CUSTODIAN AGREEMENT
BETWEEN
GMO ALTERNATIVE ASSET SPC LTD.,
and
INVESTORS BANK & TRUST COMPANY
CUSTODIAN AGREEMENT
AGREEMENT made as of March ___, 2005, between GMO ALTERNATIVE ASSET SPC
LTD. (the "Fund"), a Bermuda exempted company, and Investors Bank & Trust
Company, a Massachusetts trust company (the "Bank").
The Fund desires to place and maintain all of its portfolio securities and
cash in the custody of the Bank. Although the Fund is not registered with the
Securities and Exchange Commission (the "SEC") as an investment company pursuant
to the Investment Company Act of 1940, as amended (the "1940 Act"), the Bank
understands that the Fund intends to operate in a manner that complies with the
requirements imposed on registered investment companies by Section 17(f) of the
1940 Act and the rules thereunder. The Bank has at least the minimum
qualifications required by Section 17(f)(1) of the 1940 Act to act as custodian
of the portfolio securities and cash of the Fund and has indicated its
willingness to so act, subject to the terms and conditions of this Agreement.
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, the parties hereto agree as follows:
1. Bank Appointed Custodian. The Fund hereby appoints the Bank as
custodian of its portfolio securities and cash delivered to the Bank as
hereinafter described and the Bank agrees to act as such upon the terms and
conditions hereinafter set forth. For the services rendered pursuant to this
Agreement the Fund agrees to pay to the Bank the fees set forth on Appendix A
hereto.
2. Definitions. Whenever used herein, the terms listed below will have the
following meaning:
2.1 Authorized Person. Authorized Person will mean any of the persons
duly authorized to give Proper Instructions or otherwise act on behalf of the
Fund and set forth in a certificate as required by Section 4 hereof.
2.2 Investment Manager. Investment Manager will mean Grantham, Mayo,
Van Otterloo & Company LLC.
2.3 Security. The term security as used herein will have the same
meaning assigned to such term in the Securities Act of 1933, as amended,
including, without limitation, any note, stock, treasury stock, bond, debenture,
evidence of indebtedness, certificate of interest or participation in any profit
sharing agreement, collateral-trust certificate, preorganization certificate or
subscription, transferable share, investment contract, voting-trust certificate,
certificate of deposit for a security, fractional undivided interest in oil,
gas, or other mineral rights, any put, call, straddle, option, or privilege on
any security, certificate of deposit, or group or index of securities (including
any interest therein or based on the value thereof), or any put, call, straddle,
option, or privilege entered into on a national securities exchange relating to
a foreign currency, or, in general, any interest or instrument commonly known as
a "security", or any certificate of interest or participation in, temporary or
interim certificate for, receipt for, guarantee of, or warrant or right to
subscribe to, or option contract to purchase or sell any of the foregoing, and
futures, forward contracts and options thereon. For the avoidance of doubt, the
term security as used herein shall also include all types of exchange-traded and
over-the counter commodity futures and commodity-linked derivative instruments,
including commodity index options, options on futures, and swap agreements.
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2.4 Portfolio Security. Portfolio Security will mean any security owned
by the Fund.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed by any two Authorized Persons of the Fund.
2.6 Book-Entry System. Book-Entry System shall mean the Federal
Reserve-Treasury Department Book Entry System for United States government,
instrumentality and agency securities operated by the Federal Reserve Bank, its
successor or successors and its nominee or nominees.
2.7 Depository. Depository shall mean The Depository Trust Company
("DTC"), a clearing agency registered with the SEC under Section 17A of the
Securities Exchange Act of 1934 ("Exchange Act"), its successor or successors
and its nominee or nominees. The term "Depository" shall further mean and
include any other person authorized to act as a depository under the 1940 Act,
its successor or successors and its nominee or nominees.
2.8 Proper Instructions. Proper Instructions shall mean (i)
instructions regarding the purchase or sale of Portfolio Securities, and
payments and deliveries in connection therewith, given by an Authorized Person,
such instructions to be given in such form and manner as the Bank and the Fund
shall agree upon from time to time, and (ii) instructions (which may be
continuing instructions) regarding other matters signed or initialed by an
Authorized Person. Oral instructions and instructions via unencrypted Internet
e-mail will be considered Proper Instructions if the Bank reasonably believes
them to have been given by an Authorized Person. The Fund shall cause all oral
instructions to be promptly confirmed in writing. The Bank shall act upon and
comply with any subsequent Proper Instruction which modifies a prior instruction
and the sole obligation of the Bank with respect to any follow-up or
confirmatory instruction shall be to make reasonable efforts to detect any
discrepancy between the original instruction and such confirmation and to report
such discrepancy to the Fund. The Fund shall be responsible, at the Fund's
expense, for taking any action, including any reprocessing, necessary to correct
any such discrepancy or error, and to the extent such action requires the Bank
to act, the Fund shall give the Bank specific Proper Instructions as to the
action required. Proper Instructions may include communication effected directly
between electro-mechanical or electronic devices provided that the Fund and the
Bank are satisfied that such procedures afford adequate safeguards for the
Fund's assets.
3. Separate Accounts. If the Fund has more than one series or portfolio,
the Bank will segregate the assets of each series or portfolio to which this
Agreement relates into a separate account for each such series or portfolio
containing the assets of such series or portfolio (and all investment earnings
thereon). Unless the context otherwise requires, any reference in this Agreement
to any actions to be taken by the Fund shall be deemed to refer to the Fund
acting on behalf of one or more of its series, any reference in this Agreement
to any assets of the Fund, including, without limitation, any portfolio
securities and cash and earnings thereon, shall be deemed to refer only to
assets of the applicable series, any duty or obligation of the Bank hereunder to
the Fund shall be deemed to refer to duties and obligations with respect to such
individual series and any obligation or liability of the Fund hereunder shall be
binding only with respect to such individual series, and shall be discharged
only out of the assets of such series.
4. Certification as to Authorized Persons. The Fund will at all times
maintain on file with the Bank a certification to the Bank, in such form as may
be acceptable to the Bank, of the names and signatures of the Authorized
Persons, it being understood that upon the occurrence of any change in the
information set forth in the most recent certification on file (including
without limitation any person
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named in the most recent certification who is no longer an Authorized Person as
designated therein), the Fund shall provide a new or amended certification
setting forth the change and the new, additional or omitted names or signatures.
The Bank will be entitled to rely and act upon any Officers' Certificate given
to it by the Fund which has been signed by Authorized Persons named in the most
recent certification received by the Bank.
5. Custody of Cash. As custodian for the Fund, the Bank will open and
maintain a separate account or accounts in the name of the Fund or in the name
of the Bank, as Custodian of the Fund, and will deposit to the account of the
Fund all of the cash of the Fund delivered to the Bank, except for cash held by
a subcustodian appointed pursuant to Sections 14.2 or 14.3 hereof, including
borrowed funds, delivered to the Bank, subject only to draft or order by the
Bank acting pursuant to the terms of this Agreement. Upon receipt by the Bank of
Proper Instructions (which may be continuing instructions) (or in the case of
payments for redemptions and repurchases of outstanding interests of the Fund,
notification from the Fund's administrator as provided in Section 7) requesting
such payment, designating the payee or the account or accounts to which the Bank
will release funds for deposit, and stating that it is for a purpose permitted
under the terms of this Section 5, specifying the applicable subsection, the
Bank will make payments of cash held for the accounts of the Fund, insofar as
funds are available for that purpose, only as permitted in subsections 5.1-5.9
below.
5.1 Purchase of Securities. Upon the purchase of securities for the
Fund, against contemporaneous receipt of such securities by the Bank or against
delivery of such securities to the Bank in accordance with generally accepted
settlement practices and customs in the jurisdiction or market in which the
transaction occurs registered in the name of the Fund or in the name of, or
properly endorsed and in form for transfer to, the Bank, or a nominee of the
Bank, or receipt for the account of the Bank pursuant to the provisions of
Section 6 below, each such payment to be made at the purchase price shown on a
broker's confirmation (or transaction report in the case of Book Entry Paper (as
that term is defined in Section 6.6 hereof)) of purchase of the securities
received by the Bank before such payment is made, as confirmed in the Proper
Instructions received by the Bank before such payment is made.
5.2 Redemptions. In such amount as may be necessary for the repurchase
or redemption of interests of the Fund offered for repurchase or redemption in
accordance with Section 7 of this Agreement.
