CUSTODIAN AGREEMENT
BETWEEN
PORTFOLIO PARTNERS, INC.
AND
INVESTORS BANK & TRUST COMPANY
TABLE OF CONTENTS
Page
1. Bank Appointed Custodian......................................................................... 1
2. Definitions...................................................................................... 1
2.1 Authorized Person.......................................................... 1
2.2 Board .................................................................. 1
2.3 Security .................................................................. 1
2.4 Portfolio Security......................................................... 1
2.5 Officers' Certificate...................................................... 2
2.6 Book-Entry System.......................................................... 2
2.7 Depository................................................................. 2
2.8 Proper Instructions........................................................ 2
3. Separate Accounts ............................................................................... 2
4. Certification as to Authorized Persons........................................................... 2
5. Custody of Cash ............................................................................... 3
5.1 Purchase of Securities..................................................... 3
5.2 Redemptions .......................................................... 3
5.3 Distributions and Expenses of Fund......................................... 3
5.4 Payment in Respect of Securities........................................... 3
5.5 Repayment of Loans......................................................... 3
5.6 Repayment of Cash.......................................................... 3
5.7 Foreign Exchange Transactions.............................................. 4
5.8 Other Authorized Payments.................................................. 4
5.9 Termination................................................................ 4
6. Securities....................................................................................... 4
6.1 Segregation and Registration............................................... 4
6.2 Voting and Proxies......................................................... 5
6.3 Corporate Action .......................................................... 5
6.4 Book-Entry System.......................................................... 5
6.5 Use of a Depository........................................................ 6
6.6 Use of Book-Entry System for Commercial Paper.............................. 7
6.7 Use of Immobilization Programs............................................. 8
6.8 Eurodollar CDs .......................................................... 8
6.9 Options and Futures Transactions........................................... 8
(a) Puts and Calls Traded on Securities Exchanges,
NASDAQ or Over-the-Counter........................................ 8
(b) Puts, Calls, and Futures Traded
on Commodities Exchanges.......................................... 9
6.10 Segregated Account......................................................... 9
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Page
6.11 Interest Bearing Call or Time Deposits..................................... 10
6.12 Transfer of Securities..................................................... 10
7. Redemptions ............................................................................... 12
8. Merger, Dissolution, etc. of Series.............................................................. 12
9. Actions of Bank Without Prior Authorization...................................................... 12
10. Collection and Defaults.......................................................................... 13
11. Maintenance of Records and Accounting Services................................................... 13
12. Fund Evaluation and Yield Calculation............................................................ 13
12.1 Fund Evaluation............................................................ 13
12.2 Yield Calculation.......................................................... 14
13. Additional Services ...................................................................... 15
14. Duties of the Bank ...................................................................... 15
14.1 Performance of Duties and
Standard of Care .......................................................... 15
14.2 Agents and Subcustodians with Respect to Property
of the Company Held in the United States................................... 15
14.3 Duties of the Bank with Respect to Property of the Company
Held Outside of the United States.......................................... 16
14.4 Insurance.................................................................. 18
14.5 Fees and Expenses of Bank.................................................. 18
14.6 Advances by Bank.......................................................... 18
15. Limitation of Liability.......................................................................... 19
15.1 Liability of the Custodian with Respect to Use of
Securities Systems and Foreign Depositories................................ 19
15.2 Standard of Care; Liability; Indemnification............................... 19
16. Termination...................................................................................... 20
17. Confidentiality.................................................................................. 21
18. Notices ........................................................................................ 21
19. Amendments....................................................................................... 22
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Page
20. Parties ........................................................................................ 22
21. Governing Law.................................................................................... 22
22. Counterparts..................................................................................... 22
23. Entire Agreement................................................................................. 22
24. Limitation of Liability.......................................................................... 22
APPENDICES
Appendix A ................................... Fee Schedule
Appendix B ................................... Additional Services
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CUSTODIAN AGREEMENT
THIS AGREEMENT made as of this _____ day of __________, 1997, between
Portfolio Partners, Inc., a company organized under the laws of the State of
Maryland (the "Company"), and Investors Bank & Trust Company, a Massachusetts
trust company (the "Bank").
WHEREAS, the Company is registered under the Investment Company Act of
1940 (the "1940 Act") as an open-end, diversified management investment company
that currently issues five series of shares, each of which represents a separate
investment portfolio and which may create additional series in the future; and
WHEREAS, the Company, for which Aetna Life Insurance and Annuity
Company ("Adviser") serves as investment adviser, desires to retain the Bank to
serve as the Company's custodian for each such existing investment portfolio
("Series"), as well as for some or all of any additional Series created by the
Company in the future and the Bank is willing to serve as custodian for each
such Series on the terms set forth herein;
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 Company 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 Company 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 Company by appropriate resolution of its Board, or as authorized by the
Company's Administrator (the "Administrator"), and set forth in a certificate as
required by Section 4 hereof.
