we have examined originals or
copies, certified or otherwise identified to our satisfaction, of (i) the
Certificate of Trust filed with the Secretary of State of Delaware, (ii) the
Agreement and
<PAGE>
Third Avenue Variable Series Trust
September 10, 1999
Page 2
Declaration of Trust of the Trust (the "Declaration of Trust"), (iii) the
By-Laws of the Trust (the "By-Laws"), (iv) the Certificate of Designation
establishing the series of the Trust, (v) the resolutions adopted by the Board
of Trustees of the Trust relating to the authorization, issuance and sale of the
Shares, the filing of the Registration Statement and any amendments or
supplements thereto and related matters and (vi) such other documents as we have
deemed necessary or appropriate as a basis for the opinions set forth herein.
In such examination we have assumed the legal capacity of
natural persons, the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed, photostatic, or other
copies and the authenticity of the originals of such latter documents. As to any
facts material to such opinion which were not independently established, we have
relied on statements or representations of officers and other representatives of
the Trust or others.
Members of our firm are admitted to the practice of law in the
State of New York and we do not express any opinion as to the law of any other
jurisdiction other than matters relating to the Delaware business organizational
statutes (including statutes relating to Delaware business trusts) and the
federal laws of the United States of America to the extent specifically referred
to herein.
Based upon and subject to the foregoing, we are of the opinion
that the issuance and sale of Shares by the Trust on behalf of the Portfolio
have been validly authorized and, assuming certificates therefor have been duly
executed, countersigned, registered and delivered or the shareholders' accounts
have been duly credited and the Shares represented thereby have been fully paid
for, such Shares will be validly issued, fully paid and nonassessable.
<PAGE>
Third Avenue Variable Series Trust
September 10, 1999
Page 3
We hereby consent to the filing of this opinion with the
Commission as Exhibit (i) to the Registration Statement. We also consent to the
reference to our firm in Exhibit (i) to the Registration Statement. In giving
this consent, we do not hereby admit that we are in the category of persons
whose consent is required under Section 7 of the 1933 Act or the rules and
regulations of the Commission.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher & Flom LLP
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Statement of Additional Information
constituting part of this Pre-Effective Amendment No. 1 to the registration
statement on Form N-1A (the "Registration Statement") of our report dated
September 10, 1999, relating to the financial statements of Third Avenue
Variable Series Trust - Third Avenue Value Portfolio, which appears in such
Statement of Additional Information, and to the incorporation by reference of
our report into the Prospectus which constitutes part of this Registration
Statement. We also consent to the reference to us under the heading "Independent
Accountants" in such Statement of Additional Information.
PricewaterhouseCoopers LLP
1177 Avenue of the Americas
New York, New York 10036
September 10, 1999