5.3 Distributions and Expenses of Fund. For the payment on the account
of the Fund of dividends or other distributions to investors as may from time to
time be declared by the Fund, interest, taxes, supervisory fees, distribution
fees, fees of the Bank for its services hereunder and reimbursement of the
expenses and liabilities of the Bank, fees of any administrator, fees for legal,
accounting, and auditing services, or other operating expenses of the Fund.
5.4 Payment in Respect of Securities. For payments in connection with
the conversion, exchange or surrender of Portfolio Securities or securities
subscribed to by the Fund held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to the Fund, but,
in the case of final payment, only upon redelivery to the Bank of any Portfolio
Securities pledged or hypothecated therefor and upon surrender of documents
evidencing the loan;
5.6 Repayment of Cash. To repay the cash delivered to the Fund for the
purpose of collateralizing the obligation to return to the Fund certificates
borrowed from the Fund representing Portfolio Securities, but only upon
redelivery to the Bank of such borrowed certificates.
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5.7 Foreign Exchange Transactions.
(a) For payments in connection with foreign exchange contracts or
options to purchase and sell foreign currencies for spot and future delivery
(collectively, "Foreign Exchange Agreements") which may be entered into by the
Bank on behalf of the Fund upon the receipt of Proper Instructions, such Proper
Instructions to specify the currency broker or banking institution (which may be
the Bank, or any other subcustodian or agent hereunder, acting as principal)
with which the contract or option is made, and the Bank shall have no duty with
respect to the selection of such currency brokers or banking institutions with
which the Fund deals or for their failure to comply with the terms of any
contract or option.
(b) In order to secure any payments in connection with Foreign
Exchange Agreements which may be entered into by the Bank pursuant to Proper
Instructions, the Fund agrees that the Bank shall have a continuing lien and
security interest, to the extent of any payment due under any Foreign Exchange
Agreement, in and to any property at any time held by the Bank for the Fund's
benefit or in which the Fund has an interest and which is then in the Bank's
possession or control (or in the possession or control of any third party acting
on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any such payment due under any Foreign
Exchange Agreement against any balance of account standing to the credit of the
Fund on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of the
Fund, or other obligations of the Fund incurred for proper Fund purposes;
provided that before making any such payment the Bank will also receive Proper
Instructions naming the person or persons to whom such payment is to be made,
and either describing the transaction for which payment is to be made and
declaring it to be an authorized transaction of the Fund, or specifying the
amount of the obligation for which payment is to be made, setting forth the
purpose for which such obligation was incurred and declaring such purpose to be
a proper corporate purpose.
5.9 Termination. Upon the termination of this Agreement as hereinafter
set forth pursuant to Section 8 and Section 16 of this Agreement.
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6. Securities.
6.1 Segregation and Registration. Except as otherwise provided herein,
and except for securities to be delivered to any subcustodian appointed pursuant
to Sections 14.2 or 14.3 hereof, the Bank as custodian will receive and hold
pursuant to the provisions hereof, in a separate account or accounts and
physically segregated at all times from those of other persons, any and all
Portfolio Securities which may now or hereafter be delivered to it by or for the
account of the Fund. All such Portfolio Securities will be held or disposed of
by the Bank for, and subject at all times to, the instructions of the Fund
pursuant to the terms of this Agreement. Subject to the specific provisions
herein relating to Portfolio Securities that are not physically held by the
Bank, the Bank will register all Portfolio Securities (unless otherwise directed
by Proper Instructions or an Officers' Certificate), in the name of a registered
nominee of the Bank as defined in the Internal Revenue Code and any Regulations
of the Treasury Department issued thereunder, and will execute and deliver all
such certificates in connection therewith as may be required by such laws or
regulations or under the laws of any state. The Bank will use its best efforts
to the end that the specific securities held by it hereunder will at all times
be identifiable.
The Bank will use the same care with respect to the safekeeping of
Portfolio Securities and cash of the Fund held by it as it uses in respect of
its own similar property, but it need not maintain any special insurance for the
benefit of the Fund.
The Fund will from time to time furnish to the Bank appropriate
instruments to enable it to hold or deliver in proper form for transfer, or to
register in the name of its registered nominee, any Portfolio Securities which
may from time to time be registered in the name of the Fund.
6.2 Voting and Proxies. Neither the Bank nor any nominee of the Bank
will vote any of the Portfolio Securities held hereunder, except in accordance
with Proper Instructions or an Officers' Certificate. The Bank will execute and
deliver, or cause to be executed and delivered, to the Fund all notices, proxies
and proxy soliciting materials delivered to the Bank with respect to such
Securities, such proxies to be executed by the registered holder of such
Securities (if registered otherwise than in the name of the Fund), but without
indicating the manner in which such proxies are to be voted.
6.3 Corporate Action. If at any time the Bank is notified that an
issuer of any Portfolio Security has taken or intends to take a corporate action
(a "Corporate Action") that affects the rights, privileges, powers, preferences,
qualifications or ownership of a Portfolio Security, including without
limitation, liquidation, consolidation, merger, recapitalization,
reorganization, reclassification, subdivision, combination, stock split or stock
dividend, which Corporate Action requires an affirmative response or action on
the part of the holder of such Portfolio Security (a "Response"), the Bank shall
notify the Fund promptly of the Corporate Action, the Response required in
connection with the Corporate Action and the Bank's deadline for receipt from
the Fund of Proper Instructions regarding the Response (the "Response
Deadline"). The Bank shall forward to the Fund via telecopier and/or overnight
courier all notices, information statements or other materials relating to the
Corporate Action promptly after receipt of such materials by the Bank.
(a) The Bank shall act upon a required Response only after receipt
by the Bank of Proper Instructions from the Fund no later than 5:00 p.m. on the
date specified as the Response Deadline and only if the Bank (or its agent or
subcustodian hereunder) has actual possession of all necessary Securities,
consents and other materials no later than 5:00 p.m. on the date specified as
the Response Deadline.
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(b) The Bank shall have no duty to act upon a required Response if
Proper Instructions relating to such Response and all necessary Securities,
consents and other materials are not received by and in the possession of the
Bank no later than 5:00 p.m. on the date specified as the Response Deadline.
Notwithstanding, the Bank may, in its sole discretion, use its best efforts to
act upon a Response for which Proper Instructions and/or necessary Securities,
consents or other materials are received by the Bank after 5:00 p.m. on the date
specified as the Response Deadline, it being acknowledged and agreed by the
parties that any undertaking by the Bank to use its best efforts in such
circumstances shall in no way create any duty upon the Bank to complete such
Response prior to its expiration.
(c) In the event that the Fund notifies the Bank of a Corporate
Action requiring a Response and the Bank has received no other notice of such
Corporate Action, the Response Deadline shall be 48 hours prior to the Response
expiration time set by the depository processing such Corporate Action.
(d) Section 14.3(g) of this Agreement shall govern any Corporate
Action involving Foreign Portfolio Securities held by a Selected Foreign
Sub-Custodian.
6.4 Book-Entry System. Unless the Fund instructs the Bank to the
contrary:
(a) The Bank may keep Portfolio Securities in the Book-Entry System
provided that such Portfolio Securities are represented in an account
("Account") of the Bank (or its agent) in such System which shall not include
any assets of the Bank (or such agent) other than assets held as a fiduciary,
custodian, or otherwise for customers;
(b) The records of the Bank (and any such agent) with respect to the
Fund's participation in the Book-Entry System through the Bank (or any such
agent) will identify by book entry the Portfolio Securities which are included
with other securities deposited in the Account and shall at all times during the
regular business hours of the Bank (or such agent) be open for inspection by
duly authorized directors, officers, employees or agents of the Fund. Where
securities are transferred to the Fund's account, the Bank shall also, by book
entry or otherwise, identify as belonging to the Fund a quantity of securities
in a fungible bulk of securities (i) registered in the name of the Bank or its
nominee, or (ii) shown on the Bank's account on the books of the Federal Reserve
Bank;
(c) The Bank (or its agent) shall pay for securities purchased for
the account of the Fund or shall pay cash collateral against the return of
Portfolio Securities loaned by the Fund upon (i) receipt of advice from the
Book-Entry System that such Securities have been transferred to the Account, and
(ii) the making of an entry on the records of the Bank (or its agent) to reflect
such payment and transfer for the account of the Fund. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Fund upon
(i) receipt of advice from the Book-Entry System that payment
for Securities sold or payment of the initial cash collateral against the
delivery of Securities loaned by the Fund has been transferred to the Account;
and
(ii) the making of an entry on the records of the Bank (or its
agent) to reflect such transfer and payment for the account of the Fund. Copies
of all advices from the Book-Entry System of transfers of Securities for the
account of the Fund shall identify the Fund, be maintained for the Fund by the
Bank and shall be provided to the Fund at its request. The Bank shall send the
Fund a confirmation of any transfers to or from the account of the Fund;
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(d) The Bank will promptly provide the Fund with any report obtained
by the Bank or its agent on the Book-Entry System's accounting system, internal
accounting control and procedures for safeguarding Securities deposited in the
Book-Entry System. The Bank will provide the Fund and cause any agent to
provide, at such times as the Fund may reasonably require, with reports by
independent public accountants on the accounting system, internal accounting
control and procedures for safeguarding securities, including Securities
deposited in the Book Entry System, relating to the services provided by the
Bank or such agent under this Agreement;
(e) Anything to the contrary in this Agreement notwithstanding, the
Bank shall be liable to the Fund for any loss or damage to the Fund resulting
from use of the Book-Entry System by reason of any negligence, willful
misfeasance or bad faith of the Bank or any of its agents or of any of its or
their employees or from any reckless disregard by the Bank or any such agent of
its duty to enforce effectively such rights as it may have against the
Book-Entry System. At the election of the Fund, it shall be entitled to be
subrogated for the Bank in any claim against the Book-Entry System or any other
person which the Bank or its agent may have as a consequence of any such loss or
damage if and to the extent that the Fund has not been made whole for any loss
or damage.