2.2 Board. Board will mean the Board of Directors of the Company.
2.3 Security. The term security as used herein will have the same
meaning assigned to such term in the Securities Act of 1933, 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.
2.4 Portfolio Security. Portfolio Security will mean any
security owned by the Series within the Company.
2.5 Officers' Certificate. Officers' Certificate will mean, unless
otherwise indicated, any request, direction, instruction, or certification in
writing signed or initialed on behalf of the Company by one or more person or
persons as the Board of Directors shall have from time to time authorized.
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 Securities and Exchange
Commission 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, specifically identified in a certified copy of a resolution of the
Board.
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
Administrator 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 will be considered Proper Instructions
if the Bank reasonably believes them to have been given by an Authorized Person.
All oral instructions are to be promptly confirmed in writing. The Bank shall
act upon and comply with any subsequent Proper Instruction that 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 Administrator. The Administrator shall be responsible,
at the Administrator'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 Administrator shall give the
Bank specific Proper Instructions as to the action required. Upon receipt by the
Bank of an Officers' Certificate as to the authorization by the Board
accompanied by a detailed description of procedures approved by the
Administrator, Proper Instructions may include communication effected directly
between electro-mechanical or electronic devices provided that the Administrator
and the Bank agree in writing that such procedures afford adequate safeguards
for the Company's assets.
3. Separate Accounts. The Bank will segregate the assets of each Series
to which this Agreement relates into a separate account for each such Series
containing the assets of such Series (and all investment earnings thereon).
Unless the context otherwise requires, any reference in this Agreement to any
actions to be taken by the Administrator shall be deemed to refer to the Company
acting on behalf of one or more of its Series, any reference in this Agreement
to any assets of the Company, 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 Company shall be deemed to refer to duties and obligations with respect to
such individual Series and any obligation or liability of the Company 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 Secretary or Assistant
Secretary of the Company will at all times maintain on file with the Bank his or
her certification to the Bank, in such form as may be acceptable to the Bank, of
(i) the names and signatures of the Authorized Persons and (ii) the names of the
members of the Board, it being understood that upon the occurrence of any change
in the
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information set forth in the most recent certification on file (including
without limitation any person named in the most recent certification who is no
longer an Authorized Person as designated therein), the Secretary or Assistant
Secretary of the Company will sign 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
Company 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 Company, the Bank will open
and maintain a separate account or accounts in the name of each Series within
the Company or in the name of the Bank, as Custodian for the Company's Series,
and will deposit to the account of the Series all of the cash, 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. Pursuant to the
Bank's internal policies regarding the management of cash accounts, the Bank may
segregate certain portions of the cash of the Series as permitted in subsections
5.1-5.9 below.
5.1 Purchase of Securities. Upon the purchase of securities for the
Series, 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 Series 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 common shares of the Series 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 a Series of dividends or other distributions to shareholders as may
from time to time be declared by the Board, interest, taxes, management,
administrative or supervisory fees, distribution fees, fees of the Bank for its
services hereunder and reimbursement of the expenses and liabilities of the Bank
as provided hereunder, fees of any transfer agent, fees for legal, accounting,
and auditing services, or other operating expenses of the Series.
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 Series held by or to be delivered to the Bank.
5.5 Repayment of Loans. To repay loans of money made to a Series,
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 a Series for
the purpose of collateralizing the obligation to return to the Series
certificates borrowed from the Series 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 a Series 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 Series 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 that may be entered into by the Bank pursuant to Proper
Instructions, each Series 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 Series'
benefit or in which the Series 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 Series authorize 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 such
Series on the Bank's books.
5.8 Other Authorized Payments. For other authorized transactions of
a Series, or other obligations of a Series incurred for proper Series purposes;
provided that before making any such payment the Bank will also receive a
certified copy of a resolution of the Board signed by an Authorized Person
(other than the Person certifying such resolution) and certified by its
Secretary or Assistant Secretary, 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 Series, 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.
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 each Series. All such Portfolio Securities will be held or disposed
of by the Bank for, and subject at all times to, the instructions of the Company
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.
4
The Company 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 a Series.
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 each Series 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 Series)], 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 affected Series promptly of the Corporate Action, the Response
required in connection with the Corporate Action and the Bank's deadline for
receipt of Proper Instructions regarding the Response (the "Response Deadline").
