EXHIBIT (g)(20)
FOREIGN CUSTODY MONITORING AGREEMENT
AGREEMENT made as of 2nd day of July 2001 between NORTHERN FUNDS, a
Delaware business trust (the "Trust"), and THE NORTHERN TRUST COMPANY, an
Illinois state bank ("Northern").
WHEREAS, the Trust is registered as an open-end management investment
company under the Investment Company Act of 1940, as amended (the "1940 Act")
and Northern is a U.S. Bank as defined in Rule 17f-5 under the 1940 Act;
WHEREAS, the Trust has retained Northern to furnish custodial services;
WHEREAS, the Board of Trustees of the Trust wishes to delegate to
Northern the responsibility of monitoring the Trust's foreign custody
arrangements and custody risks as provided in Rule 17f-5 and Rule 17f-7 under
the 1940 Act, and Northern is willing to undertake such responsibility;
WHEREAS, the Trust desires to place and maintain its Foreign Assets
with one or more Eligible Securities Depositories as provided and defined in
Rules 17f-5 and 17f-7 under the 1940 Act;
WHEREAS, the Board of Trustees of the Trust has determined that it is
reasonable to rely on Northern to perform the responsibilities delegated to it
under this Agreement; and
NOW, THEREFORE, in consideration of the mutual covenants herein
contained, and intending to be legally bound, the parties hereto agree as
follows:
1. The Trust hereby delegates to Northern the responsibility of
monitoring arrangements with Eligible Foreign Custodians (as defined in Rule
17f-5 under the 0000 Xxx) for the Trust's existing and future investment
portfolios in accordance with Rule 17f-5, and Northern accepts such delegation
and agrees to furnish the services set forth herein.
2. With respect to each Eligible Foreign Custodian that holds assets of
any investment portfolio of the Trust, Northern shall:
(a) determine that the Trust's assets will be subject to
reasonable care, based on the standards applicable to
custodians in the relevant market, if maintained with such
Eligible Foreign Custodian, after considering all factors
relevant to the safekeeping of such assets, including, without
limitation:
(i) the Eligible Foreign Custodian's practices,
procedures and internal controls, including but not
limited to, the physical protections available for
certificated securities (if applicable), the method
of keeping custodial records and the security and
data protection practices;
(ii) whether the Eligible Foreign Custodian has the
requisite financial strength to provide reasonable
care for the Trust's assets;
(iii) the Eligible Foreign Custodian's general
reputation and standing; and
(iv) whether the Trust will have jurisdiction over
and be able to enforce judgments against the Eligible
Foreign Custodian, such as by virtue of the existence
of any offices of the Eligible Foreign Custodian in
the United States or the Eligible Foreign Custodian's
consent to service of process in the United States.
(b) determine that the written contract with such Eligible
Foreign Custodian governing the foreign custody arrangements
will provide reasonable care for the Trust's assets based on
the standards specified in paragraph 2(a) above, and that such
contract includes provisions that at least provide the
following; provided, however, that such contract may contain,
in lieu of any or all of the provisions specified in (b)(i)
through (b)(v), such other provisions that Northern determines
will provide, in their entirety, the same or a greater level
of care and protection for the Trust's assets as those
provided in (b)(i) through (b)(v) in their entirety:
(i) for indemnification or insurance arrangements (or
any combination of the foregoing) such that the Trust
will be adequately protected against the risk of loss
of assets held in accordance with such contract;
(ii) that the Trust's assets will not be subject to
any right, charge, security interest, lien or claim
of any kind in favor of the foreign sub-custodian or
its creditors except a claim of payment for their
safe custody or administration or, in the case of
cash deposits, liens or rights in favor of creditors
of the Eligible Foreign Custodian arising under
bankruptcy, insolvency, or similar laws;
(iii) that beneficial ownership for the Trust's
assets will be freely transferable without the
payment of money or value other than for safe custody
or administration;
(iv) that adequate records will be maintained
identifying the assets as belonging to the Trust or
as being held by a third party for the benefit of the
Trust and that the Trust's independent public
accountants will be given access to those records or
confirmation of the contents of those records; and
(v) that the Trust will receive periodic reports with
respect to the safekeeping of the Trust's assets,
including, but not limited to, notification of any
transfer to
2
or from the Trust's account or a third party account
containing assets held for the benefit of the Trust.
(c) establish a system to monitor the appropriateness of
maintaining the Trust's assets with such Eligible Foreign
Custodian and performance of the contract governing the
Trust's foreign custody arrangements;
(d) provide to the Trust's Board of Trustees, at least
annually, written reports notifying the Board of the placement
of the Trust's assets with a particular Eligible Foreign
Custodian and quarterly reports on any material changes to the
Trust's foreign custody arrangements; and
(e) withdraw the Trust's assets from any Eligible Foreign
Custodian as soon as reasonably practicable, if the foreign
custody arrangement no longer meets the requirement of Rule
17f-5.
3. In providing the services set forth in Paragraphs 1 and 2 above,
Northern agrees to exercise reasonable care, prudence and diligence such as a
person having responsibility for the safekeeping of the Trust's assets would
exercise.
4. Northern shall provide to the Trust or its investment adviser an
analysis of the custody risks associated with maintaining assets with each
Eligible Securities Depository.
5. Northern shall monitor the custody risk associated with maintaining
assets with each Eligible Securities Depository on a continuing basis and
promptly notify the Trust or its investment adviser of any material change in
these risks.
6. In providing the services set forth in Paragraphs 4 and 5 above,
Northern shall exercise reasonable care, prudence and diligence.
7. If Northern believes that a custody arrangement with an Eligible
Securities Depository no longer meets the requirements of Rule 17f-7, (a)
Northern shall cause the assets maintained with such depository to be withdrawn
as soon as reasonably practical or (b) Northern shall immediately inform the
investment adviser responsible for managing such assets.
3
IN WITNESS WHEREOF, the parties hereto have caused this
instrument to be executed by their officers designated below as of the day and
year first above written
NORTHERN FUNDS
By /s/Xxxx Xxxxxxxxxx
----------------------------------
(Authorized Officer)
THE NORTHERN TRUST COMPANY
By /s/ Xxxxxxx X Xxxxxx
----------------------------------
(Authorized Officer)
4