6.5 Use of a Depository. Provided that the Bank has informed the
Investment Manager and the Fund of the Depositories to be used by the Bank, and
unless the Investment Manager or the Fund has instructed Bank to the contrary:
(a) The Bank may use a Depository to hold, receive, exchange,
release, lend, deliver and otherwise deal with Portfolio Securities including
stock dividends, rights and other items of like nature, and to receive and remit
to the Bank on behalf of the Fund all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
(b) Registration of Portfolio Securities may be made in the name of
any nominee or nominees used by such Depository;
(c) Payment for securities purchased and sold may be made through
the clearing medium employed by such Depository for transactions of participants
acting through it. Upon any purchase of Portfolio Securities, payment will be
made only upon delivery of the securities to or for the account of the Fund and
the Fund shall pay cash collateral against the return of Portfolio Securities
loaned by the Fund only upon delivery of the Securities to or for the account of
the Fund; and upon any sale of Portfolio Securities, delivery of the Securities
will be made only against payment therefor or, in the event Portfolio Securities
are loaned, delivery of Securities will be made only against receipt of the
initial cash collateral to or for the account of the Fund; and
(d) The Bank shall be subject to the same liability and duty to the
Fund and its shareholders with respect to all securities of the Fund, and all
cash, stock dividends, rights and items of like nature to which the Fund is
entitled, held or received by a central securities system as agent for the Bank,
pursuant to the foregoing authorization, as if the same were held or received by
the Bank at its own offices. In this connection, with respect to the use of the
Depository by the Bank but without limiting the foregoing duty or liability, the
Bank, without cost to the Fund, shall ensure that:
(i) The Depository obtains replacement of any certificated
Portfolio Security deposited with it in the event such Security is lost,
destroyed, wrongfully taken or otherwise not available to be returned to the
Bank upon its request;
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(ii) Proxy materials received by a Depository with respect to
Portfolio Securities deposited with such Depository are forwarded immediately to
the Bank for prompt transmittal to the Fund;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities and of the
appropriate book entry made by such Depository to the Fund's account;
(iv) Such Depository prepares and delivers to the Bank such
records with respect to the performance of the Bank's obligations and duties
hereunder as may be necessary for the Fund to comply with applicable
recordkeeping requirements of Section 31(a) of the 1940 Act and Rules 31a-1 and
31a-2 thereunder; and
(v) Such Depository delivers to the Bank all internal
accounting control reports, whether or not audited by an independent public
accountant, as well as such other reports as the Fund may reasonably request in
order to verify the Portfolio Securities held by such Depository.
6.6 Use of Book-Entry System for Commercial Paper. Provided the Bank
has identified for the Investment Manager and the Fund its proposal to use a
system maintained by the Bank for the holding of commercial paper in book-entry
form ("Book-Entry Paper") and the Investment Manager or the Fund has not
instructed Bank not to use such system, the Bank shall issue and hold in
book-entry form, on behalf of the Fund, commercial paper issued by issuers with
whom the Bank has entered into a book-entry agreement (the "Issuers"). In
maintaining procedures for Book-Entry Paper, the Bank agrees that:
(a) The Bank will maintain all Book-Entry Paper held by the Fund in
an account of the Bank that includes only assets held by it for customers;
(b) The records of the Bank with respect to the Fund's purchase of
Book-Entry Paper through the Bank will identify, by book-entry, commercial paper
belonging to the Fund which is included in the Book-Entry System and shall at
all times during the regular business hours of the Bank be open for inspection
by duly authorized officers, employees or agents of the Fund;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of the Fund upon contemporaneous (i) receipt of advice from the Issuer
that such sale of Book-Entry Paper has been effected, and (ii) the making of an
entry on the records of the Bank to reflect such payment and transfer for the
account of the Fund;
(d) The Bank shall cancel such Book-Entry Paper obligation upon the
maturity thereof upon contemporaneous (i) receipt of advice that payment for
such Book-Entry Paper has been transferred to the Fund, and (ii) the making of
an entry on the records of the Bank to reflect such payment for the account of
the Fund;
(e) The Bank shall transmit to the Fund a transaction journal
confirming each transaction in Book Entry Paper for the account of the Fund on
the next business day following the transactions; and
(f) The Bank will send to the Fund such reports on its system of
internal accounting control with respect to the Book-Entry Paper as the Fund may
reasonably request from time to time.
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6.7 Use of Immobilization Programs. Provided (i) the Bank has received
a certified copy of a resolution from the Directors of the Fund specifically
approving the maintenance of portfolio securities in an immobilization program
operated by a bank which meets the requirements of Section 26(a)(1) under the
1940 Act and (ii) for each year following such approval the Directors of the
Fund have reviewed and approved the arrangement and have not delivered an
Officer's Certificate to the Bank indicating that the Directors have withdrawn
their approval, the Bank shall enter into such immobilization program with such
bank acting as a subcustodian hereunder.
6.8 Options and Futures Transactions.
(a) Puts and Calls Traded on Securities Exchanges, NASDAQ or
Over-the-Counter.
(i) The Bank shall take action as to put options ("puts") and
call options ("calls") purchased or sold (written) by the Fund regarding escrow
or other arrangements (i) in accordance with the provisions of any agreement
entered into upon receipt of Proper Instructions among the Bank, any
broker-dealer registered with the National Association of Securities Dealers,
Inc. (the "NASD"), and, if necessary, the Fund, relating to the compliance with
the rules of the Options Clearing Corporation and of any registered national
securities exchange, or of any similar organization or organizations.
(ii) Unless another agreement requires it to do so, the Bank
shall be under no duty or obligation to see that the Fund has deposited or is
maintaining adequate margin, if required, with any broker in connection with any
option, nor shall the Bank be under duty or obligation to present such option to
the broker for exercise unless it receives Proper Instructions from the Fund.
The Bank shall have no responsibility for the legality of any put or call
purchased or sold on behalf of the Fund, the propriety of any such purchase or
sale, or the adequacy of any collateral delivered to a broker in connection with
an option or deposited to or withdrawn from a Segregated Account (as defined in
subsection 6.10 below). The Bank specifically, but not by way of limitation,
shall not be under any duty or obligation to: (i) periodically check or notify
the Fund that the amount of such collateral held by a broker or held in a
Segregated Account is sufficient to protect such broker or the Fund against any
loss; (ii) effect the return of any collateral delivered to a broker; or (iii)
advise the Fund that any option it holds, has or is about to expire. Such duties
or obligations shall be the sole responsibility of the Fund.
(b) Puts, Calls and Futures Traded on Commodities Exchanges
(i) The Bank shall take action as to puts, calls and futures
contracts ("Futures") purchased or sold by the Fund in accordance with the
provisions of any agreement entered into upon the receipt of Proper Instructions
among the Fund, the Bank and a Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Commodity
Futures Trading Commission and/or any Contract Market, or any similar
organization or organizations, regarding account deposits in connection with
transactions by the Fund.
(ii) The responsibilities of the Bank as to Futures, puts and
calls traded on commodities exchanges, any Futures Commission Merchant account
and the Segregated Account shall be limited as set forth in subparagraph (a)(ii)
of this Section 6.9 as if such subparagraph referred to Futures Commission
Merchants rather than brokers, and Futures and puts and calls thereon instead of
options, subject to the requirements of subparagraph (c) below.