The Bank shall forward to the Series via telecopier and/or overnight courier all
notices, information statements or other materials relating to the Corporate
Action within twenty-four (24) hours of 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 Series 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.
(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 a Series 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 Subcustodian.
6.4 Book-Entry System. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits of
Company assets in the Book-Entry System, and (ii) for any
5
subsequent changes to such arrangements following such approval, the Board has
reviewed and approved the arrangement and has not delivered an Officer's
Certificate to the Bank indicating that the Board has withdrawn its approval:
(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 a Series' 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 officers, employees or agents of the Company.
Where securities are transferred to a Series' account, the Bank shall also, by
book entry or otherwise, identify as belonging to the Series 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 Series or shall pay cash collateral against the return of
Portfolio Securities loaned by the Series 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 Series. The Bank (or its agent)
shall transfer securities sold or loaned for the account of the Series 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 Series 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
Series. Copies of all advices from the Book-Entry System of transfers of
securities for the account of the Series shall identify the Series, be
maintained for the Series by the Bank and shall be provided to the Series at its
request. The Bank shall send the Series a confirmation, as defined by Rule 17f-4
under the 1940 Act, of any transfers to or from the account of the Series;
(d) The Bank will promptly provide the Company 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.
6.5 Use of a Depository. Provided (i) the Bank has received a
certified copy of a resolution of the Board specifically approving deposits in
DTC or other such Depository and (ii) for any subsequent changes to such
arrangements following such approval, the Board has reviewed and approved the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval:
(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 a Series all income and other payments thereon and to
take all steps necessary and proper in connection with the collection thereof;
6
(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 Series and the Series shall pay cash collateral against the return of
Portfolio Securities loaned by the Series only upon delivery of the Securities
to or for the account of the Series; 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
Series; and
(d) The Bank shall use its best efforts to provide 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;
(ii) Proxy materials received by a Depository with
respect to Portfolio Securities held by a Series deposited with such Depository
are forwarded immediately to the Bank for prompt transmittal to the Series;
(iii) Such Depository promptly forwards to the Bank
confirmation of any purchase or sale of Portfolio Securities on behalf of a
Series and of the appropriate book entry made by such Depository to the Series'
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 Series to comply with the
recordkeeping requirements of Section 31(a) of the 1940 Act and Rule 31(a)
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 Series 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 (i) the
Bank has received a certified copy of a resolution of the Board specifically
approving participation in a system maintained by the Bank for the holding of
commercial paper in book-entry form ("Book-Entry Paper") and (ii) for each year
following such approval the Board has reviewed the arrangement, upon receipt of
Proper Instructions and upon receipt of confirmation from an Issuer (as defined
below) that the Series has purchased such Issuer's Book-Entry Paper, the Bank
shall issue and hold in book-entry form, on behalf of each Series, 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
Series in an account of the Bank that includes only assets held by it for
customers;
(b) The records of the Bank with respect to each Series'
purchase of Book-Entry Paper through the Bank will identify, by book-entry,
commercial paper belonging to each Series which is
7
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 that Series;
(c) The Bank shall pay for Book-Entry Paper purchased for the
account of each Series 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 Series;
(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 a Series, and (ii) the
making of an entry on the records of the Bank to reflect such payment for the
account of the Series; and
(e) The Bank will send to the Company such reports on its
system of internal accounting control with respect to the Book-Entry Paper as
the Company may reasonably request from time to time.
6.7 Use of Immobilization Programs. Provided (i) the Bank has
received a certified copy of a resolution of the Board specifically approving
the maintenance of Portfolio Securities in an immobilization program operated by
a bank which meets the requirements of Section 26(a)(1) of the 1940 Act, and
(ii) for each year following such approval the Board has reviewed the
arrangement and has not delivered an Officer's Certificate to the Bank
indicating that the Board has withdrawn its approval, the Bank shall enter into
such immobilization program with such bank acting as a subcustodian hereunder.
6.8 Eurodollar CDs. Any Portfolio Securities that are Eurodollar CDs
may be physically held by the European branch of the U.S. banking institution
that is the issuer of such Eurodollar CD (a "European Branch"), provided that
such Portfolio Securities are identified on the books of the Bank as belonging
to a Series and that the books of the Bank identify the European Branch holding
such Portfolio Securities. Notwithstanding any other provision of this Agreement
to the contrary, except as stated in the first sentence of this subsection 6.8,
the Bank shall be under no other duty with respect to such Eurodollar CDs
belonging to a Series.