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(c) The Fund may maintain cash or Portfolio Securities with a
Futures Commission Merchant in amounts necessary to effect the Fund's
transactions in Exchange-Trade Futures Contracts and Commodity Options (as such
terms are defined under Rule 17f-6 of the 1940 Act), provided that:
(i) A written contract that complies with the terms of Rule
17f-6(a)(1) under the 1940 Act is in place between the Fund and the Futures
Commission Merchant;
(ii) Any gains on the Fund's transactions, other than de
minimis amounts, may be maintained with the Futures Commission Merchant only
until the next business day following receipt; and
(iii) If the custodial arrangement between the Fund and the
Futures Commission Merchant no longer meets the requirements of this Section
6.9(c), the Fund shall withdraw its assets from the Futures Commission Merchant
as soon as reasonably practicable.
6.9 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of the Fund.
(a) Cash and/or Portfolio Securities may be transferred into a
Segregated Account upon receipt of Proper Instructions in the following
circumstances:
(i) in accordance with the provisions of any agreement among
the Fund, the Bank and a broker-dealer registered under the Exchange Act and a
member of the NASD or any Futures Commission Merchant registered under the
Commodity Exchange Act, relating to compliance with the rules of the Options
Clearing Corporation and of any registered national securities exchange or the
Commodity Futures Trading Commission or any registered Contract Market, or of
any similar organizations regarding escrow or other arrangements in connection
with transactions by the Fund;
(ii) for the purpose of segregating cash or securities in
connection with options purchased or written by the Fund or commodity futures
purchased or written by the Fund;
(iii) for the purposes of compliance by the Fund with the
procedures required by Investment Company Act Release No. 10666, or any
subsequent release or releases of the SEC relating to the maintenance of
Segregated Accounts by registered investment companies;
(iv) for the deposit of liquid assets, such as cash, U.S.
Government securities or other high grade debt obligations, having a market
value (marked to market on a daily basis) at all times equal to not less than
the aggregate purchase price due on the settlement dates of all the Fund's then
outstanding forward commitment or "when-issued" agreements relating to the
purchase of Portfolio Securities and all the Fund's then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(v) for other proper corporate purposes, but only, in the case
of this clause (v), upon receipt of, in addition to Proper Instructions, a
certified copy of a resolution of the Directors of the Fund setting forth the
purpose or purposes of such Segregated Account and declaring such purposes to be
proper corporate purposes.
(b) Cash and/or Portfolio Securities may be withdrawn from a
Segregated Account pursuant to Proper Instructions in the following
circumstances:
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(i) with respect to assets deposited in accordance with the
provisions of any agreements referenced in (a)(i) above, in accordance with the
provisions of such agreements;
(ii) with respect to assets deposited pursuant to (a)(iii) or
(a)(iv) above, for sale or delivery to meet the Fund's obligations under
outstanding forward commitment or when-issued agreements for the purchase of
Portfolio Securities and under reverse repurchase agreements;
(iii) for exchange for other liquid assets of equal or greater
value deposited in the Segregated Account;
(iv) to the extent that the Fund's outstanding forward
commitment or when-issued agreements for the purchase of portfolio securities or
reverse repurchase agreements are sold to other parties or the Fund's
obligations thereunder are met from assets of the Fund other than those in the
Segregated Account;
(v) for delivery upon settlement of a forward commitment or
when-issued agreement for the sale of Portfolio Securities; or
(vi) with respect to assets deposited pursuant to (a)(iv)
above, in accordance with the purposes of such account as set forth in Proper
Instructions.
6.10 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by the Fund of
interest-bearing fixed-term and call deposits, transfer cash, by wire or
otherwise, in such amounts and to such bank or banks as shall be indicated in
such Proper Instructions. The Bank shall include in its records with respect to
the assets of the Fund appropriate notation as to the amount of each such
deposit, the banking institution with which such deposit is made (the "Deposit
Bank"), and shall retain such forms of advice or receipt evidencing the deposit,
if any, as may be forwarded to the Bank by the Deposit Bank. Such deposits shall
be deemed Portfolio Securities of the Fund and the responsibility of the Bank
therefore shall be the same as and no greater than the Bank's responsibility in
respect of other Portfolio Securities of the Fund.
6.11 Transfer of Securities. The Bank will transfer, exchange, deliver
or release Portfolio Securities held by it hereunder, insofar as such Securities
are available for such purpose, provided that the Bank will allow any transfer,
exchange, delivery or release under this Section only upon receipt of Proper
Instructions. The Proper Instructions shall state that such transfer, exchange
or delivery is for a purpose permitted under the terms of this Section 6.12, and
shall specify the applicable subsection, or describe the purpose of the
transaction with sufficient particularity to permit the Bank to ascertain the
applicable subsection. After receipt of such Proper Instructions, the Bank will
transfer, exchange, deliver or release Portfolio Securities only in the
following circumstances:
(a) Upon sales of Portfolio Securities for the account of the Fund,
against contemporaneous receipt by the Bank of payment therefor in full, or
against payment to the Bank in accordance with generally accepted settlement
practices and customs in the jurisdiction or market in which the transaction
occurs, each such payment to be in the amount of the sale price shown in a
broker's confirmation of sale received by the Bank before such payment is made,
as confirmed in the Proper Instructions received by the Bank before such payment
is made;
(b) In exchange for or upon conversion into other securities alone
or other securities and cash pursuant to any plan of merger, consolidation,
reorganization, share split-up, change in par value, recapitalization or
readjustment or otherwise, upon exercise of subscription, purchase or sale or
12
other similar rights represented by such Portfolio Securities, or for the
purpose of tendering shares in the event of a tender offer therefor, provided,
however, that in the event of an offer of exchange, tender offer, or other
exercise of rights requiring the physical tender or delivery of Portfolio
Securities, the Bank shall have no liability for failure to so tender in a
timely manner unless such Proper Instructions are received by the Bank at least
two business days prior to the date required for tender, and unless the Bank (or
its agent or subcustodian hereunder) has actual possession of such Security at
least two business days prior to the date of tender;
(c) Upon conversion of Portfolio Securities pursuant to their terms
into other securities;
(d) For the purpose of redeeming in-kind interests in the Fund upon
authorization from the Fund;
(e) In the case of option contracts owned by the Fund, for
presentation to the endorsing broker;
(f) When such Portfolio Securities are called, redeemed or retired
or otherwise become payable;
(g) For the purpose of effectuating the pledge of Portfolio
Securities held by the Bank in order to collateralize loans made to the Fund by
any bank, including the Bank; provided, however, that such Portfolio Securities
will be released only upon payment to the Bank for the account of the Fund of
the moneys borrowed, provided further, however, that in cases where additional
collateral is required to secure a borrowing already made, and such fact is made
to appear in the Proper Instructions, Portfolio Securities may be released for
that purpose without any such payment. In the event that any pledged Portfolio
Securities are held by the Bank, they will be so held for the account of the
lender, and after notice to the Fund from the lender in accordance with the
normal procedures of the lender and any loan agreement between the Fund and the
lender that an event of deficiency or default on the loan has occurred, the Bank
may deliver such pledged Portfolio Securities to or for the account of the
lender;
(h) for the purpose of releasing certificates representing Portfolio
Securities, against contemporaneous receipt by the Bank of the fair market value
of such security, as set forth in the Proper Instructions received by the Bank
before such payment is made;
(i) for the purpose of delivering securities lent by the Fund to a
bank or broker dealer, but only against receipt in accordance with street
delivery custom except as otherwise provided herein, of adequate collateral as
agreed upon from time to time by the Fund and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Fund;
(j) for other authorized transactions of the Fund or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Fund, signed by an
authorized officer of the Fund (other than the officer certifying such
resolution) and certified by its Secretary or Assistant Secretary, specifying
the Portfolio Securities to be delivered, setting forth the transaction in or
purpose for which such delivery is to be made, declaring such transaction to be
an authorized transaction of the Fund or such purpose to be a proper corporate
purpose, and naming the person or persons to whom delivery of such securities
shall be made; and
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(k) upon termination of this Agreement as hereinafter set forth
pursuant to Section 8 and Section 16 of this Agreement.
As to any deliveries made by the Bank pursuant to this Section 6.12,
securities or cash receivable in exchange therefor shall be delivered to the
Bank.
7. Redemptions. In the case of payment of assets of the Fund held by the
Bank in connection with redemptions and repurchases by the Fund of outstanding
interests in the Fund, the Bank will rely on notification by the Fund's
administrator of receipt of a request for redemption and certificates, if
issued, in proper form for redemption before such payment is made. Payment shall
be made in accordance with the ByeLaws of the Fund (the "ByeLaws"), from assets
available for said purpose.
8. Merger, Dissolution, etc. of Fund. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of the
Fund into or the consolidation of the Fund with an investment company or other
entity, the sale by the Fund of all, or substantially all, of its assets to an
investment company or other entity, or the liquidation or dissolution of the
Fund and distribution of its assets, the Bank will deliver the Portfolio
Securities held by it under this Agreement and disburse cash only upon the order
of the Fund set forth in an Officers' Certificate, accompanied by a certified
copy of a resolution of the Fund authorizing any of the foregoing transactions.
Upon completion of such delivery and disbursement and the payment of the fees
through the end of the then current term of this Agreement, and disbursements
and expenses of the Bank, this Agreement will terminate and the Bank shall be
released from any and all obligations hereunder.
9. Actions of Bank Without Prior Authorization. Notwithstanding anything
herein to the contrary, unless and until the Bank receives an Officers'
Certificate to the contrary, the Bank will take the following actions without
prior authorization or instruction of the Fund or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name of
the Fund all checks, drafts, or other negotiable or transferable instruments or
other orders for the payment of money received by it for the account of the Fund
and hold for the account of the Fund all income, dividends, interest and other
payments or distributions of cash with respect to the Portfolio Securities held
thereunder;
9.2 Present for payment all coupons and other income items held by it
for the account of the Fund which call for payment upon presentation and hold
the cash received by it upon such payment for the account of the Fund;
9.3 Receive and hold for the account of the Fund all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization, merger,
consolidation, readjustment, distribution of rights and similar securities
issued with respect to any Portfolio Securities held by it hereunder.
9.4 Execute as agent on behalf of the Fund all necessary ownership and
other certificates and affidavits required by the Internal Revenue Code or the
regulations of the Treasury Department issued thereunder, or by the laws of any
state, now or hereafter in effect, inserting the Fund's name on such
certificates as the owner of the securities covered thereby, to the extent it
may lawfully do so and as may be required to obtain payment in respect thereof.
The Bank will execute and deliver such certificates in connection with Portfolio
Securities delivered to it or by it under this Agreement as may be required
under the provisions of the Internal Revenue Code and any Regulations of the
Treasury Department issued thereunder, or under the laws of any State;
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9.5 Present for payment all Portfolio Securities which are called,
redeemed, retired or otherwise become payable, and hold cash received by it upon
payment for the account of the Fund; and
9.6 Exchange interim receipts or temporary securities for definitive
securities.
10. Collections and Defaults. The Bank will use reasonable efforts to
collect any funds which may to its knowledge become collectible arising from
Portfolio Securities, including dividends, interest and other income, and to
transmit to the Fund notice actually received by it of any call for redemption,
offer of exchange, right of subscription, reorganization or other proceedings
affecting such Securities. If Portfolio Securities upon which such income is
payable are in default or payment is refused after due demand or presentation,
the Bank will notify the Fund in writing of any default or refusal to pay within
two business days from the day on which it receives knowledge of such default or
refusal. In addition, the Bank will send the Fund a written report once each
month showing any income on any portfolio security held by it which is more than
ten days overdue on the date of such report and which has not previously been
reported.
11. Maintenance of Records and Accounting Services. The Bank will maintain
records with respect to transactions for which the Bank is responsible pursuant
to the terms and conditions of this Agreement, and in compliance with applicable
rules and regulations under the 1940 Act or any other applicable laws or rules,
and will furnish the Fund daily with a statement of condition of the Fund. The
Bank will furnish to the Fund at the end of every month, the close of each
quarter of the Fund's fiscal year, and at any other time upon receipt of
reasonable notice, a list of the Portfolio Securities and the aggregate amount
of cash held by it for the Fund. The books and records of the Bank pertaining to
its actions under this Agreement and reports by the Bank or its independent
accountants concerning its accounting system, procedures for safeguarding
securities and internal accounting controls will be open to inspection and audit
at reasonable times by officers of or auditors employed by the Fund and will be
preserved by the Bank in the manner and in accordance with applicable rules and
regulations under the 1940 Act and any other applicable laws or rules. In
addition, the Bank shall provide promptly upon request by the Fund such reports
as are available regarding the Bank's internal accounting controls and financial
strength.
The Bank shall perform fund accounting and shall keep the books of account
(a master copy of which shall be maintained in non-electronic form outside the
Commonwealth of Massachusetts) and render statements or copies from time to time
as reasonably requested by the Treasurer or any executive officer of the Fund.
The Bank shall assist generally in the preparation of reports to
shareholders and others, audits of accounts, and other ministerial matters of
like nature.
12. Fund Evaluation
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
directed by the Fund, determine as of the close of regular trading on the New
York Stock Exchange on each day on which said Exchange is open for unrestricted
trading and as of such other days, or hours, if any, as may be authorized by the
Fund, the net asset value of the Fund, such determination to be made in
accordance with the provisions of the Byelaws of the Fund and the Private
Placement Memorandum of the GMO Alternative Asset Opportunity Fund, the Fund's
sole shareholder and a series of GMO Trust, a Massachusetts business trust,
relating to the Fund, as they may from time to time be amended, and any
applicable resolutions of the Fund at the time in force and applicable; and
promptly to notify the Fund and such other persons as the Fund may request of
the results of such computation and determination. In
15
computing the net asset value hereunder, the Bank may rely in good faith upon
information furnished to it by any Authorized Person in respect of (i) the
manner of accrual of the liabilities of the Fund and in respect of liabilities
of the Fund not appearing on its books of account kept by the Bank, (ii)
reserves, if any, authorized by the Investment Manager or that no such reserves
have been authorized, (iii) the source of the quotations to be used in computing
the net asset value, (iv) the value to be assigned to any security for which no
price quotations are available, and (v) the method of computation of the
offering price on the basis of the net asset value of the interests, and the
Bank shall not be responsible for any loss occasioned by such reliance or for
any good faith reliance on any quotations received from a source pursuant to
(iii) or (iv) above.
13. Additional Services. The Bank shall perform the additional services
for the Fund as are set forth on Appendix B hereto. Appendix B may be amended
from time to time upon agreement of the parties to include further additional
services to be provided by the Bank to the Fund, at which time the fees set
forth in Appendix A may be appropriately increased as the parties agree.
14. Duties of the Bank.
14.1 Performance of Duties and Standard of Care. In performing its
duties hereunder and any other duties listed on any Appendix hereto, if any, the
Bank will be entitled to receive and act upon the advice of independent counsel
of its own selection, which may be counsel for the Fund, and will be without
liability for any action taken or thing done or omitted to be done in accordance
with this Agreement in good faith in conformity with such advice. In addition
to, and not in lieu of, any standard of care set forth in the Agreement, the
Bank shall be obligated to exercise due care in accordance with reasonable
commercial standards when placing and maintaining financial assets corresponding
to the Fund's securities entitlements with a securities depository or an
intermediary custodian.
The Bank will be under no duty or obligation to inquire into and will not
be liable for:
(a) the validity of the issue of any Portfolio Securities purchased
by or for the Fund, the legality of the purchases thereof or the propriety of
the price incurred therefor;
(b) the legality of any sale of any Portfolio Securities by or for
the Fund or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any interests in the Fund or
the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any interests in the Fund or
the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by the Fund or
the legality of the distribution of any Portfolio Securities as payment in kind
of such dividend; and
(f) any property or moneys of the Fund unless and until received by
it, and any such property or moneys delivered or paid by it pursuant to the
terms hereof.
Moreover, the Bank will not be under any duty or obligation to ascertain
whether any Portfolio Securities at any time delivered to or held by it for the
account of the Fund are such as may properly be held by the Fund under the
provisions of its Byelaws, any federal or state statutes, or any rule or
regulation of any governmental agency.
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14.2 Agents and Subcustodians with Respect to Property of the Fund Held
in the United States. The Bank may employ agents of its own selection in the
performance of its duties hereunder and shall be responsible for the acts and
omissions of such agents as if performed by the Bank hereunder. Without limiting
the foregoing, certain duties of the Bank hereunder may be performed by one or
more affiliates of the Bank.