6.9 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 a Series
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 Series, 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) The Bank shall be under a duty and obligation to
see that each Series has deposited or is maintaining adequate margin, as
required, with any broker in connection with any option, and the Bank shall be
under duty and obligation to present such option to the broker for exercise upon
receiving Proper Instructions from the Series. The Bank shall have
responsibility for the legality of any put or call purchased or sold on behalf
of a Series, 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
8
withdrawn from a Segregated Account (as defined in subsection 6.10 below). The
Bank specifically, but not by way of limitation, shall be under any duty and
obligation to: (i) periodically check and notify the Series that the amount of
such collateral held by a broker or held in a Segregated Account is insufficient
to protect such broker or the Series against any loss; (ii) effect the return of
any collateral delivered to a broker; or (iii) advise the Series that any option
it holds has or is about to expire. Such duties or obligations shall be the
responsibility of the Bank and the Series.
(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 a Series in accordance with
the provisions of any agreement entered into upon the receipt of Proper
Instructions among the Series, 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 Series.
(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)(2) 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.
6.10 Segregated Account. The Bank shall upon receipt of Proper
Instructions establish and maintain a Segregated Account or Accounts for and on
behalf of each Series.
(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 Series, 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 Series;
(ii) for the purpose of segregating cash or securities
in connection with options purchased or written by the Series or commodity
futures purchased or written by the Series;
(iii) for the deposit of liquid assets, 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 the Series'
then outstanding forward commitments or "when-issued" agreements relating to the
purchase of Portfolio Securities and the Series' then outstanding commitments
under reverse repurchase agreements entered into with broker-dealer firms;
(iv) for the purposes of compliance by the Series with
the procedures required by Investment Company Act Release No. 10666, or any
subsequent Commission releases or Commission staff positions relating to the
maintenance of Segregated Accounts by registered investment companies;
9
(v) for other proper corporate purposes, but only, in
the case of this clause (e), upon receipt of, in addition to Proper
Instructions, a certified copy of a resolution of the Board, or of the executive
committee of the Board signed by an officer of the Company and certified by the
Secretary or an Assistant Secretary, 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:
(i) with respect to assets deposited in accordance
with the provisions of any agreements referenced in (a)(i) or (a)(ii) 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 Series' 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 Series' outstanding
forward commitment or when-issued agreements for the purchase of Portfolio
Securities or reverse repurchase agreements are sold to other parties or the
Series' obligations thereunder are met from assets of the Series 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 (e)
above, in accordance with the purposes of such account as set forth in Proper
Instructions.
6.11 Interest Bearing Call or Time Deposits. The Bank shall, upon
receipt of Proper Instructions relating to the purchase by a Series 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 Series 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 Series 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 Series.
6.12 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 before making 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
6.11, 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:
10
(a) Upon sales of Portfolio Securities for the account of the
Series, 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 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 shares of a Series
upon authorization from the Company;
(e) In the case of option contracts owned by a Series, 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 a Series 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 Series 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 a Series
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 Series and the Bank, and upon receipt of
payment in connection with any repurchase agreement relating to such securities
entered into by the Series;
11
(j) for other authorized transactions of a Series or for other
proper corporate purposes; provided that before making such transfer, the Bank
will also receive a certified copy of resolutions of the Board, signed by an
authorized officer of the Company (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 Company 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
(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 a Series held by
the Bank in connection with redemptions and repurchases by the Series of
outstanding common shares, the Bank will rely on notification by the Series'
transfer agent 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 Articles of Incorporation or Declaration of Trust
and By-laws of the Company (the "Articles"), from assets available for said
purpose.
8. Merger, Dissolution, etc. of a Series. In the case of the following
transactions, not in the ordinary course of business, namely, the merger of a
Series into or the consolidation of a Series with another investment company or
series thereof, the sale by a Series of all, or substantially all, of its assets
to another investment company or series thereof, or the liquidation or
dissolution of a Series 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 Company set forth in an Officers' Certificate, accompanied
by a certified copy of a resolution of the Board authorizing any of the
foregoing transactions. Upon completion of such delivery and disbursement and
the payment of the fees, 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 Company or the transfer agent:
9.1 Endorse for collection and collect on behalf of and in the name
of the Series 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 Series and hold for the account of the Series 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 Series which call for payment upon presentation and
hold the cash received by it upon such payment for the account of the Series;
9.3 Receive and hold for the account of the Series all securities
received as a distribution on Portfolio Securities as a result of a stock
dividend, share split-up, reorganization, recapitalization,
12
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 Series 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 Series' 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;
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 each Series; 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 Series 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 Series 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.
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
the applicable rules and regulations of the 1940 Act. 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 Company and will be preserved by the Bank in the manner and in accordance
with the applicable rules and regulations under the 1940 Act.
The Bank shall perform fund accounting and shall keep the books of
account and render statements or copies from time to time as reasonably
requested by the Treasurer or any executive officer of the Company.
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 and Yield Calculation
12.1 Fund Evaluation. The Bank shall compute and, unless otherwise
directed by the Board, 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
Board, the net asset value and the public offering price of a share of capital
stock of each Series of the Company, such determination to be made in accordance
with the provisions of the Articles and By-laws of the Company and the
Prospectus and Statement of Additional Information
13
relating to the Company, as they may from time to time be amended, and any
applicable resolutions of the Board at the time in force and applicable; and
promptly to notify the Company, the proper exchange and the NASD or such other
persons as the Company may request of the results of such computation and
determination. In 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 each Series and in respect of
liabilities of each Series not appearing on its books of account kept by the
Bank, (ii) reserves, if any, authorized by the Board 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 public
offering price on the basis of the net asset value of the shares, 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)
above.
12.2. Yield Calculation. The Bank will compute the performance
results of each Series (the "Yield Calculation") in accordance with the
provisions of Release No. 33-6753 and Release No. IC-16245 (February 2, 1988)
(the "Releases") promulgated by the Securities and Exchange Commission, and any
subsequent amendments to, published interpretations of or general conventions
accepted by the staff of the Securities and Exchange Commission with respect to
such releases or the subject matter thereof ("Subsequent Staff Positions"),
subject to the terms set forth below:
(a) The Bank shall compute the Yield Calculation for each
Series for the stated periods of time as shall be mutually agreed upon, and
communicate in a timely manner the result of such computation to the Series.
(b) In performing the Yield Calculation, the Bank will derive
the items of data necessary for the computation from the records it generates
and maintains for each Series pursuant Section 11 hereof. The Bank shall have no
responsibility to review, confirm, or otherwise assume any duty or liability
with respect to the accuracy or correctness of any such data supplied to it by
the Series, any of the Series' designated agents or any of the Series'
designated third party providers.
(c) At the request of the Bank, the Company shall provide, and
the Bank shall be entitled to rely on, written standards and guidelines to be
followed by the Bank in interpreting and applying the computation methods set
forth in the Releases or any Subsequent Staff Positions as they specifically
apply to the Series. In the event that the computation methods in the Releases
or the Subsequent Staff Positions or the application to the Series of a standard
or guideline is not free from doubt or in the event there is any question of
interpretation as to the characterization of a particular security or any aspect
of a security or a payment with respect thereto (e.g., original issue discount,
participating debt security, income or return of capital, etc.) or otherwise or
as to any other element of the computation which is pertinent to the Series, the
Company or its designated agent shall have the full responsibility for making
the determination of how the security or payment is to be treated for purposes
of the computation and how the computation is to be made and shall inform the
Bank thereof on a timely basis. The Bank shall have no responsibility to make
independent determinations with respect to any item which is covered by this
Section, and shall not be responsible for its computations made in accordance
with such determinations so long as such computations are mathematically
correct.
(d) The Company shall keep the Bank informed of all publicly
available information and of any non-public advice, or information obtained by
the Company from its independent auditors or by its personnel or the personnel
of its investment adviser, or Subsequent Staff Positions related to the
computations to be undertaken by the Bank pursuant to this Agreement and the
Bank shall not be deemed
14
to have knowledge of such information (except as contained in the Releases)
unless it has been furnished to the Bank in writing.
13. Additional Services. The Bank shall perform the additional services
for the Company 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 Company, at which time the fees set
forth in Appendix A shall be appropriately increased.
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 Schedule 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 Company, 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.
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 Series, 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 any Series or the propriety of the amount for which the same are sold;
(c) the legality of an issue or sale of any common shares of a
Series or the sufficiency of the amount to be received therefor;
(d) the legality of the repurchase of any common shares of a
Series or the propriety of the amount to be paid therefor;
(e) the legality of the declaration of any dividend by a
Series or the legality of the distribution of any Portfolio Securities as
payment in kind of such dividend; and
(f) any property or moneys of a Series 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 a Series are such as may properly be held by the Series
under the provisions of the Company's Articles, By-laws, any federal or state
statutes or any rule or regulation of any governmental agency.
14.2 Agents and Subcustodians with Respect to Property of the
Company Held in the United States. The Bank may employ agents 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 selected by or at the direction of the Company, 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 Company's assets with
respect to property of the Company held in the United States.