Upon receipt of Proper Instructions, the Bank may employ subcustodians
of its own selection in the performance of its duties hereunder, provided that
any such subcustodian meets at least the minimum qualifications required by
Section 17(f)(1) of the 1940 Act to act as a custodian of the Fund's assets with
respect to property of the Fund held in the United States. The Bank shall have
no more or less responsibility to the Fund on account of any actions or
omissions of any subcustodian so employed than any such sub-custodian has to the
Bank, and the Bank shall indemnify the Fund for any loss to the Fund resulting
from the acts or omissions of any subcustodian to the extent that the Bank is so
indemnified by the subcustodian. Pursuant to Rule 17f-4(a)(3) under the 1940
Act, any subcustodian so employed shall exercise due care in accordance with
reasonable commercial standards in discharging its duty as a securities
intermediary to obtain and thereafter maintain financial assets corresponding to
the security entitlements of its entitlement holders.
The Fund shall pay all fees and expenses of any subcustodian.
14.3 Duties of the Bank with Respect to Property of the Fund Held
Outside of the United States.
(a) Appointment of Foreign Sub-Custodians. The Fund hereby
authorizes and instructs the Bank to employ as sub-custodians for the Fund's
Portfolio Securities and other assets maintained outside the United States the
foreign banking institutions and foreign securities depositories designated on
the Schedule attached hereto (each, a "Selected Foreign Sub-Custodian"). Assets
of the Fund that are maintained by a Selected Foreign Sub-Custodian will be
subject at all times to Rules 17f-5 and 17f-7 of the 1940 Act, as would be
applicable if the Fund were a registered investment company. Upon receipt of
Proper Instructions, the Bank and the Fund may agree to designate additional
foreign banking institutions and foreign securities depositories to act as
Selected Foreign Sub-Custodians hereunder. Upon receipt of Proper Instructions,
the Fund may instruct the Bank to cease the employment of any one or more such
Selected Foreign Sub-Custodians for maintaining custody of the Fund's assets,
and the Bank shall so cease to employ such sub-custodian as soon as alternate
custodial arrangements have been implemented.
(b) Foreign Securities Depositories. Except as may otherwise be
agreed upon in writing by the Bank and the Fund, assets of the Fund shall be
maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Selected Foreign
Sub-Custodians pursuant to the terms hereof. Where possible, such arrangements
shall include entry into agreements containing the provisions set forth in
subparagraph (d) hereof. Notwithstanding the foregoing, except as may otherwise
be agreed upon in writing by the Bank and the Fund, the Fund authorizes the
deposit in Euro-clear, the securities clearance and depository facilities
operated by Xxxxxx Guaranty Trust Company of New York in Brussels, Belgium, of
Foreign Portfolio Securities eligible for deposit therein and the use of
Euro-clear in connection with settlements of purchases and sales of securities
and deliveries and returns of securities, until notified to the contrary
pursuant to subparagraph (a) hereunder.
17
(c) Segregation of Securities. The Bank shall identify on its books
as belonging to the Fund the Foreign Portfolio Securities held by each Selected
Foreign Sub-Custodian. Each agreement pursuant to which the Bank employs a
foreign banking institution shall require that such institution establish a
custody account for the Bank and hold in that account Foreign Portfolio
Securities and other assets of the Fund, and, in the event that such institution
deposits Foreign Portfolio Securities in a foreign securities depository, that
it shall identify on its books as belonging to the Bank the securities so
deposited.
(d) Agreements with Foreign Banking Institutions. Each of the
agreements pursuant to which a foreign banking institution holds assets of the
Fund (each, a "Foreign Sub-Custodian Agreement") shall be substantially in the
form provided to the Fund and shall provide that: (a) indemnification and/or
insurance arrangements shall be in place to protect the Fund against the risk of
loss; (b) the Fund's assets will not be subject to any right, charge, security
interest, lien or claim of any kind in favor of the foreign banking institution
or its creditors or agent, except a claim of payment for their safe custody or
administration (including, without limitation, any fees or taxes payable upon
transfers or reregistration of securities); (c) beneficial ownership of the
Fund's assets will be freely transferable without the payment of money or value
other than for custody or administration (including, without limitation, any
fees or taxes payable upon transfers or reregistration of securities); (d)
adequate records will be maintained identifying the assets as belonging to the
Bank; (e) officers of or auditors employed by, or other representatives of the
Bank, including to the extent permitted under applicable law, the independent
public accountants for the Fund, will be given access to the books and records
of the foreign banking institution relating to its actions under its agreement
with the Bank; and (f) assets of the Fund held by the Selected Foreign
Sub-Custodian will be subject only to the instructions of the Bank or its
agents.
(e) Access of Independent Accountants of the Fund. Upon request of
the Fund, the Bank will use its best efforts to arrange for the independent
accountants of the Fund to be afforded access to the books and records of any
foreign banking institution employed as a Selected Foreign Sub-Custodian insofar
as such books and records relate to the performance of such foreign banking
institution under its Foreign Sub-Custodian Agreement.
(f) Reports by Bank. The Bank will supply to the Fund from time to
time, as mutually agreed upon, statements in respect of the securities and other
assets of the Fund held by Selected Foreign Sub-Custodians, including but not
limited to an identification of entities having possession of the Foreign
Portfolio Securities and other assets of the Fund and advice of any transfers of
assets into or out of the accounts of such Selected Foreign Sub-Custodians.
(g) Transactions in Foreign Custody Account. Transactions with
respect to the assets of the Fund held by a Selected Foreign Sub-Custodian shall
be effected pursuant to Proper Instructions from the Fund to the Bank and shall
be effected in accordance with the applicable Foreign Sub-Custodian Agreement.
If at any time any Foreign Portfolio Securities shall be registered in the name
of the nominee of the Selected Foreign Sub-Custodian, the Fund agrees to hold
any such nominee harmless from any liability by reason of the registration of
such securities in the name of such nominee.
Notwithstanding any provision of this Agreement to the
contrary, settlement and payment for Foreign Portfolio Securities received for
the account of the Fund and delivery of Foreign Portfolio Securities maintained
for the account of the Fund may be effected in accordance with the customary
established securities trading or securities processing practices and procedures
in the jurisdiction or market in which the transaction occurs, including,
without limitation, delivering securities
18
to the purchaser thereof or to a dealer therefor (or an agent for such purchaser
or dealer) against a receipt with the expectation of receiving later payment for
such securities from such purchaser or dealer.
In connection with any action to be taken with respect to the
Foreign Portfolio Securities held hereunder, including, without limitation, the
exercise of any voting rights, subscription rights, redemption rights, exchange
rights, conversion rights or tender rights, or any other action in connection
with any other right, interest or privilege with respect to such Securities
(collectively, the "Rights"), the Bank shall promptly transmit to the Fund such
information in connection therewith as is made available to the Bank by the
Foreign Sub-Custodian, and shall promptly forward to the applicable Foreign
Sub-Custodian any instructions, forms or certifications with respect to such
Rights, and any instructions relating to the actions to be taken in connection
therewith, as the Bank shall receive from the Fund pursuant to Proper
Instructions. Notwithstanding the foregoing, the Bank shall have no further duty
or obligation with respect to such Rights, including, without limitation, the
determination of whether the Fund is entitled to participate in such Rights
under applicable U.S. and foreign laws, or the determination of whether any
action proposed to be taken with respect to such Rights by the Fund or by the
applicable Foreign Sub-Custodian will comply with all applicable terms and
conditions of any such Rights or any applicable laws or regulations, or market
practices within the market in which such action is to be taken or omitted.
(h) Tax Law. The Bank shall have no responsibility or liability for
any obligations now or hereafter imposed on the Fund or the Bank as custodian of
the Fund by the tax laws of any jurisdiction, and it shall be the responsibility
of the Fund to notify the Bank of the obligations imposed on the Fund or the
Bank as the custodian of the Fund by the tax law of any non-U.S. jurisdiction,
including responsibility for withholding and other taxes, assessments or other
governmental charges, certifications and governmental reporting. Notwithstanding
the previous sentence, the Bank shall assist the Fund with respect to any claim
for exemption or refund under the tax law of foreign jurisdictions. Such
assistance shall include (i) collecting and completing appropriate local claim
and or refund documentation; and (ii) coordinating, in conjunction with the
applicable Selected Foreign Sub-custodian, the filing of such documentation with
local tax authorities. The Fund shall provide all requested information relating
to these filings in a timely manner.
14.4 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Fund held by it as it uses
in respect of its own similar property but it need not maintain any special
insurance for the benefit of the Fund.