15
14.3 Duties of the Bank with Respect to Property of the Company Held
Outside of the United States.
(a) Appointment of Foreign Subcustodians. The Company hereby
authorizes and instructs the Bank to employ as subcustodians for the Company'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 Subcustodian"). Upon
receipt of Proper Instructions, the Bank and the Company may agree to designate
additional foreign banking institutions and foreign securities depositories to
act as Selected Foreign Subcustodians hereunder.
Upon receipt of Proper Instructions, the Company, upon recommendation of the
Bank, may instruct the Bank to cease the employment of any one or more such
Selected Foreign Subcustodians for maintaining custody of the Company's assets,
and the Bank shall so cease to employ such subcustodian 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 Company, assets of the Company
shall be maintained in foreign securities depositories only through arrangements
implemented by the foreign banking institutions serving as Selected Foreign
Subcustodians 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 Company, the Company authorizes
the use of Foreign Securities Depositories as recommended by the Bank including:
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.
(c) Segregation of Securities. The Bank shall identify on its
books as belonging to each Series the Foreign Portfolio Securities held by each
Selected Foreign Subcustodian. 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 Series, 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 a
Series (each, a "Foreign Subcustodian Agreement") shall be substantially in the
form provided to the Series and shall provide that: (a) the Series' 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); (b) beneficial ownership of the Series' 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); (c) adequate records will be
maintained identifying the assets as belonging to the Bank; (d) 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 Company, 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 (e) assets of the
16
Series held by the Selected Foreign Subcustodian will be subject only to the
instructions of the Bank or its agents.
(e) Access of Independent Accountants of the Company. Upon
request of the Company, the Bank will use its best efforts to arrange for the
independent accountants of the Company to be afforded access to the books and
records of any foreign banking institution employed as a Selected Foreign
Subcustodian insofar as such books and records relate to the performance of such
foreign banking institution under its Foreign Subcustodian Agreement.
(f) Reports by Bank. The Bank will supply to the Company from
time to time, as mutually agreed upon, statements in respect of the securities
and other assets of each Series held by Selected Foreign Subcustodians,
including but not limited to an identification of entities having possession of
the Foreign Portfolio Securities and other assets of the Series.
(g) Transactions in Foreign Custody Account. Transactions with
respect to the assets of each Series held by a Selected Foreign Subcustodian
shall be effected pursuant to Proper Instructions from the Series to the Bank
and shall be effected in accordance with the applicable Foreign Subcustodian
Agreement. If at any time any Foreign Portfolio Securities shall be registered
in the name of the nominee of the Selected Foreign Subcustodian, each Series
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 a Series and delivery of Foreign Portfolio Securities maintained
for the account of the Series 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 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 Series
such information in connection therewith as is made available to the Bank by the
Foreign Subcustodian, and shall promptly forward to the applicable Foreign
Subcustodian 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 Series 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 Series 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 Series or by the
applicable Foreign Subcustodian 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) Liability of Selected Foreign Subcustodians. Each Foreign
Subcustodian Agreement with a foreign banking institution shall require the
institution to exercise reasonable care in the performance of its duties and to
indemnify, and hold harmless, the Bank and each Series from and against certain
losses, damages, costs, expenses, liabilities or claims arising out of or in
connection with the institution's performance of such obligations, all as set
forth in the applicable Foreign Subcustodian
17
Agreement. The Company acknowledges that the Bank, as a participant in
Euro-clear, is subject to the Terms and Conditions Governing the Euro-Clear
System, a copy of which has been made available to the Company. The Company
acknowledges that pursuant to such Terms and Conditions, Xxxxxx Guaranty
Brussels shall have the sole right to exercise or assert any and all rights or
claims in respect of actions or omissions of, or the bankruptcy or insolvency
of, any other depository, clearance system or custodian utilized by Euro-clear
in connection with each Series' Portfolio Securities and other assets.
(i) Monitoring Responsibilities. The Bank shall furnish
annually to the Company information concerning the Selected Foreign
Subcustodians employed hereunder for use by the Company in evaluating such
Selected Foreign Subcustodians to ensure compliance with the requirements of
Rule 17f-5 under the 1940 Act. In addition, the Bank will promptly inform the
Company in the event that the Bank is notified by a Selected Foreign
Subcustodian that there appears to be a substantial likelihood that its
shareholders' equity will decline below US$200 million (or the equivalent
thereof) or that its shareholders' equity has declined below US$200 million (in
each case computed in accordance with generally accepted U.S. accounting
principles) or any other capital adequacy test applicable to it by exemptive
order, or if the Bank has actual knowledge of any material loss of the assets of
a Series held by a Foreign Subcustodian.
(j) Tax Law. The Bank shall have no responsibility or
liability for any obligations now or hereafter imposed on a Series or the Bank
as custodian for the Series by the tax laws of any jurisdiction, and it shall be
the responsibility of the Series to notify the Bank of the obligations imposed
on the Series or the Bank as the custodian for the Series 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. The sole responsibility of the Selected Foreign Subcustodian with
regard to such tax law shall be to use reasonable efforts to assist the Series
with respect to any claim for exemption or refund under the tax law of
jurisdictions for which the Series has provided such information.
14.4 Insurance. The Bank shall use the same care with respect to the
safekeeping of Portfolio Securities and cash of the Series 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 Series.
14.5. Fees and Expenses of the Bank. The Series will pay or
reimburse the Bank from time to time for any transfer taxes payable upon
transfer of Portfolio Securities 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 Schedule
hereto, if any) including any indemnities for any loss, liabilities or expense
to the Bank as provided above. For the services rendered by the Bank hereunder,
the Company will pay to the Bank such compensation or fees at such rate and at
such times as shall be agreed upon in writing by the parties from time to time.
The Bank will also be entitled to reimbursement by the Company for all
reasonable expenses incurred in conjunction with termination of this Agreement.
14.6 Advances by the Bank. The Bank may, in its sole discretion,
advance funds on behalf of a Series to make any payment permitted by this
Agreement upon receipt of any proper authorization required by this Agreement
for such payments by a Series. Should such a payment or payments, with advanced
funds, result in an overdraft (due to insufficiencies of the Series' 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 Series payable on demand.
Such overdraft shall bear interest at the current rate charged by the Bank for
such loans unless the Series shall provide the Bank with agreed upon
compensating balances. The Series agree that the Bank shall have a continuing
lien and security interest to the extent of
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any overdraft or indebtedness, in and to any property at any time held by it for
the Series' benefit or in which the Series 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 Series 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 Series on the Bank's books.
15. Limitation of Liability.
15.1 Liability of the Custodian with Respect to Use of Securities
Systems and Foreign Depositories. With respect to the Portfolio Securities, cash
and other property of a Series held by a Securities system or by a Foreign
Depository utilized by the Custodian or any Subcustodian, the Custodian shall be
liable to the Series only for any loss or damage to the Series resulting from
use of the Securities System or Foreign Depository if caused by any negligence,
misfeasance or misconduct of the Custodian or any of its agents or of any of its
agents' employees or from any failure of the Custodian or any such agent to
undertake reasonable efforts to enforce effectively such rights as it may have
against the Securities System or Foreign Depository. At the election of the
Company, it shall be entitled to be subrogated to the rights of the Custodian
with respect to any claim against the Securities System, Foreign Depository or
any other person which the Custodian may have as a consequence of any such loss
or damage to the Series if and to the extent that the Series has not been made
whole for any such loss or damage.
15.2 Standard of Care; Liability; Indemnification. The Custodian
shall be held only to the exercise of reasonable care and diligence in carrying
out the provisions of this Agreement, provided that the Custodian shall not
thereby be required to take any action which is in contravention of any
applicable law, rule or regulation or any order or judgment of any court of
competent jurisdiction.
The Company agrees to indemnify and hold harmless the Custodian and its
nominees from all claims and liabilities (including counsel fees) incurred or
assessed against it or its nominees in connection with the Custodian's
performance of this Agreement, except such as may arise from the Custodian's or
its nominee's negligence or willful misconduct. Without limiting the foregoing
indemnification obligation of the Company, the Company agrees to indemnify the
Custodian and any nominee in whose name Portfolio Securities or other property
of the Series is registered against any liability the Custodian or such nominee
may incur by reason of taxes assessed to the Custodian or such nominee or other
costs, liability or expense incurred by the Custodian or such nominee resulting
directly or indirectly from the fact that Portfolio Securities or other property
of the Series is registered in the name of the Custodian or such nominee.
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 Board, 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 Company;
(c) Any act or omission of a Selected Foreign Subcustodian to
the extent which such Selected Foreign Subcustodian is not liable to the Bank;
19
(d) Any Corporate Action requiring a Response 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;
(e) Any act or omission of any European Branch of a U.S.
banking institution that is the issuer of Eurodollar CDs in connection with any
Eurodollar CDs held by such European Branch;
(f) Information relied on in good faith by the Bank and
supplied by any Authorized Person in connection with the calculation of (i) the
net asset value and public offering price of the shares of capital stock of the
Series or (ii) the Yield Calculation.