14.5. Advances by the Bank. The Bank may, in its sole discretion,
advance funds on behalf of the Fund to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by the Fund. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Fund's account with
the Bank, or for any other reason) this Agreement deems any such overdraft or
related indebtedness a loan made by the Bank to the Fund payable on demand. Such
overdraft shall bear interest at the current rate charged by the Bank for such
loans unless the Fund shall provide the Bank with agreed upon compensating
balances. The Fund agrees that the Bank shall have a continuing lien and
security interest to the extent of any overdraft or indebtedness and to the
extent required by law, in and to any property at any time held by it for the
Fund's benefit or in which the Fund has an interest and which is then in the
Bank's possession or control (or in the possession or control of any third party
acting on the Bank's behalf). The Fund authorizes the Bank, in the Bank's sole
discretion, at any time to charge any overdraft or indebtedness, together with
interest due thereon, against any balance of account standing to the credit of
the Fund on the Bank's books.
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14.6. Fees and Expenses of the Bank. For the services rendered by the
Bank hereunder, the Fund will pay to the Bank such fees at such rate as shall be
agreed upon in writing by the parties from time to time. The Fund will also pay
or reimburse the Bank from time to time for any transfer taxes payable upon any
transfers made hereunder, and for all necessary proper disbursements, expenses
and charges made or incurred by the Bank in the performance of this Agreement
(including any duties listed on any Appendix hereto, if any) including any
indemnities for any loss, liabilities or expense to the Bank as provided herein.
The Bank will also be entitled to reimbursement by the Fund for all reasonable
expenses incurred in conjunction with termination of this Agreement and any
conversion or transfer work done in connection therewith.
15. Limitation of Liability.
15.1 Notwithstanding anything in this Agreement to the contrary, in no
event shall the Bank or any of its officers, directors, employees or agents
(collectively, the "Indemnified Parties") be liable to the Fund or any third
party, and the Fund shall indemnify and hold the Bank and the Indemnified
Parties harmless from and against any and all loss, damage, liability, actions,
suits, claims, costs and expenses, including legal fees, (a "Claim") arising as
a result of any act or omission of the Bank or any Indemnified Party under this
Agreement, except for any Claim to the extent resulting from the negligence,
willful misfeasance or bad faith of the Bank or any Indemnified Party in the
performance of its duties or reckless disregard of its obligations and duties
hereunder. Without limiting the foregoing, neither the Bank nor the Indemnified
Parties shall be liable for, and the Bank and the Indemnified Parties shall be
indemnified against, any Claim arising as a result of:
(a) Any act or omission by the Bank or any Indemnified Party in good
faith reliance upon the terms of this Agreement, any Officer's Certificate,
Proper Instructions, resolution of the Fund, telegram, telecopier, notice,
request, certificate or other instrument reasonably believed by the Bank to
genuine;
(b) Any act or omission of any subcustodian selected by or at the
direction of the Fund (though if a subcustodian is selected by the Bank, the
Bank shall indemnify the Fund to the extent described in Section 14.2 herein);
(c) Any act or omission of any Selected Foreign Sub-Custodian to the
extent to which such Selected Foreign Sub-Custodian is not liable to the Bank;
(d) Any Corporate Action, distribution or other event related to
Portfolio Securities which, at the direction of the Fund, have not been
registered in the name of the Bank or its nominee and, therefore, the Bank did
not receive notification of such Corporate Action, distribution or other event
related to Portfolio Securities;
(e) Any Corporate Action requiring a Response, as described in
Section 6.3 herein, for which the Bank has not received Proper Instructions or
obtained actual possession of all necessary Securities, consents or other
materials by 5:00 p.m. on the date specified as the Response Deadline; or
(f) Information relied on in good faith by the Bank and supplied by
any Authorized Person in connection with the calculation of the net asset value
and offering price of the interests in the Fund.
15.2 Neither party shall be liable to the other for any loss, damage,
liability, action, suit, claim, cost or expense arising from any acts of God,
earthquakes, fires, floods, storms or other disturbances of
20
nature, epidemics, strikes, riots, nationalization, expropriation, currency
restrictions, acts of war, civil war or terrorism, insurrection, nuclear fusion,
fission or radiation other similar happenings or events that can not be
controlled or contained by such party.
15.3 In any case in which the Fund may be asked to indemnify or hold
the Bank harmless, the Fund shall be fully and promptly advised of all pertinent
facts concerning the situation in question and the Bank will use all reasonable
care to identify and notify the Fund promptly concerning any situation which
presents or appears likely to present the probability of such claim for
indemnification. The Fund shall have the option but not the obligation to defend
the Bank against any claim which may be the subject of this indemnification, and
in the event the Fund so elects it will so notify the Bank and the Fund shall
take over the complete defense of the claim, and the Bank shall in such
situation incur no further legal or other expenses in connection with such
claim, provided however, if the defendants in any such action include both the
Fund and the Bank, and the Bank shall have reasonably concluded that there may
be legal defenses available to it which are different from or additional to
those available to the Fund, the Bank shall have the right to select separate
counsel to assert such legal defenses and to otherwise participate in the
defense of such action on behalf of the Bank with such cost to be borne by the
party hereto ultimately liable with respect to such claim. The Bank shall in no
case confess any claim or make any compromise in any case in which the Fund will
be asked to indemnify the Bank except with the prior written consent of the Fund
which consent shall not be unreasonably withheld. The Fund shall not settle any
claim without the Bank's prior written consent which consent shall not be
unreasonably withheld.
15.4 Notwithstanding anything to the contrary in this Agreement, in no
event shall the Bank or the Indemnified Parties be liable to the Fund or any
third party for lost profits or lost revenues or any special, consequential,
punitive or incidental damages of any kind whatsoever in connection with this
Agreement or any activities hereunder.
16. Termination.
16.1 This Agreement may be terminated at any time without penalty upon
sixty (60) days' written notice delivered by either party to the other by means
of registered mail, and upon the expiration of such sixty (60) days this
Agreement will terminate; provided, however, that the effective date of such
termination may be postponed to a date not more than ninety (90) days from the
date of delivery of such notice (i) by the Bank in order to prepare for the
transfer by the Bank of all of the assets of the Fund held hereunder, and (ii)
by the Fund in order to give the Fund an opportunity to make suitable
arrangements for a successor custodian. At any time after the termination of
this Agreement, the Fund will, at its request, have access to the records of the
Bank relating to the performance of its duties as custodian.
16.2 In the event of the termination of this Agreement, the Bank will
immediately upon receipt or transmittal, as the case may be, of notice of
termination, commence and prosecute diligently to completion the transfer of all
cash and the delivery of all Portfolio Securities duly endorsed and all records
maintained under Section 11 to the successor custodian when appointed by the
Fund. The obligation of the Bank to deliver and transfer over the assets of the
Fund held by it directly to such successor custodian will commence as soon as
such successor is appointed and will continue until completed as aforesaid. If
the Fund does not select a successor custodian within ninety (90) days from the
date of delivery of notice of termination the Bank may, subject to the
provisions of subsection 16.3, deliver the Portfolio Securities and cash of the
Fund held by the Bank to a bank or trust company of the Bank's own selection
which meets the requirements of Section 17(f)(1) of the 1940 Act and has a
reported capital, surplus and undivided profits aggregating not less than
$25,000,000, to be held as the property of the Fund under terms similar to those
on which they were held by the Bank, whereupon such bank or trust company so
selected by the Bank will become the successor custodian of such assets of the
21
Fund with the same effect as though selected by the Investment Manager.
Thereafter, the Bank shall be released from any and all obligations under this
Agreement.
16.3 Prior to the expiration of ninety (90) days after notice of
termination has been given, the Fund may furnish the Bank with an order of the
Fund advising that a successor custodian cannot be found willing and able to act
upon reasonable and customary terms and that there has been submitted to the
shareholders of the Fund the question of whether the Fund will be liquidated or
will function without a custodian for the assets of the Fund held by the Bank.
In that event the Bank will deliver the Portfolio Securities and cash of the
Fund held by it, subject as aforesaid, in accordance with one of such
alternatives which may be approved by the requisite vote of shareholders, upon
receipt by the Bank of a copy of the minutes of the meeting of shareholders at
which action was taken, certified by the Fund's Secretary.
16.4 The Fund shall reimburse the Bank for any reasonable expenses
incurred by the Bank in connection with the termination of this Agreement.
16.5 At any time after the termination of this Agreement, the Fund may,
upon written request, have reasonable access to the records of the Bank relating
to its performance of its duties as custodian.