In no event shall the Custodian incur liability under this Agreement if
the Custodian or any Subcustodian, Securities System, Foreign Depository,
Banking Institution or any agent or entity utilized by any of them is prevented,
forbidden or delayed from performing, or omits to perform, any act or thing
which this Agreement provides shall be performed or omitted to be performed, by
reason of (i) any Sovereign Risk or (ii) any provision of any present or future
law or regulation or order of the United States of America or any state thereof,
or of any foreign country or political subdividion thereof, or of any securities
depository or clearing agency which operates a central system for handling of
securities or equivalent book-entries, or (iii) any provision of any order or
judgment of any court of competent jurisdiction. A "Sovereign Risk" shall mean
nationalization, expropriation, devaluation, revaluation, confiscation, seizure,
cancellation, destruction or similar action by any governmental authority, de
facto or de jure; or enactment, promulgation, imposition or enforcement by any
such governmental authority of currency restrictions, exchange controls, taxes,
levies or other charges affecting the Company's property; or acts of war,
terrorism, insurrection or revolution, strikes, riots, epidemics or any other
act or event beyond the Custodian's control.
Notwithstand 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 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 The term of this Agreement shall be three years commencing upon
the date of conversion of the Company's assets to the Bank (the "Initial Term"),
unless earlier terminated as provided herein. After the expiration of the
Initial Term, the term of this Agreement shall automatically renew for
successive one-year terms (each a "Renewal Term") unless notice of non-renewal
is delivered by the non-renewing party to the other party no later than sixty
days prior to the expiration of the Initial Term or any Renewal Term, as the
case may be.
(a) Either party hereto may terminate this Agreement prior to
the expiration of the Initial Term in the event the other party violates any
material provision of this Agreement, provided that the non-violating party
gives written notice of such violation to the violating party and the violating
party does not cure such violation within 90 days of receipt of such notice.
(b) Either party may terminate this Agreement during any
Renewal Term upon sixty days written notice to the other party. Any termination
pursuant to this paragraph 16.1(b) shall be effective upon expiration of such
sixty days, provided, however, that the effective date of such termination may
be postponed to a date not more than ninety days after delivery of the written
notice: (i)
20
at the request of the Bank, in order to prepare for the transfer by the Bank of
all of the assets of the Company held hereunder; or (ii) at the request of the
Company, in order to give the Company an opportunity to make suitable
arrangements for a successor 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
Company. The obligation of the Bank to deliver and transfer over the assets of
the Company 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 Company 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 each Series held by the Bank to a bank or trust company of the
Bank's own selection meeting the requirements of Section 17(f)(1) of the 1940
Act and has a reported capital, surplus and undivided profits aggregating not
less than $2,000,000, to be held as the property of the Company 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 Company with the same effect as though selected by the Board.
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 Company may furnish the Bank with an order of
the Company 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 Series the question of whether the Series will be
liquidated or will function without a custodian for the assets of the Series
held by the Bank. In that event the Bank will deliver the Portfolio Securities
and cash of each Series 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 Company's Secretary
and an opinion of counsel to the Company in form and content satisfactory to the
Bank. Thereafter, the Bank shall be released from any and all obligations under
this Agreement.
16.4 The Company shall reimburse the Bank for any reasonable
expenses incurred by the Bank in connection with the termination of this
Agreement, unless such termination is sought by the Company as a result of a
material violation of this Agreement committed by the Bank, in accordance with
paragraph 16.1(a) above.
16.5 At any time after the termination of this Agreement, the
Company 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 xxx (x)
00
Xxxxxx Xxxxxx 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 Company to:
Xxxxxx X. Xxxxxx, XX00
Aetna Life Insurance and Annuity Company
000 Xxxxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
(b) In the case of notices sent to the Bank to:
Investors Bank & Trust Company
000 Xxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Attention: [Client Manager]
With a copy to: Xxxx X. Xxxxx, General Counsel
or at such other place as such party may from time to time
designate in writing.
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 Company
without the written consent of the Bank or by the Bank without the written
consent of the Company, authorized and approved by its Board; 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,
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 Company hereunder shall be limited in all cases to the assets of
the Company and that the Bank shall not seek satisfaction of any such obligation
from the officers, agents, employees, trustees, or shareholders of the Company.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the day
and year first written above.
PORTFOLIO PARTNERS, INC.
By:_________________________________________
Name:
Title:
INVESTORS BANK & TRUST COMPANY
By:_________________________________________
Name:
Title:
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