17. Confidentiality. Both parties hereto agree than any non-public
information obtained hereunder concerning the other party is confidential and
may not be disclosed without the consent of the other party, except as may be
required by applicable law or at the request of a governmental agency. The
parties further agree that a breach of this provision would irreparably damage
the other party and accordingly agree that each of them is entitled, in addition
to all other remedies at law or in equity to an injunction or injunctions
without bond or other security to prevent breaches of this provision.
18. Notices. Any notice or other instrument in writing authorized or
required by this Agreement to be given to either party hereto will be
sufficiently given if addressed to such party and delivered via (I) United
States Postal Service registered mail, (ii) telecopier with written
confirmation, (iii) hand delivery with signature to such party at its office at
the address set forth below, namely:
(a) In the case of notices sent to the Fund to:
GMO ALTERNATIVE ASSET SPC LTD.
c/o Grantham, Mayo, Van Otterloo & Co. LLC
00 Xxxxx Xxxxx
Xxxxxx, XX 00000
Attn: Xxxxxx X. Xxxxxxxx, Esq.
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
000 Xxxxxxxxx Xxxxxx, X.X. Xxx 0000
Xxxxxx, Xxxxxxxxxxxxx 00000-0000
Attention: Xxxxx Xxxx, Senior Director - Client Management
With a copy to: Xxxxxx X. Xxxxx, Deputy General Counsel
or at such other place as such party may from time to time designate
in writing.
22
19. Amendments. This Agreement may not be altered or amended, except by an
instrument in writing, executed by both parties.
20. Parties. This Agreement will be binding upon and shall inure to the
benefit of the parties hereto and their respective successors and assigns;
provided, however, that this Agreement will not be assignable by the Fund
without the written consent of the Bank or by the Bank without the written
consent of the Fund,; and provided further that termination proceedings pursuant
to Section 16 hereof will not be deemed to be an assignment within the meaning
of this provision.
21. Governing Law. This Agreement and all performance hereunder will be
governed by the laws of the Commonwealth of Massachusetts, without regard to
conflict of laws provisions.
22. 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.
23. Entire Agreement. This Agreement, together with its Appendices and
Schedules (if any), constitutes the sole and entire agreement between the
parties relating to the subject matter herein and does not operate as an
acceptance of any conflicting terms or provisions of any other instrument and
terminates and supersedes any and all prior agreements and undertakings between
the parties relating to the subject matter herein.
24. Limitation of Liability. The Bank agrees that the obligations assumed
by the Fund hereunder shall be limited in all cases to the assets of the Fund
and that the Bank shall not seek satisfaction of any such obligation from the
directors, officers or interest holders of the Fund.
25. This Agreement shall be executed by the Fund outside of The
Commonwealth of Massachusetts.
23
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective representatives or officers thereunto duly
authorized as of the day and year first written above.
GMO ALTERNATIVE ASSET SPC LTD.
By: __________________________
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By: __________________________
Name:
Title:
24
Appendices
Appendix A........................................... Fee Schedule
Appendix B........................................... Additional Services
25
Appendix A
Fee Schedule
00
XXXXXXXX, XXXX, XXX XXXXXXXX & CO. LLC
ALTERNATIVE ASSET OPPORTUNITY (BERMUDA) LTD.
Annual Fee Schedule
MARCH 2005
CUSTODY, FUND ACCOUNTING, EXPENSE ADMINISTRATION, TAX, FINANCIAL REPORTING AND
SHAREHOLDER RECORDKEEPING
A. CUSTODY, FUND ACCOUNTING, EXPENSE ADMINISTRATION, TAX & FINANCIAL
REPORTING AND SHAREHOLDER RECORDKEEPING
The Annual Fee for the above services will be the blended rate applicable
to all the funds in the GMO Trust. In addition, there will be a minimum
annual fee of $60,000.
B. TRANSACTIONS
- DTC/Fed Book Entry $10 **
- Physical Securities 35
- Euroclear (non-Cross Border) 20
- GNMA Paydowns 5
- 3rd Party Foreign Currency 35
- Options, Futures, Forwards, Swaps 18
- Incoming/Outgoing Wires 8
- Transfer Agency Wires 8
- Distribution Wires 8
** There are no transaction charges for the use of
Investors Bank Repo products.
C. GLOBAL CUSTODY
- Incremental basis point and transaction fees will be
charged for all global assets for which Investors Bank serves as custodian. The
asset based fees and transaction fees vary by country based upon the attached
Schedule - Global Custody Fees. Local duties, script fees, reclaims,
registration, exchange fees, and other market charges will be billed
out-of-pocket.
- Investors Bank will require that all international assets be
held at the sub-custodian of the Bank's choice.
00
XXXXXXXX, XXXX, XXX XXXXXXXX & CO. LLC
ALTERNATIVE ASSET OPPORTUNITY (BERMUDA) LTD.
Annual Fee Schedule
MARCH 2005
OUT-OF-POCKET AND BALANCE CREDITS
A. OUT-OF-POCKET
These charges consist of:
- Telephone
- Ad Hoc Reporting
- Local registration scrip and duties
- Value added tax
- Pricing or Verification Services
- Forms and Supplies
- Printing/Postage/Delivery/Storage
- Systems Development/Reports/Transmissions
- Equipment Rental
- Legal
- Local Filing and Registered Office Fees (these fees subject to
change periodically)
B. BALANCE CREDITS
We allow use of balance credit against fees (excluding out-of-pocket
charges) for collected fund balances arising out of the custody
relationship. The monthly earnings allowance is equal to 75% of the 90-day
T-xxxx rate.
ASSUMPTIONS
- This fee schedule was arrived at through conversations with GMO. If
the Fund's final documentation reveals information that would
require a material increase in services provided to the Fund, then
this fee schedule is subject to change.
- GMO will contract for Corporate Secretarial work directly with AS&K
(Xxxx Management).
- Investor activity will occur on a daily basis.
- The Fund will be wholly owned by the Alternative Asset Opportunity
Fund.
- The management fee will be imputed on an annual basis.
- All redemptions from the Fund will be treated as a return of
capital.
- There will be no excise calculation requirements.
- Investors Bank will prepare the annual audited financial statements.
- Investors Bank will not perform any compliance work for the Fund.
00
Xxxxxxxx X
Additional Services
In absence of contrary Proper Instructions, the Bank will perform the
following duties in accordance with the then current Byelaws in the Bank's
possession:
Shareholder Recordkeeping
1. Maintaining Shareholder Records. Open, maintain and close accounts of
shareholders, all in accordance with information received by the Bank from
Authorized Persons and maintain continuous proof of all shareholder interests.
2. Processing of Investments. Upon receipt of Proper Instructions with
respect to contributions to the Fund, credit the account of the shareholder
indicated in such Instructions with the shareholder interest.
3. Processing Redemptions and Transfers. Upon receipt of Proper
Instructions indicating that a proper withdrawal request had been received,
verify that there are sufficient amounts in the account to cover the withdrawal
and that payment for the shareholder interest being redeemed has been collected,
and process the withdrawal at the appropriate net asset value as indicated in
Proper Instructions, with payment to be made in accordance with the instructions
of the shareholder as provided to the Bank by an Authorized Person.
Upon receipt of Proper Instructions indicating that a transfer request had been
received and approved by the Board of Directors, process the transfer at the
appropriate net asset value as instructed by the Board, with payment, if any, to
be made in accordance with the instructions of the shareholder as provided to
the Bank by an Authorized Person
4. No Obligation on Part of Bank. The Bank shall have no duties or
obligations hereunder (i) to determine whether any subscription or other
agreements or documents prepared by shareholders are complete or accurate; (ii)
to determine whether any investor has satisfied any requirement for investment
in the Fund, either under federal law or the laws of any state or country, under
the Byelaws or offering materials; (iii) to monitor any purchase with respect to
the securities laws of any state, or any federal securities laws or securities
laws of any country, or to make any filing under the same in connection
therewith, including, without limitation, Regulation D of the Securities Act of
1933, as amended and the securities laws of any state or country; (iv) to
determine whether the shareholders in the Fund are "qualified purchasers" for
the purpose of Section 3(c)(7) of the Investment Company Act of 1940; or (v) to
carry out any provision of the Fund's Anti-Money Laundering Program.
5. Processing Distributions. The Bank shall work in conjunction with the
Fund and its tax advisors to verify the amounts due to be distributed to the
shareholders of the Fund in accordance with the Byelaws. Upon receipt of Proper
Instructions indicating (i) that a distribution is due to be paid to the
shareholders and (ii) the amount to be paid to each such shareholder, the Bank
shall make such payment in accordance with such Proper Instructions and the
provisions of the Byelaws.